LOAN AGREEMENT

Loan Agreement

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CAPMARK FINANCE INC | EMERICHIP ALTAMONTE LLC | EMERICHIP DOVER LLC | EMERICHIP NEW PORT RICHEY LLC | Emerichip Texas LLC | EMERICHIP VENICE LLC | EMERITUS CORPORATION | ESC GP II Inc

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Title: LOAN AGREEMENT
Governing Law: Illinois Date: 11/9/2007
Industry: Healthcare Facilities Law Firm: Bradley Arant Sector: Healthcare

Exhibit 10.67.11

LOAN AGREEMENT

THIS LOAN AGREEMENT (this “Agreement”) is made as of August 15, 2007 , by and among the eight (8) Delaware limited liability companies or limited partnerships listed on Schedule A attached hereto and made a part hereof (together with their respective successors and assigns, the “Borrowers”, and individually, a “Borrower”), and CAPMARK FINANCE INC., a California corporation (together with its successors and assigns, “Lender”).

RECITALS

A. Borrowers have requested a loan in the principal amount of $49,800,000.00.

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

AGREEMENT

NOW, THEREFORE , it is hereby agreed as follows:

ARTICLE I

DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.

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

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

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

“Allocated Loan Amount” shall mean the amounts allocated to each Borrower and its respective Facility as set forth on Exhibit F .

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

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

“Assumed Management Fees” means assumed management fees of five percent (5%) of net patient revenues of the Facility (after Medicaid and Medicare contractual adjustments).

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

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

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

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

“Debt Service Coverage Ratio” means a ratio in which the first number is the sum of “net pre-tax income” of Borrowers from usual operations of the Facilities as set forth in the financial statements provided to Lender (without deduction for actual management fees or management expenses paid or incurred in connection with the operation of the Facility), calculated based upon the preceding twelve (12) months (or such lesser period of time as shall have elapsed following the closing of the Loan), plus Loan interest expense and non-cash expenses or allowances for depreciation and amortization of the Facilities for such period, to the extent the foregoing are deducted in determining “net pre-tax income”, less Assumed Management Fees for such period and the second number is the interest due on the Loan for the applicable period. In calculating “net pre-tax income,” Extraordinary Income and Extraordinary Expenses shall be excluded.

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

“Default Rate” has the meaning given to that term in the Note.

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

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

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

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

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

“Extraordinary Income and Extraordinary Expenses” means material items of a character significantly different from the typical or customary business activities of Borrowers which would not be expected to recur frequently and which would not be considered as recurring factors in any evaluation of the ordinary operating processes of Borrowers’ business, and which would be treated as extraordinary income or extraordinary expenses under GAAP.

“Facilities” means the eight (8) facilities listed on Schedule B attached hereto and made a part hereof located on the Land, as they may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer’s care unit, subacute, and any other healthcare related facility), now or hereafter operated on the Land, and, individually, a “Facility”.

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

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

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

“Guarantor” means Emeritus.

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

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

“Hazardous Materials Laws” means all federal, state, and local laws, ordinances and regulations and standards, rules, policies and other governmental requirements, administrative rulings and court judgments and decrees in effect now or in the future and including all amendments, that relate to Hazardous Materials and apply to Borrower or to the Land and/or the Improvements. Hazardous Materials Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, and their state analogs.

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

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

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

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

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

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

“Licensees” means those entities listed on Schedule C attached hereto and made a part hereof.

“Lien” means any voluntary or involuntary mortgage, security deed, deed of trust, lien, pledge, assignment, security interest, title retention agreement, financing lease, levy, execution, seizure, judgment, attachment, garnishment, charge, lien or other encumbrance of any kind, including those contemplated by or permitted in this Agreement and the other Loan Documents.

“Loan” means the loan in the principal sum of $49,800,000.00 made by Lender to Borrowers as of the date hereof.

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

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

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

“Management Agreement” means those certain Management Agreements or, as applicable, Master Lease and Management Agreements between Manager and either a Borrower or, if applicable, a Licensee, obligating Manager to operate and manage the Facilities.

“Manager” means Emeritus for the Facilities which are not located in Texas and ESC IV, L.P., a Washington limited partnership, for the Facilities which are located in Texas, and any successor manager of the Facilities approved by Lender in writing.

“Master Lease” means collectively those certain master leases captioned “Lease” by and between Borrowers and Licensees, and entered into as of August 15, 2007, or to be entered into upon the consummation of the merger between Guarantor and Summerville Senior Living.

“Maturity Date” means September 1, 2009, unless extended pursuant to the terms of the Note.

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

“Medicare” means that certain federal program providing health insurance for eligible elderly and other individuals, under which physicians, hospitals, skilled nursing homes, home health care and other providers are reimbursed for certain covered services they provide to the beneficiaries of such program, which program is more fully described in Title XVIII of the Social Security Act (42 U.S.C. §§ 1395 et seq .) and the regulations promulgated thereunder.

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

“Mortgage” means collectively those certain four (4) Mortgages or Deeds of Trust and Security Agreements executed by Borrowers in favor of or for the benefit of Lender and covering each Borrower’s respective Mortgaged Property.

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

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

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

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

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

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

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

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

“Reimbursement Contracts” means all third-party reimbursement contracts relating to the Facility which are now or hereafter in effect with respect to residents or patients qualifying for coverage under the same, including Medicare and Medicaid, Managed Care Plans and private insurance agreements, and any successor program or other similar reimbursement program and/or private insurance agreements, now or hereafter existing.

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

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

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

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

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

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

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

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

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

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

ARTICLE II

TERMS OF THE LOAN

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

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

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

2.4 Sale of Facility . Lender has agreed that Borrowers may enter purchase contracts for the sale of any of the Facilities (each sale, a "Facility Sale" and collectively, the "Facility Sales"). Contemporaneously with the closing of any Facility Sale, Borrowers may obtain the release from the Mortgage of the Facility which is being sold upon the satisfaction of all of the following conditions:

(i) payment to Lender of a release price equal to the lesser of (a) 100% of the net Facility Sale proceeds attributable to the to-be-released Facility after deduction of closing costs and brokerage fees or (b) 110% of the outstanding balance, including principal and all accrued and unpaid interest, of the Allocated Loan Amount attributed to the to-be-released Facility, but in no event less than the Allocated Loan Amount, together with all accrued interest thereon;

(ii) the release occurs in connection with the sale or other disposition of such Facility in a bona fide arms-length transaction with a Person other than a Borrower or an Affiliate of a Borrower;

(iii) delivery by Borrowers to Lender of a release of lien and related loan documentation in a form appropriate and satisfactory to Lender, which Lender shall execute and deliver to Borrower for recordation which the parties agree may occur after the applicable closing to the extent permitted by applicable law.

(iv) no Event of Default hereunder shall exist;

(v) Borrower shall pay or cause to be paid all reasonable costs and expenses incurred by Lender in connection with the release transaction;

(vi) such release shall be in compliance with all applicable legal requirements, and will not impair or otherwise adversely affect the liens, security interest and other rights of Lender relating to the Facilities which will continue to be security for the Loan after such sale; and

(vii) any other customary conditions as may be reasonably requested by Lender.

2.5 Extension of Maturity Date . The Maturity Date may be extended pursuant to the terms and conditions of the Note, including, without limitation, compliance with the Debt Service Coverage Ratio as set forth therein, and as defined herein.

ARTICLE III

BORROWER’S REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

3.5 Pending Matters .

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

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

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

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

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

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

3.10 Third Party Payors . There is no threatened or pending revocation, suspension, termination, probation, restriction, limitation, or nonrenewal affecting Borrower, Manager or the Facility or any participation or provider agreement with any third-party payor, including Medicare, Medicaid, Blue Cross and/or Blue Shield, and any other private commercial insurance managed care and employee assistance program (such programs, the “Third-Party Payors’ Programs”) to which Borrower or Manager presently is subject. All Medicare (if any), Medicaid (if any) and private insurance cost reports and financial reports submitted by Borrower or Manager are and will be materially accurate and complete and have not been and will not be misleading in any material respects. No cost reports for the Facility remain “open” or unsettled except as otherwise disclosed.

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

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

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

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

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

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

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

3.15 Title to Mortgaged Property . Borrower has good and marketable title to all of the Mortgaged Property, subject to no lien, mortgage, pledge, encroachment, zoning violation, or encumbrance, except Permitted Encumbrances (specifically including special exceptions reflected in Lender’s title insurance policies insuring the Mortgage) which do not materially interfere with the security intended to be provided by the Mortgage or the current use or operation of the Land and the Improvements or the current ability of the Facility to generate net operating income sufficient to service the Loan. All Improvements situated on the Land are situated wholly within the boundaries of the Land.

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

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

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

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

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

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

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

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

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

3.22 Compliance with Applicable Laws . The Facility and its operations and the Land and Improvements comply in all material respects with all covenants and restrictions of record and applicable laws, ordinances, rules and regulations, including, without limitation, the Americans with Disabilities Act and the regulations thereunder, and all laws, ordinances, rules and regulations relating to zoning, setback requirements and building codes and there are no waivers of any building codes currently in existence for the Facility.

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

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

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

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

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

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

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

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

3.31 Fraud and Abuse.

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

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

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

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

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

ARTICLE IV

AFFIRMATIVE COVENANTS OF BORROWER

Each Borrower agrees with and covenants unto Lender that until the Loan Obligations have been paid in full, Borrower shall, or shall cause the applicable Licensee to, with respect to such Borrower’s Facility:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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