LOAN AGREEMENT

TABLE OF CONTENTS

Exhibit A                                Insurance Requirements

Exhibit B                                Compliance Certificate

“Emeritol-Batus Facilities”

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

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

Borrowers have applied to Lender for a loan (the “Loan” ) in the principal amount of SEVENTEEN MILLION FIVE HUNDRED NINETY-FIVE and NO/100 DOLLARS ($17,595,000.00) to be secured by the Facilities.  Lender is willing to make the Loan on the terms and conditions hereinafter set forth.

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

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

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

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

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

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

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

Agreement :  This Loan Agreement.

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

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

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

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

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

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

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

Concurrent Loan :  The loan in the principal amount of $9,802,500.00 being made by Lender to Emeritol Stonecreek Lodge LLC, a Delaware limited liability company and Emeritol Meadowbrook LLC, a Delaware limited liability company concurrently herewith.

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

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

25 year amortization period at an interest rate equal to the greater of the Applicable Rate or 6.85% per annum.

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

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

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

Emeritus :  Emeritus Corporation, a Washington corporation.

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

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

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

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

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

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

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

Federal Funds Effective Rate :  Shall mean, for any day, the rate per annum, rounded upward to the nearest on one-hundredth of one percent (1/100 of 1%), announced by the Federal Reserve Bank of Cleveland on such day as being the weighted average of the rates on overnight federal

funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate.”

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

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

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

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

Guarantors :  Emeritus and Daniel R. Baty ( “Baty” ).

Guaranty :  Together, the Unconditional Guaranty of even date herewith from Emeritus to Lender and the Unconditional Guaranty of even date herewith from Baty to Lender.

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

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

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

Including or including :  Including but not limited to.

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

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

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

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

Late Charge :  As defined in Section 4.7 .

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

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

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

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

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

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

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

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

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

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

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

Master Tenant :   ESC IV, L.P., a Washington limited partnership.

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

Maturity Date :  October 16, 2011.

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

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

Mortgages :  Collectively the Deeds of Trust, Assignment of Rents, Security Agreement and Fixture Filing of even date herewith encumbering each Facility as security for the Obligations, subject only to the Permitted Exceptions.

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

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

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

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

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

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

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

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

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

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

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

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

Readily Marketable Securities:   Marketable securities listed or admitted to trading on the New York Stock Exchange or the American Stock Exchange or quoted on the NASDAQ National Market with a market price equal to or greater than $2.00 per share, so long as, in the case of any such securities the transfer of which is restricted by Rule 144, a minimum of two years shall have elapsed since the later of (a) the date of the acquisition by the owner of such marketable

securities from the respective issuers thereof or from any affiliate (as that term is defined in paragraph (a)(1) of Rule 144) of any of such issuers and (b) the date of payment by the owner of the full purchase price or other consideration paid or given to acquire such marketable securities from the respective issuers thereof or from any affiliate (as that term is defined in paragraph (a)(1) of Rule 144).

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

Resident :  Any person residing in any of the Facilities.

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

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

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

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

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

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

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

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

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

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

Unit :  Each residential living unit in a Facility.

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

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

12

14

authority or accreditation body during the most recent licensing period, together with all plans of correction relating thereto.

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

Subject to the terms, provisions and conditions of this Agreement and the other Loan Documents, Borrowers jointly and severally agree to borrow from Lender and Lender agrees to lend to Borrowers the Loan in the principal amount of SEVENTEEN MILLION FIVE HUNDRED NINETY-FIVE and NO/100 DOLLARS ($17,595,000.00), for the purposes and subject to all of the terms, pro