Document:

Unassociated Document

    
      Exhibit
        10.77

       

       

       

      OPERATING
        AGREEMENT

       

      OF

       

      SHP-ARC
        II, LLC

       

      A
        DELAWARE LIMITED LIABILITY COMPANY

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

         

        TABLE
          OF CONTENTS

         

         

      

      
        
          	
                  ARTICLE
                    1.

                	
                  DEFINITIONS

                	
                  2

                
	
                  1.1

                	
                  Definitions

                	
                  2

                
	
                  1.2

                	
                  Exhibits

                	
                  8

                
	 	 	 
	
                  ARTICLE
                    2.

                	
                  THE
                    COMPANY

                	
                  8

                
	
                  2.1

                	
                  Formation
                    of Limited Liability Company

                	
                  8

                
	
                  2.2

                	
                  Name
                    of Company

                	
                  8

                
	
                  2.3

                	
                  Purpose
                    of Company

                	
                  8

                
	
                  2.4

                	
                  Principal
                    and Registered Office

                	
                  8

                
	
                  2.5

                	
                  Governing
                    Law; Member Relations; Ownership of Property; Taxation as a
                    Partnership

                	
                  9

                
	
                  2.6

                	
                  Further
                    Assurances

                	
                  9

                
	
                  2.7

                	
                  No
                    Individual Authority

                	
                  9

                
	
                  2.8

                	
                  No
                    Restrictions

                	
                  9

                
	
                  2.9

                	
                  Neither
                    Responsible for Other’s Commitments

                	
                  10

                
	
                  2.10

                	
                  Affiliates

                	
                  10

                
	
                  2.11

                	
                  (Intentionally
                    Omitted.)

                	
                  10

                
	
                  2.12

                	
                  Representations
                    by Members

                	
                  10

                
	 	 	 
	
                  ARTICLE
                    3.

                	
                  TERM

                	
                  10

                
	
                  3.1

                	
                  Term

                	
                  10

                
	 	 	 
	
                  ARTICLE
                    4.

                	
                  CAPITAL
                    CONTRIBUTIONS OF THE MEMBERS

                	
                  11

                
	
                  4.1

                	
                  Capital
                    Contributions of the Members

                	
                  11

                
	
                  4.2

                	
                  No
                    Other Contributions

                	
                  11

                
	
                  4.3

                	
                  No
                    Interest Payable

                	
                  11

                
	
                  4.4

                	
                  No
                    Withdrawals

                	
                  11

                
	
                  4.5

                	
                  Additional
                    Contributions.

                	
                  11

                
	
                  4.6

                	
                  Non-Failing
                    Member Options

                	
                  12

                
	
                  4.7

                	
                  Change
                    in Percentage Interest

                	
                  13

                
	
                  4.8

                	
                  Effect
                    of Change of Percentage Interest

                	
                  14

                
	 	 	 
	
                  ARTICLE
                    5.

                	
                  LOANS
                    BY MEMBERS

                	
                  14

                
	
                  5.1

                	
                  Loans

                	
                  14

                
	
                  5.2

                	
                  Payment
                    of Special Loan and Loans

                	
                  15

                
	 	 	 
	
                  ARTICLE
                    6.

                	
                  MANAGEMENT
                    OF THE COMPANY

                	
                  15

                
	
                  6.1

                	
                  Managing
                    Committee

                	
                  15

                
	
                  6.2

                	
                  Bank
                    Accounts

                	
                  17

                
	
                  6.3

                	
                  Reimbursement
                    for Costs and Expenses

                	
                  17

                
	
                  6.4

                	
                  Fidelity
                    Bonds and Insurance

                	
                  17

                
	
                  6.5

                	
                  Management
                    Agreement

                	
                  17

                
	
                  6.6

                	
                  Annual
                    Budgets

                	
                  17

                
	
                  6.7

                	
                  SHP’s
                    Rights.

                	
                  18

                
	
                  6.8

                	
                  Indemnification

                	
                  20

                
	
                  6.9

                	
                  Operation
                    as a REOC

                	
                  21

                
	
                  6.10

                	
                  Third
                    Party Loans

                	
                  21

                
	
                  6.11

                	
                  Rights
                    of SHP’s Member

                	
                  21

                

        

         

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    7.

                	
                  BOOKS
                    AND RECORDS, AUDITS, TAXES, ETC.

                	
                  21

                
	
                  7.1

                	
                  Books;
                    Statements

                	
                  21

                
	
                  7.2

                	
                  Where
                    Maintained

                	
                  22

                
	
                  7.3

                	
                  Audits

                	
                  22

                
	
                  7.4

                	
                  Objections
                    to Statements

                	
                  23

                
	
                  7.5

                	
                  Tax
                    Returns

                	
                  23

                
	
                  7.6

                	
                  Tax
                    Matters Partner

                	
                  24

                
	
                  7.7

                	
                  Tax
                    Policy

                	
                  24

                
	
                  7.8

                	
                  Section
                    754 Election

                	
                  24

                
	
                  7.9

                	
                  Capital
                    Accounts.

                	
                  24

                
	
                  7.10

                	
                  Ownership
                    Representation

                	
                  25

                
	 	 	 
	
                  ARTICLE
                    8.

                	
                  FISCAL
                    YEAR

                	
                  25

                
	
                  8.1

                	
                  Calendar
                    Year

                	
                  25

                
	 	 	
                   

                
	
                  ARTICLE
                    9.

                	
                  DISTRIBUTIONS
                    AND ALLOCATIONS

                	
                  26

                
	
                  9.1

                	
                  Percentage
                    Interests in Company

                	
                  26

                
	
                  9.2

                	
                  Certain
                    Definitions

                	
                  26

                
	
                  9.3

                	
                  Cash
                    Flow Distributions.

                	
                  28

                
	
                  9.4

                	
                  Allocation
                    of Profits and Losses For Capital Account Purposes.

                	
                  29

                
	
                  9.5

                	
                  Distributed
                    Property

                	
                  31

                
	
                  9.6

                	
                  Special
                    Allocations

                	
                  31

                
	
                  9.7

                	
                  Allocations
                    of Profits and Losses for Tax Purposes

                	
                  33

                
	
                  9.8

                	
                  Recapture
                    and Investment Credits.

                	
                  33

                
	
                   

                	 	
                   

                
	
                  ARTICLE
                    10.

                	
                  ASSIGNMENT
                    AND OFFER TO PURCHASE

                	
                  33

                
	
                  10.1

                	
                  Transfers.

                	
                  33

                
	
                  10.2

                	
                  Other
                    Assignments Void.

                	
                  34

                
	
                  10.3

                	
                  Sale
                    of Entire Interest to Other Member; Buy-Sell.

                	
                  34

                
	
                  10.4

                	
                  Right
                    of First Refusal for Sale of Entire Interest to Third
                    Party.

                	
                  36

                
	
                  10.5

                	
                  Right
                    of First Offer for Sale of Portfolio, Property or
                    Properties.

                	
                  37

                
	
                  10.6

                	
                  Assumption
                    by Assignee; Compliance with Legal Requirements Following Assignment;
                    Option to Reduce Interest Being Sold.

                	
                  40

                
	
                  10.7

                	
                  General
                    Transfer Provisions

                	
                  41

                
	
                  10.8

                	
                  Avoidance
                    of Plan Violation

                	
                  46

                
	 	 	
                   

                
	
                  ARTICLE
                    11.

                	
                  DISSOLUTION
                    OR BANKRUPTCY OF A MEMBER

                	
                  47

                
	
                  11.1

                	
                  Dissolution
                    or Merger

                	
                  47

                
	
                  11.2

                	
                  Bankruptcy,
                    etc

                	
                  47

                
	 	 	 
	
                  ARTICLE
                    12.

                	
                  DEFAULT

                	
                  48

                
	
                  12.1

                	
                  Defaults

                	
                  48

                
	
                  12.2

                	
                  Negation
                    of Right to Dissolve by Will of Member

                	
                  49

                
	
                  12.3

                	
                  Non
                    Exclusive Remedy

                	
                  49

                

        

         

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

         

        
          	
                  ARTICLE
                    13.

                	
                  DISSOLUTION

                	
                  49

                
	
                  13.1

                	
                  Winding
                    Up by Members

                	
                  49

                
	
                  13.2

                	
                  Winding
                    Up by Liquidating Member

                	
                  49

                
	
                  13.3

                	
                  Offset
                    for Damages

                	
                  50

                
	
                  13.4

                	
                  Distributions
                    of Operating Cash Flow

                	
                  50

                
	
                  13.5

                	
                  Distributions
                    of Proceeds of Liquidation

                	
                  50

                
	
                  13.6

                	
                  Orderly
                    Liquidation

                	
                  51

                
	
                  13.7

                	
                  Financial
                    Statements

                	
                  51

                
	
                  13.8

                	
                  Restoration
                    of Deficit Capital Accounts

                	
                  51

                
	
                  13.9

                	
                  Intention
                    of the Members

                	
                  51

                
	 	 	 
	
                  ARTICLE
                    14.

                	
                  MEMBERS

                	
                  52

                
	
                  14.1

                	
                  Liability

                	
                  52

                
	
                   

                	 	 
	
                  ARTICLE
                    15.

                	
                  NOTICES

                	
                  52

                
	
                  15.1

                	
                  In
                    Writing; Address

                	
                  52

                
	
                  15.2

                	
                  Copies

                	
                  53

                
	 	 	 
	
                  ARTICLE
                    16.

                	
                  MISCELLANEOUS

                	
                  53

                
	
                  16.1

                	
                  Additional
                    Documents and Acts

                	
                  53

                
	
                  16.2

                	
                  Estoppel
                    Certificates

                	
                  54

                
	
                  16.3

                	
                  Interpretation

                	
                  54

                
	
                  16.4

                	
                  Entire
                    Agreement

                	
                  54

                
	
                  16.5

                	
                  References
                    to this Agreement

                	
                  54

                
	
                  16.6

                	
                  Headings

                	
                  54

                
	
                  16.7

                	
                  Binding
                    Effect

                	
                  54

                
	
                  16.8

                	
                  Counterparts

                	
                  54

                
	
                  16.9

                	
                  Confidentiality

                	
                  54

                
	
                  16.10

                	
                  Amendments

                	
                  55

                
	
                  16.11

                	
                  Exhibits

                	
                  55

                
	
                  16.12

                	
                  Severability

                	
                  55

                
	
                  16.13

                	
                  Forum

                	
                  55

                
	
                  16.14

                	
                  Assignment
                    to Company

                	
                  55

                
	
                  16.15

                	
                  Broker’s
                    Indemnity

                	
                  56

                
	
                  16.16

                	
                  Attorneys’
                    Fees

                	
                  56

                
	
                  16.17

                	
                  Prudential
                    Affiliation

                	
                  56

                

        

      

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      EXHIBITS

       

      
        
          	
                  EXHIBIT

                	 	TITLE 
	 	 	 
	
                  A.

                	 	Legal
                  Description 
	 	 	 
	
                    
                    B.

                	 	Subsidiary
	 	 	 
	
                  C.

                	 	Members'
                  Percentage Interests and Initial Capital Contributions
	 	 	 
	
                    D.

                	 	Initial
                  Management Agreement 

        

         

         

        
           

           

          SCHEDULES

           

          
            	4.7 	Percentage
                    Interests Adjustment Example 

          

           

           

           

           

           

           

           

           

           

           

          
            
              
              

            

            
              4

              
                

              

            

            
              
              

            

          

        

      

       

       

      OPERATING
        AGREEMENT

      OF

      SHP-ARC
        II, LLC

       

      THIS
        OPERATING AGREEMENT OF SHP-ARC II, LLC (this “Agreement”) is entered into and
        shall be effective as of _____________________, 2005, by and between PIM
        SENIOR
        PORTFOLIO, LLC, a Delaware limited liability company (hereinafter referred
        to as
“SHP”), and ARC EPIC HOLDING COMPANY, INC., a Tennessee corporation (hereinafter
        referred to as “ARC”), pursuant to the provisions of the Delaware Limited
        Liability Company Act (the “Act”). SHP and ARC are sometimes referred to herein
        collectively as the Members and individually as a Member.

       

      R
        E C I T A L S

       

      WHEREAS,
        American Retirement Corporation, a Tennessee corporation, did enter into
        that
        certain Purchase and Sale Agreement, dated as of September 8, 2005 (the
“Purchase Agreement”), by and between Epoch SL VI, Inc., as Seller and American
        Retirement Corporation, as Buyer; and

       

      WHEREAS,
        pursuant to the terms of the Purchase Agreement, American Retirement Corporation
        has the right to acquire eight (8) separate parcels of real estate, which
        are
        more particularly described on Exhibit
        A
        attached
        hereto and made a part hereof (each, a “Property” and, collectively, the
“Properties”), together with the eight (8) assisted living senior housing
        retirement communities located on the Properties, commonly known as Epoch
        Assisted Living of Denver, Epoch Assisted Living of Las Vegas, Epoch Assisted
        Living of Minnetonka, Epoch Assisted Living of Overland Park, Epoch Assisted
        Living of Roswell, Epoch Assisted Living of Sun City West, Epoch Assisted
        Living
        of Tanglewood and Epoch Assisted Living of Ventana County (each, a “Project” and
        collectively, the “Projects” or the “Portfolio”); and

       

      WHEREAS,
        American Retirement Corporation has obtained the consent of Epoch SL VI,
        Inc. to
        assign its rights under the Purchase Agreement to the Company; and

       

      WHEREAS,
        the Company owns directly or indirectly one hundred percent (100%) of the
        interests in the limited liability companies and the limited partnership
        set
        forth on Exhibit
        B
        (each, a
“Subsidiary” and, collectively, the “Subsidiaries”), which own and operate the
        Projects opposite their names on Exhibit
        B;
        and

       

      WHEREAS,
        the Company has assigned all of its rights, title and interests in the Projects
        to the Subsidiaries which have each acquired fee simple title, respectively,
        to
        the Projects opposite their names on Exhibit
        B;
        and

       

      WHEREAS,
        the parties desire to enter into this Agreement to form the Company, to provide
        for the Company to take an assignment of the Purchase Agreement from American
        Retirement Corporation and to set forth all the terms and conditions by which
        the Company will own, reposition, improve, operate, sell, finance and otherwise
        invest in and deal with the Subsidiaries, the Properties and the Projects,
        including all of the real estate aspects of the Projects.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      NOW,
        THEREFORE, in order to carry out their intent as expressed above and in
        consideration of the mutual agreements and covenants hereinafter contained,
        the
        Members hereby covenant and agree as follows:

       

      ARTICLE
        1.

      DEFINITIONS

       

      1.1  Definitions.
        The
        following terms shall have the following meanings when used herein:

       

      Acceptable
        Person.
        Any
        person that is not (i) a tax exempt organization as defined in Section
        501(c)
        of the
        Code, (ii) a nonresident alien, foreign corporation, foreign partnership,
        foreign trust or foreign estate as those terms are defined in the Code and
        the
        Treasury Regulations, (iii) a person whose direct or indirect participation
        in
        the Company would result in a Plan Violation, (iv) in default or in breach,
        beyond any applicable grace period, of its obligations under any material
        written agreement with SHP or which, directly or indirectly controls, is
        controlled by, or is under common control with a person that is in default
        or in
        breach, beyond any applicable grace period, of its obligations under any
        material written agreement with SHP, unless such default or breach has been
        cured by such person or waived in writing by SHP, or (v) a person that has
        been
        charged in any litigation with any violations of any statute pursuant to
        which
        there might be a civil or criminal forfeiture or has been convicted in a
        criminal proceeding for a felony or any crime involving moral turpitude or
        that
        is an organized crime figure or is reputed (based upon reputable media reports)
        to have substantial business or other affiliations with an organized crime
        figure, or which directly or indirectly controls, is controlled by, or is
        under
        common control with a person that has been charged in any litigation with
        any
        violations of any statute pursuant to which there might be a civil or criminal
        forfeiture or has been convicted in a criminal proceeding for a felony or
        any
        crime involving moral turpitude or which is an organized crime figure or
        is
        reputed (based upon reputable media reports) to have substantial business
        or
        other affiliations with an organized crime figure.

       

      Act.
        The
        Delaware Limited Liability Company Act. 

       

      Adjusted
        Augmented Capital Account.
        As
        described in Section
        9.4(c)(2).

       

      Adjusted
        Capital Account.
        As
        described in Section
        9.6(e).

       

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      Affiliate.
        With
        respect to any Member (corporate, individual, partnership, limited liability
        entity or otherwise, or the respective heirs, trustees, guardians, conservators,
        custodians, executors or administrators of any of them) or any person who
        is an
        immediate family member of any Member: any corporate owner or other owner
        (direct or indirect) of such Member; any pension plan of such Member; any
        corporation owned, directly or indirectly, by such Member or by a general
        partner in such Member; any partnership or other association the general
        partners in which are general partners in such Member; or any partnership
        of
        which such Member or the general partners in such Member either own, in the
        aggregate, greater than 50%, directly or indirectly, of the general partnership
        interest or are the managing general partner of such partnership. A person
        owns
        a corporation, for the purposes of this definition, when the person owns
        or
        beneficially owns more than 50% of the outstanding voting shares of the
        corporation with the full right to vote such stock.

       

      Affiliate
        Agreement(s).
        As
        described in Section
        12.1.
        

       

      Agreement.
        As
        described in the opening paragraph.

       

      Alternative
        Offer.
        As
        described in Section
        10.5(c).

       

      Annual
        Capital Budget.
        As
        described in Section
        6.6(b).

       

      Annual
        Operating Budget.
        As
        described in Section
        6.6(a).

       

      Approved
        Financial Statement.
        As
        described in Section
        7.4.

       

      ARC’s
        Initial Contribution.
        As
        described in Section
        4.1.
        

       

      ARC’s
        Lender List.
        As
        described in Section
        6.7(b).

       

      Augmented
        Capital Account.
        As
        described in Section
        9.4(a).

       

      Augmented
        Members’ Capital.
        As
        described in Section
        9.4(c)(1).

       

      Book
        Basis.
        With
        respect to any asset of the Company, the adjusted basis for federal income
        tax
        purposes of such asset, except that in the case of any asset contributed
        to or
        owned by the Company on the date of a revaluation of the Capital Accounts
        of the
        Members in accordance with Treasury Regulations Section
        1.704-l(b)(2)(iv),
“Book
        Basis” shall mean the fair market value of such asset on the date of the
        contribution or revaluation as subsequently adjusted (e.g., for depreciation
        or
        amortization in accordance with federal income tax principles).

       

      Capital
        Account.
        As
        described in Section
        7.9.

       

      Capital
        Contributions.
        Each
        Member’s initial contribution as set forth in Section
        4.1
        and each
        additional contribution made pursuant to Article
        4
        or as
        elsewhere specified in this Agreement.

       

      Cash
        Purchase Price.
        As
        defined in Section
        10.3(a).

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      Cash
        Selling Price.
        As
        defined in Section
        10.3(a).

       

      Closing
        Date.
        As
        described in the Purchase Agreement, the date on which each of the Subsidiaries
        takes title to a Project. 

       

      Code.
        The
        Internal Revenue Code of 1986, as amended from time to time, and any successor
        thereto.

       

      Committee.
        As
        described in Section
        6.1.

       

      Company.
        SHP-ARC
        II, LLC.

       

      Company
        Minimum Gain.
        As
        described in Section
        9.2(d).

       

      Default
        Price.
        As
        described in Section
        13.2(c).

       

      Defaulting
        Member.
        As
        described in Section
        12.1.

       

      Demand
        Notice.
        As
        described in Section
        13.2(b).

       

      Deposit.
        As
        described in Section
        10.5(a).

       

      Effective
        Date.
        The date
        this Agreement shall be signed by all of the Members. 

       

      Entire
        Interest.
        As
        described in Section
        10.3(a).

       

      ERISA.
        The
        Employee Retirement Income Security Act of 1974, as amended.

       

      Excess
        Amount.
        As
        described in Section
        7.4.

       

      Excess
        Member.
        As
        described in Section
        7.4.

       

      Extraordinary
        Cash Flow.
        As
        described in Section
        9.2(b).

       

      Failing
        Member.
        As
        described in Section
        4.6.

       

      Finance
        Proposal Notice.
        As
        described in Section
        6.7(b).

       

      Financing
        Commitment Notice.
        As
        described in Section
        6.7(b).

       

      Governmental
        Plan.
        As
        defined in Section
        3(32)
        of
        ERISA.

       

      Improvements.
        Means
        all improvements, of whatsoever kind, located on the Project.

       

      Indemnitee.
        As
        defined in Section
        10.1(c).

       

      Initial
        Financing.
        As
        described in Section
        6.7(b).

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      Initial
        Property Manager.
        Means
        ARC Management, LLC, a Tennessee limited liability company.

       

      Initial
        Management Agreement.
        As
        described in Section
        6.5.

       

      Initiating
        Member.
        As
        described in Section
        10.3(a).

       

      Initiating
        Member Deposit.
        As
        described in Section
        10.3(a).

       

      IRR.
        Means a
        referenced interest rate that, when used as a discount rate, causes (i) the
        net
        present value (as of the date of this Agreement) of the aggregate distributions
        made to SHP or ARC, as the case may be, by the Company pursuant to Sections
        9.3(a), 9.3(b), and 13.5,
        from the
        date of this Agreement through the computation date in question, to equal
        (ii)
        the net present value of SHP’s Initial Contribution (as of the date of this
        Agreement), or ARC’s Initial Contribution (as of the date of this Agreement), as
        the case may be, plus any Additional Capital Contributions made by SHP or
        ARC,
        as the case may be, after the date of this Agreement (as of the date so made)
        through the applicable computation date. For purposes of this definition,
        net
        present value shall be determined using monthly compounding periods and any
        Capital Contributions by and distributions to the applicable party during
        a
        month shall be deemed to occur on the first day of such month.

       

      Initial
        Subsidiary Property Manager.
        Means
        ARC Management, LLC, a Tennessee limited liability company.

       

      Initial
        Subsidiary Management Agreement.
        As
        described in Section
        6.5.

       

      Liquidating
        Member.
        The
        Member in sole charge of winding up the Company and having the powers described
        in Section
        13.2.

       

      Loan.
        Any loan
        made by any Member to the Company.

       

      Loss.
        As
        described in Section
        9.2(c).

       

      Major
        Capital Event.
        One or
        more of the following: (i) sale of all or any part of or interest in Company
        or
        any Subsidiary property (including the Properties), exclusive of sales or
        other
        dispositions of tangible personal property in the ordinary course of business;
        (ii) placement and funding of any indebtedness, other than Loans, of the
        Company
        or any Subsidiary secured by some or all of their assets with respect to
        borrowed money, excluding short term borrowing in the ordinary course of
        business and any purchase money financing to acquire tangible personal property
        incurred in the ordinary course of business; (iii) condemnation of all or
        any
        material part of or interest in a Subsidiary’s Property through the exercise of
        the power of eminent domain; or (iv) any casualty, failure of title or otherwise
        of the Company’s or any Subsidiary’s property or any part thereof or interest
        therein that results in excess proceeds after restoration or
        repair.

       

      Member(s).
        SHP and
        ARC, collectively, and either of them when the reference is singular, and
        their
        respective permitted successors in interest.

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      Member
        Nonrecourse Debt.
        As set
        forth in Section
        1.704 2(b)(4)
        of the
        Regulations.

       

      Member
        Nonrecourse Debt Minimum Gain.
        An
        amount, with respect to each Member Nonrecourse Debt, equal to the Company
        Minimum Gain that would result if such Member Nonrecourse Debt were treated
        as a
        Nonrecourse Liability, determined in accordance with Section
        1.704 2(i)(3)
        of the
        Regulations.

       

      Member
        Nonrecourse Deductions.
        As set
        forth in Sections
        1.704 2(i)(1)
        and
1.704
        2(i)(2)
        of the
        Regulations. 

       

      Nondefaulting
        Member.
        As
        described in Section
        12.1.

       

      Non
        Failing Member.
        As
        described in Section
        4.6.

       

      Nonrecourse
        Deductions.
        As
        described in Section
        9.2(e).

       

      Nonrecourse
        Liability.
        As set
        forth in Section
        1.704 2(b)(3)
        of the
        Regulations.

       

      Notice
        of Default.
        As
        described in Section
        12.1.

       

      Notice
        of Intention.
        As
        described in Section
        4.6.

       

      Notice
        to Finance.
        As
        described in Section
        4.5(a).

       

      Offeror.
        As
        described in Section
        10.4(a).

       

      Operating
        Cash Flow.
        As
        described in Section
        9.2(a).

       

      Operating
        Pro Forma.
        As
        described in Section
        6.6(a).

       

      Other
        Member.
        As
        described in Section
        10.3(a).

       

      Percentage
        Interest.
        As
        described in Section
        9.1.

       

      Plan
        Violation.
        A
        transaction, condition or event that would:

       

      (i)      
        constitute
        a violation of ERISA; or

       

      (ii)     
        constitute
        a violation of any applicable state statutes regulating investments of and
        fiduciary obligations with respect to any Governmental Plan.

       

      Portfolio.
        As
        described in the Recitals.

       

      Prime
        Rate.
        As
        described in Section
        5.1.

       

      Priority
        Capital Contribution.
        As
        described in Section
        4.6.
        

       

      Profit.
        As
        described in Section
        9.2(c).

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      Projects.
        As
        described in the Recitals.

       

      Properties.
        As
        described in the Recitals.

       

      Purchase
        Agreement.
        As
        described in the Recitals.

       

      Qualified
        Income Offset Amount.
        As
        described in Section
        9.6(e).

       

      Receiving
        Member.
        As
        described in Section
        10.4(a).

       

      Receiving
        Member’s Deposit.
        As
        described in Section
        10.4(b).

       

      Regulations
        or Treasury Regulations.
        The
        Income Tax Regulations, including Temporary Regulations, promulgated under
        the
        Code, as such regulations may be amended from time to time (including
        corresponding provisions of succeeding regulations).

       

      Remaining
        Percentage Interest.
        As
        described in Section
        10.7(j).

       

      Sale.
        Means
        any transaction resulting in the sale or disposition of any
        Property.

       

      Sale
        Proposal.
        As
        described in Section
        10.5(a).

       

      Selling
        Member.
        As
        described in Section
        10.4(a).

       

      SHP’s
        Lender List.
        As
        described in Section
        6.7(b).

       

      SHP’s
        Initial Contribution.
        As
        described in Section
        4.1.

       

      Special
        Loan.
        As
        described in Section
        4.6.

       

      Specified
        Value.
        As
        described in Section
        10.3(a).

       

      Subsequent
        Financing.
        The
        obtaining of new financing or a refinancing of the Initial Financing, whether
        secured or unsecured, by the Company on any Property. 

       

      Subsidiaries.
        As
        described in the Recitals.

       

      Subsidiary
        Management Agreements.
        As
        described in Section
        6.5.

       

      Subsidiary
        Property Manager.
        Means,
        from time to time, any person or entity named as the property manager under
        the
        then-current Subsidiary Management Agreements. 

       

      Termination
        Notice.
        As
        described in Section
        10.3(a).

       

      Third
        Party Loans.
        Any
        loans to the Company or to any Subsidiary, other than those made by a Member
        or
        an Affiliate of a Member.

       

      TMP.
        As
        described in Section
        7.6.

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      Transfer.
        As
        described in Section
        10.1(a).

       

      Unreturned
        Capital Contributions.
        With
        respect to each Member, the aggregated amount of all Capital Contributions
        made
        to the Company by such Member, reduced by all distributions previously made
        to
        such Member pursuant to Section
        9.3(b)(1),
        Section
        9.3(b)(2),
        or
Section
        13.5(d).

       

      The
        definitions in this Section
        1.1
        shall
        apply equally to both the singular and plural forms of the terms defined.
        Whenever the context may require, any pronoun shall include the corresponding
        masculine, feminine and neuter forms. The term “person” includes individuals,
        partnerships, corporations, trusts, and other associations. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
        limitation”.

       

      1.2  Exhibits.
        The
        exhibits to this Agreement are incorporated herein by reference as if fully
        set
        forth herein.

       

      ARTICLE
        2.

      THE
        COMPANY

       

      2.1  Formation
        of Limited Liability Company.
        The
        Members hereby form a limited liability company (the “Company”) pursuant to the
        provisions of the Act. The terms and provisions hereof will be construed
        and
        interpreted in accordance with the Act. 

       

      2.2  Name
        of
        Company.
        The
        Company will be conducted under the name “SHP-ARC II, LLC”. The Committee shall
        have the power to change the name of the Company at any time.

       

      2.3  Purpose
        of Company.
        The
        purpose of the Company is to carry on the business of purchasing, owning,
        repositioning, operating, managing, improving, repairing, renting, mortgaging,
        refinancing, selling, conveying and otherwise dealing with the Properties
        through the Subsidiaries and all the activities of the Projects reasonably
        related thereto including, without limitation, making all decisions with
        respect
        to the real estate operations of the Properties. Except as permitted by this
        Section
        2.3,
        the
        Company shall not engage in any other business. In furtherance of the foregoing
        purposes, but expressly subject to the other provisions of this Agreement,
        the
        Company is empowered to enter into contracts containing agreements to arbitrate
        disputes to the extent such contracts are approved by the Committee. The
        Company
        is authorized to take any legal measures which will assist it in accomplishing
        its purpose or benefit the Company.

       

      2.4  Principal
        and Registered Office.
        The
        principal office of the Company shall initially be at the offices of ARC
        at 111
        Westwood Place, Suite 200, Brentwood, Tennessee 37027, or such other place
        as
        the Members may from time to time determine. The registered agent and the
        registered address, respectively, of the Company shall be Corporation Service
        Company, 2711 Centerville Road, Suite 400, New Castle County, Wilmington,
        Delaware 19808. The Members may elect to change the Company’s registered agent
        and the Company’s registered and principal offices by complying with the
        relevant requirements of the Act. 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      2.5  Governing
        Law; Member Relations; Ownership of Property; Taxation as a
        Partnership.
        Except
        as is expressly herein provided to the contrary, the business, affairs,
        administration and termination of the Company shall be governed by the Act,
        but,
        to the extent permitted thereby, shall not be governed by any amendments
        to such
        law that become effective subsequent to the date of this Agreement and that
        would only be applicable to the Company absent a provision in this Agreement
        to
        the contrary, unless such amendments are adopted as amendments to this Agreement
        pursuant to Section
        16.10.
        The
        foregoing notwithstanding, the Members’ duties and obligations to one another
        under circumstances not provided for in the Act or this Agreement shall be
        the
        same as partners in a partnership governed by the relevant provisions of
        the
        Delaware Uniform Partnership Act and the case law interpreting such act.
        In no
        event shall the previous sentence be construed or applied in such a manner
        to
        cause the Company to be treated as a partnership for any purpose other than
        the
        determination of the Members’ respective duties and obligations to one another.
        The interest of each Member in the Company shall be personal property for
        all
        purposes. All real and other property owned by the Company shall be deemed
        owned
        by the Company as a company and no Member, individually, shall have any
        ownership interest in any real or other property owned by the Company. The
        Members shall use the Company’s assets solely for the benefit of the Company. No
        assets of the Company shall be transferred or encumbered for or in payment
        of
        any individual obligation of a Member. Notwithstanding anything in this
Section
        2.5
        to the
        contrary, the Members intend that the Company shall at all times be operated
        in
        such a manner that it will be taxed as a partnership for federal and state
        income tax purposes.

       

      2.6  Further
        Assurances.
        The
        Members will execute whatever certificates and documents, and will file,
        record
        and publish such certificates and documents, which are required to form and
        operate a limited liability company under the laws of the State of Delaware.
        The
        Members will also execute and file, record and publish, such certificates
        and
        documents as they, upon advice of counsel, may deem necessary or appropriate
        to
        comply with other applicable laws governing the formation and operation of
        a
        limited liability company, including, without limitation, any certificates
        and
        documents required to qualify the Company to do business in the States where
        the
        Properties are located.

       

      2.7  No
        Individual Authority.
        Except
        as otherwise expressly provided in this Agreement, neither Member acting
        alone
        shall have any authority to act for, undertake or assume any obligations
        or
        responsibility on behalf of the other Member or the Company.

       

      2.8  No
        Restrictions.
        Nothing
        contained in this Agreement shall be construed so as to prohibit either Member
        or any firm or corporation controlled by or controlling such Member or any
        other
        Affiliate of a Member from owning, operating, or investing in any real estate
        or
        real estate development not owned or operated by the Company, wherever located.
        Each Member agrees that the other Member, any Affiliate or any director,
        officer, employee, partner or other person or entity related to either thereof
        may engage in or possess an interest in another business venture or ventures
        of
        any nature and description, independently or with others, including, but
        not
        limited to, the ownership, financing, leasing, operation, management,
        syndication, brokerage and development of real property and senior living
        communities, and neither the Company nor the Members shall have any rights
        by
        virtue of this Agreement in and to said independent ventures or to the income
        or
        profits derived therefrom. 

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      2.9  Neither
        Responsible for Other’s Commitments.
        Neither
        the Members nor the Company shall be responsible or liable for any indebtedness
        or obligation of the other Member incurred either before or after the execution
        of this Agreement, except as to those joint responsibilities, liabilities,
        debts
        or obligations incurred pursuant to the terms of this Agreement, and each
        Member
        indemnifies and agrees to hold the other Member and the Company harmless
        from
        such obligations and debts, except as aforesaid.

       

      2.10  Affiliates.
        Any and
        all activities to be performed by SHP hereunder may be performed by officers
        or
        employees of one or more Affiliates of SHP, provided that all actions taken
        by
        such persons on behalf of SHP in connection with this Agreement shall be
        binding
        upon SHP.

       

      2.11  (Intentionally
        Omitted.)

       

      2.12  Representations
        by Members.
        Each
        Member represents and warrants to the other Member that (i) its execution
        and
        delivery of this Agreement, its initial capital contribution to the Company
        and
        the acquisition and development of the Properties by the Company have been
        duly
        authorized by all necessary action and do not require the consent or approval
        of
        any third party, that has not been obtained, (ii) it has all necessary power
        with respect thereto, (iii) the consummation of such transactions will not
        (and
        with the giving of notice or lapse of time or both would not) result in a
        breach
        or violation of, or a default or loss of contractual benefits under its charter,
        by-laws or agreement of partnership, any agreement by which it or any of
        its
        properties is bound, or any statute, regulation, order or other law to which
        it
        or any of its properties is subject, or give rise to a lien or other encumbrance
        upon any of its properties or assets, (iv) this Agreement is a valid and
        binding
        agreement on the part of such Member, enforceable in accordance with its
        terms,
        subject to applicable debtor relief laws, and (v) such Member is not a foreign
        person as that term is defined in Section
        1445
        of the
        Code.

       

      ARTICLE
        3.

      TERM

       

      3.1  Term.
        Unless
        otherwise terminated or extended by the Committee, the existence of the Company
        shall commence on the Effective Date and shall continue until the first to
        occur
        of the following:

       

      (a)  December
        31, 2050; or

       

      (b)  Acquisition
        of all of one Member’s interest by the other; or

       

      (c)  The
        sale
        or other disposition of all or substantially all of the Properties and
        distribution of the proceeds therefrom, other than to a nominee or trustee
        of
        the Company for financial or other business purposes; provided,
        however,
        that
        such sale or other disposition shall not terminate the existence of the Company
        if such sale or other disposition is financed by the Company and the Members
        elect to continue the Company’s existence; or

       

      (d)  Dissolution
        of the Company pursuant to the express provisions of Article 10,
        11,
        12
        or
13;
        or

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (e)  The
        occurrence of any event or circumstance that would cause the dissolution
        of the
        Company under the Act.

       

      ARTICLE
        4. 

      CAPITAL
        CONTRIBUTIONS OF THE MEMBERS

       

      4.1  Capital
        Contributions of the Members.
        On or
        before the Effective Date, the Members of the Company will make Capital
        Contributions to the Company of cash as set forth on Exhibit
        C
        hereto.
        The amount of cash contributed by each Member shall be credited to such Member’s
        Capital Account. The amount shown on Exhibit
        C
        shall be
        ARC’s Initial Contribution and SHP’s Initial Contribution.

       

      4.2  No
        Other Contributions.
        Except
        as expressly required by this Article
        4,
        neither
        Member shall have any obligation to make any additional contribution to the
        Company, nor to advance any funds thereto.

       

      4.3  No
        Interest Payable.
        Except
        as otherwise provided herein, no Member shall receive any interest on its
        contributions to the capital of the Company.

       

      4.4  No
        Withdrawals.
        The
        capital of the Company shall not be withdrawn, except as hereinafter expressly
        stipulated.

       

      4.5  Additional
        Contributions. 

       

      (a)  Capital
        Expenses.
        

       

      (1)  Unanimous
        Committee Approval.
        If the
        Committee unanimously decides that a Subsidiary is in need of additional
        funding
        for capital improvements not contemplated in the then-effective Annual Capital
        Budget for such Subsidiary (as defined in Section
        6.6(b)),
        the
        Committee shall amend the Annual Capital Budget to account for such capital
        improvements, and if the revenue generated from the operation of such
        Subsidiary’s Project is not sufficient to pay for such capital improvements, the
        Committee shall cause a Notice to Finance to be given to each Member stating
        the
        total additional funding required. Within ten (10) days following the date
        upon
        which a Notice to Finance is given, each of the Members shall contribute
        to the
        Company, as additional Capital Contributions, an amount determined by
        multiplying that Member’s Percentage Interest by the required additional funding
        amount, and the Company shall contribute such Capital Contributions to the
        Subsidiary to be used for the capital improvements needed for such Subsidiary’s
        Project.

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (2)  Non
        Unanimous Committee Approval.
        If the
        Committee cannot unanimously agree to engage in any capital improvement not
        then
        contemplated in an Annual Capital Budget for a Subsidiary, either Member
        shall
        have the right to give to the other Member a Notice to Finance. If, within
        ten
        (10) days following the date upon which such Notice to Finance is given,
        the
        other Member does not contribute its portion (based upon the scale set forth
        in
        the immediately preceding subparagraph) of the funds necessary to engage
        in such
        capital improvement, the Member desiring to engage in such capital improvement
        for such Subsidiary shall have the right (but not the obligation) to fund
        one
        hundred percent (100%) of the costs associated with the design and construction
        of such capital improvement for such Subsidiary as an additional Capital
        Contribution and such funded amount shall be treated as a Capital Contribution
        for all purposes under this Agreement. Upon receipt of such Capital
        Contributions, the Company shall contribute such funds to the Subsidiary
        to be
        used for the capital improvements needed for such Subsidiary’s Project.
        Notwithstanding the foregoing to the contrary, no Member may engage in any
        capital improvement that materially alters the character or scope of a Project,
        absent the unanimous approval of the Committee.

       

      (b)  Operating
        Expenses.
        If the
        Committee unanimously determines that a Subsidiary is in need of additional
        funding for payment of any operating expenses of such Subsidiary and operating
        costs of such Subsidiary for the balance of such Subsidiary’s then-current
        calendar year or, if less than six (6) months remain in the current calendar
        year, the subsequent calendar year, the Committee shall cause a Notice to
        Finance to be given to each Member stating the total additional funding
        required. Within ten (10) days following the date upon which such a Notice
        to
        Finance is given, each of the Members shall contribute to the Company, as
        additional Capital Contributions, an amount determined by multiplying that
        Member’s Percentage Interest by the required additional funding amount, and the
        Company shall contribute such Capital Contributions to the Subsidiary for
        the
        benefit of such Subsidiary’s operation.

       

      Any
        and
        all funds contributed by the Members pursuant to this Section
        4.5
        shall be
        credited to their Capital Accounts and treated as Capital Contributions for
        all
        purposes of this Agreement.

       

      4.6  Non-Failing
        Member Options.
        If a
        Member fails to contribute an amount equal to the entire amount required
        to be
        contributed by it within ten (10) days after a Notice to Finance is given,
        as
        provided in Section
        4.5(a)(1)
        or
Section
        4.5(b)
        (the
“Failing
        Member”),
        and if
        the other Member (the “Non
        Failing Member”)
        makes
        its proportionate contribution within such ten (10) day period, so notifying
        the
        Failing Member in writing, and the Failing Member fails fully to remedy its
        failure to contribute within an additional ten (10) days thereafter (the
        “Notice
        of Intention”),
        then
        the Non-Failing Member may, in its sole discretion, but shall have no obligation
        to do any of the following (it being the intention that none of the following
        shall be exclusive of any other remedy): 

       

      (a)  Withdraw
        from the Company its most recent proportionate contribution made pursuant
        to
Section
        4.5(a)(1)
        or
Section
        4.5(b),
        in which
        case the Company shall promptly repay the amount of such withdrawn contribution
        to the Non-Failing Member, or 

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (b)  make
        a
        loan to the Company (a “Special
        Loan”)
        in an
        amount equal to the sum of (i) the contribution which the Failing Member
        failed
        to make pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        and (ii)
        the contribution made by the Nonfailing Member, in which case the contribution
        made by the Nonfailing Member shall be deemed instead of a Capital Contribution
        to be part of the funds advanced in connection with making such Special Loan.
        If
        made, a Special Loan shall bear interest and be payable upon the terms described
        in Article
        5
        and any
        accrued interest shall be considered to be part of such Special Loan for
        all
        purposes, or 

       

      (c)  make
        an
        additional contribution to the Company not in excess of the amount the Failing
        Member was to have contributed (a “Priority
        Capital Contribution”),
        or

       

      (d)  not
        withdraw its most recent proportionate contribution made pursuant to
Section
        4.5(a)(1)
        or
Section
        4.5(b)
        and not
        make a Special Loan or an additional contribution to the Company as described
        immediately above, or 

       

      (e)  commence
        the dissolution of the Company pursuant to Articles
        12 and 13.
        

       

      4.7  Change
        in Percentage Interest.
        If
        either Member makes a Priority Capital Contribution pursuant to Section
        4.6,
        that
        amount together with each timely Capital Contribution made by the Non Failing
        Member pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        shall be
        credited to the Capital Account of the Non Failing Member for all purposes
        of
        this Agreement, in which case the Non Failing Member’s Percentage Interest in
        the Company shall be increased by the percentage by which (A) the quotient
        (rounded to the nearest one hundredth, but not greater than ninety nine per
        cent
        (99%)) obtained by dividing (I) a sum equal to (x) the Non Failing Member’s
        total Unreturned Capital Contributions immediately before the making of
        additional Capital Contributions pursuant to the Notice of Intention, plus
        (y)
        the sum of (1) the additional Capital Contribution made by the Non Failing
        Member pursuant to Section
        4.5(a)(1)
        or
Section
        4.5(b),
        and (2)
        the product of the Priority Capital Contribution made by the Non Failing
        Member
        multiplied by one and one half (1.5), by (II) the sum of both Members’
Unreturned Capital Contributions immediately after such contributions, exceeds
        (B) if SHP is the Non Failing Member, 80%, and if ARC is the Non Failing
        Member,
        20%. In turn, the Failing Member’s Percentage Interest in the Company shall
        simultaneously be reduced to a percentage equal to one hundred percent (100%),
        less the Non Failing Member’s new Percentage Interest in the Company, as
        calculated pursuant to the preceding clause of this Section
        4.7
        (as
        illustrated by the example set forth on and attached as Schedule
        4.7). 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      4.8  Effect
        of Change of Percentage Interest.
        If the
        Percentage Interests of the Members are changed pursuant to the operation
        of
Section
        4.7
        above or
        any of the other terms of this Agreement during any calendar year, the amounts
        of all items to be credited, charged or distributed to such Members for such
        entire calendar year in accordance with their respective Percentage Interest
        in
        the Company shall be allocated to the portion of such calendar year which
        precedes the date of such change (and if there shall have been a prior change
        in
        such calendar year, which commences on the date of such prior change) and
        to the
        portion of such calendar year which occurs on and after the date of such
        change
        (and if there shall be a subsequent change in such calendar year, which precedes
        the date of such subsequent change), in proportion to the number of days
        in each
        such portion, and the amounts of the items so allocated to each such portion
        shall be credited, charged or distributed to such Members in proportion to
        their
        respective Percentage Interest in the Company during each such portion of
        the
        calendar year in question. For purposes of this Section
        4.8,
        the
        first calendar year shall commence on the date of this Agreement and shall
        end
        on December 31 of the year in which this Agreement is dated.

       

      

      ARTICLE
        5. 

      LOANS
        BY MEMBERS

       

      5.1  Loans.
        Neither
        Member shall be obligated to lend any money to the Company or to any Subsidiary
        and the Members may not require a Loan to be made. Except as provided in
        Section
        6.7,
        and
        except for Special Loans made pursuant to Section
        4.6,
        the
        Company and each Subsidiary shall not borrow any money without the approval
        of
        the Committee. If, following such approval, either or both Members or an
        Affiliate of either Member shall lend any money to the Company or to any
        Subsidiary, such Special Loan or Loan, as the case may be shall not be
        considered a capital contribution of such Member and shall not increase the
        Capital Account or Percentage Interest of such Member or entitle it to any
        increase in its share of the distributions of the Company. Each Special Loan
        or
        Loan made by either Member or any Affiliate thereof to the Company or to
        any
        Subsidiary on behalf of the Company shall be an obligation of the Company,
        provided that (i) neither Member shall be personally obligated to repay the
        Special Loan or Loan or to make any contribution to the capital of the Company
        to enable the Company to repay the Special Loan or Loan, and (ii) the Special
        Loan or Loan shall be payable or collectible only out of the assets of the
        Company. All Special Loan or Loans shall be unsecured and shall bear interest
        at
        the market rate then in effect as determined by the Committee. All Special
        Loans
        made pursuant to Section
        4.6
        shall
        bear interest at the rate of 5% per annum above the prime rate published
        in
The
        Wall Street Journal
        (the
“Prime
        Rate”)
        from
        time to time, compounded annually, while such Special Loans are outstanding.
        If
The
        Wall Street Journal
        ceases to
        publish the Prime Rate, the Committee shall reasonably determine a substitute
        method for determining the Prime Rate. In no event shall the rate of interest
        on
        a Loan exceed the highest rate permitted by law for the lender which, if
        exceeded, could subject the lending Member or an Affiliate to penalties or
        forfeiture of all or any part of the interest or principal; such rate of
        interest on a Loan shall automatically be reduced to the highest level permitted
        without violating any such law.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      5.2  Payment
        of Special Loan and Loans.
        Subject
        to the other provisions of this Section
        5.2,
        all
        Operating Cash Flow and Extraordinary Cash Flow (but without deduction for
        payment of interest or principal on Special Loan or Loans ) shall, to the
        extent
        of available cash, be applied and paid monthly, first to the payment of accrued
        interest on any Special Loans, then to the payment of principal of any Special
        Loans, then to the payment of accrued interest on any Loans, and then to
        the
        payment of principal of any Loans, before any distribution is made to a Member
        as stipulated in Article
        9.
        If at
        any time Special Loans by both Members shall be outstanding, and if the
        aggregate balances, including accrued interest, of such outstanding Special
        Loans made by the respective Members shall not be in the proportion of the
        respective Percentage Interests of the Members, then payment shall be made
        only
        upon the Special Loan of the Member whose Special Loan balance, including
        accrued interest, is disproportionately high, until the balances (including
        interest) payable on the respective Member’s Special Loans to the Company shall
        be in the ratio of the respective Percentage Interests of the Members. If
        at any
        time Loans by both Members shall be outstanding, and if the aggregate Loan
        balances, including accrued interest, of such outstanding Loans made by the
        respective Members shall not be in the ratio of the respective Percentage
        Interests of the Members, then payment shall be made only upon the Loan of
        the
        Member whose Loan balance, including accrued interest, is disproportionately
        high, until the balance (including interest) payable on the respective Members’
Loans to the Company shall be in the ratio of the Members’ respective Percentage
        Interests. When the amounts of the Special Loan and/or Loan balances (including
        interest), as the case may be, of the respective Members are in the ratio
        of the
        Percentage Interests of the respective Members, all payments of interest
        on and
        repayments of the principal of such Special Loans or Loans shall be pro rata
        in
        accordance with the remaining balance (including interest) of each of the
        Special Loans or Loans.

       

      ARTICLE
        6. 

      MANAGEMENT
        OF THE COMPANY

       

      6.1  Managing
        Committee.
        The
        Members shall have responsibility for the management, supervision and control
        of
        the Company through its managing committee (the “Committee”),
        which
        shall be responsible for the establishment of policy and operating procedures
        respecting the business affairs of the Company and its Subsidiaries in its
        good-faith business judgment. No action shall be taken, nor shall obligations
        be
        incurred or amounts expended (other than in accordance with any Annual Capital
        Budget or any Annual Operating Budget which has been approved by the Committee),
        by the Company without the unanimous consent of the members of the Committee,
        except to the extent expressly provided herein or otherwise delegated by
        the
        Committee. The day to day operations of the Projects shall be managed by
        the
        Initial Subsidiary Property Manager or another Subsidiary Property Manager
        acceptable to the Committee, pursuant to the terms, conditions and limitations
        set forth in the Subsidiary Management Agreements. The Committee shall at
        all
        times consist of four (4) members, two (2) of whom shall be appointed by
        SHP,
        and two (2) by ARC.

       

      
        
          
          

        

        
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      Each
        Member may appoint an alternate for each member appointed by it to the
        Committee, who shall have all the powers of the Committee member in his absence
        or inability to serve. Each Member shall have the power to remove any member
        or
        alternative member of the Committee appointed by it by delivering written
        notice
        of such removal to the Company and to the other Member in the manner required
        by
Section
        15.1.
        Vacancies on the Committee shall be filled by the Member that appointed the
        Committee member previously holding the position which is then
        vacant.

       

      Each
        Committee member shall be entitled to cast one (1) vote with respect to any
        decision made by the Committee, provided that the members who are actually
        present at a meeting of the Committee shall be entitled to cast the vote
        of the
        member not present who was appointed by the same Member as the member casting
        the vote.

       

      The
        Committee shall meet at least semiannually, upon thirty (30) days’ written
        notice to all members, at the offices of the Company or by conference call
        with
        the results confirmed in writing or by facsimile (unless such meeting shall
        be
        waived by all members thereof), or, in the event of an emergency, on the
        call of
        any two (2) Committee members upon two (2) business days’ notice to all
        Committee members by telephone, electronic mail, telex, telecopy or telegraph.
        An agenda for each meeting shall be prepared in advance by the Members in
        consultation with each other. Three (3) members of the Committee shall
        constitute a quorum. Except as specifically set forth herein to the contrary
        where certain rights are granted to individual Members, the casting of four
        (4)
        concurring votes shall be required for all actions of the Committee except
        adjournment (which shall only require a majority of the votes present), and
        four
        (4) concurring votes shall constitute the approval by the Committee of the
        matter being considered and shall be binding on the Company and the Members
        for
        all matters, including, without limitation, financing, refinancing, sale
        of some
        or all of the Company’s assets and dissolution of the Company. The Committee may
        act without a meeting if the action taken is unanimously approved in advance
        in
        writing by the Committee members. The Committee shall cause written minutes
        to
        be prepared of all actions taken by the Committee and shall deliver a copy
        thereof to each member of the Committee within seven (7) days after the date
        of
        the meeting. Such minutes shall be prepared by one of the members appointed
        by
        ARC. Each Subsidiary has four (4) officers designated by the Committee. The
        Committee may change the designations of any officers of any Subsidiary upon
        the
        unanimous consent of the Committee. All the officers of each Subsidiary shall
        be
        entitled to execute leases, resident agreements and service contracts on
        behalf
        of the Subsidiary (and/or may delegate such signing authority to the Initial
        Property Manager) so long as such documents are consistent with the then
        current
        approved Annual Operating Budget but the officers of such Subsidiary may
        not
        otherwise execute any documents on behalf of the Subsidiary without the
        unanimous approval of the Committee; provided, however, that the officers
        designated by SHP as its representatives to each Subsidiary (initially John
        Dark
        and Noah Levy) may execute any and all documents on behalf of the Subsidiary
        to
        take actions which SHP, in its capacity as a member, has the sole and exclusive
        right to undertake pursuant to the provisions of Section
        6.7
        of this
        Agreement; provided, further, that Todd Kaestner has been authorized to execute
        closing documents on behalf of the Company with respect to the initial
        acquisition of the Portfolio and the obtaining of the Initial
        Financing.

       

      
        
          
          

        

        
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      6.2  Bank
        Accounts.
        The
        Company will maintain separate bank accounts in such banks as the Committee
        may
        designate exclusively for the deposit and disbursement of all funds of the
        Company. All funds of the Company shall be promptly deposited in such accounts.
        The Committee from time to time shall authorize signatories for such
        accounts.

       

      6.3  Reimbursement
        for Costs and Expenses.
        Subject
        to the terms of Section
        6.5,
        the
        Committee will fix the amounts, if any, by which the Company will reimburse
        each
        Member for any costs and expenses incurred by such Member on behalf and for
        the
        benefit of the Company or any of its Subsidiaries; provided, however, that
        except as otherwise provided herein or in any separately-executed agreement
        relating to the business and operation of the Company or any of its
        Subsidiaries, no overhead or general administrative expenses of any person
        or
        entity anyone other than the Company itself shall be allocated to the operation
        of the Company, and no salaries, fees, commissions or other compensations
        shall
        be paid by the Company to any Affiliate of any Member or to any partner,
        officer
        or employee of either Member or its Affiliates for any services rendered
        to the
        Company, except as may be expressly provided herein or by other written
        agreement approved by the Committee. 

       

      6.4  Fidelity
        Bonds and Insurance.
        The
        Committee on behalf of each Subsidiary shall cause each Subsidiary Property
        Manager (including, without limitation, the Initial Subsidiary Property Manager)
        to obtain fidelity bonds with reputable surety companies, covering all persons
        having access to the such Subsidiary’s funds and indemnifying such Subsidiary
        against loss resulting from fraud, theft, dishonesty and other wrongful acts
        of
        such persons. Each Subsidiary shall carry or cause to be carried on its behalf,
        in companies acceptable to the Committee all property, liability and worker’s
        compensation insurance as shall be required under applicable mortgages, leases,
        agreements, and other instruments and statutes or as may be required by the
        Committee or in accordance with risk management guidelines agreed upon by
        the
        Committee. The expense of such fidelity bond shall be paid by the respective
        Subsidiary Property Managers (including, without limitation, the Initial
        Subsidiary Property Manager), but the cost of the insurance shall be an expense
        of each Property.

       

      6.5  Management
        Agreement.
        On or
        about the date of this Agreement, each Subsidiary will enter into a management
        agreement (each an “Initial
        Subsidiary Management Agreement”)
        with
        Initial Subsidiary Property Manager, in the form and containing the provisions
        of Exhibit
        D
        hereto
        attached and made a part hereof, providing that Initial Subsidiary Property
        Manager will, subject to the Company’s direction, manage the day-to-day
        operation of the Subsidiary’s Project, as an independent contractor, for the
        compensation and term specified therein. Should such Initial Subsidiary
        Management Agreement terminate for any reason, each Subsidiary will enter
        into
        an agreement for management of the Property with an operator or operators
        satisfactory to the Company (a “Subsidiary
        Property Manager”).
        Such
        Initial Subsidiary Management Agreement or any other management agreement
        entered into by the Company after the termination or expiration of such Initial
        Subsidiary Management Agreement, as the same may be amended or restated from
        time to time, is referred to herein as the “Subsidiary
        Management Agreement”. 

       

      6.6  Annual
        Budgets.
        The
        annual operating budget for each Project and the annual capital expenditures
        budget for each Project will be approved subject to the following
        terms:

       

      
        
          
          

        

        
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      (a)  Annual
        Operating Budget.
        So long
        as each Project is performing such that (i) the aggregate, gross level of
        revenues for that Project are meeting or exceeding the operating pro forma
        approved by SHP on or before December 15, 2005 (the “Operating Pro Forma”) and
        (ii) the aggregate, gross level of expenses for that Project are equal to
        or less than the Operating Pro Forma, the current Annual Operating Budget
        must
        be approved by unanimous consent of the Committee. To the extent that the
        applicable Project is performing such that either the aggregate, gross revenues
        or aggregate gross expenses for that Project are not equal to or better than
        the
        Operating Pro Forma, SHP shall have the right to unilaterally approve any
        proposed annual operating budget. Any annual operating budget as approved
        pursuant to this Section
        6.6(a)
        is
        referred to as the “Annual Operating Budget.” 

       

      ARC
        shall
        prepare and deliver to SHP, on or before ninety (90) days prior to the
        expiration of the then current fiscal year, a proposed Annual Operating Budget
        for each Project for the upcoming fiscal year. The exact form of the Annual
        Operating Budget shall be agreed upon by ARC and SHP but shall include, without
        limitation, reasonably detailed and itemized estimates of all projected income
        and expenses of such Subsidiary for the upcoming fiscal year (except items
        included in the proposed Annual Capital Budget), and specifically including
        reserves and working capital for such Subsidiary and a detailed leasing report
        describing all vacant units within the Project, the square footage of each
        vacant unit and the total square footage of all vacating units within the
        Project. To the extent that the Annual Operating Budget for a particular
        Project
        is not approved prior to the commencement of the fiscal year to which such
        budget is to relate, the Annual Operating Budget for such Subsidiary for
        the
        prior fiscal year, plus a three percent (3%) increase for each line item
        contained in such budget, shall be utilized in connection with the operation
        of
        such Property.

       

      (b)  Annual
        Capital Budget.
        On or
        before ninety (90) days prior to the expiration of the then current fiscal
        year,
        ARC shall deliver to SHP, along with the proposed Annual Operating Budget
        for
        each Project, a proposed Annual Capital Budget for each Project for the upcoming
        fiscal year. Approval of the annual capital budget (the “Annual
        Capital Budget”)
        must be
        made by the unanimous consent of the Committee. If the Committee cannot
        unanimously agree upon the Annual Capital Budget for a particular Project
        for
        any year, there shall be no Annual Capital Budget for such Project for such
        year
        and the provisions of Section
        4.5(a)
        shall
        govern capital improvements to such Project during such year. To the extent
        that
        funds are reserved for items set forth in the Annual Capital Budget for a
        particular Project and are not spent in a given year for which the Annual
        Capital Budget for such Project relates, the funds will be carried over into
        a
        separate reserve account for future use on items included within a future
        Approved Capital Budget for such Project, but may not be used for any other
        purpose. This separate reserve account will be held by, or on behalf of,
        SHP for
        the benefit of the applicable Subsidiary.

       

      6.7  SHP’s
        Rights.

       

      (a)  Notwithstanding
        anything to the contrary in this Article
        6,
        SHP, in
        its capacity as a Member, and not in a representative capacity, shall have
        the
        sole and exclusive right, without the approval of the Committee, to cause
        or
        permit the Company to do or perform the following:

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      (1)  from
        and
        after November 1, 2007 and subject to the provisions of Section
        10.5,
        to cause
        the entire Portfolio or any one of the Properties or any group of the Properties
        to be sold or to market the Portfolio;

       

      (2)  subject
        to
Section
        6.7(b),
        to cause
        the Company or a Subsidiary to incur debt financing for the entire Portfolio
        or
        any one of the Properties or any group of the Properties on terms determined
        by
        SHP; 

       

      (3)  subject
        to
Section
        6.7(b),
        to cause
        the Company to refinance any loan obtained by the Company or a Subsidiary
        pursuant to the foregoing Section
        6.7(a)(2),
        or put
        in place at the time of the Company’s acquisition of the
        Properties;

       

      (4)  to
        exercise any of the Company’s rights to terminate an Initial Subsidiary
        Management Agreement (or any subsequent Subsidiary Management Agreement)
        and to
        cause a Subsidiary to enter into a Subsidiary Management Agreement with a
        new
        Subsidiary Property Manager; provided, however, that the Subsidiary’s right to
        terminate the Initial Subsidiary Management Agreement, without cause, upon
        thirty (30) days prior notice, as provided in Section
        12.2(e)
        of the
        Initial Subsidiary Management Agreement, may be exercised only by unanimous
        agreement of the Members; 

       

      (5)  (Intentionally
        Omitted);

       

      (6)  (Intentionally
        Omitted); and

       

      (7)  to
        determine whether and to what extent the Property should be repaired or restored
        in the event of (i) a loss by fire or other casualty, if the estimated costs
        of
        repair or restoration (as determined by the Company’s property insurance
        carrier) exceed $7,500,000.00, or (ii) a condemnation of any portion of a
        Property, the fair market value of which (as determined by an experienced,
        reputable M.A.I. appraiser selected by the Committee), exceeds
        $7,500,000.00.

       

      (b)  SHP
        and
        ARC have agreed to obtain financing for the Projects, as of the Closing,
        in the
        original principal amount of $85,000,000.00, from Merrill Lynch Capital pursuant
        to the terms of that certain Credit and Security Agreement, dated ________,
        2005
        (“Initial
        Financing”).
        If SHP
        determines to refinance a Property pursuant to Section
        6.7(a)(2)
        or
6.7(a)(3),
        SHP
        shall deliver a notice to ARC (a “Finance
        Proposal Notice”)
        of
        SHP’s intent, which notice shall include the proposed terms of such refinancing
        and a list of the lenders from which SHP intends to seek such refinancing
        (“SHP’s
        Lender List”).
        While
        SHP is trying to obtain such refinancing from a lender, ARC may concurrently
        seek alternatives to SHP’s proposed refinancing from other lenders provided ARC
        has delivered a notice to SHP of ARC’s intent, which notice shall include a list
        of the lenders from which ARC intends to seek such refinancing (“ARC’s
        Lender List”).
        ARC
        shall not, without the unanimous prior written approval of the Committee,
        have
        any authority to bind the Company or any Subsidiary to any loan commitment.
        ARC’s Lender List shall not include any of the lenders included in SHP’s Lender
        List. The Members shall coordinate their efforts to assure that ARC does
        not
        approach prospective lenders which are on SHP’s Lender List and SHP does not
        approach prospective lenders which are on ARC’s Lender List. 

       

      
        
          
          

        

        
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      When
        SHP
        has determined the actual refinancing structure it wishes to obtain and has
        identified the lender willing to provide such refinancing, SHP shall deliver
        a
        second notice to ARC (a “Financing
        Commitment Notice”)
        setting
        forth the terms of such refinancing and the identity of such lender. If (i)
        ARC
        notifies SHP within ten (10) days after ARC’s receipt of the Financing
        Commitment Notice that ARC has identified an alternative lender which will
        provide refinancing on the same or better terms as that proposed by SHP
        (including loan amount, term, amortization schedule, interest rate, prepayment
        penalties and participation features) at a lower cost and which will not
        result
        in a Plan Violation; and (ii) SHP, in SHP’s sole and absolute discretion,
        determines that the refinancing from the alternative lender identified by
        ARC
        will provide comparable refinancing on the same or better terms as that proposed
        by SHP, including operation and ownership constraints, and that the Company
        or a
        Subsidiary, as the case may be, will be able to obtain such refinancing within
        the time parameter determined by SHP, then SHP and ARC shall pursue such
        refinancing from such alternative lender, otherwise SHP shall be free to
        proceed
        to close the refinancing outlined in the Financing Commitment Notice.
        Notwithstanding anything to the contrary set forth hereinabove, neither Member
        shall have the right, without the other Members consent, to seek any refinancing
        which: (i) is recourse to the other Member; (ii) is convertible or includes
        any
        participating mortgage structure (i.e., a mortgage which grants to the mortgagee
        an equity interest or an option to convert some or all of the debt into an
        equity interest); (iii) commits the other Member to relinquish any of its
        equity
        in the Company or dilute its Percentage Interest or its interest in any item
        of
        income, loss or cash; or (iv) will result in such Property having a debt
        service
        coverage ratio (as of the date of the closing of the refinancing) of less
        than
        1.25 to 1. As used above, the term Debt Service Coverage Ratio shall mean
        the
        ratio of (x) the Subsidiary’s annualized cash flow (including both Operating
        Cash Flow and Extraordinary Cash Flow and based upon the four calendar months
        immediately preceding the date the new refinancing will be closed) prior
        to the
        payment of debt service of the Subsidiary to (y) the annual debt service
        payable
        under all outstanding debt of the Subsidiary (excluding Loans and Special
        Loans)
        immediately after funding of the new refinancing, including debt service
        on such
        financing or refinancing. 

       

      6.8  Indemnification.
        Neither
        Member shall be liable to the Company or to the other Member for any act
        performed or omitted to be performed by the Member in connection with Company
        business, unless the Member’s course of conduct was in breach of this Agreement
        or constituted fraud, unauthorized acts, bad faith, willful misconduct or
        gross
        negligence. A Member shall defend and indemnify the Company and the other
        Member
        against, and hold it and them harmless from, any loss, damage, claim, judgment,
        cost, expense or liability, including reasonable attorneys’ fees, incurred or
        sustained by the Company or the other Member or either of them by reason
        of the
        indemnifying Member’s fraud, bad faith, willful misconduct, gross negligence,
        unauthorized acts or breach of this Agreement. The Company shall defend and
        indemnify each Member against, and hold it and them harmless from, any loss,
        damage, claim, judgment, cost, expense or liability, including reasonable
        attorneys’ fees, incurred or sustained by the Member by reason of any act
        performed by it on behalf of the Company or in furtherance of the Company’s
        interests other than by fraud, bad faith, willful misconduct, gross negligence,
        unauthorized acts or breach of this Agreement. The Company shall defend and
        indemnify any person executing the original Certificate of Formation against,
        and hold such person harmless from, any loss, damage, claim, judgment, cost,
        expense or liability, including reasonable attorneys’ fees, incurred or
        sustained by such person by reason of having prepared or filed the original
        Certificate of Formation or his status as the organizer of the Company, except
        to the extent of such person’s fraud, bad faith, willful misconduct or gross
        negligence.

       

      
        
          
          

        

        
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      6.9  Operation
        as a REOC.
        The
        Committee shall conduct the activities of the Company so as to qualify the
        Company as a “real estate operating company” (“REOC”)
        within
        the meaning of 29 C.F.R. §2510.3-101 (the “Plan Assets Regulation”). The “annual
        valuation period” of the Company for purposes of qualifying as a REOC under the
        Plan Assets Regulation shall be the 90-day period commencing on each Anniversary
        Date (as defined below) unless the Company pre-specifies an earlier annual
        valuation period in accordance with the Plan Assets Regulation. “Anniversary
        Date” means each anniversary of the Company’s first investment other than a
        short-term investment pending long-term commitment.

       

      6.10  Third
        Party Loans.
        Notwithstanding anything to the contrary in this Agreement, each Member’s rights
        under the Agreement shall at all times be subject to the terms and conditions
        of
        any Third Party Loan, and neither Member (a) shall take, or fail to take,
        any
        action that would conflict with any material term or condition of any Third
        Party Loan or cause a default or event of default under any Third Party Loan,
        or
        (b) shall cause the Company to take, or fail to take, any action that would
        conflict with any material term or condition of any Third Party Loan or cause
        a
        default or event of default under any Third Party Loan.

       

      6.11  Rights
        of SHP’s Member.
        ARC
        hereby acknowledges that the sole member of SHP, acting in such capacity,
        shall
        have the right to direct all actions, make all decisions and exercise all
        rights
        of SHP under this Agreement.

      
ARTICLE
        7. 

      BOOKS
        AND RECORDS, AUDITS, TAXES, ETC.

       

      7.1  Books;
        Statements.
        In
        addition to the establishment and maintenance of Capital Accounts pursuant
        to
Section
        7.9,
        the
        Company shall keep such other books and records as the Committee shall
        determine. The books and records shall be prepared in accordance with generally
        accepted accounting principles consistently applied. Except where specifically
        provided for in this Agreement, the Committee shall determine the methods
        to be
        used in the preparation of financial statements. 

       

      Following
        the Effective Date of the Agreement:

       

      (a)  each
        Subsidiary shall prepare or cause to be prepared, by the Subsidiary Property
        Manager for the Company’s approval and in accordance with the terms of the
        Subsidiary Management Agreement, a statement setting forth the calculation
        of
        Operating Cash Flow for such Subsidiary for each period of time, but not
        less
        often than quarterly, at the end of which the Company is to make periodic
        distributions of Operating Cash Flow as provided in Section
        9.3,
        and the
        Company shall furnish a copy of such cash flow statement to each Member within
        fifteen (15) days after the end of such period;

       

      
        
          
          

        

        
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      (b)  no
        later
        than the twenty fifth (25th) day of each month during the term of this
        Agreement, each Subsidiary shall prepare, or cause to be prepared by the
        Subsidiary Property Manager, and shall submit to the Company, an accrual
        basis
        balance sheet for such Subsidiary dated as of the end of the preceding month,
        together with an accrual basis profit and loss statement for such Subsidiary
        for
        the calendar month next preceding with a cumulative calendar year accrual
        basis
        profit and loss statement to date, and a statement of change in each Member’s
        Capital Account with respect to such Subsidiary’s operations for the preceding
        month and year to such date; and

       

      (c)  as
        soon as
        practicable, but no later than ninety (90) days, after the end of each fiscal
        year of the Company, a general accounting and audit shall be taken and made
        by
        independent certified public accountants of recognized standing, selected
        by the
        TMP in accordance with Section
        7.6
        and
        retained by the Company, which accounting and/or audit shall cover the assets,
        properties, liabilities and net worth of the Company and its Subsidiaries,
        and
        their dealings, transactions and operations during such fiscal year, and
        all
        matters and things customarily included in such accountings and audits, and
        a
        full, detailed certified statement shall be furnished to each Member showing
        on
        an accrual basis the assets, liabilities, properties, net worth, profits,
        losses, net income, Unrecovered Capital Contributions, Priority Capital
        Contributions, Operating Cash Flow, Extraordinary Cash Flow, changes in the
        financial condition of the Company and the Subsidiaries for such fiscal year
        and
        each Member’s capital in the Company together with a full and complete report of
        the audit scope and audit findings in the form of a management audit report
        with
        an internal control memorandum.

       

      7.2  Where
        Maintained.
        The
        books, accounts and records of the Company shall be at all times maintained
        at
        its principal office. If requested by the Company, the Subsidiary Property
        Manager shall, pursuant to the terms of its Subsidiary Management Agreement,
        keep and maintain such books, accounts and records, and its only payment
        for
        doing so shall be the fees paid under the Subsidiary Management Agreement.
        The
        Committee may, at any time, transfer the responsibility for keeping and
        maintaining such Company books and records to another party if it determines
        that the Company may recognize cost savings by doing so.

       

      7.3  Audits.
        Either
        Member may, at its option and at its own expense, conduct internal audits
        of the
        books, records and accounts of the Company and its Subsidiaries. Audits may
        be
        on either a continuous or a periodic basis, or both, and may be conducted
        by
        employees of either Member, or an Affiliate of either Member, or by independent
        auditors retained by the Company or by either Member.

       

      
        
          
          

        

        
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      7.4  Objections
        to Statements.
        Each
        Member shall have the right to object to the statements described in
Sections
        7.1(a),
        (b)
        and
(c)
        by giving
        notice in writing to the other Member within thirty (30) days after such
        statements are received by each Member, indicating in reasonable detail the
        objections of such Member and the basis for such objections. If either Member
        shall fail to give such notice within said thirty (30) day period, such
        statements and the contents thereof shall, in the absence of fraud or willful
        misconduct by the other Member or the independent certified public accountants
        certifying the statements, be deemed conclusive and binding upon such party
        so
        failing to give such written notice, subject, in the case of the statements
        provided for in Sections
        7.1(a)
        and
(b),
        to the
        audit provided for in Section
        7.1(c).
        Objections to any statement and any disputes concerning the findings of,
        and
        questions raised as the result of, audits of the Company’s or any Subsidiary’s
        books shall be settled by the Committee.

       

      Upon
        approval or deemed approval of the statement described in Section
        7.1(c)
        (the
“Approved
        Financial Statement”),
        a
        comparison shall be made of the actual Operating Cash Flow to the Operating
        Cash
        Flow distributed pursuant to Section
        9.3.
        To the
        extent that the Company has made a distribution to a Member (the “Excess
        Member”)
        in
        excess of the amount which the Excess Member should have received based on
        a
        distribution of Operating Cash Flow set forth in the Approved Financial
        Statement, the Excess Member shall recontribute to the Company, within fifteen
        (15) days after the creation of the applicable Approved Financial Statement,
        the
        excess amount (the “Excess
        Amount”)
        received by it. The Company shall then distribute such Excess Amount (1)
        first,
        to any Member who received a distribution less than such Member should have
        received based on the distribution of Operating Cash Flow set forth in the
        Approved Financial Statement, an amount equal to such deficiency and (2)
        second,
        to the extent of the remaining Excess Amount, in accordance with Section
        9.3.

       

      7.5  Tax
        Returns.
        The
        Company shall be treated and shall file its tax returns as a partnership
        for
        Federal, state, municipal and other governmental income tax and other tax
        purposes. The Company shall prepare or cause to be prepared, on an accrual
        basis, all Federal, state and municipal partnership tax returns required
        to be
        filed by it or by any of its Subsidiaries. Unless otherwise determined by
        the
        Committee, such tax returns shall be prepared by independent certified public
        accountants selected pursuant to Section
        7.6,
        who
        shall sign such returns as income tax preparers (as defined in Section
        7701(a)(36)
        of the
        Code). The Company shall submit the returns to each Member for review and
        approval no later than thirty (30) days prior to the due date of the returns,
        but in no event later than March 15th of each year. Each Member shall notify
        the
        other Member(s) upon receipt of any notice of tax examination, tax deficiency
        or
        tax adjustment of the Company by Federal, state or local
        authorities.

       

      
        
          
          

        

        
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      7.6  Tax
        Matters Partner.
        ARC
        shall be the tax matters partner (“TMP”),
        as
        defined in Section
        6231 (a)(7)
        of the
        Code, with respect to operations conducted by the Company during the period
        that
        ARC is a Member. The TMP shall comply with the requirements of Section
        6221 through 6232
        of the
        Code. The TMP shall have the authority, in its reasonable discretion, to
        select
        and appoint independent certified public accountants to prepare tax returns
        and
        annual audited financial statements for the Company and its Subsidiaries,
        the
        expense of which shall be borne by the Company. Notwithstanding the foregoing,
        prior approval of the Committee shall be required to extend the statute of
        limitations for any federal income tax matters or to proceed with respect
        to the
        contest of any federal income tax matters in any forum other than the United
        States Tax Court.

       

      7.7  Tax
        Policy.
        The
        Company shall make any and all tax accounting and reporting elections and
        adopt
        such procedures as the Committee, in its reasonable judgment, may
        determine.

       

      7.8  Section
        754 Election.
        At the
        request of a Member, the Company shall make and file a timely election under
        Section
        754
        of the
        Code (and a corresponding election under applicable state or local law) in
        the
        event of a transfer of an interest in the Company permitted hereunder or
        the
        distribution of property to a Member. Any adjustments resulting from such
        an
        election shall be reflected in the Capital Accounts of the Members only to
        the
        extent provided in Treasury Regulation Section
        1.704-1(b)(2)(iv)(m).
        Any
        Member or transferee first requesting an election hereunder shall reimburse
        the
        Company for reasonable out of pocket expenses incurred by the Company in
        connection with such election, including, without limitation, any legal or
        accountants’ fees; thereafter, each transferee shall reimburse such expenses
        with respect to adjustments under Section
        743
        of the
        Code in the proportion which the interest of each transferee bears to the
        sum of
        the interests of all transferees; the Company shall bear the expenses of
        any
        adjustments under Section
        734
        of the
        Code.

       

      7.9  Capital
        Accounts.

       

      (a)  There
        shall be established on the books of the Company a single capital account
        (the
“Capital
        Account”)
        for
        each Member. The opening balance of each Member’s Capital Account shall be equal
        to each Member’s Initial Contribution as set forth in Section
        4.1
        of this
        Agreement.

       

      (b)  The
        Capital Account of each Member (regardless of the time or manner in which
        such
        Member’s interest was acquired) shall be maintained in accordance with the rules
        of Section
        704(b)
        of the
        Code and the Treasury Regulations thereunder (including particularly
Section
        1.704-1(b)(2)(iv)
        of the
        Regulations). Adjustments shall be made to the Capital Accounts for all
        distributions and allocations (other than allocations pursuant to Section
        9.6)
        as
        required by the rules of Section
        704(b)
        of the
        Code. In general, a Capital Account shall be:

       

      
        
          
          

        

        
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      (1)  increased
        by (i) the amount of money contributed by the Member to the Company (including
        the amount of any Company liabilities that are assumed by such Member other
        than
        in connection with the distribution of Company property and including any
        amounts contributed to the Company pursuant to Section
        7.4),
        (ii)
        the fair market value of property contributed by the Member to the Company
        (net
        of liabilities secured by such contributed property that the Company is
        considered to assume or take subject to under Section
        752
        of the
        Code), and (iii) except as provided in Section
        7.9(b)(3)
        and
Section
        7.9(b)(4),
        allocations to the Member of Company profits and gain for federal income
        tax
        purposes (or items thereof), including profits and gain exempt from
        taxation;

       

      (2)  decreased
        by (i) the amount of money distributed to the Member by the Company (including
        the amount of such Member’s individual liabilities that are assumed by the
        Company (other than in connection with contributions of property to the Company)
        and including any amounts distributed to such Member by the Company pursuant
        to
Section
        7.4),
        (ii)
        the fair market value of property distributed to the Member by the Company
        (net
        of liabilities secured by such distributed property that such Member is
        considered to assume or take subject to Section
        752
        of the
        Code), (iii) allocations to the Member of expenditures of the Company not
        deductible in computing the Company’s taxable income and not properly chargeable
        to capital, and (iv) except as provided in Section
        7.9(b)(3)
        and
Section
        7.9(b)(4),
        allocations to the Member of Company loss and deduction for federal income
        tax
        purposes (or items thereof);

       

      (3)  where
        Section
        704(c)
        of the
        Code applies to Company property, adjusted in accordance with Treasury
        Regulations Section
        1.704-1(b)(2)(iv)(g)
        as to
        allocations to the Members of depreciation, depletion, amortization and gain
        or
        loss, as computed for book purposes with respect to such Company property;
        and

       

      (4)  except
        as
        provided in Treasury Regulation Section
        1.704-1(b)(2)(iv)(m),
        computed
        without regard to any election under Section
        754
        of the
        Code which may be made by the Company.

       

      If
        there
        is a transfer of all or a part of an interest in the Company by a Member,
        the
        Capital Account of the transferor that is attributable to the transferred
        interest shall carry over to the transferee of such Member.

       

      7.10  Ownership
        Representation.
        Each
        Member represents and warrants to the Company and to the other Members that
        it
        is a U.S. person as that term is defined under Section
        7701(a)(30)
        of the
        Code.

       

      ARTICLE
        8. 

      FISCAL
        YEAR

       

      8.1  Calendar
        Year.
        The
        fiscal year of the Company shall be the calendar year, unless (subject to
        obtaining consent of the Internal Revenue Service) the Members shall hereafter
        in writing agree otherwise.

       

      
        
          
          

        

        
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      ARTICLE
        9.  

      DISTRIBUTIONS
        AND ALLOCATIONS

       

      9.1  Percentage
        Interests in Company.
        Except
        as otherwise expressly provided in this Agreement, the percentage interest
        of
        the respective Members in the Company shall be as follows:

       

      
        	SHP     	 	80%
	ARC 	 	20%

      

       

      The
        percentage interest of each Member, which is subject to the preferred and
        priority rights provided for herein, is hereinafter called such Member’s
“Percentage Interest”.

       

      9.2  Certain
        Definitions.
        The
        following terms shall have the following meanings when used herein:

       

      (a)  “Operating
        Cash Flow”
shall
        mean the net income or loss of the Company or a Subsidiary, as applicable,
        for
        the fiscal period in question, as determined by the Committee in accordance
        with
        generally accepted accounting principles, taking into account all of the
        income
        and all of the operating expenses from all of the Properties or a Property,
        as
        applicable, and adjusted as follows: 

       

      (1)  Additions.
        There
        shall be added to such net income or subtracted from such loss, without
        duplication, the following items: (i) the amount charged during such period
        for
        depreciation, amortization or any other deduction not involving a cash
        expenditure, (ii) the amount of cash expenditures paid out of cash reserves
        during such period, to the extent that such expenditures were deducted in
        determining net income or loss, (iii) cash Capital Contributions to the Company
        or a Subsidiary, as applicable, during such period, excluding SHP’s Initial
        Contribution and ARC’s Initial Contribution, (iv) rental receipts, collection of
        receivables and other cash receipts during such period which were included
        in
        determining net income or loss in a prior accounting period, (v) the costs
        and
        expenses incurred by the Company or a Subsidiary, as applicable, during such
        period in connection with a Major Capital Event, to the extent deducted from
        gross income in the determination of net income or loss, except to the extent
        that net receipts of the Company or a Subsidiary, as applicable, from such
        Major
        Capital Event were insufficient to pay such costs and expenses, (vi) proceeds
        of
        short term borrowings in the ordinary course of business during such period,
        (vii) capital expenditures and other cash sums expended during such period
        for
        items deducted in determining net income or loss of the Company or a Subsidiary,
        as applicable, to the extent paid from proceeds of a Major Capital Event,
        and
        (viii) any amount during such period by which cash reserves previously
        established by the Committee in order to retain sufficient working capital
        in
        the Company or a Subsidiary, as applicable, or to properly reserve for actual
        or
        contingent obligations of the Company or improvements to the Properties or
        the
        Property, as applicable, have been reduced (other than through payment of
        expenditures described in clause (ii) above).

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

      (2)  Deductions.
        There
        shall be subtracted from such net income or added to such loss, without
        duplication, the following items: (i) the amount of payments made on account
        of
        principal upon mortgage loans secured by Company or Subsidiary property,
        as
        applicable, and upon any other loans made to the Company or a Subsidiary,
        as
        applicable, other than Special Loans or Loans by Members, (ii) capital
        expenditures and any other cash sums expended during such period for items
        not
        deducted in determining net income or net loss of the Company or a Subsidiary,
        as applicable, except to the extent paid from the proceeds of a Major Capital
        Event, (iii) any amount included in determining net income or loss during
        the
        relevant accounting period but not received in cash by the Company or a
        Subsidiary, as applicable, (iv) the proceeds during such period of a Major
        Capital Event, to the extent included in determining net income or loss,
        (v) any
        amounts distributed during such period to the Members in payment of any
        guaranteed payment within the meaning of Section
        707(c)
        of the
        Code, and any amounts paid to a Member during such period for services rendered
        other than in its capacity as a Member of the Company within the meaning
        of
Section
        707(a)
        of the
        Code, to the extent not previously taken into account as a deduction in
        determining net income or loss, (vi) the amount of principal and interest
        under
        then-outstanding Special Loans and Loans which are to be repaid to the Members
        making the same in accordance with Article
        5,
        and
        (vii) any amount applied to establish, replenish or increase during such
        period
        cash reserves pursuant to a determination of the Committee that such reserve
        and
        the amount thereof is necessary or appropriate in order to retain sufficient
        working capital in the Company or a Subsidiary, as applicable, to properly
        reserve for other actual or contingent obligations of the Company or
        improvements to the Properties or the Property, as applicable, to properly
        reserve for capital expenditures, or to reserve for fixtures, furniture and
        equipment.

       

      (b)  “Extraordinary
        Cash Flow”
shall
        mean the net cash receipts of the Company or a Subsidiary, as applicable,
        from a
        Major Capital Event as reduced by (i) the costs and expenses incurred by
        the
        Company or a Subsidiary, as applicable in connection with such Major Capital
        Event, including title, survey, appraisal, recording, escrow, transfer tax
        and
        similar costs, brokerage expense and attorney and other professional fees,
        (ii)
        funds deposited in reserves pursuant to a determination of the Committee
        that
        such reserve and the amount thereof is required or appropriate to provide
        for
        actual or contingent obligations of the Company or a Subsidiary, as applicable,
        or improvements to the Property or Properties, as applicable, (iii) funds
        applied to pay or prepay any indebtedness of the Company or a Subsidiary,
        as
        applicable (including Special Loans and Loans from Members and interest thereon
        to be repaid in accordance with Article
        5),
        in
        connection with such Major Capital Event , (iv) any amounts previously deducted
        in determining Operating Cash Flow and (v) amounts received from a condemnation
        or casualty which are used for reconstruction. To the extent that any amount
        received pursuant to a Major Capital Event has been set aside as a reserve
        for
        expenses relating to a Major Capital Event and the Committee thereafter
        determines that all or a portion of such amount is not required for such
        purposes, such amount shall be included in Operating Cash Flow when the
        Committee determines that it is no longer necessary or appropriate to retain
        such amount as a reserve. Any non cash consideration received pursuant to
        a
        Major Capital Event, including, without limitation, promissory notes or deferred
        payment obligations, shall only be deemed to be included in Extraordinary
        Cash
        Flow when received in cash by the Company or a Subsidiary, as applicable;
        provided, however, that, in the discretion of the Committee, such noncash
        assets
        may be distributed in kind to the Members, in lieu of cash, treating the
        fair
        market value of such non cash assets at the date of distribution as
        Extraordinary Cash Flow.

       

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

       

      (c)  “Profit”
or
        “Loss”
shall
        mean, for each fiscal year, the net income or net loss of the Company for
        such
        fiscal year, as the case may be, including any items of income, gain, loss
        or
        deduction that are separately stated for purposes of Section
        702(a)
        of the
        Code, as determined in accordance with federal income tax accounting principles
        as adjusted by Treasury Regulation Section
        1.704-l(b)(2)(iv),
        provided
        that any item of income that is not subject to federal income taxation and
        any
        expenditure described in Section
        705(a)(2)(B)
        of the
        Code or treated as an expense under Section
        705(a)(2)(B)
        of the
        Code pursuant to Treasury Regulations Section
        1.704-1(b)(2)(iv)(i),
        shall be
        taken into account. If the context requires, “Profit” or “Loss” may be used
        herein and such terms shall have meanings identical to those described earlier
        in this Section
        9.1(c).

       

      (d)  “Company
        Minimum Gain”
shall
        mean the minimum amount of gain that would be recognized by the Company for
        federal income tax purposes if the Company disposed of property subject to
        non
        recourse liabilities (that is, liabilities for which no Member bears the
        economic risk of loss pursuant to Treasury Regulation 1.752-1(a)(2)) in full
        satisfaction and for the amount thereof, computed in accordance with Treasury
        Regulation Section
        1.704-2(d).

       

      (e)  “Nonrecourse
        Deductions”,
        pursuant to the provisions of Treasury Regulations Sections
        1.704-2(b)(1)
        and
1.704-2(c)
        of the
        Company for any taxable year, shall mean an amount equal to the excess, if
        any,
        of the net increase in the amount of the Company’s Minimum Gain during such year
        over the aggregate amount of any distributions during such year of proceeds
        of
        nonrecourse liability that are allocable to an increase in the Company’s Minimum
        Gain.

       

      9.3  Cash
        Flow Distributions.

       

      (a)  Operating
        Cash Flow.
        The
        Company shall distribute all Operating Cash Flow generated by all of the
        Subsidiaries for each calendar quarter during the term of the Company in
        which
        there is Operating Cash Flow based on the operating statements prepared by
        each
        of the Subsidiary Property Managers pursuant to the Subsidiary Management
        Agreements and approved by the Committee pursuant to Section
        7.1(a),
        said
        distribution to be made not later than ten (10) days subsequent to the issuance
        of the operating statement for each such calendar quarter to the Members
        pro
        rata in accordance with their Percentage Interests.

       

      (b)  Extraordinary
        Cash Flow.
        With
        respect to any Major Capital Event that occurs with respect to any one or
        more
        of the Subsidiaries, the Company shall distribute Extraordinary Cash Flow
        to the
        Members, within three (3) business days of the completion of a Major Capital
        Event as follows: 

       

      (1)  first,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        receive payment in full for their Unreturned Capital Contributions;

       

      (2)  second,
        to
        SHP until SHP has achieved an IRR of twelve and one-half (12.5%) on its
        Unreturned Capital Contributions;

       

      (3)  third,
        to
        ARC until ARC has achieved an IRR of twelve and one-half percent (12.5%)
        on its
        Unreturned Capital Contributions; 

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      (4)  fourth,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        have achieved an IRR of fifteen percent (15%) on their Unreturned Capital
        Contributions; and

       

      (5)  fifth,
        any
        remaining balance shall be distributed sixty percent (60%) to SHP and forty
        percent (40%) to ARC.

       

      Notwithstanding
        the foregoing to the contrary, in the event that SHP, by exercising its
        authority under Section
        6.7(a)(1),
        has
        caused the sale of (i) the entire Portfolio, (ii) any one of the Properties
        or
        (iii) any group of Properties on or before November 1, 2010, distributions
        of
        Extraordinary Cash Flow shall be distributed within three (3) days of the
        completion of a Major Capital Event as follows:

      

      (6)  first,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        receive payment in full for their Unreturned Capital Contributions;

       

      (7)  second,
        eighty percent (80%) to SHP and twenty percent (20%) to ARC until SHP and
        ARC
        have each achieved an IRR of fifteen percent (15.0%) on their Unreturned
        Capital
        Contributions; and

       

      (8)  third,
        any
        remaining balance shall be distributed sixty percent (60%) to SHP and forty
        percent (40%) to ARC. 

       

      9.4  Allocation
        of Profits and Losses For Capital Account Purposes.

       

      (a)  After
        giving effect to the allocations set forth in Sections
        9.4(b)
        and
9.6
        hereof,
        Profit or Loss for any fiscal year shall be allocated between the Members
        so
        that the Capital Account of each Member, increased by such Member’s “share of
        partnership minimum gain” and “share of partner nonrecourse debt minimum gain”
(as so increased, a Member’s Capital Account is hereinafter referred to as such
        Member’s “Augmented Capital Account”), is, as nearly as possible, positive in
        the amount that would be distributed to such Member if the Company were to
        distribute an amount equal to any surplus in Augmented Members’ Capital between
        the Members pursuant to Section
        9.3(b);
        provided, however, that no Loss shall be allocated to any Member for any
        fiscal
        year to the extent that such Loss would create or increase a deficit in such
        Member’s Adjusted Augmented Capital Account.

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

       

      (b)  If,
        after
        giving effect to the allocations set forth in Section
        9.6
        hereof,
        an allocation of Profit or Loss (determined as though no items were allocable
        pursuant to this Section
        9.4(b))
        for any
        fiscal year would leave the Augmented Capital Account of any Member short
        of
        (less than) the amount that would be distributed to such Member under the
        hypothetical circumstances described in Section
        9.4(a)
        above
        while leaving the Augmented Capital Account of the other Member above (more
        than) the amount that would be distributed to such other Member under such
        circumstances, then items of income or gain shall be allocated to the former
        Member, and items of loss or expense shall be allocated to the latter Member,
        until either (i) Profit or Loss (determined without regard to the items of
        income, gain, expense or loss allocated pursuant to this Section
        9.4(b))
        can be
        allocated so as to cause each Member’s Augmented Capital Account to equal the
        amount that would be distributed to such Member under the hypothetical
        circumstances described in Section
        9.4(a)
        above, or
        (ii) there are no more items to allocate; provided, however, that no items
        of
        expense or loss shall be allocated to any Member for any fiscal year to the
        extent such time would create or increase a deficit in such Member’s Adjusted
        Augmented Capital Account.

       

      (c)  For
        purposes of this Agreement:

       

      (1)  “Augmented
        Members’ Capital” at the end of any year means the total amount of capital
        (assets minus liabilities) appearing on the Company’s balance sheet as computed
        for book purposes within the meaning of Section
        7.9(b)
        (taking
        into account Profit or Loss and all items of income, gain, expense or loss
        for
        such year), increased by the amount of “partnership minimum gain” and “partner
        nonrecourse debt minimum gain” of the Company at the end of such
        year.

       

      (2)  “Adjusted
        Augmented Capital Account” means, with respect to any Member as of the end of
        any fiscal year, such Member’s Augmented Capital Account (i) reduced by those
        anticipated allocations, adjustments and distributions described in Section
        1.704-1(b)(2)(ii)(d)(4) (6)
        of the
        Treasury Regulations, and (ii) increased by any deficit in such Member’s Capital
        Account that such Member is deemed obligated to restore under Section
        1.704-1(b)(2)(ii)(c) or
        the
        Treasury Regulations as of the end of such fiscal year.

       

      (3)  All
        terms
        set off in quotation marks and not otherwise defined shall have the meanings
        ascribed to them in Section
        1.704-2
        of the
        Treasury Regulations.

       

      (d)  It
        is the
        intention of the Members that allocations of Profits and Losses pursuant
        to this
Section
        9.4
        shall
        result in a Capital Account balance for each Member at least equal to the
        total
        amount of Operating Cash Flow and Extraordinary Cash Flow which would be
        distributed to such Member under Section
        9.3(a)
        and
9.3(b)
        if such
        distribution were made without regard to Capital Account balances. To the
        extent
        the foregoing allocations do not accomplish this result, the Committee will
        allocate or reallocate Profits and Losses (including allocations of gross
        income
        or gain and gross deductions or losses) differently than expressly provided
        herein, if permitted under the Code and applicable Treasury Regulations,
        so as
        to achieve such result as closely as possible (including filing amended income
        tax returns for prior years).

       

      
        
          
          

        

        
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      9.5  Distributed
        Property.
        Notwithstanding the foregoing provisions of Article
        9,
        upon the
        distribution of property to a Member, for the purposes of computing Profits
        and
        Losses, such property shall be treated as if it had been sold for its fair
        market value on the date of such distribution.

       

      9.6  Special
        Allocations.
        The
        following special allocations shall be made in the following order:

       

      (a)  Nonrecourse
        Deductions shall be allocated among the Members in accordance with their
        Percentage Interests.

       

      (b)  For
        purposes of determining the Members’ respective shares of nonrecourse
        liabilities of the Company under Treasury Regulations Section
        1.752-3,
        each
        Member’s “percentage interest in partnership profits” shall be equal to such
        Member’s Percentage Interest.

       

      (c)  Except
        as
        otherwise provided in Section
        1.704-2(f)
        of the
        Regulations, notwithstanding any other provision of this Article
        9,
        if there
        is a net decrease in Company Minimum Gain during any Company taxable year,
        each
        Member shall be specially allocated items of Company income and gain for
        such
        taxable year (and, if necessary, subsequent years) in an amount equal to
        such
        Member’s share of the net decrease in Company Minimum Gain, determined in
        accordance with Regulations Section
        1.704-2(g).
        Allocations pursuant to the previous sentence shall be made in proportion
        to the
        respective amounts required to be allocated to each Member pursuant thereto.
        The
        items to be so allocated shall be determined in accordance with Sections
        1.704-2(f)(6)
        and
1.704-2(j)(2)
        of the
        Regulations. This Section
        9.6(c)
        is
        intended to comply with the minimum gain chargeback requirement in Section
        1.704 2(f)
        of the
        Regulations and shall be interpreted consistently therewith.

       

      (d)  Except
        as
        otherwise provided in Section
        1.704-2(i)(4)
        of the
        Regulations, notwithstanding any other provision of this Article
        9,
        if there
        is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
        a
        Member Nonrecourse Debt during any Company taxable year, each Member who
        has a
        share of the Member Nonrecourse Debt Minimum Gain attributable to such Member
        Nonrecourse Debt, determined in accordance with Section
        1.704-2(i)(5)
        of the
        Regulations, shall be specially allocated items of Company income and gain
        for
        such year (and, if necessary, subsequent years) in an amount equal to such
        Member’s share of the net decrease in Member Nonrecourse Debt Minimum Gain
        attributable to such Member Nonrecourse Debt, determined in accordance with
        Regulations Section
        1.704-2(i)(4).
        Allocations pursuant to the previous sentence shall be made in proportion
        to the
        respective amounts required to be allocated to each Member pursuant thereto.
        The
        items to be so allocated shall be determined in accordance with Sections
        1.704-2(i)(4)
        and
1.704-2(j)(2)
        of the
        Regulations. This Section
        9.6(d)
        is
        intended to comply with the minimum gain chargeback requirement in Section
        1.704-2(i)(4)
        of the
        Regulations and shall be interpreted consistently therewith. 

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

       

      (e)  The
        allocation contained in this Section
        9.6(e)
        is
        intended to be a “qualified income offset” as defined in Treasury Regulations
Section
        1.704-1(b)(2)(ii)(d)
        on the
        date hereof and shall be interpreted in a manner consistent with such
        regulation. Notwithstanding the provisions of Section
        9.6(e),
        a Member
        shall not be allocated Losses or deductions if such allocation would cause
        or
        increase a deficit balance in such Member’s Adjusted Capital Account (as defined
        below) as of the end of the calendar year to which such allocation relates.
        Any
        such Losses or deductions that would have been allocated to such Member but
        for
        the preceding sentence shall, to the extent permitted by this Section
        9.6(e),
        be
        allocated to the other Member. In addition, if in any taxable year, a Member
        unexpectedly receives an adjustment, allocation or distribution that exceeds
        offsetting increases to such Member’s Adjusted Capital Account in such taxable
        year (other than increases pursuant to this Section
        9.6(e)),
        then
        such Member shall be allocated gross income equal to the “Qualified
        Income Offset Amount”.
        The
        Qualified Income Offset Amount is an amount equal to the amount by which
        zero
        exceeds a Member’s Adjusted Capital Account. If in any taxable year to which
        this Section
        9.6(e)
        applies
        the items of gross income of the Company are less than the amount of the
        Qualified Income Offset Amounts for all of the Members to which this
Section
        9.6(e)
        applies,
        then each Member to which this Section
        9.6(e)
        applies
        shall be allocated a pro rata amount of gross income, and in subsequent taxable
        years each of such Members shall be allocated gross income, equal to the
        amount
        which, when added to the allocations to such Member pursuant to this
Section
        9.6(e)
        in prior
        taxable years, will equal the Qualified Income Offset Amount applicable to
        such
        Member for such prior taxable year and for such subsequent taxable years.
        A
        Member’s “Adjusted
        Capital Account”
shall
        mean such Member’s Capital Account (i) reduced for distributions that, as of the
        end of the taxable year, reasonably are expected to be paid to such Member
        to
        the extent that such distributions exceed offsetting increases to such Member’s
        Capital Account that reasonably are expected to occur during (or prior to)
        the
        taxable years in which such distributions reasonably are expected to be made
        (other than increases resulting from allocations pursuant to Section
        9.6(c))
        and (ii)
        increased for (a) the amount of such Member’s share of Company Minimum Gain, (b)
        the amount of such Member’s Nonrecourse Debt Minimum Gain and (c) such Member’s
        future obligations to contribute to the Company (if any). For purposes of
        determining the amount of expected distributions and expected Capital Account
        increases, the Book Basis will be presumed to be the fair market value of
        Company property.

       

      (f)  Any
        Member
        Nonrecourse Deductions for any taxable year shall be specially allocated
        to the
        Member who bears the economic risk of loss with respect to the Member
        Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
        in
        accordance with Regulations Section
        1.704-2(i)(1).
        

       

      (g)  Any
        special allocations of items of income, gain, loss or deduction pursuant
        to this
Section
        9.6
        (including such allocations as have been made in the past as well as such
        allocations as are reasonably expected to be made in the future) shall be
        taken
        into account for the purpose of equitably adjusting subsequent allocations
        of
        items of income, gain, loss or deduction so that the net allocations, in
        the
        aggregate, allocated to each Member pursuant to this Article
        9,
        and the
        Capital Accounts of each Member, shall to the extent possible without violating
        the constraints set forth in Section
        9.4
        and this
Section
        9.6,
        be the
        same as if no special allocations had been made under this Section
        9.6.

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

      9.7  Allocations
        of Profits and Losses for Tax Purposes.
        For
        federal tax purposes, in accordance with Section
        704(c)
        of the
        Code and any regulations thereunder, gain with respect to any property which
        may
        be contributed to the Company shall, solely for tax purposes, be allocated
        among
        the Members so as to take account of any variation between the adjusted tax
        basis of such property to the Company and the fair market value at the time
        of
        contribution.

       

      9.8  Recapture
        and Investment Credits.

       

      (a)  Investment
        tax credits, if any, shall be allocated to the Members in accordance with
        their
        respective Percentage Interests.

       

      (b)  Any
        recapture of depreciation deductions or investment tax credits shall be
        allocated to the Member to whom (or to the predecessors in interest of whom)
        were allocated the prior depreciation deductions or investment tax credits,
        as
        the case may be.

       

      ARTICLE
        10. 

      ASSIGNMENT
        AND OFFER TO PURCHASE

       

      10.1  Transfers.

       

      (a)  Neither
        Member, nor any permitted assignee or successor in interest of either Member,
        may sell, assign, give or otherwise transfer (collectively, “Transfer”)
        its
        interest in the Company, or any part thereof, except as provided in this
        Article
        10.
        Neither
        Member, nor any permitted assignee or successor in interest of either Member,
        may pledge, hypothecate or encumber its interest in the Company, or any part
        thereof, without the prior written consent of the other Member (which consent
        may be withheld or denied in the sole and absolute discretion of the other
        Member). Except as provided in Sections
        10.1(d), 10.1(e), 10.6(c)
        or
10.7(i)
        and for
        the limited purpose described therein, neither Member shall have the right
        to
        Transfer less than all of its Entire Interest.

       

      (b)  Transfer
        by SHP of its Entire Interest in the Company to an Affiliate shall be a Transfer
        permitted under this Article
        10
        and SHP
        shall not be required to obtain the consent of, nor offer the interest to
        be
        transferred to, ARC. A Transfer by ARC of its Entire Interest in the Company
        to
        an Affiliate shall be a Transfer permitted under this Article
        10
        and ARC
        shall not be required to obtain the consent of, nor offer the interest to
        be
        transferred to, SHP; provided that such Affiliate is at least 51% owned by
        Acceptable Persons who have the right to control such Affiliate. 

       

      (c)  In
        the
        event of a termination of the Company within the meaning of Section
        708
        of the
        Code because of the dissolution of or a Transfer of any interest in a Member
        or
        an entity owning directly or indirectly a beneficial interest in a Member
        or a
        Transfer of a Member’s interest in the Company, such Member shall indemnify the
        other Member (the “Indemnitee”)
        and
        hold the Indemnitee harmless for, from and against any and all net adverse
        federal, state or local tax consequences (including any diminution or delay
        in
        any depreciation, recovery or amortization deductions and any and all penalties,
        interest, expenses and taxes on payments made pursuant to this Section
        10.1(c))
        which
        the Indemnitee shall sustain as a result of such termination.

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

      (d)  Without
        regard to the restrictions imposed by this Article
        10
        (excepting the obligation set forth in Section
        10.1(c)),
        SHP may
        transfer or allocate all or part of its interest in the Company to any separate
        account formed by The Prudential Insurance Company of America pursuant to
        the
        provisions of Section
        17B:28-7
        N.J.S.A.

       

      (e)  If
        either
        Member shall transfer a portion of its interest in the Company, as provided
        in
Section
        10.3
        or
10.5(d)
        that,
        together with other interests in the Company Transferred during the preceding
        12
        months, represents more than a 49% interest in the total profits and capital
        of
        the Company, such Transfer, at either Member’s option, shall be effected so as
        to avoid a termination of the Company for federal income tax purposes under
        Section
        708(b)(1)(B)
        of the
        Code, and for that purpose the Members agree to negotiate modifications to
        this
        Agreement in good faith.

       

      (f)  It
        shall
        be a condition precedent to any Transfer permitted under Section
        10.1(b) that
        the
        transferee shall have executed and delivered to the Members an agreement
        in form
        and substance satisfactory to them to the effect that the transferee agrees
        to
        be bound by all of the terms and conditions of this Agreement, and that the
        transferee is acquiring an interest in the Company subject thereto.

       

      10.2    
        Other
        Assignments Void.

       

      (a)  Any
        purported transfer of an interest in the Company not otherwise permitted
        by this
Article
        10
        shall be
        null and void and of no effect whatsoever.

       

      (b)  Subject
        to
        the provisions of Section
        10.1(c),
        ARC
        shall not, without the prior written consent of SHP, which may be granted
        or
        withheld in SHP’s sole and absolute discretion, transfer, pledge, convey or
        encumber any of the interest in ARC or in the Initial Property Manager to
        any
        person who is not an Acceptable Person or to any entity controlling interest
        of
        which is not owned by an Acceptable Person.

       

      10.3    
        Sale
        of
        Entire Interest to Other Member; Buy-Sell.

       

      (a)  Either
        Member (the “Initiating
        Member”)
        may, at
        any time from and after November 1, 2007, give the other Member (the
“Other
        Member”)
        a
        written notice (the “Termination
        Notice”)
        setting
        forth (i) the value (“Specified
        Value”)
        which
        the Initiating Member places on all the assets of the Company, (ii) the selling
        price, which must consist wholly of cash (the “Cash
        Selling Price”),
        for
        the Initiating Member’s entire equity interest in the Company (“Entire
        Interest”)
        and
        (iii) the purchase price, which must consist wholly of cash (the “Cash
        Purchase Price”),
        for
        the Other Member’s Entire Interest in the Company. The Cash Selling Price and
        the Cash Purchase Price specified in the Termination Notice shall be the
        amounts
        determined by a reputable independent  certified  public accountant
 (computed  at  the  Initiating  Member’s
 expense)  that  the  Initiating  Member and the
        Other Member would receive (excluding repayments of Special Loans and Loans)
        if
        the Company were to liquidate all of its assets at the

       

      
        
          
          

        

        
          34

          
            

          

        

        
          
          

        

      

       

      Specified
        Value and the Company were to dissolve and distribute the proceeds of
        liquidation (in accordance with the procedures and priorities stated in
Article
        13)
        effective as of the date of the Termination Notice. The calculation of the
        amounts a Member would receive in exchange for its Entire Interest in the
        Company, if the Company were to dissolve, liquidate its assets and distribute
        the liquidation proceeds effective as of the date of the Termination Notice,
        shall be made in accordance with the provisions of Section
        13.5;
        provided,
        however,
        that, in
        making such calculation, it shall be assumed that no reserves are required
        pursuant to Section
        13.5(b) with
        respect to contingent liabilities and no deduction from the hypothetical
        liquidation proceeds shall be made with respect to transfer and other taxes.
        The
        Termination Notice shall be accompanied by an earnest money deposit in an
        amount
        equal to 5% of the Cash Purchase Price (said amount, together with any interest
        earned thereon, being hereinafter called the “Initiating
        Member’s Deposit”).

       

      (b)  The
        Other
        Member shall, on or before the date that is ninety (90) days after the date
        of
        receipt of the Termination Notice, either accept the offer to sell the Other
        Member’s Entire Interest to the Initiating Member, or accept the offer of the
        Initiating Member to sell the Initiating Member’s Entire Interest to the Other
        Member. If the Other Member elects to accept the Initiating Member’s offer to
        sell the Initiating Member’s Entire Interest, its notice of such election shall
        be accompanied by (i) the return of the Initiating Member’s Deposit and (ii) its
        own earnest money deposit in an amount equal to 5% of the Cash Selling Price
        (said amount, together with any interest earned thereon, being hereinafter
        called the “Other
        Member’s Deposit”).
        If the
        Other Member fails to respond to the Termination Notice within such ninety
        (90)
        day period, the failure to respond shall be deemed the Other Member’s election
        to accept the offer of the Initiating Member to purchase the Entire Interest
        of
        the Other Member in accordance with the Termination Notice.

       

      (c)  Funding
        of
        the purchase and sale pursuant to this Section
        10.3
        shall
        occur on the date which is not later than ninety (90) days after the Other
        Member’s election or deemed election pursuant to Section
        10.3(b),
        or at
        such other time as may be otherwise agreed to in writing by the Other Member
        and
        the Initiating Member. The closing shall occur at the office of SHP’s counsel,
        unless otherwise agreed by the Members. The Initiating Member’s Deposit or the
        Other Member’s Deposit, as the case may be, shall be credited against the total
        purchase price for the Entire Interest being purchased pursuant to this
Section
        10.3;
        provided,
        however,
        if the
        closing shall fail to occur because of a default by the purchasing Member,
        the
        selling Member shall have the right, as its exclusive remedy, to retain the
        earnest money deposit as liquidated damages, it being agreed that in such
        instance such selling Member’s actual damages would be difficult, if not
        impossible, to ascertain.

       

      (d)  In
        connection with the sale of one Member’s Entire Interest to the other Member
        pursuant to this Section
        10.3,
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale.

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      10.4  Right
        of First Refusal for Sale of Entire Interest to Third Party.

       

      (a)     
        Either
        Member may, at any time from and after November 1, 2007, sell its Entire
        Interest in the Company to a third party, provided such Member shall comply
        with
        the provisions of this Section
        10.4.
        If such
        Member shall receive from a third party (the “Offeror”)
        a bona
        fide, arm’s-length offer (the “Offer”),
        in
        writing, signed by the Offeror setting forth all the material terms of the
        Offer, for the purchase, without financing contingency, on a date set forth
        in
        such Offer (which shall be no less than ninety (90) nor more than one hundred
        eighty (180) days after the Other Member’s receipt of the Offer), of such
        Member’s Entire Interest, then the Member who shall have received such Offer
        (the “Selling
        Member”)
        shall
        within thirty (30) days after receipt thereof, if it wishes to accept the
        Offer,
        forward a true copy thereof to the other Member (the “Receiving
        Member”)
        together with reasonable information as to the identity of the Offeror, its
        partners or directors, officers and controlling shareholders.

       

      (b)     
        If
        the
        Selling Member has forwarded a copy of the Offer to the Receiving Member,
        the
        Receiving Member may, within forty-five (45) days after receiving a copy
        of the
        Offer, elect one of the three following options:

       

      (1)     
        notify
        the
        Selling Member that the Receiving Member has no objection to the Selling
        Member
        accepting the Offer, in which event the Selling Member may sell its Entire
        Interest to the Offeror upon the terms and conditions contained in the Offer;
        or

       

      (2)     
        notify
        the
        Selling Member of the Receiving Member’s election to purchase the Selling
        Member’s Entire Interest upon the same terms and conditions contained in the
        Offer except as to hour and place of closing, and except that the purchase
        price
        must consist wholly of cash. Such notification shall be accompanied by an
        earnest money deposit in an amount equal to 5% of the price payable pursuant
        to
        this Section
        10.4(b)(2)
        (said
        amount, together with any interest earned thereon, being hereinafter called
        the
“Receiving
        Member’s Deposit”).
        Notice
        of election to purchase shall be addressed to the Selling Member and shall
        set
        forth the hour and place of closing which, unless the Members shall otherwise
        agree, shall be at the office of SHP’s counsel, during usual business hours on a
        date not less than forty (40) nor more than sixty (60) days from the date
        of the
        giving of the notice of election to the Selling Member. The Receiving Member’s
        Deposit shall be credited against the total purchase price for the Entire
        Interest being purchased pursuant to this Section
        10.4;
        provided,
        however,
        that if
        the closing shall fail to occur because of a default by the Receiving Member,
        the Selling Member shall have the right, as its exclusive remedy, to retain
        the
        Receiving Member’s Deposit as liquidated damages, it being agreed that in such
        instance such Selling Member’s actual damages would be difficult, if not
        impossible, to ascertain; or

       

      (3)     
        notify
        the
        Selling Member that the Receiving Member objects to the Offeror becoming
        a
        member in the Company.

       

      If
        the
        Receiving Member shall not have given written notice to the Selling Member,
        as
        described in subsections (1), (2) or (3) above, within such forty-five (45)
        day
        period, the Receiving Member shall be deemed to have exercised the option
        provided in subsection (3) above.

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      (c)     
        If
        the
        Receiving Member gives notice to the Selling Member, within the required
        forty-five (45) day period objecting to the Offeror becoming a member in
        the
        Company (or is deemed to object due to its failure to respond within such
        forty-five (45) day period), then the Selling Member shall have the right
        and
        option (to be exercised by written notice to such effect within forty-five
        (45)
        days after the earlier of the date the Selling Member shall have received
        such
        written objection from the Receiving Member in the manner provided in Section
        (b) above or the expiration of the original forty-five (45) day period without
        response by the Receiving Member) to either:

       

      (1) reject
        the
        Offer in which case the terms of this Agreement shall remain in effect and
        continue to be binding on the Members; or

       

      (2) sell
        or
        assign its Entire Interest to the Offeror upon the terms submitted in the
        Offer,
        in which case, subject to the provisions of Section
        10.7,
        the
        Offeror shall become a Member; provided,
        however,
        that
        such sale or assignment to the Offeror shall give the Receiving Member the
        option, to be exercised within forty-five (45) days after receipt by the
        Receiving Member of such sale or assignment (notice of which shall be given
        by
        the Selling Member to the Receiving Member within ten (10) days following
        the
        effective date of the sale or assignment) to dissolve the Company pursuant
        to
Article
        13
        and, in
        the event of such dissolution, such Receiving Member shall be the Liquidating
        Member.

       

      (d)     
        In
        connection with the sale of one Member’s Entire interest to the other Member
        pursuant to this Section
        10.4,
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale, except that for the purposes of this Section
        10.4,
        the date
        the Receiving Member receives a copy of the Offer from the Selling Member
        shall
        be the governing date referred to in Sections
        10.7(e) and (f),
        rather
        than the date of giving of the Termination Notice.

       

      (e)     
        Whether
        or
        not any transaction contemplated by the foregoing provisions of this
Section
        10.4
        is
        consummated pursuant to the provisions of the Offer (and any modifications
        thereto which provide only for an increased price or more favorable terms
        to the
        Selling Member), all the provisions of this Section
        10.4
        shall
        apply to any subsequent offer or offers.

       

      10.5  Right
        of First Offer for Sale of Portfolio, Property or Properties.

       

      (a)  SHP
        may,
        at any time from and after November 1, 2007, require the sale by the Company
        of
        (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group
        of
        Properties to a third party purchaser for not less than the amount, and upon
        such terms (including a closing date), as SHP may propose in a notice
        (“Sale
        Proposal”)
        to
        ARC.

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

      (b)  Within
        ninety (90) days after receiving the copy of the Sale Proposal, ARC shall
        notify
        SHP that either:

       

      (1)  ARC
        is
        agreeable to the sale of (i) the entire Portfolio, (ii) any one of the
        Properties or (iii) any group of Properties, as applicable, by the Company
        to a
        third party purchaser in accordance with the terms set forth in the Sale
        Proposal (in such event ARC’s election to permit such sale shall be binding upon
        ARC for one (1) year) and during such one (1) year period the Company shall
        make
        every reasonable effort to effect such sale to a third party as evidenced
        by a
        letter of interest (or at SHP’s election, a letter of intent or purchase
        agreement) to be executed within such one (1) year period, with closing to
        occur
        within one hundred twenty (120) days after the execution of the letter of
        interest (or letter of intent or purchase agreement, as the case may be)
        and SHP
        shall have the right, but not the obligation, to conduct and perform all
        marketing of (i) the entire Portfolio, (ii) any one of the Properties or
        (iii)
        any group of Properties, as applicable, on behalf and at the expense of the
        Company during such one (1) year period), or

       

      (2)  ARC
        both
        objects to such Sale Proposal and elects to purchase (a “Purchase Election
        Notice”) (i) the entire Portfolio, (ii) any one of the Properties or (iii) any
        group of Properties, as applicable, from the Company, for a total price equal
        to
        (i) the total price set forth in the Sale Proposal, less (ii) an amount equal
        to
        the outstanding mortgages or liens, if any, encumbering (i) the entire
        Portfolio, (ii) any one of the Properties or (iii) any group of Properties,
        as
        applicable, proposed in the Sale Proposal to be and actually assumed, and
        otherwise upon terms and conditions substantially similar to, and no less
        advantageous to the Company than, those set forth in the Sale Proposal;
provided,
        however,
        that the
        purchase price to be paid by ARC for (i) the entire Portfolio, (ii) any one
        of
        the Properties or (iii) any group of Properties, as applicable, shall consist
        wholly of cash. ARC’s objection and Purchase Election Notice shall be
        accompanied by an earnest money deposit, payable to SHP, in an amount equal
        to
        5% of the purchase price of (i) the entire Portfolio, (ii) any one of the
        Properties or (iii) any group of Properties, as applicable, (said amount,
        together with any interest earned thereon, being hereinafter called the
“Deposit”).
        If
        within such ninety (90) day period ARC shall deliver a Purchase Election
        Notice
        together with the Deposit to SHP, then the Members shall promptly proceed
        with
        the purchase and sale pursuant to this Section
        10.5(b)(2),
        the
        closing to take place within sixty (60) days following the date of the Purchase
        Election Notice, in which event the Deposit shall be credited to ARC against
        the
        total purchase price of (i) the entire Portfolio, (ii) any one of the Properties
        or (iii) any group of Properties, as applicable; provided,
        however,
        that if
        such closing shall fail to occur because of a default by ARC, then SHP shall
        have the right, as its exclusive remedy, to retain the Deposit as liquidated
        damages, it being agreed that in such instance its actual damages would be
        difficult, if not impossible, to ascertain. After any such default by ARC,
        SHP
        shall have the right to require the Company to sell (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to any provisions of this Article
        10
        including, without limitation, by reinstituting the procedures set forth
        in this
Section
        10.5.
        If no
        default occurs, the closing shall take place during normal business hours
        at the
        office of SHP’s counsel or as otherwise agreed by the Members. The provisions of
Sections
        10.7(a), (b), (d), (e), (f), (g), (h) and (i)
        shall
        apply to the sale, except the date of delivery of the Purchase Election Notice
        shall be the governing date referred to in Sections
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. All prorations of real estate taxes,
        rents, etc., shall be made as of the date of sale. All real property transfer
        taxes shall be paid for by the Company and all recording fees shall be paid
        for
        by ARC. Failure of ARC to object to the Sale Proposal and to deliver a Purchase
        Election Notice and the Deposit within such ninety (90) day period shall
        be
        deemed an election by ARC to allow SHP to proceed with a sale of the Property
        under Section
        10.5(b)(1).
        

       

      
        
          
          

        

        
          38

          
            

          

        

        
          
          

        

      

       

      (c)  If
        (i) SHP
        shall have the right and authority to effect a sale of (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to Section
        10.5(b)(1);
        and (ii)
        SHP receives, during the one (1) year period in which the Sale Proposal is
        in
        effect pursuant to Section
        10.5(b)(1),
        an offer
        from a third party to purchase (i) the entire Portfolio, (ii) any one of
        the
        Properties or (iii) any group of Properties, as applicable, for a purchase
        price
        less than ninety-four percent (94%) of the price or on terms materially less
        favorable to the Company than those set forth in the Sale Proposal (the
“Alternative
        Offer”),
        which
        Alternative Offer is acceptable to SHP, then SHP shall give notice to ARC
        of
        such Alternative Offer, which notice shall include all of the relevant terms
        and
        conditions of such Alternative Offer. ARC shall have the right, for a period
        of
        thirty (30) days after its receipt of such notice from SHP, to elect to purchase
        (i) the entire Portfolio, (ii) any one of the Properties or (iii) any group
        of
        Properties, as applicable, in the manner set forth in Section
        10.5(b)(2)
        and on
        the terms set forth in the Alternative Offer, except that ARC’s purchase price
        shall be payable wholly in cash. If ARC shall deliver notice of such election
        during such thirty (30) day period to purchase (i) the entire Portfolio,
        (ii)
        any one of the Properties or (iii) any group of Properties, as applicable,
        as
        aforesaid, the purchase and sale pursuant to this Section
        10.5(c)
        shall
        occur within sixty (60) days after receipt by SHP of the notice of such
        election. The provisions of Sections
        10.7(a), (b), (d), (e), (f), (g), (h) and (i)
        shall
        apply to the sale except that the date SHP gives ARC notice of the Alternative
        Offer shall be the governing date referred to in Sections
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. If ARC shall not elect, within such
        thirty (30) day period, to purchase (i) the entire Portfolio, (ii) any one
        of
        the Properties or (iii) any group of Properties, as applicable, pursuant
        to the
        foregoing provisions of this Section
        10.5(c),
        SHP
        shall have the right to effect a sale of (i) the entire Portfolio, (ii) any
        one
        of the Properties or (iii) any group of Properties, as applicable, pursuant
        to
        the terms of the Alternative Offer provided that the closing of such sale
        shall
        occur not later than the closing date specified in the Sale Proposal then
        in
        effect pursuant to Section
        10.5(b)(1).

       

      (d)  ARC
        may
        specify in a Purchase Election Notice delivered pursuant to Section
        10.5(b)(2) or 10.5(c)
        that it
        desires to purchase SHP’s Entire Interest in the Company rather than (i) the
        entire Portfolio, (ii) any one of the Properties or (iii) any group of
        Properties, as applicable. In such event, the Purchase Election Notice shall
        be
        accompanied by an earnest money deposit (the “ARC
        Deposit”)
        in an
        amount equal to 5% of the price specified in the next sentence. In such event,
        ARC shall be obligated to purchase and SHP shall be obligated to sell SHP’s
        Entire Interest in the Company for a price equal to the amount, determined,
        by a
        reputable, independent certified public accountant designated by SHP, (at
        the
        expense of ARC), SHP would have received (excluding payment of Loans and
        Special
        Loans) if (i) the entire Portfolio, (ii) any one of the Properties or (iii)
        any
        group of Properties, as applicable, were sold pursuant to the terms of the
        Sale
        Proposal and the Company were to dissolve and distribute the proceeds of
        liquidation (in accordance with the procedures and priorities stated in
Article
        13,
        provided
        that in making such calculation, it shall be assumed that no reserves are
        required pursuant to Section
        13.5(b)
        with
        respect to contingent liabilities and no deduction from the hypothetical
        liquidation proceeds shall be made with respect to transfer or other taxes).
        In
        connection with the sale of SHP’s Entire Interest to ARC pursuant to this
Section
        10.5(d),
        all of
        the provisions of Section
        10.7
        shall be
        applicable to such sale except the date of the delivery of the Purchase Election
        Notice or the Alternative Offer, as the case may be, shall be the governing
        date
        referred to in Section
        10.7(e) and (f)
        rather
        than the date of the Termination Notice. The ARC Deposit shall be credited
        against the total purchase price for SHP’s Entire Interest being purchased
        pursuant to this Section
        10.5(d),
        provided,
        however,
        that if
        the closing shall fail to occur because of default by ARC, SHP shall have
        the
        right, as its exclusive remedy, to retain the ARC Deposit as liquidated damages,
        it being agreed that in such instance SHP’s actual damages would be difficult,
        if not impossible, to ascertain. After any such default by ARC, SHP shall
        have
        the right to require the Company to sell (i) the entire Portfolio, (ii) any
        one
        of the Properties or (iii) any group of Properties, as applicable, pursuant
        to
        any provisions of this Article
        10
        including, without limitation, by reinstituting the procedures set forth
        in this
Section
        10.5.
        

       

      
        
          
          

        

        
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      (e)  Whether
        or
        not any transaction contemplated by the foregoing provisions of this
Section
        10.5
        is
        consummated pursuant to the provisions of the Sale Proposal, all the provisions
        of this Section
        10.5
        shall
        apply to any subsequent sale proposals.

       

      (f)  During
        any
        period of time when SHP or the Company is actively marketing (i) the entire
        Portfolio, (ii) any one of the Properties or (iii) any group of Properties,
        as
        applicable, pursuant to this Section
        10.5,
        (i)
        neither Member shall exercise its right to deliver a Termination Notice pursuant
        to Section
        10.3,
        (ii)
        ARC’s and SHP’s right to sell its Entire Interest pursuant to the terms of
Section
        10.4
        shall be
        suspended, and (iii) ARC and SHP shall suspend all marketing efforts or
        negotiations it may have commenced with respect to the sale of its Entire
        Interest.

       

      (g)  In
        no
        event shall SHP be in default or have any liability to ARC or the Company
        for a
        failure by a third party to complete the purchase of (i) the entire Portfolio,
        (ii) any one of the Properties or (iii) any group of Properties, as applicable,
        pursuant to this Section
        10.5.

       

      10.6        
        Assumption
        by Assignee; Compliance with Legal Requirements Following Assignment; Option
        to
        Reduce Interest Being Sold.

       

      (a)  Any
        assignment of an Entire Interest in the Company to a third party pursuant
        to
Section
        10.4
        shall be
        in writing, and, except as provided in Section
        10.6(c),
        shall be
        an assignment and transfer of all of the assignor’s rights and obligations
        thereafter accruing hereunder, and the assignee shall expressly agree in
        writing
        to be bound by all of the terms of this Agreement and assume and agree to
        perform all of the assignor’s agreements and obligations existing or arising at
        the time of and subsequent to such assignment. Upon any assignment of the
        assignor’s Entire Interest and after such assumption, the assignor shall be
        relieved of its agreements and obligations hereunder arising after such
        assignment and the assignee shall become a Member in place of the assignor;
        provided,
        however,
        that the
        agreements and obligations of the assignor which existed at the time of such
        assignment, shall continue in force and effect in accordance with their
        respective terms and shall survive an assignment by ARC or SHP, as the case
        may
        be. An executed counterpart of each such assignment of an Entire Interest
        in the
        Company and assumption of a Member’s obligations thereafter accruing shall be
        delivered to each Member and to the Company. The assignee shall pay all expenses
        incurred by the Company or the continuing Member in admitting the assignee
        as a
        Member. Except as otherwise expressly provided herein, no permitted assignment
        shall dissolve the Company. As a condition to any assignment of an Entire
        Interest, the selling Member shall obtain such consents as may be required
        from
        third parties, if any, or waivers thereof. The Other Member shall cooperate
        with
        the selling Member in obtaining such consents or waivers at no expense to
        the
        Other Member.

       

      
        
          
          

        

        
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      (b)  If
        an
        assignment of an Entire Interest in the Company shall take place pursuant
        to the
        provisions of Section
        10.4,
        then
        unless the Company is dissolved by such assignment, the continuing Members
        promptly thereafter shall take all such actions as may be required by law
        to
        reflect such assignment.

       

      (c)  A
        Member
        undertaking to sell its Entire Interest to a third party pursuant to the
        provisions of Section
        10.4(a)
        shall
        have the option, if required in order to avoid a termination of the Company
        for
        federal income tax purposes under Section
        708(b)(1)(B)
        of the
        Code, of initially selling only that portion of the selling Member’s Entire
        Interest which, together with other interests in the Company Transferred
        during
        the preceding 12 months, represents no more than 49% of the total interests
        in
        the capital and profits of the Company. The purchase price shall be the price
        the purchaser would have paid for the selling Member’s Entire Interest as
        provided in Section
        10.4(a)
        multiplied by a fraction the numerator of which is the selling Member’s
        Percentage Interest being Transferred and the denominator of which is the
        selling Member’s Percentage Interest. If the selling Member shall exercise such
        option, it shall have the further option to sell and, upon request by the
        other
        Member, shall be obligated to sell at the earliest time or times as will
        not
        cause a termination of the Company under Section
        708(b)(1)(B)
        of the
        Code, the remainder of its Percentage Interest (the “Remaining Percentage
        Interest”) to the holder of the interest so sold, and the selling Member shall
        not be required in connection with the sale of such Remaining Percentage
        Interest to obtain the consent of, nor offer such Remaining Percentage Interest
        to, the other Member, provided the sale of such Remaining Percentage Interest
        shall remain subject to the provisions of Section
        10.1(c).

       

      10.7        
        General
        Transfer Provisions.
        All of
        the subsections of this Section
        10.7
        shall
        apply to the sale of one Member’s Entire Interest to the other Member pursuant
        to Section
        10.3, 10.4 or 10.5(d).
        Subsections (a), (b), (d), (e), (f), (g), (h) and (i) of this Section
        10.7
        shall
        apply to the sale of the Property by the Company to a Member pursuant to
        Section
        10.5:

       

      (a)  In
        the
        event of the sale of an Entire Interest, the purchase price shall be paid,
        at
        the selling Member’s option, by certified check drawn to the order of the
        selling Member, or by wire transfer of immediately available funds to an
        account
        which is designated by the selling Member. In the event of a sale of the
        Portfolio, Property or group of Properties, the purchase price shall be paid,
        at
        the Company’s option, by certified check drawn to the order of the Company, or
        by wire transfer of immediately available funds to an account which is
        designated by the Company. At the closing there shall be an accounting as
        of the
        closing of the Company’s books and there shall be an adjustment of the purchase
        price based upon a proration of any accrued income and expenses as of the
        closing date. Within ninety (90) days after the closing the Accountants for
        the
        Company shall complete an audit of such accounting and proration and shall
        deliver their audit report to the selling Member and the purchasing Member.
        If
        such audit report shall adjust such proration, the party in whose favor such
        adjustment is made shall promptly be paid by the other party the amount of
        such
        adjustment. At the closing either Member shall have the right to require
        to be
        placed in escrow with an escrow agent reasonably acceptable to the other
        Member
        an amount not to exceed the maximum likely post-closing adjustment of the
        proration as agreed by the Members or, if they shall be unable to agree,
        as
        estimated by a reputable independent certified public accountant reasonably
        acceptable to both parties, and the escrow agent shall distribute the escrowed
        amount to the party or parties entitled thereto promptly after the delivery
        of
        the audit report. If such escrow is established at the request of the purchasing
        Member, a portion of the purchase price shall be set aside for such purpose,
        and
        if such escrow is established at the request of the selling Member, additional
        funds shall be deposited by the purchasing Member at closing. At closing
        the
        selling Member shall deliver to the purchasing Member a “nonforeign affidavit”
as referred to in the Foreign Investment in Real Property Tax Act in form
        and
        substance reasonably satisfactory to the purchasing Member together with
        original counterparts or certified copies of all leases and service contracts
        affecting the Property.

       

      
        
          
          

        

        
          41

          
            

          

        

        
          
          

        

      

       

      (b)  If
        the
        purchasing Member desires to receive a new or updated title insurance policy
        or
        survey or both, it shall pay for same at its own expense.

       

      (c)  If
        there
        shall be any outstanding Special Loan(s) or Loan(s) by the selling Member
        to the
        Company, such Special Loan(s) or Loan(s), including interest thereon accrued
        and
        unpaid, shall be purchased by the purchasing Member for the principal amount
        thereof and accrued and unpaid interest thereon as a condition precedent
        to such
        sale. The purchase price for such Special Loan(s) and Loans(s) shall be paid,
        at
        the selling Member’s option, by certified check drawn to the order of the
        selling Member, or by wire transfer of immediately available funds to an
        account
        designated by the selling Member. At the closing, the selling Member shall
        deliver to the purchasing Member, each note evidencing such Special Loans(s)
        or
        Loan(s).

       

      (d)  On
        payment
        of the purchase price, the purchasing Member shall, at its option, as to
        each
        Company debt, obligation or claim against the Company for which the selling
        Member or any of its Affiliates is or may be personally liable except for
        any
        debts, obligations or claims which are fully insured by public liability
        insurer(s) acceptable to the selling Member (the public liability insurer(s)
        of
        the Company shall be deemed to be acceptable), elect one of the following
        options: (i) obtain a release of the selling Member and its Affiliates from
        all
        liability, direct or contingent, by all holders of each such Company debt,
        obligation or claim, or (ii) cause the same to be paid in full at the closing
        to
        the satisfaction of the selling Member. In addition, the purchasing Member
        shall
        defend, indemnify and hold the selling Member and its Affiliates (and, if
        the
        selling Member is ARC, their Affiliates) harmless for, from and against all
        debts, liabilities and obligations of, and all claims against, the Company,
        whether then existing or thereafter to arise, not paid in full or released
        pursuant to the preceding sentence; provided,
        however,
        that
        such indemnification shall not extend to those claims arising in whole or
        in
        part from intentional acts or omissions or gross negligence proximately caused
        by the selling Member. Both Members and the Company shall also execute a
        mutual
        general release pursuant to which the selling Member shall release the Company
        and the purchasing Member and its Affiliates (and, if the purchasing Member
        is
        ARC, their Affiliates) and the purchasing Member shall release the Company
        and
        the selling Member and its Affiliates (and, if the selling Member is ARC,
        their
        Affiliates) from all liabilities and obligations (whether known or unknown,
        foreseen or unforeseen or previously accrued or thereafter accruing) relating
        to
        the Company or the Property, other than those arising from the indemnities
        given
        pursuant to this subsection
        10.7(d).

       

      
        
          
          

        

        
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      (e)  Both
        Members (including the selling Member) shall be entitled to any distributions
        of
        Operating Cash Flow from the Company in accordance with Section
        9.2(a)
        following
        the giving of the Termination Notice pursuant to Section
        10.3
        (or
        following such other event as set forth in Section
        10.4 or 10.5)
        and
        until the closing. Except as provided in Section
        10.7(j),
        the
        purchasing Member shall receive all distributions of the selling Member’s share
        of Operating Cash Flow after the closing.

       

      (f)  If
        any
        Property is damaged by fire or other casualty, or if any entity possessing
        the
        right of eminent domain shall give notice of an intention to take or acquire
        a
        substantial part of any Property, and such damage occurs, or such notice
        is
        given, between the date of the giving of the Termination Notice pursuant
        to
Section
        10.3
        (or such
        other date as set forth in Section
        10.4 or 10.5)
        and the
        closing date of the purchase of an interest in the Company or the purchase
        of
        the Property the following shall apply:

       

      (1)  If
        such
        Property is damaged by a casualty not resulting in substantial damage or
        if the
        taking or acquisition shall not result in a substantial reduction in the
        income
        producing capacity of such Property, then the Members shall be required to
        complete the transaction and the purchasing Member shall in lieu of any
        reduction in purchase price (except as provided in Section
        10.7(f)(3))
        accept
        an assignment of the insurance or condemnation proceeds.

       

      (2)  If
        such
        Property is damaged by a casualty resulting in substantial damage, or if
        the
        taking or acquisition shall result in a substantial reduction in the income
        producing capacity of such Property, then the purchasing Member shall have
        the
        option (to be exercised within thirty (30) days from the date of the occurrence
        of the casualty or receipt of the notice of condemnation) to either (i) accept
        such Property in an “as is” condition together with the right to receive any
        insurance proceeds, settlements and awards, or (ii) cancel the purchase of
        such
        Property.

       

      (3)  The
        purchase price otherwise to be paid at closing shall be adjusted downwards
        by an
        amount equal to the deductible, if any, for any insured casualty or, in the
        case
        of the closing of the sale of a Member’s interest in the Company, the amount by
        which the purchase price payable to the selling Member would be reduced if
        the
        amount of such deductible were a liability of the Company.

       

      If
        the
        purchase of an individual Property or Properties is canceled by the purchasing
        Member pursuant to the above provisions, the terms of this Agreement shall
        remain in effect and continue to be binding on the Members. For purposes
        of this
Section
        10.7(f),
        substantial damage to the Property shall mean damage which would cost 20%
        or
        more of the value of the Property (prior to such damage) to repair and a
        substantial reduction in the income producing capacity of the Property shall
        mean a reduction of 20% or more.

       

      
        
          
          

        

        
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      (g)  At
        the
        closing of a sale of the Property, the Members shall both execute, as members
        of
        the Company, and deliver a limited or special warranty deed, a bill of sale
        to
        the purchaser of all of the assets of the Company and assignments to the
        purchaser of any and all leases or service contracts affecting the Property,
        subject only to the liens and encumbrances listed in the Sale Proposal. In
        the
        case of the sale of an interest in the Company, the selling Member shall
        execute
        an assignment of such interest, free and clear of all liens, encumbrances
        and
        adverse claims, which assignment shall otherwise be in form and substance
        reasonably satisfactory to the purchasing Member, and such other instruments
        as
        the purchasing Member shall reasonably require to assign the interest of
        the
        selling Member to such person or entity as the purchasing Member may designate.
        Such documents shall be prepared by the purchasing Member and closing costs
        and
        all other charges involved in closing the sale (except for attorneys’ fees (each
        party paying their own) and title insurance costs (to be paid by the purchaser))
        shall be prorated between SHP and ARC in the ratio of the Percentage Interests
        of the Members. Stamp, recording, transfer or similar taxes arising in
        connection with the sale of the interest, if any, shall be paid by the selling
        Member.

       

      (h)  The
        Company shall be dissolved as of the closing date of a sale of the Property,
        and
        on the closing date the Members shall file, or cause to be filed, a written
        notice of winding up with the Delaware Secretary of State in accordance with
        Act
Section
        18-203
        and such
        other documents as shall be necessary or desirable to effectuate such
        dissolution. The Members shall cooperate in taking all steps necessary in
        connection with the dissolution of the Company. Subject to Section
        3.1(b),
        in the
        case of the sale of an interest in the Company, the Company shall not be
        dissolved, but the Members will execute and file on the closing date such
        amendment to the Certificate of Formation as may be appropriate to reflect
        the
        change in the identity of the Members.

       

      (i)  It
        is the
        intent of the parties to this Agreement that the requirements or obligations,
        if
        any, of one Member to sell its Entire Interest (or a portion thereof), or
        to
        join in the conveyance by the Company of the Portfolio in accordance with
        the
        provisions of Section
        10.3 or 10.5,
        shall be
        enforceable by an action for specific performance of a contract relating
        to the
        purchase of real property or an interest therein. It is the intent of the
        parties to this Agreement that the requirements or obligations, if any, of
        one
        Member to purchase the Entire Interest (or a portion thereof) of the Other
        Member pursuant to Section
        10.3
        (and
        ARC’s obligation to purchase in Section
        10.5)
        shall be
        subject to the liquidated damages provisions contained in Sections
        10.3
        (and as
        described in Section
        10.5),
        and
        that SHP shall have no liability for the failure of a third party to purchase
        in
        accordance with Section
        10.5.
        If the
        selling Member shall have created or suffered any unauthorized liens,
        encumbrances or other adverse interest against either the Portfolio or the
        selling Member’s interest in the Company, the purchasing Member shall be
        entitled either to an action for specific performance to compel the selling
        Member to have such defects removed, in which case the closing shall be
        adjourned for such purpose, or, at the purchasing Member’s option, to an
        appropriate offset against the purchase price.

       

      
        
          
          

        

        
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      (j)  The
        purchasing Member when purchasing the Entire Interest of the selling Member
        pursuant to the provisions of Section
        10.3, 10.4 or 10.5
        shall
        have the option of initially purchasing only that portion of the selling
        Member’s Entire Interest which, when aggregated with other interests in the
        Company Transferred during the preceding 12 months, represent a 49% interest
        in
        the total profits and capital of the Company. The purchase price shall be
        the
        price the purchasing Member would have paid for the selling Member’s Entire
        Interest as provided in Section
        10.3, 10.4(b)(2) or 10.5(d),
        as the
        case may be, multiplied by a fraction the numerator of which is the selling
        Member’s Percentage Interest being Transferred and the denominator of which is
        the selling Member’s Percentage Interest. For example, if the selling Member
        owned a 65% interest in the Company, and if no other interests in the Company
        profits and capital had been Transferred during the preceding 12 months,
        the
        purchasing Member may elect initially to purchase approximately 75% of the
        selling Member’s Entire Interest (which represents a 49% interest in the
        Company) and the Member’s remaining Percentage Interest (the “Remaining
        Percentage Interest”) would be a 16% interest in the Company. In its notice
        fixing the closing date as provided in Section
        10.3, 10.4(b)(2) or 10.5,
        the
        purchasing Member shall state whether or not it chooses to purchase the selling
        Member’s Entire Interest or only such percentage of the selling Member’s
        interest as is provided in the preceding three sentences. If the purchasing
        Member exercises the latter option, then:

       

      (1)  The
        selling Member’s Percentage Interest shall be reduced to the Remaining
        Percentage Interest and the purchasing Member’s Percentage Interest increased to
        100% less the Remaining Percentage Interest effective as of the date of the
        closing.

       

      (2)  Subsections
        (e) and (g) of Section
        10.7
        shall not
        be applicable to a purchase pursuant to this Section
        10.7(j).
        The
        selling Member’s right to distributions, ordinary or extraordinary, from the
        Company shall be reduced to its Remaining Percentage Interest, but if the
        Remaining Percentage Interest does not exceed 1%, no contributions to the
        Company shall be made by such Member after the closing of the
        purchase.

       

      (3)  Subsections
        (a), (b), (c), (d), (f), (i) and (k) of Section
        10.7
        shall be
        applicable to a purchase pursuant to this Section
        10.7(j)
        except
        that with respect to subsection (f) the insurance or condemnation proceeds
        referred to shall be paid over to the Company rather than the purchasing
        party.

       

      (4)  If
        the
        Remaining Percentage Interest shall not exceed 1%, beginning with the closing,
        the purchasing Member (or, if reasonably requested, a credit-worthy guarantor)
        shall indemnify the selling Member and hold it harmless for, from and against
        all liability, loss, cost, damage and expense (including, but not limited
        to,
        reasonable attorneys’ fees and costs incurred in the investigation, defense and
        settlement of the matter) the selling Member shall ever suffer or incur because
        of any claim whether meritorious or not, arising out of facts occurring after
        the closing made against the selling Member as a Member or against the Company,
        except for claims made against the selling Member arising out of its own
        acts or
        omissions whether as a Member or otherwise.

       

      
        
          
          

        

        
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      (5)  If
        the
        Remaining Percentage Interest shall not exceed 1% after the closing, the
        purchasing Member shall at all times be absolutely free to terminate the
        Company, deal with the Portfolio as its own, cause the Company to borrow
        money
        from the purchasing Member, an Affiliate of the purchasing Member or an
        unrelated party, and regardless of any contrary provisions contained in
Article
        10,
        the
        purchasing Member shall be absolutely free at any time and from time to time
        to
        transfer all or any part of its interest in the Company to anyone without
        restriction, provided the conditions of Section
        10.6
        are
        satisfied.

       

      (6)  Either
        the
        selling Member or the purchasing Member may, by written notice to the other
        Member, require the transfer to the purchasing Member, or its nominee, of
        the
        Remaining Percentage Interest of the selling Member for cash at a purchase
        price
        equal to the fair market value, determined at the time of such transfer,
        of the
        Entire Interest held by the selling Member on the date of the Termination
        Notice
        multiplied by a fraction, the numerator of which shall be the selling Member’s
        Remaining Percentage Interest and the denominator of which shall be the selling
        Member’s Percentage Interest held on the date of the Termination Notice, payable
        in full on the date specified for transfer in the notice, but in no event
        may
        the selling Member require such transfer sooner than thirteen (13) months
        after
        the closing. The fair market value of such Remaining Percentage Interest
        shall
        be determined by a nationally recognized investment banking firm having
        experience in commercial real estate matters designated by the Members or
        designated by a court as hereinafter provided. If the Members are unable
        to
        agree upon and designate such investment banking firm within thirty (30)
        days of
        the receipt of a notice to transfer such Remaining Percentage Interest, either
        party may apply to a judge of the county or Chancery Court in the jurisdiction
        within which the particular Property is located for the designation of such
        firm. The firm so designated shall be instructed to report its determination
        of
        the fair market value of the Remaining Percentage Interest within sixty (60)
        days after it has been designated. The fee of such firm shall be paid by
        the
        purchasing Member.

       

      (k)  In
        the
        event of the purchase of an interest in the Company of one Member by the
        other
        Member, at the option of the purchasing Member, the interest (subject to
        Section
        10.7(j))
        will be
        transferred to a nominee of the purchasing Member.

       

      10.8       
        Avoidance
        of Plan Violation.
        In
        connection with any closing of a transaction pursuant to this Article
        10,
        ARC and
        SHP each agree to provide written certification to each other, in a form
        reasonably satisfactory to both parties, to establish that no Plan Violation
        would result from the transaction. The Company will not enter into any
        agreements, or suffer any conditions, that SHP determines would result in
        a Plan
        Violation. SHP and ARC will cooperate to discover and correct Plan
        Violations.

       

      ARTICLE
        11. 

      DISSOLUTION
        OR BANKRUPTCY OF A MEMBER

       

      11.1        
        Dissolution
        or Merger.
        If any
        Member (for purposes of this Article
        11
        only, the
        term Member shall also include the managing general partner of any such Member)
        that is an entity shall be dissolved or merged with or consolidated into
        another
        corporation or entity, or if all or substantially all of its assets shall
        be
        sold or transferred, then unless such dissolution, merger, consolidation,
        sale
        or transfer is expressly permitted under Article
        10,
        such
        dissolution, merger, consolidation, sale or transfer shall be a dissolution
        of
        the Company, and the other Member shall be the Liquidating Member in the
        dissolution of the Company.

       

      11.2       
        Bankruptcy,
        etc.
        In the
        event:

       

      (a)  either
        Member shall file a voluntary petition in bankruptcy or shall be adjudicated
        a
        bankrupt or seek any reorganization, arrangement, composition, readjustment,
        liquidation, dissolution, or similar relief for itself under the present
        or any
        future federal bankruptcy code or any other present or future applicable
        federal, state, or other statute or law relative to bankruptcy, insolvency,
        or
        other relief for debtors, or shall seek or consent to or acquiesce in the
        appointment of any trustee, receiver, conservator or liquidator of said Member
        or its interest in the Company (the term “acquiesce” includes but is not limited
        to the failure to file a petition or motion to vacate or discharge any order,
        judgment or decree providing for such appointment within ten (10) days after
        the
        appointment); or

       

      (b)  a
        court of
        competent jurisdiction shall enter an order, judgment or decree approving
        a
        petition filed against either Member seeking any reorganization, arrangement,
        composition, readjustment, liquidation, dissolution or similar relief under
        the
        present or any future federal bankruptcy code or any other present or future
        applicable federal, state or other statute or law relating to bankruptcy,
        insolvency, or other relief for debtors, and said Member shall acquiesce
        in the
        entry for such order, judgment or decree (the term “acquiesce” includes but is
        not limited to the failure to file a petition or motion to vacate or discharge
        such order, judgment or decree within ten (10) days after the entry of the
        order, judgment or decree) or such order, judgment or decree shall remain
        unvacated and unstayed for an aggregate of ninety (90) days (whether or not
        consecutive) from the date of entry thereof, or any trustee, receiver,
        conservator or liquidator of said Member or of all or any substantial part
        of
        said Member’s property or its interest in the Company shall be appointed without
        the consent or acquiescence of said Member and such appointment shall remain
        unvacated and unstayed for an aggregate of sixty (60) days (whether or not
        consecutive); or

       

      (c)  either
        Member shall admit in writing its inability to pay its debts as they mature;
        or

       

      (d)  either
        Member shall give notice to any governmental body of insolvency, or pending
        insolvency, or suspension or pending suspension of operations; or

       

      (e)  either
        Member shall make an assignment for the benefit of creditors or take any
        other
        similar action for the protection or benefit of creditors; 

       

      
        
          
          

        

        
          46

          
            

          

        

        
          
          

        

      

       

      then,
        any
        such event shall cause the dissolution of the Company and the other Member
        shall
        be the Liquidating Member.

       

      ARTICLE
        12. 

      DEFAULT

       

      12.1      
        Defaults.
        After
        the Effective Date, (i) if either Member fails to perform any of its obligations
        hereunder, breaches any of the terms, conditions or covenants of this Agreement
        or (ii) in the event of an uncured default by any Affiliate under the Management
        Agreement as well as any other agreement entered into between the Company
        and
        ARC or an Affiliate of ARC (collectively, the “Affiliate
        Agreements”),
        then
        the other Member (“Nondefaulting
        Member”)
        shall
        have the right to give such party (“Defaulting
        Member”
(which,
        in the case of any default by ARC or an Affiliate under clause (ii) above,
        shall
        be ARC)) a notice of default (“Notice
        of Default”).
        The
        Notice of Default shall set forth the nature of the obligation which the
        Defaulting Member (or its Affiliate, if applicable) has not
        performed. 

       

      (a)  If
        such
        default is not curable by the payment or expenditure of money and if, within
        the
        thirty (30) day period following receipt of the Notice of Default or within
        such
        shorter time period that may be specified in the Affiliate Agreement, the
        Defaulting Member (or its Affiliate, if applicable) in good faith commences
        to
        perform such obligation and cure such default and thereafter prosecutes to
        completion with diligence and continuity the curing thereof and cures such
        default within a reasonable time (not to exceed one hundred eighty (180)
        days),
        then it shall be deemed that the Notice of Default was not given and the
        Defaulting Member shall lose no rights hereunder. If, within such thirty
        (30)
        day period the Defaulting Member (or its Affiliate, if applicable) does not
        commence in good faith the curing of such default or does not thereafter
        prosecute to completion with diligence and continuity the curing thereof,
        then
        the Nondefaulting Member shall have the rights set forth in Section
        12.1(d).

       

      (b)  If
        such
        default is curable by the payment or expenditure of money other than a default
        described in Section
        4.6
        which
        sets forth its own time periods for cure, and if such sums of money shall
        be
        paid within fifteen (15) days after receipt of the Notice of Default with
        respect thereto, then it shall be deemed that such Notice of Default was
        not
        given and the Defaulting Member shall lose no rights hereunder. If such sums
        are
        not so paid within such fifteen (15) day period, then the Nondefaulting Member
        shall have the rights set forth in Section
        12.1(d)
        in
        addition to the rights under Section
        4.6
        (to the
        extent applicable). 

       

      (c)  (Intentionally
        Omitted.)

       

      (d)  If
        any
        default is not cured as set forth in Sections
        12.1(a)
        or
12.1(b)
        or if any
        default set forth in Section
        12.1(c)
        occurs,
        the Nondefaulting Member shall have the right to terminate this Agreement
        by
        giving the Defaulting Member written notice thereof, whereupon such default
        may
        be treated by the Nondefaulting Member as a dissolution of the Company, and
        the
        Nondefaulting Member shall be the Liquidating Member.

       

      
        
          
          

        

        
          47

          
            

          

        

        
          
          

        

      

       

      Failure
        by
        a Nondefaulting Member to give any notice of a default as specified herein,
        or
        any failure to insist upon strict performance of any of the terms of this
        Agreement, shall not constitute a waiver of any such breach or any of the
        terms
        of this Agreement. No breach shall be waived nor shall any duty to be performed
        be altered or modified except by written instrument. One or more waivers
        or
        failure to give notice of default shall not be construed as a waiver of a
        subsequent or continuing breach of the same covenant.

       

      12.2      
        Negation
        of Right to Dissolve by Will of Member.
        Except
        as set forth in Articles
        10
        and
11
        and in
Section
        12.1,
        neither
        Member shall have the right to terminate this Agreement or dissolve the Company
        by its express will or by withdrawal without the consent of the other Member.
        Upon any dissolution occurring by operation of law or caused by the express
        will
        or withdrawal of one of the Members in contravention of this Agreement, the
        Member not causing the dissolution shall be the Liquidating Member.

       

      12.3     
        Non
        Exclusive Remedy.
        The
        rights granted in Section
        12.1
        shall not
        be deemed an exclusive remedy of the Nondefaulting Member, but all other
        rights
        and remedies, legal and equitable, shall be available to it, subject to any
        express limitations on remedies provided in specific circumstances elsewhere
        in
        this Agreement (e.g. in Article
        10).

       

      ARTICLE
        13. 

      DISSOLUTION

       

      13.1     
        Winding
        Up by Members.
        Upon
        dissolution of the Company by expiration of the term hereof, by operation
        of
        law, by any provision of this Agreement or by agreement between the Members,
        the
        Company’s business shall be wound up and all its assets distributed in
        liquidation. In such dissolution, except as otherwise expressly provided
        in
Articles
        10,
        11
        and
12,
        the
        Members shall be co liquidating Members and shall continue to act through
        the
        Committee. In such event the Members shall have rights acting through the
        Committee to wind up the Company and shall proceed to cause the Company’s
        property to be sold and to distribute the proceeds of sale as provided in
        Section
        13.5.
        Except
        in respect of (i) all assets on which a single, non severable mortgage or
        other
        lien will be in effect after such distribution, and (ii) any assets which
        the
        Members shall determine are not readily severable or distributable in kind,
        the
        Members, to the extent that liquidation of such assets is not required to
        fulfill the payments, if any, under subsections (a), (b), (c) and (d) of
        Section
        13.5,
        shall,
        if they agree, have the right to distribute, in kind, all or a portion of
        the
        assets of the Company to the Members.

       

      13.2     
        Winding
        Up by Liquidating Member.
        In a
        dissolution pursuant to Article
        10,
        11
        or
12,
        the
        Liquidating Member shall be as therein provided and such Liquidating Member
        shall have the right to:

       

      (a)  Wind
        up
        the Company and cause the Company’s assets to be sold and the proceeds of sale
        distributed as provided in Section
        13.5;
        or

       

      
        
          
          

        

        
          48

          
            

          

        

        
          
          

        

      

       

      (b)  Deliver
        to
        the other Member within thirty (30) days after the commencement of dissolution
        of the Company a notice (a “Demand
        Notice”)
        demanding that the other Member deliver, within forty-five (45) days after
        the
        date of the Demand Notice, a Termination Notice in the manner and setting
        forth
        the information required under Section
        10.3(a).
        Upon
        receipt of the Termination Notice, the Liquidating Member shall have the
        rights
        of the Other Member under Section
        10.3(b).

       

      (c)  If
        the
        other Member refuses or fails, within forty-five (45) days after the giving
        of
        the Demand Notice to the other Member, to give the Liquidating Member a
        Termination Notice setting forth the information required by Section
        10.3(a),
        the
        Liquidating Member may elect to purchase the other Member’s Entire Interest for
        such price (the “Default
        Price”)
        as the
        Liquidating Member may choose in its sole discretion. The other Member shall
        be
        notified of such election within thirty (30) days after expiration of the
        45-day
        period referred to in the preceding sentence.

       

      All
        of the
        provisions of Section
        10.7
        shall
        apply to a purchase under this Section
        13.2(c)
        except
        that for the purposes of this Section
        13.2(c),
        the date
        the other Member receives the Demand Notice shall be the governing date referred
        to in Sections
        10.7(e) and (f)
        rather
        than the date of the giving of the Termination Notice. As soon as possible
        after
        the dissolution of the Company, the Liquidating Member shall file a certificate
        of cancellation with the Delaware Secretary of State as required by Act
Section
        18-203.

       

      13.3  Offset
        for Damages.
        In the
        event of dissolution resulting from an event described in Article
        11
        or
12,
        the
        Liquidating Member shall be entitled to deduct from the amount payable to
        the
        other Member pursuant to Section
        13.2(a)
        or
(b),
        Section
        13.4
        or
Section
        13.5
        the
        amount of reasonable, out of pocket costs incurred by the Liquidating Member
        proximately resulting from any such event.

       

      13.4  Distributions
        of Operating Cash Flow.
        Subject
        to Section
        13.5
        hereof as
        to proceeds of liquidation, upon the dissolution of the Company for any reason
        during the period of liquidation and until termination of the Company the
        Members shall continue to receive the Operating Cash Flow and to share profits
        and losses for all tax and other purposes as provided elsewhere in this
        Agreement.

       

      13.5  Distributions
        of Proceeds of Liquidation.
        For
        purposes of this Section
        13.5,
        “proceeds of liquidation” shall equal cash available for liquidation, net of
        liens secured by the Portfolio, provided that neither the Company nor either
        of
        the Members shall be personally liable on, or they shall be released from
        such
        debts. The proceeds of liquidation shall be applied in the following order
        of
        priority:

       

      (a)  First.
        To the
        payment of:

       

      (1)  debts
        and
        liabilities of the Company except Loans and Special Loans (as referenced
        in
Sections
        13.5(c),
        below)
        that may have been made by either of the Members to the Company,
        and

       

      (2)  expenses
        of liquidation.

       

      
        
          
          

        

        
          49

          
            

          

        

        
          
          

        

      

       

      (b)  Second.
        To the
        setting up of any reserves which the Liquidating Member or Members, as the
        case
        may be, may deem necessary for any contingent or unforeseen liabilities or
        obligations of the Company or of the Members arising out of or in connection
        with the Company. Said reserves may be deposited by the Company in a bank
        or
        trust company acceptable to the Liquidating Member or Members, as the case
        may
        be, to be held by it for the purpose of disbursing such reserves in payment
        of
        any of the aforementioned liabilities or obligations, and at the expiration
        of
        such period as the Liquidating Member or Members, as the case may be, shall
        deem
        advisable, distributing the balance, if any, thereafter remaining, in a manner
        hereinafter provided.

       

      (c)  Third.
        To the
        repayment of any Loans and Special Loans that may have been made by either
        of
        the Members pursuant to Section
        5.1,
        but if
        the amount available for such repayment shall be insufficient to repay all
        Loans
        and Special Loans, then repayment shall be made pro rata in accordance with
        the
        outstanding principal balances, including accrued interest, on such Loans
        and
        Special Loans.

       

      (d)  Fourth.
        After
        allocation of all Profit or Loss upon the liquidation of the Company pursuant
        to
        the provisions of Sections
        9.4
        through
9.8,
        to the
        Members with positive Capital Account balances in proportion to and to the
        extent of such positive Capital Account balances.

       

      (e)  Fifth.
        The
        excess proceeds, if any, after applying the proceeds as described in (a)
        through
        (d) above, shall be distributed as Extraordinary Cash Flow.

       

      13.6       
        Orderly
        Liquidation.
        A
        reasonable time shall be allowed for the orderly liquidation of the assets
        of
        the Company and the discharge of liabilities to creditors so as to enable
        the
        Members to minimize the losses normally attendant upon a
        liquidation.

       

      13.7      
        Financial
        Statements.
        During
        the period of winding up, a reputable independent certified public accountant
        selected by the Liquidating Member shall prepare and furnish to each of the
        Members, until complete liquidation is accomplished, all the financial
        statements provided for in Section
        7.1.

       

      13.8     
        Restoration
        of Deficit Capital Accounts.
        At no
        time during the term of the Company shall a Member with a deficit balance
        in its
        Capital Account have any obligation to the Company or to another Member or
        to
        any other person to restore such deficit balance.

       

      13.9  Intention
        of the Members.
        It is
        the intention of the Members that the liquidating distributions described
        in
Section
        13.5
        shall be
        accomplished in a manner such that the economic effect of such distributions
        to
        the Members will be consistent with the economic effect the Members would
        have
        recognized had all liquidating distributions been made in accordance with
        the
        provisions of Section
        9.3(b)
        hereof.
        The Liquidating Member shall take any and all actions permissible under the
        Code
        and Regulations, including but not limited to, special allocations of gross
        income, Loss and Profit, to accomplish the purposes of this Section
        13.9.

       

      
        
          
          

        

        
          50

          
            

          

        

        
          
          

        

      

       

      ARTICLE
        14. 

      MEMBERS

       

      14.1  Liability.
        A Member
        shall not be personally liable for the debts, liabilities or obligations
        of the
        Company. Notwithstanding the foregoing, a Member will be liable for any
        distributions made to it, if, after such distribution, the outstanding
        liabilities of the Company (other than liabilities to Members on account
        of
        their interests in the Company and liabilities for which the recourse of
        creditors is limited to specific Company property) exceed the fair value
        of the
        Company’s assets (provided that the fair value of Company property that secures
        recourse liability shall be included only to the extent its fair value exceeds
        such liability) and the Member had knowledge of this fact at the time the
        referenced distribution was received.

       

      ARTICLE
        15. 

      NOTICES

       

      15.1  In
        Writing; Address.
        All
        notices, elections, offers, acceptances, demands, consents and reports
        (collectively “notices”)
        provided for in this Agreement shall be in writing and shall be given to
        the
        Company, the Members or the other Member at the address set forth below or
        at
        such other address as the Company or any of the parties hereto may hereafter
        specify in writing.

       

      
        
          	To
                  SHP:	
                  PIM
                    Senior Portfolio, LLC

                  c/o
                    The Prudential Insurance Company of America

                  Two
                    Ravinia Drive - Suite 1400

                  Atlanta,
                    Georgia 30346-2110

                  Attention:
                    John W. Dark

                  Telecopy
                    No.: (770) 399-5363

                  Telephone
                    No.: (770) 395-8635

                   

                
	
                  With
                    a copy to:

                	
                  With
                    a copy to: Senior
                    Housing Partners III, L.P.

                  c/o
                    The Prudential Insurance Company of America

                  Real
                    Estate Law Department

                  Arbor
                    Circle South

                  8
                    Campus Drive, 4th Floor

                  Parsippany,
                    New Jersey 07054-4490

                  Attention:
                    Joan N. Hayden

                  Telecopy
                    No.: (973) 683-1788

                  Telephone
                    No.: (973) 683-1772

                   

                
	With
                  a copy to:	
                  Alston
                    & Bird, LLP

                  One
                    Atlantic Center

                  1201
                    West Peachtree Street

                  Atlanta,
                    Georgia 30309-3424

                  Attention:
                    Mark C. Rusche, Esq.

                  Telecopy
                    No.: (404) 881-7777

                  Telephone
                    No.: (404) 881-7281

                

        

         

         

        
          
            
            

          

          
            51

            
              

            

          

          
            
            

          

        

         

         

        
          	 To
                  ARC:	
                  ARC
                    Epic Holding Company, Inc.

                  c/o
                    American Retirement Corporation

                  111
                    Westwood Place, Suite 200

                  Brentwood,
                    Tennessee 30727

                  Attention:
                    Chief Executive Officer

                  Telecopy
                    No.: (615) 221-2269

                  Telephone
                    No.: (615) 221-2250

                   

                
	With
                  a copy to:	
                  Bass,
                    Berry & Sims, PLC

                  315
                    Deaderick Street, Suite 27000

                  Nashville,
                    Tennessee 37238

                  Attention:
                    T. Andrew Smith

                  Telecopy
                    No.: (615) 742-2766

                  Telephone
                    No.: (615) 742-6266

                

        

      

       

      All
        notices hereunder shall be deemed sufficiently given or served for all purposes
        when delivered (i) by personal service or courier service, and shall be deemed
        given on the date when signed for or, if refused, when refused by the person
        designated as an agent for receipt of service, (ii) by facsimile transmission
        and shall be deemed given when printed confirmation of completion of
        transmission is generated by the sender’s facsimile transmission instrument to
        any party hereto at its address above stated or such other address of which
        a
        party shall have notified the party giving such notice in writing as aforesaid,
        or (iii) by United States registered or certified mail, return receipt
        requested, postage prepaid, deposited in a United States post office or a
        depository for the receipt of mail regularly maintained by the post office
        or
        sent by any reputable overnight courier service that obtains a signature
        upon
        delivery and shall be deemed to have been received by the addressee on the
        third
        business day following the date of such mailing. Such notices, demands, consents
        and reports may also be delivered by hand, or by any other method or means
        permitted by law. For purposes hereof, notices may be given by the parties
        hereto or by their attorneys identified above.

       

      A
        copy of
        any notice or any written communication from the Internal Revenue Service
        to the
        Company shall be given to each Member at the addresses provided for
        above.

       

      15.2  Copies.
        A copy
        of any notice, service of process, or other document in the nature thereof,
        received by either Member from anyone other than the other Member, shall
        be
        delivered by the receiving Member to the other Member as soon as
        practicable.

       

      ARTICLE
        16. 

      MISCELLANEOUS

       

      16.1  Additional
        Documents and Acts.
        In
        connection with this Agreement as well as all transactions contemplated by
        this
        Agreement, each Member agrees to execute and deliver such additional documents
        and instruments, and to perform such additional acts as may be necessary
        or
        appropriate to effectuate, carry out and perform all of the terms, provisions
        and conditions of this Agreement, and all such transactions. All approvals
        of
        either party hereunder shall be in writing.

       

      
        
          
          

        

        
          52

          
            

          

        

        
          
          

        

      

       

      16.2  Estoppel
        Certificates.
        Each
        Member shall at any time and from time to time upon not less than twenty
        (20)
        days prior written notice from the other execute, acknowledge, and send to
        the
        other a statement in writing certifying that this Agreement is unmodified
        and in
        full force and effect (or if there have been modifications, that the Agreement
        is in full force and effect as modified and stating the modifications) and
        stating whether or not as to both Members either is in default in keeping,
        observing or performing any of the terms contained in this Agreement, and
        if in
        default, specifying each such default (limited, as regards the other’s defaults,
        to those defaults of which the certifying Member has knowledge).

       

      16.3  Interpretation.
        This
        Agreement and the rights and obligations of the Members hereunder shall be
        interpreted in accordance with the internal laws of the State of Delaware,
        without reference to the conflicts of laws or choice of law provisions
        thereof.

       

      16.4  Entire
        Agreement.
        This
        instrument and the other documents referenced or attached as Exhibits contain
        all of the understandings and agreements of whatsoever kind and nature existing
        between the parties hereto with respect to this Agreement and the rights,
        interests, understandings, agreements and obligations of the respective parties
        pertaining to the Company and supersede all prior agreements.

       

      16.5  References
        to this Agreement.
        Numbered
        or lettered articles, sections and subsections herein contained refer to
        articles, sections and subsections of this Agreement unless otherwise expressly
        stated.

       

      16.6  Headings.
        All
        headings herein are inserted only for convenience and ease of reference and
        are
        not to be considered in the construction or interpretation of any provision
        of
        this Agreement.

       

      16.7  Binding
        Effect.
        Except
        as herein otherwise expressly stipulated to the contrary, this Agreement
        shall
        be binding upon and inure to the benefit of the parties signatory hereto,
        and
        their respective distributees, successors and assigns.

       

      16.8  Counterparts.
        This
        Agreement may be executed in any number of counterparts, each of which shall
        for
        all purposes constitute one agreement which is binding on all of the parties
        hereto.

       

      16.9  Confidentiality.
        The
        terms and provisions of this Agreement shall be kept confidential and shall
        not,
        without the other Member’s prior written consent (which shall not be
        unreasonably withheld), be disclosed by a Member or by a Member’s agents,
        managers, members, representatives and employees to any person or entity
        that
        this Agreement has been signed and exists; provided, however, that this
Section
        16.9
        shall not
        prohibit the disclosure of the terms of this Agreement by any Member to its
        agents for business reasons consistent with Section
        2.4.
        No
        publicity, media communications, press releases or other public announcements
        concerning this Agreement or the transactions contemplated hereby shall be
        issued or made by either Member without the consent of the other Member,
        except
        as required by law.

       

      
        
          
          

        

        
          53

          
            

          

        

        
          
          

        

      

       

      16.10  Amendments.
        This
        Agreement may not be amended, altered or modified except by a written instrument
        signed by all parties; provided, however, that ARC and any other Member shall
        agree to any amendments of this Agreement reasonably required by SHP in order
        for the Company to comply with applicable state law which do not adversely
        affect the economic interests of ARC or any other Member hereunder.

       

      16.11  Exhibits.
        All
        exhibits and schedules annexed hereto are expressly made a part of this
        Agreement, as fully as though completely set forth herein, and all references
        to
        this Agreement herein or in any of such exhibits or schedules shall be deemed
        to
        refer to and include all such exhibits or schedules.

       

      16.12  Severability.
        Each
        provision hereof is intended to be severable and the invalidity or illegality
        of
        any portion of this Agreement shall not affect the validity or legality of
        the
        remainder.

       

      16.13  Forum.
        Any
        action by one or more Members against the Company or by the Company against
        one
        or more Members which arises under or in any way relates to this Agreement,
        actions taken or failed to be taken or determinations made or failed to be
        made
        by the Members or relating to the Company including, without limitation,
        transactions permitted hereunder or otherwise related in any way to the Company,
        may be brought only in the state courts of the State of Delaware or United
        States District Court for the sitting in Delaware. Each Member hereby consents
        to the jurisdiction of such courts to decide any and all such actions and
        to
        such venue.

       

      16.14  Assignment
        to Company.
        To the
        extent not already assigned to the Company, the Members shall, and they do
        hereby assign to the Company all of their right, title and interest, if any,
        in,
        to and under the following:

       

      (a)  Fee
        simple
        title to the Properties, Projects and all appurtenances thereto;

       

      (b)  All
        plans,
        specifications, engineering studies and working drawings prepared or obtained
        in
        connection with the Improvements, and any other work product related to the
        Improvements;

       

      (c)  All
        licenses, permits, consents, approvals or other evidences of authorization
        to
        construct, own, occupy and/or operate the Properties issued by or received
        from
        any applicable governmental authorities having jurisdiction over or otherwise
        affecting the Properties;

       

      (d)  All
        ownership interest in and all other rights, options, or interests, if any,
        related to the Properties and/or the construction and development of the
        Improvements; and

       

      (e)  All
        leases, commitments for leases, security deposits, tenant lead lists and
        any
        other document, account, right, or instrument pertaining to tenants or
        prospective tenants of the Properties.

       

      
        
          
          

        

        
          54

          
            

          

        

        
          
          

        

      

       

      16.15  Broker’s
        Indemnity.
        Each
        Member represents that it has not dealt with any broker or agent in connection
        with this Agreement or any of the transactions contemplated hereby, and hereby
        agrees to indemnify the other Member and the Company and hold them each harmless
        from and against all liability, loss, cost, damage and expense (including
        attorneys’ fees and costs incurred in the investigation, defense and settlement
        of the matter) which the other Member or the Company shall ever suffer or
        incur
        by reason of any claim by any broker or agent, whether or not meritorious,
        for
        any compensation with respect to such indemnifying Member’s dealings in
        connection with this Agreement or such indemnifying Member’s contribution or
        other transactions provided for or referred to herein.

       

      16.16  Attorneys’
        Fees.
        If any
        action arising out of this Agreement is brought by either party hereto against
        the other, then and in that event the unsuccessful party to such action shall
        pay to the prevailing party all costs and expenses, including reasonable
        attorneys’ fees, incurred by such prevailing party, and if the prevailing party
        shall recover judgment in such action, such costs, expenses and attorneys
        fees
        shall be included in and as part of such judgment.

       

      16.17  Prudential
        Affiliation.
        The
        Company will not use the name Prudential in its advertising with respect
        to the
        Project. ARC will not make any disclosures or representations whatsoever
        to
        third parties concerning SHP’s affiliation with the Prudential Insurance Company
        of America, except as authorized in writing by SHP.

       

      [The
        following page is the signature page.]

       

       

       

       

      
        
          
          

        

        
          55

          
            

          

        

        
          
          

        

      

       

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

       

       

      
        	SHP: 	
                 

              	 
	 	 	 
	
                PIM
                  SENIOR PORTFOLIO, LLC, 

                a
                  Delaware
                  limited liability company

              
	 	 	 
	By:	
                PIM
                  Warehouse, Inc., 

                a
                  Delaware
                  corporation, 

                its
                  sole member

              
	 	 	 
	By: 	
                 

              
	 	Name:
                Peter R. Eckert
	 	Title:
                Vice President  
	 	 	 
	ARC: 	
                 

              	 
	 	 	 
	
                ARC
                  EPIC HOLDING COMPANY, INC., 

                a
                  Tennessee Corporation

              
	 	 	 
	By:	
                 

              
	 	Name:	
                 

              
	 	Title:	 

      

       

      
        
          
          

        

        
          56

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
        A

       

      Legal
        Description

       

       

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        B

       

      Subsidiaries

      
        
          
            	 	 	
                    Project

                  	
                    Subsidiaries

                  
	
                    1.

                  	 	
                    Freedom
                      Inn of Sun City West

                  	
                    ARC
                      Sun City West, LLC

                  
	
                    2.

                  	 	
                    Freedom
                      Inn of Roswell

                  	
                    ARC
                      Roswell, LLC

                  
	
                    3.

                  	 	
                    Heritage
                      Club Las Vegas

                  	
                    ARC
                      Vegas, LLC

                  
	
                    4.

                  	 	
                    Freedom
                      Inn Ventana Canyon

                  	
                    ARC
                      Tucson, LLC

                  
	
                    5.

                  	 	
                    Freedom
                      Inn at Overland Park

                  	
                    ARC
                      Overland Park, LLC

                  
	
                    6.

                  	 	
                    Freedom
                      Inn Minnetonka

                  	
                    ARC
                      Minnetonka, LLC

                  
	
                    7.

                  	 	
                    Heritage
                      Club at Denver Tech Center

                  	
                    ARC
                      Denver Monaco, LLC

                  
	
                    8.

                  	 	
                    Hampton
                      Assisted Living at Tanglewood

                  	
                    ARC
                      Tanglewood, L.P.

                    ARC
                      Tanglewood GP, LLC

                  

          

        

         

         

        
 

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

       

      EXHIBIT
        C

       

      

       

      
        	
                Names
                  and Interests of Members:

              	
                Percentage
                  Interest

              	
                Initial
                  Cash Contribution

              
	 	 	 
	
                SHP

              	
                80%

              	
                $_________________

              
	 	 	 
	
                ARC

              	
                20%

              	
                $_________________

              
	 	 	 
	
                TOTAL

              	
                100%

              	
                $_________________

              

      

       

       

       

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
        D

       

      Initial
        Subsidiary Management Agreement

       

       

       

       

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SCHEDULE
        4.7

       

      Percentage
        Interest Adjust Example

       

       

      Pursuant
        to Section
        4.7,
        if a
        Member fails to make a required contribution, the Percentage Interests of
        the
        Members may, at the election of the Non Failing Member, be adjusted as a
        result
        of making a Priority Capital Contribution. The following examples (which
        are
        examples only and do not reflect any actual facts) illustrate the effects
        of
        these provisions:

       

      Example
        1:
        Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned
        Capital Contributions for purposes of this computation only are deemed to
        be
        $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and
        SHP
        contributes its $90,000, but that ARC is the Defaulting Member on an obligation
        to contribute its $10,000 and that SHP has made a Priority Capital Contribution
        of such amount.

       

      The
        Members’ initial Percentage Interests are:

       

      
        SHP   90%

        ARC   10%

      

       

       

      The
        resulting Percentage Interests of the Members are computed as
        follows:

       

      SHP’s
        Unreturned Capital Contributions + $90,000+ (1.5 x $10,000)

      Total
        Unreturned Capital Contributions

       

      9,105,000  =  
        90.15%

      10,100,000

       

      SHP’s
        Percentage Interest will be increased by .15% (90.15% 90%) and ARC’s Percentage
        Interest will be reduced by .15%.

       

      Example
        2:
        Assume SHP’s Unreturned Capital Contributions equal $9,000,000. ARC’s Unreturned
        Capital Contributions for purposes of this computation only are deemed to
        be
        $1,000,000 (10% x 9,000,000/90%). Assume a call for $100,000 is made and
        ARC
        contributes its $10,000, but that SHP is the Defaulting Member on an obligation
        to contribute its $90,000 and that ARC has made a Priority Capital Contribution
        of such amount.

       

      The
        Members’ initial Percentage Interests are:

       

      SHP                              
        90%

      ARC                             
        10%

       

      The
        resulting Percentage Interests of the Members are computed as
        follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      ARC’s
        Unreturned Capital Contributions + $10,000 +(1.5 x $90,000)

      Total
        Unreturned Capital Contributions

       

      1,145,000   
        =   11.34%

      10,100,000

       

      ARC’s
        Percentage Interest will be increased by 1.34% (11.34% 10%) and SHP’s Percentage
        Interest will be reduced by 1.34%.

       

       

      
        
          
          

        

        
          
          

          
            
2Unassociated Document

    
      Exhibit
        10.78

       

      

       

      AMENDED
        AND RESTATED

       

      LIMITED
        LIABILITY COMPANY AGREEMENT

       

      OF

       

      DENVER
        LOWRY JV, LLC

       

      A
        Delaware Limited Liability Company

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
 

      AMENDED
        AND RESTATED

      LIMITED
        LIABILITY COMPANY AGREEMENT

      OF

      DENVER
        LOWRY JV, LLC

       

      This
        Amended and Restated Limited Liability Company Agreement (the “Agreement”) of
DENVER
        LOWRY JV, LLC,
        a
        Delaware limited liability company (the “Company”), is entered into as of the
        14th day of October, 2005, by DENVER
        LOWRY SENIOR HOUSING, LLC,
        a
        Delaware limited liability company (“CNL”), and ARC
        LOWRY, LLC,
        a
        Tennessee limited liability company (“ARC”), as members (CNL and ARC are
        sometimes referred to herein as the “Members” or individually as a
“Member”).

       

      Preamble:

       

      WHEREAS,
        pursuant
        to the Certificate of Formation of the Company filed in the office of the
        Delaware Secretary of State on October 11, 2005, the Company was formed as
        a
        limited liability company under the Delaware Limited Liability Company Act;
        

       

      WHEREAS,
        the
        parties entered into that certain Limited Liability Company Agreement of
        the
        Company on October 14, 2005 (the “Original LLC Agreement”) for the purpose of
        setting forth and agreeing upon their respective rights, duties and
        responsibilities with respect to the management and affairs of the Company
        and
        memorializing certain other agreements between them with respect to the Company
        and their interests therein; and

       

      WHEREAS,
        the
        parties desire to amend and restate the Original LLC Agreement in its
        entirety.

       

      NOW,
        THEREFORE,
        for and
        in consideration of the foregoing premises, the mutual covenants and agreements
        set forth herein, the contributions to the capital of the Company made and
        to be
        made hereunder, and for other good and valuable considerations, the receipt
        and
        sufficiency of which are hereby acknowledged, the parties hereby agree as
        follows:

       

      ARTICLE
        1

      DEFINITIONS

       

      The
        following terms used in this Agreement, unless the context otherwise requires,
        shall have the following meanings:

       

      “Act”
means
        the Delaware Limited Liability Company Act, as the same may be amended from
        time
        to time.

       

      “Actual
        TCCO”
means
        the actual costs incurred by or on behalf of the Company until such time
        as the
        development and construction of the Senior Living Facility is completed and
        a
        certificate of occupancy is granted.

       

      “Adjusted
        Capital Account Deficit”
means,
        with respect to any Member, the deficit balance, if any, in a Member’s Capital
        Account, after giving effect to the following adjustments:

       

       

      
        
          2

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (i) Credit
        to
        such Capital Account any amounts such Member is deemed to be obligated to
        restore pursuant to the penultimate sentences of Regulations Sections
        1.704-(g)(1) and 1.704-2(i)(5); and

       

      (ii) Debit
        to
        such Capital Account, the items described in Regulations Sections
        1.704-1(b)(2)(ii)(d)(4), (5) and (6).

       

      The
        foregoing definition of Adjusted Capital Account Deficit is intended to comply
        with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d), and shall
        be
        interpreted consistently therewith.

       

      “Advisor”
means
        CNL Capital Corp., a Florida corporation, its successors and/or
        assigns.

       

      “Affiliate”
means,
        when used with reference to any Person, (i) any Person that, directly or
        indirectly, through one or more intermediaries controls, is controlled by,
        or is
        under common control with, or owns a greater than fifty percent (50%) interest
        in the specified Person (the term “control” for this purpose, shall mean the
        ability, whether by the ownership of shares or other equity interest, by
        contract or otherwise, to elect a majority of the directors of a corporation,
        independently to select the managing partner of a partnership or the manager
        or
        managers of a limited liability company, or otherwise to have the power
        independently to remove and then select a majority of those Persons exercising
        governing authority over an entity, and control shall be conclusively presumed
        in the case of the direct or indirect ownership of fifty percent (50%) or
        more
        of the equity interests in the specified Person); and (ii) a spouse, parent,
        sibling, or issue of such Person.

       

      “Agreement”
or
        “this
        Agreement”
means
        this Amended and Restated Limited Liability Company Agreement of Denver Lowry
        JV, LLC, as originally executed and as it may be amended from time to
        time.

       

      “Approval
        of the Members”
and
        “Approved
        by the Members”
means
        the unanimous written approval of all of the Members.

       

      “ARC
        TCCO Capital”
means
        the funds advanced to the Company by ARC or caused to be advanced to the
        Company
        by ARC (irrespective of whether such funds are advanced directly from ARC,
        indirectly from its ultimate parent American Retirement Corporation, a Tennessee
        corporation, or indirectly from any affiliate thereof) pursuant to Section
        3.2(b) to fund the amount by which Actual TCCO exceeds Budgeted TCCO.

       

       

      
        
          3

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Bankrupt
        Member”
means
        any Member (a) that (i) makes a general assignment for the benefit of creditors;
        (ii) files a voluntary bankruptcy petition; (iii) becomes the subject of
        an
        order for relief or is declared insolvent in any federal or state bankruptcy
        or
        insolvency proceedings; (iv) files a petition or answer seeking for the Member
        a
        reorganization, arrangement, composition, readjustment, liquidation,
        dissolution, or similar relief under any law; (v) files an answer or other
        pleading admitting or failing to contest the material allegations of a petition
        filed against the Member in a proceeding of the type described in subclauses
        (i)
        through (iv) of this clause (a); or (vi) seeks, consents to, or acquiesces
        in
        the appointment of a trustee, receiver, or liquidator of the Member’s properties
        or of all or any substantial part thereof; or (b) against which, a proceeding
        seeking reorganization, arrangement, composition, readjustment, liquidation,
        dissolution, or similar relief under any law has been commenced and sixty
        (60)
        days have expired without dismissal thereof or with respect to which, without
        the Member’s consent or acquiescence, a trustee, receiver, or liquidator of the
        Member or of all or any substantial part of the Member’s properties has been
        appointed and sixty (60) days have expired without the appointments having
        been
        vacated or stayed, or sixty (60) days have expired after the date of expiration
        of a stay, if the appointment has not previously been vacated.

       

      “Budgeted
        TCCO”
means
        the costs budgeted by the Company (as more fully set forth on Exhibit E attached
        hereto) for the development and construction of the Senior Living Facility
        until
        such Senior Living Facility is complete and a certificate of occupancy is
        granted.

       

      “Business
        Day”
means
        any day other than a Saturday, Sunday, or other day on which commercial banks
        are authorized to close under the laws of, or are in fact closed in, the
        State
        of Colorado.

       

      “Capital
        Account”
means,
        with respect to any Member, the capital account maintained for such Member
        in
        accordance with the following provisions:

       

      (i) To
        each
        Member’s Capital Account there shall be credited (a) such Member’s Capital
        Contributions, (b) such Member’s distributive share of Profits and any items in
        the nature of income or gain that are specially allocated pursuant to
Section
        4.3
        or
Section
        4.4
        hereof,
        and (c) the amount of any Company liabilities assumed by such Member or that
        are
        secured by any Property distributed to such Member. The principal amount
        of a
        promissory note that is not readily traded on an established securities market
        and that is contributed to the Company by the maker of the note (or a Member
        related to the maker of the note within the meaning of Regulations Section
        1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any
        Member
        until the Company makes a taxable disposition of the note or until (and to
        the
        extent) principal payments are made on the note, all in accordance with
        Regulations Section 1.704-1(b)(2)(iv)(d)(2);

       

      (ii) To
        each
        Member’s Capital Account there shall be debited (a) the amount of money and the
        Gross Asset Value of Property distributed to such Member pursuant to any
        provision of this Agreement, (b) such Member’s distributive share of Losses and
        any items in the nature of expenses or losses that are specially allocated
        pursuant to Section 4.3 or Section 4.4 hereof, and (c) the amount of any
        liabilities of such Member assumed by the Company or that are secured by
        any
        Property contributed by such Member to the Company;

       

       

      
        
          4

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (iii) In
        the
        event an Interest is transferred in accordance with the terms of this Agreement,
        the transferee shall succeed to the Capital Account of the transferor to
        the
        extent it relates to the transferred Interest; and

       

      (iv) In
        determining the amount of any liability for purposes of subparagraphs (i)
        and
        (ii) above there shall be taken into account Code Section 752(c) and any
        other
        applicable provisions of the Code and Regulations.

       

      The
        foregoing provisions and the other provisions of this Agreement relating
        to the
        maintenance of Capital Accounts are intended to comply with Regulations Section
        1.704-1(b), and shall be interpreted and applied in a manner consistent with
        such Regulations. In the event the Manager determines that it is prudent
        to
        modify the manner in which the Capital Accounts, or any debits or credits
        thereto (including, without limitation, debits or credits relating to
        liabilities that are secured by contributed or distributed property or that
        are
        assumed by the Company or any Members), are computed in order to comply with
        such Regulations, the Manager may make such modification, provided that it
        is
        not likely to have a material effect on the amounts distributed to any Person
        pursuant to Article
        11
        hereof
        upon the dissolution of the Company. The Manager also shall (i) make any
        adjustments that are necessary or appropriate to maintain equality between
        the
        Capital Accounts of the Members and the amount of capital reflected on the
        Company’s balance sheet, as computed for book purposes, in accordance with
        Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate
        modifications in the event unanticipated events might otherwise cause this
        Agreement not to comply with Regulations Section 1.704-1(b).

       

      “Capital
        Contributions”
means,
        with respect to any Member, the amount of money and the initial Gross Asset
        Value of any property (other than money) contributed to the Company with
        respect
        to the Interest in the Company held or purchased by such Member.

       

      “Capital
        Proceeds”
shall
        mean the cash proceeds (net of costs, expenses, any amounts required to be
        paid
        into escrow and any debts required to be paid pursuant to the transaction
        generating such proceeds or pursuant to any Company financing)
        from:

       

      (a) the
        sale,
        exchange or other disposition of any portion of the Property or the Senior
        Living Facility, other than those resulting in, or in the course of, the
        liquidation and dissolution of the Company, which shall be governed by Article
        XI hereof;

       

      (b) any
        mortgage financing or refinancing of any mortgage loans on the Property or
        the
        Senior Living Facility (including any permanent loan), but not including
        any
        advances borrowed by the Company under the terms of the Construction Loan
        or any
        Member Loan; or 

       

      (c) any
        condemnation, casualty insurance or any other nonrecurring proceeds not used
        for
        the restoration of the Property or the Senior Living Facility.

       

      “Capital
        Transactions”
means
        any transaction that produces Capital Proceeds.

       

       

      
        
          5

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Certificate”
means
        the Certificate of Formation of the Company that was filed with the Delaware
        Secretary of State, as the same may be amended from time to time.

       

      “Code”
means
        the Internal Revenue Code of 1986, as amended (or any corresponding provision
        or
        provisions of succeeding law).

       

      “Company”
means
        the limited liability company created by the filing of the Certificate, as
        the
        Company may from time to time be constituted.

       

      “Company
        Minimum Gain”
has
        the
        meaning given to the term “partnership minimum gain” in Regulations Sections
        1.704-2(b)(2) and 1.704-2(d).

       

      “Construction
        Lender”
means
        GMAC Commercial Mortgage Corporation.

       

      “Construction
        Loan”
means
        the first mortgage construction/mini-perm loan provided by the Construction
        Lender to the Company in an amount up to Twenty-five Million Four Hundred
        Eighty
        Thousand and No/100s Dollars ($25,480,000.00) for the development of the
        Property and the construction of the Senior Living Facility.

       

      “Depreciation”
means,
        for each Fiscal Year or other period, an amount equal to the depreciation,
        amortization or any other cost recovery deduction allowable with respect
        to an
        asset for such year or other period, except that if the Gross Asset Value
        of an
        asset differs from its adjusted basis for federal income tax purposes at
        the
        beginning of such Fiscal Year or other period, Depreciation shall be an amount
        that bears the same ratio to such beginning Gross Asset Value as the federal
        income tax depreciation, amortization or other cost recovery deduction for
        such
        Fiscal Year or other period bears to such beginning adjusted tax basis;
        provided, however, that if the adjusted basis for federal income tax purposes
        of
        an asset at the beginning of such Fiscal Year or other period is zero,
        Depreciation shall be determined with reference to such beginning Gross Asset
        Value using any reasonable method selected by the Manager.

       

      “Development
        Fee”
shall
        have the meaning set forth in Section 8.1 hereof.

       

      “Effective
        Date”
means
        October 14, 2005.

       

      “Event
        of Bankruptcy”
shall
        mean any event that causes a Member to be deemed a Bankrupt Member.

       

      “Fiscal
        Year”
means
        the Fiscal Year of the Company, which shall be the calendar year.

       

      “Force
        Majeure”
shall
        have the meaning set forth in Section 14.4 hereof.

       

      “Governmental
        Authority”
shall
        mean any board, bureau, commission, department or body of any municipal,
        county,
        state or federal governmental or quasi-governmental unit, or any subdivision
        thereof, having or acquiring jurisdiction over the Property or any portion
        thereof or the management, operation, use or improvement thereof.

       

      “Gross
        Asset Value”
means,
        with respect to any asset, the asset’s adjusted basis for federal income tax
        purposes, except as follows:

       

       

      
        
          6

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (i) The
        initial Gross Asset Value of any asset contributed by a Member to the Company
        shall be the gross fair market value of such asset, as determined by the
        Majority in Interest of the Members;

       

      (ii) The
        Gross
        Asset Value of each Company asset shall be adjusted to equal its respective
        gross fair market value (taking into account Code Section 7701(g)), as
        determined by the Manager, as of the following times: (a) the acquisition
        of an
        additional Interest in the Company by any new or existing Member in exchange
        for
        more than a de minimis Capital Contribution; (b) the distribution by the
        Company
        to a Member of more than a de minimis amount of Company property as
        consideration for an Interest in the Company; and (c) the liquidation of
        the
        Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
        provided, however, that an adjustment described in clauses (a) and (b) of
        this
        subparagraph (ii) shall be made only if the Manager reasonably determines
        that
        such adjustment is necessary to reflect the relative economic interests of
        the
        Members in the Company;

       

      (iii) The
        Gross
        Asset Value of any Company asset distributed to any Member shall be adjusted
        to
        equal the gross fair market value (taking into account Code Section 7701(g))
        of
        such asset on the date of distribution as determined by the Manager;
        and

       

      (iv) The
        Gross
        Asset Values of Company assets shall be increased (or decreased) to reflect
        any
        adjustments to the adjusted basis of such assets pursuant to Code Sections
        734(b) or 743(b), but only to the extent that such adjustments are taken
        into
        account in determining Capital Accounts pursuant to Regulations Section
        1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the definition of “Net Profits”
and “Net Loss” or Section 4.3(g); provided, however, that Gross Asset Values
        shall not be adjusted under this subparagraph (iv) to the extent that an
        adjustment pursuant to subparagraph (ii) is required in connection with a
        transaction that would otherwise result in an adjustment pursuant to this
        subparagraph (iv). If the Gross Asset Value of an asset has been determined
        or
        adjusted pursuant to subparagraph (i), (ii), or (iv), such Gross Asset Value
        shall thereafter be adjusted by the Depreciation taken into account with
        respect
        to such asset, for purposes of computing Net Profits and Net Loss.

       

      “Initial
        Capital Contributions”
means,
        with respect to each Member, the amount of money and the initial Gross Asset
        Value of any property (other than money) contributed to the Company by CNL
        and
        ARC as reflected on Exhibit
        B
        attached
        hereto.

       

      “Interest”
means,
        as to any Member, all of the limited liability company interest of that Member
        in the Company, including, but not limited to, such Member’s (i) Capital
        Account, (ii) right to allocations of items of income, gain, loss, deduction
        and
        credit of the Company in accordance with the terms of this Agreement, and
        (iii)
        right to a distributive share of the Company’s assets.

       

      “Investment
        Return”
means,
        as and only to CNL, a one-time non-annualized non-compounded return equal
        to the
        product obtained by multiplying (i) CNL’s Initial Capital Contribution as set
        forth on Exhibit
        B
        by (ii)
        eleven and twelve one hundredths percent (11.12%).

       

       

      
        
          7

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Loan
        Documents”
shall
        have the meaning given to such term in Section
        2.3(b)(iii)
        hereof.

       

      “Major
        Condemnation”
means
        an
        event in which all or substantially all of the Senior Living Facility shall
        be
        taken in an eminent domain, condemnation, compulsory acquisition or similar
        proceeding by any competent authority for any public or quasi-public use
        or
        purpose, or an event in which a portion of the Senior Living Facility shall
        be
        so taken, but the result is that it is unreasonable to continue to operate
        the
        Senior Living Facility in accordance with the standards required under the
        Management Agreement.

       

      “Majority
        in Interest of the Members”
means
        Members who collectively own more than fifty percent (50%) of the Percentage
        Interests. Where such term is prefaced by a modifying fraction or percentage,
        which is greater than fifty percent (50%), e.g. “two-thirds,” then the modified
        term means Members who collectively own at least the stated fraction or
        percentage of the Percentage Interests.

       

      “Management
        Agreement”
means
        that certain Management Agreement by and between the Property Manager and
        the
        Company regarding the management of the Property.

       

      “Manager”
means
        ARC Lowry, LLC, a Tennessee limited liability company, in its capacity as
        the
        Manager of the Company pursuant to the terms and provisions of this Agreement,
        and any other Person that becomes a Manager of the Company pursuant to Section
        6.5 hereof.

       

      “Member”
means
        any one of the Members.

       

      “Members”
        means all Persons admitted to the Company as a Member, initially CNL and
        ARC.

       

      “Member
        Nonrecourse Debt”
has
        the
        meaning given to the term “partner nonrecourse debt” in Regulations Section
        1.704-2(b)(4).

       

      “Member
        Nonrecourse Debt Minimum Gain”
means
        an
        amount with respect to each Member Nonrecourse Debt equal to the Company
        Minimum
        Gain that would result if such Member Nonrecourse Debt were treated as a
        Nonrecourse Liability, determined in accordance with Regulations Section
        1.704-2(i)(3).

       

      “Member
        Nonrecourse Deductions”
has
        the
        meaning given to the term “partner nonrecourse deductions” in Regulations
        Sections 1.704-2(i)(1) and 1.704-2(i)(2).

       

      “Net
        Cash Flow”
means
        the gross cash proceeds of the Company less the portion thereof used to pay
        or
        establish reserves for all Company expenses (including any Development Fees,
        Management Fees, Financing Fees and corporate maintenance expenses), debt
        payments, capital improvements, replacements, and contingencies, all as
        determined by the Manager. “Net Cash Flow” shall not be reduced by depreciation,
        amortization, cost recovery deductions, or similar allowances, but shall
        be
        increased by any reductions of reserves previously established pursuant to
        the
        first sentence of this definition.

       

       

      
        
          8

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Net
        Profit”
and
        “Net
        Loss”
means,
        for each Fiscal Year or other period, an amount equal to the Company’s taxable
        income or taxable loss for such Fiscal Year or other period, determined in
        accordance with Code Section 703(a) (for this purpose, all items of income,
        gain, loss or deduction required to be stated separately pursuant to Code
        Section 703(a)(1) shall be included in taxable income or loss), with the
        following adjustments:

       

      (i) Any
        income
        of the Company that is exempt from federal income tax and not otherwise taken
        into account in computing Profits or Losses pursuant to this definition shall
        be
        added to such taxable income or loss;

       

      (ii) Any
        expenditures of the Company described in Code Section 705(a)(2)(B), or treated
        as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section
        1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net
        Profits or Net Loss pursuant to this definition, shall be subtracted from
        such
        taxable income or loss;

       

      (iii) In
        the
        event the Gross Asset Value of any Company asset is adjusted pursuant to
        subparagraphs (ii) or (iii) of the definition of “Gross Asset Value,” the amount
        of such adjustment shall be treated as an item of gain (if the adjustment
        increases the Gross Asset Value of the asset) or an item of loss (if the
        adjustment decreases the Gross Asset Value of the asset) from the disposition
        of
        such asset and shall be taken into account for purposes of computing Profits
        or
        Losses;

       

      (iv) Gain
        or
        loss resulting from any disposition of Company property with respect to which
        gain or loss is recognized for federal income tax purposes shall be computed
        by
        reference to the Gross Asset Value of the property disposed of, notwithstanding
        that the adjusted tax basis of such property differs from its Gross Asset
        Value;

       

      (v) In
        lieu of
        the depreciation, amortization, and other cost recovery deductions taken
        into
        account in computing such taxable income or loss, there shall be taken into
        account Depreciation for such Fiscal Year or other period, computed in
        accordance with the definition of “Depreciation” hereinabove; and

       

      (vi) To
        the
        extent an adjustment to the adjusted tax basis of any Company asset pursuant
        to
        Code Section 734(b) is required, pursuant to Regulations Section
        1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts
        as a result of a distribution other than in liquidation of a Member’s interest
        in the Company, the amount of such adjustment shall be treated as an item
        of
        gain (if the adjustment increases the basis of the asset) or loss (if the
        adjustment decreases such basis) from the disposition of such asset and shall
        be
        taken into account for purposes of computing Net Profits and Net
        Loss;

       

      (vii) Notwithstanding
        any other provision of this definition, any items that are specially allocated
        pursuant to Section
        4.3
        or
Section
        4.4
        below
        shall not be taken into account in computing Net Profits or Net Loss;
        and

       

       

      
        
          9

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (viii) The
        amounts of the items of Company income, gain, loss, or deduction available
        to be
        specially allocated pursuant to Sections
        4.3
        and
4.4
        hereof
        shall be determined by applying rules analogous to those set forth in
        subparagraphs (i) through (vi) above.

       

      “Nonrecourse
        Deductions”
has
        the
        meaning given to such term in Regulations Section 1.704-2(b)(1) and
        1.704-2(c).

       

      “Nonrecourse
        Liability”
has
        the
        meaning given to such term in Regulations Section 1.704-2(b)(3).

       

      “ODA
        Advances”
means
        the advances made by ARC or an affiliate thereof to the Company as required
        by
        the Operating Deficits Guaranty.

       

      “ODA
        Advances Account”
means
        an
        account maintained by the Company for ARC. The ODA Advances Account shall
        be
        credited (increased) with the ODA Advances as and when made by ARC to the
        Company, credited (increased) by the ODA Advances Return and debited (decreased)
        by amounts distributed to ARC pursuant to Sections
        5.1(a),
        5.2(a)
        and
5.2(j).

       

      “ODA
        Advances Return”
means
        an
        amount computed as if ARC were earning a rate of interest equal to five percent
        (5%) per annum, calculated monthly and non-compounded, on the outstanding
        balance of ARC’s ODA Advances. The ODA Advances Return shall be calculated from
        and after the date on which ODA Advances are made until the date of distribution
        to ARC.

       

      “Operating
        Deficits Guaranty”
means
        that certain Operating Deficits Guaranty entered into by and between American
        Retirement Corporation, a Tennessee corporation, and the Construction Lender
        entered into in connection with the Construction Loan. 

       

      “Percentage
        Interest”
means,
        with respect to any Member, the Interest of the Member in the Company expressed
        as a percentage for the purposes of allocating items of income, gain, loss,
        deduction and credit of the Company and making distributions of cash pursuant
        to
        the terms of this Agreement and determining the respective voting rights
        of the
        Members hereunder. The Percentage Interest of the Members are set forth on
        Exhibit
        B
        attached
        hereto.

       

      “Person”
means
        any individual, partnership, corporation, limited liability company, trust,
        estate, or other entity.

       

      “Preamble”
means
        the preamble to this Agreement appearing prior to this Article 1.

       

      “Prime
        Rate”
means
        the prime rate of interest as published in the “Money Rates” section of the
        Eastern Edition of the Wall Street Journal.

       

      “Property”
means
        the real property described on Exhibit A attached hereto.

       

      “Property
        Manager”
means
        ARC
        MANAGEMENT, LLC,
        a
        Tennessee limited liability company, in its capacity as the manager of the
        Property pursuant to the terms and conditions of the Management Agreement,
        and
        any successor Person employed by the Company as manager of the Property pursuant
        to the terms and conditions of a property management agreement. 

       

       

      
        
          10

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      “Regulations”
means
        the permanent and temporary Income Tax Regulations, and all amendments,
        modifications, and supplements thereof, from time to time promulgated by
        the
        Department of the Treasury under the Code.

       

      “Senior
        Living Facility”
means
        the senior residential facility to be developed and constructed on the Property
        consisting of approximately one hundred and thirty-two (132) independent
        living
        units, thirty-one (31) assisted living units and sixty (60) skilled nursing
        beds.

       

      “Subsidiary”
will
        mean any Person at least fifty-one percent (51%) owned, directly or indirectly,
        by another Person.

       

      “Substituted
        Member”
has
        the
        meaning given to such term in Section
        9.2.

       

      “Total
        Casualty”
will
        mean any fire or other casualty which results in damage to the Senior Living
        Facility and its contents to the extent that it would be commercially
        impractical to undertake to repair and/or replace the Senior Living Facility
        to
        substantially the same condition as previously existed.

       

      “Unreturned
        Capital Contributions”
means,
        with respect to each Member, as of any date, an amount equal to the aggregate
        Capital Contributions made by such Member, less, as to such Member, the total
        cash distributions made to such Member in return of such Capital Contributions
        pursuant to Sections
        5.1(c),
        5.2(b),
        5.2(d),
        5.2(k)
        and
5.2(n).

       

      Terms
        defined in the Preamble have the meaning therein specified. To the extent
        that
        terms bearing initial upper case letters appear in this Agreement but are
        not
        defined in the Preamble or in this Article, such terms shall have the meaning
        set forth elsewhere in this Agreement.

       

      ARTICLE
        2

      FORMATION
        OF COMPANY, NAME, ETC.

       

      2.1 Formation.
        The
        Company was formed by the filing of the Certificate with the Secretary of
        State
        of the State of Delaware (the “Secretary of State”) pursuant to the applicable
        provisions of the Act. Chris Haley, as an “authorized person” within the meaning
        of the Act, executed, delivered and filed the Certificate with the Secretary
        of
        State. Upon the filing of the Certificate, his powers ceased and the Manager
        thereupon became the designated “authorized person.”

       

      2.2 Name.
        The name
        of the Company shall be Denver Lowry JV, LLC and the business and affairs
        of the
        Company shall be conducted under that name or such other name as may be Approved
        by the Members from time to time.

       

      2.3 Limited
        Purpose of Company.
        

       

      (a) The
        Company is organized for the limited purpose of acquiring, owning, and managing
        certain real property located in Denver, Colorado, more particularly described
        on Exhibit
        A
        attached
        hereto (the “Property”), and developing and constructing the Senior Living
        Facility. 

       

       

      
        
          11

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (b) Subject
        to
Section
        6.2,
        the
        Company is empowered to do any and all acts and things necessary, appropriate,
        proper, advisable, incidental to or convenient for the furtherance and
        accomplishment of the purposes and business described herein and for the
        protection and benefit of the Company, including, but not limited to, full
        power
        and authority to:

       

      (i) enter
        into, perform and carry out contracts of any kind;

       

      (ii) acquire,
        own, manage, improve and develop the Property and the Senior Living Facility,
        and lease, exchange, sell, transfer and dispose of the Property and the Senior
        Living Facility;

       

      (iii) finance
        the acquisition of the Property and the development of the Senior Living
        Facility by executing the necessary Loan documentation (the “Loan Documents”),
        and effecting the transactions contemplated therein and, in connection with
        any
        such financing arrangement, to pledge as security all or substantially all
        of
        its assets including, without limitation, all of its right, title and interest
        in and to the Property and the Senior Living Facility;

       

      (iv) to
        repay
        such financing through any lawful means, including, without limitation, the
        sale
        or transfer of the Property and the Senior Living Facility in connection
        with a
        tax-free like kind exchange under Section 1031 of the Code; and

       

      (v) to
        engage
        in any lawful act or activity, to enter into any agreement or other undertaking
        and to exercise any powers permitted to limited liability companies organized
        under the Act that, in any such case, are incidental to and necessary or
        convenient for the accomplishment of the above mentioned purposes.

       

      2.4 Term.
        The
        Effective Date of this Agreement is October __, 2005, and the term of the
        Company shall be perpetual, unless earlier dissolved and terminated (and
        not
        reconstituted by at least a Majority in Interest of the remaining Members,
        as
        provided for in this Agreement) pursuant to the Act or any provision of this
        Agreement.

       

      2.5 Principal
        Office.
        The
        Company’s principal office shall initially be located at 111 Westwood Place,
        Suite 200, Brentwood, Tennessee 37027. The Manager may change the location
        of
        the Company’s principal office from time to time or establish and maintain
        additional places of business for the Company, and shall make any filing
        and
        take any other action required by applicable law in connection with the
        change.

       

      2.6 Separateness
        from Affiliates.
        The
        Company shall, and the Members and the Manager also shall cause the Company
        to:

       

      (a) be
        legally
        and in fact separate from any other Person;

       

      (b) conduct
        its business in its own name and to use its own name for the purposes of
        obtaining required registrations, licenses and permits (whether governmental,
        administrative or otherwise) necessary to the conduct of its
        business;

       

       

      
        
          12

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (c) correct
        any known misunderstandings regarding its separate identity;

       

      (d) maintain
        its books and records separate from those of any other Person and, if required
        by law to file tax returns, file its tax returns separate from those of any
        other Person;

       

      (e) maintain
        its funds and accounts separate from those of any other Person;

       

      (f) not
        commingle its assets with those of the Members or any other Person (except
        as
        contemplated by the Loan Documents);

       

      (g) maintain
        its financial statements separate from the financial statements of any other
        Person; provided, however, that nothing contained herein shall prohibit the
        inclusion of the Company in consolidated financial statements with other
        entities as long as the Company’s separate existence is noted in any such
        statements;

       

      (h) use
        stationery, invoices and checks separate from those of any other
        Person;

       

      (i) pay
        its
        liabilities out of its own funds, provided, however, the foregoing shall
        not
        require the Members to make any additional Capital Contributions to the Company,
        except as otherwise required by this Agreement;

       

      (j) not
        acquire obligations or securities of the Members or its Affiliates;

       

      (k) pay
        the
        salaries of its employees, if any, and maintain a sufficient number of employees
        in light of its contemplated business operations, provided, however, the
        foregoing shall not require the Members to make any additional Capital
        Contributions to the Company, except as otherwise required by this
        Agreement;

       

      (l) allocate
        fairly and reasonably any overhead for shared office space;

       

      (m) maintain
        adequate capital in light of its contemplated business operations and purpose,
        provided, however, the foregoing shall not require the Members to make any
        additional Capital Contributions to the Company, except as otherwise required
        by
        this Agreement;

       

      (n) limit
        the
        debt of the Company to the debt incurred in the ordinary course of business
        and
        debt incurred as described in Section
        2.3
        hereof;

       

      (o) not
        guarantee or become obligated for the debts of any other Person or hold out
        its
        credit as being available to satisfy the obligations of others or, except
        as
        provided in Section 2.3 hereof, allow others to guarantee or become liable
        on
        the debts of the Company;

       

      (p) except
        as
        described in Section
        2.3
        hereof,
        not pledge its assets for the benefit of any other Person or make any loans
        or
        advances to any Person;

       

       

      
        
          13

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (q) not
        make
        loans to any other Person or buy or hold evidence of indebtedness issued
        by any
        other Person (except for cash and investment-grade securities); 

       

      (r) observe
        all Delaware limited liability company formalities;

       

      (s) maintain
        an arm’s-length relationship with its Affiliates; and

       

      (t) not
        take
        any action if, as a result of such action, the Company would be required
        to
        register as an investment company under the Investment Company Act of 1940,
        as
        amended.

       

      ARTICLE
        3

      CAPITAL
        CONTRIBUTIONS;CAPITAL ACCOUNTS

       

      3.1 Initial
        Capital Contributions.
        The
        Members shall contribute the amount of capital opposite their names as set
        forth
        on Exhibit
        B
        attached
        hereto (the contributions set forth on Exhibit
        B
        shall be
        referred to herein as the “Initial Capital Contributions”). The Members
        acknowledge and agree that such Initial Capital Contributions may be made
        at any
        time, but in any event, shall be made at such times and in such amounts as
        are
        needed to fund costs and expenses for the development and construction of
        the
        Property and the Senior Living Facility and that the full funding of such
        Initial Capital Contributions is required by the Construction Lender as a
        condition precedent to any draws being made by the Company under the
        Construction Loan. Within five (5) business days following the date upon
        which
        the Members receive a notice to fund from the Manager, the Members shall
        contribute to the Company, an amount determined by multiplying that Member’s
        Percentage Interest by the funding required in the Manager’s notice. In the
        event that either Member, for whatever reason (other than a payment timing
        delay
        due to an event of Force Majeure; provided, however, that in no event shall
        a
        payment be delayed for more than thirty (30) days), fails to fully contribute
        the aggregate amount of its Initial Capital Contribution as set forth on
        Exhibit
        B
        pursuant
        to this Section
        3.1,
        (i) such
        Member’s Interest in the Company shall be forfeited and any and all rights with
        respect to such Interest, including without limitation, such Member’s right to
        vote and receive distributions, shall immediately terminate and (ii) any
        amounts
        previously contributed to the Company by such Member shall be retained by
        the
        Company and its members as liquidated damages for such Member’s breach its
        funding obligation. The Members hereby agree and acknowledge that, in the
        event
        of a failure of a Member to fully fund its Initial Capital Contribution as
        set
        forth on Exhibit B, actual damages will be difficult to ascertain and, as
        such,
        the forfeiture of such Member’s Interests as liquidated damages is an
        appropriate remedy.

       

       

      
        
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      3.2 Member
        Loans.

       

      (a) In
        General. In order to satisfy its financial needs, the Company may borrow
        funds
        from ARC or CNL or one of their Affiliates (each a “Member Loan”). Unless
        otherwise designated in the loan agreements or accompanying documents, repayment
        of principal and interest on such loans will be solely the obligation of
        the
        Company and not of the Members. Any loans to the Company from ARC, CNL or
        one of
        their respective Affiliates shall be Approved by the Members and, except
        as
        provided in Sections
        3.2(b)
        and
(c)
        below,
        shall bear interest at the Prime Rate.

       

      (b) ARC
        TCCO Advances.
        In the
        event that Actual TCCO exceeds the Budgeted TCCO prior to such time as the
        Senior Living Facility obtains a certificate of occupancy and such excess
        is a
        result of events not constituting Force Majeure, ARC shall advance the cost
        of
        such overruns by (i) first, providing up to Seven Hundred Fifty Thousand
        Dollars
        ($750,000) of its own funds (which advances shall not be repaid and shall
        not be
        deemed a Member Loan or any other type of loan) and (ii) second, advancing
        ARC
        TCCO Capital. Any ARC TCCO Capital advanced by ARC pursuant to this Section
        3.2(b)
        shall not
        be treated as a Capital Contribution, but instead, shall be treated as a
        Member
        Loan that shall be repaid by the Company pursuant to Sections
        5.2(f)
        and
5.2(p)
        hereof,
        which Sections establish only the priority of repayment of such Member Loan
        and
        shall not cause the repayments to be treated as “distributions” for purposes of
        maintaining Capital Accounts.

       

      (c) ARC
        ODA
        Advances.
        Following receipt of a certificate of occupancy for the Senior Living Facility,
        ARC shall make ODA Advances as and when required pursuant to the Operating
        Deficit Guaranty. Any ODA Advances advanced by ARC pursuant to this Section
        3.2(c)
        shall not
        be treated as a Capital Contribution, but instead, shall be treated as a
        Member
        Loan that shall be repaid by the Company pursuant to Sections
        5.1(a),
        5.2(a)
        and
5.2(j)
        hereof,
        which Sections establish only the priority of repayment of such Member Loan
        and
        shall not cause the repayments to be treated as “distributions” for purposes of
        maintaining Capital Accounts. The Manager shall provide monthly reconciliation
        statements to the Members regarding the ODA Advances Account pursuant to
        Section
        3.5
        hereof.

       

      (d) No
        Default.
        If ARC
        has met its obligations to advance ARC TCCO Capital and/or ARC ODA Advances
        pursuant to this Section
        3.2
        and, in
        spite of these advances, the Company is still without sufficient funds to
        meet
        its needs, ARC will not be in default of this Agreement. Further, it shall
        not
        be a default under this Agreement if ARC does not make an ODA Advance as
        a
        result of an ongoing material breach or violation of this Agreement by CNL,
        CNL’s unreasonable and/or bad faith refusal to grant a requested consent or
        approval under the Management Agreement which results in an increased ODA
        Advance, or the Manager’s unreasonable and/or bad faith refusal to grant a
        requested consent or approval under the Management Agreement which results
        in an
        increased operating cost, if the Manager is not an Affiliate of
        ARC.

       

       

      
        
          15

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      3.3 Return
        of Capital.
        No
        Member shall have any liability for the return of any Member’s Capital
        Contributions. A Member shall not receive out of the Company’s property all or
        any part of such Member’s Capital Contributions except as provided in
Sections
        5.1
        and
5.2
        hereof.

       

      3.4 Capital
        Accounts.
        The
        Company shall maintain for each Member an account designated as such Member’s
        Capital Account. The Capital Accounts shall be maintained in accordance with
        Section 1.704-1(b)(2)(iv) of the Regulations, and the items of income, profit,
        gain, expenditures, deductions and losses which increase or decrease such
        capital accounts shall be those items which, pursuant to such Regulations,
        affect the balance of capital accounts.

       

      3.5 ODA
        Advance Account.
        The
        Company shall maintain an account designated as ARC’s ODA Advance Account, which
        account shall be credited (increased) by each ODA Advance as and when made
        by
        ARC to the Company, credited (increased) by each ODA Advances Return and
        debited
        (decreased) by amounts distributed to ARC pursuant to Sections
        5.1(a),
        5.2(a)
        and
5.2(j).
        The
        Manager shall provide monthly reconciliation statements to the Members regarding
        such ODA Advance Account. 

       

      ARTICLE
        4

      ALLOCATIONS
        OF PROFITS AND LOSSES

       

      As
        of the
        end of each Fiscal Year, the Company’s Net Profit or Net Loss and each item of
        income, gain, loss and deduction related thereto, as well as other items
        of
        income, gain, loss or deduction which are subject to special allocation
        provisions, shall be allocated to the Capital Accounts of the Members and
        for
        federal income tax purposes pursuant to the following Sections of this Article
        4.

       

      4.1 Allocation
        of Net Loss.
        After
        giving effect to the special allocations set forth in Section
        4.3
        and
Section
        4.4
        hereof,
        if there is a Net Loss for any Fiscal Year, such Net Loss shall be allocated
        as
        set forth in Section
        4.1(a)
        below,
        subject to the limitations in Section
        4.1(b)
        below:

       

      (a) Net
        Loss
        for any Fiscal Year shall be allocated in the following order and
        priority:

       

      (i) First,
        to
        the Members, proportionately in accordance with their respective Percentage
        Interests, in an amount equal to the excess, if any, of (A) the cumulative
        Net
        Profits allocated pursuant to Section
        4.2(c)
        hereof
        for all prior Fiscal Years, over (B) the cumulative Net Losses allocated
        pursuant to this Section
        4.1(a)(i)
        for all
        prior Fiscal Years;

       

      (ii) Second,
        one hundred percent (100%) to CNL, in an amount equal to the excess, if any,
        of
        (A) the cumulative Net Profits allocated pursuant to Section
        4.2(b)
        hereof
        for all prior Fiscal Years, over (B) the cumulative Net Losses allocated
        pursuant to this Section
        4.1(a)(ii)
        for all
        prior Fiscal Years;

       

      (iii) The
        balance, if any, to the Members in proportion to their respective Percentage
        Interests.

       

       

      
        
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      (b) Notwithstanding
        the allocations set forth in Section 4.1(a), no amount of Net Loss shall
        be
        allocated to any Member if such allocation would cause such Member to have
        an
        Adjusted Capital Account Deficit. The amount of the allocation of Net Loss
        which
        would otherwise have caused a Member to have an Adjusted Capital Account
        Deficit
        shall instead be allocated to those Members who would not have an Adjusted
        Capital Account Deficit as a result of the allocation in proportion to their
        Percentage Interests. If no Member may be allocated a Net Loss without creating
        or increasing an Adjusted Capital Account Deficit, then all further Net Loss
        shall be allocated among the Members in accordance with their Percentage
        Interests.

       

      4.2 Allocation
        of Net Profits.
        After
        giving effect to the special and curative allocations set forth in Section
        4.3
        and
Section
        4.4,
        Net
        Profit for each Fiscal Year or part thereof shall be allocated to the Members
        in
        the following manner and order of priority:

       

      (a) First,
        to
        the Members, in proportion to their respective Percentage Interests, in an
        amount equal to the excess, if any, of (i) the cumulative Net Losses allocated
        pursuant to Section
        4.1(a)(iii)
        hereof
        for all prior Fiscal Years, over (ii) the cumulative Net Profits allocated
        pursuant to this Section
        4.2(a)
        for all
        prior Fiscal Years;

       

      (b) Second,
        to
        CNL in an amount equal to the excess, if any, of (i) the sum of (A) CNL’s
        Investment Return and (B) the cumulative Net Losses allocated pursuant to
        Section
        4.1(a)(ii)
        for all
        prior Fiscal Years, over (ii) the cumulative Net Profits allocated pursuant
        to
        this Section
        4.2(b)
        for all
        prior Fiscal Years; and

       

      (c) The
        balance, if any, to the Members in accordance with their respective Percentage
        Interests.

       

      4.3 Special
        Allocations.
        Prior to
        the allocations pursuant to Section
        4.1
        and
Section
        4.2
        hereof,
        items of income, gain, loss and deduction for the Year shall be allocated
        in
        accordance with the following provisions of this Section
        4.3
        to the
        extent such provisions are applicable in determining Net Profit or Net
        Loss.

       

      (a) Minimum
        Gain Chargeback.
        Except
        as otherwise provided in Regulations Section 1.704.2(f), notwithstanding
        any
        other provision of this Article
        4,
        if there
        is a net decrease in Company Minimum Gain during any taxable year, each Member
        shall be specially allocated items of Company income and gain for such taxable
        year (and, if necessary, subsequent taxable years) in an amount equal to
        such
        Member’s share of the net decrease in Company Minimum Gain, determined in
        accordance with Regulations Section 1.704-2(g). Allocations pursuant to the
        previous sentence shall be made in proportion to the respective amounts required
        to be allocated to each Member pursuant thereto. The items to be so allocated
        shall be determined in accordance with Regulations Sections 1.704-2(f)(6)
        and
        1.704-2(j)(2). This Section
        4.3(a)
        is
        intended to comply with the minimum gain chargeback requirement set forth
        in
        Regulations Section 1.704-2(f) and shall be interpreted consistently
        therewith.

       

      
        
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      (b) Member
        Minimum Gain Chargeback.
        Except
        as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding
        any
        other provision of this Article
        5,
        if there
        is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
        a
        Member Nonrecourse Debt during any taxable year, each Member who has a share
        of
        the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
        Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall
        be
        specially allocated items of Company income and gain for such taxable year
        (and,
        if necessary, subsequent taxable years) in an amount equal to such Member’s
        share of the net decrease in Member Nonrecourse Debt, determined in accordance
        with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous
        sentence shall be made in proportion to the respective amounts required to
        be
        allocated to each Member pursuant thereto. The items to be so allocated shall
        be
        determined in accordance with Regulations Sections 1.704-2(i)(4) and
        1.704-2(j)(2). This Section
        4.3(b)
        is
        intended to comply with the minimum gain chargeback requirement set forth
        in
        Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
        therewith.

       

      (c) Qualified
        Income Offset.
        In the
        event any Member unexpectedly receives any adjustments, allocations or
        distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
        (5) or
        (6), items of Company income and gain shall be specially allocated to each
        such
        Member in an amount sufficient to eliminate, to the extent required by the
        Treasury Regulations, the Adjusted Capital Account Deficit of such Member
        as
        quickly as possible; provided, however, that an allocation pursuant to this
        Section
        4.3(c)
        shall be
        made only if and to the extent that such Member would have an Adjusted Capital
        Account Deficit after all other allocations provided for in this Article
        4
        have been
        tentatively made as if this Section
        4.3(c)
        were not
        in the Agreement.

       

      (d) Gross
        Income Allocation.
        In the
        event any Member has a deficit Capital Account at the end of any taxable
        year
        which is in excess of the sum of (i) the amount such Member is obligated
        to
        restore pursuant to the penultimate sentences of Regulations Sections
        1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be specially allocated
        items of Company income and gain in the amount of such excess as quickly
        as
        possible; provided that an allocation pursuant to this Section
        4.3(d)
        shall be
        made only if and to the extent that such Member would have a deficit Capital
        Account in excess of such sum after all other allocations provided for in
        this
Article
        4
        have been
        made as if Section
        4.3(c)
        and this
Section
        4.3(d)
        were not
        in this Agreement.

       

      (e) Nonrecourse
        Deductions.
        Nonrecourse Deductions for any taxable year or other period shall be allocated
        to the Members in proportion to their respective Percentage
        Interests.

       

      (f) Member
        Nonrecourse Deductions.
        Any
        Member Nonrecourse Deductions for any taxable year shall be allocated to
        the
        Member who bears the economic risk of loss with respect to the Member
        Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
        in
        accordance with Regulations Section 1.704-2(i)(1).

       

       

      
        
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      (g) Section
        754 Adjustment.
        To the
        extent an adjustment to the adjusted tax basis of any Company asset pursuant
        to
        Code Sections 734(b) or 743(b) is required, pursuant to Regulations Section
        1.704-1(b)(2)(iv)(m)(2) or Section 1.704-1(b)(2)(iv) (m)(4), to be taken
        into
        account in determining Capital Accounts as the result of a distribution to
        a
        Member in complete liquidation of such Member’s Interest in the Company, the
        amount of such adjustment to the Capital Accounts shall be treated as an
        item of
        gain (if the adjustment increases the basis of the asset) or loss (if the
        adjustment decreases such basis), and such gain or loss shall be specially
        allocated to the Members in accordance with their interests in the Company
        in
        the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
        Member
        to whom such distribution was made in the event Regulations Section
        1.704-1(b)(2)(iv)(m)(4) applies.

       

      (h) Capital
        Items.
        All or a
        portion of the remaining items of Company income or gain for the Fiscal Year,
        if
        any, shall be specially allocated to the Members in proportion to and to
        the
        extent of the excess, if any, of (i) the aggregate distributions each Member
        has
        received pursuant to Sections
        5.2(c),
        5.2(e),
        5.2(g),
        5.2(h),
        5.2(i),
        5.2(l),
        5.2(m),
        5.2(o),
        5.2(q),
        5.2(r),
        and
5.2(s)
        over (ii)
        the cumulative items of income and gain allocated to such Member pursuant
        to
        this Section 4.3(h) for all prior Fiscal Years. 

       

      4.4 Curative
        Allocations.
        The
        allocations set forth in Sections
        4.1(b),
        4.3(a),
        4.3(b),
        4.3(c),
        4.3(d),
        4.3(e),
        4.3(f)
        and
4.3(g),
        (the
“Regulatory Allocations”) are intended to comply with certain requirements of
        the Regulations. It is the intent of the Members that, to the extent possible,
        all Regulatory Allocations shall be offset either with other Regulatory
        Allocations or with special allocations of other items of Company income,
        gain,
        loss, or deduction pursuant to this Section 4.4. Therefore, notwithstanding
        any
        other provision of this Article
        4
        (other
        than the Regulatory Allocations), the Manager shall make such offsetting
        special
        allocations of Company income, gain, loss or deduction in whatever manner
        they
        determine appropriate so that, after such offsetting allocations are made,
        each
        Member’s Capital Account balance is, to the extent possible, equal to the
        Capital Account balance such Member would have had if the Regulatory Allocations
        were not part of the Agreement and all Company items were allocated pursuant
        to
Sections
        4.1
        and
4.2.

       

      4.5 Tax
        Allocations: Code Section 704(c).
        In
        accordance with Code Section 704(c), and the Regulations promulgated thereunder,
        income, gain, loss and deduction with respect to any property contributed
        to the
        capital of the Company shall, solely for tax purposes, be allocated among
        the
        Members so as to take account of any variation between the adjusted basis
        of
        such property to the Company for federal income tax purposes and its initial
        Gross Asset Value (computed in accordance with the definition of Gross Asset
        Value) using the traditional method as set forth in Regulations Section
        1.704-3(b), unless some other method is agreed upon by the Members.

       

      In
        the
        event the Gross Asset Value of any Company asset is adjusted pursuant to
        subparagraph (ii) of the definition of Gross Asset Value, subsequent allocations
        of income, gain, loss, and deduction with respect to such asset shall take
        account of any variation between the adjusted basis of such asset for federal
        income tax purposes and its Gross Asset Value in the same manner as under
        Code
        Section 704(c) and the Regulations thereunder. 

       

       

      
        
          19

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      Any
        elections or other decisions relating to such allocations shall be made by
        the
        Manager in any manner that reasonably reflects the purpose and intention
        of this
        Agreement. Allocations pursuant to this Section
        4.5
        are
        solely for purposes of federal, state, and local taxes and shall not affect,
        or
        in any way be taken into account in computing, any Member’s Capital Account or
        share of Net Profit, Net Loss, other items, or distributions pursuant to
        any
        provision of this Agreement.

       

      4.6 Allocations
        for Year of Liquidation.
        After
        giving effect to the special allocations set forth in Sections
        4.3
        and
4.4
        hereof,
        the amount of Net Profit or Net Loss for the Fiscal Year in which the Company
        is
        dissolved, and each item of income, gain, loss and deduction related thereto,
        shall be allocated to the Members in an manner so that the distributions
        to each
        Member pursuant to Article
        11
        shall, to
        the greatest extent possible, be equal to that amount that each such Member
        would receive under Section 5.2 if the amounts to be distributed by the Company
        in connection with such dissolution were instead distribute under such
Section
        5.2.

       

      ARTICLE
        5

      DISTRIBUTIONS

       

      5.1 Distribution
        of Net Cash Flow.
        Except
        as otherwise provided in Section
        5.4
        hereof,
        distributions of Net Cash Flow, if any, shall, unless otherwise Approved
        by the
        Members, be distributed to the Members within fifteen (15) days after the
        end of
        each Fiscal Year quarter and shall be apportioned among the Members as
        follows:

       

      (a) First,
        to
        ARC until the balance of its ODA Advances Account has been reduced to
        zero;

       

      (b) Next,
        to
        CNL to the extent of its unpaid Investment Return until its Investment Return
        has been paid in full;

       

      (c) Next,
        to
        the Members, to the extent of and in proportion to the Unreturned Capital
        Contributions of each, until such Unreturned Capital Contributions have been
        returned in full; and

       

      (d) The
        balance, if any, to the Members in accordance with their respective Percentage
        Interests.

       

      Notwithstanding
        the foregoing, during any period in which ARC or one of its Affiliates is
        not
        serving as the Property Manager, all Net Cash Flow remaining after the repayment
        of ARC’s ODA Advances Account in accordance with Section 5.1(a) shall be
        distributed to CNL.

       

      5.2 Distribution
        of Capital Proceeds.
        Except
        as provided in Section
        5.4
        hereof,
        distributions of all or any portion of Capital Proceeds shall be made within
        thirty (30) days of the event giving rise to the Capital Proceeds, and shall
        be
        apportioned among the Members as follows:

       

      (a) First,
        to
        ARC until the balance of its ODA Advances Account has been reduced to
        zero;

       

      
        
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      (b) Next,
        to
        CNL until its Unreturned Capital Contribution has been returned in full;
        

       

      (c) Next,
        to
        CNL to the extent of its unpaid Investment Return until its Investment Return
        has been paid in full;

       

      (d) Next,
        to
        ARC until its Unreturned Capital Contribution has been returned in
        full;

       

      (e) Next,
        to
        CNL until it has received a thirteen and one-half percent (13.5%) return
        on its
        Initial Capital Contribution, calculated per annum, compounded quarterly,
        to be
        calculated from the date on which such Initial Capital Contributions, or
        portions thereof, are made;

       

      (f) Next,
        to
        ARC until its ARC TCCO Capital has been repaid in full;

       

      (g) Next,
        to
        ARC until it has received a thirteen and one-half percent (13.5%) return
        on its
        Initial Capital Contribution, calculated per annum, compounded quarterly,
        to be
        calculated from the date on which such Initial Capital Contributions, or
        portions thereof, are made;

       

      (h) Next,
        eighty percent (80%) to CNL and twenty percent (20%) to ARC until such time
        as
        CNL has received a total return of twenty percent (20%) on its Initial Capital
        Contribution, calculated with per annum, compounded quarterly, to be calculated
        from the date on which such Initial Capital Contributions, or portions thereof,
        are made; and

       

      (i) The
        balance, if any, seventy percent (70%) to ARC and thirty percent (30%) to
        CNL.

       

      Notwithstanding
        the foregoing, if ARC or one of its Affiliates is not serving as the Property
        Manager, distributions of all or any portion of Capital Proceeds shall be
        made
        within sixty (60) days of the event giving rise to the Capital Proceeds,
        and
        shall be apportioned among the Members as follows:

       

      (j) First,
        to
        ARC until the balance of its ODA Advances Account has been reduced to
        zero;

       

      (k) Next,
        to
        CNL until its Unreturned Capital Contribution has been returned in full;
        

       

      (l) Next,
        to
        CNL to the extent of its unpaid Investment Return until its Investment Return
        has been paid in full;

       

      (m) Next,
        to
        CNL until it has received an eight percent (8%) return on its Initial Capital
        Contribution, calculated per annum, compounded quarterly, to be calculated
        from
        the date on which such Initial Capital Contributions, or portions thereof,
        are
        made;

       

       

      
        
          21

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (n) Next,
        to
        ARC until its Unreturned Capital Contribution has been returned in full;
        

       

      (o) Next,
        to
        CNL until it has received a thirteen and one-half percent (13.5%) return
        on its
        Initial Capital Contribution, calculated per annum, compounded quarterly,
        to be
        calculated from the date on which such Initial Capital Contributions, or
        portions thereof, are made;

       

      (p) Next,
        to
        ARC until its ARC TCCO Capital has been repaid in full;

       

      (q) Next,
        to
        ARC until it has received a thirteen and one-half percent (13.5%) return
        on its
        Initial Capital Contribution, calculated per annum, compounded quarterly,
        to be
        calculated from the date on which such Initial Capital Contributions, or
        portions thereof, are made;

       

      (r) Next,
        eighty percent (80%) to CNL and twenty percent (20%) to ARC until such time
        as
        CNL has received a total return of twenty percent (20%) on its Initial Capital
        Contribution, calculated per annum, compounded quarterly, to be calculated
        from
        the date on which such Initial Capital Contributions, or portions thereof,
        are
        made; and

       

      (s) The
        balance, if any, seventy percent (70%) to ARC and thirty percent (30%) to
        CNL.

       

      5.3 Distributions
        in Kind.
        If any
        of the Company’s assets are to be distributed in kind rather than sold, such
        assets shall be distributed on the basis of the fair market value thereof
        and
        any Member entitled to any interest in such assets pursuant to this Section
        5.3
        shall
        receive such interest therein as a tenant-in-common with all other Members
        so
        entitled. Unless otherwise agreed by all of the Members, the fair market
        value
        of such assets shall be equal to an appraisal or appraisals prepared by one
        or
        more appraisers selected by the Manager and paid for by the Company. Such
        appraiser(s) must have a “MAI” designation or its equivalent and substantial
        experience appraising commercial real estate in the counties and states in
        which
        the assets to be appraised are located.

       

      5.4 Limitation
        on Distributions.
        Notwithstanding any provision to the contrary contained in this Agreement,
        the
        Company shall not be required to make a distribution to any Member on account
        of
        its interest in the Company if such distribution would violate Section 18-607
        of
        the Act or any other applicable law.

       

      ARTICLE
        6

      MANAGEMENT
        OF THE COMPANY

       

      6.1 Management
        by Manager.
        The
        Members hereby appoint ARC Lowry, LLC as the initial Manager of the Company.
        The
        overall management and control of the business and affairs of the Company
        shall
        be vested in the Manager, who shall have all powers permitted under the Act
        as
        well as all other powers necessary or desirable for the performance by it
        of all
        of its duties and obligations as the Manager of the Company. The Manager
        shall
        devote such time to the Company as shall be reasonably required for its welfare
        and success. By way of illustration, but not in limitation, the powers and
        duties of the Manager shall include the following:

       

       

      
        
          22

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      (a) Protect
        and preserve the titles and interests of the Company in the Company’s
        assets;

       

      (b) Subject
        to
Sections
        6.2 and 6.3,
        purchase
        real property and any other assets necessary or appropriate for the conduct
        of
        the Company’s business;

       

      (c) Subject
        to
Sections
        6.2 and 6.3,
        borrow
        money on behalf of the Company for Company purposes and encumber the Company’s
        assets to secure the Loan;

       

      (d) To
        the
        extent Company funds are available, pay all taxes, assessments, and other
        impositions applicable to the Company and the Company’s assets;

       

      (e) Subject
        to
Sections
        6.2 and 6.3,
        sell,
        lease, exchange, mortgage, or otherwise dispose of the Company’s assets or any
        interest therein in the ordinary course of the Company’s business;

       

      (f) Retain,
        discharge and replace the Company’s accountants and attorneys, and hire and fire
        employees of the Company and other persons necessary or appropriate to carry
        out
        the business of the Company;

       

      (g) To
        the
        extent that funds of the Company are available from time to time, pay all
        current debts and other obligations of the Company, and invest funds that
        are
        temporarily not required for Company purposes in any short-term, highly liquid
        investments with appropriate safety of principal;

       

      (h) Maintain
        all funds of the Company in one or more bank accounts in such bank or banks
        as
        the Manager may from time to time select; provided, however that any such
        account will bear interest at market rates;

       

      (i) Procure
        and maintain, at the expense of the Company, insurance policies covering
        the
        assets and operations of the Company; and 

       

      (j) Perform
        other normal business functions and otherwise operate and manage the business
        and affairs of the Company.

       

      6.2 Unanimous
        Major Decisions.
        Notwithstanding any other provision hereof and in addition to those matters
        which pursuant to any other provisions of this Agreement require the approval
        of
        one or more of the Members, the Company may not take any action or incur
        any
        obligation binding on the Company within the scope of any of the actions
        or
        decisions listed below (each a “Unanimous Major Decision” and together, the
“Unanimous Major Decisions”) unless and until the Unanimous Major Decision has
        been Approved by the Members, provided that in the event that ARC Management,
        LLC is no longer the Property Manager pursuant to the Management Agreement,
        Unanimous Major Decisions shall be approved by a Majority in Interest of
        the
        Members:

       

      (a) entering
        into any single contract, agreement or transaction in excess of two hundred
        fifty thousand dollars ($250,000.00), provided that such contract, agreement
        or
        transaction is terminable without penalty upon thirty (30) days
        notice;

       

       

      
        
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      (b) except
        for
        the Management Agreement attached hereto as Exhibit C and the Development
        Agreement attached hereto as Exhibit D, entering into any contract, agreement
        or
        transaction with any Member or any Affiliate of any Member;

       

      (c) engaging
        in any activity that is substantially unrelated to the objects and purposes
        of
        the Company as set forth in Section 2.3 above;

       

      (d) amending
        the Certificate or any of the terms of this Agreement; 

       

      (e) doing
        any
        act that would make it impossible to carry on the ordinary business of the
        Company;

       

      (f) borrowing
        money or incurring or refinancing indebtedness in the name of the Company,
        or
        guaranteeing the obligations of any other Person, other than equipment and
        vehicle financing entered into in the ordinary course of business;

       

      (g) except
        for
        accounts receivable or pursuant to the terms of any residency agreement,
        lending
        money or extending credit to anyone;

       

      (h) establish
        any reserves deemed necessary or advisable by the Manager other than any
        reserves that are contemplated by Budgeted TCCO;

       

      (i) using
        the
        proceeds of an insurance claim or condemnation proceedings or other governmental
        taking for casualties which are less than a Total Casualty or Major
        Condemnation;

       

      (j) issuing
        or
        assigning any Interests or permitting the transfer of any Interests in the
        Company except in accordance with the terms of this Agreement;

       

      (k) except
        as
        provided in Section
        2.3
        hereof,
        reorganizing the Company, causing the Company to merge or consolidate with
        or
        into another Person or sell all or substantially all of its assets to another
        Person, or acquiring another Person or substantially all the assets of another
        Person;

       

      (l) to
        the
        fullest extent permitted by law, dissolving or liquidating the Company, in
        whole
        or in part, or instituting proceedings to be adjudicated bankrupt or insolvent
        or taking any action that might cause the Company to become insolvent;

       

      (m) consenting
        to the institution of bankruptcy or insolvency proceedings against
        it;

       

      (n) filing
        a
        petition seeking or consenting to reorganization or relief under any applicable
        federal or state law relating to bankruptcy or insolvency;

       

      (o) consenting
        to the appointment of a receiver, liquidator, assignee, trustee, sequestrator
        (or other similar official) of the Company or a substantial part of its
        property;

       

       

      
        
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      (p) making
        a
        general assignment for the benefit of creditors; and

       

      (q) making
        any
        admission in writing to creditors that it is unable to pay its debts generally
        as they become due; 

       

      (r) except
        as
        set forth in Section
        6.3(e),
        making
        any decisions on behalf of the Company with respect to the Company’s rights
        under the Management Agreement or Development Agreement;

       

      (s) removing
        the Manager of the Company, provided the Manager of the Company has performed
        its duties under this Agreement, has acted in good faith, and has otherwise
        dealt fairly with the Company and its Members; and

       

      (t) appointing
        a new Manager of the Company, provided the immediate prior Manager of the
        Company was removed pursuant to Section
        6.2(s).

       

      6.3 Majority
        Major Decisions.
        Notwithstanding any other provision hereof and in addition to those matters
        which pursuant to any other provisions of this Agreement require the approval
        of
        one or more of the Members, the Company may not take any action or incur
        any
        obligation binding on the Company within the scope of any of the actions
        or
        decisions listed below (each a “Majority Major Decision” and together, the
“Majority Major Decisions”) unless and until the Majority Major Decision has
        been approved by a Majority in Interest of the Members:

       

      (a) entering
        into any contract or agreement to purchase or sell or encumber the Property
        or
        any other real property; 

       

      (b) using
        the
        proceeds of an insurance claim or condemnation proceedings or other governmental
        taking resulting from a Total Casualty or Major Condemnation;

       

      (c) removing
        the Manager of the Company, provided the Manager of the Company has failed
        to
        perform its duties under this Agreement, has failed to act in good faith,
        or has
        otherwise failed to deal fairly with the Company or any Member; 

       

      (d) appointing
        a new Manager of the Company, provided the immediate prior Manager of the
        Company was removed pursuant to Section 6.3(c);

       

      (e) electing
        whether or not to terminate the Property Manager for failing to meet the
        performance requirements set forth in Section 2.03 of the Management Agreement;
        provided, however, that the Property Manager shall not be removed under the
        Management Agreement unless and until American Retirement Corporation, a
        Tennessee corporation, has been fully released from any and all obligations
        under that certain Exceptions to Nonrecourse Guaranty delivered by American
        Retirement Corporation for the benefit of Construction Lender, except to
        the
        extent that Construction Lender has then made a claim against American
        Retirement Corporation for any of the obligations guaranteed
        thereunder.

       

       

      
        
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      6.4 Resignation
        of a Manager.
        The
        Manager of the Company may resign by providing written notice to all Members.
        Unless otherwise Approved by the Members, any such resignation shall take
        effect
        thirty (30) days after the date such Manager gives notice to all Members,
        or at
        a later date stated in the notice of resignation. Notwithstanding the foregoing,
        the Manager shall not be permitted to resign pursuant to this Section
        6.4
        unless
        and until another Manager has been designated and approved by the affirmative
        vote of a seventy-five percent (75%) Majority in Interest of the Members,
        as
        provided in Section
        6.5.

       

      6.5 (Intentionally
        omitted).

       

      6.6 Officers.
        The
        Manager may, from time to time, appoint one or more officers of the Company
        (each an “Officer” and, collectively, the “Officers”), and delegate to such
        Officer or Officers any of the Manager’s rights and powers to manage and control
        the business and affairs of the Company. The Manager may remove and replace
        any
        such Officer or Officers, with or without cause, in its sole and absolute
        discretion. An Officer shall serve until his successor is chosen by the Manager
        or until his earlier removal, resignation or death. Any two or more offices
        may
        be held by the same person. No Officer shall receive any compensation for
        his or
        her service as an officer of the Company. An Officer may resign at any time
        by
        giving written notice to the Manager, and no such resignation need be accepted
        to be effective. Any Officer appointed will have the same fiduciary duties
        with
        respect to the Company as a Manager has under the Act.

       

      6.7 Authority
        of the Members.
        No
        Member may act for, obligate, or in any manner legally bind, the Company
        or any
        other Member, unless such Member has been authorized to do so, in writing,
        by
        the Manager. Any Member acting in contravention of the prohibition of the
        immediately preceding sentence shall indemnify, insure and hold harmless
        the
        Company, the Manager and each other Member from and against, and reimburse
        each
        such Person for, any and all liability, loss, cost, expense or damage incurred
        or sustained by reason thereof, including, but not limited to, court costs
        and
        reasonable attorney and paralegal fees through any and all negotiations,
        trials
        and appeals and through all settlement and collection proceedings.

       

      6.8 Other
        Activities.
        The fact
        that a Manager or any Affiliate of a Manager is employed by, or is directly
        or
        indirectly interested in or connected with, any Person employed or engaged
        by
        the Company to render or perform a service, or from which the Company may
        purchase any property, shall not prohibit the Company from employing or engaging
        that Person, or from otherwise dealing with him or it, and neither the Company
        nor any of the Members shall have any rights in or to any income or profits
        derived therefrom as a consequence of the relationships created in this
        Agreement. The Manager, each Member and each of their respective Affiliates
        may
        engage in or possess an interest in other business ventures of every nature
        and
        description, including the purchase, development or sale of real estate,
        independently or with others, and neither the Company nor any of the Members
        shall have any rights, by virtue of this Agreement, in and to the independent
        ventures or the income or profits derived from them.

       

       

      
        
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      6.9  Conveyances.
        Any
        deed, mortgage, lease, contract of sale, or other commitment purporting to
        convey or encumber the interest of the Company in all or any portion of any
        real
        or personal property at any time owned or leased by the Company shall be
        signed
        by the Manager, or, upon the written authorization of the Manager, by an
        Officer
        or by a nominee of the Company then holding record title to the property
        for the
        Company, and no other signatures shall be required. No person shall be required
        to inquire into the authority of any individual to sign any documents pursuant
        to the provisions of this Section
        6.9.

       

      6.10  Construction
        Loan.
        Notwithstanding anything to the contrary in this Agreement, each Member’s rights
        under the Agreement shall at all times be subject to the terms and conditions
        of
        the Construction Loan, and neither Member (a) shall take, or fail to take,
        any
        action that would conflict with any material term or condition of the
        Construction Loan or cause a default or event of default under the Construction
        Loan, or (b) shall cause the Company to take, or fail to take, any action
        that
        would conflict with any material term or condition of the Construction Loan
        or
        cause of default or event of default under the Construction Loan.

       

      ARTICLE
        7

      MEETINGS
        OF MEMBERS

       

      7.1 Member
        Meetings.
        In the
        event that any matter requires the approval of the Members under the terms
        of
        this Agreement or the Act, then the Manager shall call a meeting of the Members
        by providing the Members with written notice of such meeting at least two
        (2)
        days and not more than ten (10) days prior to the date of the meeting. Such
        notice shall state the date, time, place and purpose or purposes of the meeting.
        The business transacted at a meeting of the Members shall be limited to the
        purpose(s) stated in the notice of the meeting.

       

      7.2 Location,
        Conduct and Adjournments.
        Each
        meeting of the Members will be held at the Company’s principal place of business
        unless otherwise Approved by the Members. Unless otherwise Approved by the
        Members, the Manager shall act as chairman of such meeting. Any meeting of
        the
        Members may be adjourned from time to time to another date and time and,
        subject
        to the first sentence of this Section
        7.2,
        to
        another place. If at the time of adjournment the person chairing the meeting
        announces the date, time, and place at which the meeting will be reconvened,
        it
        is not necessary to give any further notice of the reconvening. Any Member
        or
        Manager may participate in any meeting of the Members by means of telephone
        conference or similar communications equipment that allows all persons
        participating in the meeting to hear each other, and such participation in
        a
        meeting will constitute presence in person at the meeting. If all the
        participants are participating by telephone conference or similar communications
        equipment, the meeting will be deemed to be held at the principal place of
        business of the Company.

       

      7.3 Waiver
        of Notice.
        A Member
        may waive notice of the date, time, place and purpose or purposes of a meeting
        of the Members. A waiver may be made before, at, or after the meeting, in
        writing, orally, or by attendance. Attendance by a Member at a meeting is
        a
        waiver of notice of that meeting, unless the Member objects at the beginning
        of
        the meeting to the transaction of business because the meeting is not properly
        called or convened, or objects before a vote on an item of business because
        the
        item may not properly be considered at that meeting and does not participate
        in
        the consideration of the item at that meeting.

       

       

      
        
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      7.4 Member
        Quorum and Voting.
        A
        Majority in Interest of the Members shall constitute a quorum at a meeting
        of
        the Members. If a quorum is present, the affirmative vote of a Majority in
        Interest of the Members shall be the act of the Members unless a greater
        affirmative vote is expressly required by the Certificate, this Agreement
        or by
        applicable law. Voting by proxy is not permitted. Members may participate
        in a
        meeting by means of a conference telephone or similar communication equipment
        by
        means of which all persons participating in the meeting can hear each other
        at
        the same time. Participation by such means shall constitute presence in person
        at a meeting.

       

      7.5 Action
        by Members Without a Meeting.
        The
        Members may take any action without a meeting that could be taken at a meeting,
        without prior notice and without a vote, if a consent in writing, setting
        forth
        the action so taken, is signed by Members that are necessary to authorize
        or
        take such action. Within ten (10) days after obtaining such authorization
        by
        written consent, written notice of the action taken shall be given to those
        Members who have not consented in writing. The notice shall fairly summarize
        the
        material features of the authorized action. Failure to provide the notice
        shall
        not invalidate the written consent.

       

      ARTICLE
        8

      OPERATIONAL
        ISSUES; RELATED PARTY TRANSACTIONS;

      COMPENSATION
        OF MEMBERS

       

      8.1 Development
        Services.
        ARC
        Lowry, LLC, a Tennessee limited liability company (the “Developer”) shall
        supervise the development of the Property pursuant to the terms of a separate
        development agreement between the Company and the Developer attached hereto
        as
        Exhibit D. The Developer shall receive a development fee of One Million Five
        Hundred Thousand Dollars ($1,500,000) for its contribution to the development
        of
        the Property, and the Advisor shall receive a development fee of One Hundred
        Fifty Thousand Dollars ($150,000) for its contribution to the development
        of the
        Property (each respectively a “Development Fee”).

       

      8.2 Management
        Services.
        The
        Property Manager shall supervise the management of the Property concurrently
        with the development of the Property and thereafter pursuant to the terms
        of the
        Management Agreement attached hereto as Exhibit C. The Property Manager shall
        receive a management fee based on five percent (5%) of accounting gross revenues
        from the Senior Living Facility for its contribution to the management of
        the
        Property, and the Advisor or an affiliate thereof shall receive a management
        fee
        of one-half of one percent (0.5%) of accounting gross revenues from the Senior
        Living Facility for its contribution to the management of the Senior Living
        Facility, each as more specifically determined in the Management Agreement.
        

       

      8.3 Financing
        Fee.
        The
        Company shall pay Advisor a financing fee of one-half of one percent (0.5%)
        of
        the principal authorized amount of (i) the Construction Loan funded in
        connection with the development of the Property and the construction of the
        Senior Living Facility, which fee shall be paid at the closing of the
        Construction Loan, and (ii) the permanent financing involving the Property
        or
        the Senior Living Facility, which fee shall be paid at the closing of such
        loan,
        provided that Advisor shall be limited to one (1) financing fee from permanent
        financing.

       

       

      
        
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      8.4 Disposition
        Fee.
        Upon the
        sale of the Property, the Company shall pay Advisor a disposition fee equal
        to
        three percent (3%) of gross sales price of the Property, which fee shall
        be paid
        at the closing of such sale.

       

      8.5 Accounting
        and Administrative Services.
        The
        Manager shall handle and be responsible for the obligations of the Company
        under
Article
        12
        below,
        including the maintaining of the Company’s books of account, preparation of
        financial statements for the Company and preparation and filing of tax returns
        for the Company. The Manager shall not be compensated for its role as manager
        of
        the Company.

       

      8.6 Guaranteed
        Payments.
        The
        Company may, from time to time, engage one or more Members to provide services
        to the Company as provided above and on such other terms and in such other
        instances as may be Approved by the Members. The Members intend the payments
        of
        such compensation to be guaranteed payments without regard to the income
        of the
        Company as contemplated by Code Section 707(c). The payment of any compensation
        to a Member pursuant to this Section
        8.6
        will not
        affect the right of such Member to allocations of income, gain, loss, deduction
        or credit or distributions of cash pursuant to the terms of this
        Agreement.

       

      8.7 CNL
        Representative.
        The
        parties acknowledge that CNL is an investment entity created by the Advisor,
        for
        the purpose of investing in the Company. The parties further acknowledge
        that
        CNL Senior Housing, Inc. is the managing member of CNL with the authority
        to
        represent CNL in all matters related to this Agreement, the Management
        Agreement, the Development Agreement and any other matter relating to the
        organization and operation of the Company. CNL and Advisor represent and
        warrant
        to ARC that the Advisor shall be the sole and exclusive agent and
        attorney-in-fact to act on behalf of CNL, in connection with and to facilitate
        any and all matters relating to this Agreement, the Management Agreement,
        the
        Development Agreement and any other matter relating to the organization and
        operation of the Company.

       

       

      
        
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      ARTICLE
        9

      TRANSFER
        OF A MEMBER’S INTEREST

       

      9.1 Restrictions
        on Transfer.
        Except
        as otherwise specifically set forth in this Agreement and to the fullest
        extent
        permitted by law, no Member may transfer all or any part of its Interest
        to any
        Person, other than an Affiliate of such Member, whether voluntarily,
        involuntarily or by operation of law, without the prior written consent of
        the
        other Member(s) and the Manager, which consent may be withheld in the sole
        and
        absolute discretion of any other Member(s) or the Manager. For purposes of
        this
Section
        9.1,
        “transfer” includes the sale, exchange, pledge, encumbrance or other transfer or
        disposition by a Member of any part of its Interest, whether for a valuable
        consideration or as a gift, and whether voluntarily or involuntarily. In
        addition to the required consents to any transfer, as a condition to any
        such
        consent, a Member or the Manager may require that the Member desiring to
        make
        the transfer provide to the Company a reasonably acceptable opinion of counsel,
        in form and substance reasonably acceptable, that the proposed transfer does
        not
        result in a violation of the Securities Act of 1933, as amended, or any
        applicable state securities laws. The attorney fees and costs for such opinion
        and the attorney fees and costs incurred by the Company in connection with
        any
        such transfer shall be paid by the Member who is transferring all or part
        of its
        Interest.

       

      9.2 Substituted
        Members.
        Any
        Person, not then a Member, to whom an Interest is transferred in accordance
        with
        the provisions of Section
        9.1
        shall
        agree in writing to be subject to the terms of this Agreement and shall,
        thereupon, become a substituted Member (“Substituted Member”) hereunder. Such
        admission as a Substitute Member shall be deemed effective immediately prior
        to
        such Transfer. A Substituted Member has, to the extent assigned, the rights
        and
        powers and is subject to the restrictions and liabilities, of a Member under
        this Agreement and the Act. A Substituted Member also is liable for the
        obligations of its assignor to make and return contributions as provided
        in the
        Act, and for certain other liabilities of the assignor as provided in the
        Act.
        If an assignee of an Interest becomes a Substituted Member, the assignor
        is not
        released from its liability to the Company to the extent provided in the
        Act.
        The Substituted Member shall pay all reasonable expenses in connection with
        its
        admission to the Company, including, but not limited to, legal fees and other
        costs of preparing any amendment to this Agreement deemed necessary or desirable
        by the Manager. If any Interest is transferred other than in accordance with
        the
        provisions of Section
        9.1
        and the
        transferee is not admitted as a Substituted Member, then such transferee
        will
        have the sole right to share in such profits and losses, to receive such
        distribution or distributions, and to receive such allocation of income,
        gain,
        loss, deduction or credit or similar item to which the assignor was entitled,
        to
        the extent assigned, and will not have any of the rights, power or authority
        of
        a Member hereunder or under the Act; and the transferor of such Interest
        shall
        thereafter be considered to have no further rights or interest in the Company
        with respect to the transferred Interest, but shall remain subject to any
        obligations under this Agreement and the Act with respect to such
        Interest.

       

       

      
        
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      9.3 Admission
        of Additional Members.
        With the
        Approval of the Members, any Person may be admitted to the Company as an
        additional Member upon making such contributions to the capital of the Company
        in exchange for such Percentage Interests as may be Approved by the Members.
        In
        the event that the Members admit any additional Member to the Company, this
        Agreement shall be amended or amended and restated as appropriate. The dilution
        resulting from the admission of any new Member shall be borne by the other
        Members in proportion to their respective Percentage Interests immediately
        prior
        to the admission of the new Member.

       

      9.4 ARC
        Purchase Right During Construction.
        In the
        event that, prior to the completion of construction of the Senior Living
        Facility, a Majority in Interest of the Members exercises its right pursuant
        to
Section
        6.3(b)
        to use
        the proceeds of an insurance claim resulting from a Total Casualty or
        condemnation proceeds from a Major Condemnation in any manner other than
        the
        rebuilding of the Senior Living Facility, ARC shall have the right to acquire
        the other Members’ interest in the Company at an amount equal to the sum of
        their Capital Contributions.

       

      ARTICLE
        10

      PURCHASE
        OPTION UPON BANKRUPTCY/BUY-SELL PROVISIONS

       

      10.1 Option
        Rights.
        If a
        Member becomes a Bankrupt Member, then the other Member(s) shall thereupon
        have
        the right and option to purchase the entire Interest of the Bankrupt Member
        pursuant to the terms of Sections
        10.1, 10.2, 10.3,
        and
10.4
        of this
        Agreement. The Bankrupt Member shall send notice of the applicable Event
        of
        Bankruptcy to the other Member(s) within ten (10) days after the occurrence
        thereof. To exercise its option, a Member must provide written notice thereof
        to
        the other Member(s) within ninety (90) days after the first to occur of the
        following: (i) the effective date of the Bankrupt Member’s notice, and (ii) the
        date upon which such Member otherwise becomes aware of the applicable Event
        of
        Bankruptcy. Such notice must indicate the portion of the Bankrupt Member’s
        Interest that such Member desires to purchase; provided, however, that if
        there
        is more than one Member with such purchase right, then such Members will
        have
        the right to purchase the Bankrupt Member’s Interest pro rata in accordance with
        their respective Percentage Interests.

       

       

      
        
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      10.2 Obligations
        of Bankrupt Member.
        To the
        fullest extent permitted by law, the Bankrupt Member or its personal
        representative, as the case may be, shall, within ten (10) days after the
        last
        notice given pursuant to the terms of Section
        10.1,
        execute
        and deliver such assignments and other instruments as shall reasonably be
        requested by the purchaser(s) to effect the conveyance and transfer of the
        Bankrupt Member’s Interest to the purchaser(s) free and clear of any and all
        liens, claims and encumbrances of any kind or nature whatsoever, and shall,
        to
        the extent requested by the purchaser(s), cooperate to effect a smooth and
        efficient continuation of the Company’s business and affairs. If the Bankrupt
        Member disputes the right of the purchaser(s) to purchase and succeed to
        the
        Bankrupt Member’s entire Interest, then the Bankrupt Member shall nevertheless
        execute instruments and cooperate with the purchaser(s) pursuant to the
        immediately preceding sentence, without, however, being deemed to have waived
        its rights to damages if the purchaser(s) shall have purchased and succeeded
        to
        the Bankrupt Member’s Interest under this Article
        10
        without
        having the right to do so. To the fullest extent permitted by law, the Bankrupt
        Member shall indemnify, insure and hold each of the purchaser(s) harmless
        from
        and against all loss, liability, cost or expense (including reasonable attorney
        fees) suffered or incurred by the purchaser(s) if the Bankrupt Member fails
        to
        properly execute instruments and cooperate with the purchaser(s) pursuant
        to, or
        shall otherwise fail to perform, its obligations under this Article
        10.

       

      10.3 Payment
        of Fair Value.
        Upon
        compliance by the Bankrupt Member with the provisions of Section
        10.2,
        the
        purchaser(s) shall pay to the Bankrupt Member the “Fair Value” of the Bankrupt
        Member’s Interest (such value to be determined as of the date of the applicable
        Event of Bankruptcy) within thirty (30) days thereafter by delivering to
        the
        Bankrupt Member an amount equal to twenty percent (20%) of such Fair Value
        by
        official bank check, wire transfer or other immediately available funds,
        and a
        promissory note in an original principal amount equal to eighty percent (80%)
        of
        such Fair Value. Such promissory note will provide for a per annum interest
        rate
        equal to the Prime Rate as of the date of the applicable Event of Bankruptcy,
        will provide for four (4) equal annual payments commencing one (1) year after
        the date of the purchase, and shall otherwise have terms that are reasonable
        and
        customary. The “Fair Value” of the Bankrupt Member’s Interest shall be
        determined pursuant to the terms of Section
        10.4
        below.

       

       

      
        
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      10.4 Determination
        of Fair Value.
        For
        purposes of Section
        10.3,
        the
“Fair Value” of the Bankrupt Member’s Interest shall be the amount such Member
        would receive if the assets of the Company were sold for their fair market
        value, the Company’s liabilities were paid in full, gain or loss from the sale
        was allocated in accordance with the applicable terms of this Agreement,
        and the
        sales proceeds were distributed in accordance with the applicable terms of
        this
        Agreement. For purposes of this Section
        10.4,
        the
“Fair Value” of the Company shall be determined, as of the effective date of the
        applicable Event of Bankruptcy, by the average of two independent appraisals
        conducted by state certified appraisers, with the first appraiser chosen
        by the
        purchasing Member(s), and the other to be chosen by the Bankrupt Member or
        its
        personal representative, as the case may be, within fifteen (15) days after
        the
        effective date of notice of the appointment of the first appraiser, provided
        that if the Bankrupt Member or its personal representative, as the case may
        be,
        fails to timely appoint the second appraiser, then the determination of the
        first appraiser of the Fair Value of the Company shall be binding on all
        interested Persons. In the event the Non-Bankrupt Member should exercise
        the
        Option provided in Section 10.1 hereof, the Non-Bankrupt Member shall receive
        a
        credit towards the Fair Value of the Bankrupt Member’s Interest in the amount of
        the cost of such appraisal(s).

       

      ARTICLE
        11

      DISSOLUTION,
        REFORMATION,

      LIQUIDATION,
        ETC.

       

      11.1 Termination
        of Membership.
        Except
        for withdrawals expressly permitted by provisions contained in Article
        10
        or
11,
        no
        Member shall have the right to withdraw from the Company and all Members
        hereby
        agree not to withdraw from the Company, and any attempt to do so, whether
        voluntary or involuntary, shall be null and void. Each of the Members agrees
        not
        to voluntarily resign from the Company or to default with respect to any
        obligation or undertaking contained in this Agreement or the Act.

       

      11.2 Dissolution.
        The
        Company shall be dissolved and its affairs wound up and terminated upon the
        first to occur of the following events (each, a “Dissolution
        Event”):

       

      (a) The
        determination in writing to dissolve the Company by all Members;

       

      (b) At
        any
        time when there are no Members;

       

      (c) The
        sale
        or other disposition of all or substantially all of the assets of the Company
        in
        one transaction or a series of related transactions and the distribution
        of such
        proceeds pursuant to Section
        5.4
        hereof;

       

      (d) The
        occurrence of a Continuation Event followed within ninety (90) days by a
        determination of the requisite Percentage Interests to dissolve the Company
        as
        described in Section
        11.3
        hereof;
        or

       

      (e) The
        entry
        of a decree of judicial dissolution under Section 18-802 of the
        Act.

       

      Upon
        the
        occurrence of a Dissolution Event, the Company shall be wound up and liquidated
        pursuant to Section
        11.4
        hereof.

       

       

      
        
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      11.3 Continuation
        Event.
        Neither
        the resignation, expulsion, bankruptcy or dissolution of any Member, nor
        the
        occurrence of any other event that terminates the continued membership of
        any
        Member (each, a “Continuation Event”), shall cause the Company to be dissolved
        or its affairs to be wound up, and upon the occurrence of any such Continuation
        Event, the Company shall be continued without dissolution, unless within
        ninety
        (90) days following such Continuation Event, a Majority in Interest of the
        Members (excluding the Member which has been the subject of the Continuation
        Event) agrees in writing to dissolve the Company.

       

      11.4 Winding
        Up of the Company.
        Upon
        dissolution of the Company pursuant to Section 11.2 hereof, the Manager or
        if
        the Manager is a Member and the Continuation Event occurred with respect
        to such
        Member, such person as is designated by a Majority in Interest of the Members
        not subject to the Continuation Event (such person being herein referred
        to as
        the “Liquidator”), shall proceed to wind up the business and affairs of the
        Company upon such terms, price and conditions as are determined by the
        Liquidator in accordance with this Agreement and the requirements of the
        Act.
        This Agreement shall remain in full force and effect and continue to govern
        the
        rights and obligations of the Members and the conduct of the Company during
        the
        period of winding up the Company’s affairs. The Liquidator shall have and may
        exercise, without further authorization or consent of the Members, all of
        the
        powers conferred upon the Members under the terms of this Agreement to the
        extent necessary or desirable in the good faith judgment of the Liquidator
        to
        carry out the duties and functions of the Liquidator hereunder for and during
        such period of time as shall be reasonably required in the good faith judgment
        of the Liquidator to complete the winding up and liquidation of the Company.
        The
        Liquidator shall liquidate the assets of the Company, collect the debts and
        obligations due to the Company, and pay or provide for payment of all
        liabilities and obligations of the Company, including payment of every Member
        Loan with interest thereon and payment of any real estate commission due
        and
        payable to the Advisor pursuant to Section
        8.4
        hereof,
        after which the Liquidator shall distribute the remaining assets of the Company
        to the Members in accordance with their respective Capital Accounts, after
        giving effect to all contributions, distributions and allocations for all
        periods, by the end of the Fiscal Year in which such liquidation occurs or,
        if
        later, within sixty (60) days after the date of the dissolution. The Liquidator
        may distribute assets in kind; provided, however, that the Liquidator shall
        determine the fair market value by appraisal or other reasonable means of
        all
        assets so distributed in kind.

       

       

      
        
          34

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      ARTICLE
        12

      ACCOUNTING
        AND ADMINISTRATIVE MATTERS

       

      12.1 Books
        and Records.
        The
        Company shall maintain true, complete and correct books of account of the
        Company, all in accordance with generally accepted accounting principles,
        or
        such other accounting method as may be selected by the Manager, applied on
        a
        consistent basis. The books of account shall contain particulars of all monies,
        goods or effects belonging to or owing to or by the Company, or paid, received,
        sold or purchased in the course of the business, and all of such other
        transactions, matters and things relating to the business as are usually
        entered
        in books of accounts kept by persons engaged in a business of a like kind
        and
        character. In addition, the Company shall keep all records required to be
        kept
        pursuant to the Act. A Member shall, upon prior written notice and during
        normal
        business hours, have access to the books and records of the Company, for
        the
        purpose of inspecting or, at the expense of such Member, copying such books
        and
        records. Any Member reviewing the books and records of the Company pursuant
        to
        the preceding sentence shall do so in a manner which does not unduly interfere
        with the conduct of the Company’s business.

       

      12.2 Financial
        Statements.
        The
        Company shall, within twenty (20) days following the end of each Fiscal Year
        month, furnish to each Member monthly financial statements for the Company,
        prepared in accordance with generally accepted accounting principles.
        Additionally, the Company shall furnish to each Person who was a Member during
        the immediately prior Fiscal Year (i) audited financial statements for the
        preceding Fiscal Year prepared in accordance with generally accepted accounting
        principles within ninety (90) days after the close of each Fiscal Year, and
        (ii)
        a Schedule K-1 or such other form as is necessary to provide the Members
        with
        the information that is needed by them in order to file their respective
        federal, state or local income tax returns within forty-five (45) days after
        the
        close of each Fiscal Year.

       

      12.3 Tax
        Matters Partner.
        The
        initial Manager shall be the Company’s “tax matters partner,” as such term is
        defined in Code Section 6231(a)(7) (the “Tax Matters Partner”). In connection
        therewith and in addition to all other powers given thereunto, the Tax Matters
        Partner shall have all other powers necessary or appropriate to fully perform
        such role, including, but not limited to, the power to retain all attorneys
        and
        accountants of its choice. Notwithstanding the foregoing, the Tax Matters
        Partner shall not settle any audits for or on behalf of the Company or its
        Members without the written approval of a Majority in Interest of the
        Members.

       

       

      
        
          35

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      ARTICLE
        13

      INDEMNIFICATION

       

      13.1 Indemnification.
        Each
        Member hereby agrees to defend, indemnify and hold harmless the other member,
        the Manager and any Officer of the Company, and each of their respective
        officers, directors, partners, members, shareholders, employees and agents,
        from
        and against any and all liability, loss, cost, expense or damage, including,
        but
        not limited to, court costs, expenses and reasonable attorney and paralegal
        fees
        through any and all negotiations, trials and appeals and through all settlement
        and collection proceedings, incurred or sustained by such member, Manager,
        or
        Officer by reason of the indemnifying Member’s fraud, bad faith, willful
        misconduct, gross negligence, unauthorized acts or breach of this Agreement.
        The
        Company, to the fullest extent permitted by law, hereby agrees to defend,
        indemnify and hold harmless each Member, Manager and Officer of the Company,
        and
        each of their respective officers, directors, partners, members, shareholders,
        employees and agents, from and against any and all liability, loss, cost,
        expense or damage incurred or sustained by reason of any act or omission
        in the
        conduct of the business of the Company, including, but not limited to, court
        costs, expenses and reasonable attorney and paralegal fees through any and
        all
        negotiations, trials and appeals and through all settlement and collection
        proceedings; provided, however, that the Company will not indemnify any Member,
        Manager or Officer of the Company or any officer, director, partner, member,
        shareholder, employee or agent of any Member or hold any of them harmless
        with
        respect to any of the foregoing that is incurred by them as the result of
        conduct which constitutes fraud, willful misconduct, gross negligence or
        breach
        of fiduciary duty of the party who would otherwise be entitled to be indemnified
        and held harmless under this Section
        13.1.
        The
        provisions of this Section
        13.1
        shall
        survive the termination of this Agreement.

       

      13.2 Advancement
        of Legal Costs and Expenses.
        The
        Company shall advance Company funds to any Person who is entitled to
        indemnification pursuant to the terms of Section
        13.1
        for legal
        expenses and other costs incurred as a result of any legal action if the
        following conditions are satisfied: (a) the legal action relates to acts
        or
        omissions with respect to the performance of duties or services on behalf
        of the
        Company; (b) the legal action is initiated by a third party who is not a
        Member,
        or the legal action is initiated by a Member and a court of competent
        jurisdiction specifically approves such advancement; and (c) such Person
        undertakes to repay the advanced funds to the Company in cases in which such
        Person is not entitled to indemnification pursuant to the terms of Section
        13.1.

       

      13.3 Provisions
        Not Exclusive.
        The
        indemnification provided by this Article shall not be deemed exclusive of
        any
        other rights to which those seeking indemnification may be entitled under
        any
        statute, agreement, vote of the Members or otherwise.

       

      13.4 Insurance.
        The
        Company may purchase insurance to insure against the liabilities contemplated
        by
        this Article
        13.

       

       

      
        
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      ARTICLE
        14

      MISCELLANEOUS
        MATTERS

       

      14.1 Governing
        Laws.
        This
        Agreement and the rights, powers, duties and obligations of the Members
        hereunder shall be interpreted, construed and enforced in accordance with
        the
        laws of the State of Delaware.

       

      14.2 Acknowledgment.
        The
        parties acknowledge that each party to this Agreement has had equal input
        as to
        the drafting and construction of this Agreement and, accordingly, the parties
        intend that a court construing this Agreement shall not construe it more
        strictly against any of the parties hereto. Each of the Members has had this
        Agreement reviewed on its behalf by independent legal counsel of its choosing,
        or has waived its right to do so.

       

      14.3 Notices.
        All
        notices, demands, consents, approvals, requests, offers or other communications
        which are to be given pursuant to the terms of this Agreement shall be in
        writing and shall be given (a) by registered or certified mail, return receipt
        requested, (b) by personal delivery, or (c) by delivery via nationally
        recognized overnight delivery service, and the cost and expense of any such
        delivery shall be borne by the sending party. Any notice sent in compliance
        with
        the above provisions shall be deemed delivered and received on the third
        Business Day after the day on which it was sent, or, if sooner, on the actual
        date received. All notices sent pursuant to this Section 14.3 shall be addressed
        as herein provided:

       

      
        	 	To
                CNL:	Denver
                Lowry Senior Housing, LLC
	 	 	CNL
                Center at City Commons
	 	 	450
                South Orange Avenue
	 	 	Orlando,
                Florida 32801
	 	 	Attn: Mike
                Garbers
	 	 	 
	 	With
                copies to: 	Lowndes,
                Drosdick, Doster, Kantor & Reed, P.A.
	 	 	450
                S. Orange Avenue, Suite 800
	 	 	Orlando,
                Florida 32801
	 	 	Attn: Daniel
                F. McIntosh, Esquire
	 	 	 
	 	To
                ARC:	ARC
                Lowry, LLC
	 	 	111
                Westwood Place, Suite 200
	 	 	Brentwood,
                Tennessee 37027
	 	 	Attn: Chief
                Financial Officer
	 	 	 
	 	With
                copies to:	Bass,
                Berry & Sims PLC
	 	 	315
                Deaderick Street, Suite 2700
	 	 	Nashville,
                Tennessee 37238
	 	 	Attn: T.
                Andrew Smith, Esquire

      

       

      Or
        at such
        other address as is from time to time designated by the party receiving the
        notice. A notice shall be deemed to have been given upon delivery, evidenced
        by
        appropriate signature, pursuant to the methods described above.

       

       

      
        
          37

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      14.4 Force
        Majeure.
        Notwithstanding anything herein to the contrary, no party shall be liable
        or
        responsible for, or shall be subject to any right or remedy as a result of,
        any
        loss, cost, damage, delay or circumstance, and shall be relieved of any adverse
        consequence, that arises, directly or indirectly, from any event or circumstance
        of Force Majeure. As used herein, “Force
        Majeure”
means
        any event, fact, circumstance, delay, failure, loss or damage that, directly
        or
        indirectly, arises from, or as a result of, or that fails to occur because
        of,
        occurrences that are beyond, or outside of, the reasonable control of any
        Person
        or entity, including but not limited to: Acts of God; the taking, confiscation
        or expropriation of any property or asset; the occurrence of any casualty
        event;
        compliance with any order or directive of any governmental authority; acts
        of
        declared or undeclared war; the occurrence of any military or terrorist attack;
        public disorders; rebellion; sabotage; revolution; earthquakes; floods; riots;
        strikes; significant disruptions of the labor or employment markets; and
        changes
        in laws, rules, regulations, orders or directives of any Governmental Authority.
        

       

      14.5 Entire
        Agreement.
        This
        Agreement contains the entire agreement between the parties hereto with respect
        to the Company and supercedes and replaces any prior agreements between the
        parties with respect to the Company. No variations from, modifications of,
        amendments to or changes in this Agreement shall be binding upon any party
        hereto unless set forth in a document duly executed by or on behalf of such
        party.

       

      14.6 Severability.
        If any
        provision of this Agreement or the application thereof to any Person or
        circumstance shall be invalid or unenforceable to any extent, the remainder
        of
        this Agreement and the application of such provisions to other Persons or
        circumstances shall not be affected thereby and shall be enforced to the
        greatest extent permitted by law.

       

      14.7 Construction
        Rules.
        All
        personal pronouns used in this Agreement, whether used in the masculine,
        feminine, or neuter gender, shall include all other genders, the singular
        shall
        include the plural, and vice versa, as the context may require. Titles of
        Sections and Articles are for convenience of reference only, and shall neither
        limit nor amplify the provisions of this Agreement itself. References in
        this
        Agreement to particular Sections or Articles are references to Sections or
        Articles of this Agreement unless otherwise specifically provided. The words
        “hereof,” “herein,” “hereto” and “hereunder” shall refer to this Agreement as a
        whole and not to any particular provision of this Agreement unless otherwise
        specifically provided.

       

      14.8 Binding
        Effect.
        Subject
        to the restrictions on transfers and encumbrances set forth herein, this
        Agreement shall inure to the benefit of and be binding upon the undersigned
        Members and their respective heirs, executors, personal and legal
        representatives, successors and permitted assigns. Whenever, in this instrument,
        a reference to any Member is made, such reference shall be deemed to include
        a
        reference to the heirs, executors, personal and legal representatives,
        successors and permitted assigns of such Member.

       

      14.9 Jurisdiction
        and Venue.
        If any
        Member or the Company institutes any lawsuit or other action or proceeding
        pertaining to the Company, any right or obligation of any Member hereunder,
        or
        any breach of this Agreement, then the nonexclusive venue and jurisdiction
        for
        filing and maintaining any such lawsuit or other action or proceeding shall
        be
        in the County Court for Denver County, Colorado. To the fullest extent permitted
        by law, each Member, by executing this Agreement, consents and submits itself
        to
        the personal jurisdiction of such court.

       

       

      
        
          38

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      14.10 Attorney
        Fees.
        In any
        action or proceeding between the parties concerning this Agreement or its
        enforcement, the prevailing party or parties in such action or proceeding
        shall
        be entitled to collect in such action or proceeding from the non-prevailing
        party or parties all costs of such litigation incurred by such prevailing
        party
        or parties, including, but not limited to, reasonable attorney fees and costs,
        through all levels of proceedings.

       

      14.11 Counterparts.
        This
        Agreement may be executed in counterparts and any of such counterparts may
        be
        transmitted by facsimile transmission, and each of such counterparts, whether
        an
        original or a facsimile of an original, will be deemed to be an original
        and all
        of such counterparts together will constitute a single agreement.

       

      IN
        WITNESS WHEREOF,
        the
        undersigned Members have executed this Agreement as of the date stated
        above.

       

      Witnesses:

      
        	 	 	DENVER
                LOWRY SENIOR HOUSING, 
	 	 	LLC,
                a Delaware limited liability company	 
	 	 	 	 	 	 
	 	 	By:
                	CNL
                Senior Housing, Inc., a Florida	 
	 	 	 	corporation	 
	 	 	 	 	 	 
	 	 	 	By: 	 	 
	Name: 	 	 	Name:	 	 
	 	 	 	Title:	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	
                Name:

              	
                 

              	
                Address:

              	
                 

              	
                                 450
                  S. Orange Ave.

              	 
	
                 

              	
                 

              	
                 

              	
                 

              	
                Orlando,
                  Florida 32801

              	 

      

       

       

      
        
          39

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      
        	 	 	 	 	 

                ARC
                  Lowry, LLC,
                  a
                  Tennessee limited 

              	 
	 	 	 	 	liability
                company	 
	 	 	 	 	 	 
	 	Name:	 	 	By:	 	 
	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 
	 	 	 	 	 	 
	 	Name:	 	 	Address: 	111
                Westwood Place, Suite 200	 
	 	 	 	 	 	Brentwood,
                Tennessee 37027	 

      

       

       

      
        
          40

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      Exhibit
        “A”

       

      (Property)

       

      A
        parcel
        of land in the Southeast quarter of Section 16, Township 4 South, Range 67
        West
        of the Sixth Principal Meridian, City and County of Denver, State of Colorado/
        being more particularly described as follows:

      For
        the
        purpose of this description the bearings are based on the Southerly line
        of the
        Southeast quarter of said Section 16, as marked by a 3-1/4" aluminum cap,
        PSL
        29036 in Range Box at the South quarter corner and by a 3-1/4" aluminum cap
        in
        Range Box at the Southeast corner bearing South 89 degrees 31 minutes 31
        seconds
        East.

      Commencing
        at the South quarter corner of said Section 16;

      Thence
        North 00 degrees 07 minutes 58 seconds East along the Westerly line of the
        Southeast quarter of said Section 16 a distance of 60.00 feet to a point
        on the
        Northerly right of way line of Mississippi Avenue as recorded under Reception
        No. 00029954 on October 2, 1986 in the City and County of Denver Clerk and
        Recorders Office and the Point of Beginning/¬Thence North 00 degrees 07 minutes
        58 seconds East continuing along said Westerly line a distance of 561.14
        feet to
        a point on the Southerly line of a private road as shown on the Breaker's
        Single
        Family Subdivision Plat as recorded in said Clerk and Recorders Office under
        Reception No. 9400092452 dated June 6, 1994:

       

      
        	Thence
                along said Southerly line the following four (4) courses;
	 	 
	1.	South
                89 degrees 56 minutes 18 seconds East along said Southerly line a
                distance
                of 555.38 feet to a point of non-tangent curvature;
	 	 
	2.	Thence
                along the arc of a curve to the right having a central angle of 90
                degrees
                00 minutes 16 seconds, radius of 60.00 feet, arc length of 94.25
                feet
                (chord bears South 44 degrees 31 minutes 39 seconds East, 84.86 feet)
                to a
                point;
	 	 
	3.	Thence
                South 00 degrees 28 minutes 29 seconds West a distance of 10.00 feet
                to a
                point
	 	 
	4.	Thence
                South 89 degrees 31 minutes 31 seconds East a distance of 18.00 feet
                to a
                point on the Westerly line of S. Valentina St. Subdivision as recorded
                in
                said Clerk and Recorders Office Reception
                No. 16388
                dated February 2, 1992;

      

       

      
        	
                Thence
                  along said Westerly line the following four (4)
                  courses: 

              
	 	 
	1.	South
                00 degrees 28 minutes 29 seconds West a distance of 185.44 feet to
                a
                point; 
	 	 
	2.	Thence
                South 01 degrees 37 minutes 14 seconds West a distance of 150.03
                feet to a
                point;
	 	 
	3.	
                Thence
                  South 00 degrees 28 minutes 29 seconds West a distance of 120.00
                  feet to a
                  point of curvature;

              
	 	 
	4.	Thence
                along the arc of a curve to the right having a central angle of 90
                degrees
                00 minutes 00 seconds, radius of 30.00 feet, arc length o 47.13 feet
                (chord bears South 45 degrees 28 minutes 29 seconds West, 42.43 feet;
                to a
                point on said Northerly right of way line of Mississippi
                Avenue;

      

       

       

      
        
          41

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      
        	 	Thence
                North 89 degrees 31 minutes 31 seconds West along said Northerly
                right of
                way line a distance of 597.01 feet to the Point of Beginning.
                City
                  and County of Denver, State of
                  Colorado.

              

      

       

       

       

       

       

       

       

      
        
          42

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

      Exhibit
        B

       

       

      
        	
                Member’s
                  Name and Address

                 

              	
                Initial
                  Capital Contributions

                 

              	
                Percentage
                  Interests

                 

              
	
                Denver
                  Lowry Senior Housing,

                LLC

                CNL
                  Center at City Commons

                450
                  South Orange Avenue

                Orlando,
                  Florida 32801

              	
                $10,000,000

                 

              	
                80%

                 

              
	
                ARC
                  Lowery, LLC

                111
                  Westwood Place, Suite 200

                Brentwood,
                  Tennessee 37027

              	
                $2,500,000

                 

              	
                20%

                 

              
	 	 	 
	
                Total

              	
                $12,500,000

                 

              	
                100%

                 

              

      

       

       

      
        
          43

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      Exhibit
        C

       

      Management
        Agreement

       

      (See
        attached)

       

       

       

       

       

      
        
          44

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      Exhibit
        D

       

      Development
        Agreement

       

      (See
        attached)

       

       

       

       

       

      
        
          45

        

        
          
          

          
            

          

        

        
          
          

        

      

       

       

       

      Exhibit
        E

       

      Budgeted
        TCCO

       

      (See
        attached)

       

       

       

       

      46

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