10-K405

                        UNITED STATES
             SECURITIES AND EXCHANGE COMMISSION
                   Washington, D.C. 20549
- ----------------------------------------------------------
                          FORM 10-K
- ----------------------------------------------------------
(Mark One)

 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934 [FEE REQUIRED]

     For the fiscal year ended December 31, 1996.
                              
                             OR

 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                              
     Commission file number   1-14012
                              
                    EMERITUS CORPORATION
   (Exact name of registrant as specified in its charter)
                              
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                              
          WASHINGTON                  91-1605464
(State or other jurisdiction        (I.R.S Employer
of incorporation or organization)  Identification No.)
                              
               3131 Elliott Avenue, Suite 500
                      Seattle, WA 98121
          (Address of principal executive offices)
                       (206) 298-2909
    (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                  Name of each exchange on
     Title of each class              which registered
      ------------------           ------------------------
Common Stock, $.0001 par value  American Stock Exchange, Inc.
                              
 Securities registered pursuant to Section 12(g)of the Act:
                            None

Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), (2) and has been subject to
such filing requirements for the past 90 days.
Yes (X)  No ( )

Indicate by check mark that there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-K
contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.(X)

Aggregate market value of voting stock held by non-
affiliates of the registrant as of  March 27, 1997 was
$84,909,589.

As of March 27, 1997, 11,000,000 shares of the Registrant's
Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  The information
required by Part III of Form 10-K (items 10-13) is
incorporated herein by reference to the Registrant's
definitive Proxy Statement relating to its 1997 Annual
Meeting of Stockholders to be held on May 22, 1997.





































                    EMERITUS CORPORATION
                              
                            Index
                              
                           Part I



                                                              Page No.
                                                              --------
                                                        
Item 1  Description of Business..............................     1
                                                                  
Item 2  Description of Property..............................    31
                                                                  
Item 3  Legal Proceedings....................................    37
                                                                  
Item 4  Submission of Matters to a Vote of Security Holders..    37
                                                                  
        Executive Officers of the Registrant.................    38

                           Part II
                              
Item 5  Market for Registrant's Common Equity and Related         
           Stockholder Matters...............................    40
                                                                  
Item 6  Selected Financial Data..............................    42
                                                                  
Item 7  Management's Discussion and Analysis of Financial         
           Condition and Results of Operations...............    44
                                                                  
Item 8  Financial Statements and Supplementary Data..........    56
                                                                  
Item 9  Changes in and Disagreements with Accountants on          
           Accounting and Financial Disclosure...............    56
                              
                          PART III
                              
Item 10 Directors and Executive Officers of the Registrant...    57
                                                                 
Item 11 Executive Compensation...............................    57
                                                                 
Item 12 Security Ownership of Certain Beneficial Owners and      
           Management........................................    57
                                                                 
Item 13 Certain Relationships and Related Transactions.......    57
                              
                           PART IV
                              
Item 14 Exhibits, Financial Statement Schedules, and Reports     
           on Form 8-K.......................................    58
                              

                              
                              




                              
                            PART I

ITEM 1.  DESCRIPTION OF BUSINESS

OVERVIEW AND BACKGROUND

     Emeritus Corporation ("Emeritus" or the "Company") is a
long-term-care services company focused on operating
residential-style assisted-living communities.  Since its
organization in 1993, the Company has achieved significant
growth in revenues, primarily due to the acquisition and
operation of residential communities.  The Company believes
it is one of the largest providers of assisted-living
services in the United States.  As of March 20, the Company
held ownership, leasehold or management interests in 76
residential communities (the "Operating Communities")
consisting of approximately 6,200 units, located in 19
states. Of the 76 Operating Communities, 13 were newly
developed by the Company in 1996 and 1997 and three were
newly developed by others and acquired by the Company in
1996.  In addition, the Company has agreements to purchase
eight additional existing communities located in four states
and letters of intent to purchase six additional existing
communities located in Canada ("Pending Acquisitions").
The Pending Acquisitions contain an aggregate of
approximately 1,400 units and are expected to close during
1997.  The Company owns, has a leasehold interest in or has
acquired an option to purchase development sites for 34 new
assisted-living communities (the "Development Communities").
Nineteen of the Development Communities are currently under
construction, 17 of which are scheduled to open during 1997.
The Company leases 58 of its residential communities,
typically from a financial institution such as a Real Estate
Investment Trust ("REIT"), owns 15 communities, manages one
community and has a joint venture and management interest in
two communities.  In December 1996, the Company acquired a
minority interest in Alert Care Corporation ("Alert"), an
Ontario, Canada based owner and operator of 17 assisted-
living communities consisting of approximately 900 units.
See "Strategic Relationships - Alert Relationship".
Assuming completion of the Pending Acquisitions and
Development Communities scheduled to open throughout 1997,
the Company will own, lease, manage or have a minority
interest in 124 properties in 26 states and Canada,
containing an aggregate of approximately 9,900 units with
capacity of over 10,900 residents.  There can be no
assurance, however, that the Pending Acquisitions and
Development Communities will be completed on schedule and
will not be affected by construction delays, the effects of
government regulation or other factors beyond the Company's


                              1


control.  See "Factors Affecting Future Results and Forward
Looking Statements Emphasis on Acquisitions; Difficulties of
Integrating Acquisitions", "Ability to Develop Additional
Assisted-Living Communities", and "Need for Additional
Capital."

     Emeritus was founded in July 1993 by Daniel R. Baty,
Raymond R. Brandstrom and Frank A. Ruffo, Jr. to become a
nationwide operator of assisted-living communities.  During
the 16 years prior to 1987, Mr. Baty, the Company's Chairman
of the Board and Chief Executive Officer, served as the
chief executive officer of The Hillhaven Corporation
("Hillhaven"), one of the largest operators of skilled-
nursing facilities in the United States. In 1986, Mr. Baty
left Hillhaven to pursue opportunities in the independent-
living market.  In 1987, he became the chairman of the board
and principal shareholder and, in 1991, the chief executive
officer of Holiday Retirement Corp. ("Holiday"), one of the
largest operators of independent-living communities in the
United States. Mr. Brandstom, the Company's President and
Chief Operating Officer, and Mr. Ruffo, the Company's Vice
President have worked with Mr. Baty in various financial,
administrative and operating capacities for an aggregate of
more than 40 years, including 12 years and 13 years,
respectively, at Hillhaven.  In November 1996, Gary D.
Witte, joined the Company as Vice President, Operations.
Prior to joining the Company, Mr. Witte last served as the
Vice President of Operations, Southern Region for Vencor
Inc. and previously for Hillhaven Corporation where he was
involved in operating senior housing and related services
for over 20 years.

     By December 31, 1994, the Company had acquired seven
existing long-term facilities containing approximately 600
units.  During 1995, the Company commenced an aggressive
acquisition program, acquiring 16 existing long-term-care
properties, containing approximately 1,600 units, and
entered into a joint venture in connection with the
acquisition of one facility, containing approximately 20
units.   In 1996, the Company continued its aggressive
acquisition program acquiring 35 existing long-term-care
properties, containing approximately 2,800.  In addition,
the Company completed 11 newly developed communities and
acquired three communities newly developed by others,
representing approximately 1,200 units.  The Company ended
the fiscal year with 74 communities, 71 of which were
operating, containing approximately 6,100 units.  Subsequent
to December 31, 1996, the Company commenced operations of
five newly developed communities.  Three of the five were
completed in the fourth quarter of 1996 but did not obtain


                              2


licensure to operate until first quarter of 1997. As of
March 20, the Company owns, leases or manages 76 Operating
Communities containing approximately 6,200 units.

DEMOGRAPHICS

     AGING POPULATION

     The Company's target market, which is comprised of
seniors, age 75 and older, is one of the fastest growing
segments of the U.S. population and, according to the U.S.
Census Bureau, is expected to increase from approximately
13.0 million in 1990 to over 16.8 million or approximately
31% by 2000. As the number of seniors age 75 and older
continues to grow, the company believes there will be a
corresponding increase in the number of seniors who need
assistance with activities of daily living.  According to
the U.S. General Accounting Office, over 7.0 million people
in the United States in 1993 needed assistance with
activities of daily living, which number is expected to
double by 2020.

     The Company believes that assisted-living has become a
more popular approach to providing long-term care for
seniors, particularly in light of the increasing emphasis by
both federal and state governments to contain long-term-care
costs, limitations imposed in many states on construction of
additional skilled-nursing facilities, which have generally
increased the level of care needed by residents in such
facilities and forced less acute seniors to seek alternative
long-term-care arrangements, the relative affluence of the
most elderly segment of the population and the decreasing
availability of family care. It also believes that the
fragmented nature of the industry, the absence of
industrywide standards and the inexperience and limited
capital resources of many operators have provided an
opportunity to build a nationwide company devoted to
providing high-quality assisted-living services.  See
"Growth Strategy".

     The Company believes that its communities are
attractive to those seniors who do not require 24-hour
skilled-nursing care but do desire supervision and
assistance with activities of daily living, and that the
limited availability of governmental payment programs has
created a strong and growing market demand for
noninstitutional long-term-care services designed to fill
the gap between independent-living facilities and skilled-
nursing facilities.



                              3


     COST-CONTAINMENT PRESSURES

     In response to rapidly rising healthcare costs,
governmental and private-pay sources have adopted cost
containment measures that have encouraged reduced lengths of
hospital stays.  The federal government has acted to curtail
increases in healthcare costs under Medicare by limiting
acute-care hospital reimbursement for specific services to
preestablished fixed amounts.  Private insurers have begun
to limit reimbursement for medical services in general to
predetermined "reasonable charges", while managed-care
organizations, such as health maintenance organizations, are
attempting to limit hospitalization costs by negotiating for
discounted rates for hospital services and by monitoring and
reducing hospital use.  In response, hospitals are
discharging patients earlier and referring seniors, who may
be too sick or frail to manage their lives unassisted, to
skilled-nursing facilities where the cost of providing care
is lower than in a hospital.  As a result, an increased
number of discharged hospital patients are seeking skilled-
nursing facility care.  At the same time, skilled-nursing
facility operators continue to focus on improving occupancy
and expanding services to subacute patients requiring
significantly higher levels of skilled-nursing care.  Based
on its experience, the Company estimates that between 25% to
40% of skilled-nursing facility patients could be more
appropriately cared for in a less institutional, less costly
environment such as an assisted-living community.


     RESTRICTED SUPPLY OF NURSING FACILITY BEDS

     A majority of states have adopted certificate of need
("CON") or similar statues that generally require a state
agency to determine that a need exists for new beds and that
certain other criteria are also satisfied before
construction of new nursing-facility beds commences, new
services are provided or certain expenditures are made, the
cost of which would be reimbursable either in whole or in
part by one or more state-funded programs.  The Company
believes that this CON process tends to restrict the supply
of skilled-nursing facility beds.  The Company also believes
that high construction costs, limitations on governmental
reimbursement for the full costs of construction and start-
up expenses also constrain growth in the supply of such
facilities and beds.




                              4



     SENIOR AFFLUENCE AND REDUCED RELIANCE ON FAMILY CARE

     The Company's target market is comprised of middle- to
upper-middle-income seniors who have accumulated some assets
and receive income from investments and pensions, as well as
from Social Security.  The Company believes that many of
these seniors have the economic resources to pay for an
assisted-living alternative to traditional long-term care
without financial assistance.

     Historically, the family has been the primary provider
of senior care.  The Company believes, however, that the
increased percentage of women in the workforce and the
increased mobility of society are reducing the family's role
as the traditional caregiver for seniors, which trend will
make it necessary for many seniors to look outside the
family for assistance as they age.

GROWTH STRATEGY

     The Company plans to expand its network of assisted-
living communities by (a) acquiring both (i) existing
assisted-living communities and (ii) properties that it
believes can be effectively repositioned as assisted-living
communities and (b) developing new assisted-living
communities.  The Company believes that there is significant
demand for alternative long-term-care services that are
positioned between the limited services offered by
independent-living facilities and the more medical and
institutional care offered by skilled-nursing facilities.
     
     The Company's growth strategy has focused, and will
continue to focus, on the acquisition of existing senior
housing facilities that either are currently operated as
assisted-living communities or can be efficiently
repositioned by the Company as assisted-living communities.
Primarily because of management's extensive contacts in the
senior-housing industry, the Company is frequently presented
with opportunities to acquire long-term care properties.
The Company believes that the terms on which it has acquired
its interest in the Operating Communities have generally
been favorable and below the estimated replacement cost.
There can be no assurance, however, that the Company's cost
of acquiring appropriate properties will remain favorable as
additional experienced and well-financed competitors enter
the assisted-living market segment.  See "Factors Affecting
Future Results and Forward-Looking Statements  Emphasis on
Acquisitions; Difficulty of Integrating Acquisitions" and
"Need for Additional Capital" for a description of factors
that could affect the Company's rate of acquisition. Over


                              5


the long term, the Company believes that the popularity of
assisted-living as a long-term-care alternative will
decrease the number of existing long-term-care facilities
that are available at attractive prices and that its growth
may depend more on the successful development of new
assisted-living communities.  As a result, the Company has
instituted a development program the goal of which is to
result in its opening approximately 15 to 20 newly developed
assisted-living communities per year.
     
     The Company plans to continue to aggressively pursue
its acquisition program while continually evaluating the
comparative economics of purchasing, versus developing, new
assisted-living communities.  In part because of Mr. Baty's
close relationship with Holiday, 14 of the sites currently
under development or under consideration for new
developments are near existing Holiday independent-living
facilities.  The Company believes that Mr. Baty's
relationship with Holiday has provided, and will continue to
provide, the Company with opportunities to locate new
development sites near existing Holiday independent-living
facilities and enable the Company to gain knowledge that
will allow it to select advantageous development sites.
There can be no assurance that acquisitions or development
will proceed at the rate currently expected by the Company
as a result of such factors as availability of attractive
properties or development sites, regulatory impediments,
development and construction delays and availability of
capital.  See "Factors Affecting Future Results and
Regarding Forward-Looking Statements  Emphasis on
Acquisition; Difficulties of Integrating Acquisitions",
"Ability to Develop Additional Assisted-living communities"
and "Need for Additional Capital" for other factors that
could affect the Company's rate of development.
     
     MARKET SELECTION PROCESS

     In selecting geographic markets for potential
expansion, the Company considers such factors as a potential
market's population, demographics and income levels,
including the existing and anticipated future population of
seniors who may benefit from the Company's services, the
number of existing long-term-care facilities in the market
area and the income level of the target population.  While
the Company does not apply its market selection criteria
mechanically or inflexibly, it generally seeks to select
assisted-living community locations that (a) are nonurban
with populations of between 25,000 and 150,000 persons, (b)
have residents who generally enjoy mid-level incomes
compared to incomes generally realized in the region, (c)


                              6


have a regulatory climate that the Company considers
favorable toward development, and (d) are established and
economically stable compared to newer, faster-growing areas.
The Company has found that communities with these
characteristics generally have a receptive population of
seniors who desire and can afford the services offered in
the Company's assisted-living communities.

     Upon locating a desirable market, the Company evaluates
available properties and determines whether to (a) acquire
or lease (i) existing facilities that have been operated as
independent-living facilities or apartments and reposition
them as assisted-living communities or (ii) facilities that
are currently operated as assisted-living communities or (b)
acquire a site or otherwise arrange for development of a new
assisted-living community. Repositioning an existing long-
term-care facility typically involves changing the
facility's operating licenses, policies and standards,
offering additional services required by assisted-living
residents and making physical improvements to the property.

     ACQUISITIONS

     Twelve of the Company's 76 Operating Communities,
containing approximately 1,000 units, were previously or are
currently operating as independent-living facilities.  Under
their prior owners, these properties often reflected varying
combinations of operating deficiencies, unstable occupancy
and deferred maintenance, which the Company believes enabled
it to acquire the properties at favorable prices.  The
Company typically implements operating policies and
procedures in assisted-living communities previously
operated as independent-living facilities to (a) stabilize
the resident population at appropriate levels with seniors
who desire, and have adequate resources for, the services
offered in an assisted-living environment and (b)
aggressively market a broad array of assisted-living
services that can be provided on a basis consistent with the
Company's goal of maximizing the community's profitability.
Repositioning an acquired independent-living facility as an
assisted-living community generally requires approximately
12 to 18 months and may require obtaining new or additional
licenses, instituting policies and procedures that implement
the Company's assisted-living philosophy, offering
additional services typically provided by assisted-living
communities and improving the property to facilitate the
provision of those services and addressing deferred
maintenance issues.  Marketing a repositioned assisted-
living community is typically jointly conducted by the
community's manager or marketing director and the Company's


                              7


regional director under the direction of the Vice President
of Marketing and may include use of the Company's prototype
marketing materials, the purchase of print advertising and
the formation of alliances with local hospitals and other
healthcare providers.  The changes typically involved in
repositioning a facility are designed to increase the
facility's overall occupancy rate and to gradually alter the
resident mix so as to attract residents who can more readily
use and afford the additional serves offered by the Company.
The Company expects that its repositioned facilities will
gradually achieve maturity as assisted-living communities
with stable occupancies and target resident mix.

     The Company has also acquired, and plans to continue to
acquire, existing assisted-living communities.  The Company
expects that, where an existing assisted-living community
has been well managed, has a stable occupancy and financial
performance and has in place a program of assisted-living
services comparable to those provided by the Company, the
average per-unit acquisition cost will generally be higher
than for facilities that require repositioning.  The Company
further expects, however, that the expenditures otherwise
associated with repositioning a facility will not be as
great, and that the anticipated time to achieve stabilized
occupancy and target resident mix will typically be shorter.

     The Company's acquisition strategy focuses on acquiring
both existing assisted-living communities and properties
that it believes can effectively be repositioned as assisted-
living communities.  In certain circumstances the Company
has acquired, and may continue to acquire, independent-
living and skilled-nursing facilities that for various
reasons it does not reposition as assisted-living
communities.  These acquisitions will, however, generally be
incidental to the Company's overall focus on assisted-living
communities, and the Company will typically seek over time
to divest itself of the ownership or operation of properties
that are inconsistent with its assisted-living focus.  There
can be no assurance however, that the Company will
successfully operate such independent-living or skilled-
nursing facilities in the interim, that it will be able to
locate qualified purchasers or operators of such facilities
or that the terms on which it transfers ownership or
operation of such facilities will be advantageous to the
Company.







                              8


     DEVELOPMENT

     To further address the market need for assisted-living
communities and to anticipate growing competition for
attractively priced acquisition targets, the Company has
initiated a program of developing new assisted-living
communities.  The Company intends to develop assisted-living
communities generally ranging in size from 50 to 150 units,
consisting of an aggregate of approximately 30,000 to 80,000
square feet, which are located on sites typically ranging
from three to five acres.  Unit sizes range from 350 to 500
square feet.  The Company estimates that the development
cost of most of it assisted-living communities will
generally be approximately $60,000 to $95,000 per unit,
depending on local variations in land and construction cost.
The Company currently owns, has a leasehold interest in or
has acquired an option to purchase the development sites for
34 of the Development Communities.  In 1996 and 1997,
respectively, the Company opened eleven and two new
communities developed by the Company and in 1996, the
Company acquired three new communities developed by others.
The Company currently anticipates opening 15 to 20
Development Communities in 1997, in addition to the five
opened during the first quarter of 1997, and expects that
its development program will enable it to open approximately
15 to 20 newly developed assisted-living communities in
1998.  See "Factors Affecting Future Results and Regarding
Forward-Looking Statements  Ability to Develop Additional
Assisted-living Communities" and "Need for Additional
Capital" for a description of factors that could affect the
Company's rate of development.

     The Company intends to develop new assisted-living
communities by using a combination of in-house development
personnel and experienced third-party project managers and
by acquiring newly constructed communities from developers
under "turnkey" purchase and sale agreements.  Where the
Company hires an outside developer, it plans to retain the
right to approve all aspects of the development, including,
among other things, site selection, plans and
specifications, the proposed construction budget and the
general contractor.  The Company generally requires outside
general contractors to post a performance completion bond
for each community under development.  Typically, the
general contractor will be responsible for cost overruns and
will be required to build each residence to completion
within a predetermined maximum construction period.  The
Company expects that the average construction time for a
typical assisted-living community will be approximately 8 to
12 months, depending on the number of units.  Once a site is


                              9


developed, the Company estimates that it will take
approximately 12 to 18 months for the assisted-living
community to achieve a stabilized level of occupancy.

     To the extent the Company acquires newly developed
communities from a developer on a "turnkey" basis, it
intends to enter into a purchase and sale agreement whereby
the Company, subject to construction of the facility to the
Company's preapproved standards and satisfaction of typical
purchase and sale contingencies for the Company's benefit,
will commit to purchase the facility upon completion at a
fixed price equal to the total development costs plus a
development fee.  In some instances, the Company may agree
to allow a developer that has sufficient experience
operating long-term-care facilities to open a newly
developed community and operate the community until it
achieves a certain occupancy level, at which time the
Company would acquire the community at a price that reflects
the reduced lease-up risk.

     MANAGEMENT AGREEMENTS

     From time to time, the Company has entered into
management agreements whereby it manages assisted-living
communities owned or leased by others.  Agreements typically
have terms of five years, with options to renew, and provide
for management fees equal to 5% of gross operating revenues,
payable monthly.  The Company currently manages one
community containing 80 units.  The managed community is
owned by Columbia House, LLC ("Columbia House"), a limited
liability company wholly owned by the Company's Chairman and
Chief Executive Officer.  See "Strategic Relationships
Columbia House Relationship."  Management agreements and the
management of communities owned or leased by others are not
currently material to the Company's overall business or
revenue.

OPERATIONS

     The senior housing services industry encompasses a
broad range of accommodations and healthcare services that
are provided primarily to seniors.  For seniors who require
limited services, home-based care, either in their own or a
family member's home, offers a viable option for assistance
on an "as required" basis.  For seniors who are interested
in community housing, retirement centers and independent-
living facilities offer support services that are often
limited to meals, housekeeping and laundry.  As a senior's
need for assistance increases, care in an assisted-living
community is often preferable and more cost-effective than


                             10


care at home or in a facility that does not regularly
provide the required services.  Care in an assisted-living
community also offers residents a comfortable residential
environment, particularly when compared to the institutional
setting often associated with a skilled-nursing facility.
Residents typically enter an assisted-living community when
other facilities are no longer able to provide the level of
services required. Under the Companys' operating approach,
seniors reside in a single- or double-occupancy residential
unit for a monthly fee that is based on each resident's
overall service needs.  The Company believes that its focus
on residential assisted-living communities allows seniors to
maintain a more independent lifestyle than is possible in
the more medical and institutional environment of skilled-
nursing facilities.  The Company also believes that certain
of its services, such as assisting residents with their
activities of daily living (including bathing, dressing,
personal hygiene, grooming, ambulating and eating) and
providing health-related assistance (including supervising
residents' medication and monitoring certain health
conditions), are attractive to many seniors who are
inadequately served by independent-living facilities.
Generally, residents of assisted-living communities require
higher levels of care than residents of independent-living
facilities, but require lower levels of care than residents
of skilled-nursing facilities.

     STRATEGY

     Using its management's expertise in operating long-term-
care facilities, the Company seeks to provide high-quality
services in its assisted-living communities while at the
same time increasing operating margins primarily by (a)
increasing occupancy levels through extensive marketing
efforts to area hospitals, independent-living facilities and
other referral sources, including joint marketing efforts
with Holiday that are designed to attract residents to
communities operated by the Company or Holiday, depending on
the level of services required; (b) encouraging residents to
remain longer at the Company's communities by offering them
a range of service options that will keep pace with their
needs as they age; (c) increasing revenues through
modifications in rate structures, where appropriate; and (d)
identifying opportunities to create operating efficiencies
and reduce costs.







                             11


     MARKETING AND REFERRAL RELATIONSHIPS

     The Company's operating strategy is designed to
integrate its assisted-living communities into the continuum
of healthcare providers in the geographic markets in which
it operates.  One objective of this strategy is to enable
residents who require additional healthcare services to
benefit from the Company's relationships with local
hospitals, home healthcare agencies and skilled-nursing
facilities in order to obtain the most appropriate level of
care.  Thus, the Company seeks to establish relationships
with local hospitals (including through joint marketing
efforts, where appropriate) and home healthcare agencies,
alliances with visiting nurses associations and, on a more
limited basis, priority transfer agreements with local, high-
quality skilled-nursing facilities.  In addition to
benefiting residents, the implementation of this operating
strategy has strengthened and expanded the company's network
of referral sources.

     Of the Company's 76 Operating Communities and 34
Development Communities, 28 are located in markets in which
Holiday also operates its independent-living facilities. The
Company believes that its assisted-living communities will
offer an attractive alternative for Holiday residents as
they age and require more extensive services.  The Company
and Holiday do not have any formal understanding or written
agreement regarding joint marketing programs.  As a result,
there can be no assurance that joint marketing programs
envisioned with Holiday will be effected.  Furthermore,
there can be no assurance that, if effected, such joint
marketing programs will be successful in attracting
additional residents to the Company's assisted-living
communities or that the Company's and Holiday's interest
will be compatible in the future.  See "Strategic
Relationships" and "Certain Transactions".

     RESIDENT-SERVICE PROGRAMS

     The Company's assisted-living communities offer
residents a supportive, "home-like" setting and assistance
with activities of daily living.  Residents of the Company's
communities are typically unable to live alone, but do not
require the 24-hour care provided in skilled-nursing
facilities.  Services provided to the Company's residents
are designed to respond to their individual needs and to
improve their quality of life, are available 24 hours a day
to meet both anticipated and unanticipated resident needs,
and generally include three meals per day, housekeeping and
grounds keeping and building maintenance services.


                             12


Available support services include personal and routine
nursing care, social and recreational services,
transportation and special services.  Personal services
include bathing, dressing, personal hygiene, grooming,
ambulating and eating assistance.  Health-related services,
which are made available and provided according to the
resident's individual needs and state regulatory
requirements, may include assistance with taking medication,
skin care and injections, as well as healthcare monitoring.
Organized activities are available for social interaction
and entertainment.  Special services include banking,
shopping and pet care.

     The Company provides its residents service options
through its FlexAssist living program, which employs a
detailed individual assessment and service-planning process
that responds to each resident's assistance needs.

     All residents are offered the same categories of care
at four different levels.  An individual resident's level of
care is determined by the degree of assistance he/she
requires in each of the categories.  The more assistance
required, the higher the level of care.  The categories of
care include orientation to person/place/time, behavior
management, socialization, activities and transportation,
medication, continence, bathing, dressing, grooming,
ambulation, dining assistance, dietary assistance,
housekeeping, laundry, medical management and miscellaneous
which consists of diabetic management, PRN medication,
transfer, simple treatment, oxygen set up/maintenance and
prosthesis).  All residents pay the base rate plus the rate
for one of the levels of care.  The base rate includes
apartment rent, three meals per day, weekly housekeeping,
changing of bed and bath linens, utilities (excluding
telephone), scheduled transportation, social and
recreational activities and an emergency call system.

     The Company believes that its emphasis on quality and
continuity of service will enable it to increase its
communities' occupancy rates, thereby enhancing revenues.
By creating a long-term-care environment that maximizes
resident autonomy and provides individualized service
programs, the Company seeks to attract seniors at an earlier
state of their search for long-term-care, before they need
the higher-level care provided in a skilled-nursing
facility.  By providing programs that are designed to offer
residents a range of service options as their needs change,
the Company seeks to achieve greater continuity of care,
enabling seniors to "age in place" and thereby maintain



                             13


their residency for a longer time period.  The Company also
believes that the physical configuration of its facilities,
combined with its level of service, contributes to resident
satisfaction and allows seniors residing at the Company's
communities to maintain an appropriate level of autonomy.

     RATE STRUCTURE

     The Company believes that its residents' average
monthly charges are approximately 55% to 65% of the average
monthly charge for residents receiving nursing care in
private rooms at unskilled-nursing facilities due in part to
the less labor-intensive services required by seniors who
comprise the Company's target market.  The Company initially
experimented with a menu-based system of charges for the
services offered at its communities.  However, it has
shifted to its FlexAssist program, a tiered service
structure based on the number and frequency of activities of
daily living with which a resident needs assistance.

     SERVICE REVENUE SOURCES

     The Company currently and for the foreseeable future
expects to rely primarily on its residents' ability to pay
the Company's charges from their own or familial resources.
Although care in an assisted-living community is typically
less expensive than in a skilled-nursing facility, the
Company believes generally only seniors with income or
assets meeting or exceeding the regional median can afford
to reside in the Company's communities.  Inflation or other
circumstances that adversely affect seniors' ability to pay
for services such as those provided by the Company could
have an adverse effect on the Company's business or
operations.  For example, if the Company were unable to
attract residents able to pay for its services, it would
have to modify its business strategy of relying primarily on
the private-pay market and be forced to rely more on the
limited number of governmental reimbursement programs.
Furthermore, the federal government does not currently
provide any reimbursement for the type of assisted-living
services provided by the Company.  Although some states have
reimbursement programs in place, in many cases the level of
reimbursement is insufficient to cover the costs of
delivering the level of care that the Company currently
provides.

     Payments to the Company under state reimbursement
programs in which the Company participates are currently
sufficient to cover virtually all the operating (but not
financing) costs allocable to the Company's participating


                             14


residents.  The Company currently serves a limited number of
residents who are eligible for subsidies in the form of
additional Supplemental Security Insurance ("SSI") payments
and were residing at the facility when it was acquired by
the Company.  SSI, a federal recipient assistance program
that is administered primarily at the state level, provides
financial assistance to indigent persons requiring placement
in a residential-care facility.  Qualifications are
generally similar to those of Medicaid, and the Company is
subject to various regulatory and governmental reimbursement
policies. Net revenues from state reimbursement programs for
the years 1995 and 1996 accounted for less than 10% of the
Company's operating revenues for such years.  The Company
continues to seek to replace departing SSI residents with
private-pay residents, however,  there can be no assurance
that the Company will continue to improve its private-pay
mix or that it will not in the future become more dependent
on governmental reimbursement programs.

     ADMINISTRATION AND COST CONTAINMENT

     The Company has recruited experienced key employees
from several established operators in the long-term-care
services field and believes that it has assembled the
administrative, development and financial personnel that
will enable it to manage its growth and operating strategies
effectively. The Company is currently restructuring its
operations department through the recruiting of individuals
with strong backgrounds in the senior housing industry.  In
November 1996, the Company hired Gary D. Witte as its Vice
President, Operations whose background consists of over 20
years experience in the industry and in March 1997, the
Company hired a Vice President, Sales and Marketing with
over 15 years experience in the industry.  The Company is
continuing to recruit individuals with a strong background
in senior housing for regional director positions.  In
addition the Company has developed the internal procedures,
policies and standards it believes are necessary for
effective operation and management of its residential
communities. The Company provides management support
services to each of its residential communities, including
establishment of operating standards, recruiting, training,
and financial and accounting services. The Company has
established Eastern and Western Operational Divisions.  Each
division is headed by a director who reports to the
Company's Chief Operating Officer and its Vice President,
Operations. The Eastern and Western Divisions contain six
and five operational regions, respectively, for the Mid
Atlantic states, Arizona, California, Florida, New York and
Texas.  Each operational region is headed by a regional


                             15


director who provides supervisory oversight for each of the
communities in their respective regions.  Day to day
community operations are supervised by an on-site
administrator who, in certain jurisdictions, must satisfy
certain licensing requirements.

     To contain costs and maximize operating efficiency, the
Company employs an integrated structure of management and
financial systems and controls.  The Company utilizes
centralized accounting systems and computer systems that
link each community with the Company's executive offices to
provide management with on-line revenue and expense
information regarding its residential communities.  The
Company's systems provide an on-line analysis capability for
resident billing, occupancy, marketing and statistical
information.

STRATEGIC RELATIONSHIPS

     HOLIDAY RELATIONSHIP

     Fourteen of the Company's Operating Communities and 14
of its Development Communities are located near existing or
proposed independent-living facilities operated by Holiday.
The Company believes that its focus on expanding in
locations near Holiday facilities will often enable it to
gauge the need for its services in a particular market by
evaluating Holiday's operating performance, and that
successful Holiday facilities will generally reflect the
combination of criteria required for a successful assisted-
living community.  In addition, the Company believes that,
as a result of Mr. Baty's close relationship with Holiday,
opportunities may arise for (a) development of assisted-
living communities on sites near existing or proposed
Holiday independent-living facilities and (b) joint
marketing programs for attracting residents to the Company's
assisted-living communities and Holiday's independent-living
facilities, depending on the level of services required.
The Company and Holiday have no written agreement or formal
understanding concerning their relationship, and there can
be no assurance that opportunities for such development or
joint marketing programs will arise and that the Company's
and Holiday's interest will be compatible in the future.
Mr. Baty and Mr. Colson, a director of the Company are the
principal shareholders, directors and senior executive
officers of Holiday, and substantially all the independent-
living facilities operated by Holiday are owned by
partnerships controlled by Messrs. Baty and Colson and in
which they have varying financial interests.  In addition,
Messrs. Brandstom and Ruffo have management responsibilities


                             16


with respect to Columbia, which is wholly owned by Mr. Baty,
and its subsidiary, Columbia Management, which is a general
partner of many of such partnerships.

     PAINTED POST PARTNERS RELATIONSHIP

     Painted Post Partners (the "Partnership"), an
affiliated partnership of which Messrs. Baty and Brandstom
are the sole partners, was formed in October 1995 for the
purpose of obtaining licensure in the state of New York to
operate assisted-living communities; New York state
regulations prohibit corporations from acting as licensed
operators of regulated healthcare facilities.  In August
1996, the Partnership obtained its license to operate
communities in New York.  In October 1995, the Company began
operating the Green Meadows Painted Post community under a
two-year administrative services agreement with two
individuals who were the then licensed operators of the
community and lessees under the lease with a REIT.  Upon
issuance of a license to the Partnership, all rights and
obligations under the lease and the administrative services
agreement were assigned to the Partnership.  In November
1996, the Partnership acquired through lease financing, nine
assisted-living communities ("Wegman Communities") located
throughout the state of New York.  The Company has an
agreement with the Partnership to provide services in
relation to the communities over the life of the leases and
has guaranteed the leases.  The Company believes that a
license is not required under New York state law for it to
provide the services set forth in the administrative
services agreements but that it nonetheless effectively
controls the operations of Green Meadows-Painted Post and
the Wegman Communities.

     ALERT RELATIONSHIP

     In November 1996, the Company agreed to purchase up to
6,888,466 shares of convertible preferred stock of Alert at
prices ranging from $0.67 to $0.74 (Cdn) and acquired an
option to purchase an additional 4,000,000 shares of
convertible preferred stock at an exercise price of $1.00
per share (Cdn), as well as an option to purchase from
Eclipse Capital Management ("Eclipse"), the majority
shareholder of Alert, and certain other shareholders of
Alert, 9,050,000 currently issued and outstanding shares of
common stock of Alert and 950,000 currently issued and
outstanding shares of Class A non-voting stock (the "Class A
Stock") of Alert both at an exercise price of $3.25 per
share (Cdn).  The shares of preferred stock are convertible
into shares of class A non-voting stock at any time.  At


                             17


March 20, 1997, the Company owns 3,655,384 shares of
preferred stock for a total investment of $2.6 million (Cdn)
which is equivalent to $1.9 million (US).

     The Company would own approximately 41% of the
outstanding shares of Class A Stock if it converted all
preferred stock it can purchase into Class A Stock or
approximately 20% of the outstanding common stock if it
converted its preferred stock into common stock and all
other convertible securities were likewise converted into
common stock (the preferred stock is convertible into common
stock when the Company exercises its option to purchase an
aggregate of 10 million common and Class A shares of Alert).
If the Company exercises its option to acquire 4,000,000
additional shares of preferred stock, then such percentages
would be 52% and 31%, respectively.  And if the Company
exercises it option to purchase outstanding common stock and
Class A stock from existing shareholders, then such
percentages would be 57% and 67%, respectively.

     Alert is an owner/operator of assisted-living
communities based in Ontario, Canada and Eclipse, through
its wholly-owned subsidiary, Eclipse Construction Inc.,
develops and constructs retirement homes for Alert on a
contract basis.  Alert has entered into an exclusive
management agreement to manage the Company's future assisted-
living communities in Ontario and Eclipse has entered into
an exclusive development agreement with the Company and
Alert to develop their construction projects in Ontario.

     COLUMBIA HOUSE RELATIONSHIP

     Columbia House, a limited liability company wholly
owned by Mr. Baty, the Company's Chairman and Chief
Executive Officer, develops, owns and leases low income
senior housing projects.  The Company has entered into an
agreement with Columbia House to provide certain
administrative support, due diligence and financial support
services to Columbia House with respect to the acquisition,
development and administration of Columbia House
communities.  Columbia House currently operates one
community, which is managed by the Company.  See "Growth
Strategy Management Agreements."  The Company may in the
future manage other communities owned or leased by Columbia
House.





                             18
                              


COMPETITION

     The number of assisted-living communities in the United
States, the ownership of which is fragmented, is increasing
rapidly.  Moreover, the senior housing services industry has
been subject to pressures that have resulted in the
consolidation of many small local operations into larger
regional and national multifacility operations.  While there
are several national and regional companies that provide
senior living alternatives, the Company anticipates that its
primary source of competition will come from local and
regional assisted-living companies that operate, manage and
develop residences within the same geographic area as the
Company, as well as retirement facilities and communities,
home healthcare agencies, not-for-profit or charitable
operators and, to a lesser extent, skilled-nursing
facilities and convalescent centers.  The Company believes
that quality of service, reputation, a facility's location
and physical appearance, and price will be significant
competitive factors.  Some of the Company's competitors have
significantly greater resources, experience and recognition
within the healthcare community than does the Company.

EMPLOYEES

     As of December 31, 1996, the Company had 3,299
employees, including 1,999 full time employees,  of which 83
were employed at the Company's headquarters.  As a result of
an acquisition in 1995, 21 employees at one community are
represented by a labor union.  None of the Company's other
employees are currently represented by a labor union, and
the Company is not aware of any union-organizing activity
among its employees.  The Company believes that its
relationship with its employees is good.

     Although the Company believes it is able to employ
sufficient skilled personnel to staff the communities it
operates or manages, a shortage of skilled personnel in any
of the geographic areas in which it operates could adversely
affect the Company's ability to recruit and retain qualified
employees and control its operating expenses.

TRADEMARKS

     The Registration of the Company's FlexAssist service
mark was granted in February 1997.





                             19


FACTORS AFFECTING FUTURE RESULTS AND REGARDING FORWARD-
LOOKING STATEMENTS

     The Company's business, results of operations and
financial condition are subject to many risks, including
those set forth below.  In addition, the following important
factors, among others, could cause the Company's actual
results to differ materially from those expressed in the
Company's forward-looking statements in this report and
presented elsewhere by management from time to time.  When
used in this report, the words "believes", "anticipates" and
similar expressions are intended to identify forward-looking
statements.  Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak
only as of the date of this report.  The Company undertakes
no obligation to publicly release the results of any
revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated
events.

     RECENT ORGANIZATION; HISTORY OF LOSSES.  The Company
was organized and began operations in July 1993 and has
operated at a loss since its inception.  For the years ended
December 31, 1995 and 1996, the Company recorded a  net loss
of $9.0 million and $8.2 million, respectively.  The
majority of the Operating Communities that have been
acquired operated at a loss following acquisition.  The
Company intends to continue to acquire long-term-care
facilities that are likely to operate at a loss for at least
12 months to 18 months after the Company acquires its
interest in each facility.  In addition, the Company is
developing new assisted-living communities, all of which are
expected to incur start-up losses for at least nine months
after commencing operations.  As a result, the Company
expects to continue to incur losses at least through the end
of 1997.  There can be no assurance, however, that the
Company's operations will become profitable at the rate
currently expected by the Company, if at all.  The Company's
inability to achieve profitability on a timely basis could
have an adverse effect on the Company's business, operating
results and financial condition and the market price of its
Common Stock.








                              
                             20


     EMPHASIS ON ACQUISITIONS; DIFFICULTIES OF INTEGRATING
ACQUISITIONS.  The Company's growth strategy has emphasized
and will continue to emphasize a program of acquiring
existing assisted-living communities and properties that it
believes it can efficiently reposition as assisted-living
communities.  The Company currently plans to acquire
ownership of or leasehold interests in approximately 15 to
20 additional long-term-care facilities in 1997 and 1998.
Acquisitions of long-term-care facilities are typically
subject to a number of closing conditions, including those
regarding the status of title to real property included in
the acquisition, the results of environmental investigations
performed on the Company's behalf, the transfer of
applicable licenses or permits and the availability of
appropriate financing.  There can be no assurance that the
Company's acquisition of long-term-care facilities will
occur at the rate currently expected by the Company or that
future acquisitions will be completed in a timely manner, if
at all.  Due in part to management's industry experience and
contacts, the Company may be presented with many more
attractive acquisition proposals than currently is expected
and, as a result, may attempt to purchase long-term-care
facilities at a substantially higher rate than currently
expected, which could cause the Company to overextend its
management and financial resources.  To the extent that
acquisitions are consummated, there can be no assurance that
the Company will, where appropriate, successfully reposition
an acquired facility or integrate a newly acquired or
repositioned community with its other operations.  In
addition, the Company has from time to time acquired, and
may under certain circumstances continue to acquire,
independent-living or skilled-nursing facilities that for
various reasons it does not reposition as assisted-living
communities.  There can be no assurance that the Company
will successfully operate such independent-living or skilled-
nursing facilities.  Even if the Company should determine to
transfer ownership or operation of such independent-living
or skilled-nursing facilities, there can be no assurance
that it will be able to locate qualified purchasers or
operators of such facilities or that the terms on which it
transfers ownership or operation of such facilities will be
advantageous to the Company, either of which could adversely
affect the market price of the shares of Common Stock as
well as the Company's results of operations and financial
position.  Furthermore, the acquisition of independent-
living facilities and the development of assisted-living
communities by the Company may exacerbate potential
conflicts of interest between the Company and Holiday and
could expose management of the Company to claims that duties
to one or both companies have


                             21


not been met. See "Conflicts of Interest with Holiday"
below.  Finally, any failure by the Company with respect to
the repositioning, integration or operation of any acquired
facilities may have a material adverse effect on the
Company's business, operating results and financial
condition.

     DIFFICULTIES IN DEVELOPING ADDITIONAL ASSISTED-LIVING
COMMUNITIES.  The Company's prospects for growth are
directly affected by its ability to develop additional
assisted-living communities.  The Company expects to open
approximately 15 to 20 newly developed assisted-living
communities in each of 1997 and 1998.  Currently, the
Company has 34 assisted-living communities in various stages
of development and it anticipates opening 15 to 20 assisted-
living communities in 1997 in addition to the five opened in
the first quarter of 1997.  In connection with the
development communities, the Company has construction
commitments of $37.1 million and $68.5 million on owned and
leased developments, respectively, of which the Company has
$35.6 million in mortgage financing and $68.5 million in
lease financing in place at December 31, 1996.  See
"Management Discussion and Analysis".  To date, the Company
has opened 16 newly developed communities, 13 developed by
the Company and three developed by others and acquired by
the Company.  There can be no assurance that the Company
will not suffer delays in its development program, which
could slow the Company's growth.  Development of assisted-
living communities can be delayed or precluded by various
zoning, healthcare licensing and other applicable
governmental regulations and restrictions.  The nature of
such licenses and approvals and the timing and likelihood of
obtaining them vary widely from state to state, depending on
the community, or its operation, and the type of services to
be provided.  If the Company's development schedule is
delayed, the Company's business, operating results and
financial condition could be adversely affected.

     NEED FOR ADDITIONAL CAPITAL; NEGATIVE CASH FLOW AND
FINANCING REQUIREMENTS.  The Company expects negative
operating cash flow to continue through at least 1997 as it
continues to develop and acquire assisted-living
communities.  The Company does not expect any of its newly
developed assisted-living communities to generate positive
cash flow for at least nine months after commencing
operations.  In addition, the Company expects that the
properties it acquires for repositioning as assisted-living
communities will typically require at least 12 months to 18
months after acquisition to begin to generate positive cash
flows.  There can be no assurance that any newly developed


                             22


or repositioned community will achieve a stabilized
occupancy rate and resident mix that meets the Company's
expectations, generates positive cash flow or is sufficient
to allow the Company to refinance outstanding indebtedness
secured by the community through sale/leaseback
transactions.  To successfully continue its aggressive
growth, the Company must have sufficient financial resources
to fund its development and acquisition activities and
anticipated operating losses.  Furthermore, the Company's
future success depends in part on arranging sale/leaseback
financing or mortgage refinancing for assisted-living
communities that have achieved stabilized occupancy rates,
resident mix and operating margins after initial development
or repositioning. In addition, the Company will have
approximately $5.8 and $25.4 million in principal amount of
debt repayment obligations that become due in 1997 and 1998,
respectively.  The Company will from time to time seek
additional funding through public or private financing,
including equity financing.  If additional funds are raised
by issuing equity securities, the Company's shareholders may
experience dilution.  There can be no assurance, however,
that adequate equity, debt or sale/leaseback financing will
be available as needed or on terms acceptable to the
Company.  A lack of available funds may require the Company
to delay, scale back or eliminate all or some of its
development and acquisition projects.

     CONFLICTS OF INTEREST WITH HOLIDAY.  Mr. Baty, the
Company's Chief Executive Officer, and Mr. Colson, a
director of the Company, are the principal shareholders,
directors and senior executive officers of Holiday, and
substantially all the independent-living facilities operated
by Holiday are owned by partnerships controlled by
Messrs. Baty and Colson and in which they have varying
financial interests.  In addition, Messrs. Brandstrom and
Ruffo have management responsibilities with respect to
Columbia, which is wholly owned by Mr. Baty, and its
subsidiary, Columbia Management, which is a general partner
of many of such partnerships.  Messrs. Baty's and Colson's
responsibilities to Holiday and its affiliates include
overseeing the management of independent-living facilities,
the acquisition, financing and refinancing of existing
facilities and the development and construction of, and
capital-raising activities to finance, new facilities.
Although the Company believes that its relationship with
Holiday is beneficial, the financial interests and
management and financing responsibilities of Messrs. Baty,
Colson, Brandstrom and Ruffo with respect to Holiday and its
affiliated partnerships could present conflicts of interest,
including conflicts relating to the selection of future


                             23


development or acquisition sites, competition for potential
residents in markets where both companies operate and the
allocation of time and efforts of Messrs. Baty, Brandstrom
and Ruffo.  Because Mr. Baty is the Chief Executive Officer
of both the Company and Holiday and Messrs. Baty, Brandstrom
and Ruffo have other responsibilities with respect to
Holiday and the related partnerships, circumstances could
arise that would distract them from the Company's
operations, which distractions could have an adverse effect
on the Company's business, operating results and financial
condition.  Moreover, there can be no assurance that the
Company's and Holiday's interests will remain compatible.

     SUBSTANTIAL DEBT AND LEASE OBLIGATIONS OF THE COMPANY.
At December 31, 1996, the Company had mortgage indebtedness
in an aggregate amount of $66.1 million, with minimum
principal payments estimated to be approximately
$5.8 million in 1997.  Of the $66.1 million, approximately
$15.7 million represents borrowings under construction loans
totaling $21.7 million in connection with the Development
Communities.  As of December 31, 1996, approximately
$43.3 million principal amount of the Company's indebtedness
bore interest at fluctuating rates (including the $21.7
million of construction loans); therefore, increases in
prevailing interest rates would increase the Company's
interest payment obligations and could have an adverse
effect on the Company's operating results and financial
condition.  At December 31, 1996, the Company was also a
party to long-term operating leases for 53 of its
residential communities, which leases require minimum annual
lease payments aggregating $27.9 million, and generally
provide for annual rent increases.  The Company intends to
continue to finance its properties through a combination of
mortgage financing and operating leases, including leases
arising through sale/leaseback transactions, and,
accordingly, the amount of mortgage indebtedness and annual
lease payments is expected to increase as the Company
pursues its growth strategy.  As a result of such mortgages
and leases, a substantial portion of the Company's cash flow
will be devoted to debt service and lease payments.  There
can be no assurance that the Company will generate
sufficient cash flow from operations to cover required
interest, principal and lease payments.  Furthermore, from
time to time the Company has not been in compliance with
certain covenants in its financing agreements.  While to
date the Company has been able to obtain waivers for such
noncompliance, there can be no assurance that in the future
it will be able to comply with such covenants, which
generally relate to matters such as cash flow and debt
coverage ratios.  If the Company were unable to meet


                             24


interest, principal or lease payments, it could be required
to seek renegotiation of such payments or obtain additional
equity or debt financing. There can be no assurance,
however, that such efforts would be successful or timely or
that the terms of any such financing or refinancing would be
acceptable to the Company.  Furthermore, because of cross-
default and cross-collateralization provisions in certain of
the Company's mortgage and sale/leaseback agreements, a
default by the Company on one of its payment obligations
could adversely affect a significant number of the Company's
properties.  The Company's leverage may also adversely
affect the Company's ability to respond to changing business
and economic conditions or continue its development and
acquisition program.

     DIFFICULTIES OF MANAGING RAPID EXPANSION.  Since its
inception, the Company has pursued an aggressive expansion
program, and it expects that its growth will continue as it
implements its development program for new assisted-living
communities.  The Company's success will depend in large
part on identifying suitable development and acquisition
opportunities, and its ability to pursue such opportunities,
complete developments, consummate acquisitions and
effectively operate its assisted-living communities.  The
Company's growth has placed a significant burden on the
Company's management and operating personnel.  In late 1996
and early 1997, the Company reorganized its operating and
marketing staffs with individuals having a strong background
in the senior housing industry.  The Company's ability to
manage its growth effectively will require it to continue to
improve its operational, financial and management
information systems and to continue to attract, train,
motivate, manage and retain key employees.  If the Company
is unable to manage its growth effectively, its business,
operating results and financial condition could be adversely
affected.

     DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL.
The Company depends, and will continue to depend, on the
services of Daniel R. Baty, it's Chairman of the Board and
Chief Executive Officer, Raymond R. Brandstrom, its
President and Chief Operating Officer, and Frank A. Ruffo,
Jr., its Vice President.  The loss of the services of
Mr. Baty or either of Messrs. Brandstrom or Ruffo would have
a material adverse effect on the Company's operating results
and financial condition.  In addition, Mr. Baty has
financial interests in and management responsibilities with
respect to Holiday and its related partnerships and
Messrs. Brandstrom and Ruffo have management
responsibilities with respect to Columbia and its


                             25


subsidiary, Columbia Management, which is a general partner
of many of such partnerships.  As a result, they will not be
devoting their full time and efforts to the Company.  Under
certain circumstances, Messrs. Baty, Brandstrom and Ruffo
could have conflicts of interest in allocating their time
and efforts between the Company and Holiday (and its related
partnerships) or Columbia and Columbia Management, as the
case may be, and could have other conflicts of interest. The
Company has entered into noncompetition agreements with
Messrs. Baty, Brandstrom and Ruffo but these noncompetition
agreements do not limit Mr. Baty's current role with
Holiday, Messrs. Brandstrom and Ruffo in their capacities as
officers of Columbia, which is wholly owned by Mr. Baty, and
its subsidiary, Columbia Management, which is a general
partner of partnerships which own or lease properties
currently operated by Holiday, so long as assisted-living is
an incidental component to Holiday's operation or management
of independent-living facilities.  The Company has obtained
a key employee insurance policy covering the lives of each
of Messrs. Baty and Brandstrom in the amounts of
$5.0 million and $1.0 million, respectively.  The Company
also depends on its ability to attract and retain management
personnel who will be responsible for the day-to-day
operations of each of its residential communities.  If the
Company is unable to hire qualified management to operate
its assisted-living communities, the Company's business,
operating results and financial condition could be adversely
affected.

     POSSIBLE ENVIRONMENTAL LIABILITIES.  Under various
federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real
property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances,
including, without limitation, asbestos-containing
materials, that could be located on, in or under such
property.  Such laws and regulations often impose liability
whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic
substances.  The costs of any required remediation or
removal of these substances could be substantial and the
liability of an owner or operator as to any property is
generally not limited under such laws and regulations, and
could exceed the property's value and the aggregate assets
of the owner or operator.  The presence of these substances
or failure to remediate such substances properly may also
adversely affect the owner's ability to sell or rent the
property, or to borrow using the property as collateral.
Under these laws and regulations, an owner, operator or any
entity who arranges for the disposal of hazardous or toxic


                             26


substances such as asbestos-containing materials, at a
disposal site may also be liable for the costs of any
required remediation or removal of the hazardous or toxic
substances at the disposal site.  In connection with the
ownership or operation of its properties, the Company could
be liable for these costs, as well as certain other costs,
including governmental fines and injuries to persons or
properties.  As a result, the presence, with or without the
Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company could have an
adverse effect on the Company's business, operating results
and financial condition.

     DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT
RESOURCES TO PAY.  The Company currently, and for the
foreseeable future, expects to rely primarily on its
residents' ability to pay the Company's fees from their own
or familial financial resources.  Generally only seniors
with income or assets meeting or exceeding the comparable
median in the region where the Company's assisted-living
communities are located can afford the Company's fees.
Inflation or other circumstances that adversely affect the
ability of seniors to pay for the Company's services could
have an adverse effect on the Company.  If the Company
encounters difficulty in attracting seniors with adequate
resources to pay for its services, its business, operating
results and financial condition could be adversely affected.

     STAFFING AND LABOR COSTS.  The Company competes with
other long-term-care providers with respect to attracting
with retaining qualified or skilled personnel.  The Company
also depends on the available labor pool of low-wage
employees.  A shortage of nurses or other trained personnel
or general inflationary pressures may require the Company to
enhance its wage and benefits package in order to compete.
There can be no assurance that the Company's labor costs
will not increase or, if they do, that they can be matched
by corresponding increases in private-payor revenues or
governmental reimbursement.  Any significant failure by the
Company to attract and retain qualified employees, to
control its labor costs or to match increases in its labor
expenses with corresponding increases in revenues
could have a material adverse effect on the Company's
business, operating results and financial condition.







                             27
                              


     GOVERNMENTAL REGULATION.  Healthcare is heavily
regulated at the federal, state and local levels and
represents an area of expensive and frequent regulatory
change.  A number of legislative and regulatory initiatives
relating to long-term care are proposed or under study at
both the federal and state levels that, if enacted or
adopted, could have an adverse effect on the Company's
business and operating results.  The Company cannot predict
whether and to what extent any such legislative or
regulatory initiatives will be enacted or adopted, and
therefore cannot assess what effect any current or future
initiative would have on the Company's business and
operating results.  Changes in applicable laws and new
interpretations of existing laws can significantly affect
the Company's operations, as well as its revenues
(particularly those from governmental sources) and expenses.
The Company's residential communities are subject to varying
degrees of regulation and licensing by local and state
health and social service agencies and other regulatory
authorities specific to their location.  While regulations
and licensing requirements often vary significantly from
state to state, they typically relate to fire safety,
sanitation, staff training, staffing levels and living
accommodations such as room size, number of bathrooms and
ventilation, as well as regulatory requirements relating
specifically to certain of the Company's health-related
services.  The Company's success will depend in part of its
ability to satisfy such regulations and requirements and to
acquire and maintain any required licenses.  In addition,
with respect to its residents who receive financial
assistance from governmental sources for their assisted-
living services, the Company is subject to certain federal
and state regulations that prohibit certain business
practices and relationships that might affect healthcare
services reimbursable under Medicaid or similar state
reimbursements programs.  The Company's failure to comply
with such regulations could jeopardize its reimbursement
payments for any affected residents and, if egregious, could
result in fines and the suspension or failure to renew the
Company's operating licenses.  Federal, state and local
governments occasionally conduct unannounced investigations,
audits and reviews to determine whether violations of
applicable rules and regulations exist.  Devoting management
and staff time and legal resources to such investigations,
as well as any material violation by the Company that is
discovered in any such investigation, audit or review, could
have a material adverse effect on the Company's business and
operating results. There can be no assurance that regulatory
oversight of construction efforts associated with
repositionings will not result in loss of residents and
disruption of community operations.

                             28


     COMPETITION.  The long-term-care industry is highly
competitive, and the Company believes that the assisting-
living segment, in particular, will become even more
competitive in the future.  The Company will be competing
with numerous other companies providing similar long-term-
care alternatives such as home healthcare agencies,
community-based service programs, retirement communities and
convalescent centers.  The Company expects that, as the
provision of assisted-living services receives increased
attention and the number of states providing reimbursement
for assisted-living rises, competition will intensify as a
result of new market entrants.  The Company also faces
potential competition from skilled-nursing facilities that
provide long-term-care services.  Moreover, in implementing
its growth strategy, the Company expects to face competition
in its efforts to develop and acquire assisted-living
communities.  Some of the Company's present and potential
competitors are significantly larger and have, or may
obtain, greater financial resources than those of the
Company.  Consequently, there can be no assurance that the
Company will not encounter increased competition in the
future that could limit its ability to attract residents or
expand its business and therefore have a material adverse
effect on its business, operating results and financial
condition.

     POTENTIAL ADVERSE IMPACT OF GOVERNMENTAL REIMBURSEMENT
PROGRAMS.  Currently, the federal government does not
provide any reimbursement for the type of assisted-living
services offered by the Company.  Although some states have
reimbursement programs in place, the level of reimbursement
is generally insufficient to cover the costs of the
Company's assisted-living services.  Depending in part on
the results of the Company's acquisition program, net
revenues from governmental reimbursement programs could
increase from time to time.  In 1995 and 1996, less than 10%
of the Company's revenues were from residents who receive
governmental assistance from a state medicaid program.
There can be no assurance that the Company will continue to
meet the requirements for participating in governmental
reimbursement programs.  Furthermore, governmental
reimbursement programs are subject to statutory and
regulatory changes, retroactive rate adjustments,
administrative rulings and governmental funding
restrictions, some of which could have a material adverse
effect on the future rate of payment to communities operated
by the Company.  A substantial dependence on governmental
reimbursement programs, changes in the funding levels of
such programs or the failure of the Company's operations to
qualify for governmental reimbursement could have an adverse
effect on the Company's business, operating results and
financial condition.
                             29


     LIABILITY AND INSURANCE.  The Company's business
entails an inherent risk of liability.  In recent years,
participants in the long-term-care industry have become
subject to an increasing number of lawsuits alleging
malpractice or related legal theories, many of which involve
large claims and significant legal costs.  The Company
expects that from time to time it will be subject to such
suits as a result of the nature of its business.  The
Company currently maintains insurance policies in amounts
and with such coverage and deductibles as it deems
appropriate, based on the nature and risks of its business,
historical experience and industry standards.  There can be
no assurance, however, that claims in excess of the
Company's insurance coverage or claims not covered by the
Company's insurance coverage will not arise.  A successful
claim against the Company not covered by, or in excess of,
the Company's insurance could have a material adverse effect
on the Company's operating results and financial condition.
Claims against the Company, regardless of their merit or
eventual outcome, may also have a material adverse effect on
the Company's ability to attract residents or expand its
business and would require management to devote time to
matters unrelated to the operation of the Company's
business.  In addition, the Company's insurance policies
must be renewed annually, and there can be no assurance that
the Company will be able to obtain liability insurance
coverage in the future or, if available, that such coverage
will be on acceptable terms.

     POSSIBLE VOLATILITY OF STOCK PRICE.  The market price
of the Company's Common Stock could be subject to
significant fluctuations in response to various factors and
events, including the liquidity of the market for the Common
Stock, variations in the Company's operating results,
variations from analysts expectations, new statutes or
regulations or changes in the interpretation of existing
statutes or regulations affecting the healthcare industry
generally or the assisted-living residence business in
particular.  In addition, the stock market in recent years
has experienced broad price and volume fluctuations that
often have been unrelated to the operating performance of
particular companies.  These market fluctuations also may
adversely affect the market price of the Common Stock.







                             30


ITEM 2.  DESCRIPTION OF PROPERTY 

PROPERTIES

     The Company's assisted-living communities generally
consist of one- to three-story buildings and include common
dining and social areas.  Twelve of the Company's Operating
Communities, containing approximately 1,000 units, were
previously or are currently operated as independent-living
facilities.  Of these facilities, five have been or are
in the process of being, repositioned to assisted-living
communities, which process typically involves changing their
operating licenses, policies and standards, offering
additional services required by assisted-living residents
and making physical improvement to the property.  Four of
the Company's Operating Communities, containing approximately
100 units, are currently operated as skilled-nursing facilities.
Of these facilities, one is managed by an independent third
party.

     The table below summarizes certain information regarding
the Operating Communities.



                                           Emeritus                             
                                           Operations                            
Community                     Location     Commenced  Units (a) Beds (b)  Interest
- --------------------------  -------------  ---------  --------  --------  ------------
                                                           
ARIZONA                                                                         
 Olive Grove                Phoenix        June 1994        98       111     Lease
 La Villita                 Phoenix        June 1994        92        92      Own
 Scottsdale Royale (1)      Scottsdale     Aug. 1994        63        63      Own
 Villa Ocotillo             Scottsdale     Sept.1994       102       106      Own
CALIFORNIA                                                                      
 Fulton Villa (c)           Stockton       Apr. 1995        80        80      Own
 Laurel Place (d)           San Bernadino  Apr. 1996        71        72      Own
 Rosewood Court             Fullerton      Mar. 1996        71        78     Lease
 The Terrace (d)            Grand Terrace  Jan. 1996        87        87     Lease
DELAWARE                                                                        
 Green Meadows-Dover        Dover          Oct. 1995        52        63     Lease
FLORIDA                                                                         
 Barrington Place           LeCanto        May 1996         79       120     Lease
 Beneva Park Club           Sarasota       July 1995        96       102     Lease
 Central Park Village *(5)  Orlando        July 1995       174       190     Lease
 College Park Club *        Brandenton     July 1995        85        93     Lease
 Colonial Park Club         Sarasota       Aug. 1996        88        90     Lease
 Lodge at Mainlands         Pinellas Park  Aug. 1996       154       162     Lease
                                                                                
                             31                                                 
                                                                          
                                           Emeritus                             
                                           Operations                            
Community                     Location     Commenced  Units (a) Beds (b)    Interest
- --------------------------  -------------  ---------  --------  --------  ------------
 Park Club Brandon          Brandon        July 1995        88        88     Lease
 Park Club of Fort Myers    Fort Myers     July 1995        77        82     Lease
 Park Club of Oakbridge     Lakeland       July 1995        88        88     Lease
 Springtree Retirement      Sunrise        May 1996        179       246     Lease
 Madison Glen               Clearwater     May 1996        135       154      Own
IDAHO                                                                           
 Camlu Retirement (1)       Coeur d'Alene  Nov. 1996        83        86     Manage
 Highland Hills             Pocatelo       Oct. 1996        49        55     Lease
 Lakewood Inn (formerly                                                         
   Woodway Retirement) (7)  Coeur d'Alene  Mar. 1996        46        46     Lease
 Ridge Wind                 Chubbock       Aug. 1996        80       106     Lease
 Summer Wind                Boise          Sept. 1995       49        53     Lease
IOWA                                                                            
 Silver Pines               Cedar Rapids   Jan. 1995        80        80      Own
MASSACHUSETTS                                                                   
 The Pines at Tewksbury *   Tewksbury      Jan. 1996        49        65     Lease
NEVADA                                                                          
 Concorde *                 Las Vegas      Nov. 1996       116       128      Own
NEW HAMPSHIRE                                                                   
 Sunny Knoll * (2)          Franklin       May 1995         22        32  Joint Venture
NEW JERSEY               
 Laurel Lake Estates        Voorhees       July 1995       117       119     Lease
NEW YORK                                                                        
 Bassett Manor              Williamsville  Nov. 1996       103       105     Lease
 Bassett Park Manor         Williamsville  Nov. 1996        78        80     Lease
 Bellevue Manor             Syracuse       Nov. 1996        90        90     Lease
 Colonie Manor              Latham         Nov. 1996        94        94     Lease
 East Side Manor            Fayettville    Nov. 1996        80        88     Lease
 Green Meadows-Painted      
   Post                     Painted Post   Oct. 1995        73        96     Lease 
 Perinton Park Manor        Fairport       Nov. 1996        78        86     Lease
 West Side Manor -          
   Rochester                Rochester      Nov. 1996        72        72     Lease
 West Side Manor -         
   Syracuse                 Syracuse       Nov. 1996        78        80     Lease
 Woodland Manor             Vestal         Nov. 1996        60       116     Lease
NORTH CAROLINA                                                                  
 Heritage Health Center (3) Hendersonville Feb. 1996        66       134     Lease
 Heritage Hills Retirement                                                      
   Community (1)            Hendersonville Feb. 1996        99        99      Own
 Heritage Lodge Assisted-                                                       
   Living                   Hendersonville Feb. 1996        20        24     Lease
 Pine Park Retirement                                                           
   Community (1)            Hendersonville Feb. 1996       110       110     Lease
OREGON                                                                          
 Meadowbrook Retirement (c) Ontario        June 1995        53        55      Own
                                                                                
                                                                                
                             32                                                 
                                                                          
                                           Emeritus                             
                                           Operations                            
Community                     Location     Commenced  Units (a) Beds (b)   Interest
- --------------------------  -------------  ---------  --------  --------  ------------
PENNSYLVANIA                                                                    
 Green Meadows-Allentown    Allentown      Oct. 1995        76        97     Lease
 Green Meadows-Latrobe      Latrobe        Oct. 1995        84       125     Lease
SOUTH CAROLINA                                                                  
 Anderson Place - The                                                           
   Summer House             Anderson       Oct. 1996        30        40     Lease
 Anderson Place - The                                                           
   Village (1)              Anderson       Oct. 1996        75        75     Lease
 Anderson Place - The                                                           
   Health Center (4)        Anderson       Oct. 1996        22        44     Lease
 Countryside Village                                                            
   Health Care Center (4)   Easley         Feb. 1996        24        44     Lease
 Countryside Village                                                            
   Assisted-Living          Easley         Feb. 1996        48        78     Lease
 Countryside Village                                                            
   Retirement Center (1)    Easley         Feb. 1996        72        75     Lease
 Countryside Park           Easley         Feb. 1996        48        66     Lease
 Skylyn Health Center (4)   Spartanburg    Feb. 1996        26        48     Lease
 Skylyn Personal Care                                                           
   Center                   Spartanburg    Feb. 1996        80       119     Lease
 Skylyn Retirement                                                              
   Community (1)            Spartanburg    Feb. 1996       155       155     Lease
TEXAS                                                                           
 Cambria *                  El Paso        Oct. 1996        79        87     Lease
 Dowlen Oaks                Beaumont       Mar. 1997        79        87     Lease
 Elmbrook Estates           Lubbock        Feb. 1997        79        87     Lease
 Saddleridge Lodge          Midland        Mar. 1997        79        87     Lease
 Seville Estates *          Amarillo       Mar. 1997        50        55     Lease
 Sherwood Place *           Odessa         Oct. 1996        79        87     Lease
 Vickery Towers (formerly                                                       
   Belmont Towers) (5)      Dallas         Apr. 1995       301       331      Own
VIRGINIA                                                                        
 Carriage Hill Retirement   Bedford        Sept. 1994       91       137     Lease
 Cobblestones at Fairmont*  Manassas       Sept. 1996       75        82      Own
WASHINGTON                                                                      
 Cooper George * (5) (6)    Spokane        Jun. 1996       140       158  Joint Venture
 Evergreen Lodge            Federal Way    Apr. 1996        98       124     Lease
 Fairhaven Estates *        Bellingham     Oct. 1996        50        55     Lease
 Garrison Creek Lodge *     Walla Walla    Jun. 1996        80        88     Lease
 Harbour Pointe Shores      Ocean Shores   Mar. 1997        50        55     Lease
 Kirkland Lodge at          
   Lakeside                 Kirkland       Feb. 1996        74        84      Own
 Renton Villa *             Renton         Sept. 1993       79        97     Lease
 Seabrook *                 Everett        June 1994        60        62     Lease
 The Hearthstone            Moses Lake     Oct. 1996        84        92      Own
                                                                                
                             33                                                 
                                                                          
                                           Emeritus                             
                                           Operations                            
Community                     Location     Commenced  Units (a)  Beds (b)    Interest
- --------------------------  -------------  ---------  --------  --------  ------------
WYOMING                                                                         
 Park Place (d)             Casper         Feb. 1996        60        60      Own
                                                      --------  --------        
        Total                                            6,231     7,147        
                                                      ========  ========        



 *   Near an existing Holiday facility.
     
(a)  A unit is a single- or double-occupancy residential
     living space, typically an apartment or studio.
     
(b)  "Beds" reflects the actual number of beds, which in
     no event is greater than the maximum number of
     licensed beds allowed under the community's
     license.
     
(c)  Previously operated as an independent-living
     facility; currently in the process of being
     repositioned as an assisted-living community.
     
(d)  Previously operated as an independent-living
     facility, currently repositioned as an assisted-
     living community.
     
(1)  Operated as an independent-living facility; the
     Company does not currently plan to reposition this
     facility as an assisted-living community.
     
(2)  Managed by a third party for a limited liability
     company in which the Company holds a 49.0% interest
     and a third party holds a 51.0% interest.
     
(3)  Operated as a skilled-nursing facility and managed
     by an independent third party; the Company does not
     currently plan to reposition this facility as an
     assisted-living community.
     
(4)  Operated as a skilled-nursing facility; the Company
     does not currently plan to reposition this facility
     as an assisted-living community.
     
(5)  Operated as both an independent-living facility and
     assisted-living facility; the Company does not
     currently plan to reposition the portion of the
     independent-living facility as an assisted-living
     community.
     
(6)  The Company holds a 50.0% interest in a joint
     venture with a third party.
     
(7)  Operated as an independent-living facility; an
     assisted-living addition scheduled to be complete
     in 1997 (see Development Communities below).

                             34


DEVELOPMENTS

     The following table summarizes certain information
regarding the Development Communities under construction,
which are communities where construction activities, such
as ground-breaking activities, exterior construction or
interior build-out have commenced.




                                                                                 Site
                                             Scheduled                         Ownership
        Community             Location        Opening     Units (a)  Beds (b)   Interest
- --------------------------  -------------  --------------  --------  -------  ------------
                                                               
DEVELOPMENTS OPENED IN                                                              
1997:
                                                                                    
TEXAS                                                                               
 Seville Estates            Amarillo        1st Quarter (c)      50       55     Lease
WASHINGTON                                                                          
 Harbour Pointe Shores      Ocean Shores    1st Quarter (c)      50       55     Lease
                                                                                    
ANTICIPATED 1997 OPENINGS:                                                          
                                                                                    
CONNECTICUT                                                                         
 Cold Spring Commons *      Rocky Hill      2nd Quarter          80       88     Lease
IDAHO                                                                               
 Lakewood Inn (expansion)   Coeur d'Alene   2nd Quarter          62       68     Lease
 Lewiston                   Lewiston        4th Quarter          81       89      Own
KANSAS                                                                              
 Elm Grove                  Hutchinson      2nd Quarter         121      133     Lease
KENTUCKY                                                                            
 Stonecreek Lodge *         Louisville      2nd Quarter          80       88     Lease
MASSACHUSETTS                                                                       
 Meadow Lodge *             Chelmsford      3rd Quarter          80       88     Lease
 Woods at Eddy Pond *       Auburn          2nd Quarter          80       88     Lease
MISSISSIPPI                                                                         
 Ridgeland Court *          Ridgeland       2nd Quarter          79       87     Lease
MONTANA                                                                             
 Springmeadows Residence    Bozeman         2nd Quarter          74       81      Own
SOUTH CAROLINA                                                                      
 Bellaire Place *           Greenville      2nd Quarter          81       89     Lease
TENNESSEE                                                                           
 Walking Horse Meadows *    Clarksville     2nd Quarter          50       55     Lease
                                                                                    
                                                                                    
                                                                                    
                                                                                    
                             35                                                     
                                                                                    
                                                                              
                                                                                 Site
                                             Scheduled                         Ownership
        Community             Location        Opening     Units (a) Beds (b)    Interest
- --------------------------  -------------  --------------  --------  -------  ------------
TEXAS                                                                               
 Forest Lane *              Dallas          4th Quarter          80       88     Lease
 Lakeridge Place            Wichita Falls   2nd Quarter          79       87     Lease
 Meadowlands Terrace *      Waco            2nd Quarter          71       78      Own
 Myrtlewood Estates         San Angelo      2nd Quarter          79       87      Own
 Pine Ridge Lodge           Longview        2nd Quarter          70       77      Own
WASHINGTON                                                                          
 Puyallup *                 Puyallup        4th Quarter         100       55      Own
                                                           --------  -------        
Total 1997 Openings                                           1,447    1,536        
                                                           ========  =======        
                                                                                    
ANTICIPATED 1998 OPENINGS:                                                          
                                                                                    
CALIFORNIA                                                                          
 Creston Village (1)        Paso Robles          -              100      110  Joint Venture
 Northbay Retirement (2)    Fairfield            -              172      189  Joint Venture
                                                           --------  -------        
Total 1998 Openings                                             272      299        
                                                           ========  =======        



 *   Near an existing Holiday facility.
     
(a)  A unit is a single- or double-occupancy residential
     living space, typically an apartment or studio.
     
(b)  "Beds" reflects the actual number of beds, which in no
     event is greater than the maximum number of licensed
     beds allowed under the community's license.
     
(C)  Community completed construction during the first
     quarter of 1997 and is included among the 76
     "Operating Communities".
     
(1)  The Company holds a 50.0% interest in a joint venture
     with an independent third party.
     
(2)  The Company holds a 66.67% interest in a joint venture
     with an independent third party.








                              36


     In addition to those Development Communities under
construction, the Company has 15 Development Communities
under development, which are communities where activities
such as site surveys, preparation or architectural plans or
initiation of zoning changes have commenced (but
construction has not commenced).  These communities are
expected to open during 1998.

     In July 1996, the Company moved its executive offices
to a new location in Seattle, Washington, where the Company
leases approximately 22,000 square feet of new space.  The
agreement includes a lease term of 10 years with two five-
year renewal options.  The Company has signed an agreement
to lease additional office space located at the same address
commencing July 1, 1997.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is not currently a party to any material
litigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company did not submit any matter to a vote of its
security holders during the fourth quarter of its fiscal
year ended December 31, 1996.


























                             37


EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information
about the executive officers of the Company.  There are no
family relationships between any of the directors or
executive officers of the Company.




         Name           Age                 Position
        -------         ---                ----------
                        
Daniel R. Baty           52   Chairman of the Board and Chief
                                Executive Officer
Raymond R. Brandstrom    44   President, Chief Operating Officer
                                and Director
Gary D. Witte            52   Vice President, Operations
Frank A. Ruffo, Jr.      54   Vice President
Kelly J. Price           28   Vice President, Finance, Chief
                                Financial Officer and Secretary
Michelle A. Bickford     29   Vice President, New Business
                                Development
Sara J. Curtis           34   Vice President, Sales and Marketing
James S. Keller          35   Director of Accounting and
                                Controller



     Daniel R. Baty, one of the Company's founders, has
served as its Chief Executive Officer and as a director
since inception in 1993 and became Chairman of the Board in
April 1995.  Mr. Baty has served as the chairman of the
board of Holiday since 1987 and as its chief executive
officer since 1991.  He was the chief executive officer of
Hillhaven from 1971 to 1986, when he left to pursue
opportunities in the independent-living market.  Since 1984,
Mr. Baty has served as chairman of the board of Columbia-
Pacific Group Inc. ("Columbia") and, since 1986, chairman of
the board of Columbia Pacific Management, Inc. (Columbia
Management), both of which companies are wholly owned by Mr.
Baty and engaged in developing independent-living facilities
and providing consulting services regarding that market.









                             38


     Raymond R. Brandstom, one of the Company's founders,
has served as its President and Chief Operating Officer and
as a director since its inception in 1993.  Since May 1992,
Mr. Brandstom has served as President of each of Columbia
and Columbia Management.  From 1982 to 1987, he was director
of finance for Hillhaven, and has been involved in long-term-
care and retirement housing for 15 years.  Since May 1992,
Mr. Brandstom has served as vice president and treasurer of
Columbia Winery, a Company affiliated with Mr. Baty that is
engaged in the production and sale of still table wines.

     Frank A. Ruffo, Jr.,  one of the Company's founders,
has served as its Vice President since its inception in
1993.  From August 1992 until he joined the Company, Mr.
Ruffo was employed by Columbia Management in special
servicing related to securitized pools of mortgages secured
by Columbia Management's healthcare properties.  From
January 1990 to August 1992, he was  a private consultant in
the long-term healthcare field.  For the 13 years prior to
1990, Mr. Ruffo was employed by Hillhaven in various
capacities, including senior vice president, in which
capacity he was responsible for risk management, human
resources and labor relations.

     Gary D. Witte, has served as the Company's Vice
President, Operations since November 1996.  Prior to joining
the Company, Mr. Witte last served as the Vice President of
Operations, Southern Region for Vencor Inc. and previously
for Hillhaven Corporation where he was involved in operating
senior housing and related services for over 20 years.

     Kelly J. Price, C.P.A., has served as the Company's
Director of Finance since January 1995, as Chief Financial
Officer and Secretary of the Company since September 1995
and as Vice President, Finance since January 1997.  From
September 1991 until joining the Company, Mr. Price was
employed at Deloitte & Touche LLP last serving in the
Management Consulting practice, where he was a senior
consultant in the real estate, healthcare and manufacturing
industries.

     Michelle A. Bickford, has served as Vice President, New
Business Development since January 1997.  From July 1993 to
January 1997, Ms. Bickford served as the Company's Director
of New Business Development.  From 1990 until joining the
Company, Ms. Bickford was a senior accountant at National
Medical Enterprises Properties, Inc., a publicly held
hospital company.



                             39


     Sara J. Curtis, has served as Vice President, Sales and
Marketing since March 1997.  From March 1996 until joining
the Company Ms. Curtis served as the National Director of
Sales for Beverly Enterprises, Inc. where she was involved
in sales for a diversified healthcare organization including
skilled-nursing facilities, long-term acute hospitals, home
health and hospice programs.  From July 1991 until February
1996 Ms. Curtis served as the Regional and Area Director of
Sales and Marketing for Vencor, Inc. and previously
Hillhaven Corporation.  Ms. Curtis has over 15 years of
experience in the field of sales and marketing.

     James S. Keller, C.P.A., has served as the Company's
Director of Accounting and Controller since July 1994.  From
February 1990 until 1994, Mr. Keller was employed by The
Meyers Associates PC, a regional public accounting firm.
Previously, Mr. Keller worked for a real estate developer as
assistant controller.


                           PART II
                              
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is traded on the American
Stock Exchange, Inc. ("AMEX") under the symbol "ESC".  The
Common Stock has been listed on the AMEX since November 21,
1995, the date of the Company's initial public offering.

     The following table sets forth, for the periods
indicated,  the  high and low closing prices for the Common
Stock as reported on AMEX.



                                                    High      Low
                                                      
1995                                                        
  Fourth Quarter (commencing November 21, 1995)..  $15.125  $11.625
                                                                   
1996                                                               
  First Quarter..................................  $21.750  $11.625
                                                                   
  Second Quarter.................................  $20.875  $17.625
                                                                   
  Third Quarter..................................  $18.000  $14.000
                                                                   
  Fourth Quarter.................................  $16.000  $10.000
                                                                   
1997                                                               
  First Quarter (through March 27, 1997).........  $13.750  $10.625


                             40
                              


     As of March 28, 1997, the number of record holders of
the Company's Common Stock was 112.

     The Company has never declared or paid any dividends on
its Common Stock, and expects to retain any future earnings
to finance the operation and expansion of its business.
Future dividend payments will depend on the results or
operations, financial condition, capital expenditure plans
and other obligations of the Company and will be at the sole
discretion of the Company's Board of Directors.  Certain of
the Company's existing leases and lending arrangements
contain provisions that restrict the Company's ability to
pay dividends, and it is anticipated that the terms of
future leases and the debt financings may contain similar
restrictions.  Therefore, the Company does not anticipate
paying any cash dividends on its Common Stock in the
foreseeable future.





























                             41


ITEM 6.  SELECTED FINANCIAL DATA

     The following selected financial data have been
derived from the audited consolidated financial
statements of the Company and subsidiaries for the
period from July 28, 1993 (inception) through December
31, 1993 and the years ended December 31, 1994, 1995
and 1996.  The data set forth below should be read in
conjunction with the consolidated financial statements
and related notes thereto included elsewhere in the
Form 10-K  and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."




                                                                       
                                          Period from                  
                                         July 28, 1993                 
                                          (inception)                  
                                            through        Year ended December 31,
                                          December 31,   ----------------------------
                                              1993         1994      1995      1996
                                         --------------  --------  --------  --------
                                             (in thousands, except per share and
                                                       operating data)
                                                                 
STATEMENTS OF OPERATIONS DATA:                                               
                                                                             
Total operating revenues...............        $323      $ 4,409   $21,277   $68,926
Total operating expenses...............         290        4,761    22,432    74,294
                                         --------------  --------  --------  --------
Income (loss) from operations..........          33         (352)   (1,155)   (5,368)
                                         --------------  --------  --------  --------
                                                                             
Net other expense......................         (63)      (1,080)   (6,532)   (2,834)
Extraordinary loss on extinguishment of                                      
   debt................................          -           -      (1,267)      -
                                         --------------  --------  --------  --------
        Net loss.......................        $(30)     $(1,432)  $(8,954)  $(8,202)
                                         ==============  ========  ========  ========
Loss per share, before extraordinary                                         
   loss................................                              (0.95)    (0.75)
                                                                             
Extraordinary loss.....................                              (0.16)      -
                                                                   --------  --------
Net loss per share.....................                            $ (1.11)  $ (0.75)
                                                                   ========  ========
                                                                             
   Weighted average number of common                                         
     shares outstanding (1)............                              8,062    11,000
                                                                   ========  ========
OPERATING DATA:                                                              
  Communities operated (2).............            1           6        22        69
  Number of units (2)..................           79         494     1,857     6,143


                                  42





                                              December 31,
                                 --------------------------------------
                                   1993      1994      1995      1996
                                 --------  --------  --------  --------
                                             (in thousands)
                                                   
BALANCE SHEET DATA:                                                
Cash and cash equivalents......   $   26   $   220   $  9,507  $ 23,039
Working capital (deficit)......   (1,489)   (2,762)     4,091     9,757
Total assets...................    3,542    24,493    115,635   158,038
Long-term debt, less current                                   
   portion.....................    2,014    22,684     66,814    60,260
Minority interests.............      -          77      2,229     1,918
Shareholders equity (deficit)..      (30)   (1,462)    34,895    26,188



(1)  The weighted average shares outstanding were
     retroactively adjusted for the 9,200-for-1 split on
     April 14,1995.
     
(2)  Information is as of the end of the period and excludes
     the Operating Communities and units therein that are
     managed by others.





















                             43


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     Since it's organization in July 1993, the Company has
achieved significant growth in revenues, primarily due to
the acquisition and subsequent operation of residential
communities. The Company believes that it is one of the
largest providers of assisted-living services in the United
States.  The Company's revenues are derived primarily from
rents and service fees charged to its residents. For the
years ended December 31, 1994, 1995 and 1996, the Company
generated total operating revenues of $4.4 million, $21.3
million and $68.9 million, respectively.  As of December 31,
1996, the Company's cumulative net losses since inception
were $18.6 million and its total shareholders' equity was
$26.2 million.  For the years ended December 31, 1994, 1995
and 1996, the Company generated losses of $1.4 million, $9.0
million and $8.2 million, respectively.

     The Company's operating strategy is to increase
operating margins at each acquired or newly developed
community, whether leased or owned, primarily by increasing
occupancy levels, encouraging residents to remain at the
Company's communities longer by offering them a range of
service options, increasing revenues through modifications
in rate structures, where appropriate, and identifying
opportunities to create operating efficiencies and reduce
costs.

     As of March 20, 1997, the Company holds  ownership,
leasehold or management interests in 76  Operating
Communities consisting of approximately 6,200 units, located
in 19 states. Of the 76 Operating Communities 13 were newly
developed by the Company in 1996 and 1997 and three were
newly developed by others and acquired by the Company in
1996.  In addition, the Company has agreements to purchase
eight additional existing communities located in four states
and letters of intent to purchase six additional existing
communities located in Canada ("Pending Acquisitions").
The Pending Acquisitions contain an aggregate of
approximately 1,400 units and are expected to close during
1997.  The Company owns, has a leasehold interest in or has
acquired an option to purchase development sites for 34 new
assisted-living communities (the "Development Communities").
Nineteen of the Development Communities are currently under
construction, 17 of which are scheduled to open during 1997.
The Company leases 58 of its residential communities,
typically from a financial institution such as a REIT, owns


                             44


15 communities, manages one community and has a joint
venture and management interest in two communities.  In
December 1996, the Company acquired a minority interest in
Alert, an Ontario, Canada based owner and operator of 17
assisted-living communities consisting of approximately 900
units.  Assuming completion of the Pending Acquisitions and
Development Communities scheduled to open throughout 1997,
the Company will own, lease, manage or have a minority
interest in 124 properties in 26 states and Canada,
containing an aggregate of approximately 9,900 units with
the capacity of over 10,900 residents.  There can be no
assurance, however, that the Pending Acquisitions and
Development Communities will be completed on schedule and
will not be affected by construction delays, the effects of
government regulation or other factors beyond the Company's
control.  From time to time, the Company also manages
assisted-living communities owned or leased by others, but
historically this activity has not been material to the
Company's business or revenue.  See "Description of Business
Growth Strategy Management Agreements".   See "Factors
Affecting Future Results and Forward Looking Statements
Emphasis on Acquisitions; Difficulties in Integrating
Acquisitions", "Ability to Develop Additional Assisted-
Living Communities" and "Need for Additional Capital."

     When used in this discussion, the words "believes,"
"anticipates," "intends" and similar expressions are
intended to identify forward-looking statements.  Such
statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from
those projected.  See "Factors Affecting Future Results and
Regarding Forward-Looking Statements" under Item 1.
Description of Business elsewhere in this report.  Readers
are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements
that may be made to reflect recent events or circumstances
after the date hereof or to reflect the occurrence of
unanticipated events.

RECENT EVENTS

     Subsequent to December 31, 1996, the Company commenced
operations on five newly developed communities by the
Company.  Three of the five completed construction in the
fourth quarter of 1996 but did not obtain licensure to
operate until the first quarter of 1997.  The remaining two



                             45


newly developed communities completed construction during
the first quarter of 1997 and commenced operations.  Four
of the newly developed communities are located in Texas and
one is located in Washington.   See "Liquidity and Capital
Resources".

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated,
certain items of the Company's Consolidated Statements of
Operations as a percentage of total revenues and the percentage
change of the dollar amounts from period to period.




                                                                   
                                                           Period to Period
                                Percentage of Revenues        Percentage
                               Years ended December 31,  Increase (Decrease)
                                                                       
                                1994    1995     1996   1994-1995  1995-1996
                               ------   ------  ------  ---------  ---------
                                                    
Revenues.....................  100 %    100 %    100 %     383%      224 %
                                                                            
Expenses:                                                          
 Community operations........   76       75       71       371       208
 General and administrative..   14       12        9       320       134
 Depreciation and                                                  
   amortization..............   12       13        5       430        12
 Rent........................    6        5       23       370      1316
   Total operating expenses..  108      105      108       371       231
   Loss from operations......   (8)      (5)      (8)      228       365
Other expense:                                                     
 Interest expense, net.......   24       25        4       403       (48)
 Write-down of note                                                
   receivable................    -        5        -       N/A       N/A
 Other, net..................    -        1        -       N/A       N/A
Extraordinary loss on                                              
   extinguishment of debt....    -        6        -       N/A       N/A
   Net loss..................  (32)%    (42)%    (12)%     525%       (8)%









                              46



COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995

     REVENUES.  Total operating revenues for the year ended
December 31, 1996 were $68.9 million, representing a $47.6
million, or 224%, increase over revenues of $21.3 million
for the comparable period in 1995.  Substantially all of
this increase resulted from the commencement of operations
on eleven newly developed communities and the acquisition of
35 existing communities during 1996.

     COMMUNITY OPERATIONS.  Expenses for community
operations for the year ended December 31, 1996 were $48.9
million, representing a $33.0 million, or 208%, increase
over expenses for community operations of $15.9 million for
the comparable period in 1995, primarily due to the
Company's commencement of operations on 11 newly developed
communities and the acquisition of 35 existing communities
during 1996.  As a percentage of total revenues, expenses
for community operations decreased to 71% for the year ended
December 31, 1996, from 75% for the comparable period in
1995 primarily due to efficiencies created by the
implementation of operating strategies.

     GENERAL AND ADMINISTRATIVE.  General and administrative
expenses for the year ended December 31, 1996 were $6.2
million, representing an increase of $3.6 million, or 134%,
from general and administrative expenses of $2.6 for the
comparable period in 1995. As a percentage of total
revenues, general and administrative expenses decreased to
9% for the year ended December 31, 1996, from 12% for the
comparable period in 1995 primarily as a result of increased
revenue.  The $3.6 million increase in general and
administrative expenses was attributable to salaries,
related payroll taxes, and employee benefits relating to
additional personnel associated with new business, increased
accounting costs, higher travel and other costs relating to
the Company's acquisition and development program.  These
increases are expected to continue into 1997 as the Company
continues to acquire additional existing and develop new
communities.

     DEPRECIATION AND AMORTIZATION.  Depreciation and
amortization for the year ended December 31, 1996 was $3.1
million, or 5% of total revenues, compared to depreciation
and amortization of $2.8 million or 13% of total revenues,
for the comparable period in 1995. The dollar increase was
primarily due to an increase in the average number of
communities and units owned by the Company in 1996.



                             47


     RENT.  Rent expense for the year ended December 31,
1996 was $16.1 million, representing an increase of $15.0
million, or 1316%, from rent expense of $1.1 million for the
comparable period in 1995.  As a percentage of total
operating revenues, rent expense increased to 23% for the
year ended December 31, 1996, from 5% for the comparable
period in 1995.  The dollar and percentage increases were
due to the Company entering into lease financing or
sale/leaseback transactions with respect to 53 of 71 of its
residential communities in operation as of December 31, 1996
compared to 9 out of 17 communities at December 31, 1995.
These increases are expected to continue into 1997 as the
Company continues to enter into sale/leaseback transactions
and acquire existing properties through lease transactions.

     INTEREST EXPENSE, NET.  Interest expense, net for the
year ended December 31, 1996 was $2.8 million, compared to
$5.4 million for the comparable period in 1995, decreasing
as a percentage of total operating revenues from 25% for
1995 to 4% for 1996.  The decrease was due to the repayment
of existing mortgage debt with lower rate convertible
debenture proceeds and refinancing of mortgage indebtedness
through sale/leaseback transactions.

     WRITE-DOWN OF NOTE RECEIVABLE FROM AFFILIATE.  In 1994
and 1995, the Company made aggregate loans of $1,133,000 to
a corporation that owned three assisted-living communities.
In connection with the loan, the Company received 49.0% of
the outstanding  stock of the corporation and a pledge of
the remaining 51.0%.  The holder of the first mortgages
initiated foreclosure proceedings in October 1995 and the
Company no longer has an interest in the communities or the
corporation and the note receivable has been written-off.

     LOSS ON EXTINGUISHMENT OF DEBT.  On April 17, 1995, the
Company issued 4,158,000 shares of Series A Preferred Stock
and $25.9 million principal amount of Subordinated Secured
Promissory Notes to a group of investors.  In connection
with this transaction, the Company incurred $979,000 of
deferred financing costs.  Upon completion of the initial
public offering November 1995, the Series A Preferred Stock
was converted to Common Stock, the Notes were repaid in
full, and the deferred financing costs were written off,
resulting in an extraordinary loss.  Additionally, the
Company completed refinancings during 1995 on three
communities, resulting in an extraordinary loss of
approximately $288,000 relating to the write-off of deferred
financing costs.



                             48
                              


COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 1995 AND
1994

     REVENUES.  Total operating revenues for the year ended
December 31, 1995 were $21.3 million, representing a $16.9
million, or 383%, increase over revenues of $4.4 million for
the comparable period in 1994.  Substantially all of this
increase resulted from the acquisition of 17 existing
communities after December 31, 1994.

     COMMUNITY OPERATIONS.  Expenses for community
operations for the year ended December 31, 1995 were $15.9
million, representing a $12.5 million, or 371%, increase
over expenses for community operations of $3.4 million for
the comparable period in 1994, primarily due to the
Company's acquisition of 17 existing communities after
December 31, 1994.  As a percentage of total revenues,
expenses for community operations decreased to 75% for the
year ended December 31, 1995, from 76% for the comparable
period in 1994. As a greater proportion of the Company's
residential communities achieve stabilized occupancy rates
and resident mix, the Company believes that its expenses for
community operations will continue to decrease as a
percentage of total revenues.

     GENERAL AND ADMINISTRATIVE.  General and administrative
expenses for the year ended December 31, 1995 were $2.6
million, representing an increase of $2.0 million, or 320%,
from general and administrative expenses of $626,000 for the
comparable period in 1994. As a percentage of total
revenues, general and administrative expenses decreased to
12% for the year ended December 31, 1995, from 14% for the
comparable period in 1994. The decrease in general and
administrative expenses as a percentage of total revenues
was due to increased levels of total revenues for the year
ended December 31, 1995.  Of the $2.0 million increase in
general and administrative expenses, $426,000 represents the
amount by which the cost of the Company's investment in
certain securities exceeded its fair market value at the
time it was purchased from Columbia, which has been treated
for financial reporting purposes as compensation to Mr.
Baty, the owner of Columbia.  Mr. Baty, however, is not
otherwise compensated by the Company.  The balance of the
increase in general and administrative expenses was
attributable to salaries, related payroll taxes, and
employee benefits relating to new hires associated with new
business, increased accounting costs, higher travel and
other costs relating to the Company's acquisition and
development program.



                             49


     DEPRECIATION AND AMORTIZATION.  Depreciation and
amortization for the year ended December 31, 1995 was $2.8
million, or 13% of total revenues, compared to depreciation
and amortization of $528,000 or 12% of total revenues, for
the comparable period in 1994. The dollar amount increase
was due to the Company's acquisition of 12 owned residential
communities during 1995.

     RENT.  Rent expense for the year ended December 31,
1995 was $1.1 million, representing an increase of $896,000,
or 370%, from rent expense of $242,000 for the comparable
period in 1994.  As a percentage of total operating
revenues, rent expense decreased to 5% for the year ended
December 31, 1995, from 6% for the comparable period in
1994. The dollar amount increase was due to the Company
entering into leases or sale/leaseback transactions with
respect to nine out of 17 of its residential communities
during 1995 compared to one  out of seven in 1994.

     INTEREST EXPENSE, NET.  Interest expense, net for the
year ended December 31, 1995 was $5.4 million, compared to
$1.1 million for the comparable period in 1994, increasing
as a percentage of total operating revenues from 24% for
1994 to 25% for 1995.  The increase was due to an increase
in the number of Operating Communities acquired by the
Company in 1995.

     LOSS ON EXTINGUISHMENT OF DEBT.  On April 17, 1995, the
Company issued 4,158,000 shares of Series A Preferred Stock
and $25.9 million principal amount of Subordinated Secured
Promissory Notes to a group of investors.  In connection
with this transaction, the Company incurred $979,000 of
deferred financing costs.  Upon completion of the initial
public offering November 1995, the Series A Preferred Stock
was converted to Common Stock, the Notes were repaid in
full, and the deferred financing costs were written off,
resulting in an extraordinary loss.  Additionally, the
Company completed refinancings during 1995 on three
communities, resulting in an extraordinary loss of
approximately $288,000 relating to the write-off of deferred
financing costs.








                             50



COMMUNITIES COMPARISON

     For the month of December, 1996, the Company had 40
communities that had achieved average occupancy in excess
of 90% and had been operated by the Company for at least
one month during the fourth quarter of 1996 ("Group One
Communities") and 31 communities that had achieved average
occupancy in December that was less than 90%, which includes
newly opened developments and/or communities with significant
ongoing repositioning and/or refurbishment ("Group Two
Communities").  The following tables set forth a comparison
of Group One and Group Two communities results of operations
for the three months ended December 31, 1996.




                                           Three Months Ended December 31, 1996
                                                      (In thousands)
                                                                                  
                                   Group One      Group Two                       
                                  Communities    Communities                   Three
                                 (Greater than   (Less than                 Months Ended
                                 90% Occupied)  90% Occupied)  Overhead  December 31, 1996
                                 -------------  -------------  --------   -----------------
                                                              
Revenue........................     $15,875        $ 6,877     $    28         $22,780
Community operating expense....      10,423          5,970           -          16,393
                                 -------------  -------------  --------   -----------------
  Community operating income                                              
    (loss).....................       5,452            907          28          6,387
                                 -------------  -------------  --------   -----------------
                                                                          
General and administrative.....         -               -        1,939           1,939
Depreciation and amortization..         330            530         119             979
Rent...........................       3,923          2,223          87           6,233
                                 -------------  -------------  --------   -----------------
  Operating income (loss)......       1,199         (1,846)     (2,117)         (2,764)
                                 -------------  -------------  --------   -----------------
                                                                          
Interest income (expense), net.        (399)          (526)        181            (744)
Other income (expense).........          -            (137)        (91)           (228)
                                 -------------  -------------  --------   -----------------
  Net income (loss)............     $   800        $(2,509)    $(2,027)       $ (3,736)
                                 =============  =============  ========   =================









                              51


     Net income for the three months ended December 31, 1996
for the Group One Communities was $800,000, representing a
$173,000 or 28% increase from net income of $627,000 for the
three months ended September 30, 1996, primarily due to net
income of new Group One Communities that were acquired by
the Company during the fourth quarter. Average occupancy for
the Group One Communities remained at 96% for the month of
December, 1996 as compared to 96% for the month of
September, 1996. The total number of Group One Communities
increased by net 16 during the fourth quarter, 13 of which
were acquired by the Company during the fourth quarter, four
of which were re-classed to Group One Communities because of
increases in average occupancy above 90%, and one of which
was re-classed to Group Two Communities because of a
decrease in average occupancy below 90%.

     Net losses for the three months ended December 31, 1996
for the Group Two Communities were $2.5 million,
representing a $1.0 million or 73% increase over net losses
of  $1.5 million for the three months ended September 30,
1996, primarily due to openings of new developments late in
the third quarter and during the fourth quarter of 1996.
Average occupancy for the Group Two Communities was 56% for
the month of December, 1996 as compared to 61% for the month
of September, 1996. The total number of Group Two
Communities increased by net three during the fourth
quarter, four of which were newly opened by the Company
during the fourth quarter, two of which were acquired by the
Company, one of which was re-classed to Group Two
Communities because of a decrease in average occupancy below
90%, and four of which were re-classed to Group One
Communities because of increases in average occupancy above
90%.

LIQUIDITY AND CAPITAL RESOURCES

     For the years ended December 31, 1996, 1995 and 1994,
cash flows provided by (used in) operating activities were
$(5.4) million, $(4.8) million, and $254,000, respectively,
primarily due to losses incurred on newly acquired and
developed communities. As of December 31, 1996, the Company
had working capital of $9.8 million compared to working
capital of $4.1 million as of December 31, 1995.
     
     The Company has been, and expects to continue to be,
dependent on third-party financing for its acquisition and
development programs.  There can be no assurance that
financing for the Company's acquisition and development
programs will be available to the Company on acceptable
terms.  Moreover, to the extent the Company acquires


                             52


communities that do not generate positive cash flow, the
Company may be required to seek additional capital or
borrowings for working capital and liquidity purposes.

     The Company has provided for its working capital and
liquidity needs through the sale of its securities in the
initial public offering of its Common Stock on November 21,
1995, the private placement of convertible subordinated debt
and through sale/leaseback transactions with various REIT's
and mortgage financing of assisted-living communities that
it owns.

     On November 21, 1995, the Company completed an initial
public offering of its Common Stock at a price of $15 per
share. Net proceeds to the Company after underwriting
discounts, commissions and other offering costs were $43.8
million, of which approximately $31.9 million was applied
towards repayment in full of all outstanding subordinated
debentures and accrued interest due to shareholders and
their affiliates.  The remainder of the proceeds were used
for general corporate purposes including acquisition of long-
term-care facilities.

     In January 1996, the Company entered into a letter of
intent with a REIT relating to sale/leaseback financing of
$100 million for newly developed facilities and $100 million
for sale/leaseback financing for newly purchased facilities.
In September 1996, the Company entered similar arrangements
with the REIT relating to sale/leaseback financing of an
additional $100 million for newly developed facilities and
an additional $100 million of sale/leaseback financing for
newly purchased facilities.  To date the Company has drawn
upon approximately $180.6 million.

     In February 1996, the Company completed a $32.0 million
Private Placement Offering (the "Private Placement") of
6.25% convertible subordinated debentures (the "Debentures")
due in 2006.  The Debentures, non-callable for three years,
are convertible into common stock at a rate of $22 per
share, which equates to an aggregate of approximately
1,454,545 shares of the Company's common stock.  The Company
used approximately $14.5 million of the net proceeds from
the Private Placement (approximately $30.6 million) to repay
existing mortgage debt, with maturities ranging from April
1996 to April 1998 and with interest rates ranging from 9.5%
to 12.75% per annum.  The balance of the net proceeds of
approximately $16.1 million was used for general corporate
purposes, including the acquisition of long-term-care
facilities.



                             53


     During 1996, the Company obtained $73.3 million in
proceeds from the refinancing of 14 assisted-living
communities through sale/leaseback transactions with a REIT,
repaying approximately $52.8 million of its mortgage
indebtedness and recognizing a deferred gain of
approximately $8.6 million, and acquired 21 assisted-living
communities through lease acquisitions, aggregating
approximately $108.8 million, with  a REIT ("Lease
Financings").  Under the Lease Financings, the assets were
acquired by the REIT and leased to the Company pursuant to
operating leases with initial lease terms ranging from 10 to
15 years, two to six-five year renewal options and annual
base rent aggregating approximately $22.8 million.  The
annual lease payments are subject to additional rent,
including an annual percentage rent based on the
communities' revenues.  Under the lease agreements the
Company has no continuing involvement outside of operating
the communities.  Additionally, the Company acquired four
existing communities for an aggregate purchase price of
approximately $18.3 million,  through mortgage financings.
     
     During 1996, the Company completed $68.5 million in
financing on 12 to-be-constructed assisted-living
communities throughout 1996.   The communities will be
constructed and operated by the Company pursuant to
operating leases and leasehold improvement agreements with
the REIT.  The lease terms range from 12 years to 13 years,
with four five-year renewal options. Lease payments would
include base rent, determined at the time of closing, based
on a formula tied to the 10-year U.S. Treasury note rate,
and additional rent, including an annual percentage rent
based on the communities' revenues. Under the lease
agreements the Company has no continuing involvement outside
of operating the communities.  In addition to the REIT
financings, the Company completed a $4.7 million mortgage
financing on a 74 unit assisted-living to-be-constructed
community.
     
     The Company is committed under construction contracts
with respect to certain development projects.  Total
construction commitments for owned developments at December
31, 1996, were $48.8 million, of which $11.7 million had
been incurred.  At December 31, 1996, $37.1 million in
construction financing commitments remained of which the
Company has financing of $35.6 million in place which bear
interest at rates ranging between prime plus 1% and 1.25%
and are due through January 2001.
     
     
     
     
     
                             54


     In November 1996, the Company agreed to purchase up to
6,888,466 shares of convertible preferred stock of Alert, an
Ontario, Canada based owner and operator of assisted-living
communities at prices ranging from $0.67 to $0.74 per share
(Cdn).  In addition, the Company acquired an option to
purchase an additional 4,000,000 shares of convertible
preferred stock at an exercise price of $1.00 per share
(Cdn), as well as an option to purchase from Eclipse, the
majority shareholder of Alert, and certain other
shareholders of Alert, 9,050,000 currently issued and
outstanding shares of common stock of Alert and 950,000
currently issued and outstanding shares of Class A non-
voting stock of Alert both at an exercise price of $3.25 per
share (Cdn).   As of December 31, 1996, the Company has
purchased and holds 2,577,692 shares of preferred stock for
a total investment of $1,800,000 (Cdn) which is equivalent
to $1,331,000 (US).  Subsequent to December 31, 1996, the
Company purchased an additional 1,077,692 shares of
preferred stock for total consideration of $800,000 (Cdn) or
$591,000 (US).

     Alert is an owner/operator of assisted-living
communities based in Ontario, Canada and Eclipse, through
its wholly-owned subsidiary, Eclipse Construction Inc.,
develops and constructs retirement homes for Alert on a
contract basis.  Alert has entered into an exclusive
management agreement to manage the Company's future assisted-
living communities in Ontario and Eclipse has entered into
an exclusive development agreement with the Company and
Alert to develop their construction projects in Ontario.

     During the year ended December 31, 1995, the Company
used $ 78.4 million to acquire property and equipment and
property held for development and obtained $11.6 million in
proceeds from the sale of communities in sale/leaseback
financing transactions.   The Company obtained $84.1 million
in net cash from financing activities including its initial
public offering and net proceeds from long and short-term
borrowings.  During the year ended December 31, 1994, the
Company used $16.3 million to acquire property and equipment
and property held for development and obtained $17.2 million
in net cash from financing activities including net proceeds
from long and short-term borrowings.

     In part, the Company's future capital needs depend on
arranging sale/leaseback financing for existing assisted-
living communities that have achieved stabilized occupancy
rates, resident mix and operating margins after initial
development or repositioning.  There can be no assurance

                             55
                              


that the Company will generate sufficient cash flow during
such time to fund its working capital, rent, debt service
requirements or growth.  In such event, the Company would
have to seek additional financing through debt or equity
offerings, bank borrowings or other sources.

IMPACT OF INFLATION

     To date, inflation has not had a significant impact on
the Company.  Inflation could, however, affect the Company's
future revenues and operating income due to the Company's
dependence on its senior resident population, most of whom
rely on relatively fixed incomes to pay for the Company's
services.  As a result, the Company's ability to increase
revenues in proportion to increased operating expenses may
be limited.  The Company typically does not rely to a
significant extent on governmental reimbursement programs.
In pricing its services, the Company attempts to anticipate
inflation levels, but there can be no assurance that the
Company will be able to respond to inflationary pressures in
the future.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and the report of Independent
Auditors are listed at Item 14 and are included beginning on
Page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

     On July 28, 1995 the Company's Board of Directors
approved the dismissal of Coopers & Lybrand L.L.P. as the
Company's independent certified public accountants.  The
report of Coopers & Lybrand L.L.P. on the consolidated
financial statements of the Company as of December 31, 1994
and for the year then ended did not contain an adverse
opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting
principle.  Such report was the only report issued by
Coopers & Lybrand L.L.P. with respect to the Company.
During the year ended December 31, 1994 and the period
between December 31, 1994 and the date on which Coopers &
Lybrand L.L.P. was dismissed, there were no disagreements
between the Company and Coopers & Lybrand L.L.P. on any
matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of



                             56


Coopers & Lybrand L.L.P., would have caused Coopers &
Lybrand L.L.P. to make reference to the subject matter of
such disagreement in connection with its report.  The
Company engaged KPMG Peat Marwick LLP as its new independent
certified public accountants as of July 28, 1995.

                          PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information under the caption "Executive Officers
of the Registrant" in Part I of this Form 10-K and under the
captions "Election of Directors  Nominees for Election" and
"Compliance with Section 16(a) of the Exchange Act of 1934"
in the Company's Proxy Statement relating to its 1997 annual
meeting of shareholders (the "Proxy Statement") is hereby
incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information under the captions "Executive
Compensation" and "Election of Directors Director
Compensation" in the Company's Proxy Statement is hereby
incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

     The information under the caption "Security Ownership
of Certain Beneficial Owners and Management" in the
Company's Proxy Statement is hereby incorporated by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information under the caption "Certain
Transactions" in the Company's Proxy Statement is hereby
incorporated by reference.












                             57
                              

                              
                           PART IV
                              
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K

(a)  The following documents are filed as a part of the
     report:
     
(1)  FINANCIAL STATEMENTS.  The following financial
     statements of the Registrant and the Report of
     Independent Public Accountants therein are filed as part
     of this Report on Form 10-K:

                                                  Page
Independent Auditors' Report.....................  F-2
Consolidated Balance Sheets......................  F-3
Consolidated Statements of Operations............  F-4
Consolidated Statements of Shareholders'            
  Equity(Deficit)................................  F-5
Consolidated Statements of Cash Flows............  F-6
Notes to Consolidated Financial Statements.......  F-8

(2)  FINANCIAL STATEMENT SCHEDULES.  Financial Statement
     Schedules have been omitted because the information
     required to be set forth therein is not applicable, is
     immaterial or is shown in the consolidated financial
     statements or notes thereto.
     
(b)  REPORTS ON FORM 8-K.  No reports on Form 8-K were filed
     by the Registrant during the quarter ended December 31,
     1996.
     
(c)  EXHIBITS:  The following exhibits are filed as a part
     of, or incorporated by reference into, this Report on
     Form 10-K:




Exhibit                                                    
Number                    Description                   Reference
- -------  ---------------------------------------------  ---------
                                                  
  3.1    Restated Articles of Incorporation of           (2)
         registrant (Exhibit 3.1).
                                                           
  3.2    Amended and Restated Bylaws of the registrant   (1)
         (Exhibit 3.2).
                                                           
  4.1    Forms of 6.25% Convertible Subordinated         (2)
         Debenture due 2006 (Exhibit 4.1).
                                                           
  4.2    Indenture dated February 15, 1996 between the     
         registrant and Fleet National Bank              (2)
         ("Trustee") (Exhibit 4.2).
                                                           
                                                           
                              58                           
                                                     
                                                           
 10.1    1995 Stock Incentive Plan (Exhibit 10.1).       (1)
                                                           
 10.2    Stock Option Plan for Nonemployee Directors     
         (Exhibit 10.2).                                 (2)
                                                           
 10.3    Form of Indemnification Agreement for             
         officers and directors of the registrant       
         (Exhibit 10.3).                                 (1)
                                                           
 10.4    Noncompetition Agreements entered into            
         between the registrant and each of the
         following individuals:
                                                           
         10.4.1     Daniel R. Baty (Exhibit 10.4.1).     (2)
                                                           
         10.4.2     Raymond R. Brandstrom (Exhibit      
                    10.4.2).                             (2)
                                                           
         10.4.3     Frank A. Ruffo (Exhibit 10.4.3).     (2)
                                                           
 10.5    Shareholders Agreement dated as of April 17,      
         1995, and as amended September 27, 1995,          
         among the registrant, its Founders and          
         certain Investors, as defined therein
         (Exhibit 10.5).                                 (1)
                                                           
 10.6    Form of Stock Purchase Agreement dated July       
         31, 1995, entered into between Daniel R. Baty     
         and each of Michelle A. Bickford, Jean T.      
         Fukuda, James S. Keller, George T. Lenes and
         Kelly J. Price (Exhibit 10.6).                  (1)
                                                           
 10.7    Series A Preferred Stock and Note Purchase        
         Agreement dated as of April 17, 1995 among     
         the registrant and the investors listed on
         Schedule I thereto (Exhibit 10.7).              (1)
                                                           
 10.8    LA VILLITA IN PHOENIX, ARIZONA                    
                                                           
         10.8.1     Amended and Restated Promissory        
                    Note in the amount of $3,333,000                  
                    from the registrant to Nomura        
                    Asset Capital Corporation (Exhibit
                    10.10.1).                            (1)
                                                           
         10.8.2     Deed of Trust, Assignment of           
                    Leases and Rents and Security                     
                    Agreement by the registrant,       
                    as Trustor, to Old Republic Title               
                    Insurance Agency, Inc., as
                    Trustee, for the use and benefit of 
                    Health Care Asset Trust as
                    Beneficiary (Exhibit 10.10.2).       (1)      
                                                           
         10.8.3     Deed of Trust Modification             
                    Agreement between the registrant 
                    and Nomura Asset Capital             
                    Corporation (assignee of Health
                    Care Asset Trust) (Exhibit 10.10.3). (1)
                                                           
         10.8.4     Guarantee Agreement dated as of        
                    June 6, 1994 by and between         
                    Daniel R. Baty as Guarantor,
                    and Lender (Exhibit 10.10.4).        (1)
                                                           
         10.8.5     Form of Security and Pledge            
                    Agreement by the registrant and          
                    Nomura Asset Capital Corporation
                    (Exhibit 10.10.5).                   (1)
                                                           
         10.8.6     Guarantee Modification Agreement
                    dated as of September 28, 1995
                    by and between Daniel R. Baty
                    as Guarantor, and Lender.            (5)
                                                           
                                                           
                                                           
                                                           
                                                           
                              59                           
                                                     
                                                           
 10.9    SCOTTSDALE ROYALE IN SCOTTSDALE, ARIZONA,         
         VILLA OCOTILLO IN SCOTTSDALE, ARIZONA AND
         MADISON GLEN IN CLEARWATER, FLORIDA.  THE
         FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.9.1     Loan Agreement dated December 31,      
                    1996 in the amount of                           
                    $12,275,000 by the registrant
                    ("Borrower") and Lender.             (5)
                                                           
         10.9.2     Promissory Note dated December 31,     
                    1996 in the amount of $6,775,000                  
                    between the registrant to Bank   
                    United (the "Lender") with respect 
                    to Madison Glen.                     (5)
                                                           
         10.9.3     Promissory Note dated December 31,     
                    1996 in the amount of $5,500,000                  
                    between the registrant to Bank   
                    United (the "Lender") with respect to
                    Scottsdale Royale and Villa
                    Ocotillo.                            (5)
                                                           
         10.9.4     Deed of Trust, Security Agreement,     
                    Assignment of Leases and Rents,                   
                    and Fixture Filing (Financial      
                    Statement) dated as of December 31,               
                    1996, by the registrant, as        
                    Trustor and debtor, to Chicago Title           
                    Insurance Company, as Trustee,
                    for the benefit of the Lender,
                    Beneficiary and secured party
                    with respect to Scottsdale Royale 
                    and Villa Ocotillo.                  (5)
                                                           
         10.9.5     Mortgage and Security Agreement     
                    between the registrant                          
                    ("Mortgagor") and Bank United    
                    ("Mortgagee") with respect to
                    Madison Glen.                        (5)
                                                           
 10.10   ROSEWOOD COURT IN FULLERTON, CALIFORNIA           
                                                           
         10.10.1     Lease Agreement dated March 29,       
                     1996 between the registrant                       
                     ("Lessee") and Health Care     
                     Property Investors, Inc. 
                     ("Lessor") (Exhibit 10.1.1).        (3)
                                                           
         10.10.2     First Amendment Lease Agreement       
                     dated April 25, 1996 by and                       
                     between the registrant ("Lessee")        
                     and Health Care Property Investors,
                     Inc. ("Lessor") (Exhibit 10.1.2).   (3)
                                                           
 10.11   THE ARBOR AT OLIVE GROVE IN PHOENIX, ARIZONA      
                                                           
         10.11.1     Lease Agreement dated as of           
                     December 27, 1995 between the      
                     registrant and Health Care
                     Property Investors, Inc. 
                     (Exhibit 10.12.1).                  (2)
                                                           
         10.11.2     First Amended Lease Agreement         
                     dated as of February 19, 1996 by                  
                     and between the registrant and    
                     Health Care Property Investors, 
                     Inc. (Exhibit 10.12.2).             (2)
                                                           
 10.12   RENTON VILLA IN RENTON, WASHINGTON                
                                                           
         10.12.1     Lease Agreement dated as of           
                     December 27, 1995 between the   
                     registrant and Health Care
                     Property Investor, Inc. 
                     (Exhibit 10.13.1).                  (2)
                                                           
         10.12.2     First Amended Lease Agreement         
                     dated as of February 19, 1996 by                  
                     and between the registrant and
                     Health Care Property Investors, 
                     Inc. (Exhibit 10.13.2).             (2)
                                                           
                              60                           
                                                     
                                                           
 10.13   SEABROOK, IN EVERETT, WASHINGTON                  
                                                           
         10.13.1     Lease Agreement dated as of           
                     December 27, 1995 between the             
                     registrant and Health Care
                     Property Investor, Inc. 
                     (Exhibit 10.14.1).                  (2)
                                                           
         10.13.2     First Amended Lease Agreement         
                     dated as of February 19, 1996 by                  
                     and between the registrant and    
                     Health Care Property Investors, 
                     Inc. (Exhibit 10.14.2).             (2)
                                                           
 10.14   LAUREL LAKE ESTATES IN VOORHEES, NEW JERSEY       
                                                           
         10.14.1     Lease Agreement dated as of           
                     December 27, 1995 between the       
                     registrant and Health Care
                     Property Investor, Inc. 
                     (Exhibit 10.15.1).                  (2)
                                                           
         10.14.2     First Amended Lease Agreement         
                     dated as of February 19, 1996 by                  
                     and between the registrant and    
                     Health Care Property Investors,
                     Inc. (Exhibit 10.15.2).             (2)
                                                           
 10.15   FLORIDA PROPERTIES (SEE BELOW)                    
                                                           
         10.15.1     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I     
                     ("Lessor") and Emeritus 
                     Properties I, Inc., ("Lessee")
                     with respect to Beneva Park Club 
                     (Exhibit 10.16.1).                  (2)
                                                           
         10.15.2     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I     
                     ("Lessor") and Emeritus 
                     Properties I, Inc., ("Lessee") 
                     with respect to Central Park Club 
                     (Exhibit 10.16.2).                  (2)
                                                           
         10.15.3     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I      
                     ("Lessor") and Emeritus 
                     Properties I, Inc., ("Lessee") 
                     with respect to College Park Club 
                     (Exhibit 10.16.3).                  (2)
                                                           
         10.15.4     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I     
                     ("Lessor") and ESC I, G.P., Inc.
                     ("Lessee") with respect to
                     Park Club of Brandon (Exhibit 
                     10.16.4).                           (2)
                                                           
         10.15.5     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I      
                     ("Lessor") and Emeritus 
                     Properties I, Inc., ("Lessee") 
                     with respect to Park Club of Fort 
                     Myers (Exhibit 10.16.5).            (2)
                                                           
         10.15.6     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I      
                     ("Lessor") and Emeritus Properties 
                     I, Inc., ("Lessee") with respect to
                     Park Club of Oakbridge (Exhibit 
                     10.16.6).                           (2)
                                                           
 10.16   SUMMER WIND IN BOISE, IDAHO                       
                                                           
         10.16.1     Lease Agreement dated as of           
                     August 31, 1995 between AHP of                 
                     Washington, Inc. and the
                     registrant (Exhibit 10.18.1).       (1)
                                                           
         10.16.2     First Amended Lease Agreement         
                     dated as of December 31, 1996 by             
                     and between the registrant
                     and AHP of Washington, Inc.         (5)
                                                           
                                                           
                                                           
                                                           
                              61                           
                                                     
                                                           
 10.17   SILVER PINES (FORMERLY WILLOWBROOK) IN CEDAR      
         RAPIDS, IOWA
                                                           
         10.17.1     Purchase and Sale Agreement           
                     (including Real Estate Contract)                  
                     dated January 4, 1995          
                     between Jabo, Ltd. ("Jabo") 
                     and the registrant (Exhibit
                     10.19.1).                           (1)
                                                           
         10.17.2     Assignment and Assumption             
                     Agreement with respect to facility                
                     leases dated as of January 17,    
                     1995 by and between Jabo, as 
                     Assignor, and the registrant, as
                     Assignee (Exhibit 10.19.2).         (1)
                                                           
 10.18   SUNNY KNOLL IN FRANKLIN, NEW HAMPSHIRE            
                                                           
         10.18.1     Promissory Note dated May 1, 1995     
                     in the amount of $1,100,000                       
                     from Lakes Region Villages,    
                     L.L.C. (the "Borrower") to Sunny
                     Knoll Retirement Home, Inc.
                     (Exhibit 10.20.1).                  (1)
                                                           
         10.18.2     Promissory Note dated May 1, 1995     
                     in the amount of $749,331.48             
                     from the Borrower to
                     Benjamin Bartley, L.L.C 
                     (Exhibit 10.20.2).                  (1)
                                                           
         10.18.3     Business Lease and Agreement          
                     dated as of May 1, 1995, between                  
                     the Borrower, as Tenant and    
                     Sunny Knoll Retirement Home, Inc.,
                     as Landlord (Exhibit 10.20.3).      (1)
                                                           
         10.18.4     Real Estate Lease and Agreement       
                     dated as of May 1, 1995 between                   
                     the Borrower, as Tenant and   
                     Benjamin Bartley, L.L.C., as 
                     Landlord (Exhibit 10.20.4).         (1)
                                                           
         10.18.5     Mortgage Deed dated May 1, 1995       
                     by Benjamin Bartley L.L.C., as                    
                     Mortgagor, to Lakes Region     
                     Villages, L.L.C., as Mortgagee 
                     (Exhibit 10.20.5).                  (1)
                                                           
         10.18.6     Management Agreement dated as of      
                     May 1, 1995 between Lakes                         
                     Region Villages, L.L.C. and   
                     The Standish Care Company (Exhibit
                     10.20.6).                           (1)
                                                           
         10.18.7     Guaranty dated May 1, 1995 by the     
                     registrant, as Guarantor, to               
                     Sunny Knoll Retirement Home,
                     Inc. (Exhibit 10.20.7).             (1)
                                                           
 10.19   CARRIAGE HILL RETIREMENT IN BEDFORD, VIRGINIA     
                                                           
         10.19.1     Lease Agreement dated August 31,      
                     1994 between the registrant, as                   
                     Tenant, and Carriage Hill     
                     Retirement of Virginia, Ltd. 
                     as Landlord (Exhibit 10.23.1).       (1)
                                                           
         10.19.2     Supplemental Lease Agreement          
                     dated September 2, 1994 (Exhibit             
                     10.23.2).                            (1)
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                              62                           
                                                     
                                                           
 10.20   GREEN MEADOWS COMMUNITIES                         
                                                           
         10.20.1     Consent to Assignment of and          
                     First Amendment to Asset Purchase                 
                     Agreement dated September 1,     
                     1995 among the registrant, The                    
                     Standish Care Company and        
                     Painted Post Partnership, 
                     Allentown Personal Car General             
                     Partnership, Unity Partnership, 
                     Saulsbury General Partnership and
                     P. Jules Patt (collectively, the
                     "Partnerships"), together with
                     Asset Purchase Agreement dated
                     July 27, 1995 among The Standish
                     Care Company and the Partnerships
                     (Exhibit 10.24.1).                  (1)
                                                           
         10.20.2     Lease Agreement dated October 19,     
                     1995 between the registrant                       
                     and HCPI Trust with respect    
                     to Green Meadows - Allentown 
                     (Exhibit 10.24.2).                  (1)
                                                           
         10.20.3     Lease Agreement dated October 16,     
                     1995 between the registrant                       
                     and HCPI Trust with respect    
                     to Green Meadows - Dover (Exhibit
                     10.24.3).                           (1)
                                                           
         10.20.4     Lease Agreement dated October 19,     
                     1995 between the registrant                       
                     and HCPI Trust with respect    
                     to Green Meadows -  Latrobe 
                     (Exhibit 10.24.4).                 (1)
                                                           
         10.20.5     Lease Agreement dated October 19,     
                     1995 between the registrant                       
                     and HCPI Trust with respect    
                     to Green Meadows - Painted Post
                     (Exhibit 10.24.5).                 (1)
                                                           
         10.20.6     Agreement to Provide                  
                     Administrative Services to an 
                     Adult Home dated October 23, 1995        
                     between the registrant and P. 
                     Jules Patt and Pamela J. Patt 
                     (Exhibit 10.24.6).                 (1)
                                                           
         10.20.7     Painted Post Partners Partnership     
                     Agreement dated October 1, 1995                 
                     (Exhibit 10.24.7).                 (1)
                                                           
         10.20.8     Assignment Agreement dated            
                     October 19, 1995 between the                      
                     registrant, HCPI Trust and     
                     Health Care Property Investors, 
                     Inc. (Exhibit 10.24.8).             (1)
                                                           
         10.20.9     Assignment and Assumption             
                     Agreement dated August 31, 1995                   
                     between the registrant and     
                     The Standish Care Company (Exhibit
                     10.24.9).                           (1)
                                                           
         10.20.10    Guaranty dated October 19, 1995 by     
                     Daniel R. Baty in favor of                        
                     Health Care Property Investors, 
                     Inc., and HCPI Trust (Exhibit
                     10.24.10).                          (1)
                                                           
         10.20.11   Guaranty dated October 19, 1995 by     
                    the registrant in favor of                      
                    Health Care Property Investors,
                    Inc. (Exhibit 10.24.11).             (1)
                                                           
         10.20.12   First Amended Lease Agreement          
                    dated as of December 13, 1995 by                  
                    and between the registrant    
                    and HCPI, Trust with respect to 
                    Green Meadows - Allentown.           (5)
                                                           
                                                           
                                                           
                              63                           
                                                     
                                                           
         10.20.13   Second Amended Lease Agreement         
                    dated as of February 13, 1996 by                  
                    and between the registrant    
                    and HCPI, Trust with respect to 
                    Green Meadows - Allentown.          (5)
                                                           
         10.20.14   First Amended Lease Agreement          
                    dated as of December 13, 1995 by                  
                    and between the registrant     
                    and Health Care Property Investors, 
                    Inc., with respect to Green
                    Meadows - Dover.                    (5)
                                                           
         10.20.15   Second Amended Lease Agreement         
                    dated as of February 13, 1996 by                  
                    and between the registrant    
                    and Health Care Property Investors, 
                    Inc., with respect to Green
                    Meadows - Dover.                    (5)
                                                           
         10.20.16   First Amended Lease Agreement          
                    dated as of December 13, 1995 by                  
                    and between the registrant     
                    and HCPI, Trust with respect to 
                    Green Meadows - Latrobe.            (5)
                                                           
         10.20.17   Second Amended Lease Agreement         
                    dated as of February 13, 1996 by                  
                    and between the registrant and    
                    HCPI, Trust with respect to Green
                    Meadows - Latrobe.                  (5) 
                                                           
         10.20.18   First Amended Lease Agreement          
                    dated as of December 13, 1995 by                  
                    and between the registrant     
                    and Health Care Property Investors, 
                    Inc., with respect to Green
                    Meadows - Painted Post.             (5)
                                                           
         10.20.19   Second Amended Lease Agreement         
                    dated as of June 24, 1996 by                      
                    and between the registrant     
                    and Health Care Property Investors, 
                    Inc., with respect to Green
                    Meadows - Painted Post.             (5)              
                                                           
         10.20.20    First Amendment to Painted Post       
                     Partners Partnership Agreement                  
                     dated October 22, 1996 between     
                     Daniel R. Baty and Raymond R.
                     Brandstrom.                        (5)
                                                           
 10.21   CAROLINA COMMUNITIES                              
                                                           
         10.21.1     Lease Agreement dated January 26,     
                     1996 between the registrant                 
                     and HCPI Trust with respect
                     to Countryside Facility (Exhibit 
                     10.23.1).                          (2)
                                                           
         10.21.2     Lease Agreement dated January 26,     
                     1996 between the registrant                       
                     and Health Care Property       
                     Investors with respect to Heritage 
                     Health Center Facility (Exhibit
                     10.23.2).                          (2)
                                                           
         10.21.3     Management Services Agreement         
                     between the registrant and                        
                     Servicemaster Diversified      
                     Health Services, L.P. ("Manger") 
                     dated June 27, 1996 (Exhibit
                     10.5.1).                           (4)
                                                           
         10.21.4     Promissory Note dated as of           
                     January 26, 1996 in the amount 
                     of $3,991,190 from Heritage       
                     Hills Retirement, Inc. ("Borrower") 
                     to Health Care Property
                     Investors, Inc. ("Lender") 
                     (Exhibit 10.23.4).                 (2)
                                                           
         10.21.5     Loan Agreement dated January 26,      
                     1996 between the Borrower                   
                     and the Lender (Exhibit 10.23.5).  (2)
                                                           
         10.21.6     Guaranty dated January 26, 1996       
                     by the registrant in favor of the               
                     Borrower (Exhibit 10.23.6).        (2)
                                                           
                              64                           
                                                     
                                                           
         10.21.7     Deed of Trust with Assignment of      
                     Rents, Security Agreement and                     
                     Fixture Filing dated as of       
                     January 26, 1996 by and among 
                     Heritage Hills Retirement, Inc.         
                     ("Grantor"), Chicago Title 
                     Insurance Company ("Trustee") 
                     and Health Care Property Investor, 
                     Inc. ("Beneficiary") (Exhibit 
                     10.23.7).                           (2)
                                                           
         10.21.8     Lease Agreement dated as of           
                     January 26, 1996 between the 
                     registrant and Health Care       
                     Property Investor, Inc. with 
                     respect to Heritage Lodge Facility 
                     (Exhibit 10.23.8).                  (2)
                                                           
         10.21.9     Lease Agreement dated as of           
                     January 26, 1996 between the 
                     registrant and Health Care 
                     Property Investor, Inc. with 
                     respect to Pine Park Facility
                     (Exhibit 10.23.9).                  (2)
                                                           
         10.21.10   Lease Agreement dated January 26,      
                    1996 between the registrant and
                    HCPI Trust with respect to Skylyn
                    Facility (Exhibit 10.23.10).         (2)
                                                           
         10.21.11   Lease Agreement dated January 26,      
                    1996 between the registrant                       
                    and HCPI Trust with respect    
                    to Summit Place Facility (Exhibit
                    10.23.11).                           (2)
                                                           
         10.21.12   Amendment to Deed of Trust dated       
                    April 25, 1996 between Heritage                 
                    Hills Retirement, Inc. ("Grantor"),
                    and Health Care Property Investors,
                    Inc. ("Beneficiary").                (5)
                                                           
         10.21.13   First Amendment to Lease Agreement     
                    dated March 29, 1996 between                    
                    registrant and Health Care      
                    Property Investors, Inc. with 
                    respect to Heritage Health Center.   (5)
                                                           
 10.22   Letter of Intent dated January 31, 1996           
         between the registrant and Meditrust            
         Acquisition Corporation I relating to
         developments (Exhibit 10.33).                   (2)
                                                           
 10.23   Letter of Intent dated January 31, 1996           
         between the registrant and Meditrust            
         Acquisition Corporation I relating to
         acquisitions (Exhibit 10.34).                   (2)
                                                           
 10.24   Letter of Intent dated August 13, 1996            
         between the registrant and Meditrust            
         Acquisition Corporation I relating to
         acquisitions.                                   (5)
                                                           
 10.25   Letter of Intent dated August 13, 1996            
         between the registrant and Meditust             
         Acquisition Corporation I relating to
         developments.                                   (5)
                                                           
 10.26   DEVELOPMENT PROPERTY IN LEWISTON, IDAHO           
                                                           
         10.26.1  Agreement to Purchase Construction       
                  Loan dated January 30, 1997                       
                  between RMI Capital Management   
                  Co. ("Construction Lender")
                  and the registrant.                    (5)
                                                           
         10.26.2  Construction Loan Agreement between      
                  RMI Capital Management Co. ("Lender")
                  and Emeritus Properties II, Inc. 
                  ("Borrower").                          (5)
                                                           
         10.26.3  Promissory Note dated January 30,        
                  1997 in the amount of $5,080,082.39 
                  between RMI Capital Management Co. 
                  ("Holder") and Emeritus Properties II, 
                  Inc. ("Maker").                        (5)
                                                           
                                                           
                              65                           
                                                     
                                                           
         10.26.4  Deed of Trust, Assignment of Rents,      
                  Security Agreement and                            
                  Financing Statement dated           
                  January 30, 1997 between Emeritus                 
                  Properties II, Inc. ("Borrower"   
                  or "Grantor"), Alliance Title & 
                  Escrow Corp. ("Trustee") and RMI
                  Capital Management Co.                 
                  ("Beneficiary" or "Lender").           (5)
                                                           
         10.26.5  Guaranty Agreement dated January 30,     
                  1997 between the registrant               
                  ("Guarantor") and RMI Capital
                  Management Co. ("Lender").             (5)
                                                           
 10.27   Assignment, Assumption and Consent Agreement      
         dated as of April 17, 1995 between the 
         registrant and Columbia-Pacific Group, Inc.
         (Exhibit 10.32).                                (1)
                                                           
 10.28   Convertible Debenture Agreement dated as of       
         June 10, 1994 among The Standish Care Company                       
         and the individuals on Schedule I attatched  
         thereto (Exhibit 10.33).                        (1)
                                                           
 10.29   Registration Rights Agreement dated June 10,      
         1994 among The Standish Care Company and                  
         Columbia-Pacific Group (Exhibit 10.34).         (1)
                                                           
 10.30   Warrant to Purchase Common Stock of The           
         Standish Care Company (Exhibit 10.35)           (1)
        
                                                           
 10.31   DEVELOPMENT PROPERTY IN FAIRFIELD, CALIFORNIA     
                                                           
         10.31.1    Loan Agreement in the amount of        
                    $12,800,000 dated January 10, 1997,             
                    between Fairfield Retirement Center,
                    LLC ("Borrower") and the Finova
                    Capital Corporation ("Lender").      (5)
                                                           
         10.31.2  Promissory Note dated January 10,        
                  1997 in the amount of $12,800,000                            
                  between Fairfield Retirment Center,  
                  LLC ("Borrower") and Finova Capital 
                  Corporation ("Lender").                (5)
                                                           
         10.31.3  Deed of Trust, Security Agreement,       
                  Assignment of Leases and Rents                    
                  and Fixture Filing dated January
                  10, 1997 between Fairfield Retirement  
                  Center, LLC ("Trustor"), Chicago
                  Title Company ("Trustee") and
                  Finova Capital Corporation
                  ("Beneficiary").                       (5)
                                                           
         10.31.4  Guaranty Agreement dated January 10,     
                  1997 between the registrant                  
                  ("Guarantor") and Finova
                  Capital Corporation ("Lender").        (5)
                                                           
 10.32   DEVELOPMENT PROPERTY IN PUYALLUP, WASHINGTON      
                                                           
         10.32.1  Loan Agreement dated January 30,         
                  1997, between Emeritus Properties           
                  III, Inc. ("Maker") and Ocwen
                  Federal Bank FSB ("Payee").            (5)
                                                           
         10.32.2  Promissory Note dated January 30,        
                  1997 in the amount of $6,465,000                  
                  between Emeritus Properties       
                  III, Inc. ("Maker") and Ocwen Federal
                  Bank, FSB ("Payee").                   (5)
                                                           
         10.32.3  Deed of Trust, Security Agreement,       
                  Assignment of Leases and Rents                    
                  and Fixture Filing dated January
                  30, 1997 between Emeritus Properties   
                  III, Inc. ("Borrower"), Chicago
                  Title Insurance Company ("Trustee")
                  and Ocwen Federal Bank, FSB ("Lender").(5)
                                                           
                                                           
                              66                           
                                                     
                                                           
 10.33   KIRKLAND LODGE AT LAKESIDE IN KIRKLAND,           
         WASHINGTON
                                                           
         10.33.1     Deed of Trust, Security 
                     Agreement, and Assignment 
                     of Leases and Rents dated 
                     June 15, 1995 among the 
                     registrant, Chicago Title            
                     Insurance Company and U.S.
                     Bank of Washington, National
                     Association (Exhibit 10.39.1).      (1)
                                                           
         10.33.2     Construction Loan Agreement dated     
                     June 15, among the registrant,         
                     Daniel R. Baty and U.S. Bank
                     of Washington (Exhibit 10.39.2).    (1)
                                                           
         10.33.3     Promissory Note dated June 15,        
                     1995 in the amount of $4,820,000                  
                     from the registrant to U.S.    
                     Bank of Washington, National 
                     Association (Exhibit 10.39.3).      (1)
                                                           
         10.33.4     Guaranty dated June 15, 1995 by       
                     Daniel R. Baty in favor of U.S.    
                     Bank of Washington, National
                     Association (Exhibit 10.39.4).      (1)
                                                           
 10.34   THE PINES AT TEWKSBURY IN TEWKSBURY,              
         MASSACHUSETTS
                                                           
         10.34.1     Lease Agreement dated March 15,       
                     1996 between Meditrust                            
                     Acquisition Corporation I     
                     ("Lessor") and Emeritus Properties 
                     I, Inc., ("Lessee") with respect 
                     to Tewksbury (Exhibit 10.37.1).     (2)
                                                           
 10.35   GARRISON CREEK LODGE IN WALLA WALLA,              
         WASHINGTON, CAMBRIA  (FORMERLY CALLED
         ALHAMBRA LODGE) IN EL PASO TEXAS, AND
         SHERWOOD PLACE IN ODESSA, TEXAS.  THE
         FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.35.1  Lease Agreement dated July, August       
                  and September 1996 between                        
                  the registrant ("Lessee") and     
                  American Health Properties, Inc.
                  ("Lessor") (Exhibit 10.3.1).           (4)
                                                           
         10.35.2     First Amendment to Lease              
                     Agreement dated December 31, 1996               
                     between the registrant ("Lessee") 
                     and AHP of Washington, Inc.,
                     ("Lessor").                         (5)
                                                           
 10.36   COBBLESTONE AT FAIRMONT IN MANASSAS, VIRGINIA     
                                                           
         10.36.1     Loan Agreement effective as of        
                     October 26, 1995 between the       
                     registrant and Health Care
                     REIT, Inc. (Exhibit 10.42.1).       (1)
                                                           
         10.36.2     Deed of Trust, Security               
                     Agreement, Assignment of Leases 
                     and Rents and Fixture Filing dated 
                     as of October 26, 1995 by the 
                     registrant to Health Care REIT, 
                     Inc. (Exhibit 10.42.2).             (1)
                                                           
         10.36.3     Note dated October 26, 1995 from      
                     the registrant to Health Care REIT,     
                     Inc. (Exhibit 10.42.3).             (1)
                                                           
         10.36.4     Unconditional and Continuing          
                     Guaranty dated as of October 26,                  
                     1995 by Daniel R. Baty in favor     
                     of Health Care REIT, Inc. (Exhibit
                     10.42.4).                           (1)
                                                           
                                                           
                                                           
                              67                           
                                                     
                                                           
 10.37   ROSEWOOD COURT IN FULLERTON, CALIFORNIA, THE      
         ARBOR AT OLIVE GROVE IN PHOENIX, ARIZONA,
         RENTON VILLA IN RENTON, WASHINGTON, SEABROOK
         IN EVERETT, WASHINGTON AND LAUREL LAKE
         ESTATES IN VOORHEES, NEW JERSEY.  THE
         FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.37.1     Second Amended Lease Agreement        
                     dated as of December 30, 1996 by        
                     and between the registrant and
                     Health Care Property Investors, 
                     Inc.                                (5)
                                                           
 10.38   VICTORIAN MANOR IN SAN FRANCISCO, CALIFORNIA      
                                                           
         10.38.1     Assignment of Purchase Rights and     
                     Option Agreement dated September                           
                     30, 1995 between the registrant     
                     and Daniel R. Baty (Exhibit 
                     10.44.1).                           (1)
                                                           
         10.38.2     Agreement of Purchase and Sale        
                     dated July 1995 between Union        
                     Bank and the registrant
                     (Exhibit 10.44.2).                  (1)
                                                           
 10.39   DEVELOPMENT PROPERTY IN WACO AND LONGVIEW,        
         TEXAS
                                                           
         10.39.1     Construction Loan Letter              
                     Agreement dated September 12, 
                     1995 between the registrant and    
                     Fleet National Bank, as amended 
                     on November 30, 1995 (Exhibit
                     10.42.1).                           (2)
                                                           
 10.40   COOPER GEORGE PARTNERS LIMITED PARTNERSHIP        
                                                           
         10.40.1     Agreement of Cooper George            
                     Partners Limited Partnership 
                     dated August 7, 1995 between           
                     Emeritus Real Estate IV, L.L.C. 
                     ("General Partner") and Bella 
                     Torre De Pisa Limited Partnership 
                     ("Limited Partner") (Exhibit 
                     10.43.1).                          (2)
                                                           
         10.40.2     Construction Loan Agreement dated     
                     December 12, 1995 between Cooper                         
                     George Partners Limited 
                     Partnership (" Borrower") and        
                     Intervest-Mortgage Investment
                     Company ("Lender") (Exhibit
                     10.43.2).                          (2)
                                                           
         10.40.3     Promissory Note dated December        
                     1995 between Cooper George                        
                     Partners Limited Partnership   
                     ("Maker") and the Lender (Exhibit
                     10.43.3).                          (2)
                                                           
         10.40.4     Guaranty dated December 1995 by       
                     Daniel R. Baty and Pamela D.                
                     Baty ("Guarantor") in favor
                     of the Lender (Exhibit 10.43.4).   (2)
                                                           
         10.40.5     Deed of Trust, Assignment of          
                     Rents and Security Agreement 
                     dated December 1995 between 
                     Cooper George Partners Limited 
                     Partnership ("Grantor"), First 
                     American Title Insurance Company 
                     ("Trustee") and Intervest-Mortgage
                     Investment Company ("Beneficiary") 
                     (Exhibit 10.43.5).                 (2)
                                                           
 10.41   Registration Rights Agreement dated February      
         8, 1996 with respect to the registrant's   
         6.25% Convertible Subordinated Debentures
         due 2006 (Exhibit 10.44).                      (2)
                                                           
                                                           
                              68                           
                                                     
                                                           
 10.42   Registration Rights Agreement dated February      
         8, 1996 with respect to the registrant's
         6.25% Convertible Subordinated Debentures    
         due 2006 (Exhibit 10.45).                      (2)
                                                           
 10.43   DEVELOPMENT PROPERTIES IN BEAUMONT, TEXAS,        
         MIDLAND, TEXAS, LUBBOCK, TEXAS, AMARILLO,
         TEXAS, CLARKSVILLE, TENNESSEE, WICHITA FALLS
         IN WICHITA FALLS, TEXAS AND SAN ANGELO IN SAN
         ANGELO, TEXAS.  THE FOLLOWING AGREEMENTS ARE
         REPRESENTATIVE OF THOSE EXECUTED IN
         CONNECTION WITH THESE PROPERTIES:
                                                           
         10.43.1  Lease Agreement dated April and July     
                  1996 between ESC I, L.P. ("Lessee")
                  and Meditrust Acquisition Corporation 
                  I ("Lessor") (Exhibit 10.2.1).        (3)
                                                           
         10.43.2  Leasehold Improvement Agreement          
                  dated April 15, 1996 between                      
                  Meditrust Acquisition            
                  Corporation I ("Lessor") and
                  ESC I, L.P. ("Lessee") (Exhibit 
                  10.2.2).                              (3)
                                                           
 10.44   BARRINGTON PLACE IN LECANTO, FLORIDA AND          
         SPRINGTREE IN SUNRISE, FLORIDA.  THE
         FOLLOWING AGREEMENT IS REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.44.1  Lease Agreement dated May 1, 1996        
                  between Emeritus Properties I,                    
                  Inc. ("Lessee") and Meditrust   
                  Acquisition Corporation I
                  ("Lessor") (Exhibit 10.3.1).          (3)
                                                           
 10.45   LAUREL PLACE (FORMERLY GOLDEN PARK) IN SAN        
         BERNARDINO, CALIFORNIA
                                                           
         10.45.1  Purchase and Sale Agreement dated        
                  January 24, 1996 between Western
                  Biologics Inc., ("Seller"), Nancy 
                  F. Feinstein and Jay L. Feinstein 
                  ("Seller") and the registrant 
                  ("Purchaser") (Exhibit 10.4.1).       (3)
                                                           
 10.46   LAKEWOOD INN IN COEUR D'ALENE, IDAHO,             
         EVERGREEN LODGE (FORMERLY THE WOODWAY INN) IN
         FEDERAL WAY, WASHINGTON, GREENVILLE IN
         GREENVILLE, SOUTH CAROLINA, GRAND TERRACE IN
         GRAND TERRACE, CALIFORNIA, RIDGE WIND IN
         CHUBBOCK, IDAHO AND OCEAN SHORES IN OCEAN
         SHORES, WASHINGTON.  THE FOLLOWING AGREEMENT
         IS REPRESENTATIVE OF THOSE EXECUTED IN
         CONNECTION WITH THESE PROPERTIES:
                                                           
         10.46.1  Lease Agreement dated April and June     
                  1996 between Emeritus Properties I, 
                  Inc. ("Lessee") and Meditrust 
                  Acquisition Corporation I ("Lessor") 
                  (Exhibit 10.5.1).                     (3)
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                                                           
                              69                           
                                                     
                                                           
 10.47   LAKEWOOD INN IN COEUR D' ALENE, IDAHO,            
         GREENVILLE IN GREENVILLE, SOUTH CAROLINA AND
         OCEAN SHORES IN OCEAN SHORES, WASHINGTON.
         THE FOLLOWING AGREEMENT IS REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.47.1  Leasehold Improvement Agreement          
                  dated April and June 1996 between                 
                  Meditrust Acquisition Corporation         
                  I ("Lessor") and Emeritus
                  Properties I ("Lessee")
                  (Exhibit 10.6.1).                      (3)
                                                           
 10.48   DEVELOPMENT PROPERTY IN BOZEMAN, MONTANA          
                                                           
         10.48.1  Agreement to Purchase Construction       
                  Loan dated May 30, 1996                           
                  between RMI Capital Management   
                  Co. ("Construction Lender")
                  and Emeritus Corporation
                  (Exhibit 10.7.1).                       (3)
                                                           
         10.48.2  Construction Loan Agreement between      
                  RMI Capital Management Co. 
                  ("Lender") and Emeritus Properties      
                  II, Inc. ("Borrower") (Exhibit
                  10.7.2).                                (3)
                                                           
         10.48.3  Promissory Note dated May 30, 1996       
                  in the amount of $4,695,000                       
                  between RMI Capital Management    
                  Co. ("Holder") and Emeritus
                  Properties II, Inc. ("Maker")
                  (Exhibit 10.7.3).                       (3)
                                                           
         10.48.4  Security Agreement dated May 30,         
                  1996 between Emeritus                             
                  Properties II, Inc. ("Debtor")  
                  and RMI Capital Management Co.
                  ("Secured Party") (Exhibit
                  10.7.4).                                (3)
                                                           
         10.48.5  Deed of Trust, Assignment of Rents,      
                  Security Agreement and Financing
                  Statement dated May 30, 1996
                  between Emeritus Properties II,
                  Inc. ("Borrower" or "Grantor"),
                  American Land Title Company
                  ("Trustee") and RMI Capital 
                  Management Co. ("Beneficiary" or 
                  "Lender") (Exhibit 10.7.5).             (3)
                                                           
         10.48.6  Guaranty Agreement dated May 30,         
                  1996 between Emeritus Corporation
                  ("Guarantor") and RMI Capital
                  Management Co. ("Lender") (Exhibit 
                  10.7.6).                                (3)
                                                           
 10.49   Office Lease Agreement dated April 29, 1996       
         between Martin Selig ("Lessor") and the         
         registrant ("Lessee") (Exhibit 10.8).            (3)
                                                           
 10.50   THE LODGE AT MAINLANDS IN PINELLAS PARK,           
         FLORIDA, COLONIAL PARK CLUB IN SARASOTA,
         FLORIDA, FAIRHAVEN ESTATES IN BELLINGHAM,
         WASHINGTON, HIGHLAND HILLS IN POCATELLO,
         IDAHO AND ANDERSON PLACE IN ANDERSON, SOUTH
         CAROLINA.  THE FOLLOWING AGREEMENTS ARE
         REPRESENTATIVE OF THOSE EXECUTED IN
         CONNECTION WITH THESE PROPERTIES:
                                                            
         10.50.1  Lease Agreement dated August and          
                  October 1996 between Emeritus                      
                  Properties I, Inc. ("Lessee")      
                  and Meditrust Acquisition 
                  Corporation I ("Lessor") (Exhibit 
                  10.1.1).                                (4)
                                                            
                                                            
                                                            
                              70                           
                                                     
                                                            
 10.51   COLONIAL PARK CLUB IN SARASOTA, FLORIDA.           
                                                            
         10.51.1  Leasehold Improvement Agreement           
                  dated August 21, 1996 between                      
                  Emeritus Properties I, Inc.        
                  ("Lessee") and Meditrust
                  Acquisition Corporation I 
                  ("Lessor") (Exhibit 10.2.1).          (4)
                                                            
 10.52   COLONIE MANOR IN LATHAM, NEW YORK, BASSETT         
         MANOR IN WILLIAMSVILLE, NEW YORK, WEST SIDE
         MANOR IN LIVERPOOL, NEW YORK, BELLEVUE MANOR
         IN SYRACUSE, NEW YORK, PERINTON PARK MANOR IN
         FAIRPORT, NEW YORK, BASSETT PARK MANOR IN
         WILLIAMSVILLE, NEW YORK, WOODLAND MANOR IN
         VESTAL, NEW YORK, EAST SIDE MANOR IN
         FAYETTEVILLE, NEW YORK AND WEST SIDE MANOR IN
         ROCHESTER, NEW YORK.  THE FOLLOWING AGREEMENT
         IS REPRESENTATIVE OF THOSE EXECUTED IN
         CONNECTION WITH THESE PROPERTIES:
                                                            
         10.52.1  Lease Agreement dated September 1,        
                  1996 between Philip Wegman                      
                  ("Landlord") and Painted Post
                  Partners ("Tenant") (Exhibit 10.4.1).  (4)
                                                            
         10.52.2  Management Services Agreement dated       
                  September 2, 1996 between the
                  registrant and Painted Post
                  Partners ("Operator") (Exhibit 
                  10.4.2).                               (4)
                                                            
 10.53   CAMLU IN COUER D'ALENE, IDAHO                      
                                                            
         10.53.1  Management Serviced Agreement             
                  between the Registrant ("Manager")                 
                  and Columbia House, LLC ("Lessee")       
                  dated November 1, 1996 (Exhibit
                  10.6.1).                               (4)
                                                            
 10.54   THE HEARTHSTONE IN MOSES LAKE, WASHINGTON          
                                                            
         10.54.1  Purchase and Sale Agreement dated         
                  August 20, 1996 between the                        
                  registrant ("Purchaser") and      
                  Hearthstone-5K Family Limited
                  Partnership ("Seller") (Exhibit
                  10.7.1).                               (4)
                                                            
         10.54.2  Loan Agreement dated October 30,          
                  1996 between the registrant and             
                  Washington Mutual Bank ("Holder")
                  (Exhibit 10.7.2).                      (4)
                                                            
         10.54.3  Deed of Trust, Security Agreement,        
                  Assignment of Leases and                           
                  Rents and Fixture Filing dated       
                  October 30, 1996 by the registrant         
                  ("Grantor"), Chicago Title
                  Insurance Company ("Trustee"), and
                  Washington Mutual Bank
                  ("Beneficiary") (Exhibit 10.7.3).      (4)
                                                            
         10.54.4    First Amendment to Purchase and         
                    Sale Agreement dated November 1,                
                    1996 between the registrant     
                    ("Purchaser") and Hearthstone-5K 
                    Family  Limited Partnership 
                    ("Seller").                          (5)
                                                           
         10.54.5    Promissory Note dated October 30,       
                    1996 in the amount of $4,160,000             
                    between the registrant and
                    Washington Mutual Bank ("Holder").   (5)
                                                            
 10.55   VICKERY TOWERS (FORMERLY BELMONT TOWERS) IN       
         DALLAS, TEXAS
                                                           
         10.55.1   Promissory Note dated November 26,      
                   1996 in the amount of $17,000,000
                   between ESC II, L.P. ("Maker")
                   and GMAC Commercial Mortgage
                   Corporation ("Payee").                (5)

                              71                           
                                                     
                                                           
         10.55.2   Construction Loan Agreement dated       
                   November 26, 1996 by ESC II,                      
                   L.P., (Borrower) and GMAC        
                   Commercial Mortgage Corporation
                   ("Lender").                           (5)
                                                           
         10.55.3   Deed of Trust, Mortgage and             
                   Security Agreement dated as of                    
                   of November 26, 1996 by ESC      
                   II, L.P. ("Grantor") to Andrew D.
                   Rocker, Trustee.                      (5)
                                                           
         10.55.4  Guaranty Agreement dated November        
                  26, 1996 between Emeritus                         
                  Corporation ("Guarantor" and     
                  GMAC Commercial Mortgage
                  Corporation ("Creditor").              (5)
                                                            
 10.56   CONCORDE IN LAS VEGAS, NEVADA                      
                                                            
         10.56.1  Purchase and Sale Agreement dated         
                  July 9, 1996 between the                        
                  registrant ("Purchaser") and
                  Sunday Estates, Inc. ("Seller").       (5)
                                                            
         10.56.2  First Amendment to Purchase and         
                  Sale Agreement dated July 11, 1996          
                  between the registrant the
                  Seller.                                (5)
                                                            
         10.56.3  Promissory Note dated November 18,       
                  1996 in the amount of $4,000,000
                  between the registrant ("Maker")
                  and Sunday Estates, Inc. ("Payee").    (5)
                                                           
         10.56.4  All-Inclusive Deed of Trust and          
                  Assignment of Rents dated November                
                  18, 1996 between the registrant     
                  ("Trustor"), Fidelity National Title     
                  Agency of Nevada, Inc. ("Trustor")
                  and Sunday Estates, Inc., 
                  ("Beneficiary").                       (5)
                                                           
         10.56.5  Addendum to All-Inclusive Deed       
                  of Trust and Assignment of Rents              
                  dated November 18, 1996 between
                  the Trustor and the ("Beneficiary").   (5)
                                                           
 10.57   DEVELOPMENT PROPERTIES IN HUTCHINSON, KANSAS      
         AND RIDGELAND, MISSISSIPPI. THE FOLLOWING
         AGREEMENTS ARE REPRESENTATIVE OF THOSE
         EXECUTED IN CONNECTION WITH THESE PROPERTIES:
                                                           
         10.57.1  Lease Agreement dated March 1996         
                  between Emeritus Properties I,                    
                  Inc. ("Lessee") and Meditrust     
                  Acquisition Corporation I ("Lessor").  (5)
                                                           
         10.57.2  Leasehold Improvement Agreement          
                  dated March 1996 between                          
                  Meditrust Acquisition            
                  Corporation I ("Lessor") and 
                  Emeritus Properties I, Inc.            (5)
                                                           
 10.58   DEVELOPMENT PROPERTIES IN AUBURN,                 
         MASSACHUSETTS, LOUISVILLE, KENTUCKY AND ROCKY
         HILL, CONNECTICUT.  THE FOLLOWING AGREEMENTS
         ARE REPRESENTATIVE OF THOSE EXECUTED IN
         CONNECTION WITH THESE PROPERTIES:
                                                           
         10.58.1  Lease Agreement dated February 1996      
                  between the registrant ("Lessee")                           
                  and LM Auburn Assisted Living
                  LLC, and LM Louisville Assisted       
                  Living LLC, ("Landlords") with
                  respect to the development
                  properties in Auburn and
                  Louisville.                           (5)                
                                                           
                              72                           
                                                     
                                                           
         10.58.2     Amended and Restated Lease            
                     Agreement dated February 26, 1996               
                     between the registrant              
                     ("Lessee") and LM Rocky Hill 
                     Assisted Living Limited Partnership,
                     ("Landlord") with respect to the 
                     development property in Rocky Hill. (5)
                                                           
         10.58.3  Lease Agreement dated October 10,        
                  1996 between the registrant                       
                  ("Lessee") and LM Chelmsford     
                  Assisted Living LLC, ("Landlord")
                  with respect to the development
                  property in Boston.                     (5)
                                                           
         10.58.4   Promissory Note in the amount of        
                   $1,255,000 dated December 1996                  
                   between the registrant           
                   ("Lender") and LM Auburn Assisted 
                   Living LLC, ("Borrower") with respect
                   to the development property in Auburn.  (5)
                                                           
         10.58.5  Promissory Note in the amount of         
                  $1,450,000 dated January 1997                     
                  between the registrant ("Lender")
                  and LM Louisville Assisted Living   
                  LLC, ("Borrower") with respect
                  to the development property in
                  Louisville.                              (5)
                                                           
         10.58.6  Promissory Note in the amount of         
                  $1,275,000 dated January 1997                     
                  between the registrant              
                  ("Lender") and LM Rocky Hill Assisted 
                  Living Limited Liability Partnership,
                  ("Borrower") with respect to the
                  development property in Rocky Hill.      (5)
                                                           
         10.58.7  Promissory Note in the amount of         
                  $300,000 dated January 1997                       
                  between the registrant ("Lender")
                  and LM Chelmsford Assisted Living
                  LLC, ("Borrower") with respect
                  to the development property in Boston.   (5)
                                                           
 10.59   BENEVA PARK CLUB, CENTRAL PARK VILLAGE,           
         COLLEGE PARK CLUB, PARK CLUB BRANDON, PARK
         CLUB FORT MYERS AND PARK CLUB OAKBRIDGE, THE
         PINES AT TEWKSBURY AND THE TERRACE.  THE
         FOLLOWING DOCUMENTS ARE REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.59.1  First Amendment to Facility Lease        
                  dated December 31, 1996 between                   
                  Meditrust Acquisition             
                  Corporation I  ("Lessor") and Emeritus
                  Properties I, Inc. ("Lessee").           (5)
                                                           
         10.59.2    Amended and Restated Memorandum of     
                    Lease dated December 31, 1996 between 
                    Meditrust Acquisition Corporation I  
                    ("Lessor") and Emeritus Properties I, 
                    Inc. ("Lessee").                       (5)
                                                           
 10.60   EVERGREEN LODGE IN FEDERAL WAY, WASHINGTON        
                                                           
         10.60.1  First Amendment to Facility Lease        
                  dated December 31, 1996 between                   
                  Meditrust Acquisition Corporation
                  I  ("Lessor") and Emeritus
                  Properties I, Inc. ("Lessee").
                                                           
         10.60.2  Amended and Restated Memorandum of       
                  Lease dated December 31, 1996
                  between Meditrust Acquisition 
                  Corporation I  ("Lessor") and
                  Emeritus Properties I, Inc.
                  ("Lessee").                            (5)
                                                           
 21.1    Subsidiaries of the registrant.                 (5)
                                                           
 23.1    Consent of KPMG Peat Marwick LLP                (5)
                                                           
                              73                           
                                                     
                                                           
 27.1    Financial Data Schedule.                        (5)



  (1)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Registration
         Statement on Form S-1 (File No. 33-97508)
         declared effective on November 21, 1995.
                                                           
  (2)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Annual
         Report on Form 10-K (File No. 1-14012) on
         March 29, 1996.
                                                           
  (3)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Second
         Quarter Report on Form 10-Q (File No. 1-
         14012) on August 14, 1996.
                                                           
  (4)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Third
         Quarter Report on Form 10-Q (File No. 1-
         14012) on November 14, 1996.
                                                           
  (5)    Filed herewith.                                   















                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                             74


                         SIGNATURES
                              
Pursuant to the requirements of 13 of 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated:    March 28, 1997
                                        EMERITUS CORPORATION
                                                (Registrant)
                                                            
                                                            
                                          /s/ Daniel R. Baty
                                        --------------------
        Daniel R. Baty, Chief Executive Officer and Director
                                                            
                                                            
                                   /s/ Raymond R. Brandstrom
                                        --------------------
 Raymond R. Brandstrom, Chief Operating Officer and Director
                                                            
                                                            
                                          /s/ Kelly J. Price
                                        --------------------
 Kelly J. Price, Chief Financial Officer and Vice President,
                                                     Finance
                                                            
                                                            
                                         /s/ James S. Keller
                                        --------------------
      James S. Keller, Controller and Director of Accounting
                              (Principal Accounting Officer)
                                                            
                                                            
                                           /s/ Tom A. Alberg
                                        --------------------
                                     Tom A. Alberg, Director
                                                            
                                                            
                                          /s/ Patrick Carter
                                        --------------------
                                    Patrick Carter, Director
                                                            
                                                            
                                       /s/ William E. Colson
                                        --------------------
                                 William E. Colson, Director
                                                            
                                                            
                                            /s/ Motoharu Iue
                                         -------------------
                                      Motoharu Iue, Director




                             75
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              


         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                          Page No.
                                                          --------
Independent Auditors' Report............................    F-2
                                                              
Consolidated Balance Sheets as of December 31, 1995 and       
   1996.................................................    F-3
                                                              
Consolidated Statements of Operations for the years           
   ended December 31, 1994, 1995 and 1996...............    F-4
                                                              
Consolidated Statements of Shareholders' Equity               
   (Deficit) for the years ended December 31,                 
   1994, 1995 and 1996..................................    F-5
                                                              
Consolidated Statements of Cash Flows for the years           
   ended December 31, 1994, 1995 and 1996...............    F-6
                                                              
Notes to Consolidated Financial Statements..............    F-8
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                             F-1


                INDEPENDENT AUDITORS' REPORT
                              

The Board of Directors and Shareholders
Emeritus Corporation:

     We have audited the accompanying consolidated balance
sheets of Emeritus Corporation and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit) and
cash flows for each of the years in the three-year period
ended December 31, 1996.  These consolidated financial
statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally
accepted auditing standards.  Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Emeritus Corporation and
subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996
in conformity with generally accepted accounting principles.


/s/ KPMG Peat Marwick LLP



Seattle, Washington
February 21, 1997









                             F-2

                    EMERITUS CORPORATION
                 CONSOLIDATED BALANCE SHEETS
              (In thousands, except share data)
                              
                           ASSETS


                                                        December 31,
                                                    --------------------
                                                       1995       1996
                                                     --------   ---------
                                                         
Current assets:                                                          
  Cash and cash equivalents......................... $  9,507     $ 23,039
  Current portion of restricted deposits............    1,025          934
  Trade accounts receivable.........................      212        1,713
  Other receivables.................................      876        1,292     
  Inventory.........................................      131          292
  Prepaid expenses and other current assets.........      828        2,977
  Investment securities available for sale..........    2,825        2,152
                                                     --------   ----------
          Total current assets......................   12,579       32,399
                                                               
Property and equipment, net.........................   81,041       99,590
Property held for development.......................   14,111        6,356
Notes receivable from and investments in affiliates.      644        2,464
Restricted deposits, less current portion...........    1,537        6,875
Lease acquisition costs, net........................    1,662        8,127
Other assets, net...................................    1,236        2,227
                                                     --------   ----------
          Total assets.............................. $115,635     $158,038
                                                     ========   ==========
                              
            LIABILITIES AND SHAREHOLDERS' EQUITY
                              
Current liabilities:                                            
  Short-term borrowings............................. $    520           -
  Current portion of long-term debt.................      352        5,816
  Trade accounts payable............................    4,249        4,707
  Construction advances - leased communities........       -         6,387
  Employee compensation and benefits................    1,037        3,071
  Accrued interest..................................      402        1,120
  Other accrued expenses............................    1,557          778
  Other current liabilities.........................      371          763
                                                     --------   ----------
          Total current liabilities.................    8,488       22,642
                                                                
Security deposits...................................      740        1,014
Other long-term liabilities.........................      242        3,740
Deferred gain on sale of communities................    2,227        9,433
Deferred income.....................................       -           843
Convertible debentures..............................       -        32,000
Long-term debt, less current portion................   66,814       60,260
                                                     --------   ----------
          Total liabilities.........................   78,511      129,932
                                                     --------   ----------
Minority interests..................................    2,229        1,918
Shareholders' equity:                                           
 Preferred stock, $.0001 par value.  Authorized                 
  5,000,000 shares; no shares issued and                          
  outstanding.......................................       -            -
 Common stock, $.0001 par value. Authorized                     
  40,000,000 shares;  issued and outstanding                      
  11,000,000 shares at December 31, 1995 and              
  1996...............................................       1            1
 Additional paid-in capital..........................  44,910       44,787
 Unrealized gain on investment securities............     400           18
 Accumulated deficit................................. (10,416)     (18,618)
                                                     --------   ----------
          Total shareholders' equity.................  34,895       26,188
Commitments, contingencies and subsequent event......
                                                     --------   ----------
          Total liabilities and shareholders'equity..$115,635     $158,038
                                                     ========   ==========
                              


See accompanying Notes to Consolidated Financial Statements.
                              
                             F-3
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              

                              
                    EMERITUS CORPORATION
            CONSOLIDATED STATEMENTS OF OPERATIONS
            (In thousands, except per share data)



                                              Years Ended December 31,
                                           ------------------------------
                                             1994       1995       1996
                                           ---------  ---------  ---------
                                                         
Revenues:                                                                
                                                                 
  Rent.................................... $ 4,109    $18,733    $64,143
  Service fees............................     300      2,544      4,783
                                           ---------  ---------  ---------
          Total operating revenues........   4,409     21,277     68,926
                                           ---------  ---------  ---------
Expenses:                                                        
  Community operations....................   3,365     15,864     48,900
  General and administrative..............     626      2,630      6,158
  Depreciation and amortization...........     528      2,800      3,122       
  Rent....................................     242      1,138     16,114
                                           ---------  ---------  ---------
          Total operating expenses........   4,761     22,432     74,294
                                           ---------  ---------  ---------
           Loss from operations...........    (352)    (1,155)    (5,368)
                                           ---------  ---------  ---------
Other income (expense):                                          
  Interest income.........................      -         355      1,236
  Interest expense on debt payable to                             
    affiliates............................    (485)    (1,802)        -
  Other interest expense..................    (579)    (3,904)    (4,018)
  Write-down of note receivable from                              
    affiliate.............................      -      (1,002)        -
  Other, net..............................     (16)      (179)       (52)
                                           ---------  ---------  ---------
          Net other expense...............  (1,080)    (6,532)    (2,834)
                                           ---------  ---------  ---------
          Loss before extraordinary                               
             item.........................  (1,432)    (7,687)    (8,202)
                                           ---------  ---------  ---------
                                                                  
Extraordinary loss on extinguishment of                           
    debt..................................      -       (1,267)       -   
                                           ---------  ---------  ---------
          Net loss........................ $(1,432)    $(8,954)   $(8,202)
                                           =========  =========  =========     
  Loss per share before extraordinary                             
    item..................................               (0.95)     (0.75)
                                                                  
  Extraordinary loss......................               (0.16)        -
                                                      ---------  ---------
                                                                  
  Net loss per share......................             $ (1.11)   $ (0.75)
                                                      =========  =========
                                                                  
Weighted average number of common shares                          
    outstanding...........................               8,062      11,000
                                                      =========  =========
                              

See accompanying Notes to Consolidated Financial Statements.
                             F-4

                              
                    EMERITUS CORPORATION
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
              (In thousands, except share data)




                                                                       
                                                                     Unrealized
                    Preferred stock       Common stock               gain (loss)
                   -----------------   -----------------  Additional     on                         Total
                     Number             Number             paid-in   investment   Accumulated    shareholders'
                   of shares  Amount   of shares  Amount   capital   securities     deficit    equity (deficit)
                   ---------  ------   ---------  ------  ---------- ----------   -----------  ----------------
                                                                       
Balances at            
  December 31, 1993    -      $ -       3,542,000  $ -      $ -       $ -          $     (30)      $   (30)

Net loss for the                                                             
  year ended                                                              
  December 31,                                            
  1994.............    -        -           -        -        -         -             (1,432)        (1,432)
                   ---------   ------  ----------  ------  ---------- ----------  ------------  ---------------
Balances at                                                                  
  December 31, 1994    -        -       3,542,000    -        -         -             (1,462)        (1,462)

Sale of preferred                                                            
  stock............  4,158,000  -           -        -      1,080       -                  -          1,080

Conversion of                                                                
  preferred stock                                                         
  to common stock.. (4,158,000) -       4,158,000    -        -         -                  -             -

Sale of common                                                               
  stock, net of                                                           
  issue costs of             
  $5,670...........     -       -       3,300,000    1     43,830       -                  -          43,831

Unrealized gain                                                              
  on investment                                                           
  securities.......     -       -            -       -        -         400                -             400

Net loss for the                                                             
  year ended
  December 31,                                  
  1995.............     -       -            -       -        -          -            (8,954)         (8,954)
                   ---------   -------  ---------- ------  ----------  ---------  ------------   ---------------
Balances at                                                                  
December 31, 1995       -       -       11,000,000   1      44,910      400          (10,416)         34,895

Common stock                                                                 
  issue costs.......    -       -            -       -        (123)      -                 -            (123)

Unrealized loss                                                              
  on investment                                                           
  securities........    -       -            -       -         -        (382)              -            (382)

Net loss for the                                                             
  year ended                                                               
  December 31,
  1996..............    -       -            -       -         -         -            (8,202)         (8,202)
                    --------   -------  ---------- ------  ----------  ---------  ------------   ---------------
Balances at            
  December 31, 1996     -     $ -       11,000,000  $1     $44,787     $  18        $(18,618)        $26,188
                    ========   =======  ========== ======  ==========  =========  ============   ===============
                              

                              
                              
                              
                              
                              
                              
                              
                              
See accompanying Notes to Consolidated Financial Statements.
                              
                             F-5
                              

                              
                    EMERITUS CORPORATION
            CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (In thousands)
                              


                                                 Years Ended December 31,
                                               ---------------------------
                                                    1994       1995        1996
                                                ----------  ---------  ---------
                                                             
Cash flows from operating activities:                                   
  Net loss....................................   $ (1,432)  $ (8,954)  $ (8,202)
  Adjustments to reconcile net loss to net cash                         
    provided by (used in) operating activities:                              
     
     Minority interests in net loss...........        (44)       (21)      (311)
     Gain on sale of securities...............          -          -       (325)
     Depreciation and amortization............        528      2,800      3,122
     Amortization of lease acquisition costs..          -          -        519
     Amortization of deferred gain and                                  
       income.................................          -          -     (1,254)
     Equity in losses of affiliates...........         60        150          6
     Write-off of development costs...........          -          -        279
     Changes in operating assets and liabilities:
       Trade accounts receivable..............        (41)      (152)    (1,501)
       Other receivables......................          -       (876)      (416)
       Inventory..............................        (25)      (102)      (161)
       Prepaid expenses and other current                            
         assets...............................        (33)      (775)    (2,332)
       Other assets...........................       (493)    (3,398)      (420)
       Trade accounts payable.................        791      3,433        458
       Employee compensation and benefits.....        170        849      2,034
       Accrued interest.......................        442        (73)       718
       Other accrued expenses.................        146      1,403       (779)
       Other current liabilities..............        115        256        392
       Security deposits......................         70        670        274
       Other long-term liabilities............          -          -      2,467
                                                ----------  ----------  --------
             Net cash provided by (used in)                             
               operating activities...........        254     (4,790)    (5,432)
                                                ----------  ----------  --------
Cash flows from investing activities:                                   
  Acquisition of property and equipment.......    (14,438)    (62,987)  (36,650)
  Acquisition of property held for                                     
   development................................     (1,895)    (15,418)  (30,069)
  Proceeds from sale of property and                                    
   equipment..................................          -      11,554    73,290
  (Purchase)/sale of investment securities,                             
   net........................................          -      (2,425)      616
  Construction advances - leased communities..          -           -    43,411
  Construction expenditures - leased                                    
   communities................................          -           -   (37,024)
  Advances to affiliates......................        (700)      (139)     (876)
  Repayments of advances by affiliates........          -           -       800
  Acquisition of businesses and partnership                             
   interests..................................        (275)      (604)   (6,089)
                                                -----------  ----------  -------
             Net cash provided by (used in)                             
               investing activities...........     (17,308)   (70,019)    7,409
                                                -----------  ----------   ------
      
                                    
See accompanying Notes to Consolidated Financial Statements.
      
                       F-6

                              
                    EMERITUS CORPORATION
     CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                       (In thousands)
                              
Cash flows from financing activities:                                   
  Restricted deposits.........................           -      (1,025)  (6,247)
  Proceeds from (repayment of) short-term                               
   borrowings, net............................       1,100       6,272     (520)
  Proceeds from long-term borrowings..........      17,591      78,886   64,356
  Repayment of long-term borrowings...........      (1,196)    (44,276) (69,977)
  Debt issue and other financing costs........        (247)       (672)  (6,554)
  Proceeds from sale of common stock..........           -      43,831        -
  Proceeds from sale of preferred stock.......           -       1,080        -
  Proceeds from issuance of convertible  
    debentures................................           -           -   30,620
  Other.......................................           -           -     (123)
                                                -----------  ---------- --------
             Net cash provided by financing                             
               activities.....................      17,248      84,096   11,555
                                                -----------  ----------- -------
             Net increase in cash and cash                              
               equivalents....................         194       9,287   13,532
                                                                        
Cash and cash equivalents at beginning of                               
  year........................................          26         220    9,507
                                                                        
                                                -----------  ----------- -------
Cash and cash equivalents at end of             
  year........................................    $    220     $ 9,507  $23,039
                                                ===========  =========== =======
                                                                        
Supplemental disclosure of cash flow                                    
  information-cash paid during                                         
  the year for interest........................   $    732     $ 5,468  $ 3,300
                                                                        
Noncash investing and financing activities-                              
  acquisition of business and majority interest
  in a partnership:
    Assets acquired............................   $   3,171    $  5,025 $11,215
    Liabilities assumed........................       3,077       2,800   7,042
Transfer of property held for development to                            
  property and equipment.......................           -       4,200  22,500
                              



















See accompanying Notes to Consolidated Financial Statements.
                              
                             F-7


                    EMERITUS CORPORATION
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              
(1)  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
     ACCOUNTING POLICIES

     DESCRIPTION OF BUSINESS

     Emeritus Corporation (the "Company") is a long-term-
care services company focused on operating residential-style
assisted-living communities throughout the United States.
The Company also provides management services to third party
owners of assisted-living communities the revenue from which
is included in service fees.  The Company was incorporated
on July 28, 1993.

 BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries.
In addition, the accounts of a managed partnership have been
consolidated where the Company maintains effective control
over the partnership's assets and operations, not
withstanding a lack of technical majority ownership of the
partnership.  All significant intercompany balances and
transactions have been eliminated in consolidation.

     REVENUE RECOGNITION

     Resident units are rented on a month-to-month basis and
rent is recognized in the month the unit is occupied.
Service fees paid by residents for assisted-living and other
related services are recognized in the period services are
rendered.

     CASH AND CASH EQUIVALENTS

     All short-term investments with a maturity at date of
purchase of three months or less are considered to be cash
equivalents.

     INVENTORY

     Inventory is stated at the lower of cost (first-in,
first-out) or market (replacement cost).






                             F-8

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


    PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost.
Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the
assets as follows: buildings and improvements, 25 to 40
years; furniture and equipment and vehicles, 5 to 7 years;
leasehold improvements, over the lesser of the estimated
useful life or the lease term.

     For long-lived assets, including property and
equipment, the Company evaluates the carrying value of the
assets by comparing the estimated future cash flows
generated from the use of the assets and their eventual
disposition with the assets' reported net book values.  The
carrying values of assets are evaluated for impairment when
events or changes in circumstances occur which may indicate
the carrying amount of the assets may not be recoverable.

    INVESTMENTS

     Investment securities are classified as available-for-
sale and are recorded at fair value.  Unrealized holding
gains and losses, net of any related tax effect, are
excluded from results of operations and are reported as a
separate component of shareholders' equity.

     Investments in 20% to 50% owned affiliates where
control does not exist are accounted for under the equity
method.  Investments in less than 20% owned entities where
FAS 115 is not applicable, are accounted for under the cost
method.

     INTANGIBLE ASSETS

     Intangible assets, which are included in other assets,
are comprised of deferred financing and community pre-
opening costs.  Deferred financing costs are amortized using
a method which approximates the effective interest method
over the term of the related debt.  Community pre-opening
costs are amortized using the straight-line method over 18
months.







                             F-9

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     INCOME TAXES

     Deferred income taxes are provided based on the
estimated future tax effects of temporary differences
between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.

     Deferred tax assets and liabilities are measured using
enacted tax rates that are expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.  The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.  A valuation allowance is recorded for
deferred tax assets when it is more likely than not that
such deferred tax assets will not be realized.

     RESTRICTED DEPOSITS AND  CONSTRUCTION ADVANCES - LEASED
     COMMUNITIES

     Restricted deposits consist of funds required by
various Real Estate Investment Trusts ("REIT") to be placed
on deposit until the Company's communities meet certain debt
coverage and/or cash flow coverage ratios, at which time the
funds will be released to the Company.

     In January 1996, the Company entered into a letter of
intent with a REIT relating to sale/leaseback financing of
$100 million for newly developed facilities and, in
September 1996, the Company entered into a similar
arrangement with a REIT for an additional $100 million
financing for newly developed facilities.  As part of this
arrangement, the Company manages and oversees the
development of projects owned by this REIT.  Upon completion
of the projects, the Company will lease the facilities from
the REIT under operating lease agreements.  Approximately
$131.5 million of such financing remains available to the
Company. At December 31, 1996, the REIT advanced funds in
excess of amounts expended on the development projects which
have been classified as construction advances - leased
communities.

     DEFERRED GAIN ON SALE OF COMMUNITIES

     Deferred gain on sale of communities represents gains
on sale/leaseback transactions which are deferred and
amortized using the straight-line method over the lives of
the associated leases.  The Company has no continuing
involvement in communities which it has sold and leased back
outside of operating the community.
                            F-10

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     COMMUNITY OPERATIONS

     Community operations represent direct costs incurred to
operate the communities and include costs such as activities
for the residents, marketing, housekeeping, food service,
payroll and benefits, facility maintenance, utilities, taxes
and licenses.

     STOCK-BASED COMPENSATION

     The Company applies APB Opinion No. 25, Accounting for
Stock Issued to Employees and related Interpretations in
measuring compensation costs for its stock option plans.
The Company discloses pro forma net income (loss) and net
income (loss) per share as if compensation cost had been
determined consistent with Statement of Financial Accounting
Standards (FAS) No. 123, Accounting for Stock-Based
Compensation.

     NET LOSS PER SHARE

     Net loss per weighted average common share is
calculated based on the weighted average number of
outstanding common shares and dilutive common share
equivalents.  Common share equivalents include unexercised
employee stock options.  Common share equivalents and the
6.25% Convertible Subordinate Debentures have been excluded
from the calculation in 1996 as they are antidilutive.

     Preferred shares convertible into common shares issued
during the 12 months immediately preceding the date of the
Company's initial public offering at a price less than the
initial public offering price have been included in the
calculation of common shares as if they were outstanding for
all periods presented prior to the initial public offering,
including loss years where the impact of the incremental
shares is antidilutive, using the treasury stock method.

     USE OF ESTIMATES

     The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period.  Actual results
could differ from those estimates.

                            F-11

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     RECLASSIFICATIONS

     Certain reclassifications of the 1994 and 1995 amounts
have been made to conform to the 1996 presentation.

(2) PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:




                                     December 31,
                                   -----------------
                                    1995      1996
                                   -------  --------
                                    (In thousands)
                                      
Land and improvements............. $ 7,322   $ 7,826
Buildings and improvements........  63,363    65,367
Furniture and equipment...........   5,510     7,231
Vehicles..........................     548     1,783
Leasehold improvements............      72       885
                                   -------  --------
                                    76,815    83,092
Less accumulated depreciation and           
   amortization...................   2,045     3,996
                                   -------  --------
                                    74,770    79,096
Construction in progress..........   6,271    20,494
                                   -------  --------
                                   $81,041   $99,590
                                   =======  ========



     Depreciation and amortization expense totaled $489,000,
$2,409,000 and $2,670,000 for 1994, 1995 and 1996,
respectively.










                            F-12

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                              
(3)  PROPERTY HELD FOR DEVELOPMENT

     Property held for development is recorded at cost.
Interest costs capitalized on property held for development
and construction in progress was $110,000, $880,000 and $1.4
million for 1994, 1995 and 1996, respectively.
     
     The Company is committed under construction contracts
with respect to certain development projects.  Total
construction commitments for owned developments at December
31, 1996, were $48.8 million, of which $11.7 million had
been incurred.  At December 31, 1996, $37.1 million in
construction financing commitments remained of which the
Company has financing of $35.6 million in place which bears
interest at rates ranging between prime plus 1% and 1.25%
and are due through January 2001.
     
     In addition to the developments owned by the Company,
the Company has commitments with respect to developments
owned by a REIT and subject to a long-term operating lease
agreement upon completion of construction.  Under these
commitments, the Company is committed to construction of the
development and the REIT is to provide $68.5 million in
construction financing, of which $43.4 million has been
incurred as of December 31, 1996.  Upon completion of the
development, the Company will enter into a long-term
operating lease with the REIT where the Company will be
committed to annual lease payments based on the cost of the
development as funded by the REIT and a rate tied to the 10-
year U.S. Treasury note.

(4)  INVESTMENT SECURITIES

     In April 1995, the Company purchased investment
securities in The Standish Care Company ("Standish") from
Columbia-Pacific Group, Inc., a Company wholly-owned by a
principal shareholder of the Company.  The investment
securities consisted of common stock, warrants and an
agreement to provide a $2.0 million credit facility through
the purchase of convertible debentures, of which $1,410,000
was outstanding at the time of purchase.  The remaining
$590,000  was loaned to Standish prior to December 31, 1995.
The Company purchased the investment securities at the
affiliates original cost, which exceeded fair value.  The
excess of cost over fair value at the time of purchase of
$426,000 is included in general and administrative expenses
for the year ended December 31, 1995.  During 1996, Standish
completed a merger transaction with twelve "Carematrix"


                            F-13

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

corporations (which was accounted for as a reverse
acquisition), changed its name to "Carematrix Corporation",
effected a 1-for-5 reverse stock split and issued Common
Stock in a public offering at $15 per share.  As a result of
these transactions, the convertible debentures that bear
interest at 8.5%, are currently convertible into Carematrix
common stock at the option of the Company at $15.00 per
share.  The contractual maturity of these convertible debt
securities is June 10, 1998.

     During 1996, the Company recognized a gain on sale of
$325,000 based on specific identification of certain of the
above securities which is included in other expenses, net.

     Details regarding investment securities by major
security type as of December 31, are as follows:




                                                Gross         
                                   Amortized  unrealized    Fair
                                     cost       gains      value
                                   ---------  ----------  --------
                                           (In thousands)
                                                 
1995                                                              
   Equity securities..............    $  425        $400    $  825
   Convertible debt securities....     2,000          -      2,000
                                   ---------  ----------  --------
                                      $2,425        $400    $2,825
                                   =========  ==========  ========
1996                                                              
   Equity securities..............    $  134        $ 18    $  152
   Convertible debt securities....     2,000          -      2,000
                                   ---------  ----------  --------
                                      $2,134        $ 18    $2,152
                                   =========  ==========  ========













                            F-14

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(5)  FINANCIAL INSTRUMENTS

     The Company has financial instruments other than
investment securities consisting of cash and cash
equivalents, trade accounts receivable, notes receivable
from and certain investments in affiliates, short-term
borrowings, accounts payable, convertible debentures and
long-term debt.  The fair value of the Company's financial
instruments based on their short-term nature or current
market indicators such as prevailing interest rates
approximate their carrying value with the exception of the
convertible debentures which had a fair value of $28.0
million versus a book value of $32.0 million at December 31,
1996.

(6)   NOTES  RECEIVABLE FROM AND INVESTMENTS  IN  AFFILIATED
COMPANIES

     In 1994 and 1995, the Company made loans to Extended
Care Corporation ("Extended Care") of $700,000 and $433,000,
respectively.  The Company received 49.0% of the outstanding
capital stock of Extended Care in connection with the loans
and a pledge of the remaining 51.0% as additional security
for the loans.  In 1995, the Company wrote-off the note
receivable due to Extended Care's continued losses and the
Company's belief that the holder of the first mortgages on
the Extended Care communities intended to initiate
foreclosure proceedings, which would have the effect of
terminating the Company's second mortgages and making the
loans uncollectible.  The holder of the first mortgages
initiated foreclosure proceedings in October 1995, and
Extended Care filed for protection from its creditors under
Chapter 11 of the Bankruptcy Code during 1996.

     In 1995, the Company advanced $600,000 to a limited
liability company (the "LLC"), which operates an assisted-
living community, as a part of a financing agreement.  The
advance is due in 1998 and accrues interest at 10% per
annum.  Under the agreement, the Company received a 49%
ownership interest in the LLC for which no value was
assigned.  The remaining 51% interest is owned by
Carematrix. As of December 31, 1996, the amount due the
Company is $410,000.  As a member of the LLC, the Company
has provided a tertiary guarantee for the currently
outstanding debt of the LLC in the amount of $1.1 million.
The Company's equity in earnings of the LLC were
approximately $25,000 for 1995 and its equity in losses
were approximately $6,000 in 1996.


                            F-15

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     During 1995, the Company became a 50% partner in a
general partnership which was formed to jointly develop an
assisted-living facility in Paso Robles, California.  As of
December 31, 1996, the Company had $750,000 in construction
commitments of which $445,000 had been incurred.
     
     In November 1996, the Company agreed to purchase up to
6,888,466 shares of convertible preferred stock of Alert, an
Ontario, Canada based owner and operator of assisted-living
communities at prices ranging from $0.67 to $0.74 per share
(Cdn).  In addition, the Company acquired an option to
purchase an additional 4,000,000 shares of convertible
preferred stock at an exercise price of $1.00 per share
(Cdn), as well as an option to purchase from Eclipse, the
majority shareholder of Alert, and certain other
shareholders of Alert, 9,050,000 currently issued and
outstanding shares of common stock of Alert and 950,000
currently issued and outstanding shares of Class A non-
voting stock of Alert both at an exercise price of $3.25 per
share (Cdn).   As of December 31, 1996, the Company has
purchased and holds 2,577,692 shares of preferred stock for
a total investment of $1,800,000 (Cdn) which is equivalent
to $1,331,000 (US).  Subsequent to December 31, 1996, the
Company purchased an additional 1,077,692 shares of
preferred stock for total consideration of $800,000 (Cdn) or
$591,000 (US).

     Alert is an owner/operator of assisted-living
communities based in Ontario, Canada. Alert has entered into
an exclusive management agreement to manage the Company's
future assisted-living communities in Ontario.  Eclipse,
through its wholly-owned subsidiary, Eclipse Construction
Inc., develops and constructs retirement homes for Alert on
a contract basis.  Under the agreement, Eclipse has entered
into an exclusive development agreement with the Company and
Alert to develop their construction projects in Ontario.

(7)  SHORT-TERM BORROWINGS

     Short-term borrowings at December 31, 1995 consisted of
notes payable bearing interest at rates between 7.5% and  9%
and due through July 1996.








                            F-16

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(8)   CONVERTIBLE DEBENTURES

     On February 15, 1996, the Company completed a $32.0
million Private Placement Offering of 6.25% convertible
subordinated debentures (the "Debentures") due in 2006.  The
Debentures, non-callable for three years, are convertible
into common stock at the rate of $22 per share, which
equates to an aggregate of approximately 1,454,545 shares of
the Company's common stock and bear interest payable
semiannually on January 1 and July 1 of each year,
commencing July 1, 1996. The Debentures are unsecured and
subordinated to all other indebtedness of the Company.

     The holders of the Debentures are entitled, subject to
prior redemption, to convert the Debentures or portions
thereof into shares of common stock at the conversion price
set forth in the Debentures.  The conversion price is
subject to adjustments in certain events.

     The Debentures are subject to redemption, as a whole or
in part, at any time or from time to time commencing after
July 1, 1999 at the Company's option on at least 30 days'
and not more than 60 days' prior notice by mail.  The
redemption prices (expressed as a percentage of principal
amount) are as follows for the 12-month period beginning
after July 1 of the following years:




          Year                     Price
          --------------       --------------
                            
          1999                       102%
          2000                       101%
          2001 and thereafter        100%












                            F-17

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(9)  LONG-TERM DEBT

     Long-term debt consists of the following:




                                          December 31,
                                        ----------------
                                         1995       1996
                                        -------   -------
                                         (in thousands)
                                            
Note payable, interest at 9.58%,                  
payable in monthly installments, unpaid          
principal and interest due July                  
2005,refinanced through sale/leaseback           
transaction, see note 11............... $ 6,373  $   -
                                                 
Note payable, interest at 11% , payable           
in monthly installments, balance due             
July 2004..............................   3,230    2,169
                                                 
Construction loan from bank, total                
commitment $4.9 million, interest only           
at the prime rate plus 3.5% (11.75% at           
December 31, 1996), payable monthly,             
unpaid principal and interest due                
February 2004..........................     123    4,307
                                                 
Construction loan, total commitment               
$4.7 million, interest only at the               
prime rate plus 1% (9.25% at December            
31, 1996),  unpaid principal and                 
interest due May 1999..................     -      1,905
                                                 
Construction loan from bank, total                
commitment $4.8 million, interest only           
at the prime rate plus 1% (9.25% at              
December 31, 1996), payable monthly,             
unpaid principal and interest due July           
1998, with an option to extend to                
January 1999...........................   3,207    4,639
                                                 
Notes payable, interest at rates                  
between 9.5% and 12.75%, payable in              
monthly installments, due through April          
1998, refinanced by 6.25% 10 year                
convertible subordinated debentures....  14,466      -



                            F-18

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note payable to bank, interest only at            
the prime rate plus 1%, payable monthly          
through July 1996; thereafter, monthly           
installments until maturity at July              
1997, refinanced through sale/leaseback          
transaction, see note 11...............  23,118       -
                                                 
Construction loans, total commitments             
$16.6 million, interest only at the              
prime rate plus 2%, payable monthly,             
unpaid principal and interest due June           
30, 1996, refinanced through                     
sale/leaseback transaction, see note             
11.....................................   4,849       -
                                                 
Notes payable, interest at rates                  
between 6.9% and 10.5%, payable in               
monthly installments, due through                
February 2006..........................   5,629   14,272
                                                 
Notes payable, interest only at rates             
between 8.4% and 11%, payable monthly,           
unpaid principal and interest due                
through November 1999..................     -     17,831
                                                 
Notes payable, interest only at the               
libor rate plus 2.25% (7.8% at December          
31, 1996) payable monthly, unpaid                
principal and interest due December              
1998...................................     -      9,269
                                                 
Notes payable to bank, interest only at           
rates between 9.75% and 10%, payable             
monthly, unpaid principal and interest           
due through September 1997, refinanced           
through sale/leaseback transaction, see          
note 11................................   4,290       -
                                                 
Other..................................     -       5,040
                                        -------   -------
   Subtotal............................  65,285    59,432
                                        -------   -------
     
     
     
     
     
     
     
     
     
     
                            F-19

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
     
     
   Subtotal carried forward............  65,285    59,432
                                        -------   -------

Debt refinanced or commitment to
  refinance as long-term debt
  subsequent to year end

Construction loan, total commitment               
$7.3 million, interest only at the               
prime rate plus 1.25% (9.5% at                   
December 31, 1996),  unpaid principal            
and interest due November 1997,                  
commitment to refinance with long-term           
debt, principal and interest at the              
rate of prime plus 1.25% for a term of           
25 years...............................     -      4,807
                                                 
Note payable, interest at 9.25%,                  
payable in monthly installments, due             
September 1997, refinanced with                  
long-term debt subsequent to December            
1996 with interest at LIBOR plus 2.25%           
(7.8% at December 31, 1996, payable              
monthly, unpaid principal and interest           
due December 1998......................   1,881    1,837
                                        -------   -------
                                         67,166    66,076
Less current portion...................     352     5,816
                                        -------   -------
   Long-term debt, less current                   
     portion........................... $66,814  $60,260
                                        =======  =======



     Substantially all long-term debt is secured by the
Company's property and equipment and/or by personal
guarantees of a principal shareholder of the Company.

       Certain of the Company's indebtedness includes
restrictive provisions related to cash dividends,
investments and borrowings, and require maintenance of
specified operating ratios, levels of working capital and
net worth.  As of December 31, 1996 management believes that
the Company is in compliance with all material covenants.





                            F-20

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
     

      Principal maturities of long-term debt at December 31,
1996 are as follows (in thousands):




                                     
          1997........................   $ 5,816
          1998........................    25,445
          1999........................    12,472
          2000........................     1,621
          2001........................     7,880
          Thereafter..................    12,841
                                        --------
                                         $66,076
                                        ========





























                              
                            F-21

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(10) INCOME TAXES

     Income taxes reported by the Company differ from the
amount computed by applying the statutory rate due to
limitations on utilizing net operating losses.

     The tax effect of temporary differences and
carryforwards that give rise to significant portions of
federal deferred tax assets and liabilities are comprised of
the following:




                                          December 31,
                                         ---------------
                                         1995      1996
                                        -------   ------
                                         (In thousands)
                                           
Deferred tax liabilities:                                
Depreciation...........................  $ (57)   $ (127)
Other..................................   (136)       -
                                        -------   ------
   Gross deferred tax liabilities......   (193)     (127)
                                        -------   ------
Deferred tax assets:                             
  Net operating loss carryforwards.....  1,432     1,220
  Deferred gain on sale/leaseback......    760     3,245
  Allowance on advances to affiliates..    311        -
  Unearned rental income...............    122       255
  Vacation accrual.....................    102       389
  Other................................     66       418
                                        -------   ------
   Gross deferred tax assets...........  2,793     5,527
Less valuation allowance............... (2,600)   (5,400)
                                        -------   ------
Deferred tax assets, net...............    193       127
                                        -------   ------
   Net deferred tax assets............. $   -     $  -
                                        =======  =======



     The net increase in the total valuation allowance was
$520,000, $2,070,000 and $2,800,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.  The
increases were primarily due to the increase in deferred
gain on sale/leaseback, allowance on advances to affiliates


                            F-22

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

and the amount of net operating loss carryforwards, for
which management does not believe that it is more likely
than not that realization is assured.

     For federal income tax purposes, the Company has net
operating loss carryforwards at December 31, 1996 available
to offset future federal taxable income, if any, of
approximately $3,588,000 expiring beginning in 2011.

(11)  RELATED-PARTY MANAGEMENT AGREEMENT

     During 1996, the Company's principal shareholder and
another shareholder formed a New York general partnership
(the "Partnership) which signed a leasehold agreement with a
third party to acquire a leasehold interest in nine assisted-
living communities.  The Company has an agreement with the
Partnership to provide services to the communities during
the life of the lease which gave it unilateral control of
the Partnership.  At December 31, 1996, the results of
operations of the Partnership are consolidated with those of
the Company.

 (12) SHAREHOLDERS' EQUITY (DEFICIT)

     In April 1995, the Company authorized a 9,200-for-1
stock split of the company's common stock and, on September
28, 1995, authorized a 3.85-for-1 stock split of the
Company's common stock and preferred stock.  All share and
per share information, except par value, has been adjusted
for all years to reflect the stock splits.

     On November 21, 1995, the Company completed an initial
public offering of 6,534,000 shares of its common stock at a
price of $15 per share.  Of the total amount of shares sold,
3,300,000 shares were sold by the Company and 3,234,000 were
sold by existing shareholders.

 1995 STOCK INCENTIVE PLAN

     The 1995 Plan combines the features of an incentive and
nonqualified stock option plan, a stock appreciation rights
("SAR") plan and a stock award plan (including restricted
stock).  The 1995 Plan is a long-term incentive compensation
plan and is designed to provide a competitive and balanced
incentive and reward program for participants.





                            F-23

                    EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     The Company has authorized 1,100,000 shares of common
stock to be reserved for grants under the 1995 Plan of which
615,100 shares remain available for future awards at
December 31, 1996.  Options generally vest over a five-year
period in cumulative increments of 20% each year beginning
one year after the date of the grant and expire not later
than ten years from the date of grant.  The options are
granted at an exercise price equal to the fair market value
of the common stock on the date of the grant.

     Had compensation cost for the Company's option plan
been determined consistent with FAS 123, the Company's pro
forma net loss and pro forma net loss per share would have
been as follows:




                                Year ended December
                                        31,
                               ----------------------
                                 1995         1996
                               ---------    ---------
                               (In thousands, except
                                  per share data)
                                      
     Net loss:                              
        As reported..........   $(8,954)     $(8,202)
        Pro forma............    (8,970)      (8,477)
                                            
     Net loss per share:                    
        As reported..........   $ (1.11)     $ (0.75)
        Pro forma............     (1.11)       (0.77)



     The fair value of each option grant has been estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 1995
and 1996, respectively: dividend yield of 0.0% for both
periods; expected volatility of 55% for both periods; risk-
free interest rates of 5.53% for options granted during the
year ended December 31, 1995 and 5.47% to 6.39% for options
granted during the year ended December 31, 1996; and an
expected option term of 5 years and 4.5 years for fiscal
1995 and 1996.





                            F-24

                  EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


     A summary of the Company's stock option plans as
of December 31 and changes during the year ended on
those dates is presented below:




                                             1996                   1995
                                    ----------------------  --------------------
                                               Weighted-              Weighted-
                                                Average                Average
                                                Exercise              Exercise
                                     Shares      Price      Shares      Price
                                    --------  ------------  -------  -----------
                                                         
Outstanding at beginning of year    202,000      $14.38               $
                                                                     
Granted                             363,500      $11.06     202,000   $14.38
                                                                     
Exercised                              -         $  -          -      $  -
                                                                     
Canceled                            (80,600)     $14.34        -      $  -
                                    --------                -------  
                                                                     
Outstanding at end of year          484,900      $11.90     202,000   $14.38
                                                                     
Options exercisable at year-end      37,950      $14.38        -      $  -
                                                                     
Weighted-average fair value of                                       
   options granted during the year    $5.67                  $7.69



     The following is a summary of stock options
outstanding at December 31, 1996:




                     ------------------------------------  ----------------------
                             Options Outstanding            Options Exercisable
                     ------------------------------------  ----------------------
                                   Weighted-                                
                                    Average     Weighted-               Weighted-
                                   Remaining     Average                 Average
     Range of          Number     Contractual   Exercise     Number     Exercise
  Exercise Prices    Outstanding      Life        Price    Exercisable    Price
- -------------------  -----------  ------------  ---------  -----------  ---------
                                                         
$        10.50         330,000        9.89       $10.50         -         $10.50
$14.38 - 20.38         154,900        8.21       $14.88       37,950     $14.38


                                 F-25

                  EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(13) LEASES

       The Company leases office space and 53 assisted-living
communities. The office lease expires in 2006 and contains
two five-year renewal options. The facility leases expire
from 2004 to 2011 and contain two to six five-year renewal
options.

        Minimum lease payments under noncancelable operating
leases at December 31, 1996 are as follows (in thousands):




                                     
          1997........................  $ 27,859
          1998........................    27,984
          1999........................    27,984
          2000........................    27,984
          2001........................    28,003
          Thereafter..................   201,336
                                       ----------
                                        $341,150
                                       ==========



      Rent expense under noncancelable operating leases  was
$242,000,  $1,138,000 and $16,114,000 for  the  years  ended
December 31, 1994, 1995 and 1996, respectively.

(14)  ACQUISITIONS

     During 1995 and 1996, the Company completed several
acquisitions of assisted-living and  independent-living
communities.  These acquisitions have been accounted for as
purchases and, accordingly, the assets and liabilities of
the acquired communities were recorded at their estimated
fair values at the dates of acquisitions.  No goodwill or
other identifiable intangibles were recorded with respect to
any of the acquisition.  The results of operations of the
communities acquired have been included in the Company's
consolidated financial statements from the dates of the
acquisitions.  Summary information concerning the
acquisitions is as follows:






                            F-26

               EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                                   



                                               Acquisition         Total           
            Communities acquired                   date       purchase price     Units
            --------------------                ----------    --------------    ------
                                                              (in thousands)       
                                                                      
Vickery Towers (formerly Belmont Towers)....  March 1995          $10,000         237
Six Florida Communities (2).................  June 1995            29,175         614
Laurel Lake Estates (1).....................  July 1995             6,950         116
Other 1995 Acquisitions.....................  Various               8,860         210
Heritage Hills Retirement...................  February 1996         4,338         100
Lakewood Inn (3)............................  March 1996            2,800          47
The Hearthstone.............................  November 1996         5,200          84
Concorde....................................  November 1996         8,400         116
Other 1996 Acquisitions.....................  Various               8,202         272
                                                              ---------------  ---------
                                                                  $83,925       1,796
                                                              ===============  =========



(1)  Refinanced in January 1996, through a
     sale/leaseback with a Real Estate Investment
     Trust ("REIT").  Lease includes an initial term
     of 12 years,  three five-year renewal options and
     an annual lease payment of approximately
     $644,000.  The Company has no continuing
     involvement outside of operating the community.
     
(2)  Refinanced in March 1996, through sale/leaseback
     with a REIT.  Leases include initial terms of 11
     years,  four five-year renewal options and annual
     lease payments aggregating approximately $3.5
     million. The Company has no continuing
     involvement outside of operating the communities.
     
(3)  Refinanced in April 1996, through a
     sale/leaseback with a REIT.  Lease includes an
     initial term of 13 years,  four five-year renewal
     options.  Upon completion of a $7.1 million
     expansion project annual lease payments will be
     approximately $684,000. The Company has no
     continuing involvement outside of operating the
     community.




                              F-27


                   EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

     The foregoing acquisitions were generally financed through
borrowings.

     During the years ended December 31, 1995 and 1996, the Company
completed several acquisitions or sale/leasebacks of communities
through lease financing transactions with certain REITs', pursuant to
which the REITs' leased such communities to the Company under
operating leases. The results of operations of the communities
acquired have been included in the Company's consolidated financial
statements from the dates the leases commenced for those communities
not previously owned.




                                       Lease           Initial          Renewal         Annual        
      Communities leased          Acquisition date    Lease Term        Options          Rent      Units
      -------------------        -----------------    -----------        --------        -------     -----
                                                                                      
Summer Wind....................  September 1995      10 years        Six five-year      $   315,000     50
Green Meadows Communities (6)..  October 1995        12 years        Three five-year      2,138,956    284
Other 1995 Leases (4)..........  December 1995       12 years        Three five-year      1,163,543    236
Carolina Communities (1).......  February 1996       15 years        Three five-year      4,145,607    648
Evergreen Lodge................  April 1996          13 years        Four five-year         572,569     98
Rosewood Court (2).............  April 1996          14 yrs/9 mos    Three five-year        393,200     71
Barrington Place...............  May 1996            11 yrs/11 mos   Four five-year         413,601     79
Springtree.....................  May 1996            11 yrs/11 mos   Four five-year       1,410,353    182
The Terrace (5)................  August 1996         11 yrs/8 mos    Four five-year         416,887     87
Colonial Park Club.............  August 1996         11 yrs/7 mos    Four five-year         770,862     90
Lodge at Mainlands.............  August 1996         11 yrs/7 mos    Four five-year         924,530    152
Ridge Wind.....................  August 1996         11 yrs/8 mos    Four five-year         458,061     80
Other 1996 Leases..............  October 1996        11 years        Four five-year       1,753,006    226
Wegman Communities (3).........  November 1996       15 years        Two five year        4,975,000    738
                                                                                       ------------  -----
                                                                                        $19,851,175  3,021
                                                                                       ============  =====



(1)  Consists of 10 long-term-care facilities located
     in North and South Carolina.
     
(2)  Originally acquired in 1995, refinanced through a
     sale/leaseback with a Real Estate Investment
     Trust ("REIT"). The Company has no continuing
     involvement outside of operating the community.
     
(3)  Consists of 9 long-term-care facilities located
     in New York.

                           F-28

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(4)  Consists of three communities originally acquired
     in 1993 and 1994, refinanced through a
     sale/leaseback with a REIT. The Company has no
     continuing involvement outside of operating the
     communities.
     
(5)  Originally acquired in 1996, refinanced through a
     sale/leaseback with a REIT. The Company has no
     continuing involvement outside of operating the
     community.
     
(6)  Consists of four assisted-living communities.


     During the year ended December 31, 1996, the Company
entered into sale/leaseback transactions with a REIT,
pursuant to which the REIT acquired four newly developed
communities by the Company (The Pines at Tewksbury, Garrison
Creek Lodge, Cambria and Sherwood Place) and leased the
communities back to the Company with initial lease terms
from 10 to 11 years, four to six five-year renewal options
and annual lease payments aggregating approximately $2.2
million.  The Company has no continuing involvement outside
of operating the communities.

     In January 1996, the Company entered into a letter of
intent with a REIT relating to sale/leaseback financing of
$100 million for newly purchased facilities and, in
September 1996, the Company entered into a similar
arrangement with a REIT for an additional $100 million
financing for newly purchased facilities.  At December 31,
approximately $87.9 million of such financing remains
available to the Company.


     The following summary, prepared on a pro forma basis,
combines the results of operations of the acquired business
with those of the Company as if the acquisitions,
acquisitions through lease financings and sale/leaseback
financings had been consummated as of January 1, 1995, after
including the impact of certain adjustments such as
depreciation on assets acquired and interest expense on
acquisition financing.








                            F-29

                    EMERITUS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)




                                          December 31,
                                   --------------------------
                                       1995          1996
                                   ------------  ------------
                                   (In thousands, except per
                                          share data)
                                           
Revenues..........................    $ 86,074       $93,763
                                                             
Net loss..........................     (11,290)       (7,935)
                                                             
Pro forma net loss per share......    $  (1.03)      $ (0.72)



     The unaudited pro forma results are not necessarily
indicative of what actually might have occurred if the
acquisitions had been completed as of the beginning of the
periods presented.  In addition, they are not intended to be
a projection of future results of operations and do not
reflect any of the synergies that might be achieved from
combined operations.

(15) SUBSEQUENT EVENT

     In January 1997, the Company advanced funds totaling
$1.2 million under a financing arrangement to a group of
four limited liability companies which are each developing
an assisted-living community.  These advances accrue
interest at rates ranging from 8% to 14% per annum and will
be repaid over the course of 10 to 20 years.  The Company is
also committed to an additional $3.1 million of advances.
As part of this arrangement, the Company will receive 75% of
excess cash flows.














                            F-30


                    INDEX TO EXHIBITS




                                                               
                                                                 Sequentially
Exhibit                                                            Numbered
Number                Description                     Reference      Page      
- ------  --------------------------------------------- ---------  ------------
                                                 

 3.1    Restated Articles of Incorporation of           
        registrant (Exhibit 3.1).                       (2)
                                                          
 3.2    Amended and Restated Bylaws of the registrant   
        (Exhibit 3.2).                                  (1)
                                                          
 4.1    Forms of 6.25% Convertible Subordinated         
        Debenture due 2006 (Exhibit 4.1).               (2)
                                                          
 4.2    Indenture dated February 15, 1996 between the     
        registrant and Fleet National Bank              
        ("Trustee") (Exhibit 4.2).                      (2)
                                                          
 10.1   1995 Stock Incentive Plan (Exhibit 10.1).       (1)
                                                          
 10.2   Stock Option Plan for Nonemployee Directors    
        (Exhibit 10.2).                                 (2)
                                                           
 10.3   Form of Indemnification Agreement for             
        officers and directors of the registrant        
        (Exhibit 10.3).                                 (1)
                                                          
 10.4   Noncompetition Agreements entered into            
        between the registrant and each of the
        following individuals:
                                                          
        10.4.1     Daniel R. Baty (Exhibit 10.4.1).     (2)
                                                          
        10.4.2     Raymond R. Brandstrom (Exhibit       
                   10.4.2).                             (2)
                                                          
        10.4.3     Frank A. Ruffo (Exhibit 10.4.3).     (2)
                                                          
 10.5   Shareholders Agreement dated as of April 17,      
        1995, and as amended September 27, 1995,          
        among the registrant, its Founders and         
        certain Investors, as defined therein
        (Exhibit 10.5).                                 (1)
                                                          
 10.6   Form of Stock Purchase Agreement dated July       
        31, 1995, entered into between Daniel R. Baty     
        and each of Michelle A. Bickford, Jean T.       
        Fukuda, James S. Keller, George T. Lenes and
        Kelly J. Price (Exhibit 10.6).                  (1)
                                                          
 10.7   Series A Preferred Stock and Note Purchase        
        Agreement dated as of April 17, 1995 among     
        the registrant and the investors listed on
        Schedule I thereto (Exhibit 10.7).              (1)
                                                          
 10.8   LA VILLITA IN PHOENIX, ARIZONA                    
                                                          
        10.8.1     Amended and Restated Promissory        
                   Note in the amount of $3,333,000                  
                   from the registrant to Nomura    
                   Asset Capital Corporation (Exhibit
                   10.10.1).                            (1)
                                                          
        10.8.2     Deed of Trust, Assignment of           
                   Leases and Rents and Security                     
                   Agreement by the registrant,       
                   as Trustor, to Old Republic Title               
                   Insurance Agency, Inc., as
                   Trustee, for the use and benefit of 
                   Health Care Asset Trust as
                   Beneficiary (Exhibit 10.10.2).       (1)
                                                          
                                                    
        10.8.3     Deed of Trust Modification             
                   Agreement between the registrant 
                   and Nomura Asset Capital            
                   Corporation (assignee of Health Care 
                   Asset Trust) (Exhibit 10.10.3).      (1)
                                                          
        10.8.4     Guarantee Agreement dated as of        
                   June 6, 1994 by and between                  
                   Daniel R. Baty as Guarantor,
                   and Lender (Exhibit 10.10.4).        (1)
                                                          
        10.8.5     Form of Security and Pledge            
                   Agreement by the registrant and 
                   Nomura Asset Capital Corporation
                   (Exhibit 10.10.5).                   (1)
                                                          
        10.8.6     Guarantee Modification             
                   Agreement dated as of September 28, 
                   1995 by and between Daniel R. Baty
                   as Guarantor, and Lender.            (5)
                                                          
 10.9   SCOTTSDALE ROYALE IN SCOTTSDALE, ARIZONA,         
        VILLA OCOTILLO IN SCOTTSDALE, ARIZONA AND
        MADISON GLEN IN CLEARWATER, FLORIDA.  THE
        FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
        THOSE EXECUTED IN CONNECTION WITH THESE
        PROPERTIES:
                                                          
        10.9.1     Loan Agreement dated December 31,      
                   1996 in the amount of                        
                   $12,275,000 by the registrant
                   ("Borrower") and Lender.              (5)
                                                          
        10.9.2     Promissory Note dated December 31,     
                   1996 in the amount of $6,775,000                  
                   between the registrant to Bank   
                   United (the "Lender") with respect 
                   to Madison Glen.                      (5)
                                                          
        10.9.3     Promissory Note dated December 31,     
                   1996 in the amount of $5,500,000                  
                   between the registrant to Bank   
                   United (the "Lender") with respect to
                   Scottsdale Royale and Villa Ocotillo. (5)
                                                          
        10.9.4     Deed of Trust, Security Agreement,     
                   Assignment of Leases and Rents,                   
                   and Fixture Filing (Financial      
                   Statement) dated as of December 31,               
                   1996, by the registrant, as        
                   Trustor and debtor, to Chicago Title        
                   Insurance Company, as Trustee,
                   for the benefit of the Lender,
                   Beneficiary and secured party
                   with respect to Scottsdale Royale 
                   and Villa Ocotillo.                   (5)
                                                          
        10.9.5     Mortgage and Security Agreement     
                   between the registrant                          
                   ("Mortgagor") and Bank United   
                   ("Mortgagee") with respect to
                   Madison Glen.                         (5)
                                                          
10.10   ROSEWOOD COURT IN FULLERTON, CALIFORNIA           
                                                          
        10.10.1     Lease Agreement dated March 29,       
                    1996 between the registrant                       
                    ("Lessee") and Health Care     
                    Property Investors, Inc. ("Lessor")
                    (Exhibit 10.1.1).                    (3)
                                                          
        10.10.2     First Amendment Lease Agreement       
                    dated April 25, 1996 by and                       
                    between the registrant         
                    ("Lessee") and Health Care Property
                    Investors, Inc. ("Lessor") (Exhibit
                    10.1.2).                             (3)
                                                          
10.11   THE ARBOR AT OLIVE GROVE IN PHOENIX, ARIZONA      
                                                          
        10.11.1     Lease Agreement dated as of           
                    December 27, 1995 between the                  
                    registrant and Health Care
                    Property Investors, Inc. 
                    (Exhibit 10.12.1).                   (2)
                                                          
                                                          
               
                                                    
        10.11.2     First Amended Lease Agreement         
                    dated as of February 19, 1996 by                  
                    and between the registrant     (2)
                    and Health Care Property Investors, 
                    Inc. (Exhibit 10.12.2).              (2)
                                                          
10.12   RENTON VILLA IN RENTON, WASHINGTON                
                                                          
        10.12.1     Lease Agreement dated as of           
                    December 27, 1995 between the   
                    registrant and Health Care
                    Property Investor, Inc. 
                    (Exhibit 10.13.1).                   (2)
                                                          
        10.12.2     First Amended Lease Agreement         
                    dated as of February 19, 1996 by                  
                    and between the registrant    
                    and Health Care Property Investors,
                    Inc. (Exhibit 10.13.2).              (2)
                                                          
10.13   SEABROOK, IN EVERETT, WASHINGTON                  
                                                          
        10.13.1     Lease Agreement dated as of           
                    December 27, 1995 between the               
                    registrant and Health Care
                    Property Investor, Inc. 
                    (Exhibit 10.14.1).                   (2)
                                                          
        10.13.2     First Amended Lease Agreement         
                    dated as of February 19, 1996 by                  
                    and between the registrant     
                    and Health Care Property Investors, 
                    Inc. (Exhibit 10.14.2).              (2)
                                                          
10.14   LAUREL LAKE ESTATES IN VOORHEES, NEW JERSEY       
                                                          
        10.14.1     Lease Agreement dated as of           
                    December 27, 1995 between the              
                    registrant and Health Care
                    Property Investor, Inc. 
                    (Exhibit 10.15.1).                   (2)
                                                          
        10.14.2     First Amended Lease Agreement         
                    dated as of February 19, 1996 by                  
                    and between the registrant    
                    and Health Care Property Investors
                    Inc. (Exhibit 10.15.2).              (2)
                                                          
10.15   FLORIDA PROPERTIES (SEE BELOW)                    
                                                          
        10.15.1     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I      
                    ("Lessor") and Emeritus Properties 
                    I, Inc., ("Lessee") with respect to
                    Beneva Park Club (Exhibit 10.16.1).  (2)
                                                          
        10.15.2     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I ("Lessor")    
                    and Emeritus Properties I, Inc.,
                    ("Lessee") with respect to Central
                    Park Club (Exhibit 10.16.2).         (2)
                                                          
        10.15.3     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I     
                    ("Lessor") and Emeritus 
                    Properties I, Inc., ("Lessee")
                    with respect to College
                    Park Club (Exhibit 10.16.3).         (2)
                                                          
        10.15.4     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I   
                    ("Lessor") and ESC I, G.P.,
                    Inc., ("Lessee") with respect to
                    Park Club of Brandon 
                    (Exhibit 10.16.4).                  (2)

        10.15.5     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I      
                    ("Lessor") and Emeritus Properties 
                    I, Inc., ("Lessee") with respect 
                    to Park Club of Fort Myers 
                    (Exhibit 10.16.5).                 (2)
                                                          
        10.15.6     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I      
                    ("Lessor") and Emeritus Properties 
                    I, Inc., ("Lessee") with respect to
                    Park Club of Oakbridge 
                    (Exhibit 10.16.6).                   (2)
                                                          
                                                          
                                                    
10.16   SUMMER WIND IN BOISE, IDAHO                       
                                                          
        10.16.1     Lease Agreement dated as of           
                    August 31, 1995 between AHP of                  
                    Washington, Inc. and the
                    registrant (Exhibit 10.18.1).        (1)
                                                          
        10.16.2     First Amended Lease Agreement         
                    dated as of December 31, 1996 by               
                    and between the registrant
                    and AHP of Washington, Inc.          (5)
                                                          
10.17   SILVER PINES (FORMERLY WILLOWBROOK) IN CEDAR      
        RAPIDS, IOWA
                                                          
        10.17.1     Purchase and Sale Agreement           
                    (including Real Estate Contract)                  
                    dated January 4, 1995          
                    between Jabo, Ltd. ("Jabo") and the
                    registrant (Exhibit 10.19.1).        (1)
                                                          
        10.17.2     Assignment and Assumption             
                    Agreement with respect to facility                
                    leases dated as of January    
                    17, 1995 by and between Jabo, 
                    as Assignor, and the registrant, as
                    Assignee (Exhibit 10.19.2).          (1)
                                                          
10.18   SUNNY KNOLL IN FRANKLIN, NEW HAMPSHIRE            
                                                          
        10.18.1     Promissory Note dated May 1, 1995     
                    in the amount of $1,100,000                       
                    from Lakes Region Villages,    
                    L.L.C. (the "Borrower") to Sunny
                    Knoll Retirement Home, Inc.
                    (Exhibit 10.20.1).                   (1)
                                                          
        10.18.2     Promissory Note dated May 1, 1995     
                    in the amount of $749,331.48                    
                    from the Borrower to Benjamin
                    Bartley, L.L.C (Exhibit 10.20.2).    (1)
                                                          
        10.18.3     Business Lease and Agreement          
                    dated as of May 1, 1995, between                  
                    the Borrower, as Tenant and    
                    Sunny Knoll Retirement Home, Inc.,
                    as Landlord (Exhibit 10.20.3).       (1)
                                                          
        10.18.4     Real Estate Lease and Agreement       
                    dated as of May 1, 1995 between                   
                    the Borrower, as Tenant and    
                    Benjamin Bartley, L.L.C., as 
                    Landlord (Exhibit 10.20.4).          (1)
                                                          
        10.18.5     Mortgage Deed dated May 1, 1995       
                    by Benjamin Bartley L.L.C., as                    
                    Mortgagor, to Lakes Region    
                    Villages, L.L.C., as Mortgagee 
                    (Exhibit 10.20.5).                   (1)
                                                          
        10.18.6     Management Agreement dated as of      
                    May 1, 1995 between Lakes                         
                    Region Villages, L.L.C. and    
                    The Standish Care Company (Exhibit
                    10.20.6).                            (1)
                                                          
        10.18.7     Guaranty dated May 1, 1995 by the     
                    registrant, as Guarantor, to                  
                    Sunny Knoll Retirement Home,
                    Inc. (Exhibit 10.20.7).              (1)
                                                          
10.19   CARRIAGE HILL RETIREMENT IN BEDFORD, VIRGINIA     
                                                          
        10.19.1     Lease Agreement dated August 31,      
                    1994 between the registrant, as                   
                    Tenant, and Carriage Hill      
                    Retirement of Virginia, Ltd. as 
                    Landlord (Exhibit 10.23.1).          (1)
                                                          
        10.19.2     Supplemental Lease Agreement          
                    dated September 2, 1994 (Exhibit               
                    10.23.2).                            (1)
                                                          
                                                          
                                                          
                                                    
10.20   GREEN MEADOWS COMMUNITIES                         
                                                          
        10.20.1     Consent to Assignment of and          
                    First Amendment to Asset Purchase                 
                    Agreement dated September 1,     
                    1995 among the registrant, The                    
                    Standish Care Company and        
                    Painted Post Partnership, Allentown               
                    Personal Car General             
                    Partnership, Unity Partnership, 
                    Saulsbury General Partnership and P.
                    Jules Patt (collectively, the
                    "Partnerships"), together
                    with Asset Purchase Agreement dated
                    July 27, 1995 among The
                    Standish Care Company and the
                    Partnerships (Exhibit 10.24.1).     (1)
                                                          
        10.20.2     Lease Agreement dated October 19,     
                    1995 between the registrant                       
                    and HCPI Trust with respect   
                    to Green Meadows - Allentown 
                    (Exhibit 10.24.2).                  (1)
                                                          
        10.20.3     Lease Agreement dated October 16,     
                    1995 between the registrant                       
                    and HCPI Trust with respect    
                    to Green Meadows - Dover (Exhibit
                    10.24.3).                           (1)
                                                          
        10.20.4     Lease Agreement dated October 19,     
                    1995 between the registrant                       
                    and HCPI Trust with respect   
                    to Green Meadows -  Latrobe 
                    (Exhibit 10.24.4).                  (1)                 
                                                          
        10.20.5     Lease Agreement dated October 19,     
                    1995 between the registrant                       
                    and HCPI Trust with respect   
                    to Green Meadows - Painted Post
                    (Exhibit 10.24.5).                  (1)
                                                          
        10.20.6     Agreement to Provide                  
                    Administrative Services to an 
                    Adult Home dated October 23, 1995        
                    between the registrant and P. Jules 
                    Patt and Pamela J. Patt (Exhibit
                    10.24.6).                            (1)
                                                          
        10.20.7     Painted Post Partners Partnership     
                    Agreement dated October 1, 1995      (1)
                    (Exhibit 10.24.7).
                                                          
        10.20.8     Assignment Agreement dated            
                    October 19, 1995 between the                      
                    registrant, HCPI Trust and     
                    Health Care Property Investors, 
                    Inc. (Exhibit 10.24.8).              (1)
                                                          
        10.20.9     Assignment and Assumption             
                    Agreement dated August 31, 1995                   
                    between the registrant and    
                    The Standish Care Company (Exhibit
                    10.24.9).                            (1)
                                                          
        10.20.10   Guaranty dated October 19, 1995 by     
                   Daniel R. Baty in favor of                        
                   Health Care Property           
                   Investors, Inc., and HCPI Trust 
                   (Exhibit 10.24.10).                   (1)
                                                          
        10.20.11   Guaranty dated October 19, 1995 by     
                   the registrant in favor of                      
                   Health Care Property Investors,
                   Inc. (Exhibit 10.24.11).              (1)
                                                          
        10.20.12   First Amended Lease Agreement          
                   dated as of December 13, 1995 by                  
                   and between the registrant     
                   and HCPI, Trust with respect to 
                   Green Meadows - Allentown.            (5)
                                                          
        10.20.13   Second Amended Lease Agreement         
                   dated as of February 13, 1996 by                  
                   and between the registrant     
                   and HCPI, Trust with respect to 
                   Green Meadows - Allentown.            (5)
                                                    
                                                          
        10.20.14   First Amended Lease Agreement          
                   dated as of December 13, 1995 by                  
                   and between the registrant     
                   and Health Care Property Investors,
                   Inc., with respect to Green
                   Meadows - Dover.                      (5)
                                                          
        10.20.15   Second Amended Lease Agreement         
                   dated as of February 13, 1996 by                  
                   and between the registrant     
                   and Health Care Property Investors, 
                   Inc., with respect to Green
                   Meadows - Dover.                      (5)
                                                          
        10.20.16   First Amended Lease Agreement          
                   dated as of December 13, 1995 by                  
                   and between the registrant     
                   and HCPI, Trust with respect to  
                   Green Meadows - Latrobe.              (5)
                                                          
        10.20.17   Second Amended Lease Agreement         
                   dated as of February 13, 1996 by                  
                   and between the registrant     
                   and HCPI, Trust with respect to  
                   Green Meadows - Latrobe.              (5)
                                                          
        10.20.18   First Amended Lease Agreement          
                   dated as of December 13, 1995 by                  
                   and between the registrant     
                   and Health Care Property Investors, 
                   Inc., with respect to Green
                   Meadows - Painted Post.               (5)
                                                          
        10.20.19   Second Amended Lease Agreement         
                   dated as of June 24, 1996 by                      
                   and between the registrant     
                   and Health Care Property Investors, 
                   Inc., with respect to Green
                   Meadows - Painted Post.               (5)
                                                          
        10.20.20    First Amendment to Painted Post       
                    Partners Partnership Agreement                  
                    dated October 22, 1996         
                    between Daniel R. Baty and Raymond R.
                    Brandstrom.                          (5)
                                                          
10.21   CAROLINA COMMUNITIES                              
                                                          
        10.21.1     Lease Agreement dated January 26,     
                    1996 between the registrant                  
                    and HCPI Trust with respect
                    to Countryside Facility 
                    (Exhibit 10.23.1).                   (2)
                                                          
        10.21.2     Lease Agreement dated January 26,     
                    1996 between the registrant                       
                    and Health Care Property      
                    Investors with respect to Heritage 
                    Health Center Facility (Exhibit   
                    10.23.2).                            (2)    
                                                          
        10.21.3     Management Services Agreement         
                    between the registrant and                        
                    Servicemaster Diversified      
                    Health Services, L.P. ("Manger") 
                    dated June 27, 1996 (Exhibit
                    10.5.1).                             (4)
                                                          
        10.21.4     Promissory Note dated as of           
                    January 26, 1996 in the amount of                 
                    $3,991,190 from Heritage      
                    Hills Retirement, Inc. ("Borrower") 
                    to Health Care Property
                    Investors, Inc. ("Lender") 
                    (Exhibit 10.23.4).                   (2)
                                                          
        10.21.5     Loan Agreement dated January 26,      
                    1996 between the Borrower                      
                    and the Lender (Exhibit 10.23.5).    (2)
                                                          
        10.21.6     Guaranty dated January 26, 1996       
                    by the registrant in favor of the               
                    Borrower (Exhibit 10.23.6).          (2)
                                                          
        10.21.7     Deed of Trust with Assignment of      
                    Rents, Security Agreement and                     
                    Fixture Filing dated as of       
                    January 26, 1996 by and among Heritage            
                    Hills Retirement, Inc.        
                    ("Grantor"), Chicago Title Insurance 
                    Company ("Trustee") and Health Care
                    Property Investor, Inc. 
                    ("Beneficiary") (Exhibit 10.23.7).    (2)
                                                    
                                                          
        10.21.8     Lease Agreement dated as of           
                    January 26, 1996 between the 
                    registrant and Health Care Property       
                    Investor, Inc. with respect to Heritage
                    Lodge Facility (Exhibit 10.23.8).      (2)
                                                          
        10.21.9     Lease Agreement dated as of           
                    January 26, 1996 between the 
                    registrant and Health Care Property       
                    Investor, Inc. with respect to Pine Park
                    Facility (Exhibit 10.23.9).            (2)
                                                          
        10.21.10   Lease Agreement dated January 26,      
                   1996 between the registrant                     
                   and HCPI Trust with respect
                   to Skylyn Facility (Exhibit 10.23.10).   (2)
                                                          
        10.21.11   Lease Agreement dated January 26,      
                   1996 between the registrant                       
                   and HCPI Trust with respect    
                   to Summit Place Facility (Exhibit
                   10.23.11).                               (2)
                                                          
        10.21.12   Amendment to Deed of Trust dated       
                   April 25, 1996 between Heritage                 
                   Hills Retirement, Inc.          
                   ("Grantor"), and Health Care Property
                   Investors, Inc. ("Beneficiary").         (5)
                                                          
        10.21.13   First Amendment to Lease Agreement     
                   dated March 29, 1996 between                    
                   registrant and Health Care      
                   Property Investors, Inc. with respect
                   to Heritage Health Center.               (5)
                                                          
10.22   Letter of Intent dated January 31, 1996           
        between the registrant and Meditrust           
        Acquisition Corporation I relating to
        developments (Exhibit 10.33).                       (2)
                                                          
10.23   Letter of Intent dated January 31, 1996           
        between the registrant and Meditrust            
        Acquisition Corporation I relating to
        acquisitions (Exhibit 10.34).                       (2)
                                                          
10.24   Letter of Intent dated August 13, 1996            
        between the registrant and Meditrust           
        Acquisition Corporation I relating to
        acquisitions.                                       (5)
                                                          
10.25   Letter of Intent dated August 13, 1996            
        between the registrant and Meditust            
        Acquisition Corporation I relating to
        developments.                                       (5)
                                                          
10.26   DEVELOPMENT PROPERTY IN LEWISTON, IDAHO           
                                                          
        10.26.1  Agreement to Purchase Construction       
                 Loan dated January 30, 1997                       
                 between RMI Capital Management    
                 Co. ("Construction Lender")
                 and the registrant.                       (5)
                                                          
        10.26.2  Construction Loan Agreement between      
                 RMI Capital Management                         
                 Co. ("Lender") and Emeritus
                 Properties II, Inc. ("Borrower").         (5)
                                                          
        10.26.3  Promissory Note dated January 30,        
                 1997 in the amount of                             
                 $5,080,082.39 between RMI         
                 Capital Management Co. ("Holder") and
                 Emeritus Properties II, Inc.
                 ("Maker").                                (5)
                                                          
        10.26.4  Deed of Trust, Assignment of Rents,      
                 Security Agreement and                            
                 Financing Statement dated           
                 January 30, 1997 between Emeritus                 
                 Properties II, Inc. ("Borrower"   
                 or "Grantor"), Alliance Title & Escrow
                 Corp. ("Trustee") and RMI
                 Capital Management Co.
                 ("Beneficiary" or "Lender").             (5)
                                                          
        10.26.5  Guaranty Agreement dated January 30,     
                 1997 between the registrant                    
                 ("Guarantor") and RMI Capital
                 Management Co. ("Lender").               (5)
                                                    
                                                          
10.27   Assignment, Assumption and Consent Agreement      
        dated as of April 17, 1995  between the                   
        registrant and Columbia-Pacific Group,
        Inc. (Exhibit 10.32).                             (1)
                                                          
10.28   Convertible Debenture Agreement dated as of       
        June 10, 1994 among The Standish Care            
        Company and the individuals on Schedule I
        attached thereto (Exhibit 10.33).                 (1)
                                                          
10.29   Registration Rights Agreement dated June 10,      
        1994 among The Standish Care Company and                    
        Columbia-Pacific Group (Exhibit 10.34).           (1)
                                                          
10.30   Warrant to Purchase Common Stock of The           
        Standish Care Company (Exhibit 10.35).            (1)
                                                          
10.31   DEVELOPMENT PROPERTY IN FAIRFIELD, CALIFORNIA     
                                                          
        10.31.1    Loan Agreement in the amount of        
                   $12,800,000 dated January 10, 1997,             
                   between Fairfield Retirement       
                   Center, LLC ("Borrower") and the Finova
                   Capital Corporation ("Lender").        (5)
                                                          
        10.31.2  Promissory Note dated January 10,        
                 1997 in the amount of                             
                 $12,800,000 between Fairfield     
                 Retirement Center, LLC ("Borrower")
                 and Finova Capital Corporation
                 ("Lender").                              (5)
                                                          
        10.31.3  Deed of Trust, Security Agreement,       
                 Assignment of Leases and Rents                    
                 and Fixture Filing dated            
                 January 10, 1997 between Fairfield 
                 Retirement Center, LLC ("Trustor"),
                 Chicago Title Company ("Trustee") and
                 Finova Capital Corporation
                 ("Beneficiary").                        (5)
                                                          
        10.31.4  Guaranty Agreement dated January 10,     
                 1997 between the registrant                     
                 ("Guarantor") and Finova Capital
                 Corporation ("Lender").                 (5)
                                                          
10.32   DEVELOPMENT PROPERTY IN PUYALLUP, WASHINGTON      
                                                          
        10.32.1  Loan Agreement dated January 30,         
                 1997, between Emeritus Properties        
                 III, Inc. ("Maker") and Ocwen
                 Federal Bank FSB ("Payee").             (5)
                                                          
        10.32.2  Promissory Note dated January 30,        
                 1997 in the amount of $6,465,000                  
                 between Emeritus Properties       
                 III, Inc. ("Maker") and Ocwen Federal
                 Bank, FSB ("Payee").                    (5)
                                                          
        10.32.3  Deed of Trust, Security Agreement,       
                 Assignment of Leases and Rents                    
                 and Fixture Filing dated January            
                 30, 1997 between Emeritus Properties   
                 III, Inc. ("Borrower"), Chicago
                 Title Insurance Company ("Trustee")
                 and Ocwen Federal Bank, FSB
                 ("Lender").                             (5)
                                                          
10.33   KIRKLAND LODGE AT LAKESIDE IN KIRKLAND,           
        WASHINGTON
                                                          
        10.33.1   Deed of Trust, Security               
                  Agreement, and Assignment of Leases and           
                  Rents dated June 15, 1995 among the
                  registrant, Chicago Title Insurance             
                  Company and U.S. Bank of Washington,
                  National Association (Exhibit
                  10.39.1).                               (1)
                                                          
        10.33.2   Construction Loan Agreement dated     
                  June 15, among the registrant,                  
                  Daniel R. Baty and U.S. Bank
                  of Washington (Exhibit 10.39.2).        (1)
                                                          
                                                          
                                                    
        10.33.3   Promissory Note dated June 15,        
                  1995 in the amount of $4,820,000                  
                  from the registrant to U.S.   
                  Bank of Washington, National 
                  Association (Exhibit 10.39.3).          (1)
                                                          
        10.33.4     Guaranty dated June 15, 1995 by       
                    Daniel R. Baty in favor of U.S.             
                    Bank of Washington, National
                    Association (Exhibit 10.39.4).        (1)
                                                          
10.34   THE PINES AT TEWKSBURY IN TEWKSBURY,              
        MASSACHUSETTS
                                                          
        10.34.1     Lease Agreement dated March 15,       
                    1996 between Meditrust                            
                    Acquisition Corporation I      
                    ("Lessor") and Emeritus Properties 
                    I, Inc., ("Lessee") with respect to
                    Tewksbury (Exhibit 10.37.1).          (2)
                                                          
10.35   GARRISON CREEK LODGE IN WALLA WALLA,              
        WASHINGTON, CAMBRIA  (FORMERLY CALLED
        ALHAMBRA LODGE) IN EL PASO TEXAS, AND
        SHERWOOD PLACE IN ODESSA, TEXAS.  THE
        FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
        THOSE EXECUTED IN CONNECTION WITH THESE
        PROPERTIES:
                                                          
        10.35.1  Lease Agreement dated July, August       
                 and September 1996 between                        
                 the registrant ("Lessee") and   
                 American Health Properties, Inc.
                 ("Lessor") (Exhibit 10.3.1).             (4)
                                                          
        10.35.2   First Amendment to Lease              
                  Agreement dated December 31, 1996               
                  between the registrant           
                  ("Lessee") and AHP of Washington, 
                  Inc., ("Lessor").                       (5)
                                                          
10.36   COBBLESTONE AT FAIRMONT IN MANASSAS, VIRGINIA     
                                                          
        10.36.1     Loan Agreement effective as of        
                    October 26, 1995 between the              
                    registrant and Health Care
                    REIT, Inc. (Exhibit 10.42.1).         (1)
                                                          
        10.36.2     Deed of Trust, Security               
                    Agreement, Assignment of Leases and 
                    Rents and Fixture Filing dated as    
                    of October 26, 1995 by the registrant 
                    to Health Care REIT, Inc.
                    (Exhibit 10.42.2).                    (1)
                                                          
        10.36.3     Note dated October 26, 1995 from      
                    the registrant to Health Care REIT,            
                    Inc. (Exhibit 10.42.3).               (1)
                                                          
        10.36.4     Unconditional and Continuing          
                    Guaranty dated as of October 26,                  
                    1995 by Daniel R. Baty in      
                    favor of Health Care REIT, Inc.
                    (Exhibit 10.42.4).                    (1)
                                                          
 10.37   ROSEWOOD COURT IN FULLERTON, CALIFORNIA, THE      
         ARBOR AT OLIVE GROVE IN PHOENIX, ARIZONA,
         RENTON VILLA IN RENTON, WASHINGTON, SEABROOK
         IN EVERETT, WASHINGTON AND LAUREL LAKE
         ESTATES IN VOORHEES, NEW JERSEY.  THE
         FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
         THOSE EXECUTED IN CONNECTION WITH THESE
         PROPERTIES:
                                                           
         10.37.1     Second Amended Lease Agreement        
                     dated as of December 30, 1996 by                
                     and between the registrant
                     and Health Care Property Investors, 
                     Inc.                               (5)      
                                                          
                                                          
                                                          
                                                          
    
                                                    
10.38   VICTORIAN MANOR IN SAN FRANCISCO, CALIFORNIA      
                                                          
        10.38.1     Assignment of Purchase Rights and     
                    Option Agreement dated                            
                    September 30, 1995 between    
                    the registrant and Daniel R. Baty
                    (Exhibit 10.44.1).                  (1)
                                                          
        10.38.2     Agreement of Purchase and Sale        
                    dated July 1995 between Union                 
                    Bank and the registrant
                    (Exhibit 10.44.2).                  (1)
                                                          
10.39   DEVELOPMENT PROPERTY IN WACO AND LONGVIEW,        
        TEXAS
                                                          
        10.39.1     Construction Loan Letter              
                    Agreement dated September 12, 1995                
                    between the registrant and     
                    Fleet National Bank, as amended on
                    November 30, 1995 (Exhibit
                    10.42.1).                           (2)
                                                          
10.40   COOPER GEORGE PARTNERS LIMITED PARTNERSHIP        
                                                          
        10.40.1     Agreement of Cooper George            
                    Partners Limited Partnership dated                
                    August 7, 1995 between           
                    Emeritus Real Estate IV, L.L.C.
                    ("General Partner") and Bella Torre 
                    De Pisa Limited Partnership
                    ("Limited Partner") (Exhibit 
                    10.43.1).                           (2) 
                                                          
        10.40.2     Construction Loan Agreement dated     
                    December 12, 1995 between                         
                    Cooper George Partners           
                    Limited Partnership (" Borrower") and      
                    Intervest-Mortgage Investment Company 
                    ("Lender") (Exhibit 10.43.2).        (2)
                                                          
        10.40.3     Promissory Note dated December        
                    1995 between Cooper George                        
                    Partners Limited Partnership   
                    ("Maker") and the Lender (Exhibit
                    10.43.3).                            (2)
                                                          
        10.40.4     Guaranty dated December 1995 by       
                    Daniel R. Baty and Pamela D.                    
                    Baty ("Guarantor") in favor
                    of the Lender (Exhibit 10.43.4).     (2)
                                                          
        10.40.5     Deed of Trust, Assignment of          
                    Rents and Security Agreement dated                
                    December 1995 between Cooper     
                    George Partners Limited Partnership               
                    ("Grantor"), First American    
                    Title Insurance Company ("Trustee")
                    and Intervest-Mortgage
                    Investment Company ("Beneficiary")
                    (Exhibit 10.43.5).                    (2)
                                                          
10.41   Registration Rights Agreement dated February      
        8, 1996 with respect to the registrant's                      
        6.25% Convertible Subordinated Debentures     
        due 2006 (Exhibit 10.44).                         (2)
                                                          
10.42   Registration Rights Agreement dated February      
        8, 1996 with respect to the registrant's                       
        6.25% Convertible Subordinated Debentures    
        due 2006 (Exhibit 10.45).                         (2)
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                    
10.43   DEVELOPMENT PROPERTIES IN BEAUMONT, TEXAS,        
        MIDLAND, TEXAS, LUBBOCK, TEXAS, AMARILLO,
        TEXAS, CLARKSVILLE, TENNESSEE, WICHITA FALLS
        IN WICHITA FALLS, TEXAS AND SAN ANGELO IN SAN
        ANGELO, TEXAS.  THE FOLLOWING AGREEMENTS ARE
        REPRESENTATIVE OF THOSE EXECUTED IN
        CONNECTION WITH THESE PROPERTIES:
                                                          
        10.43.1  Lease Agreement dated April and July     
                 1996 between ESC I, L.P.                          
                 ("Lessee") and Meditrust          
                 Acquisition Corporation I ("Lessor")
                 (Exhibit 10.2.1).                      (3)
                                                          
        10.43.2  Leasehold Improvement Agreement          
                 dated April 15, 1996 between                      
                 Meditrust Acquisition             
                 Corporation I ("Lessor") and ESC 
                 I, L.P. ("Lessee") (Exhibit 10.2.2).    (3)
                                                          
10.44   BARRINGTON PLACE IN LECANTO, FLORIDA AND          
        SPRINGTREE IN SUNRISE, FLORIDA.  THE
        FOLLOWING AGREEMENT IS REPRESENTATIVE OF
        THOSE EXECUTED IN CONNECTION WITH THESE
        PROPERTIES:
                                                          
        10.44.1  Lease Agreement dated May 1, 1996        
                 between Emeritus Properties I,                    
                 Inc. ("Lessee") and Meditrust    
                 Acquisition Corporation I
                 ("Lessor") (Exhibit 10.3.1).            (3)
                                                          
10.45   LAUREL PLACE (FORMERLY GOLDEN PARK) IN SAN        
        BERNARDINO, CALIFORNIA
                                                          
        10.45.1  Purchase and Sale Agreement dated        
                 January 24, 1996 between Western                          
                 Biologics Inc., ("Seller"), Nancy            
                 F. Feinstein and Jay L. Feinstein
                 ("Seller") and the registrant
                 ("Purchaser") (Exhibit 10.4.1).         (3)
                                                          
10.46   LAKEWOOD INN IN COEUR D'ALENE, IDAHO,             
        EVERGREEN LODGE (FORMERLY THE WOODWAY INN) IN
        FEDERAL WAY, WASHINGTON, GREENVILLE IN
        GREENVILLE, SOUTH CAROLINA, GRAND TERRACE IN
        GRAND TERRACE, CALIFORNIA, RIDGE WIND IN
        CHUBBOCK, IDAHO AND OCEAN SHORES IN OCEAN
        SHORES, WASHINGTON.  THE FOLLOWING AGREEMENT
        IS REPRESENTATIVE OF THOSE EXECUTED IN
        CONNECTION WITH THESE PROPERTIES:
                                                          
        10.46.1  Lease Agreement dated April and June     
                 1996 between Emeritus                             
                 Properties I, Inc. ("Lessee")     
                 and Meditrust Acquisition Corporation 
                 I ("Lessor") (Exhibit 10.5.1).        (3)
                                                          
10.47   LAKEWOOD INN IN COEUR D' ALENE, IDAHO,            
        GREENVILLE IN GREENVILLE, SOUTH CAROLINA AND
        OCEAN SHORES IN OCEAN SHORES, WASHINGTON.
        THE FOLLOWING AGREEMENT IS REPRESENTATIVE OF
        THOSE EXECUTED IN CONNECTION WITH THESE
        PROPERTIES:
                                                          
        10.47.1  Leasehold Improvement Agreement          
                 dated April and June 1996 between                 
                 Meditrust Acquisition             
                 Corporation I ("Lessor") and Emeritus
                 Properties I ("Lessee")
                 (Exhibit 10.6.1).                      (3)
                                                          
                                                          
                                                          
                                                          
                                                    
10.48   DEVELOPMENT PROPERTY IN BOZEMAN, MONTANA          
                                                          
        10.48.1  Agreement to Purchase Construction       
                 Loan dated May 30, 1996                           
                 between RMI Capital Management    
                 Co. ("Construction Lender")
                 and Emeritus Corporation
                 (Exhibit 10.7.1).                      (3)
                                                          
        10.48.2  Construction Loan Agreement between      
                 RMI Capital Management                            
                 Co. ("Lender") and Emeritus      
                 Properties II, Inc. ("Borrower") 
                 (Exhibit 10.7.2).                      (3)
                                                          
        10.48.3  Promissory Note dated May 30, 1996       
                 in the amount of $4,695,000                       
                 between RMI Capital Management    
                 Co. ("Holder") and Emeritus
                 Properties II, Inc. ("Maker")
                 (Exhibit 10.7.3).                      (3)
                                                          
        10.48.4  Security Agreement dated May 30,         
                 1996 between Emeritus                             
                 Properties II, Inc. ("Debtor")    
                 and RMI Capital Management Co.
                 ("Secured Party") (Exhibit
                 10.7.4).                               (3)
                                                          
        10.48.5  Deed of Trust, Assignment of Rents,      
                 Security Agreement and                            
                 Financing Statement dated May       
                 30, 1996 between Emeritus                         
                 Properties II, Inc. ("Borrower"   
                 or "Grantor"), American Land Title
                 Company ("Trustee") and RMI
                 Capital Management Co.
                 ("Beneficiary" or "Lender")
                 (Exhibit 10.7.5).                      (3)
                                                          
        10.48.6  Guaranty Agreement dated May 30,         
                 1996 between Emeritus                             
                 Corporation ("Guarantor") and     
                 RMI Capital Management Co.
                 ("Lender") (Exhibit 10.7.6).           (3)
                                                          
10.49   Office Lease Agreement dated April 29, 1996       
        between Martin Selig ("Lessor") and the         
        registrant ("Lessee") (Exhibit 10.8).
                                                        (3)
10.50   THE LODGE AT MAINLANDS IN PINELLAS PARK,          
        FLORIDA, COLONIAL PARK CLUB IN SARASOTA,
        FLORIDA, FAIRHAVEN ESTATES IN BELLINGHAM,
        WASHINGTON, HIGHLAND HILLS IN POCATELLO,
        IDAHO AND ANDERSON PLACE IN ANDERSON, SOUTH
        CAROLINA.  THE FOLLOWING AGREEMENTS ARE
        REPRESENTATIVE OF THOSE EXECUTED IN
        CONNECTION WITH THESE PROPERTIES:
                                                          
        10.50.1  Lease Agreement dated August and         
                 October 1996 between Emeritus                     
                 Properties I, Inc. ("Lessee")     
                 and Meditrust Acquisition Corporation 
                 I ("Lessor") (Exhibit 10.1.1).         (4)
                                                          
10.51   COLONIAL PARK CLUB IN SARASOTA, FLORIDA.          
                                                          
        10.51.1  Leasehold Improvement Agreement          
                 dated August 21, 1996 between                     
                 Emeritus Properties I, Inc.       
                 ("Lessee") and Meditrust Acquisition
                 Corporation I ("Lessor")
                 (Exhibit 10.2.1).                      (4)
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                    
10.52   COLONIE MANOR IN LATHAM, NEW YORK, BASSETT        
        MANOR IN WILLIAMSVILLE, NEW YORK, WEST SIDE
        MANOR IN LIVERPOOL, NEW YORK, BELLEVUE MANOR
        IN SYRACUSE, NEW YORK, PERINTON PARK MANOR IN
        FAIRPORT, NEW YORK, BASSETT PARK MANOR IN
        WILLIAMSVILLE, NEW YORK, WOODLAND MANOR IN
        VESTAL, NEW YORK, EAST SIDE MANOR IN
        FAYETTEVILLE, NEW YORK AND WEST SIDE MANOR IN
        ROCHESTER, NEW YORK.  THE FOLLOWING AGREEMENT
        IS REPRESENTATIVE OF THOSE EXECUTED IN
        CONNECTION WITH THESE PROPERTIES:
                                                          
        10.52.1  Lease Agreement dated September 1,       
                 1996 between Philip Wegman                      
                 ("Landlord") and Painted Post
                 Partners ("Tenant") (Exhibit 10.4.1). (4)    
                                                          
        10.52.2  Management Services Agreement dated      
                 September 2, 1996 between                       
                 the registrant and Painted Post
                 Partners ("Operator") (Exhibit 10.4.2).(4)
                                                          
10.53   CAMLU IN COUER D'ALENE, IDAHO                     
                                                          
        10.53.1  Management Serviced Agreement            
                 between the Registrant ("Manager")                
                 and Columbia House, LLC          
                 ("Lessee") dated November 1, 1996
                 (Exhibit 10.6.1).                      (4)
                                                          
10.54   THE HEARTHSTONE IN MOSES LAKE, WASHINGTON         
                                                          
        10.54.1  Purchase and Sale Agreement dated        
                 August 20, 1996 between the                       
                 registrant ("Purchaser") and     
                 Hearthstone-5K Family Limited
                 Partnership ("Seller") (Exhibit
                 10.7.1).                               (4)
                                                          
        10.54.2  Loan Agreement dated October 30,         
                 1996 between the registrant and                 
                 Washington Mutual Bank
                 ("Holder") (Exhibit 10.7.2).           (4)
                                                          
        10.54.3  Deed of Trust, Security Agreement,       
                 Assignment of Leases and                          
                 Rents and Fixture Filing dated      
                 October 30, 1996 by the registrant          
                 ("Grantor"), Chicago Title
                 Insurance Company ("Trustee"), and
                 Washington Mutual Bank
                 ("Beneficiary") (Exhibit 10.7.3).      (4)
                                                          
        10.54.4    First Amendment to Purchase and        
                   Sale Agreement dated November 1,                
                   1996 between the registrant       
                   ("Purchaser") and Hearthstone-5K 
                   Family  Limited Partnership 
                   ("Seller").                          (5)
                                                          
        10.54.5    Promissory Note dated October 30,      
                   1996 in the amount of $4,160,000              
                   between the registrant and
                   Washington Mutual Bank ("Holder").   (5)
                                                          
10.55   VICKERY TOWERS (FORMERLY BELMONT TOWERS) IN       
        DALLAS, TEXAS
                                                          
        10.55.1   Promissory Note dated November 26,      
                  1996 in the amount of                           
                  $17,000,000 between ESC II, L.P.   
                  ("Maker") and GMAC Commercial
                  Mortgage Corporation ("Payee").        (5)
                                                          
        10.55.2   Construction Loan Agreement dated       
                  November 26, 1996 by ESC II,                      
                  L.P., (Borrower) and GMAC        
                  Commercial Mortgage Corporation
                  ("Lender").                            (5)
                                                          
        10.55.3   Deed of Trust, Mortgage and             
                  Security Agreement dated as of                    
                  of November 26, 1996 by ESC      
                  II, L.P. ("Grantor") to Andrew D.
                  Rocker, Trustee.                       (5)
                                                    
        10.55.4  Guaranty Agreement dated November        
                 26, 1996 between Emeritus                         
                 Corporation ("Guarantor") and     
                 GMAC Commercial Mortgage
                 Corporation ("Creditor").               (5)
                                                          
10.56   CONCORDE IN LAS VEGAS, NEVADA                     
                                                          
        10.56.1  Purchase and Sale Agreement dated        
                July 9, 1996 between the                        
                registrant ("Purchaser") and
                Sunday Estates, Inc. ("Seller").         (5)
                                                          
        10.56.2    First Amendment to Purchase and        
                   Sale Agreement dated July 11, 1996          
                   between the registrant the
                   Seller.                               (5)
                                                          
        10.56.3  Promissory Note dated November 18,       
                 1996 in the amount of                             
                 $4,000,000 between the          
                 registrant ("Maker") and Sunday 
                 Estates, Inc. ("Payee").                (5)
                                                          
        10.56.4  All-Inclusive Deed of Trust and          
                 Assignment of Rents dated November                
                 18, 1996 between the registrant     
                 ("Trustor"), Fidelity National Title            
                 Agency of Nevada, Inc.
                 ("Trustor") and Sunday Estates, Inc.,
                 ("Beneficiary").                         (5)
                                                          
        10.56.5   Addendum to All-Inclusive Deed       
                  of Trust and Assignment of Rents             
                  dated November 18, 1996 between
                  the Trustor and the ("Beneficiary").    (5)
                                                          
10.57   DEVELOPMENT PROPERTIES IN HUTCHINSON, KANSAS      
        AND RIDGELAND, MISSISSIPPI. THE FOLLOWING
        AGREEMENTS ARE REPRESENTATIVE OF THOSE
        EXECUTED IN CONNECTION WITH THESE PROPERTIES:
                                                          
        10.57.1  Lease Agreement dated March 1996         
                 between Emeritus Properties I,                    
                 Inc. ("Lessee") and Meditrust     
                 Acquisition Corporation I ("Lessor").    (5)
                                                          
        10.57.2  Leasehold Improvement Agreement          
                 dated March 1996 between                          
                 Meditrust Acquisition                    (5)
                 Corporation I ("Lessor") and Emeritus
                 Properties I, Inc.
                                                          
10.58   DEVELOPMENT PROPERTIES IN AUBURN,                 
        MASSACHUSETTS, LOUISVILLE, KENTUCKY AND ROCKY
        HILL, CONNECTICUT.  THE FOLLOWING AGREEMENTS
        ARE REPRESENTATIVE OF THOSE EXECUTED IN
        CONNECTION WITH THESE PROPERTIES:
                                                          
        10.58.1  Lease Agreement dated February 1996      
                 between the registrant                            
                 ("Lessee") and LM Auburn            
                 Assisted Living LLC, and LM Louisville          
                 Assisted Living LLC,
                 ("Landlords") with respect to the 
                 development properties in Auburn and
                 Louisville.                              (5)                          
                                                          
        10.58.2     Amended and Restated Lease            
                    Agreement dated February 26, 1996               
                    between the registrant              
                    ("Lessee") and LM Rocky Hill 
                    Assisted Living Limited Partnership,
                    ("Landlord") with respect to the 
                    development property in Rocky Hill.   (5)
                                                          
        10.58.3  Lease Agreement dated October 10,        
                 1996 between the registrant                       
                 ("Lessee") and LM Chelmsford      
                 Assisted Living LLC, ("Landlord")
                 with respect to the development
                 property in Boston.                      (5)
                                                          
                                                    
        10.58.4   Promissory Note in the amount of        
                  $1,255,000 dated December 1996                  
                  between the registrant            
                  ("Lender") and LM Auburn Assisted Living
                  LLC, ("Borrower") with respect
                  to the development property in Auburn.   (5)
                                                          
        10.58.5  Promissory Note in the amount of         
                 $1,450,000 dated January 1997                     
                 between the registrant              
                 ("Lender") and LM Louisville Assisted 
                 Living LLC, ("Borrower") with respect
                 to the development property in
                 Louisville.
                                                            (5)
        10.58.6  Promissory Note in the amount of         
                 $1,275,000 dated January 1997                     
                 between the registrant              
                 ("Lender") and LM Rocky Hill Assisted 
                 Living Limited Liability Partnership,
                 ("Borrower") with respect to the
                 development property in Rocky Hill.        (5)
                                                          
        10.58.7  Promissory Note in the amount of         
                 $300,000 dated January 1997                       
                 between the registrant ("Lender")            
                 and LM Chelmsford Assisted
                 Living LLC, ("Borrower") with respect
                 to the development property in Boston.     (5)
                                                          
10.59   BENEVA PARK CLUB, CENTRAL PARK VILLAGE,           
        COLLEGE PARK CLUB, PARK CLUB BRANDON, PARK
        CLUB FORT MYERS AND PARK CLUB OAKBRIDGE, THE
        PINES AT TEWKSBURY AND THE TERRACE.  THE
        FOLLOWING DOCUMENTS ARE REPRESENTATIVE OF
        THOSE EXECUTED IN CONNECTION WITH THESE
        PROPERTIES:
                                                          
        10.59.1  First Amendment to Facility Lease        
                 dated December 31, 1996 between                   
                 Meditrust Acquisition             
                 Corporation I  ("Lessor") and Emeritus
                 Properties I, Inc. ("Lessee").             (5)
                                                          
        10.59.2    Amended and Restated Memorandum of     
                   Lease dated December 31,                        
                   1996 between Meditrust            
                   Acquisition Corporation I  ("Lessor") 
                   and Emeritus Properties I, Inc.
                   ("Lessee").                              (5)
                                                          
10.60   EVERGREEN LODGE IN FEDERAL WAY, WASHINGTON        
                                                          
        10.60.1  First Amendment to Facility Lease        
                 dated December 31, 1996 between                   
                 Meditrust Acquisition             
                 Corporation I  ("Lessor") and Emeritus
                 Properties I, Inc. ("Lessee").             (5)
                                                          
        10.60.2  Amended and Restated Memorandum of       
                 Lease dated December 31,                          
                 1996 between Meditrust            
                 Acquisition Corporation I  ("Lessor") 
                 and Emeritus Properties I, Inc.
                 ("Lessee").                                (5)
                                                          
 21.1   Subsidiaries of the registrant.                 (5)
                                                          
 23.1   Consent of KPMG Peat Marwick LLP                (5)
                                                          
 27.1   Financial Data Schedule.                        (5)











  (1)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Registration
         Statement on Form S-1 (File No. 33-97508)
         declared effective on November 21, 1995.
                                                           
  (2)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Annual
         Report on Form 10-K (File No. 1-14012) on
         March 29, 1996.
                                                           
  (3)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Second
         Quarter Report on Form 10-Q (File No. 1-
         14012) on August 14, 1996.
                                                           
  (4)    Incorporated by reference to the indicated        
         exhibit filed with the Company's Third
         Quarter Report on Form 10-Q (File No. 1-
         14012) on November 14, 1996.
                                                           
  (5)    Filed herewith.                                   

EX-10.8.6

                                       GUARANTEE
MODIFICATION AGREEMENT

     GUARANTEE MODIFICATION AGREEMENT (this
"AGREEMENT") dated as of the 28th day of
September, 1995, by and among DANIBL R. HATY, an
individual having an address c/o Columbia Pacific
Management, Inc., 2003 Western Avenue, Suite 660,
Seattle, Washington 98121 ("GUARANTOR" ) and
NOMURA ASBBT CAPITAL CORPORATION (as assignee from
Health Care Asset Trust ("HCAT")), a Delaware
corporation, at its principal place of business at
2 World Financial Center, Building B, New York,
New York 10281-1198 ( "LENDER" ).
     

WITNESSETH:

     WHEREAS, HCAT has heretofore made a loan (the
"LOAN") to Emeritus Corporation (formerly known as
Assisted Living of America, Inc. and referred to
herein as the "BORROWER") in an amount of
$3,300,000 with respect to an assisted living
facility located at 2935 North l8th Place,
Phoenix, Arizona (the "TRUST PROPERTY" );

     WHEREAS, the Loan has been previously
assigned by HCAT to Lender ;
     
     WHEREAS, Lender and Borrower have agreed to
amend the terms of the Loan pursuant to the terms
of those certain Amended and Restated Note (the
"AMENDED NOTE") and Deed of Trust Modification
Agreement, both dated of even date herewith,
together with certain other documents and
certificates related thereto (all of the foregoing
documents being collectively, the "MODIFICATION
AGREEMENTS") among Borrower and Lender.

     WHEREAS, Guarantor has heretofore executed
and delivered to HCAT that certain Guarantee
Agreement dated as of June 6, 1994 in connection
with the Loan (the "GUARANTEE") which has been
assigned by HCAT to Lender.

     WHEREAS, as an inducement to Lender to
consummate such modification of the Loan,
Guarantor has agreed to enter into this Agreement.

     NOW, THREFORE, in consideration of the
premises and for other good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree
as follows:

     Section l. MODIFICNTION OF GUARANTY. The
Guarantee is hereby modified as follows:
     
     (a) The term "Note" as used in the Guarantee
is modified to mean the Amended Note and the term
"Loan Documents" as used in the Guarantee is
modified to mean the Loan Documents (as defined in
the Amended Note), including the Modification
Agreements.

     Section 2. GUARANTOR CONSENT. Guarantor
hereby consents to the modifications and other
transactions contemplated by the Modification
Agreements and waives any defense to his
obligations under the Guarantee based upon or
arising out of the Modification Agreements.





     Section 3.  REAFFIRMATION OF GUARNATEE.
     
     (a) The Guarantee, as modified hereby, is
ratified and confirmed in its entirety, and all of
Guarantor's agreements, covenants warranties and
representations contained therein are hereby
ratified and confirmed as if set forth fully
herein on the date hereof.

     (b) Guarantor hereby represents and warrants
to Lender that the Guarantee, as modified hereby,
is in full force and effect, and that there exist
no offset, counterclaim or defenses to the
obligations of Guarantor under the Guarantee, as
modified hereby.

     Section 4.  MISCELLANEOUS.
     
     (a) This Agreement shall be binding upon the
parties hereto and their respective successors,
assign, heirs and legal representatives.

     (b) This Agreement may not be modified or
discharged orally, nor may any waiver or consent
be given orally, and every such modification,
discharge, waiver or consent shall be in writing
and signed by the person against which enforcement
hereof is sought.

     (c) THIS AGREEMENT SHALL BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH THE TRUST PROPERTY IS
LOCATED.

     IN WITNESS WHEREOF, this Agreement has been
duly executed by each of the parties hereto.


/s/  Daniel R. Baty

- --------------------------------------

DANIEL R. BATY, Guarantor

                        /s/  Chris Tierney

- ---------------------------------------

CHRIS TIERNEY, Vice President


     This is to certify that this Agreement was
executed in my presence on September 22, 1995 by
Daniel R. Baty, whose signature appears above in
the capacity indicated.
     
                       /s/ Catherine L. Pasquan
                                                 -
- --------------------------------
     
     Notary Public


My commission expires:

March 30, 1999

- --------------------------------




2




     This is to certify that this Agreement was
executed in my presence on September 27, 1995 by
Chris Tierney, whose signature appears above in
the capacity indicated.

     
     /s/ Cullen Caughron
                                                 -
- --------------------------------
     
     Notary Public


My commission expires:

January 30, 1997

- --------------------------------








































3

EX-10.9.1

                      



                            LOAN AGREEMENT

THIS LOAN AGREEMENT is dated as of December
31, 1996, by and between EMERITUS
CORPORATION, a Washington corporation
("Borrower"), and BANK UNITED, a federal
savings bank ("Lender").

Borrower has requested Lender to make two
certain loans to Borrower in an aggregate
principal amount of up to TWELVE MILLION TWO
HUNDRED SEVENTY-FIVE THOUSAND DOLLARS AND
NO/100 ($12,275,000.00).  Lender is willing
to make such loans to Borrower upon the terms
and conditions hereinafter set forth.

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

                                   ARTICLE I


DEFINITIONS

     Section 1.01.  DEFINITIONS.  As used in
this Agreement, the following terms have the
following meanings:

     "ABSOLUTE ASSIGNMENTS" means the two
Absolute Assignments of Leases and Rents
covering the Arizona Projects and the Florida
Project respectively executed by Borrower in
favor of Lender of even date herewith, as the
same may be amended, supplemented or modified
from time to time.

     "ADVANCE" means the advance of funds by
Lender to Borrower pursuant to Article II.

     "ADVANCE DATE" means February 1, 1997
and each August 1 and February 1 thereafter
until the Maturity Date.

     "AFFIDAVIT OF OWNER" means the Affidavit
of Owner covering the Florida Project
executed by the Borrower in favor of the
Lender of even date herewith.

     "AFFILIATE" means any Person directly or
indirectly controlling, controlled by, or
under common control with Borrower. For
purposes of this definition, "control"
(including "controlled by" and "under common
control with") means (i) ownership of twenty-
five percent (25%) or more of the voting
rights of any class of shares of an entity or
(ii) the possession, directly or indirectly,
of the power to direct or cause the direction
of the management and policies of such
Person, whether through the ownership or
voting securities or otherwise.  Without
limiting the generality of the foregoing, for
purposes of this Agreement, Borrower and each
of its subsidiaries shall be deemed an
Affiliate of one another.





1


     "AHCA" means the Florida Agency for
Health Care Administration.

     "AHCA LICENSES" means all now or
hereafter issued licenses from the Florida
Agency for Health Care Administration or
other governmental entities or political
subdivisions issued to Borrower for the
operation of the Florida Project as an
assisted and/or congregate care living
facility and any food services licenses
related thereto issued to Borrower in
connection with the Florida Project.

     "ANTI-COERCION STATEMENT" means the Anti-
Coercion Statement executed by Borrower in
favor of Lender of even date herewith
executed in connection with the Florida
Project.

     "ARIZONA ECONOMIC HOLDBACK" shall have
the meaning designated in Section 2.01(b)
hereof.

     "ARIZONA IMPROVEMENTS" shall means the
assisted living facilities and/or congregate
care facilities located on the Arizona Real
Property.

     " ARIZONA LOAN" means a certain loan in
the original principal amount of
$6,775,000.00 made or to be made by Lender
pursuant to Section 2.01.

     "ARIZONA LOAN DOCUMENTS" shall mean the
following loan documents executed in
connection with the Arizona Loan:  (i) this
Agreement, (ii) the Arizona Note, (iii) the
Assignment, (iv) the Absolute Assignment, (v)
Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing
(Financing Statement), (vi) Environmental
Indemnity, (vii) Borrower's Affidavit, (viii)
Financing Statements, (ix) Affidavit of
Owner, (x) Rent Roll Certificates, (xi)
FIRPTA Certificate, (xii) Power of Attorney
and (xiii) all other promissory notes, deeds
of trust, assignments, financing statements,
easements, security agreements and other
instruments, documents and agreements
executed by Borrower in connection with the
Arizona Loan.

     "ARIZONA NOTE" means the recourse
Promissory Note executed by Borrower of even
date herewith in the amount of $6,775,000.00
payable to the order of Lender, and all
extensions, renewals, and modifications
thereof.

     "ARIZONA PERSONALTY" means all
equipment, furnishings, furniture,
trademarks, trade names and all tangible and
intangible personal property of whatever
character now owned or hereafter acquired by
Borrower for use in, on or about the Arizona
Projects, including replacements,
substitutions and after acquired property.

     "ARIZONA PROJECTS" means the Arizona
Improvements, the Arizona Real Property, and
the Arizona Personalty.






2


     "ARIZONA REAL PROPERTY" means the real
property located in Scottsdale, Arizona, as
more fully described on Exhibit A-1, attached
hereto and incorporated herein by reference
for all purposes and the real property
located in Scottsdale, Arizona, as more fully
described on Exhibit A-2, attached hereto and
incorporated herein by reference for all
purposes.

     "ASSIGNMENT OF CONSTRUCTION CONTRACT"
means the Assignment of Construction Contract
executed by Borrower in favor of Lender of
even date herewith covering the Florida
Project.

     "ASSIGNMENT OF PLANS AND SPECIFICATIONS
AND OWNER-ARCHITECT AGREEMENT" means the
Assignment of Plans and Specifications and
Owner-Architect Agreement executed by
Borrower in favor of Lender of even date
herewith and covering the Florida Project.

     " ASSIGNMENTS" means two Assignments of
Contracts, Plans, Permits and Approvals
of even date herewith covering the Arizona
Projects and the Florida Project executed by
Borrower in favor of Lender.

     "ASSUMED MONTHLY PAYMENT" means an
assumed monthly payment of principal and
interest resulting from a 25-year
amortization of the principal balance of the
applicable Loan at a fixed rate of interest
equal to the Contract Rate as of the month
preceding the applicable Advance Date.

     "BASE FINANCIALS" means the consolidated
balance sheet of Borrower and its
Consolidated Subsidiaries as of December 31,
1995 and the related consolidated statements
of operations, stockholders' equity and cash
flows for the year then ended, together with
the notes thereto, reported on without
qualification by an independent third party
public accounting firm acceptable to Lender.

     "BUSINESS DAY" means any day other than
a Saturday, Sunday or legal holiday for
commercial banks in Houston, Texas.

     "CLOSING DATE" means the date upon which
Borrower and Lender execute the Loan
Documents and all conditions precedent to
closing the Loans have been satisfied.

     "COLLATERAL" has the meaning specified
in Section 4.01.

     "CONSOLIDATED EBITDA" means, for any
period, Consolidated Net Income of Borrower
and its Consolidated Subsidiaries for such
period plus, without duplication, any amounts
deducted in determining such Consolidated Net
Income in respect of (a) Consolidated
Interest Charges for such period, (b) taxes
for such period  and (c) expenses for such
period of the types classified as
"depreciation and amortization" on the
consolidated statement of operations included
in the Base Financials.
     
     
     
     
     
     3


     "CONSOLIDATED INTEREST CHARGES" means,
for any period, all items for such period of
the types classified as "interest" on the
consolidated statement of operations included
in the Base Financials.
     
     "CONSOLIDATED NET CAPITAL EXPENDITURES"
means, for any period, the sum, without
duplication, of (i) the total amount of
additions to property and equipment of
Borrower and its Consolidated Subsidiaries
during such period of the types classified as
"Capital Expenditures" on the consolidated
statement of cash flows included in the Base
Financials provided that "Consolidated Net
Capital Expenditures" shall exclude (A) the
application of insurance or condemnation
proceeds to rebuilding facilities and (B) the
amount of any Debt incurred or assumed for
the purpose of financing all or any part of
the costs of constructing any assets to the
extent that such amount does not exceed 75%
of the cost of acquiring or constructing such
asset.

     "CONSOLIDATED NET INCOME" means, for any
period, the net income (loss) (calculated
(a) before preferred and common stock
dividends and (b) exclusive of the effect of
any extraordinary or other material non-
recurring gain or loss outside the course of
business) of Borrower and its Consolidated
Subsidiaries, determined on a consolidated
basis for such period.

     "CONSOLIDATED RENTAL EXPENSE" means, for
any period, the rental expense (net of
sublease income) of Borrower and its
Consolidated Subsidiaries with respect to
leases of real property and improvements of
real property, determined on a consolidated
basis for such period.

     "CONSOLIDATED SUBSIDIARY" means, with
respect to any Person and at any date, any of
its Subsidiaries or any other entity the
accounts of which would be consolidated with
those of such Person in its consolidated
financial statements if such statements were
prepared as of such date.

     "CONSTRUCTION CONTRACT" means the
construction contract between the Borrower
and the General Contractor for the
construction of the renovations and repairs
to the Florida Project.

     "CONSTRUCTION INSPECTOR" means a
reputable engineering firm approved by
Lender.

     "CONTRACT RATE" means a variable rate of
interest, adjusted monthly equal to the LIBOR
Rate plus 2.25% per annum.  The Contract Rate
shall be set each month based on the LIBOR
Rate quoted two (2) business days prior to
the first day of each calendar month during
the term of each Note.

     "CONTRACTS" means the leases, management
agreements, licenses, the contracts with the
Borrower's General Contractor, Project
Architect and Project Engineers on the
Florida Project and all other contracts
relative to the Projects.





4


     "DEBT" of any Person  means at any date,
without duplication, (i) all obligations of
such Person for borrowed money, (ii) all
obligations of such Person evidenced by
bonds, debentures, notes or other similar
instruments, (iii) all obligations of such
Person to pay the deferred purchase price of
property or services, except trade accounts
payable arising in the ordinary course of
business, (iv) all obligations of such Person
as lessee which are capitalized in accordance
with GAAP, (v) all obligations of such Person
with respect to letters of credit and similar
instruments, including, without limitation,
obligations under reimbursement agreements,
(vi) all mandatory redeemable preferred stock
of such Person, (vii) all Debt of others
secured by a lien on any asset of such
Person, whether or not such Debt is assumed
by such Person, and (viii) all debt of others
guaranteed by such Person.

     "DEBT SERVICE COVERAGE RATIO" for any
calendar quarter means the ratio of Net
Operating Income for such calendar quarter to
the Assumed Monthly Payment on the applicable
Loan for the same calendar quarter.

     "DEEDS OF TRUST" means the first lien
Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing
(Financing Statement) covering the Arizona
Projects and the first lien Mortgage and
Security Agreement covering the Florida
Project respectively executed by Borrower in
favor of Lender of even date herewith, as the
same may be amended, supplemented, or
modified from time to time.

     "DEFAULT RATE" means a floating rate of
interest equal to the lesser of (i) the
Contract Rate, from time to time in effect,
plus five percent (5.0%) per annum or (ii)
the Maximum Rate.

     "DHS" means the Arizona Department of
Human Services.

     "DHS LICENSES" means all now or
hereafter issued licenses from the Arizona
Department of Human Services or other
governmental entities or political
subdivisions issued by Borrower for the
operation of the Arizona Projects as assisted
and/or congregate care living facilities and
any food services licenses related thereto
issued to Borrower in connection with the
Arizona Projects.

     "ENVIRONMENTAL INDEMNITIES" means two
certain Certificates and Indemnification
Regarding Hazardous Substances relating to
the Arizona Projects and the Florida Project
respectively executed by Borrower in favor of
Lender of even date herewith, as the same may
be amended, supplemented or modified from
time to time.

     "EVENT OF DEFAULT" has the meaning
specified in Section 9.01.
"FIRPTA CERTIFICATE" means the FIRPTA
Certificate executed by Borrower in favor of
Lender of even date herewith certifying
Borrower's residency status and taxpayer
identification number.




5


     "FIXED CHARGE COVERAGE RATIO" means, on
any date, the ratio of (i) Consolidated
EBITDA for the four consecutive fiscal
quarters most recently ended on or prior to
such date to (ii) the sum of Consolidated
Interest Charges, Consolidated Rental Expense
and Consolidated Net Capital Expenditures for
such four fiscal quarters.

     "FLORIDA CONSTRUCTION HOLDBACK" shall
have the meaning specified in Section 2.06(c)
hereof.

     "FLORIDA ECONOMIC HOLDBACK" shall have
the meaning specified in Section 2.06(b)
hereof.

     "FLORIDA IMPROVEMENTS" means the
assisted living facility located on the
Florida Real Property.

     "FLORIDA LOAN" means one certain loan in
the original principal amount of
$5,500,000.00 made or to be made by Lender
pursuant to Section 2.01.

     "FLORIDA LOAN DOCUMENTS" shall mean the
following loan documents executed in
connection with the Florida Loan:  (i) this
Agreement, (ii) the Florida Note, (iii) the
Assignment, (iv) the Absolute Assignment, (v)
Mortgage and Security Agreement, (vi)
Environmental Indemnity, (vii) Borrower's
Affidavit, (viii) Financing Statements, (ix)
Affidavit of Owner, (x) Rent Roll
Certificates, (xi) FIRPTA Certificate, (xii)
Assignment of Construction Contract, (xiii)
Assignment of Plans and Specifications and
Owner-Architect Agreement, (xiv) the Anti-
Coercion Statement and (xv) all other
promissory notes, deeds of trust,
assignments, financing statements, easements,
security agreements and other instruments,
documents and agreements executed by Borrower
in connection with the Florida Loan.

     "FLORIDA NOTE" means the recourse
Promissory Note executed by Borrower of even
date herewith in the amount of $5,500,000.00
payable to the order of Lender, and all
extensions, renewals, and modifications
thereof.

     "FLORIDA PERSONALTY" means all
equipment, furnishings, furniture,
trademarks, trade names and all tangible and
intangible personal property of whatever
character now owned or hereafter acquired by
Borrower for use in, on or about the Florida
Project, including replacements,
substitutions and after acquired property.

     "FLORIDA PROJECT" means the Florida
Improvements, the Florida Real Property, and
the Florida Personalty.

     "FLORIDA REAL PROPERTY" means the real
property located in Clearwater, Florida, as
more fully described on EXHIBIT A-3, attached
hereto and incorporated herein by reference
for all purposes.

     "FLORIDA TITLE AGENT" means McDermott,
Will & Emery, as agent for Chicago Title
Insurance Company.


6


     "GAAP" means generally accepted
accounting principles, applied on a
consistent basis, as set forth in Opinions of
the Accounting Principles Board of the
American Institute of Certified Public
Accountants and/or in statements of the
Financial Accounting Standards Board and/or
their respective successors and which are
applicable in the circumstances as of the
date in question. Accounting principles are
applied on a "consistent basis" when the
accounting principles observed in a current
period are comparable in all material
respects to those accounting principles
applied in a preceding period.

     "GENERAL CONTRACTOR" means Dooley and
Mack Constructors, Inc.

     "LIBOR RATE" means the one month London
Interbank Offered Rate, reflected as the one-
month LIBOR Rate on page 5 of the Telerate
screen or as published or quoted by such
other reputable and nationally-recognized
rate quoting service or publication selected
by Lender.

     "LIEN" means any lien, mortgage,
security interest, tax lien, pledge,
encumbrance, financing statement, or
conditional sale or title retention
agreement, or any other interest in property
designed to secure the repayment of Debt or
any other obligation, whether arising by
agreement, operation of law, or otherwise.

     "LIQUIDITY" means unpledged liquid
assets of Borrower consisting of cash or cash
equivalents such as short term (less than one
year) certificates of deposit, government
securities or other readily marketable
securities.

     "LOANS" means two certain loans in the
aggregate principal amount of $12,275,000.00
made or to be made by Lender pursuant to
Sections 2.01.

     "LOAN DOCUMENTS" means, without
limitation, the Arizona Loan Documents, the
Florida Loan Documents, a State of Washington
Financing Statement and all other promissory
notes, deeds of trust, assignments, financing
statements, easements, security agreements
and other instruments, documents, and
agreements executed by Borrower and delivered
pursuant to or in connection with this
Agreement, as such instruments, documents,
and agreements may be amended, modified,
renewed, extended, or supplemented from time
to time and in accordance with their
respective terms.

     "LOAN TO VALUE RATIO" means in
connection with the Arizona Loan, the ratio
of the principal amount of the Arizona Note
to the combined appraised value of the
Arizona Projects, as determined by an
appraisal acceptable to the Lender; and, in
connection with the Florida Loan, the ratio
of the principal amount of the Florida Note
to the appraised value of the Florida
Project, as determined by an appraisal
acceptable to Lender.

     "MATERIAL CASUALTY LOSS."  A casualty
loss to any Project where (i) the damaged
portion of such Project is more than 25% of
the net leasable square footage of such
Project; or (ii) the insurance proceeds for
such damage are more than 25% of the
outstanding balance of the Note secured by
such Project.

7


     "MATERIAL CONDEMNATION LOSS. A
condemnation loss to any Project where (i)
the portion of such Project subject to such
condemnation or similar proceedings is more
than 25% of the net leasable square footage
of such Project; or (ii) the condemnation
proceeds for such loss are more than 25% of
the outstanding balance of the Note secured
by such Project.

     "MATURITY DATE" means twenty-four months
from the date hereof.


     "MAXIMUM RATE"  means the maximum rate
of nonusurious interest permitted from day to
day by applicable law, including  Article
5069-1.04, Vernon's Texas Civil Statutes (and
as the same may be incorporated by reference
in other Texas statutes), but otherwise
without limitation, that rate based upon the
"indicated rate ceiling" and calculated after
taking into account any and all relevant
fees, payments and other charges in respect
to the Loan Documents which are deemed to be
interest under applicable law.

     "NET OPERATING INCOME" means the monthly
average net income from normal operations of
either the Florida Project or from the
combined normal operations of the Arizona
Projects, as applicable, (excluding
extraordinary income and expense and before
income taxes applicable to the applicable
Project(s), but after all property taxes and
other taxes applicable to such Project(s)
without deduction for actual management fees
paid) and based upon average revenue per unit
and an occupancy rate of not more than ninety-
five percent (95%), as set forth in the
quarterly financial information provided to
Lender under the Loan Documents, calculated
based upon the preceding calendar quarter
plus non-cash expenses or allowances for
depreciation or amortization of such
Project(s) for such period, less the greater
of actual management fees or assumed
management fees of five percent (5%) of total
resident revenues for such preceding calendar
quarter.

     "NONMATERIAL CASUALTY LOSS"   A casualty
loss to any Project where (i) the damaged
portion of such Project is equal to or less
than  25% of the net leasable square footage
of such Project; or (ii) the insurance
proceeds for such damage are equal to or less
than 25% of the outstanding balance of the
Note secured by such Project.

     "NONMATERIAL CONDEMNATION LOSS".   A
condemnation loss to any Project where (i)
the portion of such Project subject to such
condemnation or similar proceedings is equal
to or less than 25% of the net leasable
square footage of such Project; or (ii) the
condemnation proceeds for such loss are equal
to or less than 25% of the outstanding
balance of the Note secured by such Project.

     "NOTES" means the Arizona Note and the
Florida Note.

     "NOTICES" means the two Notices Pursuant
to Section 26.02, Texas Business and Commerce
Code executed by Borrower in favor of Lender
of even date herewith.
     
     
     
     8


     "OBLIGATIONS" means (i) all amounts,
including, without limitation, principal and
interest, due or becoming due under the
Notes; (ii) any and all costs or sums due and
owing or to become due and owing under any of
the Loan Documents; (iii) any renewal or
extension of the indebtedness or costs
described in (i) through (ii) preceding or
any part thereof; and (iv) all covenants,
agreements and undertakings of the Borrower
to the Lender hereunder or under any of the
Loan Documents.

     "PERSON" means any individual,
corporation, business trust, association,
company, partnership, joint venture, limited
liability company or other entity.

     "PERSONALTY" means the Arizona
Personalty and the Florida Personalty.

     "PLANS AND SPECIFICATIONS" means the
final plans and specifications for the
renovations and improvements to the Florida
Project certified by the Borrower's Project
Architect (with their respective seals
affixed) and approved by Lender.

     "POWER OF ATTORNEY" means the
Irrevocable Power of Attorney executed by
Borrower in favor of Lender of even date
herewith in connection with the Arizona
Project.

     "PROJECT ARCHITECT" means
Johnson/Peterson Architects, Inc.

     "PROJECTS" mean the Arizona Projects and
the Florida Project.

     "PROPERTY REVENUES" means all income,
revenues, profits, distributions and any
ancillary revenues derived directly from a
given Project.

     "REAL PROPERTY" means the Arizona Real
Property and the Florida Real Property.

     "RENT ROLL CERTIFICATES" means the Rent
Roll Certificates for each Project delivered
by Borrower to Lender at Closing and monthly
thereafter in accordance with the
requirements of Section 7.02 hereof in the
form set forth in Exhibit "B attached hereto
and made a part hereof for all purposes.

     "REQUIRED LICENSES" means the licenses
and permits required to be issued, if any, by
any government or quasi-government agency or
other political subdivision for the operation
of (i) the Arizona Project known as Villa
Ocotillo as a residential care institution or
an unclassified health care facility, (ii)
the Arizona Project known as the Scottsdale
Royale as an adult living facility with only
non-emergency assisted living services
provided to its residents, and (iii) the
Florida Project known as the Madison Glen as
an assisted living facility.



9



     "SUBSIDIARY" means, with respect to any
Person, any corporation or other entity of
which securities or other ownership interests
having ordinary voting power to elect a
majority of the board of directors or other
persons performing similar functions are at
the time directly or indirectly owned by such
Person.

     "TANGIBLE NET WORTH" means with respect
to any Person at any date, the sum of total
shareholders' equity in such Person and such
Person's Consolidated Subsidiaries (including
capital stock, additional paid in capital,
and retained earnings, but excluding treasury
stock, if any), on a consolidated basis; less
the aggregate book value of all intangible
assets of such Person and such Person's
Consolidated Subsidiaries (as determined in
accordance with GAAP), including without
limitation, goodwill, trademarks, trade
names, service marks, copyrights, patents,
licenses and franchises, each to be
determined in accordance with GAAP consistent
with those applied in the preparation of the
financial statements referred to in Section
7.01 hereof; provided that, for the purposes
of this Agreement, there shall be excluded
from total assets, advances or loans to
shareholders, officers or Affiliates,
investments in Affiliates, assets pledged to
secure any liabilities not included in the
Debt of such Person, and further, in the case
of Borrower, the $32,000,000 senior
subordinated debentures (or such amounts as
are outstanding from time to time) shall be
excluded from total assets.

     "TITLE COMPANY" means Chicago Title
Insurance Company.

     "TITLE POLICIES" means the Mortgagee
Policies of Title Insurance described in
Section 5.01(t) hereof.

     Section 1.02.  OTHER DEFINITIONAL
PROVISIONS.  All definitions contained in
this Agreement are equally applicable to the
singular and plural forms of the terms
defined. The words "hereof",  "herein", and
"hereunder" and words of similar import
referring to this Agreement refer to this
Agreement as a whole and not to any
particular provision of this Agreement.
Unless otherwise specified, all Article and
Section references pertain to this Agreement.
All accounting terms not specifically defined
herein shall be construed in accordance with
GAAP.


                                   ARTICLE II

                   SECTION A: THE ARIZONA
LOAN

     Section 2.01.  ARIZONA LOAN: ADVANCES.
Subject to the terms and conditions of this
Agreement, Lender agrees to make the Arizona
Loan to Borrower in Advances strictly in
accordance with this Agreement as follows:





10


     (a)  INITIAL ADVANCE.  Upon closing of
the Arizona Loan, the sum of $5,270,000.00
shall be advanced to Borrower, provided that
Borrower shall have satisfied all terms and
conditions for the initial Advance as set
forth under Section 5.01 below.

     (b)  ARIZONA ECONOMIC HOLDBACK.  At the
time of the closing of the Arizona Loan, loan
proceeds in the amount of $1,505,000.00 shall
be withheld ("Arizona Economic Holdback") by
the Lender and shall be advanced in such
amounts and under such terms and conditions
as set forth in this paragraph.  No interest
shall be payable on the Arizona Holdback
until such time as and only to the extent
actually advanced to Borrower as hereinafter
provided.  Commencing February 1, 1997 and
on each Advance Date until the Maturity Date,
Lender shall make further Advances of the
Arizona Economic Holdback.  Each additional
Advance shall be in an amount that when added
to the outstanding principal balance of the
Arizona Loan shall result in an Assumed
Monthly Payment that when divided into the
Net Operating Income for the Arizona Projects
derived from the last preceding quarter
results in a Debt Service Coverage Ratio of
1.20 to 1.0. Lender's obligation to advance
any portion of the Arizona Economic Holdback
on any Advance Date is contingent upon (i) no
Event of Default then existing under any of
the Loan Documents and  (ii) the amount to be
then be advanced under the Arizona Economic
Holdback when coupled with all prior Advances
under the Arizona Loan will not exceed 75.0%
of the then appraised value of the Arizona
Projects as determined by an updated
appraisal acceptable to Lender.

     Section 2.02.  THE ARIZONA NOTE.  The
obligation of Borrower to repay the Arizona
Loan (or so much thereof as may have been
advanced at any time) shall be evidenced by
the Arizona Note executed by Borrower,
payable to the order of Lender, in the
principal amount of the Arizona Loan and
dated of even date herewith, and shall be
full recourse to Borrower.

     Section 2.03.  REPAYMENT OF ARIZONA
LOAN.  Interest on the outstanding principal
balance of the Arizona Note shall be due and
payable monthly, the first payment of which
shall be due and payable on the first (1st)
day of the calendar month next following one
(1) month from the date hereof, and
subsequent payments of interest shall be due
and payable on the same day of each month
thereafter until the Maturity Date. All
outstanding principal, plus accrued and
unpaid interest at the Contract Rate, on the
Arizona Note shall be due and payable in one
final balloon payment on the Maturity Date.

     Section 2.04.  INTEREST.   The unpaid
principal amount of Advances on the Arizona
Loan shall bear interest prior to maturity at
a per annum rate equal to the lesser of (i)
the Maximum Rate or (ii) the Contract Rate.
Notwithstanding the foregoing, in the event
that any payment on the Arizona Note is more
than thirty (30) days past due, all past due
principal and interest shall bear interest
from the date such payment became due until
the date of payment at the Default Rate.




11


                    SECTION B: THE FLORIDA
LOAN

     Section 2.05.  FLORIDA LOAN: ADVANCES.
Subject to the terms and conditions of this
Agreement, Lender agrees to make the Florida
Loan to Borrower in Advances strictly in
accordance with this Agreement as follows:

     (a)  INITIAL ADVANCE.  Upon closing of
the Florida Loan, the sum of $4,000,000.00
shall be advanced to Borrower, provided that
Borrower shall have satisfied all terms and
conditions for the initial Advance as set
forth under Section 5.01 below.

     (b)  FLORIDA ECONOMIC HOLDBACK.  At the
time of the closing of the Florida Loan,
loan proceeds in the amount of $550,000.00
shall be withheld ("Florida Economic
Holdback") by the Lender and shall be
advanced in such amounts and under such terms
and conditions as set forth in this
paragraph.  No interest shall be payable on
the Florida Economic Holdback until such time
as and only to the extent actually advanced
to the Borrower as herein provided.
Commencing February 1, 1997 and on each
Advance Date thereafter until the Maturity
Date,  Lender shall make further Advances of
the Florida Economic Holdback.  Each
additional Advance shall be in an amount that
when added to the outstanding principal
balance of the Florida Loan shall result in
an Assumed Monthly Payment that when divided
into the  Net Operating Income for the
Florida Project derived from the last
preceding quarter results in a Debt Service
Coverage Ratio of 1.20 to 1.0. Lender's
obligation to advance any portion of the
Florida Economic Holdback on any Advance Date
is contingent upon (i) no Event of Default
then existing under any of the Loan Documents
and  (ii) the amount to be then be advanced
under the Florida Economic Holdback when
coupled with all prior Advances under the
Florida Loan will not exceed 75.0% of the
then appraised value of the Florida Project
as determined by an updated appraisal
acceptable to Lender.


     (c)  FLORIDA CONSTRUCTION HOLDBACK. At
the time of closing of the Florida Loan, the
sum of $950,000.00 shall be withheld
("Construction Holdback") by the Lender.  The
Borrower shall complete the renovations and
improvements to the Florida Project described
in the Construction Contract.  No interest
shall be payable on the Construction Holdback
until such time as and only to the extent
actually advanced to Borrower.  Upon the
completion of the renovations and
improvements to the Florida Project, the
Lender will advance the Construction Holdback
to the Borrower provided that the following
items have been provided to the Lender: (i) a
certificate of occupancy for the Florida
Improvements from the appropriate
governmental agency; (ii) a certificate of
completion prepared and submitted by the
Borrower and Borrowers' Project Architect,
and approved by the Lender's construction
inspector, which certificate shall contain
only such qualifications as are acceptable to
Lender, in Lender's sole discretion, and
indicating that the construction of the
Florida Improvements has been completed
substantially in accordance with the approved
Plans and Specifications, all construction
has



12


been completed in a good and workmanlike
manner, all applicable zoning, building, or
other governmental codes or regulations have
been complied with, there are no known
structural deficiencies, and all mechanical
equipment, including, without limitation,
plumbing, air conditioning and heating,
electrical, and kitchen equipment, if any, is
in good working order; (iii) an affidavit of
completion executed by the Borrower's General
Contractor satisfactory to Lender, Lender's
counsel and the Title Company in their sole
discretion; (iv) lien waivers from any and
all contractors, in form and substance
satisfactory to Lender, Lender's counsel and
the Title Company in their sole discretion;
and (v) any and all other additional
documents as Lender may reasonably require.
Lender's obligation to advance any portion of
the Construction Holdback is contingent upon
(i) no Event of Default then existing under
any of the Loan Documents and (ii) the amount
to then be advanced under the Construction
Holdback when coupled with all prior Advances
under the Florida Loan will not exceed 75.0%
of the then appraised value of the Florida
Project as determined by an updated appraisal
acceptable to Lender.

     Section 2.06.  THE FLORIDA NOTE.  The
obligation of Borrower to repay the Florida
Loan  or so much thereof as may have been
advanced at any time shall be evidenced by
the Florida Note executed by Borrower,
payable to the order of Lender, in the
principal amount of the Florida Loan and
dated of even date herewith, and shall be
full recourse to Borrower.

     Section 2.07.  REPAYMENT OF FLORIDA
LOAN.  Interest on the outstanding principal
balance of the Florida Note shall be due and
payable monthly, the first payment of which
shall be due and payable on the first (1st)
day of the calendar month next following one
(1) month from the date hereof, and
subsequent payments of interest shall be due
and payable on the same day of each month
thereafter until the Maturity Date. All
outstanding principal, plus accrued and
unpaid interest at the Contract Rate, shall
be due and payable in one final balloon
payment on the Maturity Date.

     Section 2.08.  INTEREST.   The unpaid
principal amount of Advances on the Florida
Loan shall bear interest prior to maturity at
a per annum rate equal to the lesser of (i)
the Maximum Rate or (ii) the Contract Rate.
Notwithstanding the foregoing, in the event
that any payment on the Florida Note is more
than thirty (30) days past due, all past due
principal and interest shall bear interest
from the date such payment became due until
the date of payment at the Default Rate.












13


                                    ARTICLE
III


PAYMENTS

     Section 3.01.  METHOD OF PAYMENT.  All
payments of principal, interest, and other
amounts to be made by Borrower hereunder and
under the Notes shall be made to Lender at
its office at 3200 Southwest Freeway, Suite
1900, P.O. Box 1370, Houston, Texas 77252-
1370, Attention: Commercial Loan Servicing,
in lawful money of the United States of
America and in immediately available funds.
Notwithstanding the foregoing, the term
"immediately available funds" shall not
require Borrower to make payments by wire
transfer.  Borrower may make payment by check
drawn on any FDIC insured financial
institution.  Whenever any payment hereunder
or under the Notes shall be stated to be due
on a day that is not a Business Day, such
payment may be made on the next succeeding
Business Day, and interest shall continue to
accrue during such extension.

     Section 3.02.  PREPAYMENT.  Borrower
shall have the right to prepay, at any time
and from time to time without premium or
penalty, the entire unpaid outstanding
principal balance of the Notes or any portion
thereof, with accrued interest to the date of
prepayment on the amounts prepaid.

     Section 3.03.  INSURANCE AND TAX ESCROW.
Borrower shall provide Lender with evidence
satisfactory to Lender that Borrower has
fully prepaid insurance premiums or has made
arrangements to finance and is in compliance
with such arrangements to finance such
insurance premiums relating to the Projects
for the period through September 1, 1997, and
evidence satisfactory to Lender that all
taxes for 1996 for the Projects as well as
any other taxes due and owing for the
Projects have been paid or provided for.
Following an Event of Default, Lender may
require Borrower to pay to Lender each month
concurrently with the payment on the Florida
Note a sum equal to one-twelfth (1/12th) of
the estimated annual taxes and insurance
premiums affecting the Florida Project, for
deposit in a  non-interest bearing escrow
account maintained with Lender, and Lender
may require Borrower to pay to Lender
concurrently with the payment on the Arizona
Note a sum equal to one twelfth of the
estimated taxes and insurance premiums
affecting the Arizona Projects, for deposit
in a non-interest bearing escrow account
maintained with Lender.  In such case, Lender
will cause the amounts collected in such
escrow accounts to be applied toward payment
of ad valorem property taxes against the
Projects, and casualty and extended coverage
insurance premiums required hereunder,
however, in the event of a shortage in the
escrow account, Borrower shall be responsible
for payment of such shortage and will, within
ten (10) days after written demand by Lender,
promptly make up such shortage.








14


                                   ARTICLE IV


COLLATERAL

     Section 4.01.  COLLATERAL.  To secure
full and complete payment and performance of
the Obligations, Borrower shall execute and
deliver or cause to be executed and delivered
the documents described below covering the
property and collateral described in this
Section (which, together with any other
property that may now or hereafter secure the
Obligations or any part thereof, is sometimes
herein called the "COLLATERAL"):

     (a)  Borrower shall grant to Lender a
first priority lien and/or security interest
on the Real Property, Improvements and
Personalty pursuant to the Deeds of Trusts
and shall assign to Lender all rents, income,
and profits relating to the Projects pursuant
to the Absolute Assignments;

     (b)  Borrower shall collaterally assign
and grant a first lien security interest in,
without limitation, all accounts receivable,
utility deposits, security deposits (subject
to the tenants' rights to reimbursement under
the tenant leases), commercial and tenant
leases, management agreements, construction
contracts, architect contracts and
agreements, waste water capacity reservation
agreements, and any other contracts, licenses
(including the DHS Licenses and AHCA
Licenses, to the extent assignable), permits,
architects and engineering contracts, and
agreements pertaining to the Projects
pursuant to the Assignments or such other
instruments as Lender may reasonably require;

     (c)  Borrower shall execute and cause to
be executed such further documents and
instruments, including without limitation,
Uniform Commercial Code financing statements,
necessary to evidence and perfect Lender's
liens and security interests as herein
described, in the Collateral.

     Section 4.02.  SETOFF.  Upon the
occurrence of an Event of Default, Lender
shall have the right to set off and apply
against the Obligations in such manner as
Lender may determine, at any time and without
notice to Borrower, any and all deposits
(general or special, time or demand,
provisional or final) or other sums at any
time credited by or owing from Lender to
Borrower whether or not the Obligations are
then due. As further security for the
Obligations, Borrower hereby grants to Lender
a security interest in all money,
instruments, and other property of Borrower
now or hereafter held by Lender, including,
without limitation, property held in
safekeeping. In addition to Lender's right of
setoff and as further security for the
Obligations, Borrower hereby grants to Lender
a security interest in all deposits (general
or special, time or demand, provisional or
final) and other accounts of Borrower now or
hereafter on deposit with or held by Lender
and all other sums at any time credited by or
owing from Lender to Borrower, and any and
all other property of the Borrower in the
possession of Lender.  The rights and
remedies of Lender hereunder are in addition
to other rights and remedies (including,
without limitation, other rights of setoff)
which Lender may have; provided, however



15


that with respect to security deposits by
tenants or residents, the foregoing is
subject to the residents' or tenants' rights
to reimbursement under the tenants' or
residents' leases.



                                   ARTICLE V

                               CONDITIONS
PRECEDENT

     Section 5.01.  LOANS.  The obligation of
Lender to make the initial Advances under the
Loans provided for in Sections 2.01(a) and
2.06(a) is subject to the condition precedent
that Lender shall have received all of the
following, each dated as of the Closing Date
(unless otherwise indicated) and in form and
substance satisfactory to Lender:

     (a)  RESOLUTIONS.  Borrower shall have
delivered to Lender a resolution of Borrower
certified by its secretary or assistant
secretary that generally authorizes the
execution, delivery, and performance by
Borrower of this Agreement and the other Loan
Documents to which Borrower is or is to be a
party. Within five (5) business days from the
date hereof, Borrower shall deliver to Lender
a Resolution of the Borrower certified by its
secretary or assistant secretary that
specifically authorizes the transactions
contemplated hereby with respect to the
Projects and authorizes execution, delivery
and performance by Borrower of this Agreement
and the other Loan Documents which
Resolutions shall designate (i) the officers
of the Borrower that are authorized to sign
the Loan Documents and (ii) the officers of
Borrower that are authorized to request and
receive Advances under the Loans.

     (b)  INCUMBENCY CERTIFICATES.  Borrower
shall have delivered to Lender certificates
of incumbency certified by the respective
secretary or assistant secretary of Borrower
certifying the names of the officers of
Borrower authorized to sign this Agreement
and each of the other Loan Documents to which
Borrower is to be a party (including the
certificates contemplated herein) and to
request and receive Advances under the Loans
together with specimen signatures of such
officers.

     (c)  ARTICLES OF INCORPORATION AND
BYLAWS.  Borrower shall have delivered to
Lender: (i) Borrower's Articles of
Incorporation and Bylaws, and all amendments
thereto and (ii) certified copies of
certificates of existence for Borrower and
certified copies of corporate and tax good
standing certificates in Washington and
certified copies of tax good standing and
authorization certificates to do business in
Florida and Arizona for Borrower (all of the
above dated within ten (10) days prior to the
Closing Date).

     (d)  LOAN AGREEMENT.  The Borrower shall
have executed and delivered this Agreement to
the Lender.

     (e)  NOTES.  Borrower shall have
executed and delivered the Notes to Lender.


16


     (f)  ABSOLUTE ASSIGNMENTS.  Borrower
shall have executed and delivered the
Absolute Assignments to Lender.

     (g)  ASSIGNMENTS.  Borrower shall have
executed and delivered the  Assignments to
Lender.

     (h)  ENVIRONMENTAL INDEMNITIES.
Borrower shall have executed and delivered
the Environmental Indemnities  to Lender.

     (i)  DEEDS OF TRUST.  Borrower shall
have executed and delivered the Deeds of
Trust to Lender which shall grant a first
lien on the  Projects covered thereby and a
first and prior security interest in the
Personalty covered thereby.

     (j)  FINANCING STATEMENTS.  Borrower
shall have executed and delivered to Lender
the Uniform Commercial Code financing
statements covering the Collateral described
in Section 4.01.

     (k)  NOTICES.  Borrower shall have
executed and delivered to Lender the Notices.

     (l)  AFFIDAVIT.  Borrower shall have
executed and delivered the Affidavit of
Borrower in form and substance satisfactory
to Lender.

     (m)  ANTI-COERCION STATEMENT.  Borrower
shall have executed and delivered the Anti-
Coercion Statement.

     (n)  Affidavit of Owner.  Borrower shall
have executed and delivered the Affidavit of
Owner.

     (o)  RENT ROLL CERTIFICATES.  Borrower
shall have executed and delivered the Rent
Roll Certificates in the form set forth in
Exhibit "B" attached hereto and made a part
hereof for all purposes and the attached rent
rolls.

     (p)  ASSIGNMENT OF CONSTRUCTION
CONTRACT.  Borrower shall have executed and
delivered the Assignment of Construction
Contract.

     (q)  ASSIGNMENT OF PLANS AND
SPECIFICATIONS AND OWNER-ARCHITECT CONTRACT.
Borrower shall have executed and delivered to
Lender the Assignment of Plans and
Specifications and Owner-Architect Contract.

     (r)  FIRPTA CERTIFICATE.  Borrower shall
have executed and delivered the    FIRPTA
Certificate.






17


     (s)  MORTGAGEE TITLE INSURANCE POLICY.
Simultaneously with the execution of this
Loan Agreement, but before funding of the
Loans, Borrower, at Borrower's sole cost and
expense, shall have caused to be furnished to
Lender, Mortgagee Policies of Title Insurance
covering the Florida Project and the Arizona
Projects issued by the Florida Title Agent
and the Title Company, in favor of Lender
pursuant to an insured closing protection
letter satisfactory to Lender showing a
policy amounts equal to the amount of the
applicable Loan covered by each Policy, with
each Policy insuring that the Lender has a
valid first and prior lien against the
applicable Real Property, and containing only
such exceptions as shall be approved by
Lender and its legal counsel. Any exception
in the Title Policies regarding restrictive
covenants shall be deleted or shall list such
restrictive covenants and insure that they
will not affect the validity or priority of
Lender's liens. The standard pre-printed
exception in the Title Policies regarding any
discrepancies, conflicts or shortages in area
or boundary lines shall be modified to read
only "shortages in area." The standard pre-
printed exception regarding taxes shall be
modified to read "Standby fees and taxes for
the year 1997 and subsequent years not yet
due and payable."  The Title Policies shall
also insure access to the Projects from a
publicly dedicated street.

     (t)  APPRAISAL.  Lender shall have
received an MAI appraisal for each of the
Projects in form and substance satisfactory
to Lender and conducted by an appraiser
selected by Lender. The appraisals shall show
that the Florida Project shall have a fair
market value of not less than 75.0% of the
initial Advance of the Florida Loan, and that
the combined Arizona Projects shall have a
fair market value of not less than 75.0% of
the  initial Advance of the Arizona Loan. The
appraisal shall be commissioned by Lender,
but paid for by Borrower.

     (u)  ENVIRONMENTAL REPORT.  Borrower, at
Borrower's sole cost and expense, shall have
delivered to Lender an unqualified Phase I
environmental site assessments covering each
Project which shall be in form and substance
satisfactory to Lender and which shall be
conducted by an environmental service firm
selected by Lender or selected from Lender's
approved list of environmental service firms.
Such environmental assessments shall verify
that each Project is free from any Hazardous
Materials and Hazardous Waste not acceptable
to Lender, as those terms are defined by
federal and state statutes, laws and
regulations, including, without limitation,
asbestos and diesel fuel (as reflected on the
Phase I environmental assessment). Such
environmental assessments shall include a
determination of "wetlands" status and
condition.  Borrower shall provide Lender
with evidence in form and substance
acceptable to Lender, in Lender's sole
discretion, indicating that any Hazardous
Materials or Hazardous Waste previously
located on the Projects not acceptable to
Lender have been properly disposed of in
accordance with all applicable laws and which
satisfies the requirements of Thrift Bulletin
16.







18


     (v)  SURVEY.  Borrower, at Borrower's
sole cost and expenses, shall have provided
Lender and Lender's counsel with originals of
current staked surveys ("Surveys") of the
Real Property and all Improvements thereon,
prepared by a professional engineer or
registered surveyor, acceptable to Lender and
Title Company, in form and substance
satisfactory to Lender, dated within ninety
(90) days of the Closing Date, which Surveys
shall satisfy the requirements of a 1992
American Land Title Association/American
Congress on Surveying and Mapping Standards
as to the Arizona Projects and Section
472.027 of the Florida statutes for land
surveys as to the Florida Project. Unless
otherwise agreed by Lender, each Survey shall
contain a certificate which shall among other
things contain the following information: (i)
metes and bounds description of each tract of
Real Property showing all corners and points
of course changes and/or marked with iron
pins or rods or in the case of platted or
subdivided land, the legal description
thereof; and (ii) the location of all
existing and proposed roads, highways and
streets adjoining each tract of the Real
Property and access thereto and all
Improvements, encroachments, easements,
drainage districts, utilities, parking areas,
rights of way, set-back lines, and other
matters located upon or affecting each tract
of the Real Property.  The Surveys shall
contain a certification that each tract of
the Real Property is not located in any flood
hazard area or identifying the type of flood
hazard area in which the Real Property is
located. The certificates shall be in form
and substance acceptable to Lender and
Lender's counsel and shall be in favor of
both the Lender and the Title Company.  The
certificates must be acceptable to the Title
Company to delete from the Title Policies the
preprinted survey exception regarding
encroachments except as to (i) shortages in
area and (ii) any specific encroachments
reflected on the Survey approved by Lender.

     (w)  UCC SEARCH.  Lender shall have
received Uniform Commercial Code searches
(which searches shall be ordered by Lender's
counsel but paid for by Borrower) showing no
financing statements or other documents or
instruments on file against Borrower in the
office of the Secretary of State of Florida,
Arizona and Washington and the UCC Records of
the Counties where the Real Property is
located or the counties where the Borrower
resides, such search to be as of a date no
more than ten (10) days prior to the Closing
Date.

     (x)  OPINION OF COUNSEL.  Borrower shall
have delivered to Lender favorable opinions
of legal counsels to Borrower  in form, scope
and substance satisfactory to Lender
acceptable to Lender, concerning all aspects
of the Loans including, without limitation,
usury, doing business, due authorization,
legality, validity, enforceability, and
binding effect of all required Loan
Documents.
     
     (y)  FINANCIAL STATEMENTS.  Lender shall
be provided with certified financial
statements from Borrower in a form and only
with qualifications acceptable to Lender in
Lender's sole discretion for the year ended
December 31, 1995 and the nine months ended
September 30, 1996.





19


     (z)  DHS AND AHCA LICENSES. Borrower
will provide Lender will copies of all
applicable DHS Licenses, AHCA Licenses and
other licenses necessary for the operation of
the Projects.

     (aa) ORIGINATION FEE.  Borrower shall
have paid to Lender an origination fee in the
amount of Forty-One Thousand Two Hundred
Fifty and 00/100 Dollars ($41,250.00) with
respect to the Florida Loan and an
origination fee in the amount of Fifty
Thousand Eight Hundred Twelve and 50/100
Dollars ($50,812.50) for the Arizona Loan,
which fees shall be fully earned, non-
refundable, and due and payable on the
Closing Date.

     (bb) TAXES, ASSESSMENTS AND INSURANCE.
Lender shall have received evidence that all
ad valorem taxes for 1996 and prior years
against the Projects and all required
insurance premiums  through September 1, 1997
of the Loans shall have either been paid in
full or financing arrangements have been made
and are in place for such premiums and
Borrower is in compliance therewith.

     (cc) INSURANCE POLICIES.  Borrower shall
have provided Lender with certified copies of
all insurance policies required by this
Agreement, from companies satisfactory to
Lender showing Lender as loss payee and in
amounts and with deductibles acceptable to
Lender, including, without limitation,
policies of flood insurance if any Project is
situated in a "Flood Hazard Area."

     (dd) ESTOPPEL CERTIFICATE.  Borrower
shall have delivered to Lender an estoppel
certificate and/or pay off letter  from every
individual and entity holding a lien on the
Real Property and/or Improvements thereon.
The certificate shall be signed by the
lienholders and shall indicate the present
unpaid balance of the liens including accrual
interest to the proposed Closing Date, the
daily rate of accrual after such date, and
the amount required to satisfy and release
the liens as of the proposed Closing Date.

     (ee) EVIDENCE OF AVAILABLE CAPITAL.
Lender shall have received evidence
satisfactory to it that the Borrower has
available a minimum of $2,780,000.00 in
equity in the Projects prior to the initial
advance of the Loans;

     (ff) PLANS AND SPECIFICATIONS.
Borrower, at Borrower's sole cost and
expense, shall have provided Lender with two
(2) complete sets of final Plans and
Specifications for the Florida Project signed
and dated by the Borrower and certified by
the Project Architect and the Project
Engineer (and with their respective seals
affixed).  The Plans and Specifications shall
contain all certificates and approvals
required by all governmental authorities
(including AHCA) having jurisdiction over the
Florida Project, which Plans and
Specifications shall have been submitted to
and approved by Lender prior to closing.  Any
material deviation from the approved plans or
specifications must be approved by Lender in
writing in advance of the issuance of any
change orders.
     
     

20


     (gg) CONTRACTS.  Borrower shall have
provided Lender with fully executed
counterparts of all construction and design
related contracts (together with all
amendments and modifications thereto) with
the General Contractor, Project Architect,
Project Engineer,  and any other person or
entity  relating to the renovation and
improvements to the Florida Improvements,
which contracts shall be subordinated to
Lender and its liens.  Borrower will not
agree or consent to any material amendment
thereto without Lender's prior written
consent.  The contracts, together with the
identity of the General Contractor, Project
Architect, Project Engineer, and any other
person or entity relating to the construction
of the Improvements shall have been
previously approved by Lender in writing.

     (hh) CONSTRUCTION PERMITS.  Borrower
shall have provided Lender with certified
copies of  all necessary building and
construction permits, curb cut, sewer and
water tap and other permits, licenses,
franchises and other.

     (ii) LEASES.  Borrower shall have
provided Lender with a copy of the form(s)
lease agreement covering residential units in
the Projects, which agreements shall be in
form and substance satisfactory to Lender.

     (jj) ADDITIONAL INFORMATION.  Borrower
shall have delivered such additional
documents, instruments, and information as
Lender or Lender's legal counsel may
reasonably request.



ARTICLE VI

            REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into this
Agreement, Borrower represents and warrants
to Lender that:

     Section 6.01.  EXISTENCE AND AUTHORITY.
Borrower is a Washington corporation duly
organized and validly existing under the laws
of the State of Washington; Borrower (a) has
all requisite power to own assets and carry
on its business as now being or as proposed
to be conducted; and (b) is qualified to do
business in all jurisdictions in which the
nature of its business makes such
qualification necessary and where failure to
so qualify would have a material adverse
effect on its business, financial condition,
or operations. Borrower has the power and
authority to execute, deliver, and perform
its obligations under this Agreement and the
other Loan Documents to which it is or may
become a party.









21


     Section 6.02.  FINANCIAL STATEMENTS.
Borrower has delivered to Lender certain
financial statements of Borrower. The
financial statements are true and correct,
have been prepared in accordance with GAAP,
and fairly and accurately present the
financial condition of Borrower therein and
the results of operations for the period
indicated therein. Borrower does not have any
material contingent liabilities, liabilities
for taxes, material forward or long-term
commitments, or unrealized or anticipated
losses from any unfavorable commitments not
reflected in such financial statements. No
material adverse change in the condition,
financial or otherwise, or operations of
Borrower has occurred since the effective
date of the most recent financial statement
referred to in this Section.

     Section 6.03.  DEFAULT.  Borrower is not
in default in any respect under any loan
agreement, indenture, mortgage, security
agreement, or other agreement or obligation
to which it is a party or by which any of its
properties may be bound.

     Section 6.04.  AUTHORIZATION AND
COMPLIANCE WITH LAWS AND MATERIAL AGREEMENTS.
The execution, delivery, and performance by
Borrower of this Agreement and the other Loan
Documents to which Borrower is or may become
a party have been duly authorized by all
requisite action on the part of Borrower and
do not and will not violate the
organizational agreements of Borrower or any
law or any order of any court, governmental
authority, or arbitrator, and do not and will
not conflict with, result in a breach of, or
constitute a default under, or result in the
imposition of any Lien upon any assets of
Borrower pursuant to the provisions of any
indenture, mortgage, deed of trust, security
agreement, franchise, permit, license, or
other instrument or agreement by which
Borrower is bound.

     Section 6.05.  LITIGATION AND JUDGMENTS.
There  is no action, suit, or proceeding
before any court, governmental authority, or
arbitrator pending, or to the knowledge of
Borrower, threatened against or affecting
Borrower that would, if adversely determined,
have a material adverse effect on the
financial condition or operations of Borrower
or the ability of Borrower  to pay and
perform the Obligations. There are no
outstanding judgments against Borrower.

     Section 6.06.  RIGHTS IN PROPERTIES.
Borrower has good and indefeasible title to
or valid leasehold interests in its
properties and assets, real and personal
reflected in the financial statements
described in Section 6.02.

     Section 6.07.  ENFORCEABILITY.  This
Agreement constitutes, and the other Loan
Documents to which Borrower is party, when
delivered, shall constitute the legal, valid,
and binding obligations of Borrower,
enforceable against Borrower in accordance
with their respective terms, except as
limited by bankruptcy, insolvency, or other
laws of general application relating to the
enforcement of creditor's rights.





22


     Section 6.08.  APPROVALS.  No
authorization, approval, or consent of, and
no filing or registration with, any court,
governmental authority, or third party is or
will be necessary for the execution,
delivery, or performance by Borrower of this
Agreement and the other Loan Documents to
which Borrower is or may become a party or
the validity or enforceability thereof.

     Section 6.09.  TAXES.  Borrower has
filed all tax returns (federal, state, and
local) required to be filed, including all
income, franchise, employment, property, and
sales taxes, and has paid all of its tax
liabilities, and Borrower has no knowledge of
any pending investigation of Borrower by any
taxing authority or of any pending but
unassessed tax liability of Borrower.

     Section 6.10.  DISCLOSURE.  No
representation or warranty made by Borrower
in this Agreement or in any other Loan
Document contains any untrue statement of a
material fact or omits to state any material
fact necessary to make the statements herein
or therein not misleading. There is no
circumstance or event which exists as of the
date hereof known to Borrower which has a
material adverse effect or which with the
passage of time would reasonably be expected
to have a material adverse effect on the
business, assets, financial condition, or
operations of Borrower that has not been
disclosed in writing to Lender.

     Section 6.11.  PRINCIPAL PLACE OF
BUSINESS.  The principal place of business
and chief executive office of Borrower and
the place where Borrower keeps its books and
records is located at the address set forth
in Section 10.09.

     Section 6.12.  COMPLIANCE WITH LAW.
Borrower is in compliance with all laws,
rules, regulations, orders, and decrees which
are applicable to Borrower or any of its
properties.

     Section 6.13.  FORFEITURE.  Borrower has
not been charged with or, to their knowledge,
are under investigation for, possible
violations of the Racketeering, Influenced
and Corrupt Organizations Act ("RICO"), the
Continuing Criminal Enterprises Act ("CCE"),
the Controlled Substance Act of 1978, the
Money Laundering Act of 1986, the AntiDrug
Abuse Act of 1986, or similar law providing
for the possible forfeiture of any of their
respective assets or properties.

     Section 6.14.  CONTRACTS.   The
Contracts as presented to Lender, include all
amendments and modifications to the
Contracts.

     Section 6.15.  AHCA/DHS REQUIREMENTS.
The Borrower will operate the Projects in
accordance with all applicable AHCA and DHS
rules and regulations.  Borrower shall
promptly notify Lender of any notices or
other correspondence received from the AHCA,
the DHS or any other governmental entity
indicating that any Project is not in
compliance with the applicable AHCA or DHS
rules and regulations.  Borrower shall take
all action necessary to




23


maintain its AHCA and DHS Licenses and shall
take prompt action to renew its AHCA and DHS
Licenses when necessary.  Borrower hereby
represents and warrants to Lender that, with
respect to the ownership and operation of all
Arizona Projects, the only required DHS
License is a DHS health care institution
license for the Arizona Project known as the
"Villa Ocotillo Retirement Community" as an
"Unclassified Health Care Institution" (as
defined in the DHS regulations).  Borrower
hereby further represents and warrants to
Lender that no DHS License is required for
the Arizona Project known as the "Scottsdale
Royale" because such Arizona Project is
limited to an adult apartment facility with
no personal care, residential care, medical,
nursing or health-related services, or other
non-emergency assisted living services being
provided by Borrower at such Arizona Project.

     6.16.     MEDICARE/MEDICAID.  None of
the Projects are Medicare or Medicaid
certified facilities or participate in
Medicare or Medicaid programs.


                                   ARTICLE
VII

      AFFIRMATIVE COVENANTS AND AGREEMENTS

     Borrower covenants and agrees that, as
long as the Obligations or any part thereof
are outstanding or Lender has any commitment
hereunder, Borrower will perform and observe
the following positive covenants and
agreements, unless Lender shall otherwise
consent in writing which consent may be
conditioned upon such terms as Lender may
require.
     
     Section 7.01.  FINANCIAL STATEMENTS.
Borrower shall furnish management prepared
financial statements to Lender for each
fiscal quarter which statements shall be due
thirty (30) days after the end of each fiscal
quarter.   Monthly operating statements shall
be due from Borrower with respect to the
Projects within thirty (30) days of the end
of each month.  Borrower shall also furnish
to Lender audited annual financial statements
beginning with the fiscal year ending
December 31, 1996, containing balance sheets
(reflecting, without limitation, all
contingent liabilities), income statements
and statements of changes in financial
position (reflecting, without limitation,
cash flow changes) as at the end of such
fiscal year and for the 12-month period then
ended, in each case setting forth in
comparative form the figures for the
preceding fiscal year. All financial
statements will be prepared in reasonable
detail, and all of the above prepared in
accordance with GAAP, consistently followed
and applied and containing only
qualifications acceptable to Lender, in
Lender's sole discretion. Borrower shall
provide Lender with copies of its 10K and 10Q
Forms within thirty (30) days of filing.
Borrower's financial statements shall be
accompanied by (i) a compliance statement
from Borrower's chief financial officer that
the Borrower is in compliance with all terms
and conditions of the Loan Agreement and that
there is no default thereunder and (ii) such
other financial information as Lender shall
reasonably request.
     
     
     
     
     
     24


     Section 7.02.  CERTIFICATES; RENT ROLL;
OTHER INFORMATION.  Borrower shall furnish to
Lender all of the following:

     (a)  Within thirty (30) days from the
end of each month: (i) a copy of the rent
roll of the Projects, together with the Rent
Roll Certificates reflecting, at a minimum,
the names of all tenants, terms of leases,
base rents, security deposits and renewal
options, and (ii) operating statements for
the Projects , which rent roll and operating
statement shall be certified by an authorized
officer of Borrower as to their accuracy,
completeness and truthfulness; and

     (b)  Promptly, upon request by Lender,
any additional information concerning
Borrower which Lender may reasonably request.

     Section 7.03.  PERFORMANCE OF
OBLIGATIONS.  Borrower will duly and
punctually pay and perform the Obligations in
accordance with their respective terms.

     Section 7.04.  PRESERVATION OF EXISTENCE
AND CONDUCT OF BUSINESS.  Borrower will
preserve and maintain its corporate status
and all of its leases, privileges,
franchises, qualifications, and rights that
are necessary in the ordinary conduct of its
business, and conduct its business as
presently conducted  in accordance with
applicable law.  The Borrower will provide to
Lender copies of all written reports, surveys
and inspections with respect to the Projects
issued by all applicable licensing and/or
accrediting agencies promptly upon receipt,
and Borrower's written response to same
within three (3) business days of the
submission of such response.

     Section 7.05.  MAINTENANCE OF PROJECTS.
Borrower will maintain the Projects in good
condition and repair (ordinary wear and tear
excepted).

     Section 7.06.  PAYMENT OF TAXES AND
CLAIMS.  Borrower will pay or discharge at or
before maturity or before becoming delinquent
(i) all taxes, levies, assessments, and
governmental charges imposed on it or any of
the Projects, and (ii) all lawful claims for
labor, material, and supplies, which, if
unpaid, might become a Lien upon the
Projects; provided, however, that Borrower
shall not be required to pay or discharge any
tax, levy, assessment, or governmental charge
which is being contested in good faith by
appropriate proceedings diligently pursued,
and for which adequate reserves have been
established.

     Section 7.07.  INSURANCE.  Except as
otherwise agreed by Lender, Borrower will
maintain with insurance companies reasonably
acceptable to Lender  meeting the
requirements set forth herein, workmen's
compensation insurance and insurance on
Borrower's property, assets, and business at
the Projects in such amounts, and with
deductibles, acceptable to Lender, and
against such risks as required by Lender
(including, without limitation, all builder's
risk coverage for the Florida Improvements,
hazard,




25


comprehensive general liability insurance,
extended coverage and business interruption
insurance coverage for at least twelve (12)
months), and Borrower shall provide Lender
with evidence satisfactory to Lender in
Lender's reasonable discretion of such
insurance coverage.  Hazards covered, the
amounts of such coverage and the carrier
providing such coverage must be approved by
Lender in writing.  In the case of hazard
insurance and all builder's risk, such
insurance shall at least be in an amount
equal to the lesser of hundred percent (100%)
of the full insurable value of the insurable
portion of the Improvements or an amount
equal to the amount of the Loans   All
insurance policies shall be issued by
insurers with a Best's rating of not less
than A+ and a financial size category of at
least VII, unless otherwise agreed by Lender.
Each insurance policy covering Collateral
shall name Lender (or the holder of the
Notes) as a loss payee subject to a mortgagee
clause (without contribution) of the standard
form attached to or otherwise made a part of
the applicable policy, and shall provide that
the same shall not be canceled or modified
without at least thirty (30) days prior
written notice to Lender.  All insurance
policies and renewals thereof shall be in a
form reasonably acceptable to Lender.  Lender
shall have the right to hold the policies and
Borrower shall promptly furnish or cause to
be furnished to Lender all renewal notices
and all receipts of paid premiums.  At least
fifteen (15) days prior to the expiration
date of a policy, Borrower shall deliver to
Lender a renewal policy in form reasonably
satisfactory to Lender.

     If the Improvements on any Project are
in a "Flood Hazard Area", Borrower shall
provide Lender with a flood insurance policy
in an amount equal to the appraised value of
the applicable Project or the maximum amount
available under the Flood Disaster Protection
Act of 1973 and regulations issued pursuant
thereto, as may be amended from time to time,
whichever is less, in form complying with the
"insurance purchase requirement" of the Act
which shall contain a mortgagee clause in
favor of Lender.

     In the event of any loss to any Project
(whether a Material Casualty Loss or a
Nonmaterial Casualty Loss), Borrower shall
give immediate notice to the insurance
carrier and to Lender and  shall provide
Lender with good and sufficient documentation
and information necessary and required by
Lender to verify and confirm the exact nature
and extent of the damage or destruction to
such Project.  In the case of a Material
Casualty Loss, Borrower shall also provide
Lender with an estimate of the amount of
funds required to repair or replace such
damage, an estimate for the time frame for
completion of the repair or replacement of
all damaged portions of such Project, and a
budget, which shall be subject to Lender's
approval, describing the repair work to be
performed and the costs of labor and material
for each stage of repair work

     In the case of a Material Casualty Loss,
the Borrower hereby authorizes and appoints
Lender as attorney-in-fact for Borrower (such
appointment being coupled with an interest)
to make proof of loss, to adjust and
compromise any claim under insurance
policies, to appear in and prosecute any
action arising from such insurance policies,
to collect and receive insurance proceeds,
and to deduct therefrom Lender's expenses
incurred in the collection of such proceeds;
provided, however, that nothing contained
herein shall require Lender to incur



26


any expense or take any action hereunder.
Except as otherwise herein provided, Borrower
further authorizes Lender at Lender's option,
(a) to hold the balance of such proceeds to
be used to reimburse Borrower for the cost of
reconstruction or repair of the affected
Project or (b) to apply the balance of such
proceeds to the payment of the Note secured
by such Project, whether or not then due.
Notwithstanding the foregoing, Lender shall
not exercise Lender's option to apply
insurance proceeds to the payment of the Note
secured by the affected Project in the case
of a Material Casualty Loss, if all of the
following conditions are met:(i) Borrower is
not in default of any term or condition
contained in the applicable Note or other
Loan Documents relating to such Project; (ii)
Lender has determined that the repair or
replacement of such damages portions of such
Project can be completed within a reasonable
period of time not to exceed the coverage
period provided under the loss of rents
insurance coverage in force with respect to
such Project; (iii) Lender determines that
the insurance proceeds together with any
additional funds received from Borrower as
required under this Section, are sufficient
to complete restoration, or repair; and (iv)
Lender determines that such Project, after
restoration or repair, will be sufficiently
leased to enable Borrower to pay all
operating expenses of such Project and debt
service relating to the Note secured by such
Project, as and when due.  Any insurance
proceeds not paid to repair or replace any
damaged or destroyed portion of the affected
Project shall be released to the Borrower
after completion of the repairs.
Notwithstanding the foregoing, the Borrower
shall have the option in the last year of the
term of the Loans to require Lender to apply
all insurance proceeds received as a result
of a Material Casualty Loss or a Nonmaterial
Casualty Loss to reduce the balance of the
applicable Note provided that (i) all
necessary repairs and restoration are made to
the applicable Project or (ii) the insurance
proceeds are sufficient to pay off the
outstanding balance of the Note.

     In the event the insurance proceeds are
to be applied toward the cost of restoration
and repair of such Project in the case of a
Material Casualty Loss, the affected Project
shall be restored to the equivalent of its
condition immediately prior to such Material
Casualty Loss or such other condition as
Lender may approve writing.  Upon demand by
Lender in the case of a Material Casualty
Loss, Borrower shall deposit with Lender or
Lender's designee, an amount equal to the
difference between insurance proceeds
received and the amount Lender reasonably
determines is necessary to complete the
restoration or repair of such Project
("Borrower's Deposit").  In the case of a
Material Casualty Loss, Lender may condition
disbursement of proceeds and the Borrower's
Deposit upon Lender's receipt of architect's
certificates, waivers of liens, sworn
statements of mechanics and materialmen and
such other evidence of costs, percentage
completion of construction, application of
payments, satisfaction of liens and evidence
of conformance with plans and specifications
approved by Lender, as Lender may reasonably
require.  Any portion of Borrower's Deposit
remaining following the final disbursement
toward the cost of restoration and repair of
such Project shall be refunded to Borrower.
In the case of a Material Casualty Loss,
Borrower covenants to promptly repair and
restore the damaged portions of the Project
to the equivalent of their condition
immediately prior to the Material Casualty
Loss or such other condition as Lender may
approve in writing


27


     Notwithstanding anything contained
herein to the contrary, in the event of a
Nonmaterial Casualty Loss, Borrower shall be
entitled to utilize the insurance proceeds
received in connection with such Nonmaterial
Casualty Loss to repair and replace the
damaged portions of the Project provided: (i)
that no Event of Default has occurred under
the Loan Documents and (ii) Lender determines
that such Project, after restoration or
repair, will be sufficiently leased to enable
Borrower to pay all operating expenses of
such Project and debt service relating to the
Note secured by such Project, as and when
due. In the case of a Nonmaterial Casualty
Loss, Borrower covenants to promptly repair
and restore the damaged portions of the
Project to the equivalent of their condition
immediately prior to the Nonmaterial Casualty
Loss or such other condition as Lender may
approve in writing. If the conditions set
forth in (i) and (ii) of this paragraph are
not satisfied, the Lender shall have the
option to apply any insurance proceeds from
such Nonmaterial Casualty Loss to the
outstanding balance of the Note securing the
affected Project.

     If the insurance proceeds are applied to
the payment of the Note secured by affected
Project, any such application of proceeds
shall not extend or postpone the due dates of
installments due under such Note.

     Section 7.08.  CONDEMNATION. Promptly,
upon obtaining knowledge of the institution
of any proceedings for the condemnation of
any Project or any portion thereof, or any
other proceedings arising out of injury or
damage to such Project, or any portion
thereof, Borrower will notify the Lender of
the pendency of such proceedings. The Lender
may participate in any such proceedings, and
Borrower shall from time to time deliver to
the Lender all instruments requested by it
which are in Borrower's possession or are
reasonably obtainable by Borrower to permit
such participation. Borrower shall, at its
expense, diligently prosecute any such
proceedings, and shall consult with the
Lender, its attorneys and experts, and
cooperate with them in the carrying on or
defense of any such proceedings.

     All proceeds of condemnation awards or
proceeds of sale in lieu of condemnation with
respect to such Project and all judgments,
decrees and awards for injury or damage to
such Project shall be paid to the Lender and
shall be applied, first, to reimburse the
Lender for all reasonable costs and expenses,
including reasonably attorney's fees,
incurred in connection with collection of
such proceeds and, second, except as
otherwise provided herein, the remainder of
said proceeds shall be applied to the payment
of the Note secured by such Project in the
order determined by the Lender in its sole
discretion or paid out to repair or restore
such Project so affected by such
condemnation, injury or damage.
Notwithstanding the foregoing, Lender shall
not exercise Lender's option to apply any
condemnation proceeds to the payment of the
Note secured by the affected Project in the
case of a Material Condemnation Loss, if all
of the following conditions are met: (i)
Borrower is not in default of any term or
condition contained in the applicable Note or
other Loan Documents relating to such
Project; (ii) Lender has determined that the
repair or replacement of such condemned
portions of such Project can be completed
within a reasonable




28


period of time not to exceed the coverage
period provided under the loss of rents
insurance coverage in force with respect to
such Project; (iii) Lender determines that
the condemnation proceeds together with any
additional funds received from Borrower as
required under this Section, are sufficient
to complete restoration or repair, and the
Loan to Value Ratio for the applicable
Project(s) following the completion of such
repairs shall be at least 75.0%; and (iv)
Lender determines that such Project, after
restoration or repair, will be sufficiently
leased to enable Borrower to pay all
operating expenses of  such Project and debt
service relating to the Note secured by such
Project, as and when due.  In the case of a
Material Condemnation Loss, if the
condemnation proceeds are to be applied to
the restoration of the applicable Project,
Borrower shall comply with and be subject to
all requirements and conditions set forth in
Section 7.07 for the utilization of insurance
proceeds for repair and  restoration of the
applicable Project following a Material
Casualty Loss.   In the case of a Material
Condemnation Loss, Borrower covenants to
promptly repair and restore the damaged
portions of the Project to the equivalent of
their condition immediately prior to the
Material Condemnation Loss or such other
condition as Lender may approve in writing.
Notwithstanding the foregoing, the Borrower
shall have the option in the last year of the
term of the Loans to require Lender to apply
all condemnation proceeds received as a
result of a Material Condemnation Loss or
Nonmaterial Condemnation Loss to reduce the
balance of the applicable Note provided that
(i) all necessary repairs and restoration are
made to the applicable Project or (ii) the
condemnation proceeds are sufficient to pay
off the outstanding balance of the applicable
Note

     Notwithstanding anything contained
herein to the contrary, in the event of a
Nonmaterial Condemnation Loss, Borrower shall
be entitled to utilize the condemnation
proceeds received in connection with such
Nonmaterial Condemnation Loss to repair and
restore the condemned portions of the Project
provided that (i) no Event of Default has
occurred under the Loan Documents, (ii)
Lender determines that such Project, after
restoration or repair, will be sufficiently
leased to enable Borrower to pay all
operating expenses of such Project and debt
service relating to the Note secured by such
Project, as and when due and (iii) the Loan
to Value Ratio for the applicable Project(s)
following the completion of such repairs
shall be at least 75.0%.  In the case of a
Nonmaterial Condemnation Loss, Borrower
covenants to promptly repair and restore the
condemned portions of the Project to the
equivalent of their condition immediately
prior to the Nonmaterial Condemnation Loss or
such other condition as Lender may approve in
writing. If the conditions set forth in
Sections (i), (ii) and (iii) of this
paragraph are not satisfied, the Lender shall
have the option to apply any condemnation
proceeds from such Nonmaterial Condemnation
Loss to the outstanding balance of the Note
securing the affected Project.








29



     Borrower hereby assigns and transfers
all such proceeds, judgments, decrees and
awards to the Lender and agrees to execute
such further assignments of all such
proceeds, judgments, decrees and awards as
the Lender may request. The Lender is hereby
authorized to execute and deliver valid
acquittances for, and to appeal from, any
such judgment, decree or award. The Lender
shall not, in any event or circumstances, be
liable or responsible for failure to collect,
or exercise diligence in the collection of,
any such proceeds, judgments, decrees or
awards.

     Section 7.09.  INSPECTION RIGHTS. Upon
reasonable notice (except in an emergency
situation in which case no notice shall be
required), Borrower will permit
representatives of Lender to examine the
books and records of, and visit and inspect
the Projects of Borrower and to discuss the
business, operations, and financial condition
of Borrower with Borrower's officers and
employees and with their independent
certified public accountants.

     Section 7.10.  KEEPING BOOKS AND
RECORDS.  Borrower will maintain proper books
of record and account in which full, true,
and correct entries in conformity with GAAP
shall be made of all dealings and
transactions in relation to the business of
and accounting for each Project and of all
financial transactions materially related to
the financial condition of the Borrower.

     Section 7.11.  COMPLIANCE WITH LAWS.
Borrower will comply with all material
applicable laws, rules, regulations, and
orders of any court, governmental authority
or arbitrator with respect to the Projects or
where failure to comply therewith would
reasonably be expected to have a material
adverse impact on the financial and business
affairs of Borrower.

     Section 7.12.  COMPLIANCE WITH
AGREEMENTS.  Borrower will comply in all
material respects with all material
agreements, indentures, mortgages, deeds of
trust, and other documents binding on it or
affecting its properties or business with
respect to the Projects or where failure to
comply therewith would reasonably be expected
to have a material adverse impact on the
financial and business affairs of Borrower.

     Section 7.13.  NOTICES.  Borrower will
promptly notify Lender of (i) the occurrence
of an Event of Default, (ii) the commencement
of any action, suit, or proceeding against
Borrower that would reasonably be expected to
have a material adverse effect on the
business, financial condition, or operations
of Borrower, and (iii) any other matter that
would reasonably be expected to have a
material adverse effect on the business,
financial condition, or operations of
Borrower.

     Section 7.14.  FURTHER ASSURANCES.
Borrower will execute and deliver such
further instruments as may be deemed
reasonably necessary or desirable by Lender
to carry out the provisions and purposes of
this Agreement and the other Loan Documents
and to preserve and perfect the Liens of
Lender in the Collateral.




30


     Section 7.15.  SECURITY DEPOSITS.  From
and after the occurrence of an Event of
Default, Borrower will upon Lender's written
request, establish an escrow account with
Lender into which all security deposits
received by Borrower in connection with
leasing units in the Projects shall be
deposited, subject to the rights of tenants
to reimbursement under the leases.

     Section 7.16.  LICENSES AND CONTRACTS.
Borrower shall maintain all Required Licenses
in full force and effect until the Loan
secured by each Project is paid in full.
Borrower shall also maintain all other
Contracts in full force and effect during the
term thereof, other than Contracts (other
than Required Licenses) which are terminated
in accordance with the terms thereof.

     Section 7.17.  NET WORTH AND LIQUIDITY.
At all times during the Loans, Borrower shall
maintain a Tangible Net Worth of
$23,000,000.00 and Liquidity of
$7,000,000.00.

     Section 7.18.  FIXED CHARGE COVERAGE
RATIO. Beginning with the quarter ending
September 30, 1997, Borrower shall maintain a
Fixed Charge Coverage Ratio at all times of
at least 1.05 to 1.0.  Until such time as all
Loans have been paid in full, Borrower shall
at all times maintain credit facilities or
financing commitments with other lender(s)
for the financing of facilities similar to
the Project with aggregate funding
availability in an amount of not less
$12,275,000.00. In the event of a breach of
the covenants set forth in this Section 7.18,
Borrower shall and does hereby affirm that it
will in good faith use its commercially
reasonable efforts to have such other
lender(s) refinance and repay the Loans,
irrespective of whether the Lender has
notified the Borrower of its intention to
accelerate the Maturity Date and require
immediate repayment of the Loans.

     Section 7.19.  PROPERTY MANAGEMENT.  In
the event that Borrower desires to enter into
any management or third party operating
agreements or operating leases for any of the
Projects, Borrower shall submit such
management agreements, operating agreements
or operating leases to Lender for its review
and approval.

     Section 7.20.  MEDICARE/MEDICAID.
Borrower shall notify Lender if and at such
time as Borrower seeks to participate in any
Medicare or Medicaid programs with respect to
any of the Projects and agrees to assign, to
the extent permitted by applicable law, its
interests in any reimbursements due to it
under either such program, to the extent not
previously assigned to Lender.












31

                                  ARTICLE
VIII

                         NEGATIVE COVENANTS

     Borrower covenants and agrees that, as
long as the Obligations or any part thereof
are outstanding or Lender has any commitment
hereunder, Borrower will perform and observe
the following negative covenants, unless
Lender shall otherwise consent in writing,
which consent may be conditioned upon the
payment of a consent fee or an increase in
the interest rate on the Notes:

     Section 8.01.  LIMITATION ON LIENS.
Borrower will not incur, create, assume, or
permit to exist any Lien against the Projects
without the Lender's prior written consent.
Notwithstanding the foregoing, the limitation
contained in this Section shall not apply to
liens arising in connection with equipment
leases for equipment serving any Project
provided that the total equipment lease
payments relating to any Project do not
exceed $50,000 per year.

     Section 8.02.  TRANSACTIONS WITH
AFFILIATES.   Borrower shall not enter into
any transaction with any director, officer,
employee, or any Affiliate of Borrower,
without the express written approval of
Lender, other than in the ordinary course of
its business and upon substantially the same
or better terms as it could obtain in an
arm's length transaction with an entity or
person who is not an Affiliate of Borrower.

     Section 8.03.  DISPOSITION OF PROJECTS.
Borrower will not sell, lease (other than to
tenants in the ordinary course of business),
assign, transfer, or otherwise dispose of any
of the Projects, without the Lender's prior
written approval.

     Section 8.04.  DISTRIBUTIONS/FEES.
Distributions of Project Revenues are
permitted so long as (i) no Event of Default
exists at such time, or would exist
immediately thereafter, and (ii) the Borrower
has complied with Section 7.05 hereof.

     Section 8.05.  MANAGEMENT OF THE
PROJECTS.  The management agreements, if any,
approved by Lender shall not be amended
without Lender's approval.

     Section 8.06.  LEASE AGREEMENTS.
Borrower shall not enter into any residential
leases providing for the occupancy of any
unit in the Projects except for tenant leases
in substantially the form approved by Lender
in writing, which approval shall not be
unreasonably withheld.  No commercial lease
which generates revenues in excess of ten
percent (10.0%) of the total revenue of any
Project ("Regulated Commercial Leases") shall
be entered into without Lender's written
approval, and each commercial tenant on a
Regulated Commercial Lease shall execute and
deliver to Lender an estoppel, subordination
agreement and attornment agreement in favor
of Lender.




32


Borrower shall not permit any amendment of
the leases (other than Regulated Commercial
Leases) except in the ordinary course of
business and shall not terminate any lease
(other than Regulated Commercial Leases)
except in accordance with the terms thereof.
Further, a Regulated Commercial Lease may not
be amended in any material respect or
terminated without Lender's prior written
approval, which approval shall not be
unreasonably withheld.

     Section 8.07.  ASBESTOS CONTAINING
MATERIALS.  Borrower will not permit the use
of any product, floor covering, insulation,
or paint that contains asbestos in connection
with the construction of the Improvements.

     Section 8.08.  FLORIDA PROJECT - TANK
TIGHTNESS.  Until the Florida Loan is paid in
full and all Obligations under the Florida
Loan Documents have been satisfied, Borrower
shall, not less than once every twelve (12)
months, conduct a tank tightness test on any
underground fuel storage tanks located at the
Florida Project and shall within five (5)
business days of its receipt of the same
provide Lender with a copy of the results of
such test.  In the event such test indicates
that fuel contained in any such underground
tank is leaking, Borrower shall promptly
undertake appropriate remedial measures to
stop such leakage, repair and/or relocate
such tank to an above-ground location, and
cleanup any spillage or leakage of fuel, all
in accordance with the procedures and
specifications that have been reviewed and
accepted by Lender.

                                   ARTICLE IX

                                   DEFAULT

     Section 9.01.  EVENTS OF DEFAULT.  Each
of the following shall be deemed an "Event of
Default":

     (a)  Borrower shall fail to pay or
perform when due the Obligations or any part
thereof, and such failure, shall continue for
ten (10) days following notice thereof from
Lender.

     (b)  Any representation or warranty made
by Borrower in any Loan Document or in any
certificate, report, notice, or financial
statement furnished at any time in connection
with this Agreement shall be false,
incomplete or erroneous in any material
adverse respect when made.

     (c)  Borrower fails to perform, observe
or comply with the affirmative covenants set
forth in Sections 7.16 and 7.17 of this
Agreement, or fails to perform, observe or
comply in any material respect with any
covenant, agreement or term contained in the
Environmental Indemnities (subject to the
notice and cure provisions set forth in the
Environmental Indemnities.







33


     (d)  Unless otherwise specified herein,
Borrower shall fail to perform, observe, or
comply in any material respect with any
covenant, agreement, or term contained in
this Agreement or any other Loan Document
(other than the failure to make payment when
due  on the Obligations, the failure to
observe the affirmative covenants set forth
in Sections 7.16 and 7.17 of this Agreement
or a default under the Environmental
Indemnities), and such failure shall continue
for thirty (30) days following notice thereof
from Lender.  Notwithstanding the foregoing
in the event that a default covered by this
Section cannot be reasonably cured within
such thirty (30) day period, such default
shall not constitute an Event of Default
hereunder provided that Borrower (i)
commences the cure of such default within the
initial thirty (30) day cure period, (ii)
diligently pursues such cure and (iii)
completes such cure within sixty (60) days of
the original written notice from Lender.

     (e)  Borrower shall commence a voluntary
proceeding seeking liquidation,
reorganization, or other relief with respect
to itself or its debts under any bankruptcy,
insolvency, or other similar law now or
hereafter in effect or seeking the
appointment of a trustee, receiver,
liquidator, custodian, or other similar
official of it or a substantial part of its
property or shall consent to any such relief
or to the appointment of or taking possession
by any such official in an involuntary case
or other proceeding commenced against it or
shall make a general assignment for the
benefit of creditors or shall generally fail
to pay its debts as they become due or shall
take any corporate action to authorize any of
the foregoing.

     (f)  Borrower shall fail to contest and
dismiss within a period of ninety (90) days
after the commencement thereof ("DISMISSAL
PERIOD") any involuntary proceeding commenced
against Borrower seeking liquidation,
reorganization, or other relief with respect
to it or its debts under any bankruptcy,
insolvency, or other similar law now or
hereafter in effect or seeking the
appointment of a trustee, receiver,
liquidator, custodian, or other similar
official for it or a substantial part of its
property.

     (g)  Borrower shall fail to discharge
within a period of thirty (30) days after the
commencement thereof ("DISCHARGE PERIOD") any
attachment, sequestration, or similar
proceeding against the Projects, the
Personalty or other Collateral that will in
Lender's reasonable discretion have a
materially adverse impact on the financial
and business affairs of Borrower.

     (h)  Borrower shall fail to satisfy and
discharge within sixty (60) days after entry
(but in any event prior to the commencement
of proceedings to enforce collection) of any
final judgment or judgments against it for
the payment of money in an amount that will
in Lender's reasonable discretion have a
materially adverse impact on the financial
and business affairs of Borrower.

     (i)  This Agreement or any other Loan
Document shall cease to be in full force and
effect in a material respect or shall be
declared null and void or the validity or
enforceability thereof shall be contested or
challenged by Borrower or Borrower shall deny
that it has any further liability or
obligation under any of the Loan Documents.


34


     (j)  Borrower shall default in the
payment of any principal or interest due on
any other recourse Debt with an outstanding
principal balance of at least $1,000,000 or
more beyond any applicable grace period.

     (k)  A material deterioration in the
financial condition of Borrower shall have
occurred.

     (l)  Borrower shall admit in writing its
inability to pay its Debts as they become
due.

     (m)  Borrower shall fail to discharge
within a period of thirty (30) days of the
filing of any formal charges under federal or
state law for which forfeiture of Borrower's
interest in any Project or the granting of a
lien against any Project, which lien is or
could be superior to any of Lender's liens
against such Project, is a potential penalty
or remedy.

     (n)  Daniel Baty fails to retain at all
times ownership, either directly or
indirectly,  of at least 20.00% of all
outstanding voting shares of the Borrower
and/or fails to remain as Chairman of the
Board of Borrower or Raymond Brandstrom or
Frank Ruffo are removed as senior managers of
Borrower.

     Section 9.02.  REMEDIES UPON DEFAULT.
Upon the occurrence of an Event of Default,
Lender may without notice terminate its
obligation to lend hereunder and declare the
Obligations or any part thereof to be
immediately due and payable, and the same
shall thereupon become immediately due and
payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration,
notice of intent to accelerate, notice of
intent to demand, protest, or other
formalities of any kind, all of which are
hereby expressly waived by Borrower;
provided, however, that upon the occurrence
of an Event of Default under Section 9.01(d)
or Section 9.01(e), the Obligations shall
become immediately due and payable without
notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to
demand, protest, or other formalities of any
kind, all of which are hereby expressly
waived.  Notwithstanding the foregoing,
immediately upon the occurrence of any of the
events described under Section 9.01(d) or
Section 9.01(e), the obligations of Lender to
lend hereunder shall automatically terminate
(regardless of whether any Dismissal Period
or Discharge Period has expired.)  Upon the
occurrence of any Event of Default, Lender
may exercise all rights and remedies
available to it in law or in equity, under
the Loan Documents, or otherwise. Upon the
occurrence of any Event of Default, Lender
shall have the right to require Borrower to
replace the property manager, if any, and to
immediately deposit all security deposits in
an escrow account maintained with Lender
subject to the rights of tenants under tenant
leases.







35




ARTICLE X


MISCELLANEOUS

     Section 10.01.  REIMBURSEMENT OF
EXPENSES OF LENDER.  Borrower shall be liable
for and hereby agree to pay Lender on demand
or if no demand is made within twenty (20)
days following receipt of an invoice
therefor: (i) all reasonable costs and
expenses incurred by Lender in connection
with the preparation, negotiation, and
execution of this Agreement and the other
Loan Documents and any and all amendments,
modifications, renewals, extensions, and
supplements thereof and thereto, including,
without limitation, the reasonable fees and
expenses of Lender's legal counsel, (ii) all
reasonable costs and expenses incurred by
Lender in connection with the enforcement of
this Agreement or any other Loan Document,
including, without limitation, the reasonable
fees and expenses of Lender's legal counsel,
(iii) all other reasonable costs and expenses
incurred by Lender in connection with this
Agreement or any other Loan Document,
including, without limitation, all costs,
expenses, taxes (excluding income taxes),
assessments, filing fees, credit
investigations, and other charges levied by a
governmental authority or otherwise payable
in respect of this Agreement or any other
Loan Document or in obtaining any mortgagee
title insurance policy, endorsement, survey,
environmental report, or appraisal in respect
of the Collateral, and (iv) all reasonable
costs and expenses incurred by Lender or
Lender's agents relating to any inspections
of the Projects and any audit of the books,
records and operations of Borrower and the
Projects, including independent analysts,
consultants, engineers, inspectors, auditors,
and appraisers.  The amounts described herein
shall be paid even if Borrower fails to
satisfy the conditions of Article V hereof
and the Loans fails to fund as a result.
Lender shall not be required to pay any
premium or other charge or any brokerage fee
or commission or similar compensation in
connection with the Loans .

     Section 10.02.  INDEMNIFICATION.
Borrower hereby indemnifies Lender and each
affiliate thereof and their respective
officers, directors, employees, and agents
from, and holds each of them harmless
against, any and all losses, liabilities,
claims, damages, costs, and expenses to which
any of them may become subject, insofar as
such losses, liabilities, claims, damages,
costs, and expenses arise from or relate to
(i) any of the Loan Documents or any of the
transactions contemplated thereby, (ii) from
any investigation, litigation, or other
proceeding, including, without limitation,
any threatened investigation, litigation, or
other proceeding relating to any of the
foregoing, including the violation of any
applicable environmental law, rule or
regulation, now or hereafter existing, that
affects any Project, but excluding any of the
foregoing attributable to Lender's gross
negligence or willful misconduct, and (iii)
the claims of any and all brokers or anyone
else claiming a fee by, through or under
Borrower in connection with arranging the
financing herein described.






36


     Section 10.03.  RESTATEMENT.  The
delivery of each statement, report, and
certificate to Lender pursuant to this
Agreement shall by virtue of such delivery
alone constitute a restatement of the
representations and warranties contained in
Article VI hereof on and as of the date of
delivery.  Each such delivery shall except as
otherwise specified by Borrower at the time
of delivery also constitute a representation
and warranty at the time of said delivery
that no Event of Default has occurred and is
continuing.

     Section 10.04.  NO WAIVER; CUMULATIVE
REMEDIES.  No failure on the part of Lender
to exercise and no delay in exercising, and
no course of dealing with respect to, any
right, power, or privilege under this
Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of
any right, power, or privilege under this
Agreement preclude any other or further
exercise thereof or the exercise of any other
right, power, or privilege. The rights and
remedies provided for in this Agreement and
the other Loan Documents are cumulative and
not exclusive of any rights and remedies
provided by law.

     Section 10.05.  SUCCESSORS AND ASSIGNS.
This Agreement is binding upon and shall
inure to the benefit of Lender and Borrower
and their respective successors and assigns,
except that Borrower may not assign or
transfer any of its rights or obligations
under this Agreement without the prior
written consent of Lender.

     Section 10.06.  SURVIVAL OF
REPRESENTATIONS AND WARRANTIES.  All
representations and warranties made in this
Agreement or any other Loan Document or in
any document, statement, or certificate
furnished in connection with this Agreement
shall survive the execution and delivery of
this Agreement and the other Loan Documents,
and no investigation by Lender or any closing
shall affect the representations and
warranties or the right of Lender to rely
upon them.

     Section 10.07.  ENTIRE AGREEMENT;
AMENDMENT.    THE PARTIES HERETO EXPRESSLY
ACKNOWLEDGE AND AGREE, THAT WITH REGARD TO
THE SUBJECT MATTER OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREIN: (1) THERE
ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO AND (2) THIS AGREEMENT, INCLUDING THE
DEFINED TERMS AND ALL EXHIBITS AND ADDENDA,
IF ANY, ATTACHED HERETO: (a) EMBODIES THE
FINAL AND COMPLETE AGREEMENT BETWEEN THE
PARTIES; (b)  SUPERSEDES ALL PRIOR AND
CONTEMPORANEOUS NEGOTIATIONS, OFFERS,
PROPOSALS, AGREEMENTS, COMMITMENTS, PROMISES,
ACTS, CONDUCT, COURSE OF DEALING,
REPRESENTATIONS, STATEMENTS, ASSURANCES AND
UNDERSTANDINGS, WHETHER ORAL OR WRITTEN; AND
(c) MAY NOT BE VARIED OR CONTRADICTED BY
EVIDENCE OF ANY SUCH PRIOR OR CONTEMPORANEOUS
MATTER OR BY EVIDENCE OF ANY SUBSEQUENT ORAL
AGREEMENT OF THE PARTIES HERETO.  The
provisions of this Agreement and the other
Loan Documents to which Borrower is a party
may be amended or waived only by an
instrument in writing signed by the parties
hereto.

37


     Section 10.08.  MAXIMUM INTEREST RATE.
It is the intention of Lender and Borrower
and all other parties to the Loans  to
conform to and contract in strict compliance
with applicable usury laws from time-to-time
in effect. All agreements between Lender or
any other holder of the Notes and Borrower
(or any other party liable with respect to
indebtedness under the Loan Documents) are
hereby limited by this provision, which shall
control and override all such agreements.  In
no way, nor in any event or contingency
(including, but not limited to, prepayment,
default, demand for payment, or the
acceleration of maturity of any Obligations,
or the recharacterization of any application
fee, loan commitment fees, additional
commitment fees, or origination fees as
interest), shall the interest taken,
reserved, contracted for, charged or received
under the Notes, or otherwise, exceed the
Maximum Rate.  If, from any possible
construction of any document, interest would
otherwise be payable in excess of the Maximum
Rate, any such construction shall be subject
to this provision, and such document shall be
automatically reformed, and the interest
payable shall be automatically reduced to the
Maximum Rate permitted under applicable law,
without the necessity of the execution of any
amendment or new document.  If Lender or the
holder of the Notes shall ever receive any
thing of value that is characterized as
interest under applicable law and that would
apart from this provision, be in excess of
the Maximum Rate, an amount equal to the
amount that would have been excessive
interest shall, without penalty, be applied
to the reduction of the principal amount
owing on the applicable Note in the inverse
order of its maturity and not to the payment
of interest, or refunded to Borrower or the
other payor thereof if and to the extent such
amount, which would have been excessive,
exceeds such unpaid principal. The right to
accelerate the maturity of the Notes, or any
other indebtedness, does not include the
right to accelerate any interest that has not
otherwise accrued on the date of such
acceleration, and the Lender or the holder
thereof does not intend to charge or receive
any unearned interest in the event of
acceleration.  All interest paid or agreed to
be paid to the Lender or the holder of the
Notes shall, to the extent permitted by
applicable law, be amortized, prorated,
allocated and spread throughout the full
stated term (including any renewal or
extension) of the Notes so that the amount of
interest on account of such indebtedness does
not exceed the Maximum Rate.  As used in this
paragraph, the term "applicable law" shall
mean the laws of the State of Texas or the
federal laws of the United States of America,
which ever laws allow the greater interest,
as such laws now exist may be changed or
amended or come in effect in the future.

     Section 10.09.  NOTICES.  Any notice,
consent, request, demand or other
communication required or permitted to be
given under any of the Loan Documents to
Lender or Borrower must be in writing and
shall be deemed sufficiently given or made
when (i) delivered in person, (ii) sent by
private courier or national overnight
delivery service with proof of delivery and
courier fees paid by sender, (iii) sent by
telecopy with either telephonic confirmation
of receipt or with a hard copy sent that day
by national overnight delivery service, or
(iv) three (3) days after depositing in the
United States mail by first class mail,
registered or certified, return receipt
requested, postage prepaid, as follows:



38


To Lender:          Bank United
               3200 Southwest Freeway, Suite
          1900
               P.O. Box 1370
               Houston, Texas 77251-1370
               Attention: Casey Moore
               Telephone: (713) 543-6150
               Telecopy: (713) 543-6604

With copy to:       Nancy F. Martin
               Shannon, Martin, Finkelstein &
          Sayre
               1300 Two Allen Center
               1200 Smith Street
               Houston, Texas 77002
               Telecopy: (713) 752-0337
               Telephone: (713) 646-5560

To Borrower:        Emeritus Corporation
               3131 Elliott Avenue, Suite 500
               Seattle, Washington 98121
               Attention: Raymond Brandstrom
               Telephone: (206) 298-2909
               Telecopy: (206) 301-4500

With copy to:       Randi Nathanson
               The Nathanson Group
               1411 Fourth Avenue, Suite 905
               Seattle, Washington 98101
               Telecopy: (206) 623-6239
               Telephone: (206) 623-1738

or such other address as shall be set forth
in a notice from the appropriate party given
in compliance with this Section.
Notwithstanding anything to the contrary
herein, any notice delivered pursuant to
Section 51.002 of the Texas Property Code
shall be deemed sufficiently given when
deposited in the United States mail by first
class mail, registered or certified, return
receipt requested, postage prepaid to the
address of Borrower as set forth above.

     Section 10.10.  APPLICABLE LAW AND
VENUE.  This Agreement shall be governed by
and construed in accordance with the laws of
the State of Texas and the applicable laws of
the United States of America without regard
to choice of law principles. This Agreement
has been entered into in Harris County,
Texas, and it shall be performable for all
purposes in Harris County, Texas. Courts
within the State of Texas shall have
jurisdiction over any and all disputes
between Borrower and Lender, whether in law
or equity, including, but not limited to, any
and all disputes arising out of or relating
to this Agreement or any other Loan Document;
and venue in any such dispute whether in
federal or state court shall be laid in
Harris County, Texas.  Notwithstanding the
foregoing, the laws of the state in which
specific Collateral is located shall govern
the perfection of any lien or security
interest in such Collateral and the
foreclosure or execution upon any lien or
security interest in such Collateral.


39


     Section 10.11.  COUNTERPARTS.  This
Agreement may be executed in one or more
counterparts, each of which shall be deemed
an original, but all of which together shall
constitute one and the same instrument.

     Section 10.12.  SEVERABILITY.  Any
provision of this Agreement held by a court
of competent jurisdiction to be invalid or
unenforceable shall not impair or invalidate
the remainder of this Agreement and the
effect thereof shall be confined to the
provision held to be invalid or illegal.

     Section 10.13.  HEADINGS.  The headings,
captions, and arrangements used in this
Agreement are for convenience only and shall
not affect the interpretation of this
Agreement.

     Section 10.14.  PARTICIPATION.  Borrower
acknowledges and agrees that Lender may
assign all or a part of its interests under
the Loan Documents to one or more third
parties.  Borrower acknowledges that all
information relating to the Loan Documents,
the Projects, Borrower, any guarantor, or
holders of equity interests in Borrower,
within the possession of or later acquired by
Lender or its agents may be disclosed to
prospective or actual purchasers,
participants, and their respective agents,
and further, in connection with a potential
or actual securitization of the Note, to
underwriters, rating agencies, other loan
servicers, and persons or entities acting as
trustee of any trusts, investment conduits,
or other entities to which the Note may be
assigned.  Borrower hereby consents to such
disclosures.

     Section 10.15.  CONSTRUCTION.  Borrower
and Lender acknowledge that each of them has
had the benefit of legal counsel of its own
choice and has been afforded an opportunity
to review this Agreement and the other Loan
Documents with its legal counsel.

     Section 10.16.  WAIVER OF JURY TRIAL.
Borrower and Lender hereby expressly waive
any right to a trial by jury in any action or
legal proceeding arising out of or relating
to this Agreement or any other Loan Document
or the transactions contemplated hereby or
thereby.

     Section 10.17.  ARBITRATION.  To the
maximum extent not prohibited by law, any
controversy, dispute or claim arising out of,
in connection with, or relating to the Loans
or the Loan Documents or any transaction
provided for therein, including, but not
limited to, any claim based on or arising
from an alleged tort or an alleged breach of
any agreement contained in any of the Loan
Documents, shall, at the request of any party
to the Loans  or Loan Documents (either
before or after the commencement of judicial
proceedings) be settled by arbitration
pursuant to Title 9 of the United States
Code, which the parties hereto acknowledge
and agree applies to the transaction involved
herein, and in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association (the "AAA").  In any such
arbitration proceeding:  (i) all statutes of
limitations which would otherwise be
applicable shall apply; and (ii) the
proceeding shall be conducted in Houston,
Texas, by a single arbitrator, if the amount
in controversy is one million dollars



40


($1,000,000.00) or less, or by a panel of
three arbitrators if the amount in
controversy is over one million dollars
($1,000,000.00).  All arbitrators shall be
selected by the process of appointment from a
panel pursuant to Section 13 of the AAA
Commercial Arbitration Rules, and each
arbitrator shall have AAA acknowledged
expertise in the subject matter of the
controversy, dispute or claim.  Any award
rendered in any such arbitration proceeding
shall be final and binding, and judgment upon
any such award may be entered in any court
having jurisdiction.

     If any party to the Notes or Loan
Documents files a proceeding in any court to
resolve any such controversy, dispute or
claim, such action shall not constitute a
waiver of the right of such party or a bar to
the right of any other party to seek
arbitration under the provisions of this
Section of that or any other claim, dispute
or controversy, and the court shall, upon
motion of any party to the proceeding made
within sixty (60 days of the filing of such
action, direct that such controversy, dispute
or claim be arbitrated in accordance with
this Section.

     Notwithstanding any of the foregoing,
the parties hereto agree that no arbitrator
or panel of arbitrators shall possess or have
the power to (i) assess punitive damages,
(ii) dissolve, rescind or reform (except that
the arbitrator may construe ambiguous terms)
the Loans  or any Loan Documents, (iii) enter
judgment on the debt, (iv) exercise equitable
powers or issue or enter any equitable
remedies or (v) allow discovery of
attorney/client privileged information.  The
Commercial Arbitration Rules of the AAA are
hereby modified to this extent for the
purpose of arbitration of any dispute,
controversy or claim arising out of, in
connection with, or relating to the Loans  or
any Loan Document. The parties further agree
to waive, each to each other, any claims for
punitive damages, and agree that neither an
arbitrator nor any court shall have the power
to assess punitive damages.

     No provision of, or the exercise of any
rights under, this Section shall limit or
impair the right of any party to the Loan
Documents before, during or after any
arbitration proceeding to: (i) exercise self-
help remedies such as setoff or repossession;
(ii) foreclose (judicially or otherwise) any
lien on or security interest in any real or
personal property Collateral; or (iii) obtain
emergency relief from a court of competent
jurisdiction to prevent the dissipation,
damage, destruction, transfer, hypothecation,
pledging or concealment of assets or of
Collateral securing any indebtedness,
obligation or guaranty referenced in the Loan
Documents.  Such emergency relief may be in
the nature of, but is not limited to:  pre-
judgment attachments, garnishments,
sequestrations, appointments of receivers, or
other emergency injunctive relief to preserve
the status quo.

     In the event applicable law prohibits
the submission of a particular controversy,
dispute, or claim arising out of or in
connection with any of the Loan Documents or
transactions contemplated therein to
arbitration, Borrower and Lender agree that
any actions or proceedings in connection
therewith shall be tried and litigated only
in the state and federal courts located in
Houston,



41


Texas except for actions or proceedings for
enforcement of any lien or security interest
in the Collateral which shall be in the
jurisdiction where the applicable Collateral
is located or any other court in which Lender
shall initiate legal or equitable proceedings
that has subject matter jurisdiction over the
matter in controversy.  Borrower and Lender,
to the extent permitted by applicable law,
waive any right to assert the doctrine of
forum non-conveniens or to object to the
venue to the extent any proceeding is brought
in accordance with this paragraph.

     Section 10.19.  ADDITIONAL OBLIGATIONS.
In addition to all Obligations hereunder,
under the Notes and under the other Loan
Documents, Borrower shall be personally
liable, in the amount of any loss, damage or
cost resulting from (i) fraud or intentional
misrepresentation by Borrower  in connection
with obtaining the Loans evidenced by the
Notes or in complying with Borrower's
obligations under the Notes, the Deeds of
Trust, or any other Loan Documents ( In such
event, the "loss" shall be deemed to include
but not be limited to, any loss of sums owing
from Borrower under the Notes, the Deeds of
Trust and any other Loan Documents), (ii)
failure to remit to Lender insurance
proceeds, condemnation awards, or other sums
or payments attributable to the Projects in
accordance with the provisions of the Deeds
of Trust, except to the extent that Borrower
did not have the legal right, because of a
bankruptcy, receivership, or similar judicial
proceeding, to direct disbursement of such
sums or payments, (iii) failure to apply to
principal and interest under the Notes,
payment of utilities, taxes and assessments,
ground rents, if any, on the Projects as they
become due and payable, or otherwise remit to
Lender all rents, profits, issues, products
and income of the Projects received following
any Event of Default and its continuance
under the Notes or the Deeds of Trust
(including any received or collected by or on
behalf of Borrower after an Event of Default,
except to the extent that Borrower did not
have the legal right, because of a
bankruptcy, receivership or similar judicial
proceeding, to direct the disbursement of
such sums), (iv) removal of any personalty or
fixtures constituting a portion of any
Projects except as otherwise allowed herein
or under the terms of the Deeds of Trust, (v)
failure to pay any valid mechanics',
materialman's or similar lien claimants'
liens arising from work performed or
materials furnished in connection with any
Project prior to any sale or foreclosure
thereof, (vi) Borrower's failure to deliver
to Lender following default under the Loan
Documents and upon demand by Lender, all
security deposits received in connection with
the Projects, subject to the rights of
tenants under tenant leases, (vii) any waste
of or damage to any Project caused by the
willful or wanton acts or omissions of
Borrower or its agents, or any deferred
maintenance of any Project caused by the
inaction of Borrower in which case the loss
shall be deemed to include all costs of
repair, replacement or rehabilitation of such
Project (for purposes of this Section 10.19,
"deferred maintenance" shall mean a failure
to maintain any Project in good repair by
failing to replace and/or repair
improvements, fixtures, and appliances as
needed to maintain such Project in good
repair and (viii) any obligation of Borrower
arising under Paragraph 2.4 of the Deeds of
Trust, and/or the Environmental Indemnities
which event, the "loss" shall include all
obligations of Borrower under the
Environmental Indemnities .



42


Signature Page to Loan Agreement by and
between EMERITUS CORPORATION, a Washington
corporation, and BANK UNITED, a federal
savings bank
- ---------------------------------------------
- ---------------------------------------------
- --

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


BORROWER:


EMERITUS CORPORATION,
                                          a
Washington corporation

                                          By:
/s/ Kelly J. Price

- ---------------------------------------

Name:    Kelly J. Price

- ---------------------------------------

Title:      Secretary, director of Finance
and CFO



LENDER:


BANK UNITED


By:   /s/ Casey Moore

- -----------------------------------------

Casey Moore, Vice President


























43

EX-10.9.2

PROMISSORY NOTE

$6,775,000.00
Houston, Texas                 December31,
1996

     FOR VALUE RECEIVED, the undersigned,
EMERITUS CORPORATION, a Washington
corporation ("BORROWER"), hereby promises
to pay to the order of BANK UNITED (the
"LENDER") at its offices at 3200 Southwest
Freeway, Suite 1700, P.O. Box 1370,
Houston, Texas 77251-1370, or at such
other location as Lender may designate in
writing to Borrower, the principal sum of
SIX MILLION SEVEN HUNDRED SEVENTY-FIVE
THOUSAND AND NO/100 DOLLARS
($6,775,000.00), or so much thereof as may
be advanced and outstanding from time to
tome, in immediately available funds,
together with interest thereon from the
date hereof until maturity at a floating
rate of interest equal to the lesser of:

     (a)  The one month London Interbank
Offered Rate ("LIBOR RATE") reflected as
the one month LIBOR Rate on page 5 of the
Telerate screen or as published or quoted
by such other reputable and nationally
recognized rate quoting service or
publication selected by Lender plus two
and on-fourth percent (2 1/4%) per annum
("LOAN RATE").  The Loan Rate shall be set
each month based on the LIBOR Rate quoted
two (2) business days prior to the first
day of each calendar month during the term
hereof;

     (b)  The maximum rate of nonusurious
interest permitted from day today by
applicable law ("MAXIMUM RATE"), including
as to Article 5069-1.04, Vernon's Texas
Civil Statutes (and as the same may be
incorporated by reference in other Texas
statutes), but otherwise without
limitation, that rate based upon the
"indicated rate ceiling" and calculated
after taking into account any and all
relevant fees, payments and other charges
in respect to the Loan Documents, as
hereinafter defined, which are deemed to
be interest under applicable law.

     In the event that any payment on the
Note is more than thirty days past due,
the unpaid principal balance of the Note
shall bear interest commencing at the date
such payment became past due at the lesser
of (i) the Default Rate (which is equal to
the Loan Rate plus five percent per annum)
or (ii) the Maximum Rate until all past
due installments have been paid in full.
In such case, the Default Rate shall be
applied to the unpaid principal balance of
the Note during such period instead of the
Loan Rate.

     All interest shall be calculated at
the applicable rate on a daily basis on
the outstanding principal balance of the
Note; provided that if at any time the
Loan Rate exceeds the maximum Rate, the
rate of interest which this Note bears
shall be limited to the Maximum Rate, but
any subsequent reductions in the Loan Rate
shall not reduce the rate of interest
which this Note bears below the Maximum
Rate until the total interest accrued on
this Note equals the amount of interest
which would have accrued if the Loan Rate
had at all times been in effect.


1


     Interest payable under the Note shall
be calculated on a 30/360 basis.  That is,
each calendar month will be deemed to
consist of thirty (30) days and a year
shall be deemed to be comprised of 360
days.  Interest shall accrue, per diem, at
a rate equal to 1/360th of the annual
interest rate.

     Accrued but unpaid interest only on
this Note shall be due and payable
monthly, the first payment of which shall
be due and payable on February 1, 1997 and
subsequent payments shall be due and
payable on the first day of each month
thereafter.  The unpaid principal balance
of this Note, together with accrued, but
unpaid interest thereon shall be due and
payable in full in one balloon payment
twenty-four months from the date hereof.

     This Note is the Note referred to in
that certain Loan Agreement of even date
herewith (the "LOAN AGREEMENT") between
Borrower and Lender, and is subject to the
terms and conditions of, and entitled to
the benefits of, the Loan Agreement.
CAPITALIZED TERMS NOT DEFINED HEREIN SHALL
HAVE THE MEANING GIVEN THE SAME IN THE
LOAN AGREEMENT.  It is expressly agreed
that all Advances shall be in accordance
with, and subject to, the Loan Agreement.
Lender's records of the amount borrowed
from time to time shall be prima facie
proof thereof.

     Upon an Event Default, as that term
is defined in the Loan Agreement, Lender
may, at its option, declare all
outstanding principal, accrued interest
and other sums outstanding hereon
immediately due and payable, and exercise
all rights and remedies as set forth in
the Loan Agreement or any of the Loan
Documents, as hereinafter defined.

     Borrower shall have the right to
prepay, at any time and from time to time
without premium or penalty, the entire
unpaid principal balance of the Note or
any portion thereof, with accrued interest
to the date of prepayment on the amounts
prepaid.

     Borrower and any and all endorsers,
guarantors and sureties jointly and
severally except as may be expressly
provided in the Loan Agreement (i) waive,
to the fullest extent it is lawful so to
do, presentment, demand, notice of intent
to accelerate, notice of nonpayment,
notice of dishonor and all other notices;
(ii) agree and consent to delays,
extensions, renewals, modifications or
partial payments heron, to any release of
a party liable hereon or of any collateral
herefor, in whole or in part, and to
taking or refraining to take any action
with respect to this Note, before or after
maturity, without notice to or consent
from said parties, and without discharging
any party liable hereunder; (iii) agree
that no action, failure to act or failure
to exercise any right or remedy on the
part of Lender shall in any way affect or
impair the obligations of borrower or be
construed as a waiver by Lender of, or
otherwise affect, any of Lender's rights
under this note, under any endorsement or
guaranty of this Note, or under the Loan
Agreement, the Security documents, as
hereinafter defined, or any related
document (the "LOAN DOCUEMENTS"); and (iv)
agree to pay, on



2


demand, all costs and expenses of
collection of this Note or of any
endorsement or guaranty hereof, including,
without limitation, reasonable attorney's
fees, including fees related to any trial,
arbitration,  bankruptcy, appeal or other
proceeding.

     The proceeds of the Note are to be
used for business, commercial, investment
or other similar purposes, and no portion
thereof shall be used for personal, family
or household use.

     It is the intention of Lender and
borrower and all other parties to the Loan
to conform to and contract in strict
compliance with applicable usury laws from
time-to-time in effect.  All agreements
between Lender or any other holder of the
Note and Borrower (or any other party
liable with respect to indebtedness under
the Loan Documents) are hereby limited by
this provisions, which shall control and
override all such agreements.  In no way,
nor in any event or contingency
(including, but not limited to,
prepayment, default, demand for payment,
or the acceleration of maturity of any
Obligations, or the recharacterization of
any application fee, loan commitment fees,
additional commitment fees, or origination
fees as interest), shall the interest
taken, reserved, contracted for, charged
or received under the Note, or otherwise,
exceed the Maximum Rate.  If, from any
possible construction of any document,
interest would otherwise be payable in
excess of the Maximum Rate, any such
construction shall be subject to this
provision, and such document shall be
automatically reformed, and the interest
payable shall be automatically reduced to
the Maximum Rate permitted under
applicable law, without the necessity of
the execution of any amendment or new
document.  If Lender or the holder of the
Note shall ever receive any thing of value
that is characterized as interest under
applicable law and that would, apart from
this provision, be in excess of the
Maximum Rate, an amount equal to the
amount that would have been excessive
interest shall, without penalty, be
applied to the reduction of the principal
amount owing on the Note in the inverse
order of its maturity and not to the
payment of interest, or refunded to
Borrower or the other payor thereof if and
to the extent such amount, which would
have been excessive, exceeds such unpaid
principal.  The right to accelerate the
maturity of the Note, or any other
indebtedness, does not include the right
to accelerate any interest that has not
otherwise accred on the date of such
acceleration, and the Lender or the holder
thereof does not intend to charge or
receive any unearned interest in the event
of acceleration.  All interest paid or
agreed to be paid to the Lender or the
holder of the Note shall, to the extent
permitted by applicable law, be amortized,
prorated, allocated and spread throughout
the full stated term (including any
renewal or extension) of the Note so that
the amount of interest on account of such
indebtedness does not exceed the maximum
rate.  As used in this paragraph, the term
"applicable law" shall mean the laws of
the State of Texas or the federal laws of
the United States of America, which ever
laws allow the greater interest, as such
laws now exist may be changed or amended
or come in effect in the future.



3



     All rights and remedies of Lender
herein shall be cumulative and may be
pursued singly, successively or together
at the option of Lender.  The acceptance
by Lender of any partial payment shall not
constitute a waiver of any default or of
any Lender's rights under this Note.  No
waiver of any of its rights hereunder, and
no modification or amendment of this Note,
shall be deemed to be made by Lender
unless the same shall be in writing, duly
signed on behalf of Lender; and each such
waiver, if any, shall apply only with
respect to the specific instance involved,
and shall in no way impair the rights of
Lender or the obligations of Borrower to
Lender in any other respect at any other
time.

     The unenforceability or invalidity of
any provision of this Note shall not
affect the enforceability or the validity
of any other provision herein and the
invalidity or unenforceability of any
provision of this Note to any person or
circumstance shall not affect the
enforceability or validity of such
provision as it may apply to other persons
or circumstances.

     This Note shall be binding upon
Borrower and its respective successors,
assigns, heirs and legal representative.

     This Note shall be governed by and
construed in accordance with the laws of
the State of Texas (excluding any such law
directing the application of the laws of
any other jurisdiction) and applicable law
of the United States of America.

     This Note is secured, inter alia, by
(i) the Loan Agreement, (ii) the Deed of
Trust, Security Agreement, Assignment of
Leases and Rents and Fixture Filing
(Financing Statement) of even date
herewith executed by the Borrower for the
benefit of Lender, (iii) the Absolute
Assignment of Leases and Rents dated of
even date herewith from the Borrower in
favor of Lender, (iv) Assignment of
Contracts, Plans, Permits and Approvals of
even date herewith from the Borrower in
favor of Lender, (v) certain Financing
Statements executed by the Borrower in
favor of the Lender, (vi) all other
documents and instruments executed by
Borrower in connection with or as security
for the Note; and (vii) all renewals,
extensions and modifications thereof
(collectively, the "SECURITY DOCUMENTS").

     THIS NOTE REPERESENTS THE FINAL
AGREEEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEIOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.







4



     Signature Page to $6,775,000
Promissory Note executed by EMERITUS
CORPORATION, a Washington corporation,
payable to the order of BANK UNITED, a
federal savings bank



"BORROWER"


EMERITUS CORPORATION


                                    By:
/s/ Kelly J. Price
                                    ------
- ------------------------------------------
- ------
                                    Name:
Kelly J. Price
                                    ------
- ------------------------------------------
- ------
                                    Its:
Secretary, Director of Finance and Chief

Financial Officer
                                    ------
- ------------------------------------------
- ------

EX-10.9.3

                                PROMISSORY
NOTE

$5,500,000.00          Houston, Texas
December 31, 1996


     FOR VALUE RECEIVED, the undersigned,
EMERITUS CORPORATION, a Washington
corporation ("BORROWER"), hereby promises to
pay to the order of BANK UNITED (the
"LENDER") at its offices at 3200 Southwest
Freeway, Suite 1700, P. O. Box 1370, Houston,
Texas 77251-1370, or at such other location
as Lender may designate in writing to
Borrower, the principal sum of FIVE MILLION
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($5,500,000.00), or so much thereof as may be
advanced and outstanding from time to time,
in immediately available funds, together with
interest thereon from the date hereof until
maturity at a floating rate of interest equal
to the lesser of:

     (a)  The one month London Interbank
Offered Rate ("LIBOR RATE") reflected as the
one month LIBOR Rate on page 5 of the
Telerate screen or as published or quoted by
such other reputable and nationally
recognized rate quoting service or
publication selected by Lender plus two and
one-fourth percent (2 1/4%) per annum ("LOAN
RATE").  The Loan Rate shall be set each
month based on the LIBOR Rate quoted two (2)
business days prior to the first day of each
calendar month during the term hereof;

     (b)  The maximum rate of nonusurious
interest permitted from day to day by
applicable law ("MAXIMUM RATE"), including as
to Article 5069-1.04, Vernon's Texas Civil
Statutes (and as the same may be incorporated
by reference in other Texas statutes), but
otherwise without limitation, that rate based
upon the "indicated rate ceiling" and
calculated after taking into account any and
all relevant fees, payments and other charges
in respect to the Loan Documents, as
hereinafter defined, which are deemed to be
interest under applicable law.

     In the event that any payment on the
Note is more than thirty days past due, the
unpaid principal balance of the Note shall
bear interest commencing at the date such
payment became past due at the lesser of (i)
the Default Rate (which is equal to the Loan
Rate plus five percent per annum) or (ii) the
Maximum Rate until all past due installments
have been paid in full.  In such case the
Default Rate shall be applied to the unpaid
principal balance of the Note during such
period instead of the Loan Rate.

     All interest shall be calculated at the
applicable rate on a daily basis on the
outstanding principal balance of the Note;
provided that if at any time the Loan Rate
exceeds the Maximum Rate, the rate of
interest which this Note bears shall be
limited to the Maximum Rate, but any
subsequent reductions in the Loan Rate shall
not reduce the rate of interest which this
Note bears below the Maximum Rate until the
total interest accrued on this Note equals
the amount of interest which would have
accrued if the Loan Rate had at all times
been in effect.






     Interest payable under the Note shall be
calculated on a 30/360 basis.  That is, each
calendar month will be deemed to consist of
thirty (30) days and a year shall be deemed
to be comprised of 360 days.  Interest shall
accrue, per diem, at a rate equal to 1/360th
of the annual interest rate.

     Accrued but unpaid interest only on this
Note shall be due and payable monthly, the
first payment of which shall be due and
payable on February 1, 1997 and subsequent
payments shall be due and payable on the
first day of each month thereafter.  The
unpaid principal balance of this Note,
together with accrued, but unpaid interest
thereon shall be due and payable in full in
one balloon payment twenty-four months from
the date hereof.1

     This Note is the Note referred to in
that certain Loan Agreement of even date
herewith (the "LOAN AGREEMENT") between
Borrower and Lender, and is subject to the
terms and conditions of, and entitled to the
benefits of, the Loan Agreement.  CAPITALIZED
TERMS NOT DEFINED HEREIN SHALL HAVE THE
MEANING GIVEN THE SAME IN THE LOAN AGREEMENT.
It is expressly agreed that all Advances
shall be in accordance with, and subject to,
the Loan Agreement.  Lender's records of the
amounts borrowed from time to time shall be
prima facie proof thereof.

     Upon an Event of Default, as that term
is defined in the Loan Agreement, Lender may,
at its option,  declare all outstanding
principal, accrued interest and other sums
outstanding hereon immediately due and
payable, and exercise all rights and remedies
as set forth in the Loan Agreement or any of
the Loan Documents, as hereinafter defined.

     Borrower shall have the right to prepay,
at any time and from time to time without
premium or penalty, the entire unpaid
principal balance of the Note or any portion
thereof, with accrued interest to the date of
prepayment on the amounts prepaid.

     Borrower and any and all endorsers,
guarantors and sureties jointly and severally
except as may be expressly provided in the
Loan Agreement (i) waive, to the fullest
extent it is lawful so to do, presentment,
demand, notice of demand, protest, notice of
protest, notice of acceleration of maturity,
notice of intent to accelerate, notice of
nonpayment, notice of dishonor and all other
notices; (ii) agree and consent to delays,
extensions, renewals, modifications or
partial payments hereon, to any release of a
party liable hereon or of any collateral
herefor, in whole or in part, and to taking
or refraining to take any action with respect
to this Note, before or after maturity,
without notice to or consent from said
parties, and without discharging any party
liable hereunder; (iii) agree that no action,
failure to act or failure to exercise any
right or remedy on the part of Lender shall
in any way affect or impair the obligations
of Borrower or be construed as a waiver by
Lender of, or otherwise affect, any of
Lender's rights under this Note, under any
endorsement or guaranty of this Note, or
under the Loan Agreement, the Security
Documents, as hereinafter defined, or any
related document (the "LOAN DOCUMENTS"); and
(iv) agree to pay, on demand, all costs and
expenses of collection of this Note or of any



2



endorsement or guaranty hereof, including,
without limitation, reasonable attorney's
fees, including fees related to any trial,
arbitration, bankruptcy, appeal or other
proceeding.
     
     The proceeds of the Note are to be used
for business, commercial, investment or other
similar purposes, and no portion thereof
shall be used for personal, family or
household use.

      It is the intention of Lender and
Borrower and all other parties to the Loan to
conform to and contract in strict compliance
with applicable usury laws from time-to-time
in effect. All agreements between Lender or
any other holder of the Note and Borrower (or
any other party liable with respect to
indebtedness under the Loan Documents) are
hereby limited by this provision, which shall
control and override all such agreements.  In
no way, nor in any event or contingency
(including, but not limited to, prepayment,
default, demand for payment, or the
acceleration of maturity of any Obligations,
or the recharacterization of any application
fee, loan commitment fees, additional
commitment fees, or origination fees as
interest), shall the interest taken,
reserved, contracted for, charged or received
under the Note, or otherwise, exceed the
Maximum Rate.  If, from any possible
construction of any document, interest would
otherwise be payable in excess of the Maximum
Rate, any such construction shall be subject
to this provision, and such document shall be
automatically reformed, and the interest
payable shall be automatically reduced to the
Maximum Rate permitted under applicable law,
without the necessity of the execution of any
amendment or new document.  If Lender or the
holder of the Note shall ever receive any
thing of value that is characterized as
interest under applicable law and that would,
apart from this provision, be in excess of
the Maximum Rate, an amount equal to the
amount that would have been excessive
interest shall, without penalty, be applied
to the reduction of the principal amount
owing on the Note in the inverse order of its
maturity and not to the payment of interest,
or refunded to Borrower or the other payor
thereof if and to the extent such amount,
which would have been excessive, exceeds such
unpaid principal. The right to accelerate the
maturity of the Note, or any other
indebtedness, does not include the right to
accelerate any interest that has not
otherwise accrued on the date of such
acceleration, and the Lender or the holder
thereof does not intend to charge or receive
any unearned interest in the event of
acceleration.  All interest paid or agreed to
be paid to the Lender or the holder of the
Note shall, to the extent permitted by
applicable law, be amortized, prorated,
allocated and spread throughout the full
stated term (including any renewal or
extension) of the Note so that the amount of
interest on account of such indebtedness does
not exceed the Maximum Rate.  As used in this
paragraph, the term "applicable law" shall
mean the laws of the State of Texas or the
federal laws of the United States of America,
which ever laws allow the greater interest,
as such laws now exist may be changed or
amended or come in effect in the future.






3




     All rights and remedies of Lender herein
shall be cumulative and may be pursued
singly, successively or together, at the
option of Lender.  The acceptance by Lender
of any partial payment shall not constitute a
waiver of any default or of any of Lender's
rights under this Note.  No waiver of any of
its rights hereunder, and no modification or
amendment of this Note, shall be deemed to be
made by Lender unless the same shall be in
writing, duly signed on behalf of Lender; and
each such waiver, if any, shall apply only
with respect to the specific instance
involved, and shall in no way impair the
rights of Lender or the obligations of
Borrower to Lender in any other respect at
any other time.

     The unenforceability or invalidity of
any provision of this Note shall not affect
the enforceability or the validity of any
other provision herein and the invalidity or
unenforceability of any provision of this
Note to any person or circumstance shall not
affect the enforceability or validity of such
provision as it may apply to other persons or
circumstances.

     This Note shall be binding upon Borrower
and its respective successors, assigns, heirs
and legal representatives.

     This Note shall be governed by and
construed in accordance with the laws of the
State of Texas (excluding any such law
directing the application of the laws of any
other jurisdiction) and applicable laws of
the United States of America.

     This Note is secured, inter alia, by (i)
the Loan Agreement, (ii) the Mortgage and
Security Agreement of even date herewith
executed by the Borrower for the benefit of
Lender,  (iii) the Absolute Assignment of
Leases and Rents dated of even date herewith
from the Borrower in favor of Lender, (iv)
Assignment of Contracts, Plans, Permits and
Approvals of even date herewith from the
Borrower in favor of Lender, (v) certain
Financing Statements executed by the Borrower
in favor of the Lender, (vi) all other
documents and instruments executed by
Borrower in connection with or as security
for the Note; and (vii) all renewals,
extensions and modifications thereof
(collectively, the "SECURITY DOCUMENTS").

THIS NOTE REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.











3


     Signature Page to $5,500,000 promissory
Note executed by EMERITUS COPORATION, a
Washington corporation, payable to the order
of BANK UNITED,  a federal savings bank.


                              "BORROWER":

                                EMERITUS
CORPORATION


                              By:    /s/
Kelly J. Price
                                         ----
- ---------------------------------------------
- -------------
                              Name:  Kelly J.
Price
                                         ----
- ---------------------------------------------
- -------------
                              Title:
Secretary, Director of Finance and Chief
Financial
Officer
                                         ----
- ---------------------------------------------
- -------------

































4

EX-10.9.4

RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:

Bank United
Attention:  Trudy Burgeson
3200 Southwest Freeway, Suite 1900
Houston, Texas  77027


                                    DEED OF
TRUST,
SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, AND FIXTURE FILING (FINANCING
STATEMENT)

               Dated and effective as of
December 31, 1996


by

     EMERITUS CORPORATION, a Washington
corporation,
                               as Trustor and
debtor,


to

             CHICAGO TITLE INSURANCE COMPANY,
                                       as
Trustee,
                                 for the
benefit of

                                  BANK
UNITED,
                      as Beneficiary and
secured party



                    DEED OF TRUST, SECURITY
AGREEMENT,
         ASSIGNMENT OF LEASES AND RENTS, AND
         FIXTURE FILING (FINANCING STATEMENT)


     THIS DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS, AND FIXTURE
FILING (FINANCING STATEMENT), dated and
effective as of December 31, 1996, by
EMERITUS CORPORATION, a corporation organized
and existing under the laws of the State of
Washington, the trustor and debtor hereunder
(together with its permitted successors and
assigns, "Trustor"), whose address for all
purposes hereunder is 3131 Elliott Avenue,
Suite 500, Seattle, Washington  98121, to
CHICAGO TITLE INSURANCE COMPANY, a
corporation, as trustee (and any subsequent
substitutes or successors thereto, "Trustee")
whose address for all purposes hereunder is
2020 North Central Avenue, #300, Phoenix,
Arizona  85004, and BANK UNITED, the
beneficiary and secured party hereunder
(together with any subsequent transferee,
assignee, holder or owner of the Obligations,
"Beneficiary"), whose address for all
purposes hereunder is 3200 Southwest Freeway,
Suite 1900, Houston, Texas  77027.


     W I T N E S E T H:

     WHEREAS, THIS DEED OF TRUST (as defined
below) is given to secure all the obligations
described in clauses (A) through (D)
immediately below (which are sometimes
hereinafter collectively referred to as the
"Obligations"):

     (A)  the payment and performance of all
obligations of Trustor under that certain one
Promissory Note (as the same may hereafter be
amended, modified, renewed or extended, the
"Note"), dated of even date herewith,
executed and delivered by Trustor as maker to
Beneficiary pursuant to the Loan Agreement
(as defined below), in the original principal
sum of up to Six Million Seven Hundred
Seventy-Five Thousand United States Dollars
($6,775,000), together with interest earned
thereon, and such other payments and sums to
be paid pursuant thereto at the rates and
times, in the manner and according to the
terms and conditions specified in the Note
and the Loan Agreement; and

     (B)  the payment of all sums advanced by
Beneficiary to Trustor or to protect the
Trust Property under or pursuant to this Deed
of Trust, the Note, the Loan Agreement and
any of the other Arizona Loan Documents (as
defined in the Loan Agreement), with interest
earned thereon at the rates specified
therein; and





     (C)  the payment and performance of all
other obligations and agreements of Trustor
contained in the Note, the Loan Agreement and
the other Arizona Loan Documents and each
obligation and agreement of Trustor
incorporated by reference therein or herein,
or contained therein or herein; and

     (D) any and all other indebtedness,
obligations and liabilities of any kind of
the Trustor to the Beneficiary, now and
hereafter existing, absolute or contingent,
joint and/or several, secured or unsecured,
due or not due, arising by operation of law
or otherwise, or direct or indirect, arising
out of or respecting the loan evidenced by
the Note.

     WHEREAS, this Deed of Trust is given
pursuant to the Loan Agreement, and each and
every term and provision of the Loan
Agreement and the Note, including the rights,
remedies, covenants, conditions, agreements,
indemnities, representations and warranties
of the Trustor therein (except for the
governing law provisions thereof), are hereby
incorporated herein by reference as though
set forth in full herein and shall be
considered a part of this Deed of Trust.  A
copy of the Loan Agreement and the Note are
available for inspection by responsible
parties at the offices of Beneficiary located
at 3200 Southwest Freeway, Suite 1900,
Houston, Texas  77027.

     WHEREAS, Trustor is the fee owner of the
real property described in Exhibit A attached
hereto and made a part hereof;

     NOW, THEREFORE, with reference to the
foregoing recitals, which are incorporated
into this Deed of Trust, in reliance thereon
and for good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged:

     TRUSTOR DOES HEREBY IRREVOCABLY GRANT,
BARGAIN, SELL, CONVEY, CONFIRM, WARRANT,
PLEDGE, ASSIGN AND TRANSFER TO TRUSTEE AND
ITS SUCCESSORS, SUBSTITUTES AND ASSIGNS
FOREVER, IN TRUST, WITH POWER OF SALE, for
the benefit of the Beneficiary and for the
purposes and upon the terms and conditions
hereinafter set forth, and grants a security
interest to Trustee in and to, the following
property, all whether now owned or hereafter
acquired, and including replacements,
additions, accessions, substitutions and
products thereto (collectively, the "Trust
Property"):

     (i) The property located in Maricopa
County, Arizona as more particularly
described in Exhibit A attached hereto and by
this reference made a part hereof
(collectively, the "Property"); and

     (ii) All Improvements and Equipment, all
of which are hereby declared and shall be
deemed to be fixtures and accessions to the
Property and a part of the Property as
between the parties


hereto and all persons claiming by, through
or under them, and which shall be deemed to
be a portion of the security for the
Obligations herein described to be secured by
this Deed of Trust; and

     (iii) All Appurtenant Rights; and

     (iv)  All Leases and Rents; and

     (v)  All Accounts, General Intangibles,
Instruments, Inventory, Money, and (to the
full extent assignable) Permits; and

     (vi)  All Tradenames; and

     (vii)  All Proceeds.

     "Trust Property", including each
component thereof, shall be expressly
interpreted as meaning all or, where the
context permits or requires, any portion of
the above, and all or, where the context
permits or requires, any interest of Trustor
therein.

     AND without limiting any of the other
provisions of this Deed of Trust, Trustor
expressly grants to Beneficiary, as secured
party, a security interest in the portion of
the Trust Property now owned or hereafter
acquired which is, or which may be, subject
to the provisions of the Uniform Commercial
Code as in effect from time to time in the
State of Arizona (the "Commercial Code")
which are applicable to secured transactions;
it being understood and agreed that the all
Improvements and Equipment are part and
parcel of the Property and appropriated to
the use thereof and, whether affixed or
annexed to the Property or not, shall for the
purposes of this Deed of Trust be deemed
conclusively to be real estate and mortgaged
hereby.

     TO HAVE AND TO HOLD as provided herein
the above granted and described Trust
Property unto Trustee and its assigns,
substitutes and successors forever, and
Trustor hereby binds itself and its
successors and assigns to warrant and forever
defend the Trust Property unto Trustee and
Beneficiary and their assigns, substitutes
and successors against the claim or claims of
all parties claiming or to claim the same, or
any part thereof.

     IN TRUST, WITH POWER OF SALE, as
security for the payment and performance of
all of the Obligations.

     PROVIDED, HOWEVER, that if Trustor shall
pay or cause to be paid in full to
Beneficiary all monetary Obligations
hereunder and under the Note on or before the
date on which they are due and payable in
accordance with the terms hereof and thereof,
and in the manner stipulated herein and
therein, all without deduction or credit for
taxes or other charges paid by Trustor, and
if Trustor shall have kept, performed


and observed all the covenants and conditions
contained in this Deed of Trust and all of
the other Arizona Loan Documents, then
Trustee shall deliver to Trustor, all such
documents, in recordable form, as shall be
necessary to reconvey the Trust Property to
Trustor and to release the Trust Property
from the encumbrances created hereby, but
otherwise this Deed of Trust shall remain in
full force and effect.

     AND TO PROTECT THE SECURITY OF THIS DEED
OF TRUST, Trustor represents, warrants,
covenants and agrees as follows:


Article 1


DEFINITIONS


     1.1  DEFINITIONS.  Capitalized terms
used herein without definition shall have the
respective meanings ascribed to them in the
Loan Agreement.  As used herein, the
following terms shall have the following
meanings:

     "ACCOUNTS" shall mean, to the extent
assignable by applicable Law, all accounts
(including accounts receivable) arising from
the Property or the operation of the
Facility, including but not limited to,
rights to payment for goods sold or leased or
for services rendered, not evidenced by an
Instrument, and specifically including all
receivables however denominated.

     "APPURTENANT RIGHTS" shall mean all
easements, rights-of-way, strips and gores of
land, vaults, streets, ways, alleys,
passages, sewer rights, waters, water
courses, water rights and powers, minerals,
flowers, shrubs, crops, trees, timber and
other emblements now or hereafter appurtenant
to, or used in connection with, or located
on, under or above the Property, or any part
or parcel thereof, and all ground leases,
estates, rights, titles, interests,
privileges, liberties, tenements,
hereditaments and appurtenances, reversions,
and remainders whatsoever, in any way
belonging, relating or appertaining to the
Property or any other Trust Property, or any
part thereof.

     "ARIZONA LOAN DOCUMENTS" shall mean any
and all Arizona Loan Documents (as defined in
the Loan Agreement) , as the same may be
amended, restated, replaced, supplemented or
otherwise modified from time to time.

     "BENEFICIARY" shall have the meaning
provided in the recitals hereto.

     "COLLATERAL" shall have the meaning set
forth in Section 3.1 hereof.



     "COMMERCIAL CODE" shall have the meaning
provided in the granting clauses hereof.

     "DEED OF TRUST" shall mean this Deed of
Trust, Security Agreement, Assignment of
Leases and Rents, and Fixture Filing
(Financing Statement), as the same may be
amended, restated, replaced, supplemented or
otherwise modified from time to time.

     "ENCUMBRANCES" shall mean any mortgage,
deed of trust, pledge, voluntary or
involuntary lien (whether statutory,
constitutional or contractual), encumbrance,
easement, reservation, restriction, right of
way or right of use, option, right of first
refusal, right of redemption or other similar
right, lease, assignment by way of security,
hypothecation, security interest, conditional
sale, capital lease or other title retention
or security arrangement securing any debt,
obligation, commitment, responsibility or
liability of any person.

     "EQUIPMENT" shall mean fixtures and
equipment located on, attached to or used in
connection with the Property or Facility,
including, but not limited to, all beds,
linen, televisions, carpeting, telephones,
cash registers, computers, lamps, glassware,
rehabilitation equipment, and restaurant and
kitchen equipment; provided, however, that
with respect to any items which are leased
and not owned, the Equipment shall include
the leasehold interest only together with any
options to purchase any of said items and any
additional or greater rights with respect to
such items which are hereafter acquired (but
nothing herein shall permit the leasing of
any Equipment except as otherwise expressly
permitted herein or in the Loan Agreement
unless Beneficiary's written consent is first
obtained).

     "FACILITY" shall mean the residential
care institution/adult apartment facility
located at the Property together with any
other general or specialized care facilities,
if any, now or hereafter operated by Trustor
at the Property.

     "GENERAL INTANGIBLES" shall mean all
general intangibles and other intangible
personal property arising out of or connected
with the Property or the Facility (other than
Accounts, Rents, Instruments, Inventory,
Money, Permits and Trade Names), including,
without limitation, things in action,
contract rights and other rights to payment
of Money.

     "GOVERNMENTAL AUTHORITY" shall mean any
court, board, agency, commission, office or
authority of any nature whatsoever for any
governmental, judicial, legislative,
executive, administrative or regulatory unit
(foreign, federal, state, county, district,
municipal, city or otherwise) whether now or
hereafter in existence.

     "IMPOSITIONS" shall mean all real estate
and personal property


taxes, construction and rental taxes, gross
receipt taxes, water and sewer charges and
all other taxes, levies, assessments and
other similar charges,
general and special, ordinary and
extraordinary, foreseen and unforeseen, of
every kind and nature whatsoever, which at
any time prior to, at, or after the execution
hereof may be assessed, levied or imposed by,
in each case, a Governmental Authority upon
the Trust Property or the construction,
ownership, use, occupancy or enjoyment
thereof, and any interest, costs or penalties
with respect to any of the foregoing.

     "IMPROVEMENTS" shall mean all buildings,
structures and improvements of every nature
whatsoever now or hereafter situated on the
Property, including, but not limited to, all
gas and electric fixtures, radiators,
heaters, engines and machinery, boilers,
ranges, elevators and motors, plumbing and
heating fixtures, air conditioning equipment,
carpeting and other floor coverings, water
heaters, awnings and storm sashes, cleaning
apparatus, signs, landscaping and parking
areas, which are or shall be attached to the
Property or said buildings, structures or
improvements.

     "INDEBTEDNESS" shall mean, with respect
to any person (a) any debt of such person,
contingent or otherwise, (i) for borrowed
money, the advance of credit, a conditional
sale or a transfer with recourse or with an
obligation to repurchase, obligations under a
lease required to be capitalized for
financial reporting purposes, or purchase
money obligations or (ii) evidenced by a
note, debenture, letter of credit or similar
instrument given in connection with the
acquisition of any property or assets; (b)
any debt of others described in (a) above
which such person has guaranteed or for which
it is otherwise liable; and (c) any
amendment, renewal, extension or refunding of
any such debt.

     "INSTRUMENTS" shall mean all
instruments, chattel paper, documents or
other writings obtained from or in connection
with the operation of the Property or the
Facility (including, without limitation, all
ledger sheets, computer records and
printouts, data bases, programs, books of
account and files relating thereto).

     "INVENTORY" shall mean all inventory
from time to time used at the Facility,
including, but not limited to, food,
beverages, other comestibles, soap, paper
supplies, medical supplies, drugs and all
other such goods, wares and merchandise held
for sale to or for consumption or use by
guests or residents of the Property or the
Facility, including all such goods that are
returned or repossessed.

     "LAWS" shall mean any order, writ,
injunction, decree, demand, judgment, ruling,
decision, determination, award, law, statute,
ordinance, code, rule, regulation, standard,
requirement, criteria, interpretation, or
Permit of any Governmental Authority, or any
binding agreement with any Governmental
Authority.



     "LEASES" shall mean any and all leases,
residency agreements, rights of occupancy or
residence, or, to the extent of the interest
therein of Trustor, subleases or sub-
subleases, licenses, concessions or other
agreements (whether written or oral and
whether now or hereafter in effect) pursuant
to which any person is granted a possessory
interest in, or right to use or occupy all or
any portion of the Trust Property, and all
modifications, amendments or other agreements
relating to such leases, residency
agreements, rights of occupancy or residence,
subleases, sub-subleases, or other
agreements, and every guarantee of the
performance and observance of the covenants,
conditions and agreements to be performed and
observed by the other party thereto.

     "LOAN AGREEMENT" shall mean the Loan
Agreement, dated the date hereof, between
Beneficiary and Trustor, as the same may be
amended, restated, replaced, supplemented or
otherwise modified from time to time.

     "MONEY" shall mean 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
the Facility.

     "NOTE" shall have the meaning provided
in the recitals hereto.

     "OBLIGATIONS" shall have the meaning
provided in the recitals hereto.

     "PERMITS" shall mean all licenses,
permits, certificates, approvals,
authorizations and registrations obtained
from any governmental or quasi-governmental
authority and used by Trustor in connection
with the ownership, operation, use or
occupancy of the Property 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.

     "PERMITTED ENCUMBRANCES" shall have the
meaning set forth in Section 2.1(a) hereof.

     "PROCEEDS" shall mean all proceeds
(whether cash or noncash, moveable or
immoveable, tangible or intangible),
including proceeds of insurance and
condemnation, from the sale, exchange,
transfer, collection, loss, damage,
disposition, substitution or replacement of
any of the Trust Property.

     "RENTS" shall mean all rent, revenues,
income and other payments of whatever nature
from time to time payable pursuant to any
lease of the Property or the Facility, or any
part thereof, including, but not limited to,
leases of individual apartments or units to
residents and leases of retail space or other
space at the Property for businesses such as


newsstands, barbershops, beauty shops,
physicians' offices, pharmacies and specialty
shops.

     "SALE" shall have the meaning set forth
in Section 2.1(b) hereof.

     "TRADE NAMES" shall mean any and all
names, in all forms and variations, used in
connection with the Trust Property, and all
trademarks, trade names, and trade dress
associated therewith, including without
limitation, "Scottsdale Royale" and "Villa
Ocotillo".

     "TRUST PROPERTY" shall have the meaning
provided in the granting clauses hereof.

     "TRUSTEE" shall have the meaning
provided in the recitals hereto.

     "TRUSTOR" shall have the meaning
provided in the recitals hereto.

     1.2  PRINCIPLES OF CONSTRUCTION.  All
references to sections, schedules and
exhibits are to sections, schedules and
exhibits in or to this Deed of Trust unless
otherwise specified. Unless otherwise
specified, the words "hereof", "herein" and
"hereunder" and words of similar import when
used in this Deed of Trust shall refer to
this Deed of Trust as a whole and not to any
particular provision of this Deed of Trust.
All meanings attributed to defined terms
herein shall be equally applicable to both
the singular and plural forms of the terms so
defined.

     1.3  HEADINGS.  The Article and Section
titles herein are inserted for convenience of
reference only and shall in no way alter,
modify, define, or be used in construing, the
text of such Articles or Sections.

     1.4  PRONOUNS AND PLURALS.  All pronouns
used herein shall be deemed to refer to the
masculine, feminine, neuter, singular or
plural as the context may require, and the
singular form of nouns, pronouns and verbs
shall include the plural, and vice versa,
whichever the context may require.



Article 2

          COVENANTS OF TRUSTOR; INCORPORATION
OF
     REPRESENTATIONS, WARRANTIES AND
COVENANTS


     2.1  COVENANTS OF TRUSTOR.  Trustor
hereby covenants and agrees with Beneficiary
that:


          (a)  it shall not create, incur,
assume or suffer to exist any Encumbrance on
any Trust Property or any part thereof,
except the following (collectively,
"Permitted Encumbrances"):

               (i)  All Liens to title
permitted by the terms of the
Loan Agreement;

               (ii) Encumbrances created by
the Arizona Loan
Documents; and

               (iii) Other Encumbrances
permitted by the Loan
Agreement.

          (b)  it shall not sell, convey,
transfer, assign or otherwise relinquish the
Trust Property or any part thereof, or any
interest therein (hereinafter, a "Sale")
without the consent of the Beneficiary and as
otherwise permitted by the Loan Agreement;

          (c)  it shall pay when due all of
its monetary obligations under the Note, the
Loan Agreement, this Deed of Trust and the
other Arizona Loan Documents, including all
charges, payments, fees, obligations and
principal of, and interest on, any future
advances secured by this Deed of Trust, and
shall perform all of its non-monetary
obligations under, and otherwise comply with
all of the terms of the Note, this Deed of
Trust, the Loan Agreement and all other
Arizona Loan Documents; and

          (d)  no portion of the Trust
Property shall be located in a Community
Facilities District without the consent of
the Beneficiary.

     2.2  INCORPORATION BY REFERENCE OF
REPRESENTATIONS, WARRANTIES AND COVENANTS;
CROSS DEFAULT.

          (a)  Each and every representation,
warranty, covenant and indemnity contained in
Article VI of the Loan Agreement (except for
any choice of law provision conflicting with
the provisions of Section 7.23 below) are
hereby incorporated herein by reference as
though set forth in full herein and shall be
considered a part of this Deed of Trust.

          (b)  Without limiting any Event of
Default contained in the Loan Agreement or
Arizona Loan Documents incorporated herein by
reference, the failure of Trustor as borrower
to pay any Indebtedness to Beneficiary as
lender under that certain one promissory note
(as the same may hereafter be amended,
modified or extended), dated of even date
herewith, made by Trustor as borrower to the
order of Beneficiary as lender, in the
original face amount of up to Five Million
Five Hundred Thousand Dollars ($5,500,000)
(the "Florida Note"), after giving effect


to any applicable grace period or cure
period; or the occurrence of any default or
event of default under the Florida Note or
any other Florida Loan Document (as defined
in the Loan Agreement), shall, at
Beneficiary's option, constitute a default
under this Deed of Trust and the other
Arizona Loan Documents.  Notwithstanding
anything in this Deed of Trust to the
contrary, this Deed of Trust shall not secure
any Indebtedness, obligation or liability
created by or arising from the Florida Note
or the other Florida Loan Documents or any
interest, premiums or other amounts, if any,
thereon; the limitation to not cross-
collateralize the Florida Note or the other
Florida Loan Documents by this Deed of Trust
being absolute in all respects.
                            Article 3
                              SECURITY
AGREEMENT

          3.1  Rights to Collateral under the
Commercial Code. This Deed of Trust is both a
real property deed of trust, and a "security
agreement" within the meaning of the
Commercial Code. The Trust Property includes
both real and personal property and all other
rights and interests, whether tangible or
intangible in nature, of Trustor in the Trust
Property. Trustor, by executing and
delivering this Deed of Trust, hereby grants
to Trustee and Beneficiary, as security for
the Obligations, a security interest in the
Trust Property now owned and hereafter
acquired to the fullest extent that the Trust
Property may be subject to the Commercial
Code (said portion of the Trust Property so
subject to the Commercial Code being called
in this Article 3 the "Collateral").  If an
Event of Default shall occur and be
continuing, each of Trustee and Beneficiary,
in addition to any other rights and remedies
which it may have, shall have and may
exercise immediately and without demand, any
and all rights and remedies granted to a
secured party upon default under the
Commercial Code, including, without limiting
the generality of the foregoing, the right to
take possession of the Collateral or any part
thereof, and to take such other measures as
Beneficiary or Trustee may deem necessary for
the care, protection and preservation of the
Collateral.  Upon request or demand of
Beneficiary or Trustee, Trustor shall, at its
expense, assemble the Collateral and make it
available to Beneficiary or Trustee at a
convenient place acceptable to Beneficiary or
Trustee.  Trustor shall pay to Beneficiary
and Trustee on demand any and all expenses,
including all expenses and reasonable fees of
attorneys, incurred or paid by Beneficiary
and Trustee in protecting their interest in
the Collateral and in enforcing their rights
hereunder with respect to the Collateral.
Any notice of sale, disposition or other
intended action by Beneficiary or Trustee
with respect to the Collateral sent to
Trustor in accordance with the provisions
hereof at least five (5) business days prior
to such action, shall, except as otherwise
provided by applicable Law, constitute
reasonable notice to Trustor.  The proceeds
of any disposition of the Collateral, or any
part thereof, shall, except as otherwise
required by applicable Law, be applied by
Beneficiary or Trustee to the payment of the
Obligations in accordance with Section 6.4
hereof.


     3.2  FIXTURE FILING.  This Deed of Trust
is intended to constitute a financing
statement filed as a fixture filing in
accordance with the applicable provisions of
the Commercial Code. The debtor is the
Trustor and the secured party is the
Beneficiary and their addresses are
those set forth at the beginning of this Deed
of Trust.  Certain of the Trust Property is
or will become "fixtures" (as that term is
defined in the Commercial Code) on the
Property, described or referred to in this
Deed of Trust, and this Deed of Trust, upon
being filed for record in the real estate
records of the County where the Trust
Property is located, shall operate also as a
financing statement filed as a fixture filing
in accordance with the applicable provisions
of the Commercial Code upon such of the Trust
Property that is or may become fixtures.

     3.3  PRINCIPAL PLACE OF BUSINESS.
Trustor represents and warrants that the
principal place of business of Trustor and
the place where Trustor's books and records
in respect of the Trust Property are kept is
the address of Trustor first set forth above.


                                    Article 4

         ASSIGNMENT OF LEASES AND RENTS

     4.1  ASSIGNMENT AND AUTHORITY TO COLLECT
RENTS.

          (a)  Trustor does hereby absolutely
and unconditionally assign to Beneficiary all
present and future Leases and Rents, and this
Assignment constitutes a present, immediate
and absolute assignment and is intended to be
unconditional and not as an assignment for
additional security only.  It is further
intended that it not be necessary for
Beneficiary to institute legal proceedings to
enforce the provisions hereof.  Trustor
hereby authorizes Beneficiary or its agents
to collect the aforesaid Rents; provided,
however, that prior to notice from
Beneficiary to Trustor of an Event of Default
by Trustor hereunder or under any other
Arizona Loan Document and subject at all
times to the trust created below, Trustor
shall have a revocable license, but limited
as provided in this Deed of Trust and in any
of the other Arizona Loan Documents:  (i) to
collect, in trust as trustee for the benefit
of Beneficiary only, all of the Rents for not
more than one monthly installment in advance,
other than a prepayment of the final monthly
installment of Rent under any Lease or the
security or other deposit under any Lease,
and Trustor may receive and thereafter use
such Rents for Trustor's account, subject to
any requirements contained in the Loan
Agreement; and (ii) to otherwise deal with,
and enjoy the rights of the lessor under and
with respect to the Leases and the Rents,
subject to any requirements contained in the
Loan Agreement.  Any Rents held or received
by Trustor at any time shall be held or
received by Trustor in trust as trustee for
the benefit of Beneficiary only.


          (b)  Upon an Event of Default, and
without the necessity of Beneficiary entering
upon or taking and maintaining full control
of the Trust Property in person, by agent, by
court-appointed receiver or otherwise, the
license referred to in Subsection 4.1(a)
above shall
immediately be revoked and Beneficiary shall
have the right, at its option, to exercise
all rights and remedies contained in this
Deed of Trust and the other Arizona Loan
Documents, or otherwise available at law or
in equity.  Trustor hereby authorizes and
directs any lessee under any of the Leases
and any successor to all or any part of the
interests of any such lessee to pay to
Beneficiary the Rents due and to become due
under the Leases after an Event of Default.
A demand on any lessee made by Beneficiary
for such payment of Rents in connection
therewith shall be sufficient warrant to the
lessee to make future payments of Rents to
Beneficiary without the necessity for further
consent by the Trustor.  Trustor agrees that
upon the occurrence of an Event of Default
(i) each lessee under any of the Leases shall
have the right to rely upon any such request
by Beneficiary, (ii) each lessee shall pay
such Rents to Beneficiary without any
obligation or right to inquire as to whether
such Event of Default actually exists and
notwithstanding any notice from or claim of
Trustor to the contrary, (iii) Trustor shall
have no right to claim against any lessee for
any such Rents so paid by the lessee to
Beneficiary and (iv) Beneficiary shall be
entitled to collect, receive and apply all
Rents regardless of when and to whom such
Rents are and have been paid and regardless
of the form or location of such Rents.

          (c)  The license referred to in
Subsection 4.1(a) above shall at all times be
subject to Beneficiary's rights to cause a
receiver to be appointed in accordance with
the other provisions of this Deed of Trust or
the other Arizona Loan Documents.

     4.2  COLLECTION AND APPLICATION OF
RENTS.  Upon or at any time after the
occurrence and during the continuance of an
Event of Default, Beneficiary may, at its
option, without waiving such Event of
Default, without regard to the adequacy of
the security for the Obligations, either in
person or by agent, without bringing any
action or proceeding, or by a receiver
appointed by a court, without taking
possession of the Trust Property in its own
name, demand, sue for or otherwise collect
and receive all Rents, including those
past-due and unpaid, for application to the
payment of the Obligations in such manner and
order as Beneficiary, in its reasonable
discretion, may determine, subject, however,
to the terms of the Loan Agreement. The
exercise by Beneficiary of the option granted
it in this Section 4.2 and the collection of
the Rents and the application thereof as
herein provided shall not be considered a
waiver of any event of default by Trustor
under this Deed of Trust or any other Arizona
Loan Documents.

     4.3  RECEIVER'S COLLECTION OF RENT.
Trustor has concurrently herewith executed
and delivered for the benefit of Beneficiary
a separate Absolute Assignment of Rents and
Leases 

providing, inter alia, for the appointment of
a receiver in accordance with Section 5(a)
thereof.  Trustor acknowledges that a
receiver may be appointed pursuant to such
Absolute Assignment of Rents and Leases, or
pursuant to this Deed of Trust, or in
accordance with the provisions of
Ariz. Rev. Stat. 33-806, or otherwise,
irrespective of whether or not any judicial
or nonjudicial foreclosure of this Deed of
Trust has been instituted.  Trustor
acknowledges that in the event of a conflict
between this Deed of Trust and the Absolute
Assignment of Rents, the provision granting
Beneficiary the greatest protections,
benefits and remedies shall control.

     4.4  LIMITATION ON LIABILITY; INDEMNITY.
Beneficiary and Trustee shall not be
obligated to perform or discharge any
obligation, duty or liability of Trustor
under any of the Leases by reason of this
Article 4, and Trustor shall, and hereby
agrees to indemnify Beneficiary and the
Trustee for, and to hold Beneficiary and the
Trustee harmless from and against, any and
all claims, liability, expenses, taxes,
losses or damages which may or might be
asserted against or incurred by Beneficiary
or Trustee, as the case may be, solely by
reason of Beneficiary's status as an assignee
(as opposed to Beneficiary's status as
mortgagee in possession in the event
Beneficiary takes possession of the Trust
Property) pursuant to the Assignment of
Leases and Rents contained herein.  Should
Beneficiary or Trustee incur any such claim,
liability, expense, tax, loss or damage due
to the events in the preceding sentence, the
amount thereof, including all expenses and
reasonable fees of attorneys, shall
constitute Obligations secured hereby, and
Trustor shall reimburse Beneficiary or
Trustee, as the case may be, therefor
immediately upon demand.  Provided, however,
notwithstanding anything herein to the
contrary, in no event shall Trustor be liable
to Beneficiary or Trustee or their respective
agents, employees, officers or servants for
any claims, liabilities, expenses, taxes,
losses or damages which arise from or are the
result of the gross negligence or willful
misconduct of Trustee or Beneficiary or their
respective agents, employees, officers or
servants.

     4.5  TRUSTOR'S COLLECTION OF RENTS.  The
payment of the Rents to accrue for any
portion of the Trust Property will not be
waived, released, reduced, discounted or
otherwise discharged or compromised by
Trustor except as permitted in the Loan
Agreement. Trustor shall not exercise any
rights of set off against any person in
possession of any portion of the Trust
Property in degradation of Beneficiary's
rights hereunder.  Trustor agrees that it
will not assign any of the Rents except in
connection with or as permitted by the other
Arizona Loan Documents.

     4.6  BENEFICIARY'S ADDITIONAL RIGHTS.
Beneficiary may at any time and from time to
time by specific written instrument intended
for the purpose, unilaterally subordinate the
lien of this Deed of Trust to any Lease,
without joinder or consent of, or notice to,
Trustor,


any tenant or any other person, and notice is
hereby given to each tenant under a Lease of
such right to subordinate.  No such
subordination shall constitute a
subordination to any lien or other
encumbrance, whenever arising, or improve the
right of any junior lienholder; and nothing
herein shall be construed as subordinating
this Deed of Trust to any Lease.



Article 5

                    ENVIRONMENTAL MATTERS.

     Trustor hereby covenants and agrees to
perform each obligation, covenant and
indemnity of Trustor contained in that
certain Certificate and Indemnification
Regarding Hazardous Substances by Trustor to
Beneficiary of even date herewith relating to
the Trust Property, which is incorporated
herein by reference.



Article 6

     DEFAULT, FORECLOSURE AND OTHER REMEDIES

     6.1  REMEDIES.  The Loan Agreement
contains provisions for the acceleration of
the maturity of the Note upon the happening
of certain Events of Default (as defined
therein).  Upon the commencement and during
the continuance of an Event of Default,
Beneficiary may also, at its election,
through the Trustee or otherwise, without
notice to or demand upon Trustor except as
expressly required by the Loan Agreement,
without releasing Trustor from any obligation
under the Loan Agreement or any other Arizona
Loan Document and without waiving any rights
Beneficiary may have hereunder or thereunder
or impairing any notice of an Event of
Default or election to cause the Trust
Property to be sold or any sale proceeding
predicated thereon:

          (a)  demand, collect or realize
upon all or any part of the Trust Property
and assemble or require Trustor to assemble
all or any part of the Trust Property;

          (b)  commence, appear in or defend
any action or proceeding purporting to affect
all or any part of the Trust Property or the
interests, rights, powers or duties of
Beneficiary therein, whether brought by or
against Trustor, Trustee or Beneficiary;

          (c)   pay, purchase, contest or
compromise any claim, Imposition, debt, lien,
charge or encumbrance which in the judgment
of Beneficiary may adversely affect the Trust
Property or the interest, rights, powers or
duties of Beneficiary or Trustee therein;




          (d)  in such manner and to such
extent as Beneficiary
may deem necessary or proper to protect the
Trust Property or the interests, rights,
powers or duties of Beneficiary therein,
prior, concurrently or subsequent to the
institution of any judicial or nonjudicial
foreclosure proceedings, enter into and upon
the Trust Property or any other property at
which the Trust Property may be located and
take and hold exclusive possession of all or
any portion of the Trust Property without
interference from Trustor, including all
books, papers and accounts relating thereto,
and exclude Trustor from the Trust Property,
and whether or not a receiver has been
appointed pursuant to Section 6.3 hereof,
operate, manage and control the Trust
Property and conduct the business, if any,
thereof, either itself or by other persons
and with full power to use such measures,
legal or equitable, as in its discretion may
be deemed proper or necessary to enforce the
payment or security of the income, Rents,
issues, profits and proceeds of the Trust
Property, including, without limitation,
actions for recovery of rent, actions in
forcible detainer, and actions in distress
for rent, all without notice to Trustor; and
rent and lease the Trust Property, cancel or
terminate any Lease for any cause or on any
ground which would entitle Trustor to cancel
the same, extend or modify any Lease, perform
such acts of repair or protection as
Beneficiary may reasonably deem necessary or
proper to conserve the value of the Trust
Property, and collect and apply any and all
income, Rents, issues, profits and proceeds
from the Trust Property all in accordance
with the terms hereof, subject to the terms
of the Loan Agreement, it being understood
that the collection or receipt of income,
Rents, issues, profits or proceeds from the
Trust Property after an Event of Default
shall not affect or impair any notice of an
Event of Default or election to cause the
Trust Property to be sold or any sale
proceedings predicated thereon, but such
proceedings may be conducted and sale
effected notwithstanding the collection or
receipt of any such income, Rents, issues,
profits and proceeds;

          (e)  exercise the power of sale
provided for in this Deed of Trust, in any
manner permitted by Law or, at its option,
foreclose this Deed of Trust in the manner
provided by applicable Law for the
foreclosure of mortgages on real property.
In exercising the power of sale provided for
in this Deed of Trust, Beneficiary may,
without demand on Trustor except as otherwise
required by applicable Law, sell the Trust
Property at the time and place of sale fixed
by it in such notice of sale, either as a
whole or in separate parcels, and in such
order as it may determine, at public auction,
provided that Beneficiary shall have the
right to bid for such Trust Property on the
same terms as those of third parties to whom
such Trust Property has been offered at such
sale (but the amount of the Obligations shall
be reduced only to the extent of the actual
proceeds received by Beneficiary or of the
amount of the bid by Beneficiary (in the case
of a sale of Trust Property to Beneficiary)
at such sale), subject to applicable Law.
Beneficiary (by and through Trustee) may
postpone sale of all or any portion of the
Trust Property by public announcement at such
time and place of sale, and from time to time


thereafter may postpone such sale by public
announcement at the time fixed by the
preceding postponement.  Any person,
including Trustor or Beneficiary, may
purchase at such sale or sales.

Without limiting the foregoing:

               (i)  In connection with any
sale or sales hereunder, Beneficiary shall be
entitled to elect to treat any of the Trust
Property which consists of a right in action
or which is property that can be severed from
the Trust Property covered hereby or any
improvements without causing structural
damage thereto as if the same were personal
property, and dispose of the same in
accordance with applicable Law, separate and
apart from the sale of the Trust Property.
Beneficiary shall be entitled to elect to
proceed against all or any portion of the
Trust Property, in such order and manner as
is now or hereafter permitted under
applicable Law;

               (ii)  If the Trust Property
consists of several lots, parcels or items of
property, Beneficiary (by and through
Trustee), subject to applicable Law, (A)
shall designate the order in which such lots,
parcels or items shall be offered for sale or
sold, or (B) may elect to sell such lots,
parcels or items through a single sale, or
through two or more successive sales, or in
any other manner Beneficiary designates.
Should Beneficiary desire that more than one
sale or other disposition of the Trust
Property be conducted, Beneficiary, subject
to applicable Law, may cause such sales or
dispositions to be conducted simultaneously,
or successively, on the same day, or at such
different days or times and in such order as
Beneficiary may designate, and no such sale
shall terminate or otherwise affect the lien
of this Deed of Trust on any part of the
Trust Property not sold until all the
Obligations hereby secured have been paid in
full.  If Beneficiary elects to dispose of
the Trust Property through more than one
sale, except as otherwise provided by
applicable Law, Trustor agrees to pay the
reasonable costs and expenses of each such
sale and of any judicial proceedings wherein
such sale may be made;

          (f)  enforce its rights under any
other Arizona Loan Document irrespective of
whether or not any judicial or nonjudicial
foreclosure of this Deed of Trust has been
instituted or completed;

          (g)  take over and direct
collection of the Rents that are included in
the Trust Property and the proceeds thereof,
direct persons obligated to pay Rent to make
payments as Beneficiary, in its sole
discretion, may determine, subject to
Section 4.2 hereof and to the terms of the
Loan Agreement;

          (h)  take control of any and all of
the Rents, Accounts, and other Trust Property
and Proceeds arising from any such
contractual and other rights and enforce
collection, either in the name of Beneficiary
or in the name of Trustor, of any or all of
the Rents, Accounts, and other


Trust Property and Proceeds thereof by suit
or otherwise, and receive, receipt for,
surrender, release or exchange all or any
part thereof or compromise, settle, extend or
renew (whether or not longer than the
original period) any debt thereunder, subject
to any limitations contained in the Loan
Agreement;

          (i)  endorse in the name of Trustor
any instrument, howsoever received by
Beneficiary, representing Trust Property or
Proceeds of any of the Trust Property;

          (j)  subject to the provisions of
Article 3 hereof, exercise all the rights and
remedies granted to a secured party under
Article 9 of the Commercial Code and all
other rights and remedies given to
Beneficiary by this Deed of Trust or any
other Arizona Loan Document or otherwise
available at law or in equity; and

          (k)  declare the entire
Indebtedness secured hereby, and all interest
thereon and all advances made by Beneficiary
hereunder and Obligations in respect hereof,
immediately due and payable, terminate any
obligation to lend under the Note or Loan
Agreement, and exercise all additional rights
accruing to it under this Deed of Trust.
Trustee and Beneficiary shall not be under
any obligation to make any of the payments or
do any of the acts referred to in this
Section 6.1, and, except as otherwise
required by applicable Law or the Loan
Agreement, any of the actions referred to in
this Section 6.1 may be taken irrespective of
whether any notice has been given and without
regard to the adequacy of the security for
the Obligations.  Beneficiary shall have the
right from time to time to take other action
to recover any sum or sums which constitute a
part of the Obligations as such sum or sums
become due, without regard to whether or not
the balance of the Obligations shall be due,
and without prejudice to the right of
Beneficiary thereafter to bring an action of
foreclosure or sale, or any other action, by
reason of an Event of Default by Trustor
existing at the time such earlier action was
commenced.  The reasonable costs and expenses
(including, without limitation, all expenses
and reasonable fees of attorneys) of
Beneficiary, Trustee and Beneficiary's agents
incurred in connection with the preservation,
collection and enforcement of this Deed of
Trust or of the liens granted hereby (whether
suit be brought or not, and at all pre-trial,
trial and appellate levels, including,
without limitation, in connection with any
bankruptcy proceedings), including, without
limitation, any amounts advanced by
Beneficiary to protect or preserve the Trust
Property, shall constitute additions to the
Obligations and shall be secured hereby, and
Trustor covenants and agrees to pay them to
the order of Beneficiary (or Trustee, as the
case may be) promptly upon demand.

     6.2  RESCISSION OF NOTICE OF EVENT OF
DEFAULT. Beneficiary, at any time before the
sale, may rescind any statutory notice of
default or Event of Default and its election
to cause any Trust Property to be sold.  The
exercise by Beneficiary of such right of
rescission shall


not constitute a waiver of any Event of
Default then existing or subsequently
occurring, shall not impair the right of
Beneficiary to cause any Trust Property to be
sold as a result of such or any subsequent
Event of Default and shall not otherwise
affect any provision, agreement, covenant or
condition of this Deed of Trust, the Loan
Agreement or any other Arizona Loan Document
or the rights, obligations or remedies of the
parties hereunder or thereunder.

     6.3  APPOINTMENT OF RECEIVER.  Upon the
occurrence and during the continuance of an
Event of Default, Beneficiary, as a matter of
absolute right, and without regard to the
revocable license contained in Article 4
hereof or the value of the Trust Property or
any other security for the Obligations
secured by the Trust Property at such time or
the interest of Trustor in the Trust Property
or the insolvency of any party bound for
payment and performance of such Obligations,
shall have the right to apply to any court
having jurisdiction to appoint a receiver or
receivers of the Trust Property, and Trustor
hereby irrevocably consents to such
appointment.  Any such receiver or receivers
shall have all the usual powers and duties of
receivers in like or similar cases and all
the powers and duties of Beneficiary in case
of entry as provided herein and shall
continue as receiver or receivers and
exercise all such powers until the date of
sale of the Trust Property unless such
receivership is sooner terminated.

     6.4  APPLICATION OF PROCEEDS.

          (a)  To the extent permitted by
applicable Law and except as otherwise
required by applicable Law, all proceeds
received from the sale or other disposition
of any portion of the Trust Property pursuant
to this Deed of Trust shall be applied by
Beneficiary in accordance with the following
priorities:

     FIRST:  to the costs and expenses of the
sale or other disposition of the Trust
Property, including, without limitation, the
fees and expenses incurred by Beneficiary and
Trustee in connection with the services of
attorneys, appraisers, environmental
consultants and engineers and other experts;
costs and expenses incurred by Beneficiary
and Trustee in enforcing and preserving their
rights under the Arizona Loan Documents; and
a sheriff or auctioneer's fee if such expense
has been incurred;

     SECOND:  to the satisfaction of all
interest and late charges payable on the
Note;

     THIRD:  to the satisfaction of all
principal payable on the Note;

     FOURTH:  to the satisfaction of all
Obligations then outstanding (including those
that relate to money advanced hereunder with
respect to the Trust Property) other than
those set forth in clause First, Second and
Third above; and


     FIFTH:  to the payment to whomsoever
shall be entitled thereto under applicable
Law.

          (b)  If Beneficiary shall be
ordered, in connection with any bankruptcy,
insolvency or reorganization of Trustor, to
restore or repay to or for the account of
Trustor or its creditors any amount
theretofore received under this Section 6.4,
the amount of such restoration or repayment
shall be deemed to be an Obligation so as to
place Beneficiary in the same position it
would have been in had such amount never been
received by Beneficiary.

     6.5  ADDITIONAL SECURITY.  If
Beneficiary at any time shall have a security
interest in any property other than the Trust
Property securing any of the Obligations,
Beneficiary may enforce the terms of this
Deed of Trust with respect to the Trust
Property, at its option, either before, after
or concurrently with the exercise of remedies
as to such other security or before or after
a sale is made of such other security, and
may, to the extent permitted by applicable
Law, apply the proceeds derived from any such
enforcement to the Obligations without
affecting the status of or waiving any right
to exhaust all or any other security,
including the Trust Property, and without
waiving any breach or Event of Default or any
right or power whether exercised under the
Arizona Loan Documents, contained in the
Arizona Loan Documents or provided for in
respect of any such other security.

     6.6  WAIVER OF RIGHT OF REDEMPTION AND
OTHER RIGHTS.  To the extent permitted by
applicable Laws, Trustor hereby:

          (a)  expressly waives all benefits
that might accrue to the Trustor by virtue of
any present or future moratorium laws
exempting the Trust Property, or any other
property, real or personal, or any part of
the proceeds arising from any sale of any
such property, from attachment, levy, or sale
under execution, or providing for any stay of
execution to be issued on any judgment
recovered on any Arizona Loan Document or in
any action to foreclose this Deed of Trust,
exemption from civil process, or extension of
time for payment;

          (b)  expressly waives and releases
any right to have the Trust Property
marshalled;

          (c)  if this Deed of Trust is
foreclosed at Beneficiary's election as a
mortgage on real property, expressly waives
any and all rights of redemption from sale
under any order or judgment of foreclosure of
the lien of this Deed of Trust on behalf of
Trustor and each and every person acquiring
any interest in or title to the Trust
Property subsequent to the date of this Deed
of Trust and on behalf of any other persons;
and

          (d)  expressly waives any and all
rights it may have to


require that the Trust Property be sold as
separate tracts or units in the event of a
foreclosure sale.

     6.7  [Intentionally Deleted]

     6.8  FAIR MARKET VALUE FOR CALCULATING
DEFICIENCIES.  The following shall be the
basis for the finder of fact's determination
of the fair market value of the Trust
Property as of the date of foreclosure
pursuant to the provisions of this Deed of
Trust:

          (a)  The Trust Property shall be
valued in an "as is" condition as of the date
of the foreclosure sale, without any
assumption or expectation either that
Improvements will be constructed on the above
described Property or any Improvements
previously constructed or started thereon
will be repaired in any manner or completed
as applicable before a resale of the Trust
Property after foreclosure;

          (b)  The valuation shall be based
upon an assumption that the foreclosure
purchaser desires a prompt resale of the
Trust Property for cash promptly (but no
later than twelve months) following the
foreclosure sale;

          (c)  All reasonable closing costs
customarily borne by the seller in a
commercial real estate transaction shall be
deducted from the gross fair market value of
the Trust Property, including, without
limitation, brokerage commissions, title
insurance, a survey of the Trust Property,
tax prorations, attorney's fees, and
marketing costs;

          (d)  The gross fair market value of
the Trust Property shall be further
discounted to account for any estimated
holding costs associated with maintaining the
Trust Property pending sale, including,
without limitation, utilities expenses,
property management fees, taxes and
assessments (to the extent not accounted for
in subsection (c) above), and other
maintenance expenses;

          (e)  Any expert opinion testimony
given or considered in connection with a
determination of the fair market value of the
Trust Property must be given by persons
having at least five (5) years experience in
appraising property similar to the Trust
Property and who have conducted and prepared
a complete written appraisal of the Trust
Property taking into consideration the
factors set forth above.

     6.9  REINSTATEMENT.  Trustor's statutory
rights of reinstatement, if any, under
applicable Law are expressly conditioned upon
Trustor's payment of all sums required under
applicable Law and performance of all
required acts under applicable Law and the
Arizona Loan Documents.




     6.10  DEFICIENCY PERIOD.  Trustor hereby
agrees that the period of time within which
to commence an action to recover a deficiency
shall be 90 days after the date of the last
trustee sale or other foreclosure sale of the
last deed of trust or mortgage executed and
delivered pursuant to the Loan Agreement,
regardless of the location of such trust
property or other real property collateral.

     6.11  NO IMPAIRMENT.  The parties intend
by this Deed of Trust that any action by the
Trustee or Beneficiary to enforce any of its
rights or remedies under this Deed of Trust
(whether by exercise of the private power of
sale, judicial foreclosure or otherwise) will
not in any way impair any of Beneficiary's
rights or remedies under the Loan Agreement
or any other deed of trust or mortgage
executed and delivered pursuant to the Loan
Agreement, regardless of the location of such
trust property or other real property
collateral.

     6.12  REMEDIES CUMULATIVE.  No remedy
conferred upon or reserved to the Beneficiary
by this Deed of Trust, any other security
document or any Arizona Loan Document is
intended to be exclusive of any other remedy
provided or permitted by any security
agreement, any other Arizona Loan Document or
by applicable Law, but, subject to applicable
Law, each shall be cumulative and shall be in
addition to every other remedy so provided or
permitted.  Every power or remedy given by
this Deed of Trust, any other security
document or any other Arizona Loan Document
to Beneficiary or to which it may be
otherwise entitled may be exercised
concurrently or independently, from time to
time, and as often as may be deemed expedient
by Beneficiary, and Beneficiary (through the
Trustee or otherwise) may pursue inconsistent
remedies.

     6.13  SURETYSHIP WAIVERS.  To the extent
Arizona law is deemed or found to apply as to
any matter, any Trustor that has signed this
Deed of Trust or any other Arizona Loan
Document as a surety or accommodation party,
or that has guaranteed the payment of the
Note or that has subjected its property to
this Deed of Trust to secure the Indebtedness
of another, hereby expressly waives to the
fullest extent permitted by law any and all
benefits and defenses under the provisions of
Ariz. Rev. Stat. Sections 12-1641 through
12-1644, Section 44-142, Section 47-3605 and
Rules of Civil Procedure, Rule 17(f), and any
other statutes or rules now or hereafter in
effect that purport to confer specific rights
upon or make specific defenses and procedures
available to Trustor, and waives any defense
arising by reason of any disability or other
defense of Trustor or by reason of the
cessation from any cause whatsoever of the
liability of Trustor.

     6.14  ATTORNEY-IN-FACT.  Upon the
occurrence and during the continuance of an
Event of Default Trustor hereby appoints
Beneficiary attorney-in-fact of Trustor to
take any action and execute any instruments
that Trustor is obligated, or has covenanted
and agreed under the Arizona Loan Documents
to take or execute, which appointment is


irrevocable and coupled with an interest.
Beneficiary agrees to notify Trustor of any
actions taken under this Section 6.14 and, to
the extent reasonable and practicable under
the circumstances, to afford Trustor the
opportunity to take such action hereunder.



Article 7

                                MISCELLANEOUS


     7.1  PERFORMANCE AT TRUSTOR'S EXPENSE.
Except as expressly provided herein or in the
other Arizona Loan Documents to the contrary,
no portion of the cost and expense of
performing or complying with any of the
obligations imposed on Trustor by this Deed
of Trust shall be borne by Beneficiary or
Trustee, and no portion of such cost and
expense shall be, in any way or to any
extent, credited against the aggregate
amounts payable by Trustor under the Note or
pursuant to any other Arizona Loan Document.

     7.2  BENEFICIARY'S RIGHT TO PERFORM THE
OBLIGATIONS.  If Trustor shall fail or refuse
to duly and punctually make any payment or to
perform, observe, or comply with any of its
warranties, covenants and agreements under
this Deed of Trust or the Note, the Loan
Agreement or any other Arizona Loan Document
when due or required or within any applicable
cure period without waiving or releasing any
other right, remedy or recourse Beneficiary
may have because of such failure or refusal,
then, prior to or after a Default if such
matter could, in Beneficiary's judgment,
result in loss or damage to life or property,
and any time after an Event of Default,
Beneficiary may (but shall not be obligated
to) make such payment or perform such term,
provision, condition, covenant or agreement
or cure any such default or Event of Default
for the account of and at the expense of
Trustor.  All sums paid by Beneficiary
pursuant to this Section 7.2 and all other
sums expended by Beneficiary in respect of
which it shall be entitled to indemnity under
this Deed of Trust and the other Arizona Loan
Documents, together with interest thereon at
the rate established by the Note from the
date of such payment or expenditure, shall
constitute additions to the Obligations and
shall be secured hereby, and Trustor
covenants and agrees to pay them to the order
of Beneficiary promptly upon demand.
Notwithstanding the foregoing, Trustor shall
not be liable to, or indemnify or reimburse
Beneficiary for any sums paid by Beneficiary
pursuant to this Section 7.2 which are caused
by or a result of the gross negligence or
willful misconduct of Beneficiary or its
agents, employees, officers or servants.

     7.3  SURVIVAL OF OBLIGATIONS.  Except as
otherwise provided in the Loan Agreement and
as provided by applicable Laws, each and all
of the Obligations hereby secured shall
survive the execution


and delivery of this Deed of Trust and the
other Arizona Loan Documents, the foreclosure
sale or other exercise of remedies hereunder
and the consummation of the transactions
called for therein and herein.

     7.4  NOTICES.  Except as otherwise
provided herein and as may be otherwise
required by Title 33 of the Arizona Revised
Statutes, all notices and other
communications required under the terms and
provisions hereof shall be given in
accordance with the Loan Agreement.

     7.5  NO WAIVER; REMEDIES.  Beneficiary
shall not by any act, delay, omission or
otherwise be deemed to have waived any of its
rights, remedies or privileges hereunder and
no waiver shall be valid unless in writing,
signed by Beneficiary, and then only to the
extent therein set forth.  A waiver by
Beneficiary of any right, remedy or privilege
hereunder on any one occasion shall not be
construed as a bar to any right, remedy or
privilege which Beneficiary would otherwise
have had on any future occasion.  No failure
to exercise nor any delay in exercising on
the part of Beneficiary any right, power or
privilege hereunder or under the other
Arizona Loan Documents shall be deemed a
waiver of any default or acquiescence therein
or shall preclude any other or further
exercise thereof or the exercise of any other
right, power or privilege.  All rights and
remedies existing hereunder are cumulative
and not exclusive of each other and any
rights or remedies otherwise available, and
Beneficiary's single or partial exercise of
any right, remedy, power or privilege
hereunder shall not preclude any other or
further exercise thereof or the exercise of
any other right, remedy, power, or privilege.

     7.6  COVENANTS RUNNING WITH THE LAND.
All of the provisions hereof are intended by
the parties to be, and shall be construed as,
covenants running with the Trust Property
until such Trust Property has been released
from the lien of this Deed of Trust.

     7.7  FURTHER ASSURANCES.  Trustor shall
execute, acknowledge, record and/or file such
further statements, documents, agreements,
Commercial Code financing and continuation
statements and such other instruments and do
such further acts as Beneficiary may
reasonably request as necessary, desirable or
proper to carry out more effectively the
purposes of this Deed of Trust and the other
Arizona Loan Documents, subject to the lien
of this Deed of Trust any property intended
by the terms hereof or of the other Arizona
Loan Documents to be subject thereto,
including, without limitation, any renewals,
additions, substitutions, replacements,
betterments or appurtenances to the Trust
Property.  Beneficiary shall be permitted to
inspect the Trust Property in accordance with
the terms of the Loan Agreement.

     7.8  SEVERABILITY.  This Deed of Trust
is intended to be performed in accordance
with, and only to the extent permitted by,
applicable Laws.  If any term or provision of
this Deed of Trust or the


application thereof to any circumstance
shall, in any jurisdiction and to any extent,
be invalid, illegal or unenforceable, such
term or such provision shall be ineffective
as to such jurisdiction to the extent of such
invalidity, illegality or unenforceability
without invalidating or rendering
unenforceable any remaining terms and
provisions hereof or the
application of such term or provision to
circumstances other than those as to which it
is held invalid, illegal or unenforceable.

     7.9  ENTIRE AGREEMENT AND MODIFICATION.
This Deed of Trust, the Note, the Loan
Agreement and the other Arizona Loan
Documents constitute the entire agreement and
reasonable expectations among the parties
pertaining to the subject matter hereof and
thereof and supersede all prior and
contemporaneous agreements, understandings,
representations or other arrangements,
whether express or implied, written or oral,
of the parties in connection herewith or
therewith except to the extent expressly
incorporated or specifically referred to
herein or therein.  The terms of this Deed of
Trust shall not be altered, modified, amended
or supplemented in any manner except by a
written instrument signed by the Trustor and
Beneficiary.

     7.10  LIMITATION ON BENEFICIARY'S
RESPONSIBILITY.  No provision of this Deed of
Trust shall operate to place any obligation
or liability for the control, care,
management or repair of the Trust Property
upon Beneficiary, nor shall it operate to
make Beneficiary responsible or liable for
any waste committed on the Trust Property by
the tenants or any other parties, or for any
dangerous or defective condition of the Trust
Property, or for any negligence in the
management, upkeep, repair or control of the
Trust Property resulting in loss or injury or
death to any tenant, licensee, employee or
stranger.  Nothing herein contained shall be
construed as constituting Beneficiary a
"mortgagee in possession" absent the actual
taking of possession of the Trust Property by
Beneficiary.  The foregoing will not limit
Beneficiary's liability, if any, for gross
negligence or willful misconduct.

     7.11  HOLD HARMLESS.  Beneficiary and
Trustee shall not be obligated to perform or
discharge, and undertake hereby neither to
perform nor to discharge, any obligation,
duty or liability with respect to the Trust
Property or the Leases solely by reason of
this Deed of Trust or the other Arizona Loan
Documents.  Trustor shall and does hereby
agree to defend, indemnify and hold harmless
Beneficiary and Trustee from and against any
and all claims, losses, expenses, taxes,
damages and liabilities (including, without
limitation, all expenses and reasonable
attorneys' fees) which may arise or be
incurred or accrue in connection with the
Trust Property (including Leases) or in
connection with an obligation of Trustor with
respect to the Trust Property, except, in
each case, to the extent incurred as a result
of the gross negligence or willful misconduct
of Beneficiary or Trustee, or of their
respective agents, employees, officers or
servants, as the case may be.  Should
Beneficiary or Trustee, as the case may be,
incur any such claim, loss, expense, tax,


damage or liability, the amount thereof,
including all expenses and reasonable
attorneys' fees and reasonable costs and
expenses associated with actions taken by
Beneficiary or Trustee, as the case may be,
in defense thereof, or otherwise in
protecting its interests hereunder, shall
constitute additions to the Obligations and
shall be secured hereby, and Trustor
covenants and agrees to pay them to the order
of Beneficiary or Trustee, as the case may
be, promptly upon demand.

     7.12  MARSHALLING; PAYMENTS SET ASIDE.
Beneficiary shall not be under any obligation
to marshall any assets in favor of Trustor or
any other party or against or in payment of
any or all of the Obligations hereby secured.
To the extent that Trustor makes a payment or
payments to Beneficiary or Beneficiary
enforces its encumbrances or exercises any
rights of setoff, and such payment or
payments or the proceeds of such enforcement
or setoff or any part thereof are
subsequently invalidated, declared to be
fraudulent or preferential, set aside or
required to be repaid to a trustee, receiver
or any other party under any bankruptcy law,
state or federal law, common law or equitable
cause, then to the extent of such recovery,
the obligation or part thereof originally
intended to be satisfied, and all such
encumbrances and rights and remedies
therefor, shall be revived and continue in
full force and effect as if such payment had
not been made or such enforcement or setoff
had not occurred.

     7.13  FUTURE ADVANCES.  This Deed of
Trust shall secure not only existing
Indebtedness and Obligations, but also such
future advances, whether such advances are
obligatory or are to be made at the option of
Beneficiary, or otherwise, as are made by
Beneficiary to or for the benefit of Trustor
or the Trust Property, to the same extent as
if such future advances were made on the date
of the execution of this Deed of Trust.
Nothing in this Deed of Trust shall be deemed
an obligation on the part of the Beneficiary
to make any further advances except such
advances as may be specifically provided for
in, and subject to the terms and conditions
of, the Loan Agreement.

     7.14  ABSOLUTE LIEN.  The Trustor
acknowledges that this Deed of Trust and the
other Arizona Loan Documents and those
documents required by the Arizona Loan
Documents together secure the Obligations.
The Trustor agrees that the lien of this Deed
of Trust and all Obligations of the Trustor
hereunder shall be absolute and unconditional
and shall not in any manner be affected or
impaired by:

          (a)  any lack of validity or
enforceability of the Loan Agreement or any
other Arizona Loan Document, any agreement
with respect to any of the Obligations or any
other agreement or instrument relating to any
of the foregoing;

          (b)any acceptance by the
Beneficiary of any security for or guarantees
of any of the Indebtedness hereby secured;


          (c)  any failure, neglect or
omission on the part of the Beneficiary to
realize upon or protect any of the
Indebtedness hereby secured or any collateral
security therefor, including the Arizona Loan
Documents, or due to any other circumstance
which might otherwise constitute a defense
available to, or a discharge of, the Trustor
in respect of the Obligations or this Deed of
Trust (other than the indefeasible payment in
full in United States Dollars of all the
Obligations hereby secured);

          (d)any change in the time, manner
or place of payment of, or in any other term
of, all or any of the Obligations;

          (e)  any release (except as to the
property released), Sale, pledge, surrender,
compromise, settlement, nonperfection,
renewal, extension, indulgence, alteration,
exchange, modification or disposition of any
of the indebtedness hereby secured or of any
of the collateral security therefor;

          (f)  any amendment or waiver of or
any consent to any departure from the Loan
Agreement or any other Arizona Loan Document
or of any guaranty thereof and the
Beneficiary (through the Trustee or
otherwise) may in its discretion foreclose,
exercise any power of sale, or exercise any
other remedy available to it under any or all
of the Arizona Loan Documents without first
exercising or enforcing any of its rights and
remedies hereunder; and

          (g)  any exercise of the rights or
remedies of the Beneficiary (through the
Trustee or otherwise) hereunder or under any
or all of the Arizona Loan Documents.

The Trustor specifically consents and agrees
that the Beneficiary (through the Trustee or
otherwise) may exercise its rights and
remedies hereunder and under the other
Arizona Loan Documents separately or
concurrently and in any order that the
Beneficiary may deem appropriate.

     7.15  ASSIGNEES.  Trustor may not assign
its rights and obligations under this Deed of
Trust.  Trustor hereby acknowledges and
agrees that Beneficiary may assign this Deed
of Trust.  Subject to the foregoing, this
Deed of Trust shall be binding upon, and
shall inure to the benefit of, Trustor and
Beneficiary and their respective successors
and assigns.

     7.16  NO MERGER OF ESTATES.  There shall
be no merger of the lien, security interest
or other estate or interest created by this
Deed of Trust with the fee estate, easement
rights, or any other rights or interests in
the Trust Property by reason of any such
interest created by this Deed of Trust being
held, directly or indirectly, by or for the
account of any person who shall own the fee
estate or any other interest in the Trust
Property.  No such merger shall occur unless
and until all persons


at the time having such concurrent interests
shall join in a written instrument expressly
specifying such merger, and such instrument
shall be duly recorded.

     7.17  CONDEMNATION AND CASUALTY; TAXES.
The Loan Agreement shall control in the event
of condemnation or casualty of all or any
part of the Trust Property.  Trustor shall
pay all taxes and assessments on the Trust
Property in accordance with the Loan
Agreement.

     7.18  DISCLOSURE.  Trustor hereby agrees
that all documentation, financial statements,
appraisals and other data, or copies thereof,
relevant to Trustor or any guarantor of the
Obligations secured hereby, or to the Trust
Property, may be exhibited to and retained by
(i) any bona fide prospective or actual
purchaser of the Note or any interest
therein, provided that such purchaser agrees
to keep such information confidential or (ii)
any title company proposing to issue or
issuing a policy of title insurance to
Beneficiary in connection with this Deed of
Trust; provided, however, Trustor shall have
no liability with respect to any information
contained therein not prepared by Trustor
except as may otherwise be provided under the
Loan Agreement.

     7.19  THE TRUSTEE.

          (a)  HOLDING OF TITLE.  Trustee
holds title under this Deed of Trust for the
benefit of Beneficiary in accordance with the
provisions of Ariz. Rev. Stat. 33-801, et
seq.

          (b)  SUBSTITUTE TRUSTEE.  Trustee
may be removed at any time with or without
cause by Beneficiary in accordance with
applicable Law.  All references herein to
"Trustee" shall be deemed to refer to Trustee
(including any successor or substitute
appointed and designated as herein provided)
from time to time acting hereunder.

          (c)  TRUSTEE'S RECEIPT OF FUNDS.
All moneys received by Trustee shall, until
used or applied as herein provided, be held
in trust for the purposes for which they were
received, and shall not be commingled with
any other moneys.

          (d)  TRUSTEE'S FEES.  Trustor shall
pay all reasonable costs, fees and expenses
incurred by Trustee and Trustee's agents and
counsel in connection with the performance by
Trustee of Trustee's duties hereunder.

     7.20  ARBITRATION.

          (a)  To the maximum extent not
prohibited by law, any controversy, dispute
or claim arising out of, in connection with,
or relating to the Obligations, this Deed of
Trust or the other Arizona Loan


Documents or any transaction provided for
therein, including but not limited to any
claim based on or arising from an alleged
tort or an alleged breach of any agreement
contained in this Deed of Trust or any of the
Arizona Loan Documents shall, at the request
of any party to the Obligations, this Deed of
Trust or any of the other Arizona Loan
Documents (either before, concurrently with
or after the commencement of judicial
proceedings), be settled by arbitration
pursuant to Title 9 of the United States
Code, which the parties hereto acknowledge
and agree applies to the transaction involved
herein, and in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association (the "AAA").  If Title 9 of the
United States Code is inapplicable to any
such claim, dispute or controversy for any
reason, such arbitration shall be conducted
in accordance with the Commercial Arbitration
Rules of the AAA.  In any such arbitration
proceeding:  (i) all statutes of limitations
which would otherwise be applicable shall
apply; and (ii) the proceeding shall be
conducted in Houston, Texas, by a single
arbitrator, if the amount in controversy is
$1 million or less, or by a panel of three
(3) arbitrators if the amount in controversy
is over $1 million.  All arbitrators shall be
selected by the process of appointment from a
panel pursuant to Section 13 of the AAA
Commercial Arbitration Rules and each
arbitrator will have AAA-acknowledged
expertise in the appropriate subject matter.
Any award rendered in any such arbitration
proceeding shall be final and binding, and
judgment upon any such award may be entered
in any court having jurisdiction.

          (b)  If any party to this Deed of
Trust or any other Arizona Loan Documents
files a proceeding in any court to resolve
any such controversy, dispute or claim, such
action shall not constitute a waiver of the
right of such party or a bar to the right of
any other party to seek arbitration under the
provisions of this Section 7.20 of that or
any other claim, dispute or controversy, and
the court shall, upon motion of any party to
the proceeding made within sixty (60) days of
the initiation of such proceeding, direct
that such controversy, dispute or claim be
arbitrated in accordance with this
Section 7.20.

          (c)  Notwithstanding any of the
foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall
possess or have the power to (i) assess
punitive damages, (ii) dissolve, rescind or
reform (except that the arbitrator may
construe ambiguous terms) the Obligations,
this Deed of Trust or any of the other
Arizona Loan Documents, (iii) enter judgment
on the debt, (iv) exercise equitable powers
or issue or enter any equitable remedies or
(v) allow discovery of attorney/client
privileged information.  The Commercial
Arbitration Rules of the AAA are hereby
modified to this extent for the purpose of
arbitration of any dispute, controversy or
claim arising out of, in connection with, or
relating to the Obligations, this Deed of
Trust or any of the other Arizona Loan
Documents.  The parties further agree to
waive, each to each other, any claims for
punitive damages, and agree that neither an
arbitrator nor any court shall have the power
to assess


punitive damages.

          (d)  No provision of, or the
exercise of any rights under, this
Section 7.20 shall limit or impair the right
of any party to this Deed of Trust or the
other Arizona Loan Documents before, during
or after any arbitration proceeding to:
(i) exercise self-help remedies such as
setoff or repossession; (ii) foreclose
(judicially, nonjudicially or otherwise) any
lien on or security interest in any real or
personal property collateral; or (iii) obtain
emergency relief from a court of competent
jurisdiction to prevent the dissipation,
damage, destruction, transfer, hypothecation,
pledging or concealment of assets or of
collateral securing any indebtedness,
obligation or guaranty referenced in the
Arizona Loan Documents.  Such emergency
relief may be in the nature of, but is not
limited to: pre-judgment attachments,
garnishments, sequestrations, appointments of
receivers, or other emergency injunctive
relief to preserve the status quo.

          (e)  In the event arbitration is
prohibited by law with respect hereto, any
actions or proceedings with respect to the
Note, the Obligations, the Loan Agreement,
this Deed of Trust or the other Arizona Loan
Documents may be instituted in the courts of
the State of Texas, the United States
District Court for the Southern District of
Texas, or elsewhere to the extent that
jurisdiction shall exist apart from the
provisions of this Section, as the
Beneficiary may elect, and by execution and
delivery of this Agreement, the Trustor
irrevocably and unconditionally submits to
the nonexclusive jurisdiction (both subject
matter and personal) of each such court, and
irrevocably and unconditionally waives
(i) any objection the Trustor may now or
hereafter have to the laying of venue in any
of such courts, and (ii) any claim that any
action or proceeding brought in any of such
courts has been brought in an inconvenient
forum.  Court proceedings may be instituted
in the courts of the State of Arizona and the
United States District Court for the District
of Arizona for the limited purposes of the
foreclosure or execution upon any lien or
security interest in the Trust Property
granted hereunder, as Beneficiary may elect;
or for the enforcement of any arbitration
award or court order entered by a Texas
District Court or a United States District
Court for the Southern District of Texas.

     7.21  TIME.  Time is of the essence for
each provision of this Deed of Trust.

     7.22  CONSTRUCTION MORTGAGE.  This Deed
of Trust is entitled to the benefits of Ariz.
Rev. Stat. 47-9313(F).  The proceeds of the
Obligations secured by this Deed of Trust are
to be used by Trustor for the purpose of
acquiring title to the Property and funding
the acquisition, construction and improvement
of the Fixtures, Equipment and other
Improvements, or refinancing such secured
obligations.



     7.23  GOVERNING LAW.  This Deed of Trust
shall be governed by and construed in
accordance with the laws of the State of
Texas and the applicable laws of the United
States of America, without regard to the
conflicts of laws principles thereof.  This
Deed of Trust has been entered into in Harris
County, Texas, and it shall be performable
for all purposes in Harris County, Texas.
Courts within the State of Texas shall have
jurisdiction over any and all disputes
between Trustor and Beneficiary, whether in
law or equity, including, but not limited to,
any and all disputes arising out of or
relating to this Deed of Trust or any other
Arizona Loan Document; and venue in any such
dispute whether in federal or state court
shall be laid in Harris County, Texas.
Notwithstanding the foregoing, the laws of
the State of Arizona shall govern the
perfection of any lien or security interest
in Trust Property granted hereunder and the
foreclosure or execution upon any lien or
security interest in such Trust Property.

     7.24  WAIVER OF JURY TRIAL.  Trustor and
Beneficiary by its acceptance of this Deed of
Trust hereby expressly waive any right to a
trial by jury in any action or legal
proceeding arising out of or relating to this
Deed of Trust or any other Arizona Loan
Document or the transactions contemplated
hereby or thereby.

     7.25  FORECLOSURE REMEDIES.  If an Event
of Default shall occur, Beneficiary may
elect, in addition to exercising any and all
other rights, remedies and recourses set
forth or referred to herein to proceed in the
manner set forth in Arizona Revised Statutes
Section 47-9501(D) relating to the procedure
to be followed when a security agreement
covers both real and personal property.

     THIS DEED OF TRUST SHALL REMAIN IN FULL
FORCE AND EFFECT AS TO ANY SUBSEQUENT FUTURE
ADVANCES MADE AFTER THE DATE HEREOF WITHOUT
LOSS OF PRIORITY UNTIL THE OBLIGATIONS ARE
PAID IN FULL AND SATISFIED AND THE LOAN
AGREEMENT AND ALL OTHER ARIZONA LOAN
DOCUMENTS BETWEEN BENEFICIARY AND TRUSTOR FOR
FURTHER ADVANCES HAVE BEEN TERMINATED IN
WRITING AND THIS DEED OF TRUST IS RELEASED OF
RECORD.

     NOTE:  THIS DEED OF TRUST SECURES, INTER
ALIA, OBLIGATIONS WHICH PROVIDE FOR A
VARIABLE RATE OF INTEREST (AS DESCRIBED IN
THE NOTE AND LOAN AGREEMENT).


                    [EXECUTION PAGE FOLLOWS]


     IN WITNESS WHEREOF, this Deed of Trust
has been duly executed by the Trustor as of
the day and year first above written.

Witness:                            EMERITUS
CORPORATION, a

Washington corporation


/s/  Lorri C. Savage          By: /s/ Kelly
J. Price
- --------------------------
- ---------------------------------------
 Lorri C. Savage
Kelly Price
                    Its:  Director of
Finance, Chief Financial

Officer and Secretary




STATE OF WASHINGTON

COUNTY OF KING


     The foregoing instrument was
acknowledged before me this 28 day of
December, 1996, by Kelly Price, the Director
of Finance, Chief Financial Officer and
Secretary of Emeritus Corporation, a
Washington corporation, on behalf of the
corporation.

(Seal and Expiration Date)

               /s/ Shanda M. Jancek
                                          ---
- ----------------------

Shanda M. Jancek

Notary Public in and for the State of

Washington.  Residing at SeaHlp

My commission expires 8-2-97

EX-10.9.5

MORTGAGE
                           AND SECURITY
AGREEMENT


     KNOW ALL PERSONS BY THESE PRESENTS:
that EMERITUS CORPORATION, a Washington
corporation, also d/b/a Madison Glen
("Mortgagor"), in consideration of Ten and
no/100 Dollars ($10.00) in hand paid and of
the debt hereinafter mentioned, has granted,
sold and conveyed and by these presents does
grant, sell and convey unto BANK UNITED, a
federal savings bank (the "Mortgagee"), and
to its successors WITH MORTGAGE COVENANTS the
Collateral, as defined below.

     R E C I T A L S:

     A.   This conveyance is made to secure
the payment of a debt in the principal sum of
Five Million Five Hundred Thousand and No/100
Dollars ($5,500,000.00) (the "Loan"), which
Loan will be evidenced by a Promissory Note
of even date herewith in the principal amount
of Five Million Five Hundred Thousand and
No/100 Dollars ($5,500,000.00), executed by
the Mortgagor, payable to the order of
Mortgagee in installments with interest
thereon, (said Promissory Note, as the same
may hereafter be renewed, extended or
modified, being herein called the "Note").

     B.   Mortgagor is the owner of the
property described in Exhibit A attached
hereto.

     C.   As a condition precedent to making
the Loan, the Mortgagee has required that the
Mortgagor execute this Mortgage and Security
Agreement ("Mortgage") as security for the
Loan and the other Loan Obligations (as
hereinafter defined).

     AGREEMENT

     NOW, THEREFORE, for and in consideration
of the Loan Obligations, whether now existing
or hereafter arising, and to secure the
prompt payment of same, including future
advances, Mortgagor hereby irrevocably
grants, bargains, sells, conveys, assigns,
transfers, mortgages, pledges and sets over
unto Mortgagee, its successors and assigns,
and grants to Mortgagee a security interest
in, all of the following described land and
interests in land, estates, easements,
rights, improvements, personal property,
fixtures, equipment, furniture, furnishings,
appliances and appurtenances, all whether now
owned or hereafter acquired, and including
replacements, additions, accessions,
substitutions and products thereto (which
property is hereinafter referred to
collectively as the "Collateral"):

          (a)  The property located in the
Clearwater, Pinellas County, Florida as more
particularly described in Exhibit A attached
hereto and by this reference made a part
hereof (collectively the "Property"); and

          (b)  All Improvements and
Equipment, all of which are hereby declared
and shall be deemed to be fixtures and
accessions to the Property and a part of the
Property as between the parties hereto and
all persons claiming by, through or under
them, and which shall be deemed to be a
portion of the security for the Loan
Obligations herein described to be secured by
this Mortgage; and





          (c)  All Appurtenant Rights; and

          (d)  All Rents; and

          (e)  All Accounts, General
Intangibles, Instruments, Inventory, Money,
and (to the full extent assignable) Permits;
and

          (f)  All Proceeds.

     TO HAVE AND TO HOLD the Collateral and
all parts thereof unto the Mortgagee, its
successors and assigns forever, subject
however to the terms and conditions herein:

     PROVIDED, HOWEVER, that these presents
are upon the condition that, if the Mortgagor
shall pay to the Mortgagee the Loan
Obligations, at the times and in the manner
stipulated herein, in the Note and in the
other Loan Documents (as defined in the Loan
Agreement), all without any deduction or
credit for taxes or other similar charges
paid by the Mortgagor, and shall keep,
perform, and observe all and singular the
covenants and promises herein, in the Note
and in each of the other Loan Documents
expressed to be kept, performed, and
observed, all without fraud or delay, then
this Mortgage, and all the properties,
interests, and rights hereby granted,
bargained, and sold shall cease, determine,
and be void, but shall otherwise remain in
full force and effect.

     AND the Mortgagor covenants and agrees
with the Mortgagee and represents and
warrants unto Mortgagee as follows:

     ARTICLE I

     The following terms will have the
following meanings:

     "Accounts" means all accounts (including
accounts receivable) arising from the
Property or any lease relating thereto or
arising thereon.

     "Appurtenant Rights" means all
easements, rights-of-way, strips and gores of
land, vaults, streets, ways, alleys,
passages, sewer rights, waters, water
courses, water rights and powers, minerals,
flowers, shrubs, crops, trees, timber and
other emblements now or hereafter appurtenant
to, or used in connection with, or located
on, under or above the Property, or any part
or parcel thereof, and all ground leases,
estates, rights, titles, interests,
privileges, liberties, tenements,
hereditaments and appurtenances, reversions,
and remainders whatsoever, in any way
belonging, relating or appertaining to the
Property or any other Collateral, or any part
thereof.

     "Equipment" means fixtures and equipment
owned or leased by Mortgagor and located on,
attached to or used in connection with the
Property or Facility, including, but not
limited to, all beds, linen, televisions,
carpeting, telephones, cash registers,
computers, lamps, glassware, rehabilitation
equipment, and restaurant and kitchen
equipment; provided, however, that with
respect to any items which are leased and not
owned, the Equipment shall include the
leasehold interest only together with any
options to purchase any of said items and any
additional or greater rights with respect to
such items which are hereafter acquired (but
nothing herein shall permit the leasing of
any Equipment except as otherwise expressly
permitted herein or in the Loan Agreement
unless Mortgagee's written consent is first
obtained).


2




     "Facility" means the assisted living
facility located at the Property together
with any other general or specialized care
facilities, if any, now or hereafter operated
by or for Mortgagor at the Property.

     "General Intangibles" means all general
intangibles and other intangible personal
property arising out of or connected with the
ownership or operation of the Property or the
Facility by or for Mortgagor (other than
Accounts, Rents, Instruments, Inventory,
Money and Permits), including, without limita
tion, things in action, contract rights and
other rights to payment of money, trade names
and good will.

     "Improvements" means all buildings,
structures and improvements of every nature
whatsoever now or hereafter situated on the
Property, including, but not limited to, all
gas and electric fixtures, radiators,
heaters, engines and machinery, boilers,
ranges, elevators and motors, plumbing and
heating fixtures, air conditioning equipment,
carpeting and other floor coverings, water
heaters, awnings and storm sashes, cleaning
apparatus, signs, landscaping and parking
areas, which are  or  shall  be  attached  to
the Property or said buildings, structures or
improvements.

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

     "Inventory" means all inventory from
time to time used at the Facility, including,
but not limited to, food, beverages, other
comestibles, soap, paper supplies, medical
supplies, drugs and all other such goods,
wares and merchandise held for sale to or for
consumption or use by guests or residents of
the Property or the Facility, including all
such goods that are returned or repossessed.

     "Loan Agreement" means the Loan
Agreement of even date herewith between
Mortgagor and Mortgagee, as the same may be
amended, modified or restated from time to
time.

     "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, the Loan Agreement,
this Mortgage or any other Loan Documents and
all covenants, agreements and other
obligations from time to time owing to, or
for the benefit of, Mortgagee pursuant to the
Loan Documents. Notwithstanding anything in
this Mortgage to the contrary, this Mortgage
does not secure any indebtedness, obligation
or liability created by or arising from the
Arizona Note (as defined in the Loan
Agreement) or any interest, premiums or other
amounts, if any, thereon.


     "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 the Facility
by or for Mortgagor.

     "Note" has the meaning set forth in the
Recitals to this Mortgage.




3



     "Permits" means all licenses, permits,
certificates, approvals, authorizations and
registrations obtained from any governmental
or quasi-governmental authority and used or
useful in connection with the ownership,
operation, use or occupancy of the Property
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.

     "Permitted Encumbrances" means all
matters set forth in Mortgagee's title
insurance policy number 10-1265-02-0000089
issued by Chicago Title Insurance Company in
connection with the Loan, provided that to
the extent any of the same are listed as
subordinate, such matters are permitted only
so long as they are in fact subordinate to
this Mortgage.

     "Proceeds" means all proceeds (whether
cash or noncash, moveable or immoveable,
tangible or intangible), including proceeds
of insurance and condemnation, from the sale,
exchange, transfer, collection, loss, damage,
disposition, substitution or replacement of
any of the Collateral.

     "Rents" means all rent and other
payments of whatever nature from time to time
payable pursuant to any lease of the Property
or the Facility, or any part thereof,
including, but not limited to, leases of
individual apartments or units to residents
and leases of retail space or other space at
the Property for businesses such as
newsstands, barbershops, beauty shops,
physicians' offices, pharmacies and specialty
shops.

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

     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.

     All other capitalized terms not
otherwise defined in this Mortgage shall have
the meanings set forth in the Loan Agreement.

     ARTICLE II

     COVENANTS, AGREEMENTS, AND
REPRESENTATIONS
     OF MORTGAGOR

     2.01.  Performance of Loan Documents.
Mortgagor will perform, observe, and comply
with all provisions hereof and of each of the
other Loan Documents and duly and punctually
will pay to the Mortgagee the sum of money
expressed in the Note with interest thereon
and all other sums required to be paid by the
Mortgagor pursuant to the provisions of this
Mortgage, all without any deduction or credit
for taxes or other similar charges paid by
the Mortgagor.

     2.02.  Warranty of Title.  The Mortgagor
is lawfully seized of an indefeasible estate
in fee simple in the property hereby
mortgaged and has good and absolute title to
all other Collateral in which a security
interest is herein granted, and Mortgagor has
good right, full power and lawful authority
to sell, convey, mortgage, and grant a
security interest in the same in the manner
and form aforesaid; that, except for
Permitted Encumbrances and the Liens
permitted by the Loan Agreement, the same are
free and clear of all liens,


4


charges, and encumbrances whatsoever,
including, as to the Equipment, conditional
sales contracts, chattel mortgages, security
agreements, financing statements, and
anything of a similar nature, and that
Mortgagor shall and will warrant and forever
defend the title thereto unto the Mortgagee
its successors and assigns, against the
lawful claims of all persons whomsoever.

     2.03  Taxes, Liens and Other Charges.

          (a)  Subject to Section 2.04
hereof, Mortgagor shall pay, on or before the
delinquency date thereof, all taxes, levies,
license fees, permit fees and all other
charges (in each case whether general or
special, ordinary or extraordinary, or
foreseen or unforeseen) of every character
whatsoever (including all penalties and
interest thereon) now or hereafter levied,
assessed, confirmed or imposed on, or in
respect of, or which may be a lien upon the
Collateral, or any part thereof, or any
estate, right or interest therein, or upon
the rents, issues, income or profits thereof,
and shall submit to Mortgagee such evidence
of the due and punctual payment of all such
taxes, assessments and other fees and charges
as may be required by law.  Mortgagor shall
have the right before they become delinquent
to contest or object to the amount or
validity of any such tax, assessment, fee or
charge by appropriate legal proceedings, but
this shall not be deemed or construed in any
way as relieving, modifying or extending
Mortgagor's covenant to pay any such tax,
assessment, fee or charge at the time and in
the manner provided herein, unless Mortgagor
has given prior written notice to Mortgagee
of Mortgagor's intent to so contest or
object, and unless (i) Mortgagor shall
demonstrate to Mortgagee's satisfaction that
the legal proceedings shall conclusively
operate to prevent the sale of the
Collateral, or any part thereof, to satisfy
such tax, assessment, fee or charge prior to
final determination of such proceedings; and
(ii) Mortgagor shall diligently pursue such
contest; provided, however, that upon request
Mortgagor shall deposit with Mortgagee all
amounts required by Section 2.04 including
any penalties, interests or charges in
connection with such contested taxes; and
provided further that Mortgagee shall be
entitled to pay in full any and all contested
taxes where a lien has been filed against the
Property in connection with the same.

          (b)  Mortgagor shall pay, on or
before the due date thereof, all taxes,
assessments, charges, expenses, costs and
fees which may now or hereafter be levied
upon, or assessed or charged against, or
incurred in connection with, the Note, this
Mortgage or any other Loan Documents, except
for Mortgagee's income, franchise or other
taxes levied against Mortgagee (other than
recording fees and taxes assessed with
respect to the recording of this Mortgage).

          (c)  Mortgagor shall pay, on or
before the due date thereof, all premiums on
policies of insurance covering, affecting or
relating to the Collateral, as required by
the Loan Agreement unless the same is
required to be escrowed with the Mortgagee,
all ground lease rents, if applicable; and
all utility charges with respect to the
Collateral, or which may become a charge or
lien against the Collateral, for gas, electri
city, water and  sewer services and the like
furnished to the Collateral, and all other
public or private assessments or charges of a
similar nature affecting the Collateral or
any portion thereof, whether or not the
nonpayment of same may result in a lien
thereon.  Mortgagor shall submit to Mortgagee
such evidence of the due and punctual payment
of all such premiums, rentals and  other sums
as Mortgagee may reasonably require.



5



          (d)  Mortgagor shall not suffer any
mechanic's, materialman's, laborer's,
statutory or other lien (except as expressly
permitted by the Loan Agreement) to be
created or remain outstanding against the
Collateral; provided, however, that Mortgagor
may contest any such lien in good faith by
appropriate legal proceedings provided the
lien is bonded off and removed as an
encumbrance upon the Collateral.  Mortgagee
has not consented and will not consent to the
performance of any work or the furnishing of
any materials which might be deemed to create
a lien or liens superior to the lien hereof.

          (e)  In the event of the passage of
any state, federal, municipal or other
governmental law, order, rule or regulation,
subsequent to the date hereof, in any manner
changing or modifying the laws now in force
governing the taxation of mortgages or
security agreements or debts secured thereby
or the manner of collecting such taxes so as
to adversely affect Mortgagee, Mortgagor will
upon request (together with the applicable
invoice, bill or notice therefor) pay any
such tax on or before the due date thereof.
If Mortgagor fails to make such prompt
payment or if, in the reasonable opinion of
Mortgagee, any such state, federal,
municipal, or other governmental law, order,
rule or regulation prohibits Mortgagor from
making such payment or would penalize
Mortgagee if Mortgagor makes such payment or
if, in the reasonable opinion of Mortgagee,
the making of such payment might result in
the imposition of interest beyond the maximum
amount permitted by applicable law, then the
entire balance of the Loan Obligations shall,
at the option of Mortgagee, become
immediately due and payable.

          (f)  The Mortgagor hereby
indemnifies and holds Mortgagee harmless from
any sales or use tax that may be imposed on
the Mortgagee by virtue of Mortgagee's Loan
to Mortgagor.

     2.04  Monthly Deposits.   Following any
Event of Default, Mortgagor shall deposit
with Mortgagee, on the due date of each
installment under the Note, an amount equal
to one-twelfth (1/12) of the yearly taxes and
assessments and insurance premiums as
estimated by the Mortgagee to be sufficient
to pay such charges; said deposits to be held
and to be used by Mortgagee to pay current
taxes and assessments, insurance premiums and
other charges on the Collateral as the same
accrue and are payable. Payment from said
sums for said purposes shall be made by
Mortgagee and may be made even though such
payments will benefit subsequent owners of
the Collateral.  Said deposits shall not be,
nor be deemed to be, trust funds, but may be,
to the extent permitted by applicable law,
commingled with the general funds of
Mortgagee without payment of interest.  If
said deposits are insufficient to pay the
taxes and assessments, insurance premiums and
other charges in full as the same become pay
able, Mortgagor will deposit with Mortgagee
such additional sum or sums as may be
required in order for Mortgagee to pay such
taxes and assessments, insurance premiums and
other charges in full as the same become due
and payable.  Upon any Event of Default and
acceleration of the maturity date of the
Loan, Mortgagee may, at its option, apply any
money in the fund relating from said deposits
to the payment of the Loan Obligations in
such manner as it may elect.









6


     2.05  Condemnation.

     The terms and provisions of the Loan
Agreement shall govern in the event that all
or any part of the Collateral shall be
damaged or taken through condemnation (which
term when used in this Mortgage shall include
any damage or taking by any governmental
authority, and any transfer by private
sale in lieu thereof), either temporarily or
permanently. Mortgagor, immediately upon
obtaining knowledge of any institution, or
any proposed, contemplated or threatened
institution of any action or proceeding for
the taking through condemnation of the
Collateral or any part thereof, will notify
Mortgagee. Subject to the terms and
provisions of the Loan Agreement, all
compensation, awards, damages, claims, rights
of action and proceeds in connection with any
condemnation and the right thereto are hereby
assigned by Mortgagor to Mortgagee, and
Mortgagee is authorized, at its option, to
collect and receive all such compensation,
awards or damages and to give proper receipts
and acquittances therefor without any
obligation to question the amount of any such
compensation, awards or damages.

     2.06  Care of Collateral.

          (a)  Mortgagor will keep the
Improvements in good condition and repair,
will not commit or suffer any waste and will
not do or suffer to be done anything which
would or could reasonably be expected to
increase the risk of fire or other hazard to
the Collateral or any other part thereof or
which would or could result in the
cancellation of any insurance policy carried
with respect to the Collateral.

          (b)  Mortgagor will not remove,
demolish or alter the structural character of
any Improvements without the written consent
of Mortgagee, which such consent shall not be
unreasonably withheld, nor make or permit use
of the Collateral for any purpose other than
that for which the same are now used and such
ancillary purposes related thereto as may be
approved by Mortgagee.

          (c)  If the Collateral or any part
thereof is damaged by fire or any other
cause, Mortgagor will give immediate written
notice thereof to Mortgagee.

          (d)  Mortgagee or its
representative is hereby authorized to enter
upon and inspect the Collateral on reasonable
notice (other than in an emergency) during
normal business hours.

          (e)  Mortgagor will promptly comply
with all present and future laws, ordinances,
rules and regulations of any governmental
authority affecting the Collateral or any
part thereof.

          (f)  The terms and provisions of
the Loan Agreement shall govern in the event
that (i) all or any part of the Collateral
shall be damaged by fire or other casualty,
or (ii) all or any part of the Collateral
shall be taken or damaged through
condemnation.







7



     2.07  Leases; Management Agreements.

     Mortgagor shall not, without the prior
written consent and approval of Mortgagee,
enter into any lease or permit any tenancy or
enter into or permit any management
agreement, of or affecting the Collateral,
except as expressly permitted by the Loan
Documents.

     2.08  Further Assurances; After-Acquired
Property.  At any time, and from time to
time, upon request by Mortgagee, Mortgagor
will make, execute and deliver or cause to be
made, executed and delivered to Mortgagee
and, where appropriate, cause to be recorded
and/or filed and from time to time thereafter
to be rerecorded and/or refiled at such time
and in such offices and places as shall be
deemed desirable by Mortgagee (i) to perfect
and protect the security interest created or
purported to be created hereby; (ii) to
enable the Mortgagee to exercise and enforce
its rights and remedies hereunder in respect
of the Collateral; or (iii) to effect
otherwise the purposes of this Mortgage,
including, without limitation:  (A) executing
and filing such financing or continuation
statements, or amendments thereto, as may be
necessary or desirable or that the Mortgagee
may request in order to perfect and preserve
the security interest created by this
Mortgage as a first and prior security
interest upon and security title in and to
all of the Collateral, whether now owned or
hereafter acquired by Mortgagor; (B) if
certificates of title are now or hereafter
issued or outstanding with respect to any of
the Collateral, by immediately causing the
interest of Mortgagee to be properly noted
thereon at Mortgagor's expense; and (C)
furnishing to the Mortgagee from time to time
statements and schedules further identifying
and describing the Collateral and such other
reports in connection with the Collateral as
the Mortgagee may request, all in reasonable
detail.  Upon any failure by Mortgagor so to
do, Mortgagee may make, execute, record,
file, re-record and/or refile any and all
such financing statements, continuation
statements, or amendments thereto,
certificates, and documents for and in the
name of Mortgagor, and Mortgagor hereby
irrevocably appoints Mortgagee the agent and
attorney-in-fact of Mortgagor so to do.  The
lien of this Mortgage will automatically
attach, without further act, to all after-
acquired property attached to and/or used in
the operation of the Collateral or any part
thereof.

     2.09  Indemnity; Expenses.  Mortgagor
will pay or reimburse Mortgagee for all
reasonable attorney's fees, costs and
expenses incurred by Mortgagee in any suit,
action, arbitration, trial, appeal,
bankruptcy or other legal proceeding or
dispute of any kind in which Mortgagee is
made a party or appears as party plaintiff or
defendant, affecting the Loan Obligations,
this Mortgage or the interest created herein,
or the Collateral, or any appeal thereof,
including, but not limited to, any
foreclosure action, any condemnation action
involving the Collateral or any action to
protect the security hereof, any bankruptcy
or other insolvency proceeding commenced by
or against the Mortgagor, any lessee of the
Collateral (or any part thereof), or any
guarantor of any of the Loan Obligations but
specifically excluding any action between
Mortgagor and Mortgagee in which Mortgagor is
the prevailing party, and any such amounts
paid by Mortgagee shall be added to the Loan
Obligations and shall be secured by this
Mortgage.  Mortgagor will indemnify and hold
Mortgagee harmless from and against all
claims, damages, and expenses, including
reasonable attorney's fees and court costs,
resulting from any action by a third party
against Mortgagee relating to this Mortgage
or the interest created herein, or the Coll
ateral, including, but not limited to, any
action or proceeding claiming loss, damage or
injury to person or property, or any action
or proceeding claiming a violation of any
national, state or local law, rule or


8


regulation, provided Mortgagor shall not be
required to indemnify Mortgagee for matters
directly and solely caused by Mortgagee's
willful misconduct or gross negligence.
Mortgagor acknowledges that it has undertaken
the obligation to pay all intangible taxes,
and documentary taxes and other taxes now or
hereafter due in connection with the Loan
Obligations and the Loan Documents (or the
recording thereof), and Mortgagor agrees to
indemnify and hold Mortgagee harmless from
any intangibles, documentary stamp and other
taxes, and any interest or penalties, which
the Mortgagee may hereafter be required to
pay in connection with the Loan Obligations
or Loan Documents (or the recording thereof).
The agreements of this Section shall
expressly survive satisfaction of this
Mortgage and repayment of the Loan
Obligations.

     2.10  Estoppel Affidavits.  Mortgagor,
upon ten (10) days prior written notice,
shall furnish the Mortgagee a written state
ment, duly acknowledged, based upon its
records, setting forth the unpaid principal
of, and interest on, the Loan Obligations,
stating whether or not to its knowledge any
offsets or defenses exist against the Loan
Obligations, or any portion thereof, and, if
such offsets or defenses exist, stating in
detail the specific facts relating to each
such offset or defense. Mortgagee, upon ten
(10) days prior written notice, and not more
than once every twelve (12) months, shall
furnish the Mortgagor a written statement,
duly acknowledged, based upon its records,
setting forth the unpaid principal of, and
interest on, the Loan Obligations, and
stating whether or not to its knowledge any
default exists under the Loan Obligations.

     2.11  Limit of Validity.  If from any
circumstances whatsoever, fulfillment of any
provision of this Mortgage, the Note or any
other Loan Document, at the time performance
of such provision shall be due, shall involve
transcending the limit of validity presently
prescribed by any applicable usury statute or
any other applicable law, with regard to
obligations of like character and  amount,
then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of
such validity, so that in no event shall any
exaction be possible under this Mortgage, the
Note, or any other Loan Document that is in
excess of the current limit of such validity,
but such obligation shall be fulfilled to the
limit of such validity.  The provisions of
this Section shall control every other pro
vision of this Mortgage, the Note and any
other Loan Document.

     2.12  Compliance with Applicable
Environmental Laws.  Mortgagor has entered
into a separate Certificate and
Indemnification Regarding Hazardous
Substances dated of even date herewith and
given in connection with the Note, the
provisions of which are deemed incorporated
herein by this reference.

     ARTICLE III

     EVENTS OF DEFAULT; REMEDIES

     3.01  Events of Default.  The terms
"Event of Default" or "Events of Default,"
wherever used in this Mortgage, shall mean
any one or more of the following events:

          (a)  The occurrence of any Event of
Default (as therein defined) under any other
Loan Documents; or

          (b)  The sale, transfer, lease
(other than as permitted by the terms
hereof), assignment, or other disposition,
voluntarily or involuntarily, of the
Collateral, or any part thereof or any
interest therein, including a sale or
transfer in lieu of condemnation, or, except
for Permitted Encumbrances, any


9


further encumbrance of the Collateral, unless
expressly permitted by the Loan Agreement or
unless the prior written consent of Mortgagee
is obtained (which consent may be withheld
with or without cause in Mortgagee's
discretion).

     3.02  Acceleration of Maturity.  If an
Event of Default shall have occurred, then
the entire Loan Obligations shall, at the
option of Mortgagee, immediately become due
and payable without notice or demand, time
being of the essence of this Mortgage, and no
omission on the part of Mortgagee to exercise
such option when entitled to do so shall be
construed as a waiver of such right.

     3.03 Right to Enter and Take Possession.

          (a)  If an Event of Default shall
have occurred and be continuing, Mortgagor,
upon demand of Mortgagee, shall forthwith
surrender to Mortgagee the actual possession
of the Collateral and, if and to the extent
permitted by law, Mortgagee itself, or by
such officers or agents as it may appoint,
may enter and take possession of all or any
part of the Collateral without the
appointment of a receiver or an application
therefor, and may exclude Mortgagor, and its
agents and employees wholly therefrom, and
take possession of the books, papers and
accounts of Mortgagor;

          (b)  If Mortgagor shall for any
reason fail to surrender or deliver the
Collateral or any part thereof after such
demand by Mortgagee, Mortgagee may obtain a
judgment or decree conferring upon Mortgagee
the right to immediate possession or
requiring Mortgagor to deliver immediate
possession of the Collateral to Mortgagee.
Mortgagor will pay to Mortgagee, upon demand,
all expenses of obtaining such judgment or
decree, including compensation to Mortgagee,
its attorneys and agents, and all such
expenses and compensation shall, until paid,
become part of the Loan Obligations and shall
be secured by this Mortgage;

          (c)  Upon every such entering upon
or taking of possession, Mortgagee may hold,
store, use, operate, manage and control the
Collateral and conduct the business thereof,
and, from time to time (i) make all necessary
and proper maintenance, repairs, renewals,
replacements, additions, betterments and
improvements thereto and thereon and purchase
or otherwise acquire additional fixtures,
personalty and other property; (ii) insure or
keep the Collateral insured; (iii) manage and
operate the Collateral and exercise all of
the rights and powers of Mortgagor to the
same extent as Mortgagor could in its own
name or otherwise act with respect to the
same; and (iv) enter into any and all agree
ments with respect to the exercise by others
of any of the powers herein granted to
Mortgagee all as Mortgagee from time to time
may determine to be in its best interest.
Mortgagee may collect and receive all the
rents, issues, profits and revenues from the
Collateral, including those past due as well
as those accruing thereafter, and, after
deducting (A) all reasonable expenses of
taking, holding, managing and operating the
Collateral (including reasonable compensation
for the services of all persons employed for
such purposes); (B) the reasonable cost of
all such maintenance, repairs, renewals,
replacements, additions, betterments, improve
ments, purchases and acquisitions; (C) the
reasonable cost of such insurance; (D) such
taxes, assessments and other similar charges
as Mortgagee may at its option pay; (E) other
proper charges upon the Collateral or any
part thereof; and (F) the reasonable compen
sation, expenses and disbursements of the
attorneys and agents of Mortgagee, Mortgagee
shall apply the remainder of the monies and
proceeds so received by Mortgagee, first, to
the payment of accrued interest; second, to
the payment of deposits for taxes


10


and insurance required in this Mortgage and
to other sums required to be paid hereunder;
and third, to the payment of overdue
installments of principal and any other
unpaid Loan Obligations then due.  Anything
in this Section to the contrary
notwithstanding, Mortgagee shall not be obli
gated to discharge or perform the duties of a
landlord to any tenant or incur any liability
as a result of any exercise by Mortgagee of
its rights under this Mortgage unless
Mortgagee is in possession and is operating
the Collateral, and Mortgagee shall be liable
to account only for the rents, incomes,
issues and profits actually received by
Mortgagee and for Mortgagee's gross or wilful
misconduct in exercising its rights
hereunder.

          (d)  If an Event of Default shall
exist, Mortgagee may require that Mortgagor
cause all of its Accounts and Rents to be
paid to Mortgagee directly or to one or more
deposit accounts with Mortgagee.  Mortgagor
assigns and grants to Mortgagee a security
interest in, pledge of and right of setoff
against all moneys from time to time held in
such deposit accounts.  Mortgagor agrees to
promptly notify all of its account debtors
and tenants to make payments to Mortgagee or
one or more such deposit accounts upon
Mortgagee's request and as designated by
Mortgagee, and Mortgagor agrees to provide
any necessary endorsements to checks, drafts
and other forms of payment so that such
payments will be properly deposited in such
accounts.  Mortgagee may require that the
deposit accounts be established so as to
comply with any applicable legal
requirements, if any, applicable to payments
of any accounts receivable.  Mortgagee may
cause moneys to be withdrawn from such
deposit accounts and applied to the Loan
Obligations in such order as Mortgagee may
elect, whether or not then due.  Mortgagor
appoints Mortgagee as its attorney-in-fact,
which appointment is coupled with an interest
and is irrevocable, to provide any notice,
endorse any check, draft or other payment for
deposit, or take any other action which
Mortgagor agrees to take in this Section 3.03
(d).  Mortgagee shall not be liable for
failure to collect any Accounts or Rents, or
to enforce the contracts or leases pursuant
to which such Accounts or Rents are payable,
or, absent gross negligence or wilful
misconduct, for any action or omission on the
part of Mortgagee, its officers, agents and
employees in collecting or enforcing such
Accounts, Rents, contracts or leases.

     3.04  Performance by Mortgagee.  Upon
the occurrence of an Event of Default in the
payment, performance or observance of any
term, covenant or condition of this Mortgage,
Mortgagee may, at its option, pay, perform or
observe the same, and all payments made or
costs or expenses incurred by Mortgagee in
connection therewith, with interest thereon
at the Default Rate or at the maximum rate
from time to time allowed by applicable law,
whichever is less, shall be secured hereby
and shall be, without demand, immediately
repaid by Mortgagor to Mortgagee.  Mortgagee
shall be the sole judge of the necessity for
any such actions and of the amounts to be
paid.  Mortgagee is hereby empowered to enter
and to authorize others to enter upon the
Collateral or any part thereof for the
purpose of performing or observing any such
defaulted term, covenant or condition without
thereby becoming liable to Mortgagor or any
person in possession holding under Mortgagor
absent Mortgagee's gross negligence or wilful
misconduct.  Notwithstanding anything to the
contrary herein, Mortgagee shall have no
obligation, explicit or implied to pay,
perform, or observe any term, covenant, or
condition.







11


     3.05  Receiver.  If any Event of Default
shall have occurred and be continuing,
Mortgagee, upon application to a court of
competent jurisdiction, shall be entitled as
a matter of strict right, without regard to
the sufficiency or value of any security for
the Loan Obligations or the solvency of any
party bound for its payment, to the
appointment of a receiver to take possession
of and to operate the Collateral and to
collect and apply the rents, issues, profits
and revenues thereof.  Mortgagee agrees to
provide Mortgagor with notice of such
application unless emergency relief is
necessary to prevent further loss and/or
diminution in value to the Property, in which
case no notice need be given to Mortgagor.
The receiver shall have all of the rights and
powers permitted under the laws of the state
wherein the Property is situated.  Mortgagor
will pay unto Mortgagee upon demand all
expenses, including receiver's fees,
attorney's fees, costs and agent's
compensation, incurred pursuant to the
provisions of this Section, and upon any
Mortgagor's failure to pay the same, any such
amounts shall be added to the Loan
Obligations and shall be secured by this
Mortgage.

     3.06  Mortgagee's Power of Enforcement.
If an Event of Default shall have occurred
and be continuing, the Mortgagee may, either
with or without entry or taking possession as
hereinabove provided or otherwise, proceed by
suit or suits at law or in equity or any
other appropriate proceeding or remedy (a) to
enforce payment of the Note or the
performance of any term thereof or any other
right, (b) to foreclose this Mortgage and to
sell, as an entirety or in separate lots or
parcels, the Collateral, as provided by
applicable Florida law, and (c) to pursue any
other remedy available to it, all as the
Mortgagee shall deem most effectual for such
purposes.  The Mortgagee shall take action
either by such proceedings or by the exercise
of its powers with respect to entry or taking
possession, as the Mortgagee may determine.

     3.07  Purchase by Mortgagee.  Upon any
foreclosure sale, Mortgagee may bid for and
purchase the Collateral and shall be entitled
to apply all or any part of the Loan
Obligations as a credit to the purchase
price.

     3.08  Application of Proceeds of Sale.
In the event of a foreclosure or other sale
of all or any portion of the Collateral, the
proceeds of said sale shall be applied,
first, to the expenses of such sale and of
all proceedings in connection therewith,
including reasonable attorney's fees and
expenses (and attorney's fees and expenses
shall become absolutely due and payable
whenever foreclosure is commenced); then to
insurance premiums, liens, assessments, taxes
and charges, including utility charges and
any other amounts advanced by Mortgagee
hereunder, and interest thereon at the
Default Rate or at the maximum rate from time
to time allowed by applicable law, whichever
is less; then to payment of the Loan
Obligations in such order of priority as
Mortgagee shall determine, in its sole
discretion; and finally the remainder, if
any, shall be paid to Mortgagor or to the
person or entity lawfully entitled thereto.

     3.09  Mortgagor as Tenant Holding Over.
In the event of any such foreclosure sale,
and if Mortgagor shall remain in possession,
Mortgagor shall be deemed a tenant holding
over and shall forthwith deliver possession
to the purchaser or purchasers at such sale
or be summarily dispossessed according to
provisions of law applicable to tenants
holding over.






12



     3.10  Waiver of Appraisement, Valuation,
Etc.  Mortgagor agrees, to the full extent
permitted by law, that in case of an Event of
Default hereunder, neither Mortgagor, nor
anyone claiming through or under Mortgagor
will set up, claim or seek to take advantage
of any appraisement, valuation, stay,
extension, exemption or laws now or hereafter
in force, in order to prevent or hinder the
enforcement or foreclosure of this Mortgage,
or the absolute sale of the Collateral, or
the delivery of possession thereof
immediately after such sale to the purchaser
at such sale, and Mortgagor, for itself and
all who may at any time claim through or
under it, hereby waives to the full extent
that it may lawfully so do, the benefit of
all such laws, and any and all right to have
the assets subject to the security interest
of this Mortgage marshaled upon any
foreclosure or sale under the power herein
granted.

     3.11  Waiver of Homestead.  Mortgagor
hereby waives and renounces all homestead and
exemption rights provided for by the
Constitution and the laws of the United
States and of any state, in and to the
Collateral as against the collection of the
Loan Obligations, or any part thereof.

     3.12  Discontinuance of Proceedings.  In
case Mortgagee shall have proceeded to
enforce any right, power or remedy under this
Mortgage by foreclosure, entry or otherwise,
and such proceedings shall have been
discontinued or abandoned for any reason, or
shall have been determined adversely to
Mortgagee, then in every such case, Mortgagor
and Mortgagee shall be restored to their
former positions and rights hereunder, and
all rights, powers and remedies of Mortgagee
shall continue as if no such proceedings had
occurred.

     3.13  Remedies Not Exclusive.  Mortgagee
shall be entitled to enforce payment and
performance of the Loan Obligations and to
exercise all rights and powers under this
Mortgage or under any other of the Loan
Documents or other agreement or under any
laws now or hereafter in force,
notwithstanding that some or all of the Loan
Obligations may now or hereafter be otherwise
secured, whether by mortgages, deeds of
trust, deeds to secure debt, pledges, liens,
assignments or otherwise.  Neither the
acceptance of this Mortgage nor its
enforcement shall prejudice or in any manner
affect Mortgagee's right to realize upon or
enforce any other security now or hereafter
held by Mortgagee as security for the
performance of Mortgagor's obligations under
the Loan Documents, it being agreed that
Mortgagee shall be entitled to enforce this
Mortgage and any other security now or
hereafter held by Mortgagee as security for
the performance of Mortgagor's obligations
under the Loan Documents in such order and
manner as it may in its absolute discretion
determine.  No right or remedy herein
conferred upon or reserved to Mortgagee is
intended to be exclusive of any other remedy
herein or by law provided or permitted, but
each shall be cumulative and shall be in
addition to every other right and remedy
given hereunder or now or hereafter existing
at law or in equity or by statute.  Every
power or remedy given by any of the Loan
Documents to Mortgagee or to which it
otherwise may be entitled, may be exercised
concurrently or independently, from time to
time and as often as may be deemed expedient
by Mortgagee, and it may pursue inconsistent
remedies.








13



     3.14  Waiver.

          (a)  No delay or omission by
Mortgagee or by any holder of the Note to
exercise any right, power or remedy accruing
upon any default or Event of Default shall
exhaust or impair any such right, power or
remedy or shall be construed to be a waiver
of any such default, or acquiescence therein,
and every right, power and remedy given by
this Mortgage to Mortgagee may be exercised
from time to time and as often as may be
deemed expedient by Mortgagee.  No consent or
waiver expressed or implied by Mortgagee to
or of any breach or default by Mortgagor in
the performance of the obligations of
Mortgagor hereunder shall be deemed or
construed to be a consent or waiver to or of
any other breach or default in the
performance of the same or any other
obligations of Mortgagor hereunder.  Failure
on the part of Mortgagee to complain of any
act or failure to act or failure to declare
an Event of Default, irrespective of how long
such failure continues, shall not constitute
a waiver by Mortgagee of its rights hereunder
or impair any rights, powers or remedies of
Mortgagee hereunder.

          (b)  No act or omission by
Mortgagee shall release, discharge, modify,
change or otherwise affect the original
liability under the Note, this Mortgage, the
other Loan Documents or any other obligation
of Mortgagor or any subsequent purchaser of
the Collateral or any part thereof hereunder
or thereunder, or any maker, co-signer,
endorser, surety or guarantor, nor preclude
Mortgagee from exercising any right, power or
privilege herein granted or intended to be
granted in the event of any default or Event
of Default then existing or of any subsequent
default or Event of Default, nor alter the
lien of this Mortgage, except as expressly
provided in an instrument or instruments
executed by Mortgagee.  Without limiting the
generality of the foregoing, Mortgagee may
(i) grant forbearance or an extension of time
for the payment of all or any portion of the
Loan Obligations; (ii) take other or
additional security for the payment of any of
the Loan Obligations; (iii) waive or fail to
exercise any right granted herein, in the
Note or in other Loan Documents; (iv) release
any part of the Collateral from the security
interest or lien of this Mortgage or
otherwise change any of the terms, covenants,
conditions or agreements of the Note, this
Mortgage or other Loan Documents; (v) consent
to the filing of any map, plat or replat
affecting the Collateral; (vi) consent to the
granting of any easement or other right
affecting the Collateral; (vii) make or
consent to any agreement subordinating the
security title or lien hereof, or (viii) take
or omit to take any action whatsoever with
respect to the Note, this Mortgage, the other
Loan Documents, the Collateral or any
document or instrument evidencing, securing
or in any way related to the Loan
Obligations, all without releasing, discharg
ing, modifying, changing or affecting any
such liability, or precluding Mortgagee from
exercising any such right, power or privilege
or affecting the lien of this Mortgage.  In
the event of the sale or transfer by
operation of law or otherwise of all or any
part of the Collateral, Mortgagee, without
notice, is hereby authorized and empowered to
deal with any such vendee or transferee with
reference to the Collateral or the Loan
Obligations, or with reference to any of the
terms, covenants, conditions or agreements
hereof, as fully and to the same extent as it
might deal with the original parties hereto
and without in any way releasing or
discharging any liabilities, obligations or
undertakings of Mortgagor, any guarantor of
the Loan Obligations or others which remains
outstanding after such sale or transfer.





14



          (c)  Mortgagor waives and
relinquishes any and all rights, whether at
law or equity, to require Mortgagee to
proceed to enforce or exercise any rights,
powers and remedies under the Loan Documents
in any particular manner, in any particular
order, or in any particular state or other
jurisdiction.  To the fullest extent that
Mortgagor may do so, Mortgagor agrees that
Mortgagor will not at any time insist upon,
plead, claim, or take the benefit or
advantage of any law now or hereafter in
force providing for any valuation,
appraisement, stay of execution or extension,
and Mortgagor, and its representatives,
successors and assigns, and for any and all
persons ever claiming any interest in the
Collateral, to the extent permitted by law,
hereby waive and release all rights of
valuation, appraisement, marshalling, stay of
execution, and extension.  Mortgagor further
agrees that if any law referred to in this
paragraph and now in force, of which
Mortgagor, or its representatives, successors
or assigns or other person might take
advantage despite this paragraph, shall
hereafter be repealed or cease to be in
force, such law shall not thereafter be
deemed to preclude the application of this
paragraph.  Mortgagor expressly waives and
relinquishes any and all rights and remedies
that they may have or be able to assert by
reason of the laws of the state of
jurisdiction pertaining to the rights and
remedies of sureties.

          (d)  The Mortgagor on behalf of
itself and all other parties claiming under
the Mortgagor hereby waives all claims for
marshalling-of-assets under applicable law.

     Mortgagor makes these arrangements,
waivers and relinquishments knowingly and as
a material inducement to Mortgagee in making
the Loan, after consulting with and
considering the advice of independent legal
counsel selected by Mortgagor.

     3.15  Suits to Protect the Collateral.
Mortgagee shall have power to institute and
maintain such suits and proceedings as it may
deem expedient (a) to prevent any impairment
of the Collateral by any acts which may be
unlawful or constitute a default or Event of
Default under this Mortgage; (b) to preserve
or protect its interest in the Collateral and
in the rents, issues, profits and revenues
arising therefrom; and (c) to restrain the
enforcement of or compliance with any legisla
tion or other governmental enactment, rule or
order that may be unconstitutional or other
wise invalid, if the enforcement of or
compliance with such enactment, rule or order
would materially impair the security
hereunder or be prejudicial to the interest
of Mortgagee.

     3.16  Proofs of Claim.  In the case of
any receivership, insolvency, bankruptcy,
reorganization, arrangement, adjustment,
composition or other proceedings affecting
Mortgagor or its their creditors or property,
Mortgagee, to the extent permitted by law,
shall be entitled to file such proofs of
claim and other documents as may be necessary
or advisable in order to have the claims of
Mortgagee allowed in such proceedings for the
entire amount due and payable by Mortgagor
under this Mortgage (subject to the
exculpation of Mortgagor hereinafter
provided) at the date of the institution of
such proceedings and for any additional
amount which may become due and payable by
Mortgagor hereunder after such date.







15



     3.17 Non-Liability of Mortgagee.  The
Mortgagee shall not be liable for any error
of judgment or act done by Mortgagee in good
faith, or be otherwise responsible or
accountable to Mortgagor under any
circumstances whatsoever absent Mortgagee's
gross negligence or wilful misconduct, nor
shall Mortgagee be personally liable, in case
of entry by it or anyone entering by virtue
of the powers herein granted upon the
Property, for debts contracted or liability
or damages incurred in the management or
operation of the Property, or otherwise
absent Mortgagee's gross negligence or wilful
misconduct.  The Mortgagee shall have the
right to rely on any instrument, document or
signature authorizing or supporting any
action taken or proposed to be taken by the
Mortgagee hereunder, believed by the
Mortgagee in good faith to be genuine.
Mortgagee shall be entitled to reimbursement
for actual, reasonable expenses incurred by
it in the performance of its duties hereunder
and to reasonable compensation for such of
its services hereunder as shall be rendered.
Mortgagor will, from time to time, pay the
compensation due to Mortgagee hereunder and
reimburse Mortgagee for, and save it harmless
from and against, any and all liability and
expenses which may be incurred by Mortgagee
in the enforcement of its rights hereunder.

     ARTICLE IV

     SECURITY AGREEMENT; MISCELLANEOUS

     4.01 Security Agreement.  This Mortgage
creates a lien on and a security interest in
that part of the Collateral which constitutes
personal property under any applicable
Uniform Commercial Code, and shall constitute
a security agreement under the applicable
Uniform Commercial Code or other law
applicable to the creation of liens on
personal property between Mortgagor and
Mortgagee.  This Mortgage shall constitute a
financing statement under the applicable
Uniform Commercial Code with Mortgagor as the
"debtor" and Mortgagee as the "secured
party".  If an Event of Default occurs, the
Mortgagee shall have all rights and remedies
of a secured party under the applicable
Uniform Commercial Code.

     4.02 Assembly of Collateral.   Upon the
occurrence of an Event of Default, the
Mortgagor shall assemble, if requested by the
Mortgagee, at its expense, all of the
personal property Collateral and the
documents evidencing such personal property
Collateral and the books and records
applicable thereto and make them available to
the Mortgagee at a place to be designated by
the Mortgagee.

     4.03 Successors and Assigns.  This
Mortgage shall inure to the benefit of and be
binding upon Mortgagor, Mortgagee and their
respective heirs, executors, legal
representatives, successors, successors-in-
title, and assigns.  Whenever a reference is
made in this Mortgage to "Mortgagor",
"Mortgagee" or "Mortgagee" such reference
shall be deemed to include a reference to the
heirs, executors, legal representatives,
successors, successors-in-title and assigns
of Mortgagor or Mortgagee, as the case may
be, but shall not imply any permission to
make or permit any transfer which is
otherwise prohibited.








16



     4.04  Terminology.  All personal
pronouns used in this Mortgage, whether used
in the masculine, feminine or neuter gender,
shall include all other genders; the singular
shall include the plural, and vice versa.
Titles and Articles are for convenience only
and neither limit nor amplify the provisions
of this Mortgage, and all references herein
to Articles, Sections or subparagraphs shall
refer to the corresponding Articles, Sections
or subparagraphs of this Mortgage unless
specific reference is made to Articles,
Sections or subparagraphs of another document
or instrument.

     4.05  Severability; Complete Agreement.
If any provisions of this Mortgage or the
application thereof to any person or
circumstance shall be invalid or
unenforceable to any extent, the remainder of
this Mortgage 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.  This Mortgage, the Note and the other
Loan Documents constitute the full and
complete agreement of the parties and
supersede all prior negotiations, correspon
dence, and memoranda relating to the subject
matter hereof, and this Mortgage may not be
amended except by a writing signed by the
parties hereto.

     4.06  Applicable Law.  This Mortgage
shall be governed by and construed in
accordance with laws of the State of Texas
and the applicable laws of the United States
of America without regard to choice of law
principles.  This Mortgage has been entered
into in Harris County, Texas, and it shall be
performable for all purposes in Harris
County, Texas.  Courts within the State of
Florida shall have jurisdiction to enforce
arbitration awards entered pursuant to
Section 4.12 hereof and to enforce security
interests in the Collateral located within
the State of Florida. Subject to Section 4.12
hereof, courts within the State of Texas
shall have jurisdiction over any and all
disputes between Mortgagor and Mortgagee,
whether in law or equity, including, but not
limited to, any and all disputes arising out
of or relating to this Mortgage or any of the
other Loan Documents; and venue in any such
dispute whether in federal or state court
shall be laid in Harris County, Texas.
Notwithstanding the foregoing, the laws of
the State of Florida shall govern the
perfection of any lien or security interest
in collateral granted hereunder and the
foreclosure or execution upon any lien or
security interest in such collateral.  If,
for any reason or to any extent any word,
term, provision, or clause of this Mortgage
or any of the other Loan Documents, or its
application to any person or situation, shall
be found by a court or other adjudicating
authority to be invalid or unenforceable, the
remaining words, terms, provisions or clauses
shall be enforced, and the affected word,
term, clause or provision shall be applied,
to the fullest extent permitted by law.

     4.07  Limitation of Interest.  It is the
intent of Mortgagor and Mortgagee in the
execution of this Mortgage and all other Loan
Documents to contract in strict compliance
with the usury laws governing the Loan
evidenced by the Note.  In furtherance
thereof, Mortgagee and Mortgagor stipulate
and agree that none of the terms and
provisions contained in the Loan Documents
shall ever be construed to create a contract
for the use, forbearance, or detention of
money requiring payment of interest at a rate
in excess of the maximum interest rate
permitted to be charged by the laws governing
the Loan.  Mortgagor or any guarantor,
endorser or other party now or hereafter
becoming liable for the payment of the Loan
or other amounts due to Mortgagee shall never
be liable for unearned interest on the Loan
or other amounts due to Mortgagee and shall
never be required to pay interest on the Loan
or other amounts due to Mortgagee at a rate
in excess of the maximum interest that may be
lawfully charged under the laws governing the
Loan, and the provisions of


17


this paragraph shall control over all other
provisions of the Note and any other
instrument executed in connection herewith
which may be in apparent conflict herewith.
In the event any holder of the Note shall
collect monies that are deemed to constitute
interest and that would otherwise increase
the effective interest rate on the Loan or
other amounts due to Mortgagee to a rate in
excess of that permitted to be charged by the
laws governing the Loan, all such sums deemed
to constitute interest in excess of the legal
rate shall be applied to the unpaid principal
balance of the Note (without penalty or
premium) and if in excess of such balance,
shall be immediately returned to the
Mortgagor upon such determination.

     4.08  Notices, etc.  All notices and
other communications provided for hereunder
shall be in writing and be given in
accordance with the provisions of the Loan
Agreement.  All notices to Mortgagor shall be
sent care of Mortgagor at Mortgagor's address
therein and shall be deemed received when
sent in accordance with such provisions.

     4.09  Replacement of Note.  Upon receipt
of evidence reasonably satisfactory to
Mortgagor of the loss, theft, destruction or
mutilation of the Note, and in the case of
any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably
satisfactory to Mortgagor or, in the case of
any such mutilation, upon surrender and
cancellation of such Note, Mortgagor at
Mortgagee's expense will execute and deliver,
in lieu thereof, a replacement note,
identical in form and substance to such Note
and dated as of the date of such Note, and
upon such execution and delivery all
references in this Mortgage to the Note shall
be deemed to include and refer to such
replacement note.

     4.10  Assignment.  This Mortgage is
assignable by Mortgagee and any assignment
hereof by Mortgagee shall operate to vest in
the assignee all rights and powers herein con
ferred upon and granted to Mortgagee.

     4.11  Time of the Essence.  Time is of
the essence with respect to each and every
covenant, agreement and obligation of
Mortgagor under this Mortgage, the Note and
all other Loan Documents.

     4.12  Arbitration.

          (a)  To the maximum extent not
prohibited by law, any controversy, dispute
or claim arising out of, in connection with,
or relating to the Loan Obligations, this
Mortgage or any of the other Loan Documents
or any transaction provided for therein,
including but not limited to, any claim based
on or arising from an alleged tort or an
alleged breach of any agreement contained in
this Mortgage or any of the other Loan
Documents, shall, at the request of any party
to the Loan Obligations, this Mortgage or any
of the other Loan Documents (either before,
concurrently with or after the commencement
of judicial proceedings), be settled by
arbitration pursuant to Title 9 of the United
States Code, which the parties hereto
acknowledge and agree applies to the
transaction involved herein, and in
accordance with the Commercial Arbitration
Rules of the American Arbitration Association
(the "AAA").  If Title 9 of the United States
Code is inapplicable to any such claim,
dispute or controversy for any reason, such
arbitration shall be conducted in accordance
with the Commercial Arbitration Rules of the
AAA. In any such arbitration proceeding: (i)
all statutes of limitations which would
otherwise be applicable shall apply; and (ii)
the proceeding shall be conducted in Houston,
Texas, by a single arbitrator, if the amount
in controversy is $1 million or less, or by a
panel of



18


three arbitrators if the amount in
controversy is over $1 million.  All
arbitrators shall be selected by the process
of appointment from a panel pursuant to
Section 13 of the AAA Commercial Arbitration
Rules and each arbitrator will have AAA-
acknowledged expertise in the appropriate
subject matter.  Any award rendered in any
such arbitration proceeding shall be final
and binding, and judgment upon any such award
may be entered in any court having
jurisdiction.

          (b)  If any party to this Mortgage
or any other Loan Documents files a
proceeding in any court to resolve any such
controversy, dispute or claim, such action
shall not constitute a waiver of the right of
such party or a bar to the right of any other
party to seek arbitration under the
provisions of this Section of that or any
other claim, dispute or controversy, and the
court shall, upon motion of any party brought
within sixty (60) days after the initiation
of such proceeding, direct that such
controversy, dispute or claim be arbitrated
in accordance with this Section.

          (c)  Notwithstanding any of the
foregoing, the parties hereto agree that no
arbitrator or panel of arbitrators shall
possess or have the power to (i) assess
punitive damages, (ii) dissolve, rescind or
reform (except that the arbitrator may
construe ambiguous terms) the Loan
Obligations, this Mortgage or any of the
other Loan Documents, (iii) enter judgment on
the debt, (iv) exercise equitable powers or
issue or enter any equitable remedies or (v)
allow discovery of attorney/client privileged
information.  The Commercial Arbitration
Rules of the AAA are hereby modified to this
extent for the purposes of arbitration of any
dispute, controversy or claim arising out of,
or in connection with, or relating to the
Loan Obligations, this Mortgage or any of the
other Loan Documents. The parties further
agree to waive, each to each other, any
claims for punitive damages, and agree that
neither an arbitrator nor any court shall
have the power to assess punitive damages.

          (d)  No provision of, or the
exercise of any rights under, this Section
shall limit or impair the right of any party
to this Mortgage or the other the Loan
Documents before, during or after any
arbitration proceeding to: (i) exercise self-
help remedies such as setoff or repossession;
(ii) foreclose (judicially, nonjudicially, or
otherwise) any lien on or security interest
in any real or personal property collateral;
or (iii) obtain emergency relief from a court
of competent jurisdiction to prevent the
dissipation, damage, destruction, transfer,
hypothecation, pledging or concealment of
assets or of collateral securing any
indebtedness, obligation or guaranty
referenced in the Loan Documents.  Such
emergency relief may be in the nature of, but
is not limited to: prejudgment attachments,
garnishments, sequestrations, appointments of
receivers or other emergency injunctive
relief to preserve the status quo.

          (e)  In the event arbitration is
prohibited by law with respect hereto, any
actions or proceedings with respect to the
Note, the Loan Obligations, the Loan
Agreement, this Mortgage or the other Loan
Documents may be instituted in the courts of
the State of Texas, the United States
District Court for the Southern District of
Texas, or elsewhere to the extent that
jurisdiction shall exist apart from the
provisions of this Section, as the Mortgagee
may elect, and by execution and delivery of
this Mortgage, the Mortgagor irrevocably and
unconditionally submits to the nonexclusive
jurisdiction (both subject matter and
personal) of each such court, and irrevocably
and unconditionally waives (i) any objection
the Mortgagor may now or hereafter have to
the laying of venue in any of such courts,
and (ii) any claim that any action or
proceeding brought in any of such courts has
been



19


brought in an inconvenient forum. Court
proceedings may be instituted in the courts
of the State of Florida and the United States
District Court for the Middle District of
Florida for the limited purposes of the
foreclosure or execution upon any lien or
security interest in the collateral granted
hereunder, as Mortgagee may elect.

     4.13  Future Advances.  Upon request by
Mortgagor, Mortgagee, at Mortgagee's option
within twenty (20) years from the date of
this Mortgage, may make future advances to
Mortgagor.  Such future advances, if any be
made, with interest thereon, shall be secured
by this Mortgage when evidenced by the Note
or by promissory notes stating that said
notes are secured hereby.  At no time shall
the principal amount of the indebtedness
secured by this Mortgage, not including sums
advanced in accordance herewith to protect
the security of this Mortgage and interest on
any such sums, exceed the sum of Five Million
Five Hundred Thousand and No/100 Dollars
($5,500,000.00).











































20



IN WITNESS WHEREOF, the Mortgagor and
Mortgagee have caused this Mortgage to be
properly executed as of the __ day of
December, 1996.

                              MORTGAGOR

                              EMERITUS
CORPORATION,
                              a Washington
corporation
WITNESSES:

___________________           By:
_____________________________
Name:                              Name:
                                   Its:
___________________
Name:


STATE OF _____________   )
                         ):ss:
COUNTY OF _____________  )

     The foregoing instrument was
acknowledged before me this ____ day of
December, 1996, by ______________________, as
a/the ____________ of  EMERITUS CORPORATION,
a Washington corporation, on behalf of said
corporation. He/she is personally known to me
or produced __________________ as
identification.



_____________________________
                              Print
Name:__________________
                              Notary Public
                              My Commission
Expires:




















                   21

EX-10.16.2

                                        FIRST
AMENDMENT TO LEASE

     This First Amendment to Lease (the
"Amendment") is entered into as of December 31,
1996, by and between AHP OF WASHINGTON, INC.,  a
Washington corporation ("Landlord") and EMERITUS
CORPORATION, a Washington corporation ("Tenant").
The Amendment is effective as of August 31,1995.


RECITALS
     
     A. Landlord and Tenant have heretofore
entered into the Lease, dated as of August 31,1995
(the "Lease") whereby Tenant leased from Landlord
that certain real property located in the City of
Boise, County of Ada, State of Idaho more
particularly described in Exhibit A attached
hereto.
     
     B. Landlord and Tenant desire to amend the
Lease by deleting Tenant's option to purchase and
replacing such option with a right of first
refusal and for other purposes, and to ratify and
confirm the Lease as so amended.


AGREEMENT

     NOW, THEREFORE, in consideration of the
following mutual covenants and agreements, and for
other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
     
     1. DEFINED TERMS. Unless otherwise defined in
this Amendment, capitalized terms used herein
which are defined in the Lease shall have the same
meanings as the meanings assigned to such terms in
the Lease.
     
     2.   Article 1 of the Lease is hereby amended
by adding the following definitions in
alphabetical order thereto :

     "Emeritus Properties" shall mean any Property
defined in and subject to an Additional Lease.

     "Offer of Purchase" shall mean any bona fide
offer received by Landlord to purchase one,
several or all of the Emeritus Properties on terms
and conditions satisfactory to Landlord.

     "Sale Properties" shall mean the Emeritus
Properties designated for sale by Landlord in its
sole discretion.
     
     3. Section 26.2 of the Lease is hereby
amended by deleting such section in its entirety
and replacing it with the following:








1



     26.2 TENANT'S RIGHT OF FIRST REFUSAL.
Provided that no Event of Default specified in
Sections 17.1 (a), (e), (f) or (g) hereof has
occurred and is continuing, and if at any time
during the Fixed Term or the Extended Term of this
Lease, Landlord receives an Offer of Purchase for
or if Landlord decides to sell all, several or any
of the Emeritus Properties, Landlord shall first
give Tenant the privilege to purchase such Sale
Properties. Landlord shall give to Tenant written
notice of Landlord's decision to sell the Sale
Properties or of Landlord's receipt of an Offer of
Purchase for the Sale Properties, together with
the terms and conditions contained in any such
Offer of Purchase. To exercise this right of first
refusal, Tenant must give Landlord written notice
that Tenant intends to purchase all of the Sale
Properties within thirty (30) days after receipt
of Landlord's notice. If Tenant does not notify
Landlord of its intent to purchase all of the Sale
Properties within the thirty (30) day time period,
Landlord will have the right to market and sell
the Sale Properties, and Landlord's right to
market and sell will be free and clear of any
rights, claims or interest of Tenant under this
Section 26.2.
     
     If Tenant provides to Landlord its written
notice of intent to purchase the Sale Properties
within thirty days, the sale of the Sale
Properties will be consummated through an escrow
to be opened with a mutually acceptable title or
escrow company, and will close within ninety (90)
days following the date of Tenant's written notice
to Landlord.
     
     If Tenant chooses to purchase the Sale
Properties in response to an Offer of Purchase,
the purchase price for each Sale Property will be
the greater of(a) the purchase price contained in
the Offer of Purchase or (b) Landlord's Total
Investment, and Tenant must comply with reasonably
equivalent terms and conditions acceptable to
Landlord. If Tenant chooses to purchase the Sale
Properties in response to Landlord's unsolicited
decision to sell, the purchase price for each Sale
Property will be the greater of (a) Fair Market
Value or (b) Landlord's Total Investment. The
purchase price of each Sale Property (net of the
principal balance of any Facility Mortgages placed
on such Property by Landlord and expressly assumed
by Tenant and the amount of any damages owing by
Landlord to Tenant) shall be deposited into escrow
by wire transfer of Federal Funds at least two
business days prior to close of escrow and shall
be paid to Landlord at close of escrow by wire
transfer of Federal Funds to such account as
Landlord shall designate. Each Sale Property will
be transferred by statutory warranty deed.
     
     Tenant acknowledges and agrees that it shall
purchase each of the Sale Properties from Landlord
"AS IS" and subject to all faults, defects in
title and other matters whatsoever, including, but
not limited to, all matters of record, other than
(a) Facility Mortgages not expressly assumed by
Tenant and (b) any other liens, encumbrances
attachments, levies or claims encumbering, at the
instance of Landlord, such Sale Property, all of
which shall be removed of record prior to
purchase. Landlord will make no warranty or
representation regarding the title, condition or
other status of any of the Sale Properties
whatsoever, except that it has removed all liens
and encumbrances referenced in clauses (a) and (b)
in the preceding sentence. All title insurance
premiums and other closing costs associated with
the purchase of the Sale Properties by Tenant
pursuant to this Section 26.2 shall be paid by
Tenant.






2



     4. MISCELLANEOUS.

     a. This Amendment is an amendment to the
Lease, and the Lease, as hereby amended, is
ratified, approved and confirmed by Landlord and
Tenant in each and every respect. All references
to the Lease in any other agreement, document,
instrument or writing shall hereafter be deemed to
refer to the Lease as amended hereby.

     b. Captions used in this Amendment are for
convenience of reference only and shall not affect
the construction of this Amendment.

     c. This Amendment shall be binding upon
Landlord and Tenant and their respective
successors and permitted assigns, and shall inure
to the benefit of Landlord and Tenant and their
respective successors and permitted assigns.

     d. This Amendment may be executed in
counterparts, and when a copy hereof has been
executed by Landlord and Tenant, each such
counterpart shall constitute an original copy
hereof.



                THE REMAINDER OF THIS PAGE
INTENTIONALLY BLANK





























3




     IN WITNESS WHEREOF, the undersigned parties
have executed this Amendment as of the date first
above written.



LANDLORD:


AHP OF WASHlNGTON, INC.,

a Washington corporation


By:  /s/ Thomas t. Schleck

- -----------------------------------

Thomas T. Schleck,

Vice President



TENANT:


EMERITUS CORPORATION,

a Washington corporation


By:  /s/ Raymond R. Brandstrom

- -------------------------------------

Raymond R. Brandstrom

President



























4

EX-10.20.12

                                           FIRST
AMENDMENT TO LEASE

(Allentown Facility)

     This First Amendment to Lease (Allentown
Facility) ("Amendment") is dated as of December
13, 1995, by and between HCPI TRUST, a Maryland
real estate investment trust ("Lessor") and
EMERITUS CORPORATION, a Washington corporation
("Lessee").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 19, 1995 (the
"Lease") for the Allentown facility located in the
City of Allentown, County of Lehigh, Commonwealth
of Pennsylvania.

     B. Lessor and Lessee desire to memorialize
their understanding regarding certain provisions
of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. Notwithstanding the Allentown Memorandum
of Lease, the Commencement Date of the Lease is
October 23, 1995 ;

     2. The Fixed Term of the Lease shall end on
October 31, 2007 ;

     3. The first Lease Year for the Lease
commences on November 1, 1995 and ends on October
31, 1996; and

     4. The first Quarter for which Additional
Rent shall be due commences on November 1, 1997.

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.
     
HCPI TRUST, a Maryland real estate
EMERITUS CORPORATION, a
investment trust
Washington corporation

By: /s/ Edward J. Henning
By: /s/ Kelly J. Price
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   Secretary
      ------------------------------------
- --------------------------------------

     
     
     
                                               1

EX-10.20.13

                         SECOND AMENDMENT TO LEASE
(ALLENTOWN FACILITY)

     This Second Amendment to Lease ("Amendment")
is dated as of February 13, 1996, by and between
HCPI TRUST, a Maryland. real estate investment
trust ("Lessor") and EMERITUS CORPORATION, a
Washington corporation ("Lessee").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 19,1995 for the Allentown
facility located in the City of Allentown, County
of Lehigh, Commonwealth of Pennsylvania (as
amended to date, the "Lease).

     B. Lessor and Lessee desire to amend the
Lease as hereinafter provided.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. The third sentence of Section 24.1 of the
Lease is hereby amended to read in full as
follows:

     "If Lessee is a corporation or partnership,
any transfer of its stock (other than a transfer
of any of Lessee's stock owned by Daniel R. Baty
for estate planning purposes) or partnership
interests (or the stock or partnership interests
of the entity(ies) that controls Lessee) or any
dissolution or merger or consolidation of Lessee
(or its controlling entity(ies)) with any other
entity, which results in any Person (other than
Daniel R. Baty) and such Person's Affiliates
collectively owning greater than twenty-five
percent (25 % ) of the total outstanding shares of
any class of Lessee's stock or partnership
interests, or the sale or other transfer of all or
substantially all of the assets of Lessee (or its
controlling entity(ies)), shall constitute an
assignment of Lessee's interest in this Lease
within the meaning of this Article XXIV and the
provisions requiring consent contained herein
shall apply (provided, however, that the foregoing
provision regarding transfer of Lessee's stock
constituting an assignment shall not apply if (i)
Lessee's stock is publicly traded, and (ii)
Lessee's Consolidated Net Worth after such
transfer is not less than Lessee's Consolidated
Net
Worth as of December 31,1995). "

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.










1



     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.

HCPI TRUST, a Maryland real estate
EMERITUS CORPORATION, a
investment trust
Washington corporation

By: /s/  Edward J. Henning
By: /s/ Kelly J. Price
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   Secretary
      ------------------------------------
- --------------------------------------

     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                               2

EX-10.20.14

                                   FIRST AMENDMENT
TO LEASE

(Dover Facility)

     This First Amendment to Lease (Dover
Facility) ("Amendment") is dated as of December
13, 1995, by and between HEALTH CARE PROPERTY
INVESTORS, INC. , a Maryland corporation
("Lessor") and EMERITUS CORPORATION, a Washington
corporation ( " Lessee " ).


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 16, 1995 (the
"Lease") for the Dover facility located in Kent
County, State of Delaware.

     B. Lessor and Lessee desire to memorialize
their understanding regarding certain provisions
of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. Notwithstanding the Dover Memorandum of
Lease, the Commencement Date of the Lease is
October 23, 1995 ;

     2. The Fixed Term of the Lease shall end on
October 31, 2007 ;

     3. The first Lease Year for the Lease
commences on November 1, 1995 and ends on October
31, 1996 ; and

     4. The first Quarter for which Additional
Rent shall be due commences on November 1, 1997.

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.

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


HEALTH CARE PROPERTY
EMERITUS CORPORATION, a
INVESTORS, INC., a Maryland
Washington corporation

By: /s/ Edward J. Henning
By: /s/ Kelly J. Price
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   Secretary
      ------------------------------------
- --------------------------------------
     
     
     
                                               1

EX-10.20.15

                   SECOND AMENDMENT TO LEASE
(DOVER FACILITY)

     This Second Amendment to Lease ("Amendment")
is dated as of February 13, 1996, by and between
HEAI,TH CARE PROPERTY INVESTORS, INC., a Maryland
corporation ("Lessor") and EMERITUS CORPORATION, a
Washington corporation ("Lessee: ").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 16,1995 for the Dover facility
located in Kent County, State of Delaware (as
amended to date, the
"Lease").

     B. Lessor and Lessee desire to amend the
Lease as hereinafter provided.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. The third sentence of Section 24.1 of the
Lease is hereby amended to read in full as
follows:

     "If Lessee is a corporation or partnership,
any transfer of its stock (other than a transfer
of any of Lessee's stock owned by Daniel R. Baty
for estate planning purposes) or partnership
interests (or the stock or partnership interests
of the entity(ies) that controls Lessee) or any
dissolution or merger or consolidation of Lessee
(or its controlling entity(ies)) with any other
entity, which results in any Person (other than
Daniel R. Baty) and such Person's Affiliates
collectively owning greater than twenty-five
percent (25 % ) of the total outstanding shares of
any class of Lessee's stock or partnership
interests, or the sale or other transfer of all or
substantially all of the assets of Lessee (or its
controlling entity(ies)), shall constitute an
assignment of Lessee's interest in this Lease
within the meaning of this Article XXIV and the
provisions requiring consent contained herein
shall apply (provided, however, that the foregoing
provision regarding transfer of Lessee's stock
constituting an assignment shall not apply if (i)
Lessee's stock is publicly traded, and (ii)
Lessee's Consolidated Net Worth after such
transfer is not less than Lessee's Consolidated
Net Worth as of December 31,1995). "

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.










1



     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.
     
HEALTH CARE PROPERTY
EMERITUS CORPORATION, a
INVESTORS, INC., a Maryland
Washington corporation

By: /s/ Edward J. Henning
By: /s/ Raymond R. Brandstrom
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   President
      ------------------------------------
- --------------------------------------
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                                2

EX-10.20.16

                                         FIRST
AMENDMENT TO LEASE

(Latrobe Facility)

     This First Amendment to Lease (Latrobe
Facility) ("Amendment") is dated as of December
13, 1995, by and between HCPI TRUST, a Maryland
real estate investment trust ("Lessor") and
EMERITUS CORPORATION, a Washington corporation
("Lessee").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 19, 1995 (the
"Lease") for the Latrobe facility located in Unity
Township, Westmoreland County, Pennsylvania.

     B. Lessor and Lessee desire to memorialize
their understanding regarding certain provisions
of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. Notwithstanding the Latrobe Memorandum of
Lease, the Commencement Date of the Lease is
October 23, 1995 ;

     2. The Fixed Term of the Lease shall end on
October 31, 2007 ;

     3. The first Lease Year for the Lease
commences on November 1, 1995 and ends on October
31, 1996;

     4. The first Quarter for which Additional
Rent shall be due commences on November 1, 1997;
and

     5. From and after October 26,1995, Lessee
shall not be required to pay Supplemental Rent, as
described in Section 3.1.4.

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.

HCPI TRUST, a Maryland real estate
EMERITUS CORPORATION, a
investment trust
Washington corporation

By: /s/  Edward J. Henning
By: /s/ Kelly J. Price
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   Secretary
      ------------------------------------
- --------------------------------------


1

EX-10.20.17

               SECOND AMENDMENT TO LEASE (LATROBE
FACILITY)

     This Second Amendment to Lease ("Amendment")
is dated as of February 13,
1996, by and between HCPI TRUST, a Maryland real
estate investment trust ("Lessor") and EMERITUS
CORPORATION, a Washington corporation ("Lessee").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 19, 1995 for the Latrobe
facility located in Unity Township, Westmoreland
County, Pennsylvania (as amended to date, the
"Lease").

     B. Lessor and Lessee desire to amend the
Lease as hereinafter provided.

                                        AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1.  The third sentence of Section 24.1 of the
Lease is hereby amended to read in full as
follows:
     
     If Lessee is a corporation or partnership,
any transfer of its stock (other than a transfer
of any of Lessee's stock owned by Daniel R. Baty
for estate planning purposes) or partnership
interests (or the stock or partnership interests
of the entity(ies) that controls Lessee) or any
dissolution or merger or consolidation of Lessee
(or its controlling entity(ies)) with any other
entity, which results in any Person (other than
Daniel R. Baty) and such Person's Affiliates
collectively owning greater than twenty-five
percent (25 % ) of the total outstanding shares of
an class of Lessee's stock or partnership
interests, or the sale or other transfer of all or
substantially all of the assets of Lessee (or its
controlling entity(ies)), shall constitute an
assignment of Lessee's interest in this I ease
within the meaning of this Article XXIV and the
provisions requiring consent contained herein
shall apply (provided, however, that the foregoing
provision regarding transfer of Lessee's stock
constituting an assignment shall not apply if (i)
Lessee's stock is publicly traded, and (ii)
Lessee's Consolidated Net Worth after such
transfer is not less than Lessee's Consolidated
Net Worth as of December 31,1995). "

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts all of which together shall
constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.

HCPI TRUST, a Maryland real estate
EMERITUS CORPORATION, a
investment trust
Washington corporation

By: /s/  Edward J. Henning
By: /s/ Raymond R. Brandstrom
      ------------------------------------
- --------------------------------------
Its:   Secretary
Its:   President
      ------------------------------------
- --------------------------------------
     

EX-10.20.18

                                        FIRST
AMENDMENT TO LEASE

(Painted Post Facility)

     This First Amendment to Lease (Painted Post
Facility) ("Amendment") is dated as of December
13, 1995, by and between HEALTH CAR.E PROPERTY
INVESTORS, INC., a Maryland corporation ("Lessor")
and PAINTED POST PARTNERSHIP, a Pennsylvania
general partnership ("Lessee").


RECITALS

     A. Lessor and Lessee entered into a Lease
dated as of October 19, 1995 (the
"Lease") for the Painted Post facility located in
the Town of Erwin, County of Steuben, State of New
York.

     B. Lessor and Lessee desire to memorialize
their understanding regarding certain provisions
of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. Notwithstanding the Painted Post
Memorandum of Lease, the Commencement Date of the
Lease is October 26, 1995;

     2. The Fixed Term of the Lease shall end on
October 31, 2007 ;

     3. The first Lease Year for the Lease
commences on November 1,1995 and ends on October
31,1996;

     4. The first Quarter for which Additional
Rent shall be due commences on November 1, 1997;
and

     5. Section 3.1.1 is deleted in its entirety
and replaced with the following :
"MINIMUM RENT. For the period from the
Commencement Date through the expiration of the
Fixed Term, Lessee shall pay to Lessor "Minimum
Rent" monthly, in advance on or before the first
day of each calendar month, an amount equal to
Thirty-Four Thousand One Hundred Fifty-One Dollars
and Fifty-Eight Cents ($34,151.58)."

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.









1



     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.

HEALTH CARE PROPERTY
PAINTED POST PARTNERSHIP, a
INVESTORS, INC., a Maryland
Pennsylvania general partnership

By: /s/ Stephen R. Macelbetsch
By: /s/ Raymond R. Brandstrom
      ------------------------------------
- --------------------------------------
Its:   Senior Vice President
Its:   General Partner
      ------------------------------------
- --------------------------------------


     The undersigned Guarantor hereby consents to
this Amendment and reaffirms to Lessor that is
obligations under the Guaranty dated October 19,
1995, remain in full force and effect with respect
to the lease as amended hereby.


EMERITUS CORPORATION, a

Washington corporation


By: /s/ Kelly J. Price

- --------------------------------------

Its:   Secretary

- --------------------------------------

























2

EX-10.20.19

                    SECOND AMENDMENT TO LEASE
(PAINTED POST FACILITY)

     This Second Amendment to Lease ("Amendment")
is dated as of June 24, 1996, by and between
HEALTH CARE PROPERTY INVESTORS, INC. , a Maryland
corporation ("Lessor") and PAINTED POST
PARTNERSHIP, a Pennsylvania general partnership (
" Lessee " ).


RECITALS

     A. Lessor and Lessee entered into a lease
dated as of October 19,1995 (the
"Lease") for the Painted Post facility located in
the Town of Erwin, County of Steuben, State of New
York. Said lease, as amended by the Amendment to
Lease (Painted Post Facility) dated December
13,1995, is hereinafter referred to as the
"Lease."

     B. Lessor and Lessee desire to amend the
Lease on the terms and conditions hereinafter set
forth.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     Except as amended above, the Lease between
Lessor and Lessee shall remain in full force and
effect. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument

     1. The definition of "Primary Intended Use"
in Section 2 of the Lease is hereby amended to
read in full as follows:

     "PRIMARY INTENDED USE: Adult home and such
other uses necessary or incidental to such use. "

     2. Section 7. 2. 3 of the Lease is hereby
amended to read in full as follows :

     "7.2.3    Lessee shall operate continuously
the Leased Property and all Capital Additions
thereto in accordance with its Primary Intended
Use. Lessee shall devote the entire Facility and
all Capital Additions thereto to the Primary
Intended Use, except for areas reasonably required
for office or storage space uses incidental to the
Primary Intended Use. Lessee shall at all times
maintain an adequate staff for the service of its
residents and/or patients. Lessee shall employ its
best judgment, efforts and abilities to operate
the Facility in such a manner so as to maximize
Gross Revenues and to enhance the reputation and
attractiveness of the Facility. "

     3. Section 16.1(m) of the Lease is hereby
amended to read in full as

     "(m) Lessee voluntarily transfers ten (10) or
more patients located in the Facility to any other
facility in which Lessee or any Affiliate of
Lessee has any ownership or other financial
interest, including, without limitation, fees
earned under any management



1



agreement; provided, however, that Lessee's
transfer of any patient to a different type of
care facility as a result of such patient's
special needs that cannot be met at the Facility
shall not be deemed a voluntary transfer;
provided, further, that for purposes hereof, the
Lessee shall be deemed to have voluntarily
transferred a resident from the Facility if it
does so other than (i) at the request of the
resident or his/her family or (ii) for one of the
reasons permitted under Social Services Law
Sections 461-g and 461-h and 18 NYCRR 487. 5 (f)(
1 )-( 10). "

     4. Section 16.2 of the Lease is hereby
amended to read in full as follows:

     "16. 2 CERTAIN REMEDIES. If an Event of
Default shall have occurred , Lessor may terminate
this Lease by giving Lessee notice of such
termination and the Term shall terminate and all
rights of Lessee under this Lease shall cease.
Lessor  shall have all rights at law and in equity
available to Lessor as a result of any Event of
Default. Lessee shall pay as Additional Charges
all costs and expenses incurred by or on behalf of
Lessor, including reasonable attorneys' fees and
expenses, as a result of any Event of Default
hereunder. If an Event of Default shall have
occurred and be continuing, whether or not this
Lease has been terminated pursuant to Section
16.1, Lessee shall, to the extent permitted by
law, if required by Lessor so to do, immediately
surrender to Lessor possession of the Leased
Property and any Capital Additions thereto and
quit the same and Lessor may enter upon and
repossess the Leased Property and any Capital
Addition thereto by reasonable force, summary
proceedings, ejectment or otherwise, and, to the
extent permitted by law, may remove Lessee and all
other Persons (other than the residents of the
Facility) and any of Lessee's Personal Property
from the Leased Property and any Capital Addition
thereto. Notwithstanding anything in this Lease to
the contrary, the Lessor acknowledges that its
right to re-enter the Leased Property does not
confer upon it the authority to operate an adult
care facility, as defined in the Social Services
Law, on the Leased Property and agrees that, for
the benefit of The New York State Department of
Social Services and not for the benefit of Lessee,
it will give the New York State Department of
Social Services, 40 North Pearl Street, Albany,
New York 12243, notification by certified mail of
its intent to re-enter the Leased Property or to
initiate dispossess proceedings at least 30 days
prior to the date on which the Lessor intends to
exercise its right of re-entry or to initiate such
proceedings. Upon receipt of any notice from the
Lessor of its intent to exercise its right of re-
entry or upon the service of process and
dispossess proceedings Lessee agrees to
immediately notify by certified mail the New York
State Department of Social Services, 40 North
Pearl
Street, Albany, New York 12243, of the receipt of
such notice or service of such notice. Each party
further agrees to comply with all additional
regulations of the New York State Department of
Social Services or any other agency having
regulatory control over either party. Nothing
herein shall be construed as granting Lessee any
additional notice or cure rights in the event of a
default hereunder other than those notice and cure
rights specifically provided for in this Section
16.2. "

     5. Section 16.4 of the Lease is hereby
amended to read in full as follows:

     "16.4 RECEIVER. Upon the occurrence of an
Event of Default, and upon commencement of
proceedings to enforce the rights of Lessor
hereunder, Lessor shall be entitled, as a matter
of right, to the appointment of a receiver or
receivers acceptable to I



2



Lessor of the Leased Property and any Capital
Addition thereto and of the revenues, earnings,
income, products and profits thereof, pending the
outcome of such proceedings, with such powers as
the court making such appointment shall confer;
provided, however, that Lessor shall give to the
New York State Department of Social Services at
least fifteen (15) days written notice (or such
shorter notice as may be appropriate in the event
of an emergency situation) before seeking the
appointment of a receiver. "

     6. The first paragraph of Section 16.10 of
the Lease is hereby amended to read in full as
follows:

     "16.10 LANDLORD'S SECURITY INTEREST. The
parities intend that if an Event of Default occurs
under this Lease, Lessor will control Lessee's
Personal Property and the Intangible Property so
that Lessor or its designee or nominee can operate
or re-let the Leased Property intact for its
Primary Intended Use; provided, however, that
Lessor acknowledges and agrees that its right or
its nominee's right to operate the Leased Property
for its Primary Intended Use is subject to any
requirements which may be imposed by New York law
with respect to securing a license to operate the
Leased Property. Accordingly, to implement such
intention, and for the purpose of securing the
payment and performance obligations of Lessee
hereunder, Lessor and Lessee agree as follows:"

     7. Section 16.10.1 of the Lease is hereby
amended to read in full as follows:

     "16.10.1 Lessee, as debtor, hereby grants to
Lessor, as secured party, a security interest and
an express contractual lien upon all of Lessee's
right, title and interest in and to Lessee's
Personal Property and in and to the Intangible
Property and any and all products, proceeds, rents
and profits thereof in which Lessee now owns or
hereafter acquires an interest or right, including
any leased Lessee's Personal Property; provided,
however, that no security interest in any license
to operate the Facility is granted hereby to the
extent such a security interest is prohibited by
law; provided, further, that Lessor and Lessee
acknowledge that as of the date of the execution
of this Lease such a security interest is in fact
prohibited by New York State law. This Lease
constitutes a security agreement covering all such
Lessee's Personal Property and the Intangible
Property. The security interest granted to Lessor
with respect to Lessee's Personal Property in this
Section 16.10 is intended by Lessor and Lessee to
be subordinate to any security interest granted in
connection with the financing or leasing of all or
any portion of the Lessee's Personal Property so
long as Lessee uses its best efforts to secure an
agreement in Lessor's favor that the lessor or
financier of such Lessee's Personal Property
agrees to give Lessor written notice of any
default by Lessee under the terms of such lease or
financing arrangement, to give Lessor a reasonable
time following such notice to cure any such
default and consents to Lessor's written
assumption of such lease or financing arrangement
upon Lessor's curing of any such defaults. This
security agreement and the security interest
created herein shall survive the termination, but
not the expiration, of this Lease until such time
as Lessor has been fully compensated for all
damages resulting from such termination. "





3




     8 : Section 17 of the Lease is hereby amended
to read in full as follows :

     "17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT.
If Lessee shall fail to make any payment or to
perform any act required to be made or performed
hereunder, Lessor, without waiving or releasing
any obligation or default, may, but shall be under
no obligation to, make such payment or perform
such act for the account and at the expense of
Lessee, and may, to the extent permitted by law,
enter upon the Leased Property and any Capital
Addition thereto for such purpose and take all
such action thereon as, in Lessor's opinion, may
be necessary or appropriate therefor; provided,
however, that no operation of the Facility may
occur unless the operator is properly licensed by
the State of New York. No such entry shall be
deemed an eviction of Lessee. All sums so paid by
Lessor and all costs and expenses, including
reasonable attorneys' fees and expenses, so
incurred, together with interest thereon at the
Overdue Rate from the date on which such sums or
expenses are paid or incurred by Lessor, shall be
paid by Lessee to Lessor on demand. "

     Except as amended above, the Lease shall
remain in full force and effect. This Amendment
may be executed in any number of counterparts, all
of which together shall constitute one and the
same instrument.

     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.
     
HEALTH CARE PROPERTY
PAINTED POST PARTNERSHIP, a
INVESTORS, INC., a Maryland
Pennsylvania general partnership

By: /s/ Stephen R. Macelbetsch
By: /s/ Raymond R. Brandstrom
      ------------------------------------
- --------------------------------------
Its:   Senior Vice President
Its:   General Partner
      ------------------------------------
- --------------------------------------


     The undersigned Guarantor hereby consents to
this Amendment and reaffirms to Lessor that is
obligations under the Guaranty dated October 19,
1995, remain in full force and effect with respect
to the lease as amended hereby.


EMERITUS CORPORATION, a

Washington corporation


By: /s/ Raymond R. Brandstrom

- --------------------------------------

Its:   President

- --------------------------------------
     
     
     
     
     
     
     
                                                 4

EX-10.20.20

                      FIRST AMENDMENT TO PAINTED
POST PARTNERS

PARTNERSHIP AGREEMENT

     This Agreement is made and entered into as of
the 22nd day of October, 1996 by and between
DANIEL R. BATY ("Baty") and RAYMOND R. BRANDSTROM
("Brandstrom") each of whom does hereby agree that
the Painted Post Partnership Agreement dated as of
October 1, 1995 (the "Agreement") shall be and
hereby is amended as follows:

     1.   Article II is hereby deleted in its entirety
       and the following inserted instead:

     This Partnership exists for the sole purposes
of owning, leasing and operating residential care
facilities in the State of New York (the
"Facilities").  The Partnership possesses the
authority to do any and all things and to take any
and all action for the furtherance of the
foregoing purposes.  The Partnership shall not be
authorized to acquire or operate any other
property real or personal, other than real or
personal property related to or necessary for the
lawful ownership or operation of the Facilities.

     2.   Any and all references in the Agreement to
       the "Facility" shall be deemed to be references to
       the "Facilities".

     3.   Except as specifically set forth herein, the
       Agreement shall remain in full force and effect as
       originally executed by the undersigned parties.

     IN WITNESS WHEREOF, the parties hereby
execute this Amendment as of the day and year
first set forth above.


RAYMOND R. BRANDSTOM

/s/ Raymond R. Brandstrom

- ---------------------------------------


DANIEL R. BATY

/s/ Daniel R. Baty

- -----------------------------------------

EX-10.21.12

This instrument was prepared by,
recording is requested by,
and when recorded return to:

Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071-2007
Attn: John B. Sherrell, Esq.

- --------------------------------------------------
- --------------------------------------------------
- -----
                                (Space above this
line for Recorder's use)

                                 AMENDMENT TO DEED
OF TRUST

     This Amendment to a Deed of Trust (the
"Agreement") is made as of the 25th date of
April,1996 by and between HERITAGE HILLS
RETIREMENT, INC., a North Carolina corporation
("Grantor"), and HEALTH CARE PROPERTY INVESTORS,
INC., a Maryland corporation ("Beneficiary").


RECITALS

     A.  This document amends the Deed of Trust
with Assignment of Rents, Security Agreement and
Fixture Filing dated as of January 26, 1996 (the
"Deed of Trust"), which covers certain real
property described with particularity in Exhibit
"A" attached hereto executed by Grantor in favor
of Beneficiary, and recorded on February l,1996 in
Book 644, Pa e 137 of the Henderson County, North
Carolina Registry.

     B.  Capitalized words used in this Agreement
shall have the same meaning as in the Deed of
Trust unless defined herein or unless the context
requires otherwise.

     C. The parties desire to amend the Deed of
Trust to provide, among other things, that it
secures certain additional obligations.


AGREEMENT

     Now, therefore, in consideration of the
mutual promises and agreements herein contained,
the parties hereto agree as follows:

     1. OBLIGATIONS SECURED. Section 2.1 of the
Deed of Trust is amended by deleting the word
"and" from the end of Section 2.1(e), replacing
the period at the end of Section 2 1 with a semi-
colon, and adding the following paragraphs after
Section 2.1(f) thereof:

     (g) Payment and performance of all
obligations of Emeritus Corporation, a Washington
corporation ("Emeritus Corporation") under that
certain Lease (Rosewood Court Facility) dated as
of March 29,1996 between Emeritus Corporation and
Beneficiary; and
          
          
          
          
          


     (h) Payment and performance of all
obligations of Emeritus Corporation under that
certain Contract of Acquisition dated as of March
29, 1996 between Emeritus Corporation and
Beneficiary.

     2.   RIGHTS OF BENEFICIARY. Grantor
authorizes Beneficiary, or any affiliate of
Beneficiary, without giving notice to Grantor or
obtaining its consent and without affecting the
liability of Grantor hereunder, from time to time
to: (a) modify all or any portion of the Secured
Obligations; (b) declare all sums owing under the
Secured Obligations due and payable upon the
occurrence of a default or event of default under
the Secured Obligations; (c) make changes in the
dates specified for payments of any sums payable
under the Secured Obligations, and accept or deny,
in its sole discretion, partial payments or
performance of the Secured Obligations; (d) take
and hold additional security for the performance
of the obligations and the Secured Obligations and
abandon fail to perfect, exchange, enforce, waive
or release any such additional or existing
security; (e) apply such additional or existing
security for the Secured Obligations and direct
the order or manner of sale thereof as, in its
sole discretion may be determined by Beneficiary
or any affiliate of Beneficiary; (f) apply
payments received by it from Emeritus Corporation
or any other person to any obligations of Emeritus
Corporation or such other person under the Secured
Obligations, in such order as Beneficiary or any
affiliate of Beneficiary, shall determine in its
sole discretion, whether or not any such
obligations are secured by the Deed of Trust; (i)
consent, in the sole discretion of Beneficiary, to
the merger, consolidation, restructuring,
dissolution or other change in the structure of
Emeritus Corporation or any other person; (j)
assign the rights under the Deed of Trust in whole
or in part; and (k) consent to or permit, in
Beneficiary's sole discretion, Emeritus
Corporation's assignment or subleasing of Secured
Obligations.
      
      3.  GENERAL WAIVERS. Emeritus Corporation
waives: (a) any defense now existing or hereafter
arising based upon any legal disability or other
defense of Emeritus Corporation or any other
guarantor or other person, or by reason of the
cessation or limitation of the liability of
Emeritus Corporation or any guarantor or other
person from any cause other than full payment and
performance of all obligations due under the
Secured Obligations; (b) any defense based upon
any lack of authority of the officers, directors,
partners or agents acting or purporting to act on
behalf of Emeritus Corporation or any other
person, or any defect in the formation of Emeritus
Corporation or any other person; (c) the
unenforceability or invalidity of any security or
guaranty or the lack of perfection or continuing
perfection, or failure of priority of any security
for the obligations guarantied hereunder; (d) any
right or defense based upon Beneficiaries'
election of any remedy against Emeritus
Corporation or any other person; (e) any defense
based upon Beneficiaries' failure to disclose to
Emeritus Corporation any information concerning
any person's financial condition or any other
circumstances bearing on Emeritus Corporation's,
Grantor's or any other person's ability to pay and
perform all obligations due under the Secured
Obligations; (f) any failure by Beneficiary to give
notice to Emeritus Corporation or any other person
of the sale or other disposition of security held
for the Secured Obligations, and any defect in
notice given by Beneficiary in connection with any
such sale or disposition of security held for the
Secured Obligations; (g) any failure of
Beneficiary to comply with applicable laws in
connection with the sale or disposition of
security held for the additional obligations,
including,


2



without limitation, any failure by Beneficiary to
conduct a commercially reasonable sale or other
disposition of such security; (h) any defense
based upon any statute or rule of law which
provides that the obligation of a surety must be
neither larger in amount nor in any other respects
more burdensome than that of a principal, or that
reduces a surety's or guarantor's obligations in
proportion to the principal's obligation; (i) any
use of cash collateral under Section 363 of the
Federal Bankruptcy Code; (j) any defense based
upon Beneficiary's election, in any proceeding
instituted under the Federal Bankruptcy Code, of
the application of Section I 111(b)(2) of the
Federal Bankruptcy Code or any successor statute;
(k) any defense based upon any borrowing or any
grant of a security interest under Section 364 of
the Federal Bankruptcy Code; (1) any right of
subrogation, any right to enforce any remedy which
Beneficiary may have against Emeritus Corporation
or any other person and any right to participate
in, or benefit from, any security now or hereafter
held by Beneficiary for the obligations due under
the Secured Obligations; (m) presentment, demand,
protest and notice of any kind, including notice
of acceptance of this Agreement and of the
existence, creation or incurring of new or
additional guaranteed obligations; (n) the benefit
of any statute of limitations affecting the
liability of Emeritus Corporation or any other
person, enforcement of the Secured Obligations,
the liability of Emeritus hereunder or the
enforcement hereof; (o) all notices of intention
to accelerate and/or notice of acceleration of the
Secured Obligations; (p) relief from any
applicable valuation or appraisement laws; and (q)
any other action by Beneficiary or any omission by
Beneficiary or other failure of Beneficiary to
pursue, or delay in pursuing, any other remedy in
Beneficiaries s power. Emeritus Corporation agrees
that the payment and performance of all
obligations due under the Secured Obligations, any
part thereof or other act which tolls any statute
of limitations applicable to the Secured
Obligations shall similarly operate to toll the
statute of limitations applicable to Grantor's
liability hereunder.

     4.  REPRESENTATIONS and Warranties. As a
material inducement to Beneficiary to enter into
the transactions contemplated hereby, Emeritus
Corporation represents and warrants to Beneficiary
that:

     (a) This Agreement has been duly authorized,
executed and delivered by Grantor and is valid,
binding and enforceable against Grantor in
accordance with its terms, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or
limiting the rights of creditors generally.

     (b) The Deed of Trust, as modified hereby, is
valid; binding and enforceable against Grantor in
accordance with its terms, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar
laws or equitable principles relating to or
limiting the rights of creditors generally.

     (c) There are no existing claims, defenses,
personal or otherwise, or rights of setoff
whatsoever with respect to the Deed of Trust as
modified hereby.

     (d) There are no existing Events of Default
under the Deed of Trust as modified hereby, and no
event has occurred and no condition exists which
would constitute an Event of Default thereunder
with notice or lapse of time or both.




3


     (e) The representations and warranties made
by Grantor herein and in any other document
delivered to Beneficiary on or before the date
hereof did not contain as of the date of the
delivery and does not contain as of the date
hereof a materially untrue statement and did not
omit as of the date of delivery and does not omit
as of the date hereof any material fact necessary
to make such representations and warranties not
misleading.

     5.  WAIVER OF RIGHTS OF SUBROGATION.
Notwithstanding anything to the contrary contained
herein or in any other document to which Emeritus
Corporation is a party, until all obligations
under the Deed of Trust and this Agreement are
fully paid and performed, Grantor hereby expressly
waives any and all rights at law or in equity to
subrogation, to reimbursement, to exoneration, to
contribution, to setoff or to any other rights
that could accrue to a surety  against a
principal, or to an accommodation party against
the party accommodated, and which Grantor may have
or hereafter acquire against any other person in
connection with or as a result of Grantor's
execution, delivery and/or performance of the Deed
of Trust or this Agreement or any other document
to which Grantor is a party. Grantor agrees that
it shall not have or assert any such rights
against any person (including any surety), either
directly or as an attempted setoff to any action
commenced against Emeritus Corporation by any
person (whether as borrower or in any other
capacity) or by Beneficiary. Grantor hereby
acknowledges and agrees that this waiver is
intended to benefit Beneficiary and shall not
limit or otherwise affect Grantor's liability
hereunder, under any other document to which
Grantor is a party, or the enforceability hereof
or thereof.

     6. GRANTOR'S RESERVATION OF RIGHTS
Notwithstanding any other provision of this
Agreement:

     (i) the Grantor does not intend to waive any
of its rights or remedies as a result of any
breach by Beneficiary of its covenants not to
consent to assignment of, or alter or amend, the
Painted Post Lease prior to its assignment to
Painted Post Partners;

     (ii) nothing in this Agreement is intended to
constitute a consent to alter or amend the Painted
Post Lease prior to its assignment to Painted Post
Partners; and

     (iii) nothing in this Agreement is intended
to constitute a consent by Grantor to any consent
by Beneficiary to assignment of the Painted Post
Lease to any party other than Painted Post
Partners.

     7. FINANCIAL CONDITION OF GRANTOR; LIMITATION
ON OBLIGATIONS SECURED. Grantor represents and
warrants to Beneficiary that (i) Grantor is not
engaged in an transaction or business, including
without limitation the transaction contemplated
hereby, for which Grantor's assets are
unreasonably small in relation to the transaction
or business, and (ii) Grantor has not incurred and
does not intend to incur indebtedness beyond its
ability to pay as such indebtedness becomes due.
Notwithstanding anything to the contrary in the
Agreement, the amount of the Secured Obligations
secured by the Deed of Trust shall be limited to
the sum of (a) the total value of the benefits if
any, received by Grantor from the transactions
contemplated by the




4



Secured Obligations, and (b) the maximum amount of
the Secured Obligations that can be undertaken by
Grantor without causing Grantor's liabilities to
exceed Grantor's assets after consideration is
given to any rights of the Grantor in the nature
of contribution and indemnity arising out of
Grantor's execution, delivery and performance of
this Agreement.

     8.  EFFECT OF AGREEMENT. Except to the extent
expressly modified by this Agreement, the Deed of
Trust and any and alt documents executed or
delivered pursuant thereto shall remain in full
force and effect. Without limiting the foregoing,
since the date of the Deed of Trust, except as set
forth herein there have been no modifications,
amendments or other charges of any kind whatsoever
in the Deed of Trust, whether written oral or by
course of dealing.

[CORPORATE SEAL]
"Grantor"

Attest:
HERITAGE HILLS RETIREMENT, INC., a

North Carolina corporation

   /s/ Kelly J. Price
/s/ Raymond R. Brandstrom
        Secretary
President
- --------------------------------------
- -----------------------------------------



[CORPORATE SEAL]
"Beneficiary"

Attest:
HEALTH CARE PROPERTY INVESTORS,

INC., a Maryland corporation

/s/  Edward J. Henning
/s/ Stephen R. Maulbetsch
        Secretary
Senior Vice President
- --------------------------------------
- -----------------------------------------



















5





STATE OF WASHINGTON     )

)
COUNTY OF KING                  )

     This is to certify on the 1st day of May
1996, before me personally came Raymond R.
Brandstrom, who, being by me duly sworn, says that
he is President of Heritage Hills Retirement,
Inc., and Kelly J. Price is the Secretary of
Heritage Hills Retirement, Inc., the corporation
described herein and which executed the foregoing
instrument; that he knows the common seal of said
corporation; that the seal affixed to the
foregoing instrument is said common seal, and the
name of the corporation was subscribed thereto by
the said President, and that said President and
Secretary subscribed their names thereto, and said
common seal was affixed, all by order of the Board
of Directors of said corporation, and that the
said instrument is the act and deed of said
corporation.

     Witness my hand and official seal, this 1st
day of May, 1996.

[SEAL]                                     /s/
Catherine L. Pasquan
                                                 -
- -----------------------------

Notary Public

My Commission expires:
March 30, 1999



























6




STATE OF CALIFORNIA             )

)
COUNTY OF LOS ANGELES       )

     This is to certify on the 21st day of June
1996, before me personally came Stephen R.
Maulbetsch, who, being by me duly sworn, says that
he is Senior Vice President of Health Care
Property Investors, Inc., and Edward J. Henning is
the Corporate Secretary of Health Care Property
Investors, Inc., the corporation described herein
and which executed the foregoing instrument; that
he knows the common seal of said corporation; that
the seal affixed to the foregoing instrument is
said common seal, and the name of the corporation
was subscribed thereto by the said Senior Vice
President, and that said Senior Vice President and
Corporate Secretary subscribed their names
thereto, and said common seal was affixed, all by
order of the Board of Directors of said
corporation, and that the said instrument is the
act and deed of said corporation.

     Witness my hand and official seal, this 21st
day of June, 1996.

[SEAL]                                     /s/
Romy Erickson
                                                 -
- -----------------------------

Notary Public

My Commission expires:
July 26, 1996



























7

EX-10.21.13

AMENDMENT TO LEASE

(Heritage Health Center Facility)

     This First Amendment to Lease ("Amendment")
is dated as of March 29, 1996 by and between
HEALTH CARE PROPERTY INVESTORS, INC. , a Maryland
corporation ("Lessor") and EMERITUS CORPORATION, a
Washington corporation ("Lessee").


RECITALS

     A. Lessor and Lessee entered into that
certain Lease (Heritage Health Center Facility)
dated as of January 26, 1996 (the "Lease") for a
facility located in Hendersonville, North
Carolina.

     B. Lessor and Lessee desire to memorialize
their understanding with respect to, and to amend,
certain provisions of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby agree as
follows:

     1. The Commencement Date of the Lease is
February 1, 1996;

     2. The Fixed Term of the Lease shall end on
January 31, 2011;

     3. The first Lease Year for the Lease
commences on February 1, 1996 and ends on January
31,1997;

     4. The first Quarter for which Additional
Rent shall be due shall be the Quarter beginning
February 1, 1998 and ending April 30, 1998; and

     5. The definition of "Lessor's Shared
Appreciation Amount" in the Lease is hereby
amended to read in full as follows:

     "LESSOR'S SHARED APPRECIATION AMOUNT:
Lessor's and its Affiliates' share of the
Appreciation Amount which shall be calculated as
follows: (i) first, Lessor and its Affiliates
shall be allocated the first dollars of the
Appreciation Amount until such dollars together
with all Minimum Rent and Additional Rent paid or
payable to Lessor and its Affiliates in the
aggregate under the Leases for the Seven
Properties to the Outside Closing Date yield
Lessor and its Affiliates an annual internal rate
of return on the Minimum Repurchase Price of the
Seven Properties in the aggregate equal to 12.70%
and (ii) second, Lessor and its Affiliates shall
be allocated one-half of any dollars remaining in
the Appreciation Amount after subtracting the
portion of the Appreciation Amount allocated to
Lessor and its Affiliates in clause (i) above.

     Except as amended above, the Lease shall
remain in full force and effect. This Amendment
may be executed in any number of counterparts, all
of which together shall constitute one and the
same instrument.





     IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed as of the day
and year first above written.

HEALTH CARE PROPERTY
EMERITUS CORPORATION, a
INVESTORS, INC., a Maryland
Washington corporation

corporation

By: /s/ Stephan Maulbetsch
By:  /s/ Raymond R. Brandstrom
       ---------------------------------
- ----------------------------------
Its:  Senior Vice President
Its:  President







































2

EX-10.24

Meditrust
- ------------------------------------------
- ---
A Health Care Real Estate Investment Trust
197 First Avenue
Needham Heights, MA 02194-9127
(617) 433-6000
Fax (617) 433-1290


SUMMARY TERM SHEET


August 13, 1996

Mr. Daniel R. Baty
Chief Executive Officer
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121

RE:  PROPOSED FINANCING

Dear Mr. Baty:

Meditrust wishes to express its interest
in continuing to review and in discussing
development-sale/leaseback financing with
you.  The following is a summary of the
terms and conditions which would apply to
this transaction:

1.   BORROWER/LESSEE:  A wholly-owned
  subsidiary of Emeritus Corporation
  ("Emeritus")

2.   FACILITIES:  To be determined

3.   PURCHASE PRICE/LOAN AMOUNT:
  $100,000,000

4.   CONSTRUCTION PERIOD:  Twelve (12)
  months

5.   LEASE TERM:  The first $50,000,000 of
  financing ("Group 1") shall have a lease
  term of 13 years and the second
  $50,000,000 of financing ("Group 2") shall
  have a lease term of 14 years.  All leases
  shall have four five-year options to
  extend.  However, all Facility Leases
  within each group shall be coterminous and
  shall all be extended together such that
  no single lease shall be extended without
  all of the leases being simultaneously
  extended.

6.   CONSTRUCTION INTEREST RATE:  Prime
  plus 175 basis points.

7.   BASE RENT:  320 basis points over the
  10-year Treasury Bond.

8.   CONSTRUCTION/COMMITMENT FEE:  1 1/2%


1



9.   ADDITIONAL RENT:  Additional rent
  shall be calculated as 5% of the
  incremental increase in gross revenues
  above a negotiated base revenue.

10.  SECURITY:  First lien security
  interest in all furniture, fixtures and
  equipment and other personal property and
  all accounts receivable of the Facilities,
  similar to those in the previous
  transaction between Meditrust and
  Emeritus.

11.  ADDITIONAL SECURITY:  At the closing
  the Lessee shall provide Meditrust with
  cash collateral in an amount equal to
  three month's of base rent payments.

12.  LEASE GUARATNY:  All lease
  obligations shall be unconditionally
  guaranteed by Emeritus.

13.  OPERATOR:  A wholly-owned subsidiary
  of Emeritus who shall be engaged in no
  other activity other than the operation of
  the Facilities.

14.  FINANCIAL COVENANTS:  The lease
  documents will contain various financial
  covenants as to the Lessee and the
  Guarantor, similar to those in the
  previous transaction between Meditrust and
  Emeritus.

15.  SUBORDINATION:  Management fees and
  all related party fees will be subordinate
  to rent payments.

16.  CROSS-DEFAULT/CROSS-
  COLLATERALIZATION:  Will be required for
  all related transactions.

17.  LEASE ASSIGNMENTS/SUBLETTING:  Not
  permitted.

18.  APPRAISALS:  Appraisals must be
  conducted by Valuation Counselors, Inc.
  and must establish that the Purchase Price
  is no greater than the appraised property
  value.

19.  ENVIRONMENTAL REPORTS:  Phase I
  Environmental Surveys must be conducted by
  ATEC Associates, Inc.

20.  LEASE COSTS:  All Lease costs,
  including, but not limited to, legal fees,
  appraisal costs, inspection fees, credit
  report fees, travel costs, finder fees,
  transfer fees, survey costs, title
  insurance premiums and other title fees,
  recording costs, and environmental audit
  fees, will be the obligation of the
  Borrower and the Guarantor.

21.  MASTER LEASE:  Meditrust will enter
  into separate leases covering each of the
  Facilities on the terms and conditions
  described in this letter, provided,
  however, that the lease terms, renewal
  options, purchase options and the like
  will be exercisable and/or considered
  based on all the leases as a group within
  Group 1 or within Group 2.


2




22.  LESSEE'S OBLIGATION TO PERFORM
  UPGRADE EXPENDITURES:  Lessee shall
  provide Lessor with evidence satisfactory
  to Lessor that Lessee has in each lease
  year spent an annual amount equal to
  $200.00 per living unit for upgrades to
  each Facility.

If these general terms and conditions are
acceptable to you and if you agree to
proceed with our due diligence process and
further negotiations, please sign this
summary sheet and return it to Meditrust
by August 14, 1996.  This letter, which is
for informational purposes only, is not
binding on either party and is not to be
considered a commitment to provide
financing.  Approval of Meditrust's Board
of Trustees and Executive Committee will
also be a prerequisite to this
transaction.


Very truly yours,


MEDITRUST


By:/s/ Michael F. Bushee

- --------------------------

Chief Operating Officer





ACKNOWLEDGED AND ACCEPTED:

EMERITUS CORPORATION

By:  /s/ Kelly J. Price
- ------------------------------
Name:  Kelly J. Price
Title:  CFO
Date:  8/14/96

EX-10.25

Meditrust
- ------------------------------------------
- ---
A Health Care Real Estate Investment Trust
197 First Avenue
Needham Heights, MA 02194-9127
(617) 433-6000
Fax (617) 433-1290


SUMMARY TERM SHEET


August 13, 1996

Mr. Daniel R. Baty
Chief Executive Officer
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121

RE:  PROPOSED FINANCING

Dear Mr. Baty:

Meditrust wishes to express its interest
in continuing to review and in discussing
development-sale/leaseback financing with
you.  The following is a summary of the
terms and conditions which would apply to
this transaction:

1.   LESSEE:  A wholly-owned subsidiary of
  Emeritus Corporation ("Emeritus")

2.   FACILITIES:  To be determined

3.   PURCHASE PRICE:  $100,000,000

4.   LEASE TERM:  The first $50,000,000 of
  financing ("Group 1") shall
  have a lease term of 11 years and the
  second $50,000,000 of financing ("Group
  2") shall have a lease term of 12
  years.  All leases shall have four five-
  year options to extend.  However, all
  Facility Leases within each group shall
  be coterminous and shall all be
  extended together such that no single
  lease shall be extended without all of
  the leases being simultaneously
  extended.

5.     BASE RENT:  320 basis points over
the 10-year Treasury Bond.

6.     COMMITMENT FEE:  1%

7.    ADDITIONAL RENT:  Additional rent
shall be calculated as 5% of the
  incremental increase in gross revenues
  above a negotiated base revenue.


1



8.   SECURITY:  First lien security
  interest in all furniture, fixtures and
  equipment and other personal property
  and all accounts receivable of the
  Facilities, similar to those in the
  previous transaction between Meditrust
  and Emeritus.

9.   ADDITIONAL SECURITY:  At the closing
  the Lessee shall provide
  Meditrust with cash collateral in an
  amount equal to three month's of
   base rent payments.

10.  LEASE GUARATNY:  All lease
  obligations shall be unconditionally
       guaranteed by Emeritus.

11.  OPERATOR:  A wholly-owned subsidiary
  of Emeritus who shall be
        engaged in no other activity other
than the operation of the Facilities.

12.  FINANCIAL COVENANTS:  The lease
  documents will contain
       various financial covenants as to
the Lessee and the Guarantor, similar
       to those in the previous
transaction between Meditrust and
Emeritus.

13.  SUBORDINATION:  Management fees and
  all related party fees will
       be subordinate to rent payments.

14.  CROSS-DEFAULT/CROSS-
  COLLATERALIZATION:  Will be
        required for all related
transactions.

15.   LEASE ASSIGNMENTS/SUBLETTING:  Not
permitted.

16.  APPRAISALS:  Appraisals must be
  conducted by Valuation
  Counselors, Inc. and must establish
  that the Purchase Price is no greater
  than the appraised property value.

17.  ENVIRONMENTAL REPORTS:  Phase I
  Environmental Surveys
       must be conducted by ATEC
Associates, Inc.

18.  LEASE COSTS:  All Lease costs,
  including, but not limited to, legal
  fees, appraisal costs, inspection fees,
  credit report fees, travel costs, finder
  fees, transfer fees, survey costs, title
  insurance premiums and other title fees,
  recording costs, and environmental audit
  fees, will be the obligation of the
  Borrower and the Guarantor.

19.  MASTER LEASE:  Meditrust will enter
into separate leases covering
  each of the Facilities on the terms and
  conditions described in this letter,
  provided, however, that the lease terms,
  renewal options, purchase options and
  the like will be exercisable and/or
  considered based on all the leases as a
  group within Group 1 or within Group 2.






2




20.  LESSEE'S OBLIGATION TO PERFORM
  UPGRADE
  EXPENDITURES:  Lessee shall provide
  Lessor with evidence satisfactory to
  Lessor that Lessee has in each lease
  year spent an annual amount equal to
  $200.00 per living unit for upgrades to
  each Facility.

If these general terms and conditions are
acceptable to you and if you agree to
proceed with our due diligence process and
further negotiations, please sign this
summary sheet and return it to Meditrust
by August 14, 1996.  This letter, which is
for informational purposes only, is not
binding on either party and is not to be
considered a commitment to provide
financing.  Approval of Meditrust's Board
of Trustees and Executive Committee will
also be a prerequisite to this
transaction.


Very truly yours,


MEDITRUST


By:/s/ Michael F. Bushee

- --------------------------

Chief Operating Officer





ACKNOWLEDGED AND ACCEPTED:

EMERITUS CORPORATION

By:  /s/ Kelly J. Price
- ------------------------------
Name:  Kelly J. Price
Title:  CFO
Date:  8/14/96

EX-10.26.1

                        AGREEMENT TO PURGHASE
CONSTRUCTION LOAN

     THIS AGREEMENT TO PURCHASE CONSTRUCTION LOAN
(this "Agreement") is made effective as of the
30th  day of January, 1997, by and between RMI
CAPITAL MANAGEMENT CO., whose address is 3773
Cherry Creek North Drive, Suite 640, Denver,
Colorado 80209 ("Construction Lender") and
EMERITUS CORPORATION ("Emeritus"), whose address
is 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121.


RECITALS

     WHEREAS, Construction Lender has agreed to
make a loan in the amount of up to Five Million
Eighty Thousand Eighty-Two and 39/l00 Dollars
($5,080,082.39) (the "Loan") to Emeritus
Properties II, Inc. (the "Borrower"); and

     WHEREAS, the Borrower will use the Loan to
acquire certain property and construct
improvements consisting of an assisted and
independent living facility in Lewiston, Idaho on
real estate legally described in Exhibit "A-1"
attached to this Agreement (the "1'roperty"); and

     WHEREAS, the Borrower is executing this date
its promissory note (the "Note") payable to
Construc2ion Lender in the amount of the Loan; a
Deed of Trust, Assignment of Rents, Security
Agreement and Financing Statement (the "Deed of
Trust") encumbering the Property; an Assignment of
Lessor's Interest; a Construction Loan Agreement;
an Environmental Indemnity Agreement; and other
documents given to further evidence the Loan or
secure repayment of the Note (collectively the
"Loan Documents"); and

     WHEREAS, repayment of the Note is guaranteed
by that certain Guaranty Agreement executed by
Emeritus Corporation ("Guarantor"); and

     WHEREAS, as a condition to making such loan,
Construction Lender requires an absolute and
unconditional agreement and undertaking by
Emeritus to purchase the Note in the event it is
not paid in full for any reason on its maturity
date; and
WHEREAS, Emeritus acknowledges and warrants that
it derived or expects to derive financial and
other advantage and benefit directly or indirectly
from the Loan and each and every advance thereof;

     NOW THEREFORE, the parties agree as follows:

     1. AGREEMENT TO PURCHASE LOAN. If for any
reason the Note is not paid in full on the date
which is thirty-six (36) months from the date
hereof, or at an earlier time upon the conditions
set forth in Section 7 below, then Emeritus hereby
absolutely and unconditionally agrees to purchase
the Note within three (3) business days following
written demand from Construction Lender to
Emeritus.










     2. PURCHASE PRICE. Construction Lender agrees
to sell the Note and Emeritus agrees to purchase
the Note by paying the then unpaid principal
balance thereof together with accrued and unpaid
interest, late charges, and other charges and
advances made by Construction Lender pursuant to
the Loan Documents, including but not limited to
advances to complete construction of the
Improvements as defined in and provided by the
terms of the Construction Loan Agreement
("Purchase Price"). Payment of the Purchase Price
shall be made by wire transfer to the account of
Construction Lender.

     3. ASSIGNMENT OF LOAN DOCUMENTS. Upon receipt
of the Purchase Price, Construction Lender agrees
to endorse the Note to Emeritus without recourse,
to execute an assignment of the Deed of Trust in
recordable form and to deliver to Emeritus the
original Loan Documents, the original Lender's
Title Insurance Policy, the legal opinions of
Borrower's counsel, and copies of such other due
diligence documentation related to the Loan in the
possession of Construction Lender as requested by
Emeritus.

     4. REVIEW OF LOAN DOCUMENTS. Emeritus
acknowledges` its receipt, review and approval of
the Loan Documents. In addition, Emeritus
represents and warrants that it has conducted its
own due diligence concerning the Property and the
Loan and is satisfied with the results of such due
diligence investigation.

     5. USE OF LOAN PROCEEDS. Emeritus agrees that
Construction Lender is under no obligation or duty
nor has Construction Lender represented that it
will see to the application of the Loan proceeds
by the person or persons to whom the Construction
Lender disburses such proceeds, and any
application or use of such proceeds for purposes
other than construction of improvements on the
Property shall not defeat the agreement made
herein by Emeritus to purchase the Loan.

     6. REPRESENTATION AND WARRANTY. Emeritus has
reviewed its cash balances, cash flow projections,
unused balances of lines of credit, its ability to
issue additional stock and other sources of
liquidity and hereby represents and warrants to
Construction Lender that it has made a
determination that Emeritus has the financial
ability to purchase the Note in accordance with
the terms hereof.

     7. FINANCIAL INFORMATION. Emeritus agrees to
furnish quarterly financial information to
Construction Lender sixty (60) days after the end
of each calendar quarter commencing with the first
quarter of 1997 and annual financial information
one hundred ( 100) days after the end of each
calendar year beginning with calendar year 1997.
Such financial information shall be in form and
substance reasonably satisfactory to Construction
Lender, including but not limited to
identification of cash balances, cash flow
projections, unused balances of lines of credit,
ability to issue additional stock and other
sources of liquidity. Emeritus shall certify in
writing the accuracy and completeness of such
financial information and, with the annual report,
will reaffirm its representation and warranty set
forth in paragraph 6 above.

     In the event that Emeritus fails to provide
the annual certification or annual or quarterly
financial information or in the event that
Emeritus' outside auditor gives a qualified
opinion of the Emeritus financial statements based
upon a going concern risk, then Construction
Lender shall give Emeritus ten (10) days notice of
such qualified



2



opinion or failure to provide documentation, in
which event Emeritus shall have ten (10) days in
which to provide the missing information or to
substantiate to Construction Lenders reasonable
satisfaction that Emeritus' financial ability has
not been materially impaired. If the Construction
Lender is not reasonably assured during said ten
day period of the continued viability of the
Emeritus representation and warranty set forth in
paragraph 6 above, then Lender may elect to sell
the Note and Emeritus agrees to purchase the Note
at any time thereafter upon written demand from
Construction Lender to Emeritus.

     8. NOTICE OF DEFAULT OPPORTUNITY TO CURE. If
a Event of Default shall occur under the Loan
Documents as defined therein, Construction Lender
agrees not to accelerate the maturity of the Note
nor to commence foreclosure proceedings until it
has given Emeritus written notice of such Event of
Default and of its intention to accelerate and
foreclose its liens and security interests. In
addition, Construction Lender agrees to furnish
copies to Emeritus of any default notices
delivered to Borrower.

     9. SEVERABILITY. If any provision of this
Agreement or its application to any party or
circumstances shall be determined by any court of
competent jurisdiction to be invalid or
unenforceable to any extent, the remainder of this
Agreement shall not be affected thereby, and each
provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law.

     10. TIME. Time is of the essence of this
Agreement.

     11. CONTROLLING LAW; VENUE. This Agreement
shall be performed in, governed by and interpreted
in accordance with the laws of the State of
Colorado. The parties mutually consent to the
jurisdiction of any local, state or federal court
situated in the City and County of Denver,
Colorado, and waive any objection which they may
have pertaining to improper venue or forum non
conviens to the conduct of any proceeding in such
court. The parties hereto agree that venue for any
action in connection herewith, shall be in the
City and County of Denver, Colorado.

     12. AMENDMENT. This Agreement may be altered,
amended or revoked only by an instrument in
writing signed by the party to be charged thereby.

     13. NOTICE. Any notice, request, demand,
consent, approval, or other communication required
or permitted hereunder shall be in writing and
shall be deemed to have been given when personally
delivered, or one day after delivery to a national
overnight delivery courier service, cost prepaid,
or three days following deposit in the United
States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party
for whom it is intended at their addresses set
forth on page 1; provided, however, that a party
may change its address for purposes of receipt of
any such communication by giving ten (10) days
prior written notice of such change to the other
party in the manner above prescribed.

     14. ENTIRE AGREEMENT. This Agreement contains
the entire agreement between the parties with
respect to the subject matter hereof and
supersedes and cancels any prior understandings
and agreements between the parties with respect to
the subject matter hereof except as specifically
set forth herein.


3


     15. WAIVER. The failure of a party to insist
upon strict performance of any of the terms or
provisions of this Agreement or to exercise any
option, right or remedy herein contained or
available pursuant to applicable law, shall not be
construed as a waiver or relinquishment of such
term, provision, option, right or remedy, but the
same shall continue and remain in full force and
effect. No waiver by a party of any term or
provision hereof shall be deemed to have been made
unless expressed in writing and signed by such
party.

     16. ATTONEYS' FEES. In the event of any
controversy, claim, dispute, or litigation between
the parties hereto to enforce or interpret any of
the provisions of this Agreement or any right of a
party hereto, the non-prevailing party to such
dispute or litigation agrees to pay to the
prevailing party all costs and expenses, including
reasonable attorneys' fees, incurred by the
prevailing party including without limitation,
fees incurred during a trial of any action and any
fees incurred as a result of an appeal from a
judgment entered in such litigation.

     17. COUNTERPARTS. This Agreement and any
attached Consents or Exhibits requiring signatures
may be executed in counterparts, but all
counterparts shall constitute but one and the same
document.

     18. FURTHER ASSURANCE. The parties shall each
execute and deliver to the other all such
additional documents and instruments and shall
perform such further acts as are reasonably
requested by any other party to effectuate the
transactions contemplated hereby.

     19. AUTHORITY . Each person signing on behalf
of Emeritus represents that it is fully authorized
to execute this Agreement and to bind Emeritus
according to the terms hereof.

     IN WITNESS WHEREOF, the parties have signed
this Agreement to be effective the date first
above written.


RMI CAPITAL MANAGEMENT CO.


By:

- --------------------------------------------



EMERITUS CORPORATION


By: /s/ Raymond R. Brandstrom

- --------------------------------------------

President








4

EX-10.26.2

                               CONSTRUCTION LOAN
AGREEMENT


RECITALS :

     RMI CAPITAI. MANAGEMENT CO., (the "Lender")
has agreed to make a loan in the amount of up to
Five Million Eighty Thousand Eighty-Two and 39/100
Dollars ($5,080,082.39) (the "Loan") to EMERITUS
PROPERTIES II, INC. (the "Borrower"). The Borrower
will use the Loan to acquire the property and
construct improvements consisting of an assisted
and independent living facility (the
"Improvements") on such property (the "Property")
legally described in Exhibit "A-1 " attached to
this Agreement (the Improvements and Property
being referred to as the "Project"). The Borrower
will also use the Loan to pay other costs and
expenses related to the development of the
Property and approved by the Lender.

     The Borrower is executing its promissory note
(the "Note") payable to the Lender in the amount
of the Loan concurrently with Borrower's execution
of this Agreement. The Note is to be secured by a
Deed of Trust, Assignment of Rents, Security
Agreement, and Financing Statement (the "Deed of
Trust") encumbering the Property. This Agreement
describes how the Loan will be disbursed by Lender
and contains various covenants of the Borrower and
other provisions relating to construction of the
Improvements.

     I.   DISBURSEMENTS.

     A. GENERAL DISBURSEMENT PROCEDURES.
     
     1. Disbursements of the Loan will be made by
the Lender in the manner provided in the
Disbursement Schedule attached as Exhibit "B" to
this Agreement. Subject to paragraph 2 below, all
disbursements will be made into a non-interest
bearing special account of the Disbursement Agent
(defined below) or Lender, or if the Lender so
chooses, upon direct advance by the Lender to
subcontractors, laborers or materialmen, or charge
against Loan funds as provided in paragraph 2
below.

     2. Notwithstanding the provisions of
paragraph 1 above, the Lender may elect, without
further notice to or authorization by the
Borrower, to use the Loan funds to pay, as and
when due, any L4an fees owing to Lender, interest
on the Loan, release charges under prior deeds of
trust on the Property, legal fees and
disbursements of the Lender's attorneys which are
payable by the Borrower, and such other sums as
may be owing from time to time by the Borrower to
the Lender with respect to the Loan. Such payments
may be made, at the option of the Lender, by (i)
debiting or charging the Loan funds in the amount
of such payments without first disbursing such
amount into any special disbursement account, or
(ii) disbursing all or any part of the amount of
such payments into any special disbursement
account and then debiting such account for such
payments or invoicing Borrower therefor.

     B. COST LNFORMATION. All disbursements will
be based upon a detailed breakdown of the costs of
construction of the Improvements and any financing
or development costs for which the Borrower might
request disbursement. The initial cost breakdown,
as approved by the Lender, is attached as Exhibit
"C" to this Agreement. In the event that the
Borrower becomes aware of any change in the
approved construction





costs which would increase the total cost of
construction of the Improvements shown on the
attached cost breakdown, as that breakdown is
revised from time to time and approved by the
Lender, the Borrower must immediately notify the
Lender in writing and promptly submit to the
Lender for its approval a revised cost breakdown.
No further disbursements need be made by the
Lender unless and until the revised cost breakdown
is approved. The Lender reserves the right to
approve or disapprove any revised cost breakdowns
in its discretion. If requested by Lender,
Borrower shall furnish documentation evidencing
the continuing availability of all funds necessary
to complete the Improvements free of liens.

     C. REQUIRED DEPOSIT OF FUNDS BY BORROWER. If
after reasonably consulting with Borrower about
increases in estimated project costs, the Lender's
Architect at any time reasonably determines that
the amount of the undisbursed Loan proceeds will
not be sufficient fully to pay for all costs
required to complete the construction of the
Improvements in accordance with the approved plans
and specifications and for all financing and
development costs to be incurred by the Borrower,
whether such deficiency is attributable to changes
in the work or construction or in the plans and
specifications or to any other cause, the Lender
may make written demand on the Borrower to deposit
with the Lender in a money market fund approved by
Lender funds equal to the amount of the shortage
reasonably determined by the Lender ("Borrower's
Construction Funds"). The Borrower must then
deposit Borrower's Construction Funds with the
Lender within ten (10) days after the date of the
Lender's written demand. No further disbursements
need be made by the Lender until Borrower's
Construction Funds are deposited by the Borrower
with the Lender. Whenever the Lender has any
Borrower's Construction Funds on deposit, all
disbursements will be considered to be made by the
Lender first from Borrower's Construction Funds
until they are exhausted.

     D. ADDITIONAL SECURITY. The Borrower
irrevocably assigns to the Lender and grants to
the Lender a security interest in, as additional
security for the performance of the Borrower's
obligations under this Agreement, the Note and the
Deed of Trust and all guaranties of same, its
interest in all Loan funds held by the Lender,
whether or not disbursed, all funds deposited by
the Borrower with the Lender under this Agreement,
all governmental permits obtained for the lawful
construction of the Improvements, and all
reserves, deferred payments, deposits, refunds,
cost savings, tap fees, utility deposits, and
payments of any land relating to the construction
of the Improvements. The Borrower irrevocably
assigns to the Lender and grants to the Lender a
security interest in all licenses and permits and
in all engineering reports, land planning maps,
plans and specifications, soils tests, surveys,
environmental reports, feasibility studies, and
other similar documents prepared for the
construction of the Improvements. Upon any Event
of Default of the Borrower, the Lender shall use
any of the foregoing for any purpose
for which the Borrower could have used them under
this Agreement or with respect to the construction
or financing of the Improvements. The Lender will
also have all other rights and remedies as to any
of the foregoing which are provided under
applicable law or in equity.






2



     E. FIRST DISBURSMENT. The Lender will not
make the first disbursement of the Loan until the
Borrower has fulfilled to the Lender's
satisfaction all pre-closing conditions of the
Lender's written loan commitment dated August 23,
1996 (the "Commitment"), the terms of which are
incorporated herein by this reference, and all of
the Lender's customary and reasonable loan opening
conditions for construction loans.

     The first Loan advance will occur at closing
and will include funds for the purchase or
refinance of the Property, title premiums and
fees, recording costs, Lender's legal fees, soil
tests, building permits and fees, and loan closing
costs certified by Lender. If in the reasonable
opinion of Lender, the cost breakdown and
construction budget indicate that the Loan
proceeds are insufficient to complete
construction, Borrower shall bring such shortfall
to closing in cash or certified funds. Thereafter,
Lender shall not be obligated to make any further
loan advances (but Lender may make advances in its
discretion on its sole authorization) until all
conditions as specified in the Commitment and this
Agreement are fulfilled by Borrower and
construction has commenced. At the option of
Lender, advances may be disbursed through a title
Company or other agent (Disbursement Agent) in
which event, Borrower shall comply with the
Disbursement Agent's reasonable and normal
requirements.

     F. SUBSEQUENT DISBURSEMENT. Additional funds
will be made available on a monthly basis as
construction of Improvements related to the
Project progresses but shall be limited to amounts
actually paid or obligations actually incurred by
the Borrower for the Improvements. Therefore, the
actual Loan proceeds disbursed may be less than
$5,080,082.39. Lender shall disburse proceeds from
the Loan funds subject to retainage, if any, in
the amount payable to the General Contractor as
shown upon the latest application for payment for
work completed. Material and labor costs shall be
evidenced by the Contractor's billings showing the
applicable retainage on hard costs. All requests
for drawdowns shall be on forms approved by Lender
and shall be supported by the following:

     1. Evidence satisfactory to the Lender of the
payment by the Borrower to the Contractor of the
aggregate amounts theretofore approved for
payment;

     2. A certificate in form reasonably
acceptable to the Lender executed by the Borrower
certifying all representations and warranties of
the Borrower made in this Agreement to the date of
the advance have been fulfilled;

     3. A certificate in form reasonably
acceptable to the Lender executed by Borrower's
and Lender's Architects certifying that work
finished to the date of the requested draw has
been completed in a good and workmanlike manner in
compliance with the plans and specifications and
that the amount of work completed is in relation
to the amount of funds requested;

     4. A monthly endorsement date down from the
Title Company obtained by Lender indicating the
ownership of the Property to be in the Borrower
and further indicating that there are no liens or
encumbrances against the Property other than as
expressly approved by the Lender in writing;




3



     5. Unconditional mechanics ' lien waivers or
releases in form approved by the Lender from such
subcontractors, materialmen and laborers as the
Lender may designate, for prior disbursement;
conditional waivers or releases for current
disbursement;

     6. A monthly report of the worker-hours
worked for each trade.

     7. A monthly narrative status report by
Lender's Architect or licensed
engineer.

     Lender shall use its best efforts to disburse
Loan advances on or about the tenth (l0th) of each
month provided that Borrower has submitted all
appropriate documentation described above by the
25th of the preceding month, said advances to
include the interest due and payable to Lender.
The request for advances must be approved by
Lender and certified by Borrower.

     G. RETAINAGE. Until the Improvements are 50%
complete as certified by Lender's Architect,
Lender shall disburse proceeds from the loan funds
only to the extent of 90% of the contractor's
billings for labor and materials, unless the
contractor furnishes a performance bond issued by
a surety acceptable to Lender. After the
Improvements are 50% complete or in all cases when
the contractor has furnished a performance bond,
Lender shall disburse proceeds to the extent of 95
% of the contractor' s billings for labor and
materials.

     H.  DISBURSMENT DISCONTINUANCE.  Once the
Lender begins making disbursements of Loan funds,
the Lender need not make any further disbursements
if:

     1. The Improvements are materially damaged by
fire or other casualty and not repaired, unless
the Lender actually receives insurance proceeds or
Borrower Construction Funds sufficient in the
Lender Architect's judgment to pay for the repair
of the Improvements in a timely manner; or

     2. The Lender reasonably believes that the
disbursement might not be entitled to priority
over mechanics' or materialmen's liens or any
intervening or subordinate liens
on the property, unless the Lender receives, at
the Borrower's expense, a title policy endorsement
satisfactory to the Lender insuring priority; or

     3. The Borrower fails to provide to the
Lender, at the Borrower' s expense, a foundation
survey upon the completion of the foundation for
the Improvements and showing no encroachments; or

     4. The Lender reasonably believes that
withholding a disbursement in whole or in part is
required by applicable mechanics' lien laws; or

     5. The Borrower fails to deliver to Lender
any assignments, agreements, permits or licenses
required to be furnished hereunder, or any
estoppel certificates or subordination agreements
which Lender reasonably requires from tenants or
proposed occupants of pre-leased space; or




4



     6. The Borrower enters into lease agreements
containing terms, conditions and provisions which
have not been previously approved by Lender;
provided that, Borrower may execute resident
agreements substantially in the form approved by
Lender and leases of less than 10% of the floor
area of the Improvements without Lender's consent;
or

     7. Borrower's Contractor is using labor other
than union labor or union trades in the
construction of the Improvements without Lender's
written consent; or

     8. The Borrower is otherwise in Event of
Default under this Agreement;
or

     9. The Lender reasonably believes, or the
Lender' s Architect reasonably believes, that if a
disbursement is made, there would thereafter
remain insufficient funds not previously advanced
under the Loan to fully complete the Improvements
free of liens; or

     10. The Borrower fails to post the sign
identifying Lender as construction lender as
required herein.

     I. FINAL DISBURSEMENT. The Lender will not be
obligated to make its final disbursement of Loan
funds (including any of the undisbursed retainage)
as set forth in Exhibit "B". attached hereto
unless and until Completion of Improvements
(defined below). Completion of Improvements must
occur within twelve (12) months of closing,
subject to the Force Majeure clause of this
Agreement, but in no event later than 24 months
from the date of this Agreement.

     J. COMPLETION OF IMPROVEMENTS. Completion of
Improvements shall be evidenced by:

     1. A Certificate of Completion signed by
Borrower's Architect or engineer, attesting to the
Completion of the Improvements in a good and
workmanlike manner and in accordance with the
Plans and Specifications.

     2. Certificate of Occupancy from the
appropriate governmental authority subject to
tenant finish requirements.

     3. Survey showing the completed Improvements
as-built.

     4. Photographs of the completed Improvements.

     5. Detailed schedule of all chattels,
fixtures, equipment, furniture and furnishings
which will be used in the operation of the
Improvements. ,

     6. List of all contractors, subcontractors,
laborers and materialmen who worked on the
project, together with unconditional lien waivers
from each and total worker hours by trade worked.




5




     7. Title insurance endorsements to the
Lender's policy which insure the lien-free
completion of the Improvements, and any other
endorsements required to close the permanent loan,
if applicable.

     8. Lender approval of the completed
Improvements and confirmation that all conditions
precedent to the initial funding of the permanent
loan or other take-out have been fulfilled as
applicable.

     9. The Borrower must not be in Event of
Default under this Agreement.

     II. BORROWER'S COVENANTS.

     A. CONSTRUCTION.

     1. COMMENCEMENT OF CONSTRUCTION. No materials
shall be delivered to the site nor any labor be
performed prior to Lender's authorization to
commence construction. The Borrower will
immediately commence construction of the
Improvements not later than thirty (30) days from
the date hereof subject to the Force Majeure
clause of this Agreement ("Commencement of
Construction"), and will diligently prosecute
construction in accordance with the plans and
specifications approved by the Lender.

     2. CHANGES TO PLANS. The Borrower must obtain
the Lender's prior written approval of any
material change in the plans and specifications
for the Improvements approved by the Lender and
also of any change in any work or materials for
the Improvements which exceed an amount
individually of Fifteen Thousand and No One-
Hundredths Dollars ($15,000.00) or Forty Thousand
and No One-Hundredths Dollars ($40,000.00)
collectively. The Improvements shall be completed
in compliance with such plans and specifications.
In the event that changes are made to the plans
and specifications which decrease the gross square
footage of the Improvements, Borrower must obtain
a new appraisal of the Property and the Loan
amount will be adjusted as necessary to meet a 75%
loan-to-value ratio.

     In addition, if construction of the
Improvements is being accomplished under one or
more general contracts, the Borrower must obtain
the Lender's prior written approval of such
contracts. The Borrower must also obtain all
approvals of any changes in plans, specifications,
work, materials or contracts that are required by
law, or under any lease, loan commitment or other
agreement relating to the Property.

     The Lender will have a reasonable time to
evaluate any requests for its approval of any
changes referred to in this paragraph, and will
not be required to consider approving any changes
unless all other approvals that are required from
other parties have been obtained. Lender will be
deemed to have approved if it fails to respond
within ten (10) working days after Lender receives
all information requested by Lender relating to
such changes or if it fails to include a
reasonable statement of its reasons with its
disapproval. If it reasonably appears to the
Lender that any change may increase the total cost
of completing the Improvements, the Lender may
require the Borrower to deposit additional
Borrower Construction Funds sufficient to cover
the increased costs as



6



a condition to giving its approval. All contracts
and subcontracts relating to the construction of
the Improvements must contain provisions
satisfactory to the Lender implementing the
provisions of this paragraph.

     3. UNION COVENANT. Borrower covenants and
agrees that all work performed at the Property,
including tenant improvements, which is covered by
or the subject of collective bargaining agreements
("Agreements")in effect from time to time for all
the appropriate building trades shall be done in
its entirety by contractors signed to and abiding
by those Agreements unless otherwise approved by
Lender in writing. In addition, all contracts and
subcontracts shall contain a provision that in the
event the contractor or subcontractor fails to pay
fringe benefit contributions then the Borrower
shall have the right to withhold the amount of
such contributions for direct payment to the
benefit funds. A breach of these covenants shall
be an event of default hereunder. Further,
Borrower agrees that this foregoing construction
covenant will be included in all contracts and
subcontracts relating to this Project. The General
Contractor shall also be a signatory to the
Agreements. This covenant shall continue in full
force and effect until Completion of Improvements
and 90% occupancy of the project have occurred.

     B. PERMITS AND LEGAL REQUIREMENTS. The
Borrower will comply with and keep in effect all
permits and approvals obtained from any
governmental agencies that relate to the lawful
construction of the Improvements. The Borrower
will comply with all existing and future laws,
regulations, orders and requirements of all
governmental, judicial or legal authorities having
jurisdiction over the Property or Improvements,
(including parking requirements) and with all
recorded restrictions affecting the Property.

     C. SOIL ENGINEER'S REPORT. The Borrower shall
faithfully comply with all recommendations and
requirements of the soil report for the Property
and furnish copies to Lender of the periodic
inspection reports required therein.
The Borrower will furnish to the Lender from time
to time on request by the Lender, in a form
acceptable to the Lender, correct lists of all
contractors and subcontractors and union trades
affiliated with each employee in connection with
construction of the Improvements and true and
correct copies of all executed contracts and
subcontracts. The Lender may contact any
contractor or subcontractor to verify any facts
disclosed in the lists, and all contracts and
subcontracts relating to construction of the
Improvements must require the disclosure of the
listed information to the Lender.
No materials, equipment, fixtures or articles of
personal property of the Borrower placed in the
Improvements shall be purchased or installed under
any security agreement or other agreement where
the seller reserves or purports to reserve title
or the right of removal or repossession, or the
right to consider them personal property after
their incorporation in the work of construction,
unless authorized by the Lender in writing.

     F. FOUNDATION SURVEY, Upon completion of the
foundation, Borrower shall provide a foundation
survey showing said foundations to be in the lot
lines, not infringing on established easements and
placed in accordance with the approved plans and
ordinances.




7




     G.   INSPECTION; RIGHT TO STOP WORK.
     
     1. The Lender, and its respective agents and
representatives, will each have the right at any
reasonable time to enter the Property and inspect
the work of construction and all materials, plans,
specifications, change orders and other matters
relating to the construction. The Lender will also
have the right to examine, copy and audit the
books, records, accounting data and other
documents of the Borrower and contractors relating
to the Property or construction of the
Improvements.

     2. If the Lender in good faith determines
that any work or materials do not conform to the
approved plans and specifications or sound
building practice, or otherwise
depart from any of the requirements of this
Agreement, then after notice to Borrower and 14
calendar days to cure, if Borrower has not
corrected such deficiencies, then Lender may
require the work to be stopped and withhold
disbursements until the matter is corrected. In
such event, the Borrower will promptly correct the
work to Lender's satisfaction. No such action by
the Lender will affect the Borrower's obligation
to complete the Improvements on or before the
Completion Date, nor be deemed to trigger an
extension pursuant to the Force Majeure provision
contained in this Agreement.

     3. The Lender is under no duty to supervise
or inspect construction, inspect for compliance
with building codes, or examine any books and
records. Any inspection or examination by the
Lender or agent of Lender is for the sole purpose
of protecting the Lender' s security and
preserving the Lender's rights under this
Agreement. No default of the Borrower will be
waived by any inspection by the Lender. In no
event will any inspection by the Lender be a
representation that there has been or will be
compliance with the plans and specifications or
that the construction is free from defective
materials or workmanship.

     H. PROTECTION AGAINST LIEN CLAIMS. The
Borrower will promptly pay and discharge all
claims and liens for labor done and materials and
services furnished in connection with the
construction of the Improvements. The Borrower
will have the right to contest in good faith any
claim or lien, provided that it does so diligently
and without prejudice to the Lender. Upon the
Lender's request, the Borrower will promptly
provide a bond, cash deposit or other security
reasonably satisfactory to the Lender to protect
the Lender's interest and security should the
contest be unsuccessful.

     I. SIGNS AND PUBLICITY. The Borrower at its
sole cost will post a sign in a prominent location
on the Property for the purpose of identifying RMI
CAPITAL MANAGEMENT CO. and the participating
pension funds as the "Construction Lenders", said
sign to be approximately four (4) feet by eight
(8) feet in size and in place within 30 days of
closing. At the request of the Lender, the
Borrower will use its best efforts to identify the
Lender as the construction lender in publicity
concerning the Property. In addition, within 30
days from closing, Borrower shall furnish to
Lender 2 copies, approximately 8 x 10 inches in
size, of a color artist's rendering showing the
completed Improvements.





8




     J. INSURANCE. Prior to the loan closing, and
until payment in full, Borrower agrees to carry
insurance in amounts and by such insurance
companies as is satisfactory to Lender and its
legal counsel. Such coverage shall include, but
not be limited to: Builder's Risk during period of
construction, and fire and extended coverage
insurance thereafter. In addition, Lender will
require a certificate of insurance evidencing
Borrower's liability insurance coverage,
$2,000,000.00 limits, a certificate of contractor
s worker s compensation insurance and certificate
of contractor's public liability and property
damage insurance, $2,000,000.00 limits. All
insurance policies shall contain standard
mortgagee clauses (without contribution) in favor
of Lender and shall be deposited with Lender as
evidence of such insurance until the Loan is fully
paid.

     K. BORROWER COOPERATION. The Borrower agrees
to cooperate at all times with the Lender in
bringing about the timely Completion of the
Improvements, and the Borrower will resolve all
disputes arising during the work of construction
in a manner which will allow work to proceed
expeditiously.

     L. PAYMENT OF EXPENSES. The Borrower agrees
to pay the Lender's reasonable out-of pocket costs
and expenses incurred in connection with the
making or disbursement of the Loan or in the
exercise of any of its rights or remedies under
this Agreement, including, but not limited to,
title insurance, title insurance endorsements, and
escrow charges, recording charges and mortgage
taxes, reasonable legal fees and disbursements,
appraisal and survey charges, real estate taxes
and special assessments, charges in connection
with the delivery of the mortgage and reasonable
travel expenses for Lender's monthly site
inspections. The Borrower also agrees to pay
reasonable Lender's Architect fees for review of
the plans, specifications and documents relating
to the construction of Improvements. The
provisions of this paragraph will survive the
termination of this Agreement and the repayment of
the Loan.

     M. ACCOUNTING; CHANGES IN CONDITION. The
Borrower will keep true and correct financial
books and records on a cash basis for the
construction of the Improvements, and will
maintain adequate reserves for all contingencies.
If required by the Lender, the Borrower will
submit to the Lender at such times as the Lender
requires (which will in no event be more often
than monthly) a statement which accurately shows
the application of all funds expended to date for
construction of the Improvements and the source of
those funds as well as the Borrower's best
estimate of the funds needed to complete the.
Improvements and the source of those funds. The
Borrower will promptly supply the Lender with any.
financial statements or other information
concerning its affairs and properties as the
Lender may reasonably request, and will promptly
notify the Lender of any material adverse change
in its financial condition or in the physical
condition of the Property or Improvements.

     N. GOVERNMENTAL AGENCIES. The Borrower agrees
to comply with the requirements of any commitment
or agreement entered into by any governmental
agency to assist the construction, sale, lease or
financing of the Improvements, and with the terms
of all applicable laws, regulations and
requirements governing such assistance.





9




     O. INDEMNITY. The Borrower agrees to
indemnify and hold the Lender harmless from and
against all liabilities, claims, damages, costs
and expenses (including, but not limited to,
reasonable legal fees and disbursements) arising
out of or resulting from any defective workmanship
or materials occurring in the construction of the
Improvements. Upon demand by the Lender, the
Borrower will defend any action or proceeding
brought against the Lender alleging any defective
workmanship or materials, or the Lender may elect
to conduct its own defense at the expense of the
Borrower. The provisions of this paragraph will
survive the termination of this Agreement and the
repayment of the Loan.

     P. ENTITY AGREEMENT. Prior to Completion of
Improvements, Borrower agrees not to amend, or
permit any amendment of, its corporate articles
and bylaws without the prior written approval of
Lender, which approval will not be unreasonably
withheld; provided that, Borrower may make non-
material amendments to its articles or bylaws
which have no adverse effect on Lender without
Lender's prior written approval. In any case of
amendment, Borrower agrees to furnish a copy of
such amended articles or bylaws to Lender within
seven (7) days following the effective date of the
amendment.

     Q.  LEASES. The form and content of all
leases shall be subject to review and approval by
Lender, except as otherwise provided herein.

     III. DEFAULT AND REMEDIES,

     A.  EVENTS OF DEFAULT. The Borrower will be
in default under this Agreement if any of the
following occurs ("Event of Default"):

     1. The Borrower fails to comply with any
covenant contained in this Agreement which calls
for the payment of money within ten (10) days
after written notice from Lender; or

     2. The Borrower fails to comply with any
obligation, agreement or covenant contained in
this Agreement other than those covenants referred
to in (1) and (2) above, and such failure shall
either be incurable or, if curable, shall remain
uncured during any specific time period, if any,
set out herein or if none shall remain uncured for
a period of fifteen (15) days after the date of
written notice thereof from Lender to Borrower. In
the event that such failure, refusal or neglect,
is susceptible of cure but is not cured within
said fifteen (15) days, so long as Borrower is
diligently and continuously pursuing such cure,
Lender shall permit Borrower an additional thirty
(30) days to effectuate such cure; provided that
prior to Completion of Improvements, such
additional thirty (30) days shall not apply where
such failure, refusal or neglect results, in
Lender's reasonable determination, in a matter
which is of an emergency nature.

     4. Construction of the Improvements is
abandoned, or is not completed on or before the
Completion Date subject to the Force Majeure
provision of this Agreement; or

     5. Construction of the Improvements is halted
prior to Completion of Improvements for any period
of ten (10) consecutive days for any cause which
is not beyond the reasonable control of the
Borrower; or



10



     6. An Event of Default occurs under the Note,
the Deed of Trust or any other Loan document.

     B. REMEDIES. If there is an Event of Default
under this Agreement, the Lender may exercise any
right or remedy which it has under the Deed of
Trust, this Agreement or any other agreement with
the Borrower relating to the Loan, or under any
agreement guaranteeing the Loan or the completion
of construction of the Improvements, or otherwise
available at law or in equity or by statute, and
all of the Lender's rights and remedies will be
cumulative. Upon an Event of Default, the Lender
may withhold any one or more disbursements in its
discretion, and no disbursement of Loan funds by
the Lender will cure any default of the Borrower,
unless the Lender agrees otherwise in writing. The
Lender will also have the right in its discretion
to enter the Property and take any and all actions
necessary in its judgment to complete construction
of the Improvements, including, but not limited
to, making changes in plans, specifications, work
or materials and entering into, modifying or
terminating any contractual arrangements, subject
to the Lender's right at any time to discontinue
any work without liability. If the Lender elects
to complete the Improvements, it will not assume
any liability to the Borrower or any other person
for completing the Improvements or for the manner
or quality of construction of the Improvements and
the Borrower expressly waives any such liability.
The Borrower irrevocably appoints the Lender as
its attorney-in-fact, with full power of
substitution, to complete the Improvements in the
Borrower's name, or the Lender may elect to
complete construction in its own name. In any
event, all sums expended by the Lender in
completing construction will be considered to have
been disbursed to the Borrower and will be secured
by the Deed of Trust and any other instruments or
documents securing the Loan, and any such sums
that cause the principal amount of the Loan to
exceed the face amount of the Note will be
considered to be an additional loan to the
Borrower bearing interest at the rate provided in
the Note and will be secured by the Deed of Trust
and any other instrument or documents securing the
Loan.

     IV.  MISCELLANEOUS.
     
     A. NO WAIVER; CONSENTS.  Any waiver by the
Lender must be in writing and will not be
construed as a continuing waiver. No waiver will
be implied from any delay or failure by the Lender
to take action on account of any default of the
Borrower. Consent by the Lender to any act or
omission by the Borrower will not be construed to
be a consent to any other or subsequent act or
omission or to waive the requirement for the
Lender's consent to be obtained in any future or
other instance. However, the Lender reserves the
right to waive any requirement, if it determines
in its sole discretion that such waiver is
advisable.

     B. THIRD PARTIES NOT BENEFITTED. This
Agreement is made and entered into for the sole
protection and benefit of the Lender and the
Borrower and their successors and assigns. No
trust fund is created by this Agreement and no
other persons or entities will have any right of
action under this Agreement or any right to the
Loan funds.

     C.   JOINT AND SEVERAL LIABILITY.  If the Borrower
       consists of more than one person or entity, each
       will be jointly and severally liable to the Lender
       for the faithful performance of this Agreement.


11


     D.  NOTICES, All notices given under this
Agreement must be in writing and delivered in
accordance with the notice provisions of the Deed
of Trust.

     E. AUTHORITY TO FILE NOTICES. The Borrower
irrevocably appoints the Lender as its attorney-in-
fact, with full power of substitution, to file for
record, at the Borrower's cost and expense and in
the Borrower's name, any notices of completion,
notices of cessation of labor
,or any other notices that the Lender considers
necessary or desirable to protect its security.

     F. LEGAL ACTIONS. The Lender will have the
right, but not the obligation, to commence, appear
in, and defend any action or proceeding that
affects its security or its rights, duties or
liabilities relating to the, Loan, the Property,
the Improvements, or this Agreement. The Borrower
will pay promptly on demand all of the Lender's
reasonable out-of-pocket costs, expenses, and
legal fees and disbursements incurred in those
actions or proceedings.

     G. APPLICABLE LAW. This Agreement will be
governed by Idaho law.

     H. HEIRS, SUCCESSORS AND ASSIGNS. The terms
of this Agreement will bind and benefit the heirs,
legal representatives, successors and assigns of
the parties; provided, however, that except in
connection with a permitted transfer of the
Property as set forth in the Deed of Trust, the
Borrower may not assign this Agreement or any Loan
funds, or assign or delegate any of its rights or
obligations, without the prior written consent of
the Lender, which consent shall not be
unreasonably withheld. The Lender shall have the
right to sell participations in the Loan to any
other persons or entities without the consent of
or notice to the Borrower, provided that no such
action by the Lender shall relieve the Lender of
its obligation to make disbursements of the Loan
when required by this Agreement and to service the
Loan. The Lender may disclose to any participants
or prospective participants any information or
other data or material in the Lender's possession
relating to the Borrower, the Loan and the
construction project, without the consent of or
notice to the Borrower.

     I. ATTORNEYRS' FEES. If any lawsuit is
commenced to enforce any of the terms of this
Agreement, the prevailing party will have the
right to recover its reasonable attorneys' fees
and costs of suit from the other party.

     J.  SEVERABILITY. The invalidity or
unenforceability of any one or more provisions of
this Agreement will in no way affect any other
provisions.

     K. INTERPRETATION. Whenever the context
requires, all words used in the singular will be
construed to have been used in the plural, and
vice versa, and each gender will include any other
gender. The captions of the paragraphs of this
Agreement are for convenience only and do not
define or limit any terms or provisions.

     L. TIME IS OF THE ESSENCE. Time is of the
essence in the performance of this Agreement by
the Borrower.



12




     M.  AMENDMENTS. This Agreement may not be
modified or amended except by a written agreement
signed by the parties.

     N. COUNTERPARTS. This Agreement and any
attached Consents or Exhibits requiring signatures
may be executed in counterparts, but all
counterparts shall constitute but one and the same
document.

     O. RELATION TO LOAN COMMITMENT.  The terms
and provisions of this Agreement, the Note and the
Deed of Trust supersede any inconsistent terms and
conditions of the Lender's Construction L4an
Commitment to the Borrower; provided that all
obligations of the Borrower under the commitment
to pay any fees to the Lender or any costs and
expenses relating to the Loan or the commitment
shall survive the execution and delivery of this
Agreement, the Note and the Deed of Trust, and any
failure of the Borrower to perform any such
obligations shall constitute a default hereunder.

     P. FORCE MAJEURE. The date for commencement
of construction and Completion of Improvements
shall be advanced for the period of time that
construction is delayed by acts of God, war, riot,
fire, strike, lockout, or other causes beyond
Borrower s reasonable control (which shall not
include inability for any reason to meet its
financial obligations), provided that Completion
of Improvements shall occur no later than 24
months from the date of this Agreement.





























13



Dated this 30th  day of January, 1997.


BORROWER:

EMERITUS PROPERTIES II, INC.


By: /s/ Raymond R. Brandstrom

- --------------------------------------------

PRESIDENT


Address :


3131 Elliott Avenue, Suite 500

Seattle, Washington 98121



LENDER:

RMI CAPITAL MANAGEMENT

CO. , a Colorado Corporation


By:

- --------------------------------------------


Address:


RMI Capital Management Co.

Ptarmigan Place, Suite 640

3773 Cherry Creek North Drive

Denver, Colorado 80209






















                                                14

EX-10.26.3

PROMISSORY NOTE
$5,080,082.39
January 30, 1997

     FOR VALUE RECEIVED, the undersigned
(sometimes called "Maker") promises to pay to the
order of RMI CAPTTAL MANAGEMENT CO. ("Holder"), at
Ptarmigan Place, 3773 Cherry Creek North Drive,
Suite 640, Denver, Colorado 80209, or at such
other place as the Holder may from time to time
designate to Maker in writing, the principal sum
of Five Million Eighty Thousand Eighty-Two and
39/100 Dollars ($5,080,082.39) or so much thereof
as may have been disbursed, together with all
subsequent advances made, expenditures authorized
and additional payments provided for in this Note,
the Deed of Trust securing it, the Loan Agreement
and any other documents executed to secure this
Note, with interest thereon, payable as follows:

     Commencing on the first day of the month
following the date of this Note and continuing on
the same day of each month until paid in full,
Maker shall pay interest only on the outstanding
advances hereunder from the date each advance is
made (the annual rate of interest to be computed
on a 360 day basis) at a fixed rate of interest
equal to 9 % per annum for the first Loan Year
(defined below); 9.25% per annum for the second
Loan Year; and 9.5% per annum for the third Loan
Year, continuing until the date which is 36 months
from the date hereof (the "Maturity Date") when
the entire principal sum together with accrued
interest and any other charges due to Holder shall
tie due and payable in full. A Loan Year is any
twelve month period commencing on the first day of
the month following the date of this Note or
anniversary thereof.

     In the event that any payment required to be
made by Maker is not received by Holder on or
before ten days (10) after the due date thereof,
Maker agrees to pay a Default Charge of Five Cents
(5C) for each Dollar ($1.00) overdue for the
purpose of deferring the expense incident to the
handling of said delinquent payment. This Default
Charge will be payable each successive month that
a payment remains unpaid. In addition, so long as
Maker is in default hereunder, the unpaid
principal balance shall bear interest at the
Default Rate which shall be the lesser of (1) five
percent (5 %) per annum higher than the rate
otherwise payable by Maker prior to default, or
(2) the maximum permitted by law.

     The principal and interest thereon shall be
payable in lawful money of the United States,
which shall be legal tender for public and private
debts at the time of payment.

     Maker may not prepay this Note prior to
Completion of Improvements as defined in the Loan
Agreement. Following Completion of Improvements,
Maker may at any time or from time to time pay all
or any part of the principal hereof prior to its
maturity, without the payment of any
penalty or premium, but only if there is
simultaneously paid all accrued and unpaid
interest on any principal hereof so prepaid and
only upon thirty (30) days prior written notice.

     The occurrence of any of the following shall
constitute an Event of Default:

     Maker shall fail to pay when due any payment
of interest or principal hereunder following ten
(10) days notice;




     Maker shall fail to comply with any agreement
or covenant contained in this Note or in the Deed
of Trust, Assignment of Rents, Security Agreement,
and Financing Statement, Assignment of Lessor's
Interest, Construction Loan Agreement or any other
instrument given to secure this Note (subject to
any cure rights set forth therein), then the
balance of said principal sum, with all accrued
interest thereon, shall, at the option of the
Holder of this Note and without notice become and
be due and payable immediately, anything contained
to the contrary notwithstanding, time being of the
essence of this contract.

     The Maker and all endorsers, guarantors and
all persons liable or to become liable on this
Note waive presentment, protest and demand, notice
of protest, demand and dishonor and extensions in
the time of payment hereof, and agree further that
at any time and. from time to time without notice,
the terms of payment herein may be modified or the
security described in the documents securing this
Note released in whole or in part or increased,
changed or exchanged by agreement between the
Holder hereof and any owner of the property
affected by said documents securing this Note
without affecting the liability of any party to
this instrument or any person liable or to become
liable with respect to any indebtedness evidenced
hereby. No delay or omission on the part of Holder
in exercising any right hereunder shall operate as
a waiver of such right or of any other right under
this Note. A waiver on one occasion shall not be
construed as a bar to or waiver of any such right
and/or remedy on. any future occasion.

     As additional consideration for the extension
of credit, each maker, endorser or guarantor
understands and agrees that the loan evidenced by
this Note will be construed in accordance with the
laws of the State of Idaho; and such parties
further agree that in the event of default, this
Note shall be enforced in any court of competent
jurisdiction in the State of Idaho in the county
in which the real estate securing this Note is
located, and they do hereby submit to the
jurisdiction of such Court regardless of their
residence or where this Note or any endorsement
hereof may be executed.

     In the event the interest provisions hereof
or any exactions provided for herein or in any
other instrument securing this Note shall result,
because of the monthly reduction of principal, or
for any reason at any time during the term of this
loan, in an effective rate of interest which, for
any month, transcends the limit of the usury or
any other law applicable to the loan evidenced
hereby, all sums in excess of those lawfully
collectible as interest for the period in question
shall, without further agreement or notice between
or by any party hereto, be applied upon principal
immediately upon receipt of such moneys by Holder,
with the same force and effect as though the payer
had specifically designated such extra sums to be
so applied to principal and Holder had
to accept such extra payment as a premium-free
prepayment. In no event shall any agreed to or
actual exaction as consideration for this Loan
transcend the limits imposed or provided by the
laws applicable to this transaction or the Maker
hereof in the jurisdiction in which the property
securing such loan is located for the use or
detention of money or for forbearance in seeking
its collection.

     In the event this Note is placed in the hands
of an attorney for collection or is collected
through any legal proceedings, the undersigned
promises to pay (in addition to costs and
disbursements otherwise allowed), to the extent
permitted by law, a reasonable attorney's fee.


2



     This Note is secured by a certain Deed of
Trust, Assignment of Rents, Security Agreement,
and Financing Statement of even date herewith,
executed and delivered by the Maker encumbering
certain property therein described together with
any other security given to further secure this
Note. Said documents and the Loan Agreement are
hereby made a part of this Note by reference and
the Maker hereby covenants to abide by and comply
with each and every covenant and condition
contained therein.


EMERITUS PROPERTIES II, INC.


By: /s/ Raymond R. Brandstrom

- --------------------------------------

President






































3

EX-10.26.4

                     DEED OF TRUST, ASSIGNMENT OF
RENTS,
        SECURITY AGREEMENT AND FINANCING STATEMENT

(Construction Loan)

THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY
AGREEMENT AND FINANCING STATEMENT ("Deed of
Trust") is made this 30th day of January,
1997, between EMERITUS PROPERTIES II, INC., whose
address is 3131,Elliott Avenue, Suite 500,
Seattle, Washington 98121 (hereinafter referred to
as "Borrower" or "Grantor"), and ALLIANCE TITLE &
ESCROW CORP., whose address is 1314 Idaho Street,
Lewiston, Idaho 83501, as "Trusteen, and RMI
CAPITAL MANAGEMENT CO., whose address is 3773
Cherry Creek North Drive, Suite 640, Denver,
Colorado 80209, as "Beneficiary" or "Lender." THIS
DEED OF TRUST IS INTENDED ALSO TO BE A FIXTURE
FILING AND IS TO BE INDEXED NOT ONLY AS A MORTGAGE
BUT ALSO AS A FIXTURE FILING IN THE REAL ESTATE
RECORDS.


WITNESSETH:

     THAT WHEREAS, the Borrower is justly indebted
unto Lender in the aggregate sum of Five Million
Eighty Thousand Eighty-Two and 39/100 Dollars
($5,080,082.39) or so much thereof as may have
been disbursed, as evidenced by the Promissory
Note of even date herewith (hereinafter sometimes
referred to as the "Note"), which Note is payable
at the office of the Lender or at such other place
as the legal holder or holders thereof may
designate in writing, with interest thereon and
payable as provided in said Note. If not sooner
paid, the final payment of principal and interest
on said Note shall be due thirty-six months from
the date hereof and which shall be the Maturity
Date of this Deed of Trust..

     AND WHEREAS, the Borrower is the owner in fee
simple of the property (the "Property") situate in
the County of Nez Perce and State of Idaho as
specifically described in Exhibit A-l attached
hereto and by this reference incorporated herein.

     AND WHEREAS, the Borrower is desirous of
securing the payment of the principal and interest
of said Note in whosoever hands said Note may be.

NOW, THEREFORE, the said Grantor, in consideration
of the premises, and for the purpose aforesaid,
does hereby grant, bargain, sell and convey unto
the Trustee, in trust forever with power of sale
with right of entry and possession, the Property
situate in the County of Nez Perce and State of
Idaho, as more specifically described on Exhibit
A-l attached and by this reference incorporated
herein and subject to the Permitted Encumbrances
(defined below), which, with the property
hereinafter described, is referred to herein as
the "Mortgaged Property."

     TOGETHER WITH AND INCLUDING:

     (1) All right, title and interest which
Grantor now has or may hereafter acquire in and to
the Property and in and to all improvements,
tenements, easements, hereditaments and
appurtenances thereunto belonging.

     (2) All right, title and interest, if any, of
Grantor, in and to the land lying within any
street or roadway adjoining the Property; and all
right, title and interest of Grantor in any
vacated or hereafter vacated street or alley
adjoining the Property; and all right, title and
interest, if any, of Grantor in and to any strips
and gores adjoining the Property.






     (3) All and singular the passages, waters,
water rights, water courses, riparian rights,
other rights, liberties and privileges thereof or
in any way now or hereafter appertaining to the
Property, including homestead and any other claim
at law or in equity, as well as any afteracquired
title, franchise or license, and the reversion and
reversions and remainder and remainders thereof.

     (4) All right, title and interest of Grantor
in and to any and all contracts and subcontracts
for the construction and supplying and furnishing
of materials and equipment for use on the
Property.

     (5) All leases, rents, issues, proceeds and
profits accruing and to accrue from said Property,
including but not limited to amounts payable under
residential occupancy agreements, whether deemed
rents or accounts.

     (6) All plans and specifications for the
improvements now or hereafter constructed on the
Property; all contracts and subcontracts relating
to the Property, all deposits (including forfeited
tenant's security deposits), funds, accounts,
contract rights, including management agreements
for the Property; instruments, documents, general
intangibles (including trademarks, service marks,
trade name and symbols used in connection
therewith), contracts of sale relating to any of
the Mortgaged Property (consent to same not
granted or to be implied hereby), and notes or
chattel paper arising from the sale, exchange or
trar sfer (provided any such transaction is
consented to by Lender as required by this Deed of
Trust) of any of the Mortgaged Property; all
permits, licenses, franchises, certificates, and
other rights and privileges obtained in connection
with any of the Mortgaged Property; the books and
records pertaining to the Property; all proceeds
arising from or by virtue of the sale, lease or
other disposition of all or any part of the
Mortgaged Property (consent to same not granted or
to be implied hereby).

     (7) All proceeds or sums payable in lieu of
or as compensation for the loss of or damage to
any of the Mortgaged Property, and all rights in
and to all pertinent present and future fire
and/or hazard insurance policies insuring the
Mortgaged Property; all awards made by any public
body or decreed by any Court of competent
jurisdiction for a taking or for degradation of
value in any eminent domain proceeding of the
Mortgaged Property or any part thereof.

     (8) All buildings, structures, open parking
areas and improvements of every kind and
description now or hereafter erected or placed on
the Property and all materials intended for
construction, reconstruction, alteration and
repairs of such improvements now or hereafter
erected thereon including, but not limited to,
lumber, plaster, cement, shingles, roofing,
plumbing, fixtures, pipe, lath, wallboard,
cabinets, nails, sinks, toilets, furnaces,
heaters, brick, tile, water heaters, screens,
window frames, glass, doors, flooring, paint,
lighting fixtures and unattached refrigerating,
cooking, heating and ventilating appliances and
equipment, all of which materials shall be deemed
to be included within the said Property
immediately upon the delivery thereof to the
Property.

     (9) All machinery, apparatus, equipment,
fittings, fixtures, goods and other articles of
personal property now or hereafter owned by
Grantor and attached to or contained in and used
in connection with any present or future operation
of the Property, including, but not limited to,
all furniture, gas ranges, mechanical equipment,
tools, refrigerators, swimming pool equipment,
recreational equipment, awnings, shades, screens,
equipment and other furnishings and all plumbing,
heating, air conditioning, lighting, cooking,
laundry, ventilating, refrigerating, incinerating,
and sprinkling equipment and fixtures and
appurtenances thereto; and the property, if any,
described in Exhibit A-2, attached hereto and
incorporated by this reference; and all renewals
or replacements thereof or articles in
substitution therefor, whether or not the same are
or shall be attached to said building or buildings
in any manner.


2


     (10) All inventory used in the operation of
the Property.

     (11) (a) All of Grantor's rights to further
encumber the Property by debt, except for such
encumbrance, which, by its actual terms and
specifically expressed intent, shall be and at all
times remain subject and subordinate to any
tenancies thereafter created. Grantor hereby
represents as a special inducement to the Lender
to make this loan, that as of the date hereof
there are no encumbrances to secure debt junior to
this Deed of Trust and covenants that there are to
be none as of the date when this Deed of Trust
becomes of record, except in either case
encumbrances having the prior written approval of
the Lender herein; and

     (b) All of Grantor's rights to enter into any
lease agreement which would create a tenancy that
is or may become subordinate in any respect to any
mortgage or deed of trust encumbering the Property
other than this Deed of Trust.

     (12) All other interest of every kind and
character which Debtor now has or at any time
hereafter acquires in and to the Mortgaged
Property and all property which is used or useful
in connection therewith, including rights of
ingress and egress, easements, licenses, and all
reversionary rights or interests of Debtor with
respect to the Mortgaged Property, together with
all additions, accessions, accessories, and the
proceeds thereof.

     It is specifically understood that the
enumeration of any specific articles of property
shall in no wise exclude or be held to exclude any
items of property not specifically mentioned. All
of the land, estate and property
hereinabove-described, real, personal and mixed,
whether affixed or annexed or not, and all rights
hereby conveyed and mortgaged are intended to be
as a unit and are hereby understood and agreed and
declared to be appropriated to the use of the real
estate, and shall for the purposes of this Deed of
Trust be deemed to be real estate and conveyed and
mortgaged hereby. The real estate conveyed by this
Deed of Trust is located within an incorporated
city or village or does not exceed 20 acres.

     TO HAVE AND TO HOLD IN TRUST NEVERTHELESS,
that in case of an Event of Default defined below,
the Lender or the legal holder of the indebtedness
secured hereby may declare a violation of any of
the covenants herein contained and elect to demand
foreclosure sale. Trustee shall sell the Property
in accordance with the laws of the State of Idaho
and the Uniform Commercial Code of the State of
Idaho, where applicable, at public or private sale
as allowed by law to the highest bidder. Any
person (except Trustee) may bid at the Trustee's
sale. Trustee shall apply the proceeds of the sale
as follows: (1) to the expense of the sale,
including a reasonable Trustee's fee and
attorney's fee; (2) to the obligations secured by
this Deed of Trust; and (3) the surplus, if any,
shall be distributed in accordance with the laws
of Idaho. Trustee shall deliver to the purchaser
at the sale a Trustee's deed, without warranty,
which shall convey to the purchaser such interest
in the Property which Grantor had or had the power
to convey at the time of the execution of this
Deed of Trust, and such interest as Trustee may
have acquired thereafter. The Trustee's deed shall
recite the facts showing that the sale was
conducted in compliance with all requirements of
law and of this Deed of Trust, which recital shall
be prima facie evidence of such compliance and
conclusive evidence thereof in favor of bona fide
purchasers and encumbrancers for value. The power
of sale conferred by this Deed of Trust and by the
laws of Idaho is not an exclusive remedy and when
not exercised, Beneficiary may foreclose this Deed
of Trust under the laws of Idaho as a mortgage and
in that event, obtain a deficiency to the extent
allowed by law. At any time Beneficiary may
appoint in writing a successor trustee, or
discharge and appoint a new Trustee in the place
of any Trustee named herein, and upon the
recording of such appointment in the records of
the county in which this Deed of Trust is
recorded, the successor Trustee shall be vested
with all powers of the Original Trustee, Grantor
agrees


3



to surrender possession of the Property to the
Purchaser at the aforesaid sale on or before the
tenth day following the sale, in the event such
possession has not previously been delivered.

     And the said Grantor, for itself and for its
successors and assigns, covenants and agrees to
and with the said Trustee, that at the time of the
ensealing of and delivery of these presents, (1)
it is well seized of the Mortgaged Property in fee
simple, and has good right, full power and lawful
authority to grant, bargain, sell and convey the
same in the manner and form as aforesaid; thereby
fully and absolutely waiving and releasing all
rights and claims it may have in or to said lands,
tenements and property as a Homestead Exemption,
or other exemption, under and by virtue of any act
of the Idaho Legislature, now existing or which
may hereafter be passed in relation thereto; and
that the same are free and clear of all liens and
encumbrances whatever, except the lien of general
taxes not yet due and payable and the Permitted
Encumbrances set forth on Exhibit A-3, and (2) it
will warrant and forever defend the
above-bargained Mortgaged Property in the quiet
and peaceable possession of the said Trustee, his
successors and assigns against all and every
person or persons lawfully claiming or to claim
the whole or any part thereof.

     IT IS FURTHER UNDERSTOOD AND AGREED THAT:

MAINTENANCE, REPAIR AND RESTORATION OF
IMPROVEMENTS, PAYMENT OF PRIOR LIENS, ETC

     1. Borrower shall pay each item of
indebtedness secured by this Deed of Trust when
due according to the terms hereof or of the Note
and shall (a) promptly repair, restore or rebuild
any buildings or improvements now or hereafter on
the Property which may become damaged or be
destroyed subject to casualty/condemnation clauses
in this Deed of Trust; (b) keep the Property in
good condition and repair, without waste, and free
from mechanics' liens or claims for lien not
expressly subordinated to the lien hereof; (c) pay
when due any indebtedness which may be secured by
a lien or charge on the Property superior to the
lien hereof, and upon request exhibit satisfactory
evidence of the discharge of such prior lien to
Lender; (d) pay when due all utility charges which
are incurred for the benefit of the Property or
which may become a charge or lien against the
Property for energy, fuel, gas, electricity, water
or sewer services furnished to the Property and
all other assessments or charges of a similar
nature, whether public or private, affecting the
Property, or any portion thereof, whether or not
such assessments or charges are liens thereon; (e)
complete within a reasonable time, any building or
buildings now or at any time in process of
erection upon the Property; (f) comply with all
requirements of law, municipal ordinances, or
restrictions of record with respect to the
Property and the use thereof; (g) operate the
Property as a first class assisted and independent
living facility; (h) make no material alterations
to the Property or any of the buildings,
improvements, fixtures, apparatus, machinery and
equipment now or hereafter erected or located upon
said Property, except as required by law or
municipal ordinance, without Lender's written
consent; (I) suffer or permit no change in the
general nature of the occupancy of the Property,
without Lender's written consent; (j) initiate or
acquiesce in no zoning reclassification without
Lender's written consent; (k) not make any
purchase or conditional sale, lease or agreement
under which title is reserved in the vendor of any
such fixtures, apparatus, machinery, equipment or
personal property to be placed in or upon any of
the buildings or improvements on the Property; and
(1) not voluntarily create or otherwise permit to
be created or filed against the Mortgaged
Property, any other Deed of Trust or any mortgage
lien or other lien or liens or statements of lien,
inferior or superior to this Deed of Trust,
without the prior written consent of Lender.




4




PAYMENT OF TAXES

     2. Grantor shall pay before any penalty
attaches all general taxes, and shall pay special
taxes, special assessments, water charges, sewer
service charges, and other charges against the
Property when due and payable, and shall furnish
to Lender receipts evidencing payment of same
within thirty (30) days following their respective
due dates. To prevent default hereunder, Grantor
shall pay in full under protest, or provide an
indemnity bond or other security reasonably
satisfactory to Lender and in the manner provided
by statute, as to any tax or assessment which
Grantor may desire to contest.

TAX DEPOSITS

     3.  Following an Event of Default, Grantor
shall deposit monthly with Lender or at such place
as Lender may from time to time designate, a sum
equal to one-twelfth of the last total annual
taxes on the Property (unless said taxes were
based upon assessments which excluded the current
improvements or any portions thereof, in which
event the amount of such deposits shall be based
upon the Lender's reasonable estimate as to the
total amount of taxes to be levied and assessed).
Borrower, concurrently with the payment of the
first deposit under this paragraph, will also
deposit with Lender an amount based upon the taxes
and assessments so ascertainable or so estimated
by the Lender, as the case may be, for taxes and
assessments on the Property, on an accrual basis
for the period from March 1, succeeding the year
for which all taxes and assessments have been
paid, to and including the date of the first
deposit in this paragraph hereinabove mentioned.
Such deposits are to be held without any allowance
of interest and are to be used for the payment of
taxes and assessments (general and special) on the
Property next due and payable when they become
due. If the funds so deposited are insufficient to
pay any such taxes and assessments (general and
special) for any year when the same shall become
due and payable, the Grantor shall, within ten
(10) days after receipt of demand therefor,
deposit such additional funds as may be necessary
to pay such taxes and assessments (general and
special) in full.

INSURANCE

     4.  Borrower shall keep all buildings and
improvements now or hereafter situated on the
Property insured against loss or damage by fire,
lightning and risks customarily covered by
standard extended coverage endorsement. The
insurance policies shall include a standard
extended coverage endorsement, a vandalism and
malicious mischief endorsement or an all perils
endorsement, all in amounts not less than the full
replacement costs of all improvements including
the cost of debris removal, but excluding
foundations and footings. Unless modified by
Lender in writing, Borrower shall also provide:
Comprehensive General Public Liability Insurance
in limits satisfactory to Lender; if there are
pressure fired vessels within the Property, Broad
Form Boiler and Machinery Insurance on all
equipment and objects customarily covered by such
insurance and providing for full repair and
replacement cost coverage; Rent and Rental Value
Insurance in the sum of (a) rental for a full year
period, (b) real estate taxes, special assessments
and utility charges and (c) the premiums for all
insurance required to be paid whether by the
Lessor or by the tenants under each lease of the
Property; during the making of any alterations or
improvements to the Property, (a) owner's
contingent liability covering claims not covered
by the general comprehensive insurance referred to
above, and (b) Worker's Compensation Insurance
covering all persons engaged in making such
alterations or improvements; if the Property is in
a "flood plain area" as defined by the Federal
Insurance Administration pursuant to the Federal
Flood Disaster Protection Act of 1973, then
Federal Flood Insurance in the maximum obtainable
amount up to the loan amount; and such other
coverage as may reasonably be required by Lender.


5



     All policies for such insurance to be
furnished hereunder shall be in forms, companies
and amounts satisfactory to Lender, with first
mortgagee clauses and loss payable clauses
attached to all policies in favor of and in form
satisfactory to Lender, including a provision
requiring that the coverage evidenced thereby
shall not be terminated or materially modified
without ten (10) days' prior written notice to the
Lender and shall contain endorsements that no act
or negligence of the insured or any occupant, and
no occupancy or use of the property for purposes
more hazardous than permitted by the terms of the
policy will affect the validity or enforceability
of such insurance as against Lender; shall be in
full force and effect on the date hereof. Said
insurance policies shall be written in amounts
aufficient to prevent Borrower from becoming a
co-insurer under the applicable policies. Borrower
shall deliver all said policies, including
additional and renewal policies, to Lender, and,
in the case of insurance about to expire, shall
deliver renewal policies not less than ten (10)
days prior to their respective dates of
expiration.

INSURANCE DEPOSITS

     5. Following an Event of Default, Grantor
shall deposit monthly with Lender or at such place
as Lender may from time to time designate,
aufficient funds, as estimated by Lender in its
sole discretion, to permit payment of annual
insurance premiums on the Property next due and
payable when they become due. Concurrently with
the payment of the first deposit under this
paragraph, Borrower shall also deposit an amount
equal to one-twelfth (1/12th) of the next maturing
annual insurance premiums for each month that has
elapsed since the last date to which such premiums
were paid. Such deposits are to be held without
any allowance of interest and are to be used for
the payment of insurance premiums on the Property
when they become due and payable. Grantor shall,
within ten (10) days after receipt of demand
therefor, deposit such additional funds as are
necessary to make up any deficiencies in amounts
necessary to pay such premiums when due.

LENDER'S INTEREST IN AND USE OF DEPOSITS

     6. Following an Event of Default, the Lender
may at its option, without being required to do
so, apply any moneys at the time on deposit
pursuant to paragraphs entitled "Tax Deposits" and
"Insurance Deposits" hereof, as any one or more of
the same may be applicable, on any of Grantor's
obligations herein or in the Note contained, in
such order and manner as Lender may elect. When
the indebtedness secured hereby has been fully
paid, any remaining deposits shall be paid to
Borrower or to the then owner or owners of the
Property. Such deposits are hereby pledged as
additional security for the Note and shall be held
in trust to be irrevocably applied for the
purposes for which made hereunder and shall not be
subject to the direction or control of the
Grantor; provided, however, that prior to an Event
of Default, Lender agrees to apply the deposits or
any portion thereof to the payment of taxes or
insurance premiums so long as Grantor shall have
requested in writing the application of such funds
to the payment of the particular charge for which
they were deposited, accompanied by the bills for
such charge.

     In the event of a sale or foreclosure of this
Deed of Trust or deed in lieu of foreclosure or
other transfer of title to the Property in
extinguishment, in whole or in part, of the
indebtedness secured hereby, all right, title and
interest of Grantor in and to all policies of
insurance on the Property, including any right to
unearned premiums, are hereby assigned to and
shall inure to the benefit of Lender or purchaser
of the Property. Grantor shall not take out
separate insurance concurrent in form or
contributing in the event of loss with that
required to be maintained hereunder unless Lender
is included thereon under a standard mortgage
clause acceptable to Lender. Grantor shall
immediately notify Lender whenever any such
separate insurance is taken out and shall promptly
deliver to Lender the policy or policies of such
insurance.

                                                 6



PAYMENT OF NOTE

     7. Borrower shall promptly and punctually pay
all principal and interest, as the rate thereof
may be adjusted as provided in the Note (together
with any legal, title insurance or other expenses
incurred by Lender in connection with such rate
adjustment), prepayment charge, and all other sums
to become due in respect to the Note, according to
the true intent and meaning thereof.

ADJUSTMENT OF LOSSES WITH INSURER AND APPLICATION
OF PROCEEDS OF INSURANCE

     8. In case of loss which exceeds $100,000 as
determined by Lender's insurance consultant, the
Lender, or after foreclosure, the holder of the
certificate or certificates of purchase, is hereby
authorized either (a) to settle and adjust any
claim under such insurance policies with the
consent of Grantor not to be unreasonably
withheld, or (b) to allow Grantor to agree with
the insurance company or companies on the amount
to be paid upon the loss. In either case, Lender
is authorized to collect and receipt for any such
insurance money. Such insurance proceeds shall be
held by the Lender and used to reimburse Grantor
for the cost of rebuilding or restoration of
buildings or improvements on the Property. Such
proceeds shall be made available, from time to
time, upon the Lender being furnished with
satisfactory evidence of the estimated cost of
completion thereof and with such architect's
certificates, waivers of lien, contractors' sworn
statements and other evidence of costs and of
payments as the Lender may reasonably require and
approve. No payment made prior to the final
completion of the work shall exceed ninety percent
(90%) of the value of the work performed, from
time to time. At all times, the undisbursed
balance of said proceeds remaining in the hands of
the Lender shall be at least aufficient to pay for
the cost of completion of the work free and clear
of liens, or Grantor shall have provided Lender
with reasonable evidence that it has arranged for
aufficient funds to pay the difference.

     Notwithstanding the foregoing, in case of
loss after foreclosure proceedings have been
instituted, or loss which occurs during the last
three months prior to the maturity date of the
Note, Lender is authorized to collect and receipt
for any such insurance money. Said insurance
proceeds may, at the option of Lender, either be
applied in reduction of the indebtedness secured
hereby in the inverse order of maturity, whether
due or not, or be held by the Lender and used to
rebuild or restore the buildings or improvements
located on the Property and the balance, if any,
shall be paid to the Borrower, or if applicable,
to the owner of the equity of redemption if he
shall then be entitled to the same. In case of a
judicial foreclosure of this Deed of Trust, the
Court in its decree may provide that the
mortgagee's clause attached to each of said
insurance policies may be canceled and that the
decree creditor may cause a new loss clause to be
attached to each of said policies making the loss
thereunder payable to said decree creditor; and
any such foreclosure decree may further provide
that in case of one or more redemptions under said
decree, pursuant to the statute in such case made
and provided, then and in every such case, each
successive redemptor may cause the preceding loss
clause attached to each insurance policy to be
canceled and a new loss clause to be attached
thereto, making the loss thereunder payable to
such redemptor. In the event of foreclosure sale,
Lender is hereby authorized, without the consent
of Grantor, to assign any and all insurance
policies to the purchaser at the sale, or to take
such other steps as Lender may deem advisable, to
cause the interest of such purchaser to be
protected by any of the said insurance policies.

     In the case of a casualty which does not
occur during the last three months prior to the
maturity date of the Note and which results in a
loss which is $100,000 or less as determined by
Lender's insurance consultant, then the Grantor is
authorized to settle and


7



adjust the claim under the insurance policies,
such proceeds may be paid directly to Grantor and
Grantor covenants and agrees to use such proceeds
solely for the repair or restoration of buildings
and improvements on the Property.

OBSERVANCE OF LEASE ASSIGNMENT

     9. In the event Borrower, as additional
security for the payment of the indebtedness
described in and secured by this Deed of Trust,
has sold, transferred and assigned to Lender, its
successors and assigns, any interest of Borrower
in any Lease or Leases demising all or a portion
of the Property together with the rents secured
thereby, Borrower expressly covenants and agrees
that if Borrower, as Lessor under said Lease or
Leases so assigned, fails to faithfully perform
and fulfill any term, covenant, condition or
provision in said Lease or Leases, or any of them,
on its part to be performed or furfilled, at the
times and in the manner in said Lease or Leases
provided, resulting in or making possible
forfeiture or termination of any such Lease,
without the written consent of Lender, or if
Borrower suffers or permits to occur any breach or
default under the provisions of any Assignment of
Lessor's Interest in any Lease or Leases of the
Property given as additional security for the
payment of the indebtedness secured hereby, or if
Borrower fails to fully protect, insure, preserve
and cause continued performance or furfillment of
the terms, covenants or provisions in said Lease
or Leases required to be performed or furfilled by
the Lessee or any of the Lessees therein or if the
Borrower, without Lender's prior agreement,
permits or approves an assignment by Lessee of
said Lease or Leases, upon becoming an Event of
Default under such assignment, then in any such
event, at the option of Lender, or of the then
holder of the Note secured hereby, such breach or
default shall constitute an Event of Default
hereunder.

     In the event the Grantor, as the Lessor in
said Lease or Leases, shall neglect or refuse to
perform, observe and keep all of the covenants,
provisions and agreements contained in said Lease
or Leases, the Lender may, but shall not be
obligated to, perform and comply with any such
Lease covenants, agreements and provisions, in
which event all costs and expenses incurred by
Lender in complying with such covenants,
agreements and provisions, shall become a part of
the principal indebtedness secured by this Deed of
Trust and recoverable as such in all respects.

COVENANTS WITH RESPECT TO LEASE

     10. Intentionally omitted.

EFFECT OF EXTENSIONS OF TIME

     11. If the payment of the Note or any part
thereof be extended or varied or if any part of
the security be released, all persons now or at
any time hereafter liable therefor, or interested
in the Property, shall be held to assent to such
extension, variation or release, and their
liability and the lien and all provisions hereof
shall continue in full force, the right of
recourse against all such persons being expressly
reserved by the Lender, notwithstanding such
extension, variation or release.

EFFECT OF CHANGES IN LAWS REGARDING TAXATION

     12. In the event of the enactment after this
date of any law of the United States or of the
state in which the Property is located deducting
from the value of land for the purpose of the
taxation of any lien thereon, or imposing upon the
Lender the payment of the whole or any part of the
taxes or assessments or charges or liens herein
required to be paid by Grantor, or changing the
laws relating to the taxation of deeds of trust or
mortgages or debts secured by deeds of trust or
mortgages or the Lender's interest in the


8



Property, or the manner of collection of taxes, so
as to affect materially and adversely this Deed of
Trust or the Lender's interest in the Mortgaged
Property, or the debt secured hereby or the holder
thereof, then, and in any event, the Grantor, upon
demand by the Lender, shall pay such taxes or
assessments, or reimburse the Lender therefor;
provided, however, that if in the opinion of
counsel for the Lender (a) it might be unlawful to
require Grantor to make such payment or (b) the
making of such payment might result in the
imposition of interest beyond the maximum amount
permitted by law, then and in such event, the
Lender may elect, by notice in writing given to
the Grantor, to declare all of the indebtedness
secured hereby to be and become due and payable
sixty (60) days from the giving of such notice.
Notwithstanding the foregoing, it is understood
and agreed that Borrower shall not be obligated to
pay any portion of Lender's federal, state, or
municipal income tax or any franchise, estate,
inheritance, excess profits or similar tax levied
on Lender or the obligations secured hereby.

LENDER'S PERFORMANCE OF DEFAULTED ACTS

     13. Lender may, but need not, make full or
partial payments of principal, interest and other
charges due on prior encumbrances, if any, and
purchase, discharge, compromise or settle any tax
lien or other lien or title or claim thereof;
redeem from any tax sale or forfeiture affecting
the Property or contest any tax or assessment; pay
any premium on insurance required to be carried
hereunder; or advance funds for the protection of
the Property, or for the purpose of curing any
default hereunder. All moneys paid for any of the
purposes herein authorized and all expenses paid
or incurred in connection therewith, including
reasonable attorneys' fees, and any other moneys
advanced by Lender to protect the Property and the
lien hereof, shall be so much additional
indebtedness secured hereby, and shall become
immediately due and payable without notice and
with interest thereon at the Default Rate, as more
particularly defined in the Note. Inaction of
Lender shall never be considered as a waiver of
any right accruing to it on account of any default
on the part of Grantor.

LENDER'S RELIANCE ON TAX BILLS, ETC,

     14. Lender in making any payment hereby
authorized: (a) relating to taxes and assessments,
may do so according to any bill, statement or
estimate procured from the appropriate public
office without inquiry into the accuracy of such
bill, statement or estimate or into the validity
of any tax, assessment, lien or title or claim
thereof; or (b) for the purchase, discharge,
compromise or settlement of any other prior lien,
may do so only upon reasonable inquiry as to the
validity, priority, or amount of any claim for
lien which may be asserted and following 10 days'
prior notice to Grantor.

ACCELERATION OF INDEBTEDNESS IN CASE OF DEFAULT

     15. The occurrence of any of the following
shall constitute an Event of Default: (a) Grantor
shall fail to pay the Note when due, or any
installment due in accordance with the terms
thereof, either of principal or interest or any
other monetary obligations due and owing under
this Deed of Trust or any other document securing
the Note and such monetary default is not cured
within 10 days after notice thereof; or (b)
Grantor shall sell, transfer or convey all or any
part of the Mortgaged Property or any interest
therein (except the sale of inventory in the
ordinary course of business) without complying
with the provisions of the section entitled "Sale
of Property or Change in Borrower Entity;" in the
case of real estate, or without complying with
subsection (5) below in the case of other personal
property except as further limited by Grantor's
reserved rights in Section 40; or (c) any
non-monetary default shall be made in the due
observance or performance of any other covenants,
agreements or conditions hereinbefore or
hereinafter contained, required to be kept or
performed or observed by


9



the Grantor, and if curable, not cured by Grantor
within the specific cure period, if any, stated
herein, or if none shall remain uncured for a
period of fifteen (15) days after the date of
written notice thereof from Lender to Grantor. In
the event that such failure, refusal or neglect,
is susceptible of cure but is not cured within
said fifteen (15) days, so long as Grantor is
diligently and continuously pursuing such cure,
Lender shall permit Grantor an additional thirty
(30) days to effectuate such cure; provided, that
prior to Completion of Improvements, such
additional thirty (30) days shall not apply where
such failure, refusal or neglect results, in
Lender's reasonable determination, in a matter
which is of an emergency nature.

     Upon the occurrence of an Event of Default,
the whole of said principal sum hereby secured
shall, at once, at the option of the Lender,
become immediately due and payable, together with
accrued interest thereon. In addition to the
aforedescribed events of default, the term "Event
of Default" shall also mean any one or more of the
following events:

     (1) The Borrower or any guarantor of the
Borrower's obligations hereunder shall generally
not pay its debts as they become due or shall
admit in writing its inability to pay its debts,
or shall make a general assignment for the benefit
of creditors; or

     (2) The Borrower or any such guarantor shall
commence any case, proceeding or other action
seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or
its debts under any law relating to bankruptcy,
insolvency,
reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or
other similar official for it or for all or any
substantial part of its property; or

     (3) The Borrower or any such guarantor shall
take any action to authorize any of the actions
set forth above in paragraphs (1) or (2); or

     (4) A third party shall bring any case,
proceeding or other action against the Borrower or
any guarantor of the Borrower's obligations
hereunder, seeking to have an order for relief
entered against it as debtor, or seeking
reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or
its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors,
or seeking appointment of a receiver, trustee,
custodian or other similar official for it or for
all or any substantial part of its property, and
such case, proceeding or other action (I) results
in the entry of an order for relief against it
which is not fully stayed within 14 business days
after the entry thereof or (ii) remains
undismissed for a period of 60 days after its
commencement.

     (5) Grantor shall sell, lease, convey or in
any manner transfer any of the personal property
which is part of the Mortgaged Property without
replacing the property with new or substantially
the same property.

SALE OF PROPERTY OR CHANGE IN BORROWER ENTITY

     16. As an inducement to Lender to make the
loan evidenced by the Note which this Deed of
Trust secures, Borrower covenants and agrees that
during the term of the loan, title to the
Borrower's interest in the Property shall be
vested solely in Borrower. If at any time during
the term all or any part of the Borrower's
interest in said real estate or any interest
therein (except residential occupancy agreements
in the ordinary course of business on forms
approved by Lender or Leases of less than 10% of
the total rentable floor area of the
improvements), without the prior written consent
of Lender, shall be



                                              10



conveyed or transferred or is further encumbered
(whether voluntary or by operation of law or
otherwise), the indebtedness secured hereby shall,
at the option of Lender, become immediately due
and payable.

     If Borrower or its permitted successor is a
partnership, a change in a general partner shall
be considered a change of ownership for purposes
of this paragraph. If Borrower or its permitted
successor is a corporation, a change in the
aggregate stock ownership affecting more that 50%
of the ownership interest shall be considered a
change of ownership for purposes of this
paragraph. If Borrower or its permitted successor
is a limited liability company, a change in
manager or change in the aggregate membership
affecting more than 50% of the ownership interest
shall be considered a change in ownership for
purposes of this paragraph. Notwithstanding the
foregoing, Borrower may convey all of the
Mortgaged Property to a successor entity or
assignee in which Emeritus Corporation and/or
Daniel R. Baty hold more than 50% of the total
ownership interest ("Permitted Assignee") and so
long as the Permitted Assignee agrees to assume
the Note and obligations hereunder and, if the
transfer occurs after Completion of Improvements,
so long as the Permitted Assignee has a license to
own and operate the facility located at the
Property.

     Lender agrees not to withhold its consent to
a change in ownership if the new owner or owners
have a satisfactory credit standing, qualified
management ability to operate the Property in
Lender's sole judgment as a prudent lender and all
required licenses and permits from applicable
govemmental agencies. Notwithstanding the
foregoing, Lender may withhold consent to a change
in ownership if the principals (or baneficiaries)
of such new owner are undisclosed or unavailable
for service of process within the United States.
Borrower shall give Lender 30 days' prior written
notice of any proposed transaction which requires
Lender's consent and shall furnish to Lender such
information as Lender may reasonably require.
Consent to any one transaction shall not be deemed
to be consent to any other.

     Upon a sale, conveyance or transfer of the
Property requiring Lender's consent, Lender may:
(a) charge Borrower a fee for processing a request
for approval, (b) require the payment of
reasonable attomeys' fees in connection with such
transfer, (c) require the express assumption of
payment of the Note and performance of the
obligations by the new owner or owners without the
release of Grantor from liability for such Note
and obligations), (d) require the execution of
Assumption Agreements, Modification Agreements,
Supplemental Security Documents and Financing
Statements satisfactory in form and substance to
Lender, and (e) require endorsements (to the
extent available under applicable law) to any
existing mortgage title insurance policies
insuring Lender's liens and security interests
covering the Property.

FORECLOSURE; EXPENSE OF LITIGATION

     17. Upon an Event of Default, Lender shall
have the right to foreclose the lien hereof. If
foreclosure be made by the Trustee, a reasonable
attorneys' fee for services in the supervision of
said foreclosure proceedings shall be allowed by
the Trustee as part of the foreclosure costs. If
foreclosure be made through the Court, a
reasonable attorneys' fee shal1 be allowed as part
of the foreclosure costs. In the event of
foreclosure of the lien hereof, whether through
the Trustee or through the Court, there shall be
allowed and included as additional indebtedness
all reasonable expenditures and expenses which may
be paid or incurred by or on behalf of Lender for
attorneys' fees, appraisers' fees, outlays for
documentary and expert evidence, stenographers'
charges, publication costs, and costs (which may
be estimated as to items to be expended after
foreclosure sale or entry of the decree) of
procuring all such abstracts of title, title
searches and examinations, title



11



insurance policies, and similar data and
assurances with respect to title as Lender may
deem reasonably necessary either to prosecute such
suit or to evidence to bidders at any sale which
may be had pursuant to such decree the true
condition of the title to or the value of the
Property. All expenditures and expenses of the
nature in this
paragraph mentioned, and such expenses and fees as
may be incurred in the protection of the Mortgaged
Property, and the maintenance of the lien of this
Deed of Trust, and charges permitted by law,
including the reasonable fees of any attorney
employed by Lender in any litigation or proceeding
affecting this Deed of Trust, the Note or the
Mortgaged Property, including probate, bankruptcy
proceedings, proceedings to obtain a receiver, or
in preparation for the commencement or defense of
any proceeding or threatened suit or proceeding,
shall be immediately due and payable by Borrower,
with interest thereon at the Default Rate, as more
particularly defined in the Note and shall be
secured by this Deed of Trust.

HAZARDOUS WASTE

     18. Grantor shall keep and maintain the
Property in compliance with, and shall not cause
or permit the Property to be in violation of any
federal, state or local laws, ordinances, or
regulations relating to industrial hygiene or to
the environmental conditions on, under or about
the Property including, but not limited to, soil
and ground water conditions. Grantor shall not
use, generate, manufacture, store or dispose of
on, under or about the Property or transport to or
from the Property any flammable explosives,
radioactive materials, hazardous wastes, toxic
substances or related materials, including,
without limitation, any substances defined as or
included in the definition of "hazardous
substances," "hazardous wastes," or "toxic
substances" under any applicable federal or state
laws or regulations, excepting from the term
Hawrdous Substance materials and/or substances
used in the normal course of business provided
said materials an/or substances are kept in
approved containers, at or within approved
locations, and in accordance with all applicable
laws, rules and regulations and, if applicable,
that all appropriate licenses are obtained
(collectively referred to hereinafter as
"Hazardous Materials").

     Grantor shall immediately advise Lender in
writing of (1) any and all enforcement, cleanup,
removal or other governmental or regulatory
actions instituted, completed or threatened
pursuant to any applicable federal, state or local
laws, ordinances, or regulations relating to any
Hq7nrdous Materials affecting the Property
("Hazardous Materials Laws"); (ii) all claims made
or threatened by any third party against Grantor
or the Property relating to damage, contribution,
cost recovery compensation, loss or injury
resulting from any Hn7nrdous Materials (the
matters set forth in clauses (I) and (ii) above
are hereinafter referred to as "Hazardous
Materials Claims"); and (iii) Grantor's discovery
of any occurrence or condition on any real
property adjoining or in the vicinity of the
Property that would cause the Property to be
subject to any restrictions on the ownership,
occupancy, transferability or use of the Property
under any Hazardous Materials Laws.

     Lender shall have the right to join and
participate in, as a party if it so elects, any
legal proceedings or actions initiated in
connection with any Hazardous Materials Claims and
to have its reasonable aKorneys' fees in
connection therewith paid by Grantor. Grantor
shall be solely responsible for, and shall
indemnify and hold harmless Lender, its directors,
officers, employees, agents, successors and
assigns (the "Indemnified Parties") from and
against, any loss, damage, cost, expense or
liability directly or indirectly arising out of or
attributable to the use, generation, storage,
release, threatened release, discharge, disposal,
or presence of Hazardous Materials on, under or
about the Property, including, without limitation:
(a) all foreseeable consequential damages; (b) the
costs of any required or necessary repair, cleanup
or detoxification of


12



the Property; and the preparation and
implementation of any closure, remedial or other
required plans; and (c) all reasonable costs and
expenses incurred by Lender in connection with
clauses (a) and (b), including but not limited to
reasonable attorneys' fees; but not including
(a)-(c) to the extent arising out of the
negligence or willful misconduct of the
Indemnified Parties.

     Without Lender's prior written consent, which
shall not be unreasonably withheld, Grantor shall
not take any remedial action in response to the
presence of any Hazardous Materials on, under, or
about the Property, nor enter into any settlement
agreement, consent decree, or other compromise in
respect to any Hazardous Material Claims, which
remedial action, settlement, consent or compromise
might, in Lender's reasonable judgment, impair the
value of the Lender's security hereunder;
provided, however, that Lender's prior consent
shall not be necessary in the event that the
presence of Hazardous Materials on, under, or
about the Property either poses an immediate
threat to the health, safety or welfare of any
individual or is of such a nature that an
immediate remedial response is necessary and it is
not possible to obtain Lender's consent before
taking such action, provided that in such event
Grantor shall notify Lender as soon as practicable
of any action so taken. Lender agrees not to
withhold its consent, where such consent is
required hereunder, if either (I) a particular
remedial action is ordered by a court of competent
jurisdiction, or (ii) Grantor establishes to the
reasonable satisfaction of Lender that there is no
reasonable alternative to such remedial action
which would result in less impairment of Lender's
security hereunder.

APPOINTMENT OF RECEIVER

     19. In addition to any other rights and
powers conferred on the Lender hereunder, upon an
Event of Default Lender shall have the right to
apply for the appointment of a receiver of rents
and profits of any part or the whole of the above
Property, ex parte and without notice, and the
Lender shall be entitled, as a matter of right,
without regard to the value of the Property as
security for the amount due or to the solvency of
the Borrower or any other party or parties liable
for the payment of such amount, to the appointment
of such a receiver of rents and profits with power
to lease the Property, or such part thereof as may
not then be under lease, and with such other
powers as may be deemed necessary, who, after
deducting all proper charges and expenses
attending the execution of his trust as receiver,
including the fees of the receiver, and attorney's
fees of the receiver's attorney, shall apply the
residue of the said rents and profits to the
payment and satisfaction of the amount remaining
secured hereby, or to any deficiency which may
exist after applying the proceeds of the sale of
said Property to the payment of the amount due,
including interest and the costs of any reasonable
attorneys' fees for the foreclosure and sale in
such order of priority as Lender shall elect.

ASSIGNMENT OF RENTS AND LEASES

     20. To further secure the indebtedness
secured hereby, Grantor does hereby sell, assign
and transfer unto the Lender all rents, issues and
profits now due and which may hereafter become due
under or by virtue of any lease, whether written
or verbal, or any letting of, or of any agreement
for the use or occupancy of the Mortgaged Property
or any part thereof, and all benefits and
advantages to be derived therefrom, which may have
been heretofore or may be hereafter made or agreed
to or which may be made or agreed to by the Lender
under the powers herein granted, it being the
intention hereby to establish an absolute transfer
and assignment of all such avails, rents, issues
and profits unto the Lender, and the Grantor does
hereby appoint irrevocably the Lender its true and
lawful attorney in its name and stead (with or
without taking possession of the Property as
provided in the paragraph entitled "Lender's Right
of Possession In Case of Default") following an
Event of Default to rent, lease or let all or any
portion of the Mortgaged


13



Property to any party or parties at such rental
and upon such terms as said Lender shall, in its
discretion, determine, and to collect all of said
avails, rents, issues and profits arising from or
accruing at any time hereafter, and all now due or
that may hereafter become due under each and every
of the leases and agreements, written or verbal,
or other tenancy agreements existing, or which may
hereafter exist on the Mortgaged Property, with
the same rights and powers and subject to the same
immunities, exoneration of liability and rights of
recourse and indemnity as the Lender would have
upon taking possession pursuant to the provisions
of the paragraph entitled "Lender's Right of
Possession In Case of Default" hereof.

     Grantor represents and agrees that no rent
has been or will be paid by any person in
possession of any portion of the Property for more
than one installment in advance, and that the
payment of none of the rents to accrue for any
portion of the Property has been or will be
waived, released, reduced, discounted or otherwise
discharged or compromised by the Grantor. The
Grantor waives any rights of setoff against any
person in possession of any portion of the
Mortgaged Property. If any lease provides for the
abatement of the rent during repair of the
Property demised thereunder by reason of fire or
other casualty, the Grantor shall furnish to the
Lender rental insurance, the policies to be in
amount and form and written by such insurance
companies as shall be satisfactory to the Lender.
Grantor agrees that it will not assign any of the
rents or profits of the Mortgaged Property, except
to a purchaser or grantee of the Mortgaged
Property, and then only upon condition that said
grantee agrees, in writing, to assume and pay the
debt secured hereby.

     Nothing herein contained shall be construed
as constituting the Lender a mortgagee in
possession in the absence of the taking of actual
possession of the Mortgaged Property by the
Lender. In the exercise of the powers herein
granted to the Lender, no liability shall be
asserted or enforced against the Lender, all such
liability being expressly waived and released by
Grantor.

     The Grantor further agrees to further assign
and transfer to the Lender all future leases upon
all or any part of the Mortgaged Property and to
execute and deliver, at the request of the Lender,
all such further assurances and assignments in the
Mortgaged Property as the Lender shall from time
to time require.

     Although it is the intention of the parties
that the assignment contained in this paragraph
entitled "Assignment of Rents and Leases" shall be
a present assignment, it is expressly understood
and agreed, anything herein contained to the
contrary notwithstanding, that the Lender shall
not exercise any of the rights or powers conferred
upon it by this paragraph until and unless an
Event of Default occurs. Until an Event of Default
occurs, Lender grants to Grantor a revocable
license to collect rental and occupancy charges.

LENDER'S RIGHT OF POSSESSION IN CASE OF DEFAULT

     21. In any case in which under the provision
of this Deed of Trust, the Lender has a right to
institute foreclosure proceedings, whether before
or after the whole principal sum secured hereby is
declared to be immediately due as aforesaid, or
whether before or after the institution of legal
proceedings to foreclose the lien hereof or before
or after sale thereunder, forthwith upon demand of
Lender, Grantor shall surrender to Lender and
Lender shall be entitled to take actual possession
of the Property or any part thereof personally, or
by its agents or attorneys, as for condition
broken, and Lender in its discretion may, with or
without force and with or without process of law,
enter upon and take and maintain possession of all
or any part of the Mortgaged Property, together
with all documents, books, records, papers and
accounts of the Grantor or then owners of


14



the Mortgaged Property relating thereto, and may
exclude the Grantor, its agents or servants,
wholly therefrom and may, as attorney-in-fact or
agent of the Grantor, or in its own name as Lender
and under the powers herein granted, hold,
operate, manage and control the Mortgaged Property
and conduct the business, if any, thereof, either
personally or by its agents, and with full power
to use such measures, legal or equitable, as in
its discretion or in the discretion of its
successors or assigns may be deemed proper or
necessary to enforce the payment or security of
the avails, rents, issues, and profits of the
Mortgaged Property, including actions for the
recovery of rent, actions in forcible detainer and
actions in distress for rent, hereby granting full
power and authority to exercise each and every of
the rights, privileges and powers herein granted
at any and all times hereafter, without notice to
the Grantor, and with full power to cancel or
terminate any lease or sublease for any cause or
on any ground which would entitle Grantor to
cancel the same, to elect to disaffirm any lease
or sublease made subsequent to this mortgage or
subordinated to the lien hereof, to make all
necessary or proper repairs, betterments and
improvements to the Mortgaged Property as to it
may seem judicious, insure and reinsure the same
and all risks incidental to Lender's possession,
operation and management thereof and to receive
all of such avails, rents, issues and profits.

     The Lender shall not be obligated to perform
or discharge, nor does it hereby undertake to
perform or discharge, any obligation, duty or
liability under any leases, and the Grantor shall
and does hereby agree to indemnify and hold the
Lender harmless of and from any and all liability,
loss or damage which it may or might incur under
said leases or under or by reason of the
assignment thereof and of and from any and all
claims and demands whatsoever which may be
asserted against it by reason of any alleged
obligations or undertakings on its part to perform
or discharge any of the terms, covenants or
agreements contained in said leases. Should the
Lender incur any such liability, loss or damage,
under said leases or under or by reason of the
assignment thereof, or in the defense of any
claims or demands (except claims arising out of
Lender's negligence or willful misconduct), the
amount thereof, including costs, expenses and
reasonable attorneys' fees shall be secured
hereby, and the Borrower shall reimburse the
Lender therefor immediately upon demand.

APPLICATION OF INCOME RECEIVED BY LENDER

     22. The Lender in the exercise of the rights
and powers hereinabove conferred upon it by the
paragraphs entitled "Assignment of Rents and
Leases" and "Lender's Right of Possession in Case
of Default" hereof shall have full power to use
and apply the avails, rents, issues and profits of
the Mortgaged Property to the payment of or on
account of the following, in such order as Lender
may determine:

     (a) To the payment of the operating expenses
of the Mortgaged Property, including cost of
management and leasing thereof (which shall
include reasonable compensation to the Lender and
its agent or agents, if management be delegated to
an agent or agents, and shall also include lease
commissions and other compensation and expenses of
seeking and procuring tenants and entering into
leases), established claims for damages, if any,
and premiums on insurance hereinabove authorized;

     (b) To the payment of taxes, special
assessments or insurance premiums now due or which
may hereafter become due on the Mortgaged
Property;

     (c) To the payment of all repairs,
decorating, renewals, replacements, alterations,
additions, betterments, and improvements
reasonably necessary for the continued operation
of the Mortgaged Property;

     (d) To the payment of any indebtedness
secured hereby or any deficiency which may result
from any foreclosure sale.

15


LENDER'S RIGHT OF INSPECTION

     23. Lender or its duly appointed agent shall
have the right to inspect the Mortgaged Property
at all reasonable times and access thereto shall
be permitted for that purpose.

SECURITY DEPOSITS

     24. If any security deposit or advance
payments received from tenants in lieu of security
deposits are received by Borrower, said security
deposits shall be kept and maintained in a
separate bank account and upon request of Borrower
by Lender, Borrower shall verify the bank account
and bank number and sign such documentation as may
reasonably be required by Lender in order to
obtain confirmation of the bank account. Upon
Lender's request, Lender shall be named on the
bank account and no funds shall be withdrawn
therefrom without the prior written consent of the
Lender, except payment of security deposits to
tenants entitled thereto. Failure to comply with
the provisions herein shall be deemed an Event of
Default hereunder.

CONDEMNATION

     25. Grantor hereby assigns, transfers and
sets over unto Lender the entire proceeds of any
award or any claim for damages for any of the
Mortgaged Property taken or damaged under the
power of eminent domain or by condemnation. If the
payment of award proceeds occurs during the last
three months prior to the maturity date of the
Note, then Lender may elect to apply the proceeds
of the award upon or in reduction of the
indebtedness secured hereby, whether due or not,
or to require Grantor to restore or rebuild, in
which event the proceeds shall be held by Lender
and used to reimburse Grantor for the cost of
rebuilding or restoring of buildings or
improvements on the Property, in accordance with
plans and specifications to be submitted to and
approved by Lender. If the award proceeds exceed
$100,000 and are paid prior to the last three
months of the term of the Note, then the proceeds
shall be held by Lender and used to reimburse
Grantor for the cost of rebuilding or restoring
buildings and improvements on the Property. In the
event that the award proceeds are $100,000 or less
and are not paid during the last three months
prior to the maturity date of the Note, then such
proceeds may be paid directly to Grantor, and
Grantor covenants and agrees to use such proceeds
solely for the restoration and replacement of
buildings and improvements on the Property.

     If the Grantor is obligated to restore or
replace the damaged or destroyed building or
improvements under the terms of any lease or
leases which are or may be prior to the lien of
this Oeed of Trust and if such taking does not
result in cancellation or termination of such
lease, the award shall be used to reimburse
Grantor for the cost of the rebuilding or
restoring of buildings or improvements on the
Property, provided Grantor has not been in default
under this Deed of Trust. In the event Grantor is
required or authorized, either by Lender's
election as aforesaid or by virtue of any such
lease, to rebuild or restore, the proceeds of the
award shall be paid out in the same manner as is
provided in the paragraph entitled "Adjustment of
Losses With Insurer and Application of Proceeds of
Insurance" hereof for the payment of insurance
proceeds toward the cost of rebuilding or
restoration. If the amount of such award is
insufficient to cover the cost of rebuilding or
restoration, Grantor shall pay such cost in excess
of the award, before being entitled to
reimbursement out of the award. Any surplus which
may remain out of said award after payment of such
cost of rebuilding or restoration shall, at the
option of Lender, be applied on account of the
indebtedness secured hereby.




16



GIVING NOTICE

     26. Any notice which Grantor or Lender may
desire or be required to give to the other party
shall be in writing, and the mailing thereof by
certified mail addressed to the Grantor or to the
Lender at the address stated above, or at such
place as either party hereto may by notice in
writing designate as a place for service of
notice, shall constitute service of notice
hereunder and shall be deemed delivered three
business days after its deposit in the United
States mail, postage prepaid or one business day
after its deposit with a national overnight air
courier, prepaid.

WAIVER OF RIGHTS

     27. As to any action brought by Lender prior
to any foreclosure sale by the Trustee held
pursuant to this l}eed of Trust, Grantor hereby
waives the right to any notice and to any hearing
other than as provided herein and by the statutes
and rules of Civil Procedure of the State of Idaho
now in existence. Grantor shall not and will not
apply for nor avail itself of any appraisement,
valuation, stay, extension or exemption laws, or
any so-called "Moratorium Laws", now existing or
hereafter enacted, in order to prevent or hinder
the enforcement or foreclosure of this mortgage,
and hereby waives the benefit of such laws.
Grantor for itself and for all who may claim
through or under it waives (a) the right to trial
by jury on any issues between Grantor and Lender
and to any issues pertaining to the Note, this
Deed of Trust or any other document securing the
Note and as to matters pertaining to the acts of
the Holder of the Note prior to the date hereof;
and (b) any and all right to have the property and
estates comprising the Mortgaged Property
marshalled upon any foreclosure of the lien hereof
and agrees that any court having jurisdiction to
foreclose such lien may order the property sold as
an entirety.

MANAGEMENT

     28. So long as any part of the Note secured
hereby remains unpaid, the Grantor will provide
and maintain good and efficient management of the
Mortgaged Property satisfactory to Lender.

FINANCIAL STATEMENTS

     29. Borrower covenants and agrees to furnish
Lender, within one hundred twenty (120) days after
the close of each fiscal year of Borrower, an
annual operating statement setting forth in such
detail as Lender may reasonably require, the
income and expenses derived from and attributable
to the Mortgaged Property during the preceding
year, certified by Borrower.

APPROVAL OF CONSTRUCTION PLANS FOR PROPERTY AND
CONTIGUOUS  LAND

     30. Grantor covenants and agrees that there
shall be no construction on the Property or on any
adjoining land at any time owned or controlled by
the Borrower, or any related business entities,
unless complete plans and specifications for same
shall have first been approved by the Lender as,
in its judgment, entailing no prejudice to the
loan secured hereby.

PARKING REQUIREMENTS

     31. Grantor covenants and agrees to maintain
at all times aufficient parking spaces to comply
with the parking requirements of all tenant
leases, zoning and other regulations affecting the
Property.


17



SECURITY AGREEMENT AND FINANCING STATEMENT UNDER
UNIFORM COMMERCIAL CODE

     32. To the extent any property covered by
this Deed of Trust consists of rights in action or
personal property covered by the Uniform
Commercial Code, this Deed of Trust constitutes a
security agreement and financing statement as
defined in the Idaho Uniform Commercial Code.
Grantor hereby grants to Lender a security
interest in all of the Mortgaged Property
described in this Deed of Trust. This Deed of
Trust shall be self-operative with respect to such
property, but Grantor agrees to execute and
deliver on demand a security agreement, financing
statement or other instrument as Lender may
request to impose the lien hereof more
specifically upon any of such property and to pay
the recording and/or filing fees associated
therewith. The remedies for any violation of the
covenants, terms and conditions of the agreements
herein contained shall be (I) as prescribed
herein, or (ii) by general law, or (iii) as to
such part of the security which is covered by the
Uniform Commercial Code by the specific statutory
consequences now or hereafter enacted and
specified in said Uniform Commercial Code, all at
Lender's sole election. Grantor and Lender agree
that nothing herein contained shall be construed
as in anywise derogating from or impairing this
declaration and hereby stated intention of the
parties hereto, that everything used in connection
with the production of income from the Property
and/or adapted for the use therein and/or which is
described or reflected in this Deed of Trust is,
and at all times and for all purposes and in all
proceedings, both legal or equitable, shall be
regarded as part of the real estate irrespective
of whether (I) any such item is physically
attached to the improvements, (ii) serial numbers
are used for the better identification of certain
equipment items capable of being thus identified
in a recital contained therein or in any list
filed with the Lender, (iii) any such item is
referred to or reflected in any Financing
Statement filed at any time. Similarly, the
mention in any Financing Statement of (1) the
rights in or the proceeds of any fire and/or
hazard insurance policy, or (2) any award in
eminent domain proceedings for a taking or for
loss of value, or (3) the Grantor's interest as
lessor in any present or future lease or rights to
income growing out of the use and/or occupancy of
the Property, whether pursuant to lease or
otherwise shall never be construed as in anywise
altering any of the rights of Lender as determined
by this instrument or impugning the priority of
Lender's lien granted hereby or by any other
recorded document, but such mention in said
Financing Statement is declared to be for the
protection of Lender in the event any Court shall
at any time hold with respect to (1), (2) and (3)
that notice of Lender's priority of interest to be
effective against a particular class of person,
including, but not limited to, the Federal
Government, must be filed in the Commercial Code
Records. For purposes of treating this Deed of
Trust as a security agreement and financing
statement, Lender shall be deemed to be the
Secured Party and Grantor shall be deemed to be
the Debtor.

     THIS IS A CONSTRUCTION MORTGAGE UNDER THE
UNIFORM COMMERCIAL CODE, GIVEN TO SECURE AN
OBLIGATION INCURRED FOR THE CONSTRUCTION OF AN
IMPROVEMENT OF LAND, INCLUDING THE ACQUISITION
COST OF THE LAND.

GOVERNING LAW

     33. This Deed of Trust has been executed and
delivered in the State of Idaho and is to be
construed and enforced according to and governed
by the Laws of the State of Idaho.







18



DISBURSEMENT OF LOAN PROCEEDS OR CONSTRUCTION OF
IMPROVENLENTS

     34. The proceeds of the loan secured hereby
are to be disbursed by Lender to Borrower in
accordance with the provisions contained in the
Construction Loan Agreement. The Construction Loan
Agreement is fully incorporated in this Deed of
Trust by reference. The occurrence of any Event of
Default under said Construction Loan Agreement
shall constitute a default under this Deed of
Trust entitling Lender to all of the rights and
remedies conferred upon the Lender by the terms of
this Deed of Trust as in the case of any other
Event of Default. If, following an Event of
Default, Lender completes the construction of
improvements, then all moneys so expended shall be
so much additional indebtedness secured by this
Deed of Trust, and any moneys expended in excess
of the face amount of the Note shall be payable on
demand, with interest thereon at the Default Rate,
as more particularly described in the Note secured
hereby.

BINDING ON SUCCESSORS AND ASSIGNS

     35. This Deed of Trust and all provisions
hereof, shall extend to and be binding upon
Grantor and/or the Borrower and all persons
claiming under or through Grantor or Borrower, and
the words "Grantor" or "Borrower" when used herein
shall include all such persons and all persons
liable for the payment of the indebtedness or any
part thereof, whether or not such persons shall
have executed the Note or this Deed of Trust. The
word "Lender" when used herein shall include the
successors and assigns of the Lender named herein,
and the holder or holders, from time to time, of
the Note secured hereby.

CAPTIONS

     36. The captions and headings of various
paragraphs of this mortgage are for convenience
only and are not to be construed as defining or
limiting, in any way, the scope or intent of the
provisions hereof.

REMEDIES CUMULATIVE.

     37. No remedy herein conferred upon or
reserved to the Trustee or Beneficiary is intended
to be exclusive of any other remedy provided
hereby or by law or provided or allowed by the
Promissory Note or any other loan agreements, but
each shall be cumulative and shall be in addition
to every other remedy given hereunder or existing
at law or in equity. Every power or remedy given
by this Deed of Trust to Trustee or Beneficiary,
or to which either of them may be otherwise
entitled, may be exercised from time to time and
as often as may be deemed expedient by Trustee or
Beneficiary.

RELEASES, EXTENSION, RECONVEVANCES; TRUSTEE FEES.

     38. Without affecting the liability of any
person, including Grantor, for the payment of any
indebtedness secured hereby or the lien of this
Deed of Trust on the remainder of the Mortgaged
Property for the full amount of any indebtedness
unpaid, Beneficiary and Trustee are respectively
empowered as follows:

     Beneficiary may from time to time and without
notice:

     (a)  Release any person liable for payment of
any of the indebtedness;

     (b)  Extend the time or otherwise alter the
terms of payment of any of


19




the indebtedness; or

     (c)  Alter, substitute or release any
property securing the indebtedness.

     Trustee may at any time and from time to
time, upon the written request of
Beneficiary:

     (a) Consent to the making of any map or plat
of the Property;

     (b) Join in granting any easement or creating
any restriction thereon;

     (c) Join in any subordination or other
agreement affecting this Deed of
Trust or lien or charge thereof; or

     (d)  Reconvey, without warranty, all or any
part of the Mortgaged
Property.

     Trustee shall be entitled to reasonable
compensation for all services rendered or expenses
incurred in the administration or execution of the
trust hereby created, and Grantor hereby agrees to
pay same.

SEVERABILITY.

     39. If any of the provisions hereof shall be
determined to contravene or be invalid under the
laws of the State of Idaho, such contravention or
invalidity shall not invalidate any other
provisions of this Deed of Trust, but it shall be
construed as if not containing the particular
provision or provisions held to be invalid, and
all rights and obligations of the parties shall be
construed and enforced accordingly.

SPECIAL PROVISIONS CONCERNING PERSONAL PROPERTY.

     40. Notwithstanding any terms of this Deed of
Trust to the contrary, Grantor reserves the right
to lease, finance, substitute and replace personal
property and to sell inventory in the ordinary
course of business without consent from Lender. In
addition, Grantor may permit its personal property
to be subject to equipment financing and security
interests in connection therewith. None of
Grantor's reserved rights described in this
Section 40 shall constitute an Event of Default.

     IN WITNESS WHEREOF, the Grantor has caused
these presents to be executed the day and year
first above written.















20






EMERITUS PROPERTIES II, INC.


By:  /s/ Raymond R. Brandstrom

- -------------------------------------------

Its:    President


STATE OF WASHINGTON                  )

)  ss.
COUNTY OF KING                               )

     On this 30th day of January, 1997, before me
Catherine L. Pasquan personally appeared Raymond
R. Brandstrom known or identified to me (or proved
to me on the oath of __________) to be the
president, or vice president, or secretary or
assistant secretary, of the coproration that
executed the instrument or the person who executed
the instrument on behalf of said corporation, and
acknowledged to me that such corporation executed
the same.

     Witness my hand and official seal.

     My commission expires:  3-30-99

                        [SEAL]
/s/ Catherine L. Pasquan

- --------------------------------

Notary Public






























21

EX-10.26.5

GUARANTY AGREEMENT

     THIS GUARANTY AGREEMENT is made effective as
of the 30th day of January, 1997, by the
undersigned (hereinafter referred to collectively
as
"Guarantor", whether one or more) in favor of RMI
CAPITAL MANAGEMENT CO. , whose address is 3773
Cherry Creek North Drive, Suite 640, Denver,
Colorado 80209 ("Lender").


WITNESSETH:

     1. GUARNATEED INDEBTEDNESS. FOR VALUE
RECEIVED, Guarantor unconditionally and absolutely
guarantees, jointly and severally with any and all
other Guarantors executing this Guaranty or a
counterpart hereof either now or in the future, to
Lender the prompt and full payment, performance
and observance, when due, of all debts,
obligations and liabilities of Emeritus Properties
n, Inc. ("Borrower"), to Lender, payable under or
with respect to (i) that certain Promissory Note
dated of even date herewith (the "Note"), in the
original principal sum of $5,080,082.39 executed
by Borrower and payable to the order of Lender,
together with all renewals, extensions and
modifications thereof; (ii) all other documents
now or hereafter securing performance of the
obligations of Borrower under the Note; and (iii)
attorneys fees and costs as described below. All
indebtedness, obligations and liabilities
hereinabove described and covered by this
Guaranty, or intended so to be, are hereinafter
sometimes collectively referred to as the "
Guaranteed Indebtedness. " If Guarantor is or
becomes liable for any indebtedness owing by
Borrower t4 Lender by endorsement or otherwise
than under this Guaranty, such liability shall not
be in any manner impaired or affected hereby, and
the rights of Lender hereunder shall be cumulative
of any and all other rights that Lender may ever
have against Guarantor. The exercise by Lender of
any right or remedy hereunder or under any other
instrument, or at law or in equity, shall not
preclude the concurrent or subsequent exercise of
any other right or remedy. Without in any way
diminishing the generality of the foregoing, it is
specifically understood and agreed that this
Guaranty is given by Guarantor as an additional
guaranty to any and all other guarantees
heretofore or hereafter executed and delivered to
Lender by Guarantor (or any of them) in favor of
Lender relating to indebtedness of Borrower to
Lender, and nothing herein shall ever be deemed to
replace or be in lieu of any other of such
previous or subsequent guarantees.

     2. CONSIDERATION. Guarantor acknowledges and
warrants that it derived or expects to derive
financial and other advantage and benefit,
directly or indirectly, from the Guaranteed
Indebtedness and each and every advance thereof
and from each and every renewal or extension. Any
debt or right to distributions owed to Guarantor
from Borrower is hereby subordinated to the
Guaranteed Indebtedness. The Loan evidenced by the
Note may be granted at the request of the Borrower
and without authorization from or notice to the
undersigned. Lender need not inquire into the
power of the Borrower or the authority of its
agents acting or purportedly acting on its behalf.
The Loan shall be deemed to have been granted at
the instance and request of the undersigned and in
consideration of and in reliance upon this
Guarantee.






1



     3. GUARANTOR WAIVERS. The obligations,
covenants, agreements and duties of Guarantor
under this Guaranty shall not be released or
impaired in any manner whatsoever, without the
written consent of Lender, on account of any or
all of the following: (a) any assignment,
endorsement or transfer, in whole or in part, of
the Guaranteed Indebtedness, although made without
notice to or the consent of Guarantor; (b) any
waiver by Lender of the performance or observance
by Borrower or Guarantor of any of the agreements,
covenants, terms or conditions contained in any
document evidencing, governing or securing the
Guaranteed Indebtedness; (c) any extensions of the
time for payment or performance of all or any
portion of the Guaranteed Indebtedness; (d) the
renewal, rearrangement, modification or amendment
(whether material or otherwise) of any duty,
agreement or obligation of Borrower set forth in
any document evidencing, governing or securing the
Guaranteed Indebtedness; (e) the voluntary or
involuntary liquidation, sale or other disposition
of all or substantially all of the assets of
Borrower or Guarantor; (f) any receivership,
insolvency, bankruptcy, reorganization or other
similar proceedings affecting Borrower or
Guarantor or any of their assets; (g) any release,
withdrawal, surrender, exchange, substitution,
subordination or loss of any security or other
guaranty at any time existing in connection with
all or any portion of the Guaranteed Indebtedness,
or the acceptance of additional or substitute
property as security therefor; (h) the release or
discharge of Borrower or any other guarantor from
the observance or performance of any agreement,
covenant, term or condition contained in any
document evidencing, governing or securing the
Guaranteed Indebtedness; (i) any action which
Lender may take or omit to take by virtue of any
document evidencing, governing or securing the
Guaranteed Indebtedness or through any course of
dealing with Borrower; (j) the addition of a new
guarantor or guarantors; (k) the operation of law
or any other cause, whether similar or dissimilar
to the foregoing; (1) any adjustment, indulgence,
forbearance or compromise that may be granted or
given by Lender to any party; (m) the failure by
Lender to file or enforce a claim against the
estate (either in administration, bankruptcy or
other proceeding) of Borrower or any other person
or entity; (n) recovery from Borrower or any other
person or entity becomes barred by any statute of
limitations or is otherwise prevented; (o) any
defenses, set-offs or counterclaims which may be
available to Borrower or any other person or
entity; (p) any impairment, modification, change,
release or limitation of liability of, or stay of
actions of lien enforcement proceedings against
Borrower, its property, or its estate in
bankruptcy resulting from the operation of any
present or future provisions of the Bankruptcy
Code or any other similar federal or state
statute, or from the decisions of any court; (q)
any neglect, delay, omission, failure or refusal
of Lender to take or prosecute any action for the
perfection of collateral or the collection of any
of the Guaranteed Indebtedness or to foreclose or
take or prosecute any action in connection with
any lien, right of security, existing or to exist
in connection with, or as security for, any of the
Guaranteed Indebtedness, it being the intention
hereof that Guarantor shall remain liable as
principal on the Guaranteed Indebtedness,
notwithstanding any act, omission or thing which
might, but for the provisions hereof, otherwise
operate as a legal or equitable discharge of
Guarantor; (r) any defense that may arise by
reason of the incapacity, lack of authority, death
or disability of, or revocation hereof, by any
guarantor or others; (s) demand, protest and
notice of any other kind, including, without
limiting the generality of the foregoing, notice
of any action or non-action on the part of
Borrower, Lender, any endorser, guarantor under
this or any other instrument, or creditor of
Borrower, or any other person whomsoever, in
connection with the Guaranteed



2



Indebtedness; (t) any defense based upon an
election of remedies by Lender, including, without
limitation, an election to proceed by nonjudicial
rather than judicial foreclosure, which destroys
or otherwise impairs the subrogation rights of the
undersigned or the right of the undersigned to
proceed against Borrower for reimbursement, or
both; and (u) any duty on the part of Lender to
disclose to the undersigned any facts it may now
or hereafter know about Borrower, regardless of
whether Lender has reason to believe that any such
facts materially increase the risk beyond which
the undersigned is obligated or whether Lender has
a reasonable opportunity to communicate such facts
to the undersigned, it being understood and agreed
that the undersigned is fully responsible for
being and keeping informed of the financial
condition of Borrower and of all circumstances
being on the risk of non-payment of the Guaranteed
Indebtedness. Notice to Guarantor of the
acceptance of this Guaranty and of the making,
renewing or assignment of the Guaranteed
Indebtedness and each item thereof, are hereby
expressly waived by Guarantor.

     4.  GUARANTOR'S OBLIGATION TO PAY THE
GUARANTEED INDEBTEDNESS. In the event of default
by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when
such indebtedness becomes due, either by its terms
or as the result of the exercise of any power to
accelerate, without any notice having been given
to Guarantor of the acceptance by Lender of this
Guaranty and without any notice having been given
to Guarantor of the creating or incurring of such
indebtedness, Guarantor agrees to pay the amount
due thereon to Lender following written demand
made by Lender to Guarantor at least seven (7)
days prior to the date of required payment by
Guarantor. It shall not be necessary for Lender,
in order to enforce such payment by Guarantor,
first, to institute suit or exhaust its remedies
against Borrower or others liable on such
indebtedness, or to enforce its rights against any
security which shall ever have been given to
secure such indebtedness. Guarantor hereby waives
any and all legal requirements that Lender
institute any action or proceeding at law or in
equity or exhaust its rights, remedies and
recourse against Borrower or anyone else with
respect to the Guaranteed Indebtedness as a
condition precedent to bringing an action against
Guarantor upon this Guaranty. Each payment on the
Guaranteed Indebtedness shall be deemed to have
been made by Borrower unless express written
notice is given to Lender at the time of such
payment that such payment is made by Guarantor as
specified in such notice.

     5.  WAIVER OF SUBROGATION. Until all
indebtedness of Borrower to Lender shall have been
paid in full, even though such indebtedness is in
excess of Guarantor's liability hereunder,
Guarantor shall have no right of subrogation, and
hereby expressly waives any right to enforce any
remedy which Lender now has or may hereafter have
against Borrower, and waives any benefit of, and
any right to participate in, any security now or
hereafter held by Lender. Guarantor waives all
rights of indemnification against Borrower and
agrees to rely solely on its rights of subrogation
following payment in full to Lender in order to
collect from Borrower sums
paid hereunder.

     6. GUARANTOR'S FINANCIAL INFORMATION.
Guarantor hereby warrants and represents to Lender
that (a) any and all balance sheets, net worth
statements and other financial data that have
heretofore been given to Lender with respect to
Guarantor fairly and accurately present the
financial condition of Guarantor as of the date
thereof


3



and, since the date thereof, there has been no
material adverse change in the financial condition
of Guarantor, (b) except as otherwise disclosed to
Lender, there are no material legal proceedings,
claims or demands pending against or, to the
knowledge of such Guarantor, threatened against,
Guarantor or any of Guarantor's assets, or, if.
there is any such material proceeding, claim or
demand, it has been disclosed in writing to Lender
and does not and shall not have any material
adverse effect upon the ability of Guarantor to
perform any of Guarantor' s obligations hereunder,
(c) Guarantor is not in breach or default of any
legal requirement, contract or commitment, which
would have a material adverse effect on Guarantor
or the Guaranteed Indebtedness, (d) no event
(including specifically Guarantor's execution and
delivery of this Guaranty) has occurred which,
with the lapse of time or the giving of notice or
both, could result in Guarantor's breach or
default under any legal requirement, contract or
commitment which would have a material adverse
effect on Guarantor or the Guaranteed Indebtedness
and (e) Guarantor is solvent. Guarantor hereby
agrees to furnish Lender annually and from time to
time, promptly upon request therefor, current
financial reports and statements setting forth in
reasonable detail the financial condition of
Guarantor at the time of such request, certified
by Guarantor to Lender, and prepared in accordance
with generally accepted accounting principles
consistently applied or in other form reasonably
acceptable to Lender. Should such statements be
unsatisfactory in Lender's fair and reasonable
judgment, then the Lender shall have the right to
request a review and/or preparation of new
unaudited statements by an independent certified
public accountant approved by Lender. Guarantor
authorizes Lender to update Guarantor's credit
reports from time to time until all indebtedness
of Borrower to Lender shall have been paid in
full.

     7. LENDER'S RIGHTS IN COLLATERAL. If all or
any part of the Guaranteed Indebtedness at any
time be secured, Guarantor agrees that Lender may
at any time and from time to time, at its
discretion and with or without valuable
consideration, allow substitution or withdrawal of
collateral or other security and release
collateral or other security without impairing or
diminishing the obligations of Guarantor
hereunder. Guarantor further agrees that if
Borrower executes in favor of Lender any
collateral agreement, deed of Trust or other
security instrument, the exercise by Lender of any
right or remedy thereby conferred on Lender shall
be wholly discretionary with Lender, and that the
exercise or failure to exercise any such right or
remedy shall in no way impair or diminish the
obligation of Guarantor hereunder. Guarantor
further agrees that Lender shall not be liable for
its failure to use diligence in the collection of
the Guaranteed Indebtedness or in preserving the
liability of any person liable on the Guaranteed
Indebtedness, and Guarantor hereby waives
presentment for payment, notice of nonpayment,
protest and notice thereof, notice of
acceleration, and diligence in bringing suits
against any person liable on the Guaranteed
Indebtedness, or any part thereof.

     8. JOINT GUARANTORS. If now or hereafter
there is more than one Guarantor, Guarantor agrees
that Lender, in its discretion, may (i) bring suit
against all Guarantors jointly and severally or
against any one or more of them, (ii) compound or
settle with any one or more of Guarantors for such
consideration as Lender may deem proper, and (iii)
release one or more of Guarantors from liability
hereunder, and that no such action shall impair
the rights of Lender to collect the Guaranteed
Indebtedness (or the unpaid balance thereof) from
other Guarantors, or any of them, not so sued,
settled with or released. Guarantors agree among
themselves, however, that nothing contained in
this paragraph, and no action by Lender permitted
under this paragraph, shall in any way


4



affect or impair the rights or obligations of
Guarantors among themselves.

     9.  EFFECT OF BORROWER DEFENSE TO PAYMENT.
If the Guaranteed Indebtedness at any time exceeds
the amount permitted by law, or Borrower is not
liable because the act of creating the Guaranteed
Indebtedness is ultra vires, or the persons
creating the Guaranteed Indebtedness acted in
excess of their authority, and for these reasons
the Guaranteed Indebtedness which Guarantor agrees
to pay cannot be enforced against Borrower, such
fact shall in no manner affect Guarantor's
liability hereunder, but Guarantor shall be liable
under this Guaranty notwithstanding that Borrower
is not liable for the Guaranteed Indebtedness, and
to the same extent Guarantor would have been
liable if the Guaranteed Indebtedness had been
enforceable against Borrower.

     10. ASSIGNMENT OF GUARANTY. This Guaranty is
for the benefit of Lender, its successors and
assigns, and in the event of an assignment by
Lender, its successors or assigns, of the
Guaranteed Indebtedness, or any part thereof, the
rights and benefits hereunder, to the extent
applicable to the indebtedness so assigned, may be
transferred with such indebtedness.

     11. BANKRUPTCY LIMITATIONS. Except for the
continuing obligations under this Section 11, this
Guaranty shall be otherwise released and
terminated upon the earlier of (1) Completion of
Improvements as defined in the Construction Loan
Agreement by and between Lender and Borrower, 90%
occupancy of the property, and annual net
operating income of at least $575,000; or (2)
payment in full of the Note. If during any
preference period, Borrower files a petition or is
the subject of an involuntary petition seeking
relief under federal bankruptcy laws, and if as a
result thereof Lender is required to disgorge any
payment received from Borrower as a preference,
then Guarantor agrees to repay to Lender all such
amounts, together with interest from the date
which is seven (7) days after written demand for
repayment at the rate of 12% per annum, together
with costs of collection, if any, including
attorneys fees.
In the event the undersigned files a petition in
or is the subject of an involuntary petition
seeking relief under federal bankruptcy laws, the
aggregate amount payable by the undersigned is
limited to the largest amount which would not
render this obligation subject to avoidance.

     12. ADDTIONAL LENDER RIGHTS. No modification,
consent, amendment or waiver of any provision of
this Guaranty, nor consent to any release by any
Guarantor therefrom, shall be effective unless the
same shall be in writing and signed by an officer
of Lender, and then shall be effective only in the
specific instance and for the purpose for which
given. No notice to or demand on any Guarantor in
any case shall, of itself, entitle any Guarantor
to any other or further notice or demand in
similar or other circumstances. No delay or
omission by Lender in exercising any power or
right hereunder shall impair any such right or
power or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or
partial exercise of any such power preclude other
or further exercise thereof, or the exercise of
any other right or power hereunder. All rights and
remedies of Lender hereunder are cumulative of
each other and of every other right or remedy
which Lender may otherwise have at law or in
equity or under any other contract or document,
and the exercise of one or more rights or remedies
shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.
In this Guaranty, whenever the text so requires,
the singular number includes the plural and
conversely.
     
     
     5


     13. CONTROLLING LAW.  This Guaranty shall be
governed by and construed in accordance with the
laws of Idaho. This Guaranty shall constitute the
entire agreement of the undersigned with Lender
with respect to the subject matter hereof and no
representation, understanding, promise or
condition concerning the subject matter hereof
shall be binding upon Lender unless expressed
herein. This Guaranty is effective upon delivery
to Lender without condition.

     14. ATTORNEY'S FEES. If Guarantor should
breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay Lender all costs
and expenses incurred by Lender in the enforcement
hereof. These costs and expenses shall include
attorney and paralegal fees, expert witness fees
and costs of depositions.

     15. USURY SAVINGS CLAUSE. No provision herein
or in the Note, or in any other instrument or any
other loan document executed by Borrower or
Guarantor evidencing, governing or securing the
Guaranteed Indebtedness shall require the payment
or permit the collection of interest in excess of
the maximum permitted by law. If any excess of
interest in such respect is provided for herein or
in the Note, or in any other such instrument or
any other loan document, the provisions of this
paragraph shall govern, and neither Borrower nor
Guarantor shall be obligated to pay the amount of
such interest to the extent that it is in excess
of the amount permitted by law, the intention of
the parties being to conform strictly to the
applicable usury laws from time to time in effect.
All promissory notes, instruments and other loan
documents executed by Borrower or Guarantor
evidencing the Guaranteed Indebtedness shall be
held subject to reduction of the interest charged
to the amount allowed under said usury laws as now
or hereafter construed by the courts having
jurisdiction.

     16. NOTICE. Any notice, request, demand,
consent, approval, or other communication required
or permitted hereunder shall be in writing and
shall be deemed to have been given when personally
delivered, or one day after delivery to a national
overnight delivery courier service, cost prepaid,
or three days following deposit in the United
States mail, certified mail , return receipt
requested, postage prepaid, addressed to the party
for whom it is intended at the following
addresses:



















6



IF TO GUARANTOR:
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Facsimile Number: (206) 443-5432
Attention: Susan Griffin

WITH A COPY TO:
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
Facsimile Number: (206) 623-1738
Attention: Randi Nathanson

IF TO LENDER:
RMI Capital Management Co.
3773 Cherry Creek North Drive, Suite 640
Denver, Colorado 80209
Facsimile Number: (303) 329-0997
Attention: Jeff Crawford

WITH COPY TO:
Banks & Imatani, P.C.
1200 l7th Street, Suite 1310
Denver, Colorado 80202
Facsimile Number: (303) 572-6564
Attention: Barbara S. Banks

provided, however, that a party may change its
address for purposes of receipt of any such
communication by giving ten (10) days prior
written notice of such change to the other parties
in the manner above prescribed.


EMERITUS CORPORATION


By:  /s/ Raymond R. Brandstrom

- -----------------------------------------

President














7

EX-10.31.1

                                    LOAN AGREEMENT

     THIS LOAN AGREEMENT ("Agreement") is entered
into as of the 10th day of January, 1997, by and
between FlNOVA Capital Corporation, a Delaware
corporation ("Lender") and Fairfield Retirement
Center, LLC, a California limited liability
company ("Borrower").


RECITALS:

     A. Borrower desires to obtain a loan in an
amount of up to TWELVE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($12,800,000.00) from
Lender for the purpose of providing construction
and term financing for the NorthBay Retirement
Center.

     B. Lender is willing to make the loan to
Borrower based on the terms and conditions of, and
Borrower's compliance with, this Agreement and the
other Loan Documents (as hereafter defined).


AGREEMENT:

     NOW, THEREFORE, for good and valuable
consideration, the receipt and suff'ciency of
which are hereby acknowledged, the parties hereby
agree as follows:

                                           ARTICLE
1

DEFINITIONS

     As used in this Agreement and in the Loan
Documents, unless otherwise expressly indicated
herein or therein, the following terms shall have
the following meanings (such meanings to be
applicable equally both to the singular and plural
terms defined):

     1.1 "ADVANCE" shall mean the [nitial Advance
and any subsequent advance of proceeds of the Loan
by Lender pursuant to this Agreement.

     1.2 "AFFIDAVIT OF BORROWER" shall mean a
sworn Affidavit of Borrower in the form of Exhibit
F-2. to accompany a Work-Related Advance Request.

     1.3 "AFFILIATE" shall mean with respect to
any Person, a Person that directly or indirectly,
through one or more intermediaries, controls or is
controlled by or is under common control with such
Person; any officer, director, partner or
shareholder of such Person; and any relative of
any of the foregoing. Notwithstanding anything to
the contrary set forth in this definition,
Affiliate shall not include (a) any shareholder of
Emeritus Corporation or any relative of such
shareholder, or (b) Daniel R. Baty or any Person
who otherwise would be an Affiliate of Daniel R.
Baty. The term "control" means possession.
directly or indirectly, of the power to direct or
cause the direction of the management and policies
of a Person, whether through the ownership of
voting securities. by contract or otherwise.

     1.4 "ARCHITECT/ENGINEER" shall mean an
architect or engineer employed by Borrower to
perform architectural or engineering services.

     1.5 "ARCHITECT/ENGINEER AGREEMENT" shall mean
a contract (written or oral, now or hereafter in
effect) between Borrower and an Architect/Engineer
for the performance of architectural or
engineering services, as approved by Lender in
writing and modified from time to time with
Lender's prior written consent.

     1.6 "BASE RATE" shall mean: (a) the Citibank
prime rate; or (b) such per annum rate which has
been selected by Lender as the Base Rate pursuant
to the terms of the following sentences. If the
Base Rate then being utilized ceases to be
published, then Lender shall choose as the Base
Rate a reference rate which Lender deems
comparable in its sole and absolute discretion. As
used above, the Citibank prime rate shall mean the
rate per annum publicly announced from time to
time by Citibank, N.A., New York, New York
(together with any successor, "Citibank"), as its
base rate or equivalent rate of interest charged
by Citibank to its largest and most creditworthy
commercial borrowers, notwithstanding the fact
that some borrowers of Citibank may borrow from
Citibank at rates less than such announced prime
rate.


     1.7 "BASIC INTEREST" shall mean the interest
due and payable on the outstanding principal
balance of the Note, which shall accrue on the
outstanding principal balance of the Loan Amount
at the lesser of (i) the Maximum Rate, or (ii) a
floating rate per annum equal to seventy- five
(75) basis points above the Base Rate ("Basic
Rate"); which shall be initially determined using
the Base Rate in effect on the first Business Day
of the month in which the Loan Closing occurs, and
thereafter shall automatically change on each
Interest Rate Change Date.

     At any time during the first one-year period
following the Permanent Term Commencement Date
(herein defined), Borrower shall have the one time
right upon seven (7) days' prior written notice to
Lender to convert the floating Basic Rate to a
fixed rate for the remaining term of the Loan (the
"Conversion Option") at a rate equal to the sum of
the Treasury Constant Maturity Rate as published
by the Federal Reserve Bank for Treasury Notes
having a maturity closest to the remaining term of
the Note plus three hundred (300) basis points,
provided that no Event of Default (herein defined)
or Incipient Default (herein defined) of which
Lender has not)fied Borrower has occurred and that
Borrower has paid to Lender a conversion fee equal
to one-quarter of one percent (0.25%) of the then
outstanding principal balance of the Note as of
the date of Borrower's notice of Borrower's
exercise of the Conversion Option. In the event
that Borrower does not exercise the Conversion
Option and convert the floating Basic Rate to a
fixed Basic Rate during the first year after
commencement of the Permanent Term, Borrower shall
be conclusively deemed to have elected to retain
the variable Basic Rate set forth in the preceding
paragraph for the remainder of the term of the
Loan until the Maturity Date. Notwithstanding the
foregoing to the contrary, in the event Borrower
is unable to exercise the Conversion Option on the
date one year after the commencement of the
Permanent Term because at such time there exists
an Incipient Default of which Lender has not)fied
Borrower, and such Incipient Default is
subsequently cured by Borrower, then Borrower may
exercise the Conversion Option at any time within
thirty (30) days after the date the Incipient
Default is cured.

     Basic Interest shall be calculated on the
basis of actual number of days elapsed during the
period for which interest is being charged
predicated on a year consisting of three hundred
sixty (360) days. Interest shall accrue from
Lender's wiring or disbursement of funds through
Lender's receipt of repayment.

     1.8 "BORROWER" shall mean Fairfield
Retirement Center, LLC, a California limited
liability company and its permitted successors,
baneficiaries and assigns. The members of Borrower
are each of the Guarantors.

     1.9 "BUDGET" shall mean a detailed budget
cost itemization prepared by Borrower with respect
to construction of the Work, and approved in
writing by Lender, which specifies by item the
cost, source of payment and draw schedule of (a)
all labor, materials and services necessary for
Completion of the Work; and (b) all other expenses
incidental to the Completion of the Work. The
Budget shall include an interest reserve,
retainage and contingency reserve deemed adequate
by Lender. The original Budget for the Work shall
be attached hereto as Exhibit D at such time as it
has been prepared by Borrower and approved by
Lender in writing.

     1.10 "BUSINESS DAY" shall mean any day other
than a Saturday, Sunday or any holiday on which
banks in Phoenix, Arizona are required to close.

     1.11 "CASH FLOW". shall mean, for any given
accounting period, net income (as determined in
accordance with GAAP applied on a basis consistent
with prior periods) (to the extent deducted from
revenues in arriving at net income) depreciation,
amortization, interest expense, accrued income
taxes, Management Fees, and any expenses for the
Work funded with proceeds of the Loan (excluding
interest reserve payments already included in
interest expense) is without duplication, income
taxes actually paid, gain on the sale of assets,
extraordinary income, and an amount equal to two
percent (2%) of Gross Revenues (as a replacement
reserve). In no instance will any capital
expenditure be accounted for in determining Cash
Flow.

     1.12 "CERTIFICATE OF COMPLETION" shall mean,
with respect to the Work, a certificate issued by
the governmental authority having jurisdiction
over the Work when all


2


of the Work has been completed, allowing the use
of the Improvements by Borrower tbr their intended
purpose.

     1.13 "COLLATERAL" shall mean the Property and
the Leases and any and all other property
constituting security for the Loan under the
Mortgage or any of the other Loan Documents.

     1.14 "COMPLETION" or "COMPLETION OF THE WORK"
shall mean completion of the Work (excluding
certain "punch-list" items which are not necessary
for the full operation of the Project),
substantially in accordance with the Plans and
Specifications, the Construction Contracts, all
applicable, zoning, building and other
governmental laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards,
and lien free and free of defective materials and
workmanship; and receipt by Lender of the
following in form and substance reasonably
satisfactory to it:

     1.14.1 A certificate of completion from
Borrower and its Architect/Engineer and, if Lender
elects, from Lender's Consultant, certifying that
the Work has been so completed, all utilities
necessary to serve the Property have been
connected and are operating, and-the Improvements
are ready for occupancy by those Tenants whose
tenant improvement work is included in the Budget
(if any);

     1.14.2 A Certificate of Completion;

     1.14.3 If applicable laws provide that the
recording of a notice of completion for the Work
will cause the expiration upon a date certain of
the statutory period within which mechanics' and
similar liens can be filed, verification of the
recording of such notice in the manner prescribed
by such laws;

     1.14.4 Final lien waivers (which may be
conditional on payments only with respect to the
work, material, equipment, or services to be paid
from proceeds of the final Advance);

     1.14.5 The Re-lssued Title Policy required
pursuant to paragraph 5.16.9;

     1.14.6 The "AS-BUILT SURVEY" required
pursuant to paragraph 5.16.8;

     1.14.7 All environmental licenses or
approvals for operation within or on the Project
if any; and any other applicable governmental
permits, approvals, consents, licenses and
certificates for the use and operation of the
Project as a 172-unit congregate living facility;

     1.14.8 Evidence satisfactory to Lender that
there are no material judgments or pending
litigation or, to the best of Borrower's
knowledge, threatened litigation of a material
nature outstanding against the Borrower. or the
Project including but-not limited to litigation or
judgments which may affect title or Lender's lien
position with respect to any of the Collateral or
any litigation or judgment which might materially
affect the ability of Borrower to perform its
obligations under the Loan Documents; and

     1.14.9 Evidence satisfactory to Lender that
all Debt owing to third parties and secured by the
Project, or any portion thereof, has been paid
except for the Debt secured by the Emeritus Deed
of Trust.

     1.15 "COMPLETION DATE" shall mean the date
upon which the final Advance is funded by Lender
pursuant to paragraph 3.2.6.

     1.16 "CONSTRUCTION CONTRACT" shall mean a
contract (written or oral, now or hereafter in
effect) between Borrower and a Contractor, or
between any Contractor and any other person or
entity relating in any way to the Completion of
the Work, including the performing of labor and
the furnishing of equipment, materials or services
(other than architectural or engineering
services), as approved by Lender in writing and
modified from time to time with Lender's prior
reasonable wriffen consent.



3



     1.17 "CONSTRUCTION TERM" shall mean a term
commencing on the Loan Closing and ending on the
earlier of (a) the date eighteen ( 18) months
after the Loan Closing, or (b) the Completion
Date.

     1.18 "CONTRACTOR" shall mean a contractor
employed by Borrower to provide labor and/or to
furnish equipment, materials or services for any
portion of the Work.

     1.19 "CONTRACTS. INTANGIBLES. LICENSES AND
PERMITS" shall mean the property so described in
Exhibit A-2.

     1.20 "DEBT" means for any Person: (i) all
indebtedness, whether or not represented by bonds,
debentures, notes, securities, or other evidences
of indebtedness, for the repayment of money
borrowed, (ii) all indebtedness representing
deferred payment of the purchase price of property
or assets, (iii) all indebtedness under any lease
which, in conformity with GAAP, is required to be
capitalized for balance sheet purposes, (iv) all
indebtedness under guaranties, endorsements,
assumptions, or other contingent obligations, in
respect of, or to purchase or otherwise acquire,
indebtedness of others, and (v) all indebtedness
secured by a Lien existing on property owned,
subject to such lien, whether or not the
indebtedness secured thereby shall have been
assumed by the owner thereof. Debt shall not
include principal and interest payments (if any)
made under the note secured by the Emeritus Deed
of Trust.

     1.21 "DEBT SERVICE" shall mean, for any given
accounting period, all regularly scheduled
principal and interest payments due under the Note
plus all payments on operating and capita] leases
(including Equipment Leases) and any other Debt
approved by Lender.

     1.22 "DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO" shall mean the ratio of (a) Post
Management Fees Cash Flow for the relevant period,
to (b) Debt Service.

     1.23 "DEBT SERVICE COVERAGE RATIO" shall mean
the ratio of (a) Cash Flow for the relevant
period, to (b) Debt Service for the relevant
period.

     1.24 "DEFAULT RATE" shall mean the Default
Rate of interest more fully described and set
forth in paragraph 7.1.10.

     1.25 "DISTRIBUTIONS" shall have the meaning
prescribed in paragraph 5.10.

     1.26 "DUE DATE" shall mean the first to occur
of (i) the Maturity Date, (ii) full repayment of
the Loan, or (iii) acceleration of the Loan upon
the occurrence of an Event of Default under the
Loan Documents.

     1.27 "EMERITUS DEED OF TRUST" shall mean that
certain Deed of Trust dated luly 31, 1996 executed
by Borrower for the benefit of Emeritus
Corporation, executed on August 1, 1996 under
Series No. 96-51994, Off'cial Records, Solano
County, California, as amended by instrument
recorded concurrently with the Mortgage, securing
payment of a promissory note in the original
principal amount of $2,500,000.00 of even date
therewith executed by Borrower and payable to
Emeritus Corporation. The foregoing note and deed
of trust shall be in form and substance acceptable
to Lender.

     1.28 "EQUIPMENT LEASES" shall have the
meaning prescribed in paragraph 3.1. 18.

     1.29 "EVENT OF DEFAULT" shall have the
meaning described and set forth in  Article 6.

     1.30 "EXCESS CASH FLOW" shall mean Cash Flow
minus Debt Service, for the relevant period.





4



     1.31 "FORCE MAJEURE EVENT" shall mean any
"Act of God", fire, strike, casualty or
governmental order, or injunction issued by a
court of competent jurisdiction. which are entered
for reasons other than for Borrower's acts or
omissions which would constitute a default under
this Agreement, or similar occurrences beyond
Borrower's reasonable control.

     1.32 "GAAP" shall mean generally accepted
accounting principles.

     1.33 "GENERAL CONTRACT" shall mean that
Construction Contract dated as of January 7, 1997
between Borrower and General Contractor covering
the Work for a guaranteed fixed or maximum price
not to exceed $9,917,086.00, as the same may be
modified from time to time with Lender's prior
written consent. The General Contract shall
provide that the Work shall be fully completed for
the foregoing guaranteed maximum price
notwithstanding (a) any future events, including
without limitation, cost overruns, whether
foreseeable or unforeseeable (except Force Majeure
Events) or (b) any defaults, disputes or
litigation between the General Contractor and its
subcontractors or materialmen.

     1.34 "GENERAL CONTRACTOR" shall mean Wright
Contracting, Inc., a California

     1.35 "GROSS REVENUE" shall mean for any given
accounting period, the aggregate gross rental
income, percentage rental income and all other
income from the Property realized during such
period in accordance with GAAP.

     1.36 "GUARANTIES" shall mean those guaranties
of payment and performance and subordinations
executed by the Guarantors and more particularly
described in paragraph 5.12. "Guaranty" shall mean
any one ofthe Guaranties.

     1.37 "GUARANTORS" shall mean BW (Fairfield)
Real Estate Corporation, a California corporation,
Emeritus Corporation, a Washington corporation and
NorthBay Health Advantage, a California public
non-profit benefit corporation.

     1.38 "IMPROVEMENTS" shall mean all
improvements to be constructed upon the Real
Property as part of the Work, together with any
off-site improvements which must be completed in
connection therewith, all as set for in the Plans
and Specifications and the Construction
Contract(s) and as described in the Budget.

     1.39 "INCIPIENT DEFAULT" shall mean the
occurrence of any event, which with the giving of
notice or the passage of time or both, would
constitute an Event of Default under the Loan
Documents.

     1.40 "INITIAL ADVANCE" shall mean the initial
Advance in an amount not to exceed $411,393.60, in
accordance with the terms and provisions of this
Agreement including, without limitation, paragraph
2.3.

     1.41 "INTEREST RATE CHANGE DATE" shall mean
the first Business Day of the publisher of the
Base Rate during each calendar month following the
date of the [nitial Advance of the Loan.

     1.42 "LEASES" shall mean all of the leases of
the Real Property or any portion thereof made by
Borrower as landlord, together with any and all
other existing or future leases or other
agreements for the use and/or occupancy of the
Real Property or any portion thereof by Borrower
as landlord, as the same may from time to time be
modified or amended.

     1.43 "LENDER" shall mean FINOVA Capital
Corporation, a Delaware corporation, and/or its
successors and assigns.

     1.44 "LENDER'S CONSULTANT" shall have meaning
given to it in paraaraph 9.1.





5


     1.45 "LOAN" shall mean the advances of money
(including any accrued interest and other charges
under the Loan Documents not paid when due) made
by Lender to Borrower, or on Borrower's behalf,
pursuant to this Agreement and the Loan Documents.

     1.46 "LOAN CLOSING" shall mean the date the
Initial Advance is advanced to Borrower from
Lender, which advancement will be made through
escrow with the Title Agent, and which Lender and
Borrower contemplate will be no later than January
17, 1997.

     1.47 "LOAN DOCUMENTS" shall mean those
documents (including this Agreement) now or
hereafter evidencing, securing or otherwise
ancillary to the Loan, as they may be hereafter
amended, renewed, replaced or restated.

     1.48 "LOAN FEE" shall mean a fee for the Loan
in the amount of Two Hundred Fifty-Six Thousand
Dollars ($256,000.00).

     1.49 "MANAGEMENT AGREEMENT" shall mean that
Agreement to Provide Management Services to an
Assisted Living Facility dated August 13, 1996
between Borrower and Manager, or such other
management agreement from time to time entered
into between Borrower and a manager governing the
management of the Property, and reasonably
approved in writing by Lender.

     1.50 "MANAGEMENT FEES" fees payable pursuant
to the Management Agreement, not to exceed five
percent (5%) of the Gross Revenue for the period
with respect to which the Management Fees are
paid.

     1.51 "MANAGER" shall mean Emeritus
Corporation, a Washington corporation or such
other Person who has been designated to act as the
manager of the Property and approved in writing by
Lender.

     1.52 "MATURITY DATE" shall mean the earlier
to occur of (i) the date falling ninety (90)
months after the Loan Closing, or (ii) the sixth
(6th) anniversary date of the Permanent Term
Commencement Date.

     1.53 "MAXIMUM LOAN AMOUNT" shall mean the
maximum principal amount of the Loan, which shall
be least of (a) TWELVE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($12,800,000.00), (b)
the sum of (i) one hundred percent ( 100%) of the
costs of the Work set forth in the Budget and
designated as costs to be paid from Loan proceeds,
and (ii) all other amounts Lender is obligated to
advance hereunder, or (c) eighty percent (80%) of
the appraised completed stabilized value of the
Project upon Completion, as determined by
Valuation Counselor's, Inc.

     1.54 "MAXIMUM RATE" means the maximum rate of
nonusurious interest permitted from day to day by
applicable law, and calculated after taking into
account any and all relevant fees, payments, and
other charges in respect of the Loan Documents
which are deemed to be interest under applicable
law.

     1.55 "MORTGAGE" shall mean the Deed of Trust,
Security Agreement, Assignment of Leases and Rents
and Fixture Filing securing Borrower's obligations
under the Loan Documents as more fully described
in paragraph 3.1.1.2. as it may be hereafter
amended, renewed, replaced or restated.

     1.56 "NOTE" shall mean the promissory note of
Borrower evidencing the Loan, as more fully
described in paragraph 2.6. as it may be hereafter
amended, renewed, replaced or restated.

     1.57 "OBLIGATIONS" shall mean any and all of
the covenants, warranties, representations and
other obligations, including the obligation to
repay the Loan, made or undertaken by Borrower or
others to Lender, or others as set forth in the
Loan Documents, any other documents or instruments
executed in connection with the Loan.

     1.58 "PERMITTED ENCUMBRANCES" shall mean all
matters shown on Exhibit B.



6


     1.59 "PERSON" shall mean an individual,
trust, estate, partnership, limited liability
company, corporation or any other incorporated or
unincorporated organization.

     1.60 "PERSONAL PROPERTY" shall mean all items
of personal property, tangible and intangible
(including without limitation, fixtures,
furniture, inventory, supplies, vehicles,
machinery and equipment, together with all chattel
paper, documents, instruments, accounts, contract
rights, proprietary rights, rights to payment,
trademarks, tradenames, copyrights, patents and
patent rights, general intangibles, and books and
records) owned by Borrower and used in connection
with the Real Property or the operation of
Borrower's business thereon, or necessary or
incident to the operation of Borrower's business
on the Real Property, whether now owned or
hereafter acquired, together with all products and
proceeds of the same, all as more fully described
in Exhibit A-2 attached hereto and incorporated
herein by this reference.

     1.61 "PERMANENT TERM" shall mean a permanent
term for the Loan running from the Permanent Term
Commencement Date through the Maturity Date.

     1.61 "PERMANENT TERM COMMENCEMENT DATE" shall
mean the first day following the end of tne
Construction Term.

     1.62 "PLANS AND SPECIFICATIONS" shall mean
the architectural, structural, mechanical,
electrical and other plans and specifications for
the construction of the Project and the completion
of tne Work and prepared by the
Architect(s)/Engineer(s), as approved by Lender
and as modified from time to time with Lender's
prior written consent.

     1.63 "POST MANAGEMENT FEES CASH FLOW" shall
mean shall mean, for any given accounting period,
net income (as determined in accordance with GAAP
applied on a basis consistent with prior periods)
(to the extent deducted from revenues in arriving
at net income) depreciation, amortization,
interest expense, accrued income taxes, and any
expenses for the Work funded with proceeds of the
Loan (excluding interest reserve payments already
included in interest expense), without
duplication, income taxes actually paid, gain on
the sale of assets, extraordinary income, and an
amount equal to two percent (2%) of Gross Revenues
(as a replacement reserve). In no instance will
any capital expenditure be accounted for in
determining Post Management Fees Cash Flow.

     1.63 "PRINCIPAL WORK-RELATED ITEMS" shall
mean the Plans and Specifications and all
agreements between Borrower and third parties
pertaining to the Work, including, without
limitation, the Construction Contract(s) and the
Architect/Engineer Agreement(s), as approved by
Lender in writing and modified from time to time
with Lender's prior written consent.

     1.64 "PROJECT" shall mean the 172 unit
congregate living facility to be constructed on
the Real Property.

     1.65 "PROPERTY" shall mean the Personal
Property and the Real Property.

     1.66 "REAL PROPERTV" shall mean the real
property legally described on Exhibit A- I
attached hereto and incorporated herein by this
reference, and all improvements and additions
thereto, and all mineral rights, easements and
other rights appurtenant thereto, all as more
fully described in the Mortgage.

     1.67 "REQUIRED COMPLETION ASSURANCE DEPOSITS"
shall mean all amounts deposited by Borrower with
Lender pursuant to paraaraph 5.22 of this
Agreement.

     1.68  "REQUIRED COMPLETION DATE" shall mean
the date which is eighteen ( 18) months after the
Loan Closing subject to Force Majeure Events not
exceeding sixty (60) days in the aggregate as
Force Majeure Events not constituting casualties
(e.g., flood, earthquake, fire and similar types
of occurrences) and as to Force Majeure Event
constituting casualties, not exceeding a time
deemed reasonable by Lender in the circumstances
given the nature and extent of such casualty.



7


     1.69 "REQUIRED FINANCIAL INFORMATION" shall
mean:

     (a) Copies of financial statements of
Borrower and the Property for all fiscal quarters
ending prior to the scheduled Maturity Date of the
Note, which shall be delivered to Lender no more
than thirty (30) days after the end of each fiscal
quarter;

     (b) Copies of annual financial statements for
Borrower and the Property for all fiscal years
ending prior to the Maturity Date of the Note,
which shall be delivered to Lender no more than
one hundred twenty (120) days after the end of
each fiscal year,

     (c) Copies of the annual financial statement
of such Guarantor as of December 31 of each
calendar year prior to the Maturity Date of the
Note, to be delivered no later than May 1 of each
calendar year with respect to the immediately
preceding calendar year. Copies of the federal
income tax returns of each Guarantor (except for
Emeritus Corporation) shall be delivered to Lender
within thirty (30) days aRer same are filed with
the Internal Revenue Service;

     (d) A copy of each Form 10-K and Form 10-Q
filed by Emeritus Corporation with the United
States Securities Exchange Commission, which shall
be delivered to Lender within thirty (30) days
after filing such form with said comnussion; and

     (e) To the extent not included under
subparagraph (a) above, a rent rolVtenant summary
reflecting the status of all Leases of the
Property or portions thereof, and accounts
receivable and accounts payable agings for each
calendar quarter (with year- to-date figures) and
each calendar year falling within the term of the
Loan prepared in accordance with GAAP, which shall
be delivered to Lender within thirty (30) days
after the end of each calendar quarter (in the
case of quarterly statements) and within ninety
(90) days after the end of each calendar year (in
the case of annual statements) during the term of
the Loan.


     The financial statements delivered pursuant
to subparagraphs (a) and (b) above shall include:
for Borrower, certified balance sheets, statements
of income and expenses and statements of cash
flow; and for Guarantors, balance sheets. The
financial statements shall be prepared in
accordance with GAAP, consistently applied and
prepared in accordance with the "accrual basis" of
accounting; and shall be in reasonable detail.
Borrower's financial statements shall include
calculations of Cash Flow, Debt Service, Excess
Cash Flow, Gross Revenue, the Debt Service
Coverage Ratio for the period in question and the
Debt Service After Management Fee Coverage Ratio
for the period in question; and shall include a
reconciliation of, and copy of the bank statement
from, each of the Special Accounts including a
summary of all expenditures made therefrom. All
financial statements of Borrower shall be
certified to be true, complete and correct in all
material aspects by the manager or members of
Borrower, and include a signed statement by the
principal financial officer of Borrower that the
financial statements represent fairly, in all
material respects, the financial position and
operation of Borrower subject to annual year end
adjusting entries. All Guarantors' financial
statements shall be signed and certified as true,
correct and complete in all material respects by
the subject Guarantor. Borrower's annual financial
statements required pursuant to subparagraph (b)
shall be audited by a firm of certified public
accountants satisfactory to Lender and shall
include a separate accountant's certificate
acceptable to Lender, and a management letter from
the auditors to Borrower detailing any
deficiencies in Borrower's accounting practices
and commenting on any other accounting- related
matters.

     1.70 "SPECIAL ACCOUNTS" shall mean the
Operating Cash Flow Account and Management Fee
Account, all as defined in paragraph 5.6.

     1.71 "TENANTS" shall mean each and every
party now or hereafter entitled to the possession
and use of the Property, or any part thereof,
pursuant to the Leases.

     1.72 "TITLE AGENT" shall mean Chicago Title
Company.

     1.73 "TITLE COMPANY" shall mean Chicago Title
Company.




8


     1.74 "TITLE POLICY" shall have the meaning
given to it in paragraph 3. 1.4.

     1.75 "UNCOVERED COST OF THE WORK" shall mean
the amount equal to the excess (if any) of (a) the
remaining unpaid costs of Completion of the Work
over (b) the committed and undisbursed portion of
the Loan and any Required Completion Assurance
Deposits held by Lender.

     1.76 "WORK" shall mean the construction of
the Project and the installation of any and all
furniture, furnishings, fixtures and/or equipment
required by this Agreement or shown as costs on
the Budget the Plans and Specifications or the
Construction Contract(s) tor the Project.

     1.77 "WORK PROGRESS SCHEDULE" shall mean the
schedule for the Completion of the Work and parts
thereof, as reasonably approved by Lender in
writing. The Work Progress Schedule shall be
attached hereto as Exhibit E at such time as it
has been prepared by Borrower and reasonably
approved by Lender in writing.

     1.78 "WORK-RELATED ADVANCE" shall mean any
Advance made for the purpose of paying or
reimbursing Borrower for the costs of the Work.

     1.79 "WORK-RELATED ADVANCE REQUEST" shall
mean the written application of Borrower on
Lender's standard forms made by Borrower
specifying by name and amount all parties to whom
Borrower is obligated for labor, materials,
equipment or services supplied for the Completion
of the Work whether or not specified in the
Budget, and requesting a Work- Related Advance for
payment of such items, accompanied by an Affidavit
of Borrower and such schedules, affidavits,
releases, waivers, statements, invoices, bills and
other documents as Lender may request.


ARTICLE 2
                          LOAN AMOUNT AND TERMS

     2.1 MAXIMUM LOAN AMOUNT AND TERM. Lender
hereby agrees to make the Advances to Borrower in
a principal sum not to exceed the Maximum Loan
Amount, provided Borrower has complied with, and
subject to the terms and conditions of, this
Agreement and all other Loan Documents. Unless
Lender, in its sole and absolute discretion,
agrees in writing with Borrower to make such
Advances thereafter on terms and conditions
satisfactory to Lender, Borrower shall not be
entitled to obtain Work-Related Advances after the
Required Completion Date.

     2.2 USE, ALLOCATION AND TIMING OF ADVANCES.
Borrower shall use Advances (after the Initial
Advance) only for payment of and reimbursement for
hard and soft construction costs and interest
reserve set forth in the Budget and designated as
costs to be paid from the Loan proceeds. All
Advances shall be subject to the conditions and
limitations of paragraph 3.2 below.

     2.3 USE AND ALLOCATION OF INITIAL ADVANCE.
The proceeds of the Initial Advance shall be
disbursed by Lender on the Loan Closing to or for
the benefit of Borrower through an escrow
established with Title Agent, for use in strict
accordance with the Initial Advance Disbursement
Schedule attached hereto as Exhibit G.

     2 .4  [INTENTIONALLY NOT USED]
     
     2.5 BASIC INTEREST. Basic Interest shall
begin to accrue on each Advance as of the date
disbursed by Lender by check or wire transfer to
the Title Agent or Borrower. and such Advance
shall be added to the outstanding principal
balance of the Loan on such date. An Advance shall
be deemed to have been disbursed by Lender to
Borrower and deemed to be part of the outstanding
principal balance of the Loan if disbursed to a
third party on Borrower's behalf or disbursed to
the Title Agent to hold for disbursement to
Borrower subject to the furfillment of certain
conditions to which Borrower has agreed. Interest
shall accrue on Advances only to the extent of the
outstanding principal balance of the Loan.




9




     2.6 THE NOTE. In order to evidence the Loan,
Borrower shall execute and deliver to Lender the
Note in the Maximum Loan Amount, which Note shall
be payable in accordance with the terms set forth
therein and in this Agreement, with Basic Interest
at the rates set forth therein and herein. The
principal balance and interest thereon shall be
payable as follows:

     2.6.1 CONSTRUCTION INTEREST PAYMENTS.
Commencing on the first day of the second calendar
month following the Loan Closing and on the first
day of each calendar month thereafter during the
Construction Term, Borrower shall remit monthly
payments consisting of accrued Basic Interest (at
the Basic Rate) on the outstanding principal
balance of the Loan (in arrears); provided that,
during the Construction Term, as long as there is
no Event of Default or Incipient Default, such
Basic Interest shall be paid from the interest
reserve set forth in the Budget, until such
interest reserve is exhausted, at which point
Borrower will commence making such interest
payments.

     2.6.2 PERMANENT TERM INTEREST PAYMENTS.
Commencing on the first day of the first full
calendar month after the Permanent Term
Commencement Date, and on the first day of each
calendar month thereafter until the first day of
the thirteenth (13th) full calendar month after
the Permanent Term Commencement Date (the
"Principal Commencement Date") Borrower shall
remit monthly payments consisting of accrued Basic
Interest (at the Basic Rate) on the outstanding
principal balance of the Loan (in arrears).

     2.6.3 PERMANENT TERM PRINCIPAL AND INTEREST
PAYMENTS. Commencing on the Principal Commencement
Date through Lender's receipt of repayment of the
Loan in full, Borrower shall remit monthly
payments consisting of the amounts specified in
2.6.2 above plus principal in an amount which
would be amortized monthly if the outstanding
principal balance of the Loan Amount on the
Principal Commencement Date was being fully
amortized in consecutive level monthly
installments of principal and interest calculated
over two hundred forty (240) months, assuming a
fixed interest rate for purposes of calculating
such amortization equal to the Basic Rate in
effect on the Principal Commencement Date.

     2.6.4 PAYMENT OF REMAININA AMOUNTS. The
remaining principal balance of the Note together
with all accrued but unpaid Basic Interest and all
other amounts payable thereunder and hereunder
shall be all due and payable in tull upon the Due
Date.

     2.7 PREPAYMENT.

     2.7.1 VOLUNTARY FULL PREPAYMENT. Borrower
shall have no right to prepay the Loan in whole or
in part at any time prior to the third anniversary
date of the Loan Closing. At any time after the
third anniversary date of the Loan Closing,
Borrower may, upon giving Lender (i) thirty (30)
days advance written notice thereof if Borrower
has exercised the Conversion Option, or (ii)
ninety (90) days advance written notice thereof if
Borrower has not exercised the Conversion Option,
prepay all, but not a portion of, the amount of
principal and interest due on this Note provided
that (A) on the date of such prepayment Borrower
shall also pay to the order of Lender on the date
of prepayment a fee (the "Prepayment Fee"); (B) no
Event of Default exists; and (C) Borrower pays, in
addition to the full principal amount of the Note,
all accrued but unpaid interest at the applicable
interest rate and all fees and other charges then
outstanding. The Prepayment Fee shall be equal to
the appropriate amount set forth below:

     (a) If Borrower has not exercised the
Conversion Option, an amount equal to $100,000;
and

     (b) If Borrower has exercised the Conversion
Option, if there is a decline between the yield to
maturity (expressed as a percentage) on the date
the Basic Rate was fixed pursuant to the
Conversion Option on United States Treasury Notes
with a maturity closest to and prior to the
scheduled Maturity Date (the "Existing Treasury
Note Rate")


10



and the yield on United States Treasury Notes with
a maturity closest to and prior to the scheduled
Maturity Date as reported in the Wall Street
lournal or similar publication reasonably
acceptable to Lender on the fifth business day
preceding the prepayment date (the "Future
Treasury Note Rate"), an amount equal to the
product of (i) the difference between the Existing
Treasury Note Rate and the Future Treasury Note
Rate (expressed as a percentage) multiplied by
(ii) the outstanding balance of the Note inclusive
of all accrued and unpaid interest as of the date
of prepayment and further multiplied by (iii) the
number of whole and fractional years remaining
until the scheduled Maturity Date.

     2.7.2 INVOLUNTARY PREPAYMENT. The Prepayment
Fee shall be due
and payable on all amounts paid prior to the due
date thereof for any reason including,
without limitation, refinancing, acceleration
(upon the occurrence of an Event of
Default or otherwise) or otherwise. The foregoing
Prepayment Fee represents the
estimate of Lender and Borrower of a fair average
compensation for the loss that mav be sustained by
Lender due to the payment of any of the
indebtedness evidenced by the Note prior to the
due date thereof stated herein. Such Prepayment
Fee shall be paid without prejudice to the right
of Lender to collect any other amounts provided to
be paid hereunder.

     2.7.3 PREPAYMENT IN FIRST THREE YEARS.
Although a prepayment of the Loan is prohibited
during the period within three (3) years after the
Loan Closing, in the event Borrower tenders
prepayment of the Loan in whole or in part during
such period and the prohibition on such prepayment
is not enforceable under applicable law, or is
waived by Lender, the Prepayment Fee applicable to
such a prepayment shall be equal to fifteen
percent ( 15%) of the amount so prepaid.

     2.7.4 UNPERMITTED PARTIAL PAYMENTS. In the
event Borrower makes any partial prepayment(s) of
principal not permitted hereunder, such
prepayment(s) shall be deemed a payment(s) of the
principal as of the scheduled Maturity Date, and
interest shall continue to accrue on the full Loan
amount as if such prepayment(s) had not been made
until the scheduled Maturity Date.

     2.8 APPLICATION OF PAYMENTS. All payments
received by Lender in respect of the Loan shall be
applied first to any late charges and other fees
and expenses due under the Loan Documents, then to
accrued and unpaid interest and then to
outstanding principal.


ARTICLE 3
                       CONDITIONS PRECEDENT TO THE
LOAN

     3.1 CONDITIONS TO LOAN CLOSING AND INITIAL
ADVANCE. The obligation of Lender to make the
Initial Advance is subject to the following
express conditions precedent, which requirements
must be satisfied at least three (3) Business Days
prior to the Loan Closing, unless such paragraph
states that the condition must be satisfied on or
before the Loan Closing, or on or before ten ( 10)
Business Days prior to the Loan Closing.

     3.1.1 LOAN DOCUMENTS. On or before the Loan
Closing, Borrower shall have executed or obtained
execution of and delivered to Lender the following
documents and instruments, the final form and
substance of which shall be acceptable to Lender

     3.1.1.1 The Note;

     3.1.1.2 Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing
securing the Note and all of Borrower's
obligations under the other Loan Documents
(excluding the Environmental Certificate with
Representations, Covenants and Warranties
described in paragraph 3.1.1.8) and constituting:
(a) a first and prior lien on the fee title to the
Real Property, including all buildings and
improvements now or hereafter located on the Real
Property, and all fixtures and attachments of and
to the buildings now on the Real Property, if any,
and those to be erected on the Real Property and
all rights and interest appurtenant thereto; (b) a
first priority assignment of all




11



Borrower's interest in and to the Leases including
without limitation all rents, issues or profits
therefrom; and (c) a security agreement
establishing a valid first priority security
interest in and to all of the Personal Property
not otherwise encumbered in another Loan Document;

     3.1.1.3 UCC - I Financing Statements for
filing and recording as required to perfect all of
the security interests granted andfor created
pursuant to the Loan Documents;

     3.1.1.4  A Collateral Assignment of
Agreements;

     3.1.1.5 An Acknowledgment of Assignment and
Subordination Agreement (Contractor);

     3.1.1.6 An Acknowledgment of Assignment and
Subordination Agreement (Engineer);

     3.1.1.7 An Acknowledgment of Assignment and
Subordination Agreement (Architect);

     3.1.1.8 An Environmental Certificate with
Representations, Covenants and Warranties;

     3.1.1.9 The Guaranties;

     3.1.1.10 A Subordination Agreement executed
by each Emeritus Corporation, NorthBay Health
Advantage, and BW (Fairfield) Real Estate
Corporation;

     3.1.1.1 I The Account Agreements required by
paragraph 5.6 below;

     3.1.1.12 A "comfort letter" from NorthBay
Healthcare Systems (the "Parent"), wherein the
Parent agrees for the benefit of Lender to
undertake certain obligations with respect to the
financial strength and ability of its subsidiary,
NorthBay Health Advantage; and

     3.1.1.13 A separate Assignment of Leases and
Rents. according to Lender, as additional security
tor the Loan. a first priority assignment of all
of Borrower's rights under and interest in all
Leases and the rents payable thereunder;

     3.1.1.14 This Agreement;

     3.1.1.15 Escrow Agreement with respect to the
money to be held in escrow under paragraph 5. 11;
and

     3.1.1.16 Such other documents and security
instruments as Lender deems necessary to
effectuate the purposes hereof.

     3.1.2 ORGANIZATION DOCUMENTS. Borrower shall
provide, at Borrower's cost and expense, the
following organizational documents, the final form
and substance of which shall be acceptable to
Lender in its reasonable discretion (collectively
"Organization Documents"):

     3.1.2.1 Certified copies of Borrower's
organizational documents and all amendments
thereto;

     3.1.2.2 A certificate of "Status" from the
Secretary of State, State of California and tax
clearance from the California franchise tax board;

     3.1.2.3 A Company Authorization of Borrower
authorizing its obtaining the Loan, ratifying the
terms of this Agreement, approving the Loan
Documents, and setting forth the person or persons
authorized to execute the Loan Documents on behalf
of Borrower;



12



     3.1.2.4 Certified copies of the Articles of
Incorporation and by- laws of each Guarantor and
all amendments thereto;

     3.1.2.5 Certificate of "Good Standing" or
"Status" from the State of incorporation
addressing the corporate status of each Guarantor
and tax clearance from the California franchise
tax board;

     3.1.2.6 True and correct certified copies of
the bylaws and all amendments thereto of each
Guarantor;

     3.1.2.7 Corporate Resolution of the corporate
manager of Borrower authorizing Borrower's
obtaining the Loan, ratifying the terms of this
Agreement, approving the Loan Documents, and
setting forth the person or persons authorized to
execute the Loan Documents on behalf of Borrower;

     3.1.2.8 Corporate Resolution of each
Guarantor authorizing such Guarantor's guarantee
of the Loan. ratifying the terms of the Guaranty
approving the Guaranty, and setting forth the
person or persons authorized to execute the
Guaranty on behalf of such corporation; and

     3.1.2.9 Any other organization documents
and/or verifications of authority, consent and
existence as Lender may reasonably require.

     3.1.3 GOVERNMENTAL APPROVALS. On or before
ten (10) Business Days prior to the Loan Closing,
Borrower shall deliver to Lender, and Lender shall
be satisfied with copies of any licenses or
approvals for construction of the Improvements and
operation (within or on the Real Property) of the
Property as a congregate living facility, if any;
and any other applicable governmental permits,
approvals, consents, licenses and certificates for
the construction of the Improvements of the
Property or which may affect the value of the
Collateral.

     3.1.4 TITLE INSURANCE COMMITMENT. On or
before ten ( 10) Business Days prior to the Loan
Closing, Title Agent shall issue or be committed
to issue an extended coverage lender's policy of
title insurance (the "Title Policy") underwritten
by Title Company in an amount not less than the
amount of the Loan (with a pending disbursements
clause acceptable to Lender) and insuring the lien
of the Mortgage to be a first priority lien on the
Property, subject only to the Permitted
Encumbrances, and including such endorsements and
co-insurance as Lender reasonably requires.

     3.1.5 SURVEY. On or before ten ( 10) Business
Days prior to the Loan Closing, Borrower shall
deliver to Lender an ALTA/ACSM survey of the
Property by a licensed surveyor acceptable to
Lender and the Title Company dated not more than
sixty (60) days prior to the Loan Closing and
certified in favor of Borrower, Lender, and the
Title Company. The certification shall be in a
form reasonably acceptable to Lender and the Title
Company.

     3.1.6 APPRAISAL. On or before ten (10)
Business Days prior to the Loan Closhg, Borrower
shall deliver to Lender a current MAI as-built
appraisal of the Property prepared by Valuation
Counselors, Inc., establishing that the completed
stabilized value of the Project is not less than
$15,940,000.00.

     3.1.7 INSURANCE. Borrower shall provide
evidence that there is in effect such hazard,
earthquake, flood, business interruption, public
liability, builder's risk and other insurance as
is required by Lender, and written by insurers,
and in forms and amounts, satisfactory to Lender.

     3.1.8 LITIGATION. There shall be no material
judgments or pending litigation (beyond that
disclosed in Exhibit C hereto) or, to the best of
Borrower's knowledge, threatened litigation of a
material nature outstanding against Borrower. the
Property or any Guarantor, including but not
limited to litigation or judgments which may
affect title or Lender's lien position with
respect to any of the Collateral or any litigation
or judgment which might materially, adversely
affect the ability of Borrower or any Guarantor to
perform its obligations under the Loan Documents.


13



     3.1.9 TAXES. Borrower shall provide evidence
that all taxes and assessments levied against or
affecting the Collateral have been paid current;
or in the event Borrower has commenced a legal or
administrative challenge to any such tax or
assessment, evidence that such liability has been
bonded over, or that funds for the payment thereof
(in the amount of the original assessment) have
been escrowed with an independent third party with
provisions for the payment thereof reasonably
satisfactory to Lender.

     3.1.10 HAZARDOUS WASTE. Borrower shall
provide to Lender, at Borrower's sole cost and
expense, a Phase I Environmental Site Assessment
of the Property (the "Site Assessment"). The
results of such Site Assessment must be
satisfactory to Lender. Lender has the right to
require Borrower to retain the services of an
environmental engineer acceptable to Lender to
perform such additional environmental
investigations as may be required by Lender. Such
investigations may include but are not limited to
soil and ground water testing to fully identify
the scope of any environmental issues impacting
the Property. All costs incurred in performing any
additional investigation shall be borne by
Borrower. If any environmental issues exist prior
to the Loan Closing, Lender reserves the right, in
its sole and absolute discretion, to terminate
this Agreement. However, if Lender determines, in
its sole discretion, that known environmental
problems with respect to the Property are capable
of being resolved at a reasonable cost, Lender may
proceed with the closing and funding of the Loan
provided that suff'cient funds, as determined by
Lender in its sole discretion, are held back from
the Loan proceeds and deposited into an escrow
account which is established for the purpose of
securing all aspects of correcting the subject
environmental problems and is pledged to Lender.
Release of such escrowed funds will be controlled
exclusively by Lender.

     3.1.1 1 ZONING. Borrower shall provide
evidence reasonably satisfactory to Lender that
the Real Property is properly zoned for its
intended use as a congregate living facility and
that any and all zoning stipulations have been
complied with.

     3.1.12 ACCESS. PARKING AND COMMON AREAS.
Lender shall be reasonably satisfied that all
easements and other agreements providing for
public access to, adequate parking for, and the
maintenance of any and all common areas and
party walls related to the Property and its
intended use as a congregate living facility are
in effect, fully enforceable, and tully assignable
to Lender as part of its collateral for the Loan.

     3.1.13 UTILITIES. Borrower shall provide
evidence reasonably satisfactory to Lender that
all utilities, including without limitation,
water, gas and electricity, are available to the
Real Property (or will be upon Comptetion of the
Work), and that the suppliers of such utilities
have the capacity to serve the Real Property in
amounts necessary for its intended use as a
congregate living facility and are committed to
supply those utilities in such amounts upon
Completion of the Work.

     3.1.14 ADDITIONAL CONSTRUCTION-RELATED
REQUIREMENTS. Borrower shall provide to Lender (at
least ten (10) Business Days prior to the Loan
Closing):

     3.1.14.1 a payment bond which is issued by a
surety satisfactory to Lender and in a form
satisfactory to Lender and is for the construction
of the Improvements adequate to cause all persons
providing labor, materials, equipment or services
with respect thereto to look solely to such bond,
rather than the Property and other security for
the Loan, in the event of non-payment;

     3.1.14.2 a performance bond or bonds which
is/are issued by a surety satisfactory to Lender
and in a form satisfactory to Lender, covering
contracts for the Improvements and naming Lender
as co- obligee;

     3.1.14.3 if required by Lender, a soils test
report with respect to the suitability of the
soils on the Real Property for purposes of
constructing the Work;

     3.1.14.4 if required by Lender, a traffic
study with respect to the impact of existing and
anticipated traffic upon the Property;



14


     3.1.14.5 if the survey of the Real Property
indicates that the Real Property is within a flood
zone, a flood and drainage study with respect to
the Real Property and the Improvements;

     3.1.14.6 the Architect/Engineer Agreement and
consent to the assignment of that agreement to
Lender; such certificates as Lender may require
from the Architect/Engineer regarding the adequacy
of the Plans and Specifications (including,
without limitation, their compliance with the
Americans With Disabilities Act and all other
applicable laws and regulations) and the Budget
and such other matters as Lender may deem
pertinent;

     3.1.14.7 the Plans and Specifications;

     3.1.14.8 the Budget;

     3.1.14.9 a detailed draw schedule acceptable
to Lender, and the Work Progress Schedule;

     3.1.14.10 The General Contract and any other
Construction Contracts, any other consents from
the General Contractor and any other Contractor to
the assignment of their contracts to Lender; and
such certificates and financial information as
Lender may request from the General Contractor and
any other direct contractors regarding their
financial viability, the adequacy of the Budget
and such other matters as Lender may deem
appropriate;

     3.1.14.11 A construction completion schedule
to which Borrower shall agree to adhere; failure
of Borrower to comply with and adhere to such
construction schedule (subject to a Force Majeure
Event) shall constitute an Event of Default;

     3.1.14.12 A list of all contractors and major
subcontractors who will perform work, all whom
must be reasonably satisfactory to Lender;

     3.1.14.13 Evidence that the General Contract
provides that (a) the General Contractor must
begin and complete construction by certain
specified dates in accordance with the Loan
Documents and (b) change orders will be permitted
only up to amounts of $15,000 for any single
occurrence and up to $150,000 in the aggregate;

     3.1.14.14 Financial statements for the last
two (2) years and federal employer tax
identification numbers for the General Contractor,
any other direct contractors, and, if required by
Lender, the major subcontractors; and

     3.1.14. 15 Copies of all other direct
contracts with contractors and all major
subcontracts all of which shall be reasonably
acceptable to Lender.

     3.1.15 EQUITY INVESTMENT. Borrower shall
deliver evidence that $2,500,000.00 cash equity
has been invested in the Property so that such
cash equity and the committed but undisbursed Loan
Amount equals the total costs for the Work set
forth in the Budget.

     3.1.16 GENERAL INFORMATION. Borrower shall
provide Lender with legible copies of all
Property-related information which Lender may trom
time to time reasonably request.

     3.1.17 REVIEW AND APPROVAL OF RELATED
DOCUMENTATION. Borrower shall have provided to
Lender, and Lender shall have reviewed and
approved all documentation reasonably deemed
material by Lender to the present condition and
proposed operation or use of the Property.

     3.1.18 EQUIPMENT LEASES. Lender shall have
reviewed and approved all leases and financing
agreements covering furniture, fixtures, equipment
and other personal property used on the Property
(the "Equipment Leases"). The obligations under
the Equipment Leases shall be considered
"indebtedness for borrowed money", "debt" and
"expense" of Borrower for purposes of this Loan
Agreement. In addition, Borrower



15


shall provide to Lender written agreements from
each of the equipment lessors or financiers under
such Equipment Leases granting to Lender rights to
notice and cure under such Equipment Leases.

     3.1.19 ESTABLISHMENT OF SPECIAL ACCOUNTS.
Borrower shall have established each of the
Special Accounts.

     3.1.20 MATERIAL ADVERSE CHANCE. Lender shall
have the right to terminate this Agreement at any
time prior to the Loan Closing and to retain the
Loan Fee in the event of any material adverse
change in the financial condition of Borrower or
of any Guarantor (as compared to the financial
condition as presented in the financial
information provided to Lender as of the date of
the commitment letter dated September 12, 1996,
from Lender to Borrower).

     3.1.21 OPINION LETTERS. A favorable legal
opinion of counsel for Borrower and each
Guarantor, which counsel must be reasonably
acceptable to Lender, dated as of the Closing
Date, covering the due authorization, execution,
delivery, enforceability, validity and binding
effect of the Loan Documents to which the Borrower
and each of the Guarantors, respectively, is a
party, and (except with respect to the Guarantors
and Guaranties) of all liens and security
interests granted thereby, compliance with
applicable usury laws (provided, however, such
opinion may assume that Lender is the holder of a
valid commercial finance lender license issued by
the State of Califomia and/or that the Loan was
arranged by a real estate broker licensed in the
State of California) and such other matters as
Lender may reasonably require. The Loan Documents
provide that California law applies to certain
portions of the Loan Documents and that Arizona
law applies to all other portions of the Loan
Documents. The attorney for Borrower and the
Guarantors will not be required to opine on the
enforceability of the choice of law provisions and
will be entitled to assume, with respect to the
portions of the Loan Documents covered by Arizona
law, that Arizona law is identical to California
law. [n connection with such usury opinion,
counsel shall be required to opine that the Loan
is not usurious (without reliance cn any usury
savings clause). Each such opinion of counsel
shall confirm, to the satisfaction of Lender, that
the opinion is being delivered to Lender at the
instruction of the party represented by such
counsel, that Lender is entitled to rely on such
opinion, that for purposes of such reliance Lender
is deemed to be in privily with the opining
counsel, and that such counsel shall not assert
and waive any position to the contrary.

     3.1.22 TAX LIEN SEARCH. Lender will have
obtained a tax lien, litigation, judgment and UCC
searches conducted on Borrower and each Guarantor,
all of which shall be satisfactory to Lender.

     3.1.23 CREDIT REFERENCES. Borrower shall
provide to Lender credit references for Borrower
and each Guarantor, which shall be satisfactory to
Lender.

     3.1.24 START-UP FINANCIAL STATEMENTS.
Borrower shall provide to Lender copies of the
"start-up" financial statements of Borrower and
copies of the financial statements of each
Guarantor for the last two (2) fiscal year ends.

     3.1.25 TERMINATIONS BV EXISTING LENDERS. On
or before the Loan Closing, Borrower's existing
lenders shall have executed and delivered to the
Title Agent all UCC and mortgage terminations
evidencing the termination of their liens and
security interests (except for the Emeritus Deed
of Trust), in a form satisfactory to Lender and
the Title Company.

     3.1.26 MISCELLANEOUS. Borrower shall furfill
any other reasonable conditions and provide such
additional information, security and documentation
as may be required by Lender and the results of
all credit inquiries, tax lien, litigation,
judgment and UCC searches on Borrower, Guarantors
and the Property shall have proven satisfactory to
Lender.






16



     3.1.27 ASSIGNMENT OF RIGHTS. To the extent
assignable, Lender shall receive from Borrower a
valid first priority assignment of (and to the
extent reasonably required by Lender, Borrower
will use reasonable efforts to obtain rights to
cure defaults under) any and all management
contracts, equipment leases and any other
contracts, agreements, licenses and permits as are
necessary or desirable for the operation, design,
construction and use of the Property as a
congregate living facility (the "Contracts and
Licenses"). The form and content of all Contracts
and Licenses shall be fully acceptable to Lender.

     3.2 ADDITIONAL CONDITIONS TO ADVANCES. In
addition to all other terms and conditions set
forth herein, Advances shall be subject to
satisfaction of all of the following conditions
and limitations:

     3.2.1 FREQUENCY OF ADVANCES. Advances shall
be made no more frequently than monthly and each
such monthly disbursement shall be based upon
actual completed work in place rather than upon
percentage of completion.

     3.2.2 ADVANCE LIMITATIONS. Lender shall have
no obligation to make an Advance if the
undisbursed portion of the Loan Amount is less
than the unpaid costs of Completion of the Work.

     3.2.3 RETAINAGE. During the Construction
Term, Lender shall withhold from each Work-Related
Advance an amount equal to ten percent (10%) of
such costs ("Basic Retainage") or such greater
amount as is provided for in the General Contract
or any other Construction Contracts for the Work
("Additional Retainage"). The Basic Retainage
shall be released as provided in paragraph 3.2.7
below. The Additional Retainage shall be released
at the times specified in the applicable
Construction Contract(s).

     3.2.4 ADVANCE REQUEST AFFIDAVIT. Each
Work-Related Advance shall be conditioned upon
Lender's receipt and reasonable approval of all
items required to be delivered by Borrower
pursuant to Exhibit F hereof.

     3.2.5 TITLE INSURANCE: AND SURVEY. NO BREAK
IN PRIORITY. Advances shall be subject to the
receipt of the Title Policy, Title Policy
endorsements, trailing mechanics' and
materialmen's lien waivers on a thirty (30) day
basis and any surveys required pursuant to
paragraphs 3.1.4, 3.1.S. 5.16.8 and 5.16.9.
Borrower shall not commence any work on the
Property prior to recordation of the Mortgage, if
it would affect priority of the Mortgage.

     3.2.6 FINAL CONSTRUCTION ADVANCES. Subject to
the escrow provisions of paragraph 3.2.7 below,
the final Advance (including all Basic Retainage
and any unused contingency reserves) shall be made
directly to the Title Agent upon Compledon.

     3.2.7 POST-COMPLETION ESCROW. Upon the
funding of the fina! Advance, the Title Agent
shall retain in escrow (and invest in an interest
bearing account for the benefit of Borrower) the
Basic Retainage and any unused contingency
reserves. The Basic Retainage and any unused
contingency reserves shall be funded by Title
Agent to, or at the direction of, Borrower upon
Borrower's written certification to Lender that
all "punch list items" have been resolved to
Borrower's satisfaction, accompanied by a
certificate from the Borrower's Architect/Engineer
and Lender's Consultant certifying to the same,
and Lender's subsequent written notice to Title
Agent to fund such Basic Retainage and any unused
contingency reserves. At the time of making each
disbursement of the Basic Retainage and any unused
contingency reserves, the Title Agent shall, as a
condition to such disbursement, be irrevocably
committed to issue to Lender a date-down
endorsement to the Title Policy meeting the
substantive requirements of paragraph 5.16.9
hereof; provided, however. that actual issuance of
a date- down endorsement may be deferred by the
Title Agent until its final advance of such Basic
Retainage, whereupon a final date-down endorsement
(or reissued Title Policy, as the case may be)
shall be issued to Lender.




17




     3.2.8 DISBURSEMENTS THROUGH TITLE COMPANY.
Lender will make the initial Advance and the final
Advance directly to the Title Agent. Other
Advances may, at Borrower's election, be made
directly to Borrower provided that all conditions
precedent to the making of an Advance have been
satisfied.

     3.3 CONDITIONS TO ALL ADVANCES AFTER THE LOAN
CLOSING. All Advances made after the Loan Closing
shall be subject to the furfillment of each of the
following conditions precedent:

     3.3.1 NO DEFAULT: REAFF1RMATION OF
REPRESENTATIONS AND WARRANTIES. No Event of
Default or Incipient Default exists and all
representations and warranties shall be reaffirmed
as of the Advance date.

     3.3.2 MATERIAL ADVERSE CHANGE. There shall
exist no material adverse change in the financial
condition of Borrower, the Property proforma, or
any Guarantor (as compared to the financial
condition as presented in the financial
information provided to Lender as of the date of
this Agreement).

     3.3.3 OTHER. Lender shall have received,
reviewed and approved all other items required
under this Agreement that are conditional to the
making of an Advance.

     3.3.4 ADVANCES AGAINST GOODS. Lender shall
have the right to approvc or disapprove
disbursements for stored or ordered goods. Without
limiting the generality of such right, Lender may
condition its approval of disbursements of the
Loan for payments of or deposits upon stored or
ordered goods upon Lender's prior receipt of the
following:

     3.3.4.1 Evidence satisfactory to Lender that
such goods are covered by the insurance policies
required to be delivered pursuant to paragraph
5.14;

     3.3.4.2 Evidence satisfactory to Lender from
the vendor of such goods that, upon tull payment
tO the vendor ownership of such goods will vest in
the name of Borrower free and clear of any liens
or claims of the vendor or any other third party;

     3.3.4.3 (i) Evidence satisfactory to Lender
that the goods are and upon disbursement shall be
stored upon the Property in a manner which is
adequate to protect the goods against theft and
damage and otherwise satisfactory to Lender; or

     (ii) if the goods will not be stored upon the
Property at disbursement, evidence (including the
original warehouse receipt) satisfactory to Lender
that the goods are being fabricated or sold by a
reputable and creditworthy vendor, that the goods
are being or will be stored in a bonded warehouse
or storage yard unless the goods are still being
fabricated ant that the warehouse or storage yard
has been not)fied of Lender's security interest.


ARTICLE 4
              REPRESENTATIONS AND WARRANTIES OF
BORROWER

Borrower hereby represents and warrants as
follows:

     4.1 Borrower is a validly existing limited
liability company duly organized and in good
standing under the laws of the State of
California; is in good standing and is authorized
and has the requisite power and authority to
conduct business in the State of California; and
has the full legal right and authority to make
this Agreement and to borrow hereunder.

     4.2 The execution, delivery, and performance
by Borrower of the Loan Documents will not (a)
violate any provision of any law of the United
States of America, the State of Califonia, any
municipal department or governmental authority; or
(b) result in the breach of, or require any
consent under, or result in the creation of any
lien, charge, or encumbrance upon any property or
assets of Borrower pursuant to, any indenture or
other agreements or instruments to which Borrower
is a party or by which Borrower or its property
may be bound or affected, other than as
specifically provided herein.


18


     4.3 The proceeds of the Loan will be used by
Borrower solely for the purposes specified in this
Agreement, and in all events for a valid business
purpose of Borrower.

     4.4 All information set forth in Borrower's
loan application and in the financial statements
given by Borrower to Lender and all other
information given (or to be given) by Borrower to
Lender in connection with the Loan, including any
statement regarding Borrower's past credit
dealings, is true, correct, and complete in all
material respects. No material adverse change has
occurred as of the Loan Closing in any such
financial condition nor with respect to any other
information supplied by Borrower to Lender.

     4.5 The Loan Documents are in all respects
legal, valid, and binding upon Borrower, according
to their terms (other than as such enforceability
may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement,
moratorium, similar laws relating or affecting
rights of creditors generally or general
principles of equity) and grant to Lender direct,
valid, and enforceable first liens upon, and
security interests in, the Collateral, and the
Loan Documents executed by the Guarantors are in
all respects legal, valid and binding upon
Guarantors according to their terms.

     4.6 No bill of sale, security agreement,
financing statement or other instrument affecting
title or creating security interests (except those
executed in favor of Lender) has been or will be
executed in connection with or with respect to any
of the Collateral, except for liens which have
been released on or before the Loan Closing, the
Permitted Encumbrances and Personal Property
financing or dispositions disclosed to and
approved in writing by Lender or permitted under
the Loan Documents.

     4.7 The consummation of the Loan described in
this Agreement and the performance of the
obligations of Borrower under and by virtue of the
Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, deed
of trust, loan or credit agreement, articles of
organization, regulations, or any breach of any
other agreement or instrument to which Borrower is
a party or by which Borrower may be bound or
affected.

     4.8 Except as disclosed on Exhibit C. there
are no judgments, and no actions, suits, or
proceedings pending, or to Borrower's knowledge
threatened, against or affecting Borrower or the
Collateral, or involving the validity or
enforceability of any of the Loan Documents or the
priority of the lien thereof, at law or in equity,
or before or by any governmental authority, and
Borrower is not in default with respect to any
writ, injunction, decree, or demand of any court
or any governmental authority, other than as
specifically disclosed on Exhibit C.

     4.9 Borrower has received no written notice
of and, to Borrower's knowledge, there is not any
violation of any law, municipal ordinance, or
order, or of any requirement of the State of
California or any other state, municipal
department or other governmental authority, which
violations in any way relate to or affect Borrower
or the Property.

     4.10 Except as otherwise specifically
provided herein to the contrary. the title to the
Collateral and Borrower's interest therein as of
the Loan Closing is free and clear of all liens,
encumbrances, and security interests except only
the Permitted Encumbrances.

     4.11 The Loan Documents and all other
instruments executed and delivered to Lender in
connection with this Loan were executed and
delivered in accordance with the requirements of
law.

     4.12 Borrower is and shall continue to be the
lawful owner of the Collateral; no third party,
including without limitation any Affiliate of
Borrower has any interest in the Collateral (or
any part thereof) or in Borrower's interest in the
Collateral except as described in Exhibit "B"; and
Borrower agrees to protect, preserve, and defend
Lender's interest in the Collateral and the title
thereto.






19



     4.13 All utility services (including water,
storm and sanitary sewer, gas, electric and
telephone facilities and garbage removal)
necessary for the Completion of the Work and the
intended use of the Property as congregate living
facility are available to the Real Property (or
will be upon Completion); the suppliers of such
utilities have the capacity to serve the Property
and are committed to supply such utilities in such
amounts as are required upon Completion; and all
fees and deposits due to the suppliers of such
utilities have been paid current or amounts
adequate for such purposes have been reserved in
the Budget.

     4.14 All Leases, contracts and agreements
relating to the Property, or utilized in
connection therewith, or constituting any portion
of the Collateral, are in full force, and true and
correct copies of all such Leases, contracts and
agreements have previously been furnished to
Lender.

     4.15 No services, work, equipment or
materials of any kind that may give rise to any
mechanics or similar statutory lien, including,
without limitation, site work, clearing, grubbing,
draining or fencing of the Real Property has been
performed or commenced on the Real Property or
otherwise provided in connection with the Work,
except to the extent that such servicts, work,
equipment, materials have been fully disclosed in
writing to Lender and Title Company and the Title
Policy insures the priority of the Mortgage over
all mechanics and similar liens.

     4.16 Each of the representations and
warranties made by Borrower in the Loan Documents
shall be considered and determined to have been
made by Borrower at the time of its execution of
this Agreement and to have been made again at the
time of each Advance and shall survive funding of
the Loan, and shall survive the Loan Closing.

     4.17 The relationship of Borrower and Lender
is that of debtor and creditor, and it is not the
intention of either of such parties by this or any
other instrument being
executed in connection with the Loan to establish
a partnership, and the parties hereto shall not
under any circumstances be construed to be
partners or joint venturers.

     4.18  Borrower has dealt with no mortgage
broker, finder or placement agent with regard to
the Loan except for Sutter Securities
Incorporated. Borrower shall indemnify and hold
Lender harmless from any and all claims for fees
or compensation claimed to be due in connection
with the Loan as a result of the acts of Borrower.

     4.19 The Real Property has legal access to
publicly dedicated streets.


ARTICLE 5
                             COVENANTS OF
BOWRROWER

     Borrower hereby covenants and agrees as
follows (with the understanding that unless
specifically provided to the contrary herein, a
breach of any of the following covenants shall
constitute an Event of Default upon expiration of
any cure period provided in Article 6):

     5.1 NO ADDITIONAL LIENS. Subject to its right
to contest such lien in accordance with the
Mortgage, and except for the Permitted
Encumbrances, Borrower shall not allow any liens,
encumbrances or other interests to affect the
Collateral or any part thereof or Lender's first
priority lien therein without the prior written
consent of Lender, which may be withheld in
Lender's sole and absolute discretion.

     5.2 NO ADDITIONAL DEBT. During the term of
the Loan, Borrower shall not, without Lender's
prior written consent, which may be withheld in
Lender's sole and absolute discretion, incur any
additional Debt with respect to, or in connection
with its ownership and operation of the Property
(including without limitation any contingent or
guarantor liability), except for (a) short term
accounts payable incurred in connection with the
ordinary course of Borrower's construction and
operation of the Property, (b) the Debt secured by
the Emeritus Deed of Trust, and (c) loans to
Borrower by members of Borrower in lieu of a
capital contribution to Borrower, which loans
shall be expressly subordinated to the Loan and
not secured by any Collateral.



20



     5.3 RESTRICTIONS ON TRANSFER. Except for (a)
the lease of space in accordance with the approval
requirements of paragraph 5.18 (including the
lease of space to residents occupying the Project
pursuant to the Lender-approved form of residency
agreement), and (b) the disposal of Personal
Property when such property is replaced with
property of equal or greater value subject to
Lender's first priority lien, without repayment of
the Loan in full (including any applicable
prepayment premium), Borrower shall not sell.
transfer. tease, encumber or otherwise dispose of
the Collateral or any part thereof or interest
therein without the prior written consent of
Lender. which consent may be withheld bv Lender in
its sole and absolute discretion.

     5.4  REQUIRED FINANCIAL INFORMATION. Borrower
shall timely tender, or cause to be tendered, the
Required Financial Information as described in
Article I hereof.

     5.5 LIMITATION ON MANAGEMENT AND DEVELOPMENT
FEES.

     5.5.1 LIMITATION ON MANAGEMENT CONTRACT.
Borrower shall not pay to any Affiliate of
Borrower or of any Guarantor, any fees for the
operation and management of the Project or any
fees for consulting services rendered in
connection therewith, until the thirteenth full
calendar month after the commencement of the
Permanent Term. Borrower may pay to the Management
Fee Account (defined in paragraph 5.6 below) any
fees for the operation and management of the
Project which would otherwise have been paid to
any Affiliate of Borrower prior to the date
thirteen full calendar months after the
commencement of the Permanent Term. Thereafter,
Borrower shall pay only such fees for the
operation and management of the Project (and
consulting services rendered in connection
therewith) which do not exceed those provided for
in any management or consulting agreement as
reasonably approved by Lender and in any event
shall not exceed six percent (6%) of the Gross
Revenues of the Project. Lender acknowledges that
Borrower has agreed to pay Emeritus Corporation a
fee of five percent (5%) of the Gross Revenues of
the Project to manage the Project, pursuant to
that certain Agreement to Provide Management
Services to an Assisted Living Facility dated
August 13, 1996 which Lender has approved and has
agreed to pay NonhBay Health Advantage a fee of
one percent (1%) of the Gross Revenues of the
Project for consulting services associated with
the Project pursuant to that certain Consulting
Agreement dated August 13, 1996 which Lender has
approved. Borrower shall not enter into any other
contract to manage the Project or any substantial
portion thereof or to render consulting services
to Borrower in connection therewith without
Lender's prior written consent, which will not be
unreasonably withheld or delayed. Any consent to
such management contract may be conditioned upon
(a) the agreement of the manager thereunder that
all fees to be paid to it are subordinated to the
payment of any sums owing to Lender under the Note
and any other sums then due and payable by
Borrower to Lender under any other instrument
securing the payment of the Note and cannot be
paid or collected during the occurrence and
continuance of an Event of Default, (b) Borrower
collaterally assigning its rights under such
contract to Lender as additional collateral for
the Note, and (c) the consent of the manager to
such collateral assignment. The form of such
collateral assignment and consent of manager shall
be subject to the approval of counsel for Lender.
Borrower agrees to pay all of Lender's costs and
expenses incurred in connection with reviewing the
foregoing described matters.

     5.5.2 LIMITATION ON CONSTRUCTION TERM FEES.
During the Construction Term, Borrower shall not
pay to any Affiliate of Borrower or of any
Guarantor, any contractor's fee, construction
management fee. development tee or any other
similar fee, compensation or payment
(collectively, the "Construction and Development
Fees"), except for Twelve Thousand Three Hundred
Dollars ($12,300) per month (constituting Ten
Thousand Dollars ($10,000) as compensation and Two
Thousand Three Hundred Dollars ($2,300) as
overhead) to BW (Fairfield) Real Estate
Corporation pursuant to that certain Development
Agreement between BW (Fairfield) Real Estate
Corporation and Borrower dated May 17, 1985, and
One Thousand Nine Hundred Twenty Dollars ($ 1,920)
per month to NorthBay Health Advantage pursuant to
that Borrower's limited liability company
agreement which has been approved by Lender. Any
such Construction and Development Fees in excess
of the forgoing amounts may be




21


paid by Borrower solely pursuant to the foregoing
agreement and only upon the achievement of
Completion and the commencement of the Permanent
Term of the Loan. Lender shall have the right to
approve any other agreements between Borrower and
any Aff'liate of Borrower or of any Guarantor
regarding the Construction and Development Fees.

     5.6 SPECIAL ACCOUNTS. Borrower shall maintain
two (2) segregated
accounts (collectively, the "Special Accounts")
with a federally insured bank approved by Lender,
as provided herein. Such bank, Borrower and Lender
shall enter into an account agreement acceptable
to Lender, which includes the bank's waiver of any
right of set off and grants to Lender the
exclusive right to withdraw all funds in the
Special Accounts upon an Event of Default under
the Loan Documents. Borrower shall deliver to
Lender within thirty (30) days after the end of
each calendar quarter, an accounting of all
deposits and withdrawals of each of the Special
Accounts. The Special Accounts shall consist of
the Operating Cash Flow Account, and the
Management Fee Account as follows:

     5.6.1 Prior to the commencement of the
Permanent Term, Borrower shall deposit all of
Borrower's Cash Flow into an account (the
"Operating Cash Flow Account"). Borrower shall
have no right to make withdrawals from the
Operating Cash Flow Account prior to the Permanent
Term. So long as there is no Event of Default or
Incipient Default of which Lender has not)fied
Borrower under the Loan Documents, on the first
day of the Permanent Term (or, if such funds may
not be withdrawn due to the existence of an
Incipient Default which is thereafter cured, then
on the date such Incipient Default is cured),
Borrower may withdraw all amounts previously
deposited in the Operating Cash Flow Account.

     5.6.2 As more fully set forth in paragraph
5.5.1, prior to the thirteenth ( I 3th) full
calendar month after the commencement of the
Permanent Term, Borrower shall deposit within an
account (the "Management Fee Account") any fees
for the operation and management of the Project
and fees for consulting services rendered in
connection therewith. So long as there is no Event
of Default or Incipient Default of which Lender
not)fied Borrower under the Loan Documents. on the
first day of the Permanent Term (or if such funds
may not be withdrawn due to the existence of an
Incipient Default which is thereafter cured. then
on the date such Incipient Default is cured)
Borrower may withdraw all amounts previously
deposited in the Management Fee Account.

     5.7 INSPECTIONS. Lender and Lender's
Consultant or Lender's designee shall have the
right to inspect the Property at any time prior to
Completion, and Borrower hereby agrees to
reimburse Lender upon request and presentation of
written invoices, for any and all reasonable
travel expenses and other costs incurred by Lender
in performing a monthly inspection of the Work
prior to Completion; provided, however, Lender
may, at its election, advance such expenses and
costs directly to itself under the Loan. Borrower
agrees that Lender retains the right to inspect
the Property after Completion once each calendar
year when no Event of Default exists and as often
as Lender may deem appropriate when an Event of
Default exists; and, Borrower hereby agrees to
reimburse Lender upon request and presentation of
written invoices, for any and all reasonable
travel expenses and other costs incurred by Lender
in performing such inspections.

     5.8 ANNUAL RECERTIFICATION REGARDING
ENVIRONMENTAL MATTERS. Borrower shall, upon
Lender's request, on each anniversary of the Loan
Closing, throughout the term of the Loan, provide
to Lender a written statement signed by an officer
of Borrower certifying that all representations
and warranties set forth in the Environmental
Certificate with Representations, Covenants and
Warranties executed by Borrower on the Loan
Closing remain, as of such anniversary date, true,
correct and complete in all material respects,
together with a detailed explanation of any
exceptions to such certification.







22



     5.9 DEBT SERVICE RATIOS.

     5.9.1 DEBT SERVICE COVERAGE RATIO. Commencing
with the first full calendar quarter after
"Stabilization" (as defined herein) Borrower shall
maintain with respect to the Property a Debt
Service Coverage Ratio of 1.25:1. The foregoing
ratio shall be tested quarterly, on a trailing
twelve (12) month basis. As used herein,
Stabilization shall be deemed to have occurred on
the earlier of (i) the last day of the calendar
quarter in which the Project reaches ninety-four
percent (94%) occupancy, or (ii) the last day of
the fifteenth ( I 5th) full calendar month after
the commencement of the Permanent Term.

     5.9.2 DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO. Commencing with the first full
calendar quarter after "Stabilization" (as defined
herein) Borrower shall maintain with respect to
the Property a Debt Service After Management Fee
Coverage Ratio of 1.15:1. The foregoing ratio
shall be tested quarterly, on a trailing twelve
(12) month basis.

     5.10 LIMITATIONS ON DISTRIBUTIONS. Capital
distributions loans to. and/or repayment of loans
from any Affiliates (including without limitation
the Debt secured by the Emeritus Deed of Trust and
loans to Borrower by members of Borrower in lieu
of capital contributions to Borrower)
(collectively "Distributions") shall be made by
Borrower during the term of the Loan only on the
following terms and conditions:

     5.10. 1 No Distributions shall be made prior
to the Permanent Term;

     5.10.2 During the Permanent Term,
Distributions may be made only once each calendar
quarter from Excess Cash Flow after all Required
Financial Information for the immediately
preceding calendar quarter has been delivered to
and approved by Lender; Lender shall deliver
notice of approval or disapproval to Borrower
within thirty (30) days of Lender's receipt of the
Required Financial Information for such quarter;

     5.10.3 There exists no Event of Default or
Incipient Default of which
Lender has notified Borrower under the Loan
Documents;

     5.10.4 Without limiting the generality of
subparagraph 5.10.3 above,
the most current financial information provided by
Borrower to Lender demonstrates
that the Property is in compliance with the Debt
Service Coverage Ratio and Debt
Service After Management Fee Coverage Ratio
requirements set forth in
paragraph 5.9 above; and

     5.10.5 Without limiting the generality of
subparagraph 5.10.3 above,
Borrower has not incurred any additional Debt
except as permitted by the Loan Documents, without
Lender's prior written consent.

     Any Distribution not taken in one quarter may
be carried over to a future quarter and taken out
at that time, so long as Borrower is entitled to a
Distribution at that time under the requirements
set forth in this paragraph.

     5. 11 ESCROWED FUNDS. Contemporaneously with
the initial Advance, Lender shall advance to the
Title Company the sum of $2S0,000.00 under the
Note (the "Escrowed Funds") to be held in escrow
by the Title Company to secure Borrower's
obligations under the Note pursuant to a written
escrow agreement in a form satisfactory to Lender
(the "Escrow Agreement"). On or before ninety (90)
days after the date hereof Borrower shall deliver
to Lender a letter of credit (the "Letter of
Credit") in such amount, as security for the
payment and performance of the Obligations and as
a replacement for the Escrowed Funds, in which
event the Escrowed Funds shall be released to
Borrower.

     At such time as Borrower not)fies Lender that
it desires to replace the Escrowed Funds with a
Letter of Credit in favor of Lender, Lender agrees
to accept said
Letter of Credit in exchange for the Escrowed
Funds provided that (i) the Letter of Credit shall
be in an amount of $250,000.00, (ii) the Letter of
Credit shall be unconditional, shall permit
partial draws and otherwise shall be in a form and
for a term acceptable to Lender. (iii) the Letter
of Credit shall be issued by a bank acceptable to
Lender, (iv) the


23



Letter of Credit shall have an expiration date no
sooner than one year after its issuance date, (v)
the Letter of Credit shall provide according to
its terms that it will be automatically renewed
for successive one-year periods unless the issuer
of the Letter of Credit not)fies Lender in writing
that it has elected not to extend such Letter of
Credit at least sixty (60) days prior to its
expiration, (vi) no Event of Default shall have
occurred and (vii) Borrower shall pay tor Lender's
reasonable costs and expenses (including legal
fees) associated with such exchange of collateral.
Upon the earlier to occur of (A) such time as the
Debt Service Coverage Ratio has been l. lS to 1.0
or greater for a one year period during the Loan
term as evidenced by the Required Financial
Statements, or (B) payment in full of the
Obligations, any Letter of Credit held by Lender
and any portion of the Escrowed Funds (including
all interest included in the Escrowed Funds) which
have not been applied by Lender in accordance
herewith, shall be returned to Borrower. Borrower
shall replace the Letter of Credit (which
replacement Letter of Credit shall be in form and
for a term acceptable to Lender and be issued by a
bank acceptable to Lender) no later than
forty-five (45) days prior to the expiration of
the then current Letter of Credit. Lender shall
have the right to draw upon the Letter of Credit
upon the occurrence of an Event of Default.

     5.12 GUARANTIES. Borrower shall cause
Guarantors to execute the Guaranties and shall
deliver them to Lender at the Loan Closing. The
Guaranties shall constitute an unconditional
guarantee of the Obligations of Borrower to
Lender. If during the Permanent Term, Borrower
maintains a Debt Service Coverage Ratio of 1.25 to
1.0 for two (2) consecutive calendar quarters
(based upon the Required Financial Information),
then on such date, provided no Event of Default or
Incipient Default of which Lender has not)fied
Borrower exists, the guaranteed amount under the
Guaranties executed by BW (Fairfield) Real Estate
Corporadon and NorthBay Health Advantage (but not
Emeritus Corporation) shall be reduced to fifty
percent (S0%) of the Obligations. Provided there
is no Event of Default or Incipient Default of
which Borrower has received notice from Lender at
such time, the Guaranties of all of the Guarantors
shall terminate on the fifth anniversary of the
Loan Closin& In the event a Guarantor is not
entitled to a reduction or termination of its
Guaranty because of the existence of an Incipient
Default of which Lender has not)fied Borrower and
such Incipient Default is cured by Borrower within
the time period permitted in the Loan Documents,
such Guarantor shall be entitled to a reduction or
termination of its Guaranty upon the date the
Incipient Default is cured.

     5.13 LAWS. Borrower will comply with all
applicable laws and regulations, including,
without limitation, all environmental laws and
regulations applicable to the Property.

     5.14 INSURANCE. Borrower will maintain all
insurance policies required by Lender, upon forms
required by Lender, and written by insurers and in
amounts satisfactory to Lender; and will deliver
such policies or copies thereof to Lender.

     5.15 MAINTENANCE OF LICENSES. ETC. Borrower
shall maintain in force at all times. and apply in
a timely manner for renewal of, all licenses,
patents, approvals, permits franchises,
trademarks, tradenames and other agreements
necessary to cause Completion of the Work to occur
and to operate the Property, the loss of which
would have a material adverse effect upon Borrower
or upon the operation of the Property or the
ability of Borrower to perform its obligations
under the Loan Documents, and shall give Lender at
least thirty (30) days prior written notice of the
proposed amendment of any of such licenses,
patents, permits, franchises, trademarks,
tradenames and other agreements.

     5. 16 Construction-Related Covenants.
Borrower shall:

     5.16.1 cause commencement and completion of
the Work to occur in substantial compliance with
the Work Progress Schedule, subject to Force
Majeure Events (not to exceed sixty (60) days in
the aggregate), all in accordance with the Plans
and Specifications, Construction Contract(s),
applicable laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards
and free from defective materials and workmanship;
subject to Force Majeure Events not to exceed
sixty (60) days in the


24



aggregate, cause Completion to occur on the
Required Completion Date. The Work Progress
Schedule shall require commencement of the Work to
occur in thirty (30) days following Loan Closing;

     5.16.2 pay when due all costs, expenses and
claims pertaining to the Work; and deliver to
Lender during the course of the Work in order to
monitor and/or provide assurance that the Work is
proceeding lien free in accordance with the
requirements of this Agreement: bills of sale,
conveyances and paid invoices pertaining to the
Work; all waivers and releases of lien or claims
on the Real Property and/or the Improvements on
account of the Work Lender may deem necessary or
may request for its protection; and from persons
acceptable to Lender, additional engineering or
architectural studies and reports as Lender or
Lender's Consultant may requue,

     5.16.3 record all notices of
commencement/completion and similar notices
permitted by applicable laws and regulations which
have the effect of shortening periods within which
mechanics and similar liens may be filed;

     5.16.4 not enter into any ArchitectlEngineer
Agreement or Construction Contract with respect to
the Work except upon terms and with such parties
as Lender may reasonably approve in writing (which
approval or rejection shall occur within five (5)
Business Days after Lender's receipt of a request
tor such approval);

     5.16.5 deliver to Lender true and complete
copies of all Principal Work- Related Items and
all other Contracts, Intangibles, Licenses and
Permits;

     5.16.6 not amend any of the Principal
Work-Related Items without Lender's consent,
except for change orders which (a) do not change
the cost of Completion of the Work by more than
Fifteen Thousand and No/100 Dollars ($15,000.00)
individually or One Hundred Fifty Thousand and
No/100 Dollars ($150,000.00) in the aggregate
beyond that shown in the Budget as originally
approved by Lender, and (b) do not materially
affect the design, structural integrity or quality
of the Improvements. Borrower shall deliver to
Lender, immediately upon execution thereof, all
change orders with respect to the Work including
those within the scope of clauses (a) and (b)
above;

     5.16.7 perform all its obligations and
preserve its rights under the Principal
Work-Related Items in force and secure the
performance of the other parties to the Principal
Work-Related Items and all other Contracts,
Intangibles, Licenses and Permits;

     5.16.8 deliver to Lender promptly after the
completion of the foundation and, if required by
Lender, after the pouring of a street, curbstone
or concrete slab on the Real Property, a survey
prepared in accordance with the requirements of
paragraph 3.1.5 showing such Improvements, their
location within Property lines and a lack of
encroachments, and deliver to Lender promptly upon
the Completion, a survey which is certified to
Lender, and the Title Company showing the
"as-built" Improvements and othervvise satisfying
the requirements of paragraph 3.1.5;

     5.16.9 deliver to Lender prior to or
concurrently with each WorkRelated Advance, a date
down endorsement in a form acceptable to Lender
issued by the Title Company insuring that the
Mortgage at the time of each Work-Related Advance,
constitutes a valid first lien upon the Real
Property or title, subject only to the Permitted
Encumbrances; upon construction of the foundation
for any building comprising part of the
Improvements deliver to Lender an endorsement
("foundation endorsement") insuring that the
foundations, as constructed, are located within
all setback and boundary lines of the Real
Property and do not encroach upon any easements,
rights of way (public or private) or upon any
other adjoining landowner's property; and upon the
final advance by Title Agent of the Basic
Retainage described in paragraph 3.2.7 hereof,
Borrower shall deliver, or cause Title Agent to
deliver, to Lender a date down endorsement or a
re-issued title policy ("Re-lssued Title Policy")
meeting the substantive requirements set forth
above.






25



     5.16.10 after obtaining knowledge or
receiving notice thereof: correct or cause to be
corrected (a) any material defect in the Work, (b)
any material departure in the completion of the
Work from the Plans and Specifications and the
Construction Contract(s) unless expressly
permitted in this Agreement or consented to in
writing by Lender, (c) any failure of the Work to
comply with applicable laws, regulations or
restrictions of record, sound construction,
engineering or architectural principles or
commonly accepted safety standards or (d) any
encroachment of any part of the Improvements on
any set-back or boundary line, easement, or other
restricted area;

     5.16.11 promptly deliver to Lender any and
all notices received by Borrower that it is not
complying with applicable laws, regulations and
private restrictions pertaining to the Work or
that the Work is not being completed in accordance
with the Plans and Specifications, the
Construction Contract(s), sound construction,
engineering and architectural principles and
commonly accepted safety standards;

     5.16.12 notify Lender in writing if and when
the unpaid costs of Completion of the Work exceeds
or appears likely to exceed the undisbursed
portion of the Loan and any undisbursed Required
Completion Assurance Deposit(s) held by Lender;

     5. l6. 13 cause all materials supplied for or
intended to be utilized in the Completion of the
Work, but previously not affixed to or
incorporated into the Improvements, to be stored
on the Real Property with adequate safeguards, to
prevent loss, theft, darnage or commingling with
other materials; and

     5.16.14 promptly after receipt by Borrower,
deliver to Lender copies of all building permits
and certificates of acceptance and/or occupancy
relating to the Work.

     5.17 SUBORDINATION OF DEBT TO AFFLIATES.
Borrower shall obtain and deliver to Lender
Subordination Agreements (collectively, the
"Subordination Agreements") in form and substance
satisfactory to Lender, from Guarantors, and from
Affliates of Borrower or of Guarantor
(collectively, the "Subordinating Parties")
subordinating any and all obligations now or
hereafter owing to such Subordinating Party by
Borrower (including, without limitation, all
management fees, salaries and loan repayments) to
Borrower's obligations to Lender under the Loan
Documents; subordinating the lien of any deed of
trust or other security instrument in any of
Borrower's assets to liens created by Lender's
Mortgage and other Loan Documents; and evidencing
such Subordinating Party's agreement to not
exercise any remedies against Borrower with
respect to such loans so long as the Loan is
outstanding. Bona fide indebtedness owed by
Borrower to an Affiliate in the way of salary and
other
compensation paid on an arm's-length basis to bona
tide employees of Borrower shall not be subject to
a Subordination Agreement.

     5.18  LEASES. Prior to the commencement of
the Permanent Term, Borrower shall obtain from all
tenants and subtenants under any leases or
subleases (except for residents occupying the
Project pursuant to the Lender approved form of
residency agreement) which will be in effect upon
the commencement of the Permanent Term, and
deliver to Lender, estoppel certificates executed
and effective as of a date not earlier than thirty
(30) days prior to the commencement of the
Permanent Term, and (where required) subordination
agreements, embodying such subordination,
attornment and other provisions as Lender deems
necessary. The form and content of all leases,
subleases, tenancies, licenses and any other
agreements with tenants or subtenants of the
Project shall be reasonably acceptable to Lender;
however Lender may elect to approve Borrower's
standard form of residency agreement in advance in
which event Borrower shall be authorized to enter
into residency agreements on such standard form
without, in each instance, Lender's consent. All
leases, subleases, tenancies, licenses and other
agreement shall contain provisions, in form and
content reasonably acceptable to Lender,
subordinating such leases, in lien and priority to
all payments due Lender under the Loan Documents.

     5.19 SIGNAGE. Throughout the Construction
Term, Borrower shall maintain prominent
informational signage acceptable to Lender,
stating that financing was provided by Lender and
including the telephone numbers of Lender's New
York, Chicago, and Scottsdale, Arizona offices.


26




     5.20 FURTHER ASSURANCES. Borrower will
execute or cause to be executed all documents and
do or cause to be done all acts reasonably deemed
necessary or appropriate by Lender to perfect and
to continue the perfection of the first priority
security interests of Lender in the security for
the performance of the obligations or otherwise to
effect the intent and purposes of the Loan
Documents.

     5.21 MEDICARE/MEDICAID REPORTS. Borrower
shall submit to Lender all certificates of
necessity, licenses, inspection reports for
licensure, and, if applicable, Medicaid and
Medicare purposes, for the Project, within thirty
(30) days of issuance.

     5.22 REQUIRED COMPLETION ASSURANCE DEPOSITS.
If at any time the remaining Project costs which
must be incurred before Completion can occur
("Completion Costs") are more than the committed
and undisbursed portion of the Loan and, in any
event within ten ( 10) days after Lender's demand
that it do so, Borrower shall deliver to Lender
cash deposits equal to the shortfall ("the
Required Completion Deposit Assurances"). In the
event of any dispute, the necessity for an amount
of any Completion Deposit shall be determined by
Lender at its discretion based upon the approved
Budget and the advice of Lender's Consultant. The
required Completion Deposit may be deposited in a
non-interest bearing account and need not be
segregated from any of Lender's other funds.
Lender shall disburse the Required Assurance
Completion Deposits to pay and/or reimburse
Borrower for the cost of the Work prior to any
further disbursement of Loan proceeds for such
purposes but subject to the terms and conditions
of the Loan Documents. Borrower shall promptly
notify Lender in writing ifand when the Completion
Costs appear likely to exceed the committed and
undisbursed portion of the Loan and any
undisbursed Required Completion Assurance Deposits
held by Lender.

     5.23 ARCHITECTURAL AND ENGINEERING REPORTS.
Borrower shall pay when due the cost of all
architectural, engineering, structural and
mechanical studies, reports and inspections with
respect to the design and construction of the
Project.

     5.24 OTHER COVENANTS. Borrower shall timely
perform and strictly comply with all other
covenants set forth in the Loan Documents.

                                           ARTICLE
6
                                 EVENTS OF DEFAULT

     For all purposes under this Agreement, any of
the following shall be deemed to constitute an
Event of Default hereunder and under the Loan
Documents:

     6.1 A failure to pay when and as the same
shall become due and payable, whether by maturity
or otherwise, any interest, principal or other
amounts required to be paid hereunder or on the
Note or under any of the Loan Documents; which
default continues for a period of five (5) days
after Lender delivers written notice of such
failure to Borrower; provided, however, Lender
shall only be obligated to deliver two such
notices within any twelve month period and if
Lender has delivered two written notices of prior
failures to Borrower, Lender shall not be
obligated to deliver any additional written
notices of subsequent failures within the twelve
(12) month period after the two written notices of
the prior failures and an Event of Default shall
be deemed to occur automatically upon the
subsequent failure to pay any such sum when due
and payable within said twelve (12) month period
without any notice to Borrower;

     6.2 Any failure on the part of Borrower to
strictly comply with and perform any term,
provision, covenant, or condition contained in the
Loan Documents not covered by paragraph 6.1 above,
or the default on any other indebtedness or
obligation of Borrower to Lender, or the failure
of any warranty or representation of Borrower to
be true (provided, however, that any such failure
shall not constitute an Event of Default if
performance of any non-monetary obligation or
covenant not specifically addressed in paragraph
6.3 through 6.23 below is commenced immediately
and completed within thirty (30) days after
written notice demanding performance thereof;
provided, however, that if such performance is of
a nature that it cannot be completed solely by the
payment of money to a third party. and cannot
otherwise be accomplished within such thirty (30)
day period, then so long as


27


Borrower has commenced and is diligently pursuing
such performance, it shall have such additional
time as is necessary (but in no event more than an
additional sixty (60) days to complete such
performance);

     6.3 The voluntary or involuntary commencement
of bankruptcy or insolvency proceedings or the
filing for an arrangement or composition of
creditors against Borrower or upon the filing of
any suit or legal action materially adversely
affecting the Collateral or adversely affecting
Borrower's ability to perform its obligations
under the Loan Documents unless such proceeding is
involuntary and is dismissed within sixty (60)
days of commencement or filing;

     6.4 Immediately upon any final action, rule,
law, or decision of any legislative or
administrative body or of any court which would
materially impair or adversely affect the lien or
enforceability of this Agreement or any one or
more of tne Loan Documents;

     6.5 Immediately upon the commencement of any
action or proceeding to establish, assert,
perfect, foreclose, or enforce any claim,
restriction, encumbrance, deficiency tax
assessment, or tax lien, on or with respect to the
Collateral, whether or not superior or inferior to
the lien of the Loan Documents unless such matter
is fully insured by the Title Company, unless
Borrower within thirty (30) days from the
commencement of such action causes the same to be
dismissed, or unless Borrower shall within such
thirty (30) day period record and serve a surety
bond pursuant to California law or otherwise fully
protect Lender from any loss or liability arising
therefrom;

     6.6 Immediately upon the assignment by
Borrower, without Lender's prior written consent,
of any of the Loan Documents or any rights of
Borrower thereunder;

     6.7 Immediately upon the material damage or
destruction of the Collateral by any casualty not
covered by insurance required pursuant to
paragraph5.14 hereof or rendering impossible, in
Lender's reasonable judgment, the Completion of
the Work in accordance with the Budget, or upon
Completion, the continued operation of the
Property as a congregate living facility;

     6.8 Immediately upon the Borrower's
abandonment of all or any part of the Collateral
or the cessation, upon Completion, of operation of
the Property as a congregate living facility;

     6.9 Immediately upon the insolvency of
Borrower or the execution by Borrower of an
assignment for the benefit of its creditors; or
the convening by Borrower of a meeting of its
creditors, or any class thereof, for purposes of
effecting a moratorium upon or extension or
composition of its debts;

     6.10 Immediately upon the admission in
writing by Borrower that it is unable to pay its
debts as they mature or that it is generally not
paying its debts as they mature;

     6.11 Immediately upon the existence or the
filing of any lien or encumbrance against any and
all of the Collateral, other than those permitted
hereunder, unless Borrower shall immediately
record and serve a surety bond pursuant to
applicable law or otherwise fully protect Lender
from any loss or liability arising therefrom;

     6.12 Immediately upon the occurrence of any
default under, or breach of any provision of,
covenants, conditions and restrictions or
easements now or hereafter recorded against the
Real Property or any part thereof, which default
materially affects the value, use or operation of
the Property;

     6.13 Immediately upon Borrower's failure to
(i) pay any taxes due on the Collateral prior to
such taxes being delinquent, or (ii) maintain
insurance on the Collateral of the types and in
the amounts required under this Agreement;

     6.14 Any of the events enumerated in
Daragraphs 6.3. 6.9 and/or 6.10 occurs with
respect to any Guarantor;




28



     6.15 An order or decree has been entered by
any court of competent jurisdiction enjoining the
intended use of the Property as a congregate
living facility and judgment is not vacated within
ninety (90) days after Borrower has obtained
knowledge or notice thereof;

     6.16 Unless otherwise covered in this
Article6. upon fifteen (15) days following written
notice, upon a default in the performance of the
obligations of Borrower set forth in Daragraphs
5.1 through 5.1 1;

     6.17 Immediately upon (a) Failure to cause
Completion to occur on or before the Required
Completion Date, or (b) at any time prior to
Completion of the Work, (i) Borrower abandons the
Work or (ii) Borrower delays construction of the
Improvements for any period of time, for any
reason whatsoever not covered by item (i) above
which in the reasonable judgment of Lender will
prevent Completion of the Work in the ordinary
course of construction on or before the Required
Completion Date subject to Force Majeure Events
not to exceed sixty (60) days in the aggregate; or

     6.18 Immediately, if whether voluntarily,
involuntarily, by operation of law or otherwise,
Borrower sells, leases (other than leases approved
by Lender), exchanges, assigns, transfers, conveys
or otherwise disposes of the Property or any
interest therein, including the Leases, rents or
income thereof, or enters into a written agreement
to do so, or grants or permits to exist any other
mortgage, deed of trust or other lien, charge or
Guarantors; or encumbrance against the Property
(other than the Emeritus Deed of Trust). whether
superior or inferior to this Deed of Trust unless
Borrower immediately records and serves a surety
bond pursuant to applicable law or otherwise tully
protects Lender from any loss or liability arising
therefrom; of

     6.19 Immediately upon the occurrence of any
default under the Emeritus Deed of Trust, the note
secured thereby or any other instrument securing
said note? which default continues beyond any
applicable cure period granted to Borrower therein
unless such default is waived in writing by
Emeritus; or

     6.20 Immediately, if Borrower is in default
under the terms of any document evidencing or
securing payment of a Debt secured by any lien or
security interest on the Property (without
implying geneficiary's consent to the existence,
placing, creating or permitting of any lien or
security interest); or

     6.21 Immediately upon the dissolution of
Borrower or any of the

     6.22 Immediately if without the prior written
consent of geneficiary, (A) any of the Guarantors
cease to be a member in Borrower, (B) the
Guarantors cease to control Borrower, or (C) the
Guarantors cease to own at least fifty percent
(50%) of the beneficial ownership interest and
membership interest in Borrower. As used herein
the term "control" as used with respect to
Borrower shall mean the possession of the power to
direct the management and policies of Borrower, or

     6.23 Immediately in the event Borrower fails
to replace the Letter of Credit (as defined in
Daragraph 5.1 1 ) a replacement Letter of Credit
in form and content required by paragraph 5.1 I
within forty five (45) days prior to the
expiration of the then current Letter of Credit.


ARTICLE 7
                                      LENDER'S
REMEDIES

     7.1 Upon the occurrence of any Event of
Default hereunder, Lender may at its option either
simultaneously or in any order whatsoever, take
the following actions:

     7.1.1 Decline and refuse and be relieved of
any obligation to make any Advance hereunder or
under the Note.

     7.1.2 Declare to be immediately due and
payable, with interest, all funds advanced by or
owed to Lender under the Note and any of the other
Loan Documents.




29



     7.1.3 Foreclose its lien and/or exercise its
right to cause the Collateral to be sold under the
Mortgage and exercise any other rights and
remedies given to Lender in all other Loan
Documents.

     7.1.4 Take such other action as Lender may
deem necessary to protect its interest

     7.1.5 File suit against Borrower for any sums
owing and/or for

     7.1.6 Enter into possession of the Property
in accordance with and for the purposes set forth
in the Mortgage (all funds disbursed by Lender in
exercising such rights shall be deemed to have
been disbursed to Borrower, shall become
additional obligations under the Loan Documents
and shall be secured by the Loan Documents).

     7.1.7 Exercise any and all remedies of a
secured party under the Uniform Commercial Code
with respect to the Collateral;

     7.1.8 Take such other actions or remedies as
may be available to Lender under the Loan
Documents and/or at law or in equity.

     7.1.9 Take one or more of the following
actions in connection with the construction of the
Improvements: (a) use any funds of Borrower,
including the Required Completion Assurance
Deposit(s) (if any) and any sums which may remain
unadvanced hereunder, to continue and/or cause
Completion of the Work; (b) demand and receive
performances due under the Principal Work-Related
Items and the other Contracts, Intangibles,
Permits and Licenses; (c) make such changes to the
scope of the Work and to the Principal
Work-Related Items and other Contracts,
Intangibles, Permits and Licenses as Lender may
deem necessary or desirable in its sole and
absolute judgment; (d) file claims, institute
enforcement actions and otherwise prosecute and
defend all actions or proceedings relating to the
Work, the Principal Work-Related Items and the
other Contracts, Intangibles, Permits and Licenses
as Lender may deem necessary or desirable in its
sole and absolute judgment; (e) pay, settle or
compromise all existing bills and claims which are
or may be liens against the Property or any
Contracts, Intangibles, Permits and Licenses, or
may be necessary or desirable for the continuance
or Completion of the Work related thereto or the
clearance of title, all without notice to
Borrower; (f) execute in Borrower's name all
applications, certificates, notices and other
instruments and give all instructions and
communications which may be required or permitted
by the Principal Work-Related Principal Items,
other Contracts' Intangibles, Permits and
Licenses, as determined by Lender in its sole and
absolute judgment; (g) do any and every act with
respect to the Completion of the Work. the
Principal Work-Related Items and the other
Contracts. Intangibles, Permits and Licenses which
Borrower may do in its behalf: (h) employ such
contractors, subcontractors. suppliers, agents,
attorneys, architects, accountants. appraisers,
security guards and inspectors as Lender may in
its sole and absolute judgment deem necessary or
desirable to accomplish any of the above purposes;
and (i) receive, collect, open and read all mail
of Borrower for the sole purpose of obtaining all
items pertaining to the Work, the Principal
Work-Related Items and the other Contracts,
intangibles, Permits and Licenses.

     7.1.10 Charge and collect interest on the
outstanding principal balance of the Loan at a
Default Rate equal to the lesser of (i) the
Maximum Rate, or (ii) the Basic Rate plus 500
basis points (the "Default Rate").

     7.2 If Borrower shall fail to comply with or
fully perform any of its obligations under the
Loan Documents, regardless of whether an Event of
Default shall then exist, Lender may (but shall
not be obligated to), without further demand upon
Borrower and without waiving or releasing Borrower
from any such obligation or remedying any Event of
Default or Incipient Default pay or perform any of
such obligations. Lender shall give Borrower at
least ten (10) Business Days' notice before making
any payment required to be made by Borrower,
except that if such payment is required, as
determined by Lender in its sole discretion, to be
made immediately to protect the Collateral, no
prior notice of payment to Borrower shall be
required. Unless an Event of Default exists and
the Note is then due in full (whether by
acceleration or otherwise), Lender shall notify
Borrower


30



within a reasonable period of time after it takes
any action without notice pursuant to the
preceding sentence, but failure to do so shall not
excuse Borrower from its obligation to reimburse
Lender in accordance with the terms of the
following sentence or otherwise prevent the
exercise by Lender of its rights and remedies on
account of any default by Borrower. Borrower shall
immediately pay to Lender upon demand all expenses
incurred by Lender in taking any action permitted
by this paragraph, together with interest from the
date of expenditure by Lender at the rate at which
interest is then accruing under the Note or, at
the option of Lender, if not paid within five (S)
Business Days after demand, at the Default Rate
from and after such fifth (5th) Business Day. All
such sums, together with interest as aforesaid,
shall become additional indebtedness secured by
the Collateral. No such payment by Lender shall be
deemed to relieve Borrower from any default or
Event of Default under any of the Loan Documents.

     7.3 For the purpose set forth under paragraph
7. 1.6. 7.1.9 and 7.2, Borrower hereby irrevocably
appoints Lender as Borrower's true and lawful
attorney-in-fact with full power of substitution
(and such power of attorney shall be deemed to be
a power coupled with an interest that cannot be
revoked for any reason) from and after the
occurrence of an Event of Default, to operate the
Property and to take such action and require such
performance as it deems necessary. Without
limiting the generality of the powers granted to
Lender, Borrower hereby specifically empowers
Lender, as such attorney-in-tact:

     7.3.1 To take all actions reasonably
necessary in connection therewith for the purpose
of operating the Property;

     7.3.2 To employ such management companies as
shall be convenient to operate the Property; and

     7.3.3 To pay, settle, or compromise all
existing or future bills and claims which are or
may be liens against the Property or may be
reasonably necessary or desirable for the
operation of the Property.


ARTICLE 8
                                  LEGAL FEES AND
COSTS

     8.1 Except as otherwise expressly provided
herein, Borrower shall pay all actual reasonable
closing and pre-closing costs for the Loan and all
expenses of Lender with respect thereto,
including, without limitation, all of Lender's
outside attorneys' fees, Lender's Consultant fees
and costs (Borrower hereby acknowledging that the
fees and costs of the existing Lender's Consultant
(i.e., High-Point Rendel) as described in that
certain Letter Agreement between Borrower and
Lender's Consultant dated November 14, 1996 are
reasonable), travel expenses, escrow fees,
recording fees, title search and title insurance
fees, UCC lien, litigation and tax lien searches,
mortgage taxes and appraisal and survey fees and
all other legal fees incurred by Lender in
conjunction with the Loan, including all fees
incurred subsequent to the closing of the Loan in
connection with the disbursement, administration
(includin& without limitation, Lender's Consultant
fees), collection (regardless of whether
litigation is commenced), or satisfaction of the
Loan, advances, recording expenses, survey, taxes,
expenses of collection or foreclosure (including
attomeys' fees) and similar items. Lender may, at
its option, withhold funds from the Advances for
application against Lender's expenses and Borrower
shall pay any excess within ten (10) days after
its receipt of a written request therefor.

     8.2 In addition to any rights Borrower and
Lender may have under applicable law, Borrower
shall pay Lender's attorneys' fees and costs
(including expert witness fees) incurred in the
collection of any indebtedness hereunder, or in
enforcing this Agreement, whether or not suit is
brought, including any reasonable attorneys' fees
and costs (including expert witness fees) incurred
by Lender in any proceeding under the Federal
Bankruptcy Code in order to collect any
indebtedness hereunder or to preserve, protect or
realize upon any security for such indebtedness.






31




ARTICLE 9
                               LENDER'S CONSULTANT

     9.1  Lender may retain an architectural,
engineering or consulting firm or firms acceptable
to Lender ("Lender's Consultant") to review the
Plans and Specifications, the Construction
Contract(s) and the Budget; perform an analysis of
the anticipated cost of the Work; make periodic
inspections of the Property and Work so that
Lender may monitor whether Borrower is in
compliance with the terms and conditions of this
Agreement with respect to completion of the Work;
certify that each Work-Related Advance Request is
not in excess of the Work completed and the amount
to which Borrower is entitled under the terms and
conditions of this Agreement; and provide evidence
satisfactory to Lender prior to the funding of any
Work- Related Advance that (subject to completion
thereof as part of the Work as contemplated by
this Agreement), all necessary streets, easements
and utilities are available to the boundary of the
Real Property and that the respective lines and
treatment or generator plants are of adequate
capacity and size for the intended use of the
Property. Furthermore, Lender may require an
inspection of the Work by Lender's Consultant (a)
prior to each Work-Related Advance; (b) at least
once each month during the course of construction
of the Work; (c) upon Completion of the Work; and
(d) at such other time as Lender may deem
necessary due to actual or suspected
non-compliance with the Plans and Specifications,
Construction Contract(s), the Loan Documents, any
law, regulation or private restriction, sound
architectural, engineering or construction
principles or commonly accepted safety standards
or Borrower's failure to satisfy the requirements
of the Loan Documents.

     9.2 Lender shall have no duty to supervise or
to review and inspect the Plans and
Specifications, the Construction Contract(s), any
budget proposed to be the Budget, the construction
of the Work, or any books and records pertaining
thereto. Any inspection made by Lender shall be
for the sole purpose of determining whether
Borrower's obligations under the Loan Documents
are being performed and preserving Lender's rights
under these documents. If Lender, or Lender's
Consultant acting on behalf of Lender, should
review or inspect the Plans and Specifications,
the Construction Contract(s), the Budget, the
construction of the Work or any books and records
pertaining thereto, Lender and Lender's Consultant
shall have no liability or obligation to Borrower
or any third person arising out of such
inspection; and neither Borrower nor any third
person shall be entitled to rely upon any such
inspection or review. Inspection not followed by
notice of default shall not constitute (a) a
waiver of any default then existing, (b) an
acknowledgment or representation by Lender or
Lender's Consultant that there has been or will be
compliance with the Plans and Specifications, the
Construction Contract(s), the Budget, the Loan
Documents, applicable laws, regulations and
private restrictions, sound construction,
engineering or architectural principles or
commonly accepted safety standards, or that the
construction is free from defective materials or
workmanship; or (c) a waiver of Lender's right to
insist that Completion of the Work occur in
accordance with the Plans and Specifications,
Construction Contract(s), the Budget, Loan
Documents, applicable laws, regulations and
restrictions of record. sound construction,
engineering or architectural principles or
commonly safety
standards and free trom defective materials and
workmanship. Lender and Lender's Consultant owe no
duty of care to Borrower or any third person to
protect against, or inform Borrower or any third
person of, the existence of negligence. faulty,
inadequate or defective design or construction of
the Work.


ARTICLE 10

MISCELLANEOUS

     10.1 Any waiver of any of the terms of this
Agreement by Lender shall not be construed as a
waiver of any other terms of this Agreement, and
no waiver shall be effective unless made in
writing. The failure of Lender to exercise any
right with respect to the declaration of any
default shall not be deemed or construed to
constitute a waiver of, or to preclude Lender from
exercising, any right with respect to such default
at a later date or with respect to any subsequent
default by Borrower.

     10.2 Borrower shall execute and deliver any
and all documents which may reasonably be
requested by Lender in order to effectuate the
purposes of this Agreement.



32



     10.3 This Agreement is made solely between
Borrower and Lender. No other person shall have
any right of action hereunder. The parties
expressly agree that no person shall be a
third-party baneficiary to this Agreement.

     10.4 Borrower shall indemnify, defend and
hold Lender harmless from and against all claims,
costs, expenses, actions, suits, proceedings,
losses, damages, and liabilities of any kind
whatsoever, including but not limited to,
attorneys' fees and expenses (including, without
limitation, expert witness fees), arising out of
any matter relating to the Loan or to the
ownership, development, construction, sale, rental
or financing of the Property and whether resulting
from internal disputes of Borrower, disputes
between Borrower and any Affiliate of Borrower or
whether involving other third persons or entities,
or out of any other matter whatsoever related to
this Agreement, any of the Loan Documents or any
property encumbered thereby; excluding, however,
claims, costs, expenses, actions, suits,
proceedings, losses, damages and liabilities of
any kind whatsoever which result from Lender's
gross negligence or willful misconduct. This
indemnity provision shall continue in full force
and effect and shall swive not only the making of
the Loan and all Advances thereof but shall also
swive the repayment of the Loan and the
performance of all of Borrower's other obligations
under this Agreement.

     10.5 This Agreement shall inure to the
benefit of, and be binding upon, the parties
hereto, their respective executors,
administrators, heirs, successors, and assigns
(including without limitation any other lender
participating with Lender in the Loan), provided,
however, that neither this Agreement nor any
rights or obligations hereunder shall be
assignable by Borrower without the prior express
written consent of Lender, and any purported
assignment made in contravention hereof shall be
void. No standard ot reasonableness shall attach
to Lender's discretion in consenting or not
consenting to any assignment.

     10.6 The Recitals and all of the exhibits
attached hereto are an integral part hereof and
are fully incorporated herein by this reference.

     10.7 Time is of the essence of each and every
provision of this Agreement and the other Loan
Documents.

     10.8 This Agreement embodies the entire
agreement of the parties in relation to the
subject matter hereof, and supersedes all terms,
conditions and provisions embodied in the
commitment letter between Lender and Borrower
dated September 12, 1996, and any and all other
previous writings between Borrower and Lender.
There are no representations, promises,
warranties, understandings or agreements,
expressed or implied, oral or otherwise, in
relation thereto, except those expressly referred
to or set forth herein. Borrower acknowledges that
the execution and delivery of this Agreement is
its free and voluntary act and deed, and that said
execution and delivery have not been induced by,
nor done in reliance upon, any representations,
promises, warranties, understandings, or
agreements made by Lender, its agents, officers,
employees, or representatives, other than those
expressly set forth herein. No promise,
representation, warranty or agreement made
subsequent to the execution and delivery hereof by
either party hereto, and no revocation, partial or
otherwise, or change, amendment, addition,
alteration or modification of this Agreement.
shall be valid unless the same be in writing
signed by all the parties hereto.

     10.9 Unless otherwise specifically stipulated
elsewhere in this Agreement, all approvals,
consents and other matters requiring acceptance or
satisfaction on Lender's part contained in the
Loan Documents shall be deemed exerciseable by
Lender in its sole and absolute discretion.
However, whenever the Loan Documents contain the
terms "reasonably satisfactory to Lender",
"reasonably determined by Lender", "reasonably
acceptable to Lender", "reasonable consent of
Lender", "Lender shall reasonably elect", "Lender
shall reasonably request" or similar terms wherein
the word reasonable or a derivative thereof is
used with regard to an action of Lender, such
terms shall mean satisfactory to, at the election
of, determined by, acceptable to or requested by,
as applicable, Lender in its sole (but reasonably
exercised) discretion. It is the intention of the
parties to permit Lender a broad latitude in which
to exercise its discretion, within the




33



range of reasonableness, acknowledging that, while
such discretion may not be exercised arbitrarily
or capriciously, it may be exercised
conservatively for Lender's protection and
benefit. By way of illustration, and not of
limitation, it shall not be unreasonable for
Lender, in exercising its discretion, to make
conservative assumptions regarding the possible
outcome of future events.

     10.10 Any notice required or permitted to be
given hereunder shall be in writing and shall be
(i) personally delivered to the party being
not)fied if an individual or to
an officer, general partner or member if a
corporation. partnership or limited liability
company, (ii) transmitted by postage prepaid.
certified or registered mail (return receipt
requested) or (iii) transmitted by a nationally
recognized overnight courier service such as
Federal Express, to s-uch party at its address set
forth below or such other address as the party
being not)fied may have otherwise designated in a
notice given as provided in this paragraph. Such
notice shall be deemed to given and effective,
unless actual receipt is expressly elsewhere
specified herein, upon the date of receipt or the
date delivery is first attempted and refused if
transmitted by registered or certified mail, or by
overnight courier service, whichever shall occur
first.

If to Borrower:     Fairfield Retirement Center,
LLC
          c/o NorthBay Health Advantage
          1200 B. Gale Wilson Boulevard
          Fairfield, California 91533

With Copy to:  Emeritus Corporation
          3131 Elliott Avenue, Suite 500
          Seattle, Washington 98121

          BW (Fairfield) Real Estate Corporation
          4755 Amigo Avenue
          Tarzana, California 913S6

          Randi Nathanson
          The Nathanson Group
          1411 Fourth Avenue, Suite 905
          Seattle, Washington 98101


If to Lender:  FINOVA Capital Corporation
          3200 Park Center Drive, Fifth Floor
          Costa Mesa, California 92626

with copy to:  FINOVA Capital Corporation
          7272 East Indian School Road, Suite 410
          Scottsdale, Arizona 85251
          Attn.: Vice President - Group Counsel

     10.11 THIS LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN, DELIVERED
AND ACCEPTED IN, AND THIS LOAN AGREEMENT, AND THE
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS
AND DECISIONS OF, THE STATE OF ARIZONA (WITHOUT
REGARD FOR ITS CONFLICTS OF LAW PRINCIPLES), THE
STATE IN WHICH LENDER'S PRINCIPAL PLACE OF
BUSINESS IS LOCATED, AND BY EXECUTION HEREOF
BORROWER AND BY ACCEPTANCE HEREOF' LENDER, EACH
AGREES THAT SUCH LAWS AND DECISIONS OF THE STATE
OF ARIZONA SHALL GOVERN THIS LOAN AGREEMEI

LOCATED 1N ANY STATE OTHER THAN ARIZONA, SUCH
MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE
IN WHICH SUCH PROPERTY IS LOCATED.

     10.12 BORROWER HEREBY AGREES THAT ALL ACTIONS
OR
PROCEEDINGS INITIATED BY BORROWER AND ARISING
DIRECTLY OR
INDIRECTLY OUT OF THIS LOAN AGREEMENT OR THE OTHER
LOAN
DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT
OF ARIZONA,
MARICOPA COUNTY DIVISION, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF
LENDER INITIATES SUCH ACTION, IN
ADDITION TO THE FOREGOING COURTS ANY COURT IN
WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE
EXTENT SUCH COURT HAS JURISDICTION. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN ANY OF SUCH COURTS AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED
THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE
MADE BY ACTUAL DELIVERY OR REGISTERED OR CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO THE
BORROWER AT THE ADDRESS TO WHICH NOTICES ARE TO BE
SENT PURSUANT TO THE MORTGAGE. BORROWER WAIVES ANY
CLAIM THAT PHOENIX, ARIZONA OR THE DISTRICT OF
ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER
FORUM BASED ON LACK OF VENUE. SHOULD BORROWER,
AFTER BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO
ANY
SUMMONS, COMPLArNT, PROCESS OR PAPERS SO SERVED
WITHIN THE
NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF,
BORROWER SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR
JUDGMENT MAY BE ENTERED BY LENDER AGAINST BOMOWER
AS
DEMANDED OR PRAYED FOR IF SUCH SUMMONS, COMPLAINT,
PROCESS OR PAPERS; PROVIDED, HOWEVER, LENDER MAY
NOT SEEK SUCH A DEFAULT JUDGMENT FOR AT LEAST
THIRTY (30) DAYS AFTER THE DATE OF PROOF OF
SERVICE. THE EXCLUSIVE CHOICE OF FORUM FOR BOMOWER
SET FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE
THE ENFORCEMENT. BY LENDER, OF ANY ACTION TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE
JURISDICTION AND BORROWER HEREBY WAIVES THE RIGHT
TO COLLATERALLY ATTACK ANY SUCH JUDGMENT OR
ACTION.

     10.13 FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT
OF THE PRINCIPAL SUMS HEREUNDER IN THE AMOUNT OF
UP TO TWELVE MILLION EIGHT HUNDRED THOUSAND AND
NO/100 DOLLARS ($12,800,000.00), BORROWER, BEING
AN EXPERIENCED OWNER AND OPERATOR OF REAL ESTATE
AND PARTICIPANT IN SOPHISTICATED REAL ESTATE
VENTURES, AND HAVING CONSULTED WITH COUNSEL OF ITS
CHOOSING, HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
WITH RESPECT TO ANY ACTION OR PROCEEDING (1)
BROUGHT BY BORROWER, LENDER OR ANY OTHER PERSONS
RELATING TO (A) THIS LOAN AGREEMENT, OR (B) THE
OTHER LOAN DOCUMENTS OR (2) TO WHICH LENDER IS A
PARTY. BORROWER HEREBY AGREES THAT THIS LOAN
AGREEMENT CONSTITUTES A WRITTEN CONSENT TO WAIVER
OF TRLAL BY JURY, AND BORROWER DOES HEREBY
CONSTITUTE AND APPOINT LENDER ITS TRUE AND LAWFUL
ATTORNEY IN FACT, WHICH APPOINTMENT IS COUPLED
WITH AN INTEREST AND IRREVOCABLE, AND BORROWER
DOES HEREBY AUTHORIZE AND EMPOWER LENDER, IN THE
NAME, PLACE, AND STEAD OF BORROWER, TO FILE THIS
LOAN AGREEMENT WITH THE CLERK OR JUDGE OF ANY
COURT OF COMPETENT JURISDICTION AS A WRITTEN
CONSENT TO WAIVER OF TRIAL BY JURY. BORROWER
ACKNOWLEDGES THAT ITS WAIVER OF TRIAL BY JURY HAS
BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY
BY BORROWER AS A PART OF A BARGAINED FOR LOAN
TRANSACTION.




35




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

BORROWER:      FAIRFIELD RETIREMENT CENTER, LLC,
          a California limited liability company

          By: Emeritus Corporation,
                 a Washington corporation
                 Its: Managing Member

          By: /s/ Kelly J. Price
          Name: Kelly J. Price
          Title:  Secretary/Director of
     Finance/CFO


LENDER:   FINOVA CAPITAL CORPORATION

          By: /s/ Anne M. McNeil
          Name: Anne M. McNeil
          Title: Assistant Vice President












































36

EX-10.31.2

PROMISSORY NOTE

$12,800,000.00
January 10,1997

     For value received, the undersigned,
Fairfield Retirement Center, LLC, a California
limited liability company, hereinafter referred to
as "Borrower," promises to pay to the order of
FINOVA Capital Corporation, hereinafter referred
to as "Lender" at its offices at 3200 Park Center
Drive, Fifth Floor, Costa Mesa, California 92626,
in lawful money of the United States of America,
the principal sum of TWELVE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($12,800,000.00) or so
much thereof as may be advanced and outstanding
hereunder pursuant to that certain Loan Agreement
of even date herewith between Borrower and Lender
(the "Loan Agreement"), with interest on the
principal balance from time to time remaining
unpaid at the rate and upon the terms provided in
this Note, without deduction or setoff whatsoever.

     INTEREST RATE. The principal balance of this
Note (as same may be increased as set forth
herein) shall accrue interest as of Lender's
wiring of funds through Lender's receipt of
repayment of this Note in full at the lesser of
(i) the Maximum Rate or (ii) a floating rate per
annum equal to seventy- five (75) basis points
above the Base Rate as defined herein ("Basic
Rate"); which shall be initially determined using
the Base Rate in effect on the first Business Day
of the month in which the Loan Closing occurs, and
thereafter shall automatically change on each
Interest Rate Change Date. As used herein, "Base
Rate" shall mean: (a) the Citibank prime rate; or
(b) such per annum rate which has been selected by
Lender as the Base Rate pursuant to the terms of
the following sentences. If the Base Rate then
being utilized ceases to be published, then Lender
shall choose as the Base Rate a reference rate
which Lender deems comparable in its sole and
absolute discretion. As used above, the Citibank
prime rate shall mean the rate per annum publicly
announced from time to time by Citibank, N.A., New
York, New York (together with any successor,
"Citibank"), as its base rate or equivalent rate
of interest charged by Citibank to its largest and
most creditworthy commercial borrowers,
notwithstanding the fact that some borrowers of
Citibank may borrow from Citibank at rates less
than such announced prime rate.

     At any time during the first one-year period
following the Permanent Term Commencement Date,
Borrower shall have the one time right upon seven
(7) days' prior written notice to Lender to
convert the floating Basic Rate to a fixed rate
for the remaining term of the Loan (the
"Conversion Option") at a rate equal to the sum of
the Treasury Constant Maturity Rate as published
by the Federal Reserve Bank for Treasury Notes
having a maturity closest to the remaining term of
the Note plus three hundred (300) basis points,
provided that no Event of Default or Incipient
Default of which Lender has notified Borrower has
occurred and that Borrower has paid to Lender a
conversion fee equal to one-quarter of one percent
(0.25%) of the then outstanding principal balance
of this Note as of the date of Borrower's notice
of Borrower's
exercise of the Conversion Option. In the event
that Borrower does not exercise the Conversion
Option and convert the floating Basic Rate to a
fixed Basic Rate during the first year after
commencement of the Permanent Term, Borrower shall
be conclusively deemed to have elected to retain
the variable Basic Rate set forth in the preceding
paragraph for the remainder of the term of the
Loan until the Maturity Date.





Notwithstanding the foregoing to the contrary, in
the event Borrower is unable to exercise the
Conversion Option on the date one year after the
commencement of the Permanent Term because at such
time there exists an Incipient Default of which
Lender has notified Borrower, and such Incipient
Default is subsequently cured by Borrower, then
Borrower may exercise the Conversion Option at any
time within thirty (30) days after the date the
Incipient Default is cured.

     Basic Interest shall begin to accrue on each
Advance as of the date disbursed by Lender by
check or wire transfer to the Title Agent or
Borrower, and such Advance shall be added to the
outstanding principal balance of the Loan on such
date. An Advance shall be deemed to have been
disbursed by Lender to Borrower and deemed to be
part of the outstanding principal balance of the
Loan if disbursed to a third party on Borrower's
behalf or disbursed to the Title Agent to hold for
disbursement to Borrower subject to the
fulfillment of certain conditions to which
Borrower has agreed. Interest shall accrue on
Advances only to the extent of the outstanding
principal balance of the Note. Interest shall be
calculated on the basis of actual number of days
elapsed during the period for which interest is
being charged predicated on the year consisting of
60 days.

     DEFINITIONS. As used in this Note, all
capitalized terms not defined herein shall have
the meaning given such terms in the Loan
Agreement.

     PAYMENT TERMS.

     (a) INITIAL PAYMENT. On the date of this
Note, Borrower shall pay to Lender interest at the
Basic Rate from the date of this Note through and
including the last calendar day of the month in
which this Note is dated.

     (b) CONSTRUCTION INTEREST PAYMENTS.
Commencing on the first day of the second calendar
month following the Loan Closing and on the first
day of each calendar month thereafter during the
Construction Term, Borrower shall remit monthly
payments consisting of accrued Basic Interest (at
the Basic Rate) on the outstanding principal
balance of the Loan (in arrears).

     (c) PERMANENT TERM INTEREST PAYMENTS.
Commencing on the first day of the first full
calendar month after the Permanent Term
Commencement Date, and on the first day of each
calendar month thereafter until the first day of
the thirteenth ( 13th) full calendar month after
the Permanent Term Commencement Date (the
"Principal Commencement Date") Borrower shall
remit monthly payments consisting of accrued Basic
Interest (at the Basic Rate) on the outstanding
principal balance of the Loan (in arrears).

     (d) PERMANENT TERM PRINCIPAL AND INTEREST
PAYMENTS. Commencing on the Principal Commencement
Date through Lenders receipt of repayment of the
Loan in full, Borrower shall remit monthly
payments consisting of the amounts specified in
subparagraph (c) preceding plus principal in an
amount which would be amortized monthly if the
outstanding principal balance of the Loan Amount
on the Principal Commencement Date was being fully
amortized in consecutive level monthly
installments of principal and interest calculated
over 240 months, assuming an interest rate for
purposes of calculating such amortization equal to
the Basic Rate.


2



     (e) PAYMENT OF REMAINING AMOUNTS. The
remaining principal balance of this Note together
with all accrued but unpaid Basic Interest and all
other amounts payable hereunder shall be due and
payable in full upon the Due Date.

     (f) APPLICATION OF PAYMENTS. All payments
received by Lender in respect to this Note shall
be applied first to any late charges and other
fees and expenses due under the Loan Documents,
then to any accrued and unpaid interest, and then
to outstanding principal.

     PREPAYMENT. Borrower shall have no right to
prepay this Note in whole or in part at any time
prior to the third anniversary date of the Loan
Closing. At any time after the third anniversary
date of the Loan Closing, Borrower may, upon
giving Lender (i) thirty (30) days advance written
notice thereof if Borrower has exercised the
Conversion Option, or (ii) ninety (90) days
advance written notice thereof if Borrower has not
exercised the Conversion Option, prepay all, but
not a portion of, the amount of principal and
interest due on this Note provided that (A) on the
date of such prepayment Borrower shall also pay to
the order of Lender on the date of prepayment a
fee (the "Prepayment Fee"); (B) No Event of
Default exists and (C) Borrower pays, in addition
to the full principal amount of this Note, all
accrued unpaid interest at the applicable interest
rate and all fees and other charges then
outstanding. The Prepayment Fee shall be equal to
the appropriate amount set forth below:

     (a) If Borrower has not exercised the
Conversion Option, an amount equal to $ 100,000;
and

     (b) If Borrower has exercised the Conversion
Option, if there is a decline between the yield to
maturity (expressed as a percentage) on the date
the Stated Rate was fixed pursuant to the
Conversion Option on United States Treasury Notes
with a maturity
closest to and prior to the Scheduled Maturity
Date of this Note the Existing Treasury Note Rate
and the yield on United States Treasury Notes with
a maturity closest to and prior to the Scheduled
Maturity Date as reported in the WALL STREET
JOURNAL or similar publication reasonably
acceptable to Lender on the fifth business day
preceding the prepayment date (the "Future
Treasury Note Rate"), an amount equal to the
product of (i) the difference between the Existing
Treasury Note Rate and the Future Treasury Note
Rate (expressed as a percentage) multiplied by
(ii) the outstanding balance of this Note
inclusive of all accrued and unpaid interest as of
the date of prepayment and further multiplied by
(iii) the number of whole and fractional years
remaining until the Scheduled Maturity Date.

     The Prepayment Fee shall be due and payable
on all amounts paid prior to the due date thereof
for any reason including, without limitation,
refinancing, acceleration (upon the occurrence of
an Event of Default or otherwise) or otherwise.
The foregoing Prepayment Fee represents the
reasonable estimate of Lender and Borrower of a
fair average compensation for the loss that may be
sustained by Lender due to the payment of any of
the indebtedness evidenced by this Note prior to
the due date thereof stated herein. Such
Prepayment Fee shall be paid without prejudice to
the right of Lender to collect any other amounts
provided to be paid hereunder.




3



     Although a prepayment of this Note is
prohibited during the period within three (3)
years after the Loan Closing, in the event
Borrower tenders prepayment of the Loan in whole
or in part during such period and the prohibition
on such prepayment is not enforceable under
applicable law, or is waived by Lender, the
Prepayment Fee applicable to such a prepayment
shall be equal to fifteen percent ( 15%) of the
amount so prepaid.
In the event Borrower makes a partial
prepayment(s) of principal not permitted
hereunder, such prepayment(s) shall be deemed a
payment(s) of principal as of the scheduled
Maturity Date, and interest shall continue to
accrue on the full Loan amount as if such
prepayment(s) has not been made until the
scheduled Maturity Date.
BORROWER AND LENDER HAVE CHOSEN TO HAVE THE LAWS
OF THE STATE OF A.RIZONA APPLY TO THIS NOTE AS SET
FORTH HEREIN; HOWEVER, IN THE EVENT THE LAWS OF
THE STATE OF CALIFORNIA ARE HELD BY ANY COURT WITH
JURISDICTION TO APPLY TO THIS TRANSACTION, THEN
THE PROVISIONS OF THIS PARAGRAPH SHALL APPLY.
BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY
HAVE UNDER CALIFORNIA CIVIL CODE 2954.10 OR
OTHERWISE TO PREPAY THIS NOTE, IN WHOLE OR IN
PART, WITHOUT PREPAYMENT CHARGE, UPON ACCELERATION
OF THE MATURITY DATE OF THIS NOTE, AND AGREES
THAT, EXCEPT AS OTHERWISE PROVIDED IN THIS NOTE,
IF, FOR ANY REASON, A PREPAYMENT OF ANY OR ALL OF
THIS NOTE IS MADE, WHETHER VOLUNTARILY OR UPON OR
FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF
THIS NOTE BY THE LENDER ON ACCOUNT OF THE
OCCURRENCE OF ANY EVENT OF DEFAULT ARISING FOR ANY
REASON, INCLUDING, WITHOUT LIMITATION, ON ACCOUNT
OF ANY PROHIBITED OR RESTRICTED TRANSFER OR
DISPOSITION OF THE MORTGAGED PROPERTY (AS DEFINED
IN THE MORTGAGE), THEN BORROWER SHALL BE OBLIGATED
TO PAY CONCURRENTLY THEREWITH, AS A PREPAYMENT
FEE, THE APPLICABLE SUMS SPECIFIED ABOVE. BY
INITIALING THIS PROVISION IN THE SPACE PROVIDED
BELOW, BORROWER HEREBY DECLARES THAT THE LENDER'S
AGREEMENT TO MAKE THE LOAN AT THE INTEREST RATES
AND FOR THE TERM SET FORTH IN
THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION,
GIVEN INDIVIDUAL WEIGHT BY BORROWER, FOR THIS
WAIVER AND AGREEMENT.

     PAST DUE INTEREST. All past due principal and
interest shall bear interest commencing on the due
date thereof until paid at the Default Rate.

     WAIVER. Except as specifically set forth in
the Mortgage, Borrower and any and all co-makers,
endorsers, guarantors and sureties severally (i)
waive notice, notice of intent to accelerate,
notice of acceleration, demand, grace, presentment
for payment, and protest, (ii) agree this Note and
the liens securing its payment may be extended and
re-extended from time to time without notice to
them or any of them, (iii) agree that their
liability on or with respect to this Note shall
not be affected by any release or change in any
security at any time existing or by any failure to
perfect or maintain perfection of any security
interest in such security and (iv) agree that
Lender shall not be required to first institute
suit or exhaust its remedies hereon against
Borrower or others liable or to become liable for
the payment of this Note. No single or partial
exercise of any power hereunder shall preclude
other or further exercise thereof or the exercise
of any other power. Lender shall at all times have
the right to proceed against any portions of
security


4



held herefor in such order and in such manner as
Lender may deem fit, without waiving any rights
with respect to any other security. No delay or
omission on the part of Lender in exercising any
right or remedy hereunder or the acceptance of one
or more installments from any person after an
Event of Default shall operate as a waiver of such
right or remedy or of any other right or remedy
under this Note nor as a waiver of such right or
remedy in connection with any future default.

     DEFAULT. It is especially agreed that time is
of the essence respecting this Note. Event of
Default as used herein, means an Event of Default
under and as defined in the Loan Agreement.

     ACCELERATION AND WAIVER OF NOTICE. At the
option of Lender, upon the occurrence of an Event
of Default the entire unpaid principal balance
plus the Prepayment Fee and all accrued and unpaid
interest due and owing on this Note and any and
all other indebtedness of Borrower to Lender
pursuant to the Mortgage or other Loan Documents
shall become and be due and payable forthwith
without demand, notice of default, notice of
intent to accelerate the maturity hereof, notice
of acceleration of the maturity hereof, notice of
nonpayment, presentment, protest or notice of
dishonor, all of which are hereby expressly waived
to the full extent permitted by law by Borrower
and each other liable party. Failure to exercise
this option upon the occurrence of any such Event
of Default shall not constitute a waiver of the
right to exercise such option in the event of any
subsequent Event of Default.

     COLLECTION COSTS AND JOINT AND SEVERAL
LIABILITY. If the entire unpaid principal balance
plus all accrued and unpaid interest due and owing
on this Note is not paid at maturity whether by
acceleration or otherwise and is placed in the
hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization.
arrangement or other legal proceedings for
collection hereof, Borrower and each other liable
party agree to pay Lender its collection costs,
including a reasonable amount for attorneys' fees.
but in no event to exceed the maximum amount
permitted by law. Borrower and each other liable
party are and shall be directly and primarily,
jointly and severally, liable for the payment of
all sums called for hereunder, and Borrower and
each other liable party hereby expressly waive
bringing of suit and diligence in taking any
action to collect any sums owing hereon and in the
handling of any security, and Borrower and each
other liable party hereby consent to and agree to
remain liable hereon regardless of any renewals,
extensions for any period or rearrangements
hereof, or any release or substitution of security
herefor, in whole or in part, with or without
notice, from time to time, before or after
maturity.

     APPLICABLE LAW. THIS NOTE, THE LOAN AGREEMENT
THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO HAVE
BEEN, DELIVERED AND ACCEPTED IN, AND THIS NOTE,
THE LOAN AGREEMENT, AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE INTERNAL LAWS AND DECISIONS OF, THE STATE
OF ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS OF
LAW PRINCIPLES), THE STATE IN WHICH LENDERS
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF BORROWER AND BY ACCEPTANCE
HEREOF, LENDER, EACH AGREES THAT SUCH LAWS AND
DECISIONS OF


5



THE STATE OF ARIZONA SHALL GOVERN THIS NOTE, THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
NOTWITHSTANDING THE FACT THAT THERE MAY BE OTHER
JURISDICTIONS WHICH MAY BEAR A REASONABLE
RELATIONSHIP TO THE TRANSACTIONS CONTEMPLATED
HEREBY; PROVIDED, HOWEVER, THAT WITH RESPECT TO
THE PROCEDURAL AND SUBSTANTIVE MATTERS RELATING
ONLY TO THE CREATION, VALIDITY, PERFECTION AND
ENFORCEMENT BY LENDER OF ITS RIGHTS AND REMEDIES
AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL
LOCATED IN ANY STATE OTHER THAN ARIZONA, SUCH
MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE
IN WHICH SUCH PROPERTY IS LOCATED.

     JURISDICTION AND VENUE. BORROWER HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED
BY BORROWER AND ARISING DIRECTLY OR INDIRECTLY OUT
OF THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS SHALL BE LITIGATED IN THE SUPERIOR COURT
OF ARIZONA, MARICOPA COUNTY DIVISION, OR THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA OR, IF LENDER INITIATES SUCH ACTION, IN
ADDITION TO THE FOREGOING COURTS ANY COURT IN
WHICH LENDER SHALL INITIATE SUCH ACTION, TO THE
EXTENT SUCH COURT HAS JURISDICTION. BORROWER
HEREBY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED BY LENDER IN ANY OF SUCH COURTS AND
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED
THEREIN AND AGREES THAT SERVICE OF SUCH SUMMONS
AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY ACTUAL DELIVERY
OR REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO THE BORROWER AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT
TO THE LOAN AGREEMENT. BORROWER WAIVES ANY CLAIM
THAT PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA
IS AN INCONVENIENT FORUM OR AN IMPROPER FORUM
BASED ON LACK OF VENUE. SHOULD BORROWER, AFTER
BEING SO SERVED,
FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE
NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, BORROW'ER SHALL BE DEEMED IN DEFAULT AND
AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS; PROVIDED,
HOWEVER, LENDER MAY NOT SEEK SUCH A DEFAULT
JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER THE
DATE OF PROOF OF SERVICE. THE EXCLUSIVE CHOICE OF
FORUM FOR BORROWER SET FORTH HEREIN SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATEl2ALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.

     SECURITY. This Note is secured by, among
other things, the Mortgage, of the Loan Agreement
and the other Loan Documents.


6



     LEGAL INTEREST LIMITATION. The contracted for
rate of interest of the loan contemplated hereby,
without limitation, shall consist of the
following:

     (a) The interest, calculated and applied to
the principal balance of this Note in accordance
with the provisions of this Note;

     (b) The past due interest calculated and
applied to past due principal and interest on this
Note in accordance with the provisions of this
Note;

     (c) The one-time loan fee, in the amount of
$256,000.00 described in the Loan Agreement;

     (d) The Prepayment Fee calculated in
accordance with this Note; and

     (e) All Additional Sums (as hereinafter
defined), if any.

     Borrower agrees to pay an effective
contracted for rate of interest which is the sum
of subparagraphs (a) through (e), inclusive,
above. All fees, charges, goods, things in action
or any other sums or things of value (other than
those described in subparagraphs (a) through (e),
inclusive, above), paid or payable by Borrower
(collectively, the "Additional Sums"), whether
pursuant to this Note, the Loan Agreement, the
other Loan Documents or any other document or
instrument in any way pertaining to this lending
transaction, or otherwise with respect to this
fending transaction, that under the laws of the
State of Arizona may be deemed to be interest with
respect to this lending transaction, for the
purpose of any laws of the State of Arizona that
may limit the maximum amount of interest to be
charged with respect to this lending transaction.
shall be payable by Borrower as, and shall be
deemed to be, additional interest, and for such
purposes only, the agreed upon and contracted for
rate of interest of this lending transaction shall
be deemed to be increased by the rate of interest
resulting from the Additional Sums. If any
interest or other charges in connection with this
lending transaction are ever determined to be
usurious or exceed the maximum amount permitted by
law, then Borrower agrees that (a) the amount of
interest or charges payable pursuant to this
lending transaction shall be reduced to the
maximum amount permitted by law and (b) any excess
amount previously collected from Borrower in
connection with this lending transaction that
exceeded the maximum amount permitted by law,
shall be credited against the principal balance of
this Note then outstanding. If the outstanding
principal balance hereunder has been paid in full,
the excess amount paid shall be refunded to
Borrower and Borrower agrees to accept such
refund.

     CONFLICTS. This Note has been executed and
delivered pursuant to the terms of the Mortgage
and the other Loan Documents, and Lender is
entitled to the benefits of and security provided
for in the Mortgage and the other Loan Documents.
Any Event of Default under the terms of the Loan
Agreement or under the terms of any of the other
Loan Documents will automatically be an Event of
Default hereunder. The terms of this Note will
govern in the event of any conflict with the terms
of this Note and the other Loan Documents.




                                                 7

     
     
     REMEDIES OF LENDER. Lender shall have all
rights, remedies and recourses granted in this
Note, the Mortgage and the other Loan Documents
and available at law or in equity and the same (a)
shall be cumulative and concurrent; (b) may be
pursued separately, successively or concurrently
against Borrower, or any other liable party or
against any one or more of them at the sole
discretion of Lender and in such order as Lender,
in its sole discretion, shall determine; (c) may
be exercised as often as occasion therefor shall
arise, it being agreed by Borrower that the
exercise or failure to exercise any of the same
shall in no event be construed as a waiver or
release thereof or of any other right, remedy or
recourse; and (d) are intended to be, and shall
be, nonexclusive.

     CONSENT. FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT OF THE PRINCIPAL SUMS HEREUNDER IN THE
AMOUNT OF UP TO TWELVE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($12,800,000.00),
BORROWER, BEING AN EXPERIENCED OWNER AND OPERATOR
OF REAL ESTATE AND PARTICIPANT IN SOPHISTICATED
REAL ESTATE VENTURES, AND HAVING CONSULTED WITH
COUNSEL OF ITS CHOOSING, HEREBY WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR
PROCEEDING (1) BROUGHT BY BORROWER, LENDER OR ANY
OTHER PERSONS RELATING TO (A) THIS NOTE, OR (B)
THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
(2) TO WHICH LENDER IS A PARTY. BORROWER HEREBY
AGREES THAT THIS
NOTE CONSTITUTES A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. AND BORROWER DOES HEREBY CONSTITUTE
AND APPOINT LENDER ITS TRUE AND LAWFUL ATTORNEY IN
FACT, WHICH APPOINTMENT IS COUPLED WITH AN
INTEREST AND IRREVOCABLE, AND BORROWER DOES HEREBY
AUTHORIZE AND EMPOWER LENDER, IN THE NAME, PLACE.
AND STEAD OF BORROWER, TO FILE THIS NOTE WITH THE
CLERK OR JUDGE OF ANY COURT OF COMPETENT
JURISDICTION AS A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT ITS
WAIVER OF TRIAL BY JURY HAS BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY BORROWER AS A PART
OF A BARGAINED FOR LOAN TRANSACTION.


MAKER:

FAIRFIELD RETIREMENT CENTER, LLC,

a California limited liability company


By: Emeritus Corporation, a Washington

corporation

Its: Managing Member


By:  /s/ Kelly J. Price

- ---------------------------

Name:  Kelly J. Price

Title:    Secretary/Director of Finance/CFO






8



THE STATE OF WASHINGTON          )

)
 COUNTY OF KING                              )


     On ,this 10th  day of  January, 1997, before
me, Catherine L. Pasquan, the undersigned notary
public, duly commissioned and sworn, personally
appeared Kelly J. Price, personally known to me
(or proved to me on the basis of satisfactory
evidence) to be the person that executed the
within instrument and acknowledged to me that he
or she executed the same in his or her authorized
capacity and that by his or her signature in the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.

     In witness whereof, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.


/s/ Catherine L. Pasquan

- ---------------------------------

NOTARY PUBLIC

[SEAL]






























9

EX-10.31.3

RECORDING REQUESTED BY
and when recorded mail to:

Randall S. Dalton, Esq.
Gammage & Burnham P.L.C.
Two North Central Avenue, 18th Floor
Phoenix, Arizona 85004

805941 TC

                      DEED OF TRUST, SECURITY
AGREEMENT,
       ASSIGNMENT OF LEASES AND RENTS AND FIXTURE
FILING

     The Promissory Note secured by this Deed of
Trust contains provisions for a variable interest
rate.

     This Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing
(hereinafter referred to as "Deed of Trust") made
and entered into as of this 10th day of January,
1997, by Fairfield Retirement Center, LLC, a
California limited liability company ("Trustor"),
whose address is c/o NorthBay Health Advantage,
1200 B. Gale Wilson Boulevard, Fairfield,
California 94533, to Chicago Title Company, a
California corporation ("Trustee"), whose address
is 604 Empire Street, Fairfield, California 94533,
for the benefit of FINOVA Capital Corporation, a
Delaware corporation ("Baneficiary"), whose
address is 3200 Park Center Drive, Fifth Floor,
Costa Mesa, California 92626 with a copy to 7272
East Indian School Road, Suite 410, Scottsdale,
Arizona 85251, Attn: Vice President -Group
Counsel.


WITNESSETH:

                                           ARTICLE
I


DEFINITIONS


1.1 As used herein, the following terms shall have
the following meanings

     (a) BENEFICIARy: FINOVA Capital Corporation
and the subsequent holder or holders, from time to
time, of the Note.

     (b) COLLATERAL: The meaning given such term
in Article IX below

     (c) DEBTOR RELIEF LAWS: Any applicable state,
federal or other liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency,
reorganization, or similar laws affecting the
rights or remedies of creditors generally, as in
effect from time to time.

     (d) ESCROWED SUMS: The amounts paid by
Trustor to Beneficiary pursuant to Paragraph 11.14
hereof to be held by Beneficiary in a fund for the
payment of Impositions and insurance premiums.








     (e) EMERITUS DEED OF TRUST: That certain Deed
of Trust dated July 31, 1996 executed by Trustor
for the benefit of Emeritus Corporation, recorded
on August 1, 1996 under Series No. 96-51994,
Official Records, Solano County, California, as
amended by instrument recorded essentially
simultaneously herewith, securing the payment of a
promissory note in the original principal amount
of $2,500,000 of even date therewith, executed by
Trustor and payable to the order of Emeritus
Corporation.

     (f) ENVIRONMENTAL CERTIFICATE. That certain
Environmental Certificate with Representations,
Covenants and Warranties of even date herewith, as
amended, renewed, replaced or restated.

     (g) EVENT OF DEFAULT: Any happening or
occurrence described in Article VI herein.

     (h) FINANCIAL STATEMENTS: The balance sheets,
profit and loss statements, reconciliations of
capital and surplus, changes in financial
condition, schedules of sources and applications
of funds, and other financial information of
Trustor heretofore furnished to Beneficiary or
required to be furnished to Beneficiary under the
terms of the Security Documents from time to time,
which statements shall be prepared in such scope,
detail and form as shall be reasonably acceptable
to Beneficiary and shall be certified by Trustor.

     (i) FIXTURES: All of Trustor's materials,
supplies, equipment, apparatus and other items now
or hereafter attached tO, installed on or in the
Land or the Improvements, or which in some fashion
are deemed to be fixtures to the Land or
Improvements under the laws of the State of
California, including the California Uniform
Commercial Code, as it may be amended from time to
time (the "UCC"), other than those owned by
tenants under any lease. The term "FIXTURE" shall
include, without limitation, all items of
Trustor's Personalty to the extent that the same
may be deemed fixtures under applicable law.

     (j) GOVERNMENTAL AUTHORITY: Any and all
courts, boards, agencies, commissions, offices or
authorities of any nature whatsoever for any
governmental unit (federal, state, county,
district, municipal, city or otherwise) whether
now or hereafter in existence.

     (k) GOVERNMENTAL REQUIREMENTS: The term
Governmental Requirements shall mean all statutes,
laws, ordinances, orders, writs, injunctions,
decrees, rules and regulations of any Governmental
Authority applicable to Trustor, the Mortgaged
Property or the Improvements.

     (1) GUARANTORS: BW (Fairfield) Real Estate
Corporation, a California corporation, Emeritus
Corporation, a Washington corporation, and
NorthBay Health Advantage, a California public
non-profit benefit corporation.

     (m) GUARANTY: Any instrument of Guaranty
executed by any of the Guarantors and delivered to
Beneficiary guaranteeing the repayment of all or
any portion of the Indebtedness and the
performance of the Obligations.

     (n) IMPOSITIONS: All real estate and personal
property taxes; water, gas, sewer, electricity and
other utility rates and charges; charges imposed
pursuant to any suWivision, planned unit
development or condominium declaration or
restrictions; charges for any easement, license or
agreement maintained for the benefit of the
Mortgaged Property, and all other taxes, charges
and assessments and any interest, costs



2



or penalties with respect thereto of any kind and
nature whatsoever which at any time prior to or
after the execution hereof may be assessed, levied
or imposed upon the Mortgaged Property or the
ownership, use, occupancy or enjoyment thereof.

     (o) IMPROVEMENTS: Any and all buildings,
structures, open parking areas and other
improvements, and any and all accessions,
additions, replacements, substitutions or
alterations thereof or appurtenances thereto, now
or at any time hereafter situated, placed or
constructed upon the Land or any part thereof.

     (p) INDEBTEDNESS: (i) The principal of,
interest on and all other amounts and payments now
or hereafter due under or secured by the Note and
the other Security Documents, together with all
funds hereafter advanced by Beneficiary to or for
the benefit of Trustor as contemplated by any
covenant or provision herein contained or
contained in the Note or any other Security
Document, all such advances to have the same
priority as the funds initially advanced under the
Note, (ii) payment and performance of all
obligations of Trustor under this Deed of Trust,
including payment of all sums expended or advanced
by Beneficiary hereunder to protect or preserve
the Mortgaged Property, or the lien hereof on the
Mortgaged Property, or for taxes, assessments or
insurance premiums as hereinafter provided,
together with interest thereon as provided herein,
(iii) payment and performance of all future
advances and other obligations that Trustor may
agree to pay or perform (whether as principal,
surety or guarantor) for the benefit of
Beneficiary, when such obligation is evidenced by
a writing which states that it is secured by this
Deed of Trust, and (iv) all mod)fications,
extensions and renewals (if any) of one or more of
the obligations secured hereby, including without
limitation (a) mod)fications of the required
principal payment dates or interest payment dates,
deferring or accelerating payment dates wholly or
partly, and (b) mod)fications, extensions or
renewals at a different rate of interest whether
or not, in the case of a note or other contract,
the mod)fication, extension or renewal is
evidenced by a new or additional promissory note
or other contract.

     (q) LAND: The real estate or any interest
therein described in Exhibit "A" attached hereto
and made a part hereof, together with all
Improvements and Fixtures and all rights, titles
and interests appurtenant thereto.

     (r) LEASES: All of the lessor's right, title
and interest in and to any and all leases,
subleases, licenses, concessions or other
agreements (written or verbal, now or hereafter in
effect) which grant a possessory interest in and
to, or the right to extract, mine, reside in, sell
or use the Mortgaged Property, and all other
agreements, including, but not limited to, utility
contracts, maintenance agreements and service
contracts, which in any way relate to the use,
occupancy, operations, maintenance, enjoyment or
ownership of the Mortgaged Property, save and
except any and all leases, subleases or other
agreements pursuant to which Trustor is granted a
possessory interest in the Land.

     (s) LEGAL REQUIREMENTS: (i) Any and all
present and future judicial decisions, statutes,
rulings, rules, regulations, permits, certificates
or ordinances of any Governmental Authority in any
way applicable to Trustor or the Mortgaged
Property, including but not limited to those
respecting the ownership, use, occupancy,
possession, operation, maintenance, alteration,
repair or reconstruction thereof, (ii) Trustor's
presently or subsequently effective by-laws and
articles of incorporation, or any instruments
establishing any partnership, limited partnership,
joint venture, trust or other form of business
association (if either, both or all by any of
same), (iii) any and all Leases and other
contracts (written or oral) of any nature to which
Trustor may be bound and (iv) any and all
restrictions, reservations, conditions, easements
or other covenants or agreements of record
affecting the Mortgaged Property.



3



     (t) LOAN AGREEMENT: That certain Loan
Agreement between Trustor and Beneficiary of even
date herewith.

     (u) MORTGAGED PROPERTY: The Land,
Improvements, Fixtures, Personalty, Leases and
Rents, together with:

     (i) all rights, privileges, tenements,
hereditaments, rights-of-way, easements,
appendages and appurtenances in anywise
appertaining thereto, and all right, title and
interest of Trustor in and to any streets, ways,
alleys, strips or gores of land adjoining the Land
or any part therein or thereof;

     (ii) all betterments, accessions, additions,
appurtenances, substitutions, replacements and
revisions thereof and thereto and all reversions
and remainders therein;

     (iii) all other interest of every kind and
character which Trustor now has or at anytime
hereafter acquires in and to the above-described
real and personal property and all property which
is used or useful in connection therewith,
including rights of ingress and egress, easements,
licenses, and all reversionary rights or interests
of Trustor with respect to such property. To the
extent permitted by law, all of the Personalty and
Fixtures are to be deemed and held to be a part of
and affixed to the Land. In the event the estate
of Trustor in and to any of the Land and
Improvements is a leasehold estate, this
conveyance shall include and the lien, security
interest and assignment created hereby shall
encumber and extend to all other, further or
additional title, estates, interest or rights
which may exist now or at any time be acquired by
Trustor in or to the property demised under the
lease creating such leasehold estate and including
Trustor's rights, if any, to purchase the property
demised under such lease and, if fee simple title
to any of such property shall ever become vested
in Trustor, such fee simple interest shall be
encumbered by this Mortgage in the same manner as
if Trustor had fee simple title to such property
as of the date of execution hereof; and

     (iv) any and all other security and
collateral of any nature whatsoever, now or
hereafter given for the repayment of the
Indebtedness or the performance and discharge of
the Obligations, including the Escrowed Sums,
hereinafter defined.

     As used in this Mortgage, the term "Mortgaged
Property" is expressly defined as meaning all or,
where the context permits or requires, any portion
of the above and all or, where the context permits
or requires, any interest therein.

     (v) NOTE: One certain promissory note of even
date herewith, executed by Trustor, payable to the
order of Beneficiary in the principal amount of
$12,800,000.00 as same may be amended, renewed or
extended from time to time.

     (w) OBLIGATIONS: Any and all of the
covenants, warranties, representations and other
obligations, including the obligation to repay the
Indebtedness, made or undertaken by Trustor or
others to Beneficiary, Trustee or others as set
forth in the Security Documents, any other
documents or instruments executed in connection
with the Indebtedness.

     (x) PERMITTED ENCUMBRANCES: The outstanding
liens, easements, building lines, restrictions,
security interests and other matters (if any) as
set forth on Schedule B of the title policy
delivered to Beneficiary by Trustor concurrently
with the recording hereof.




4




     (y) PERSONALTY: All of the right, title and
interest of Trustor in and to all tangible and
intangible personal property which is now or
becomes attached tO, installed on or placed on or
used on or in connection with or which is acquired
for such attachment, installation, placement or
use, or which arises out of the development,
improvement, financing, leasing, sale, operation
or use of the Land, Improvements, Fixtures or
other goods located on the Land or Improvements,
whether now owned or hereafter acquired,
including, but not limited to:

     (i) all furnishings, building materials,
supplies, machines, engines, boilers, stokers,
pumps, fans, vents, blowers, dynamos, furnaces,
elevators, ducts, shafts, pipes, furniture
cabinets, shades, blinds, screens; plumbing,
heating, air conditioning, lighting, lifting,
ventilating, refrigerating, cooking, medical,
laundry and incinerating equipment; partitions,
drapes, carpets, rugs and other floor coverings,
awnings; call and sprinkler systems, fire
prevention and extinguishing apparatus and
equipment, water tanks, swimming pools,
compressors, vacuum cleaning systems; disposals,
dishwashers, ranges, ovens, kitchen equipment,
cafeteria equipment and recreational equipment;

     (ii) all equipment, inventory, attachments,
partitions, goods, instruments, appliances,
furnishings, machinery, tools, raw materials,
component parts, work in progress and materials,
and all other tangible personal property of
whatsoever kind, used or consumed in the
improvement, use or enjoyment of the Land, the
Improvements or the Fixtures, now or any time
hereafter owned or acquired by Trustor, wherever
located and all products thereof whether in
possession of Trustor or whether located on the
Land or elsewhere;

     (iii) all general intangibles relating to the
design, development, operation, management and use
of the Land, the Improvements and the Fixtures,
including, but not limited to: (a) all names under
which or by which the Land, the Improvements and
the Fixtures, may at any time be owned and
operated under, any such names or any variant
thereof and all goodwill in any way relating to
the Land, the Improvements and the Fixtures (it
being acknowledged that Trustor has only limited
rights to use the name "NorthBay");

     (b) all permits, licenses, authorizations,
variances, trademarks, service marks, trade names,
symbols, land use entitlements, approvals,
consents, clearances, and rights obtained from
governmental agencies issued or obtained in
connection with the Land, the Improvements and the
Fixtures; (c) all permits, licenses, approvals,
consents, authorizations, franchises and
agreements issued or obtained in connection with
the use, occupation or operation of the Land, the
Improvements and the Fixtures; and (d) all
materials prepared for filing or filed with any
governmental agency;

     (iv) all evidence of ownership of any part of
the Land, the Improvements, and the Fixtures that
is owned by Trustor in common with others,
including all water stock relating to the Land, if
any, and all documents or rights of membership in
any owners' or members' association or similar
group having responsibility for managing or
operating any part of the Land;

     (v) all accounts, deposit accounts, security
deposits, accounts receivable, instruments,
documents, chattel paper, bank deposits, books and
records, documents of title, general intangibles,
rights to payment of every kind, all of Trustor's
rights, direct or indirect, under or pursuant to
any and all construction, development, financing,
guaranty, indemnity, maintenance, management,
service, supply and warranty agreements,
commitments, contracts, subcontracts, insurance
policies and the proceeds therefrom, licenses and
bonds now or anytime hereafter arising from
construction on the Land or the use or


5


            enjoyment of the Land and the
Improvements including, without limitation,
maintenance agreements, service contracts and all
contracts and agreements for the operation,
management and leasing of the Land and/or the
Improvements;

     (vi) all water, water stock, water capacity
or other water rights, licenses, permits,
warranties, irrigation rights, oil and gas rights,
minerals, crops and timber, and wastewater and
storm drainage discharge capacity attributable or
allowable to all or any portion of the Land, the
Improvements and any other property, both real and
personal, hereinabove described;

     (vii) all rights, titles and interests in and
to all of the plans, specifications, drawings,
surveys, maps and plats, including, but not
limited to, plot plans, foundation plans, floor
plans, elevations, framing plans, cross-sections
of walls, mechanical plans, electrical plans and
architectural and engineering studies and analyses
heretofore or hereafter prepared by any architect
or engineer in respect to the Land, Improvements
or Fixtures;

     (viii) all of Trustor's right, title and
interest in and to any award, remuneration,
settlement of compensation heretofore made or
hereafter to be made by any Governmental Authority
to Trustor, including those for any vacation of,
change of grade in, any streets affecting the Land
or the Improvements;

     (ix) all of Trustor's right, title and
interest in and to all proceeds arising from or by
virtue of the sale, lease or other disposal of all
or any part of the Mortgaged Property (consent to
same not granted or to be implied hereby); and,
all proceeds (including premium refunds) payable
or to be payable under each policy of insurance
relating to the Mortgaged Property; and

     (x) all additions, accessions, accessories,
amendments, mod)fications, extensions, renewals
and enlargements, and additions to, substitutions
for the products thereof, and all proceeds,
whether cash proceeds or noncash proceeds, and
including insurance and condemnation proceeds,
received when any of the foregoing property
described in (i) through (ix) above (or the
proceeds thereof) is sold, exchanged, leased,
licensed, or otherwise disposed of, whether
voluntarily or involuntarily or when earlier
received; such proceeds shall include any of the
foregoing specifically described property of
Trustor acquired with cash proceeds, together
with, and without limiting the above items, all
Goods, Accounts, Documents, Instruments, Money,
Chattel Paper and General Intangibles located on
or related to the Land, as those terms are defined
in the California Uniform Commercial Code.

     (y) RENTS: All of the rents, revenues,
income, proceeds, royalties, profits and other
benefits paid or payable for using, leasing,
licensing, possessing, operating from or in,
residing in, selling, mining, extracting or
otherwise enjoying or using the Land, Fixtures,
Personalty or payable pursuant to the Leases.

     (z) SECURITY DOCUMENTS: The Note, this Deed
of Trust, the Loan Agreement and any other
documents now or hereafter evidencing, securing
otherwise ancillary to the Note or the loan made
pursuant to the Loan Agreement, as they may be
hereafter amended, renewed, replaced or restated.

     (aa) TRUSTEE: Chicago Title Company.

     (bb) TRUSTOR: The above defined Trustor and
any and all subsequent record or equitable owners
of the Mortgaged Property.



6



                                         ARTICLE
II

                                            GRANT

     2.1 For purposes of securing the payment and
performance of the Obligations (other than those
arising out of the Environmental Certificate) (i)
Trustor irrevocably grants, transfers and assigns
to Trustee in trust, with power of sale and right
of entry and possession, the Mortgaged Property
and (ii) Trustor absolutely and irrevocably
assigns to Beneficiary all right, title and
interest of Trustor in, to and under the Leases,
together with all Rents. Provided there does not
exist an Event of Default, Trustor shall have a
license to collect the Rents and exercise the
rights of Lessor under the Leases as more fully
set forth in that certain Assignment of Leases and
Rents of even date herewith from Trustor in favor
of Beneficiary. For the purposes of securing the
payment and performance of the Obligations (other
than those arising out of the Environmental
Certificate) and to protect the security of this
Deed of Trust, Trustor has executed and delivered
this Deed of Trust and makes the representations,
warranties and covenants set forth herein.


                                           ARTICLE
III

                        WARRANTIES AND
REPRESENTATIONS

     Trustor hereby unconditionally warrants and
represents to Beneficiary as follows:

     3.1 ORGANIZATION AND POWER: (a) That Trustor
is duly organized, and validly existing under the
laws of the State of California, all in accordance
with applicable Legal Requirements, and the
Articles of Organization and Limited Liability
Company Agreement of Trustor are in full force and
effect and have not been amended or changed except
as disclosed in writing to Beneficiary; (b) no
proceeding is pending, planned or threatened for
the dissolution or annulment of Trustor or any of
its members; (c) all licenses, filing fees, income
and other taxes due and payable by Trustor have
been paid in full; (d) all conditions prerequisite
to Trustor doing business in California have been
done; and (e) Trustor has all requisite power and
authority to own, lease, operate and encumber the
Mortgaged Property.

     3.2 VALIDITY OF DOCUMENTS: The execution,
delivery and performance by Trustor of the
Security Documents and the borrowing evidenced by
the Note (a) are within Trustor's powers and have
been duly authorized by Trustor's members and all
other requisite action; (b) have received all (if
any) requisite prior governmental approval in
order to be legally binding and enforceable in
accordance with the terms thereof; and (c) will
not violate, be in conflict with, result in a
breach of or constitute (with due notice or lapse
of time, or both) a default under, any Legal
Requirement or result in the creation or
imposition of any lien, charge or encumbrance of
any nature whatsoever upon Trustor's property or
assets, except as contemplated by the provisions
of the Security Documents. The Security Documents
constitute legal, valid and binding obligations of
Trustor obligated under the terms of the Security
Documents in accordance with their respective
terms (other than as such enforceability may be
subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium, similar
laws relating or affecting rights of creditors
generally or general principles of equity), and
Trustor has full and lawful authority to bargain,
grant, sell, mortgage, assign, transfer and convey
all of the Mortgaged Property as set forth herein.




7



     3.3 INFORMATION: All information, reports,
papers and data given to Beneficiary with respect
to Trustor or the Mortgaged Property are accurate,
complete and correct in all material respects and
do not omit any fact the inclusion of which is
necessary to prevent the facts contained therein
from being materially misleading.

     3.4 TITLE TO MORTGAGED PROPERTV AND LIEN OF
THIS INSTRUMENT: Trustor has good and indefeasible
title in fee simple to the Land described on
Exhibit "A" attached hereto, and good and
indefeasible title to the Improvements, the
Fixtures and Personalty, Leases and Rents, free
and clear of any liens, charges, encumbrances,
security interests and adverse claims whatsoever
except the Permitted Encumbrances. This Deed of
Trust constitutes a valid, subsisting, first lien
deed of trust on the Land, the Improvements, the
Fixtures and a valid, subsisting first security
interest in and to the Personalty, Leases and
Rents, all in accordance with the terms hereof.

     3.5 TAXES AND OTHER PAYMENTS: Trustor has
filed all federal, state, county, municipal and
city income and other tax returns required to have
been filed by it and has paid all taxes which have
become due pursuant to such returns or pursuant to
any assessments received by Trustor, and Trustor
does not know of any basis for any additional
assessment in respect of any such taxes. Trustor
has paid or will pay in full all sums owing or
claimed for labor, material, supplies, personal
property (whether or not constituting a Fixture
hereunder) and services of every kind and
character used, furnished or installed in the
Mortgaged Property which Trustor is obligated to
pay (subject to Trustor's right to contest such
amount owing on the condition that Trustor
immediately records and serves a surety bond
pursuant to applicable law or otherwise fully
protects Beneficiary from any loss or liability
arising therefrom) and no claim for same currently
exists, to the best of Trustor's knowledge, or
will be permitted to become past due.

     3.6 LITIGATION: There are no actions, suits
or proceedings pending or, to the knowledge of
Trustor, threatened against or affecting the
Mortgaged Property (except as disclosed in writing
to Beneficiary) or involving the validity or
enforceability of this Deed of Trust or the
priority of the lien and security interest hereof,
and no event has occurred (including specifically
Trustor's execution of the Security Documents and
its consummation of the loan represented thereby)
which will violate, be in conflict with, result in
the breach of or constitute (with due notice or
lapse of time, or both) a default under, any Legal
Requirement or result in the creation or
imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of Trustor-'s
property other than the lien and security interest
created by the Security Documents.

     3.7 UTILITIES: All utility services in such
capacities as are necessary for the Mortgaged
Property and the operation thereof for their
intended purpose are available to the Mortgaged
Property and the operation thereof for their
intended purpose, including water supply, storm
and sanitary sewer facilities, gas, electric and
telephone facilities.

     3.8 STREETS AND PARKING. All parking areas,
streets, roads, and/or highways necessary for the
full utilization of the Improvements for their
intended purposes have been completed or the
necessary rights-of-way therefor have either
been acquired by the appropriate Governmental
Authority or have been dedicated to the public use
and accepted by such Governmental Authority.

     3.9 PERMITS: All zoning, utility, building,
health and operating permits (if any) required for
the operation of the Improvements have been
obtained or will be obtained as contemplated by
and pursuant to the Loan Agreement.




8




ARTICLE IV

                                AFFIRMATIVE
COVENANTS



     Trustor hereby unconditionally covenants and
agrees with Beneficiary as follows:

     4.1 PAYMENT AND PERFORMANCE: Trustor will pay
the Indebtedness as and when called for in the
Security Documents and will perform all of the
Obligations in full and on or before the dates
they are to be performed.

     4.2 EXISTENCE: Trustor will preserve and keep
in full force and effect its existence, rights,
franchises and trade names. Beneficiary
acknowledges that Trustor has only a limited right
to use the name "NorthBay".

     4.3 COMPLIANCE WITH LEGAL REQUIREMENTS:
Trustor will promptly and faithfully comply or
cause compliance with, conform to and obey all
present and future Legal Requirements whether or
not same shall necessitate structural changes in,
improvements to, or interfere with the use or
enjoyment of, the Mortgaged Property. Without
limiting the generality of the foregoing covenant,
Trustor will comply or cause compliance with the
Americans with Disabilities Act of 1990 (42 U.S.C.
Section 12101 et seq.) as applicable to the
Mortgaged Property.

     4.4 PAYMENT OF IMPOSITIONS: Subject to the
provisions of paragraph 11.14 herein, Trustor will
pay and discharge, the Impositions not later than
the earlier of the date same becomes delinquent,
the day any fine, penalty, interest or cost may be
added thereto or imposed or the day any lien may
be filed for the nonpayment thereof (if such day
is used to determine the due date of the
respective item); provided, however, that Trustor
may, if permitted by law and if installment
payments would not create or permit the filing of
a lien against the Mortgaged Property, pay the
Impositions in installments whether or not
interest shall accrue on the unpaid balance of
such Impositions. Trustor may in good faith, in
lieu of paying such Impositions as they become due
and payable, by appropriate proceedings, contest
the validity thereof. During such contest Trustor
shall not be deemed in default hereunder because
of such nonpayment if, prior to delinquency of the
asserted tax or assessment, Trustor furnishes
Beneficiary an indemnity bond, conditioned that
such tax or assessment with interest, cost and
penalties be paid as herein stipulated, secured by
a deposit in cash or security acceptable to
Beneficiary or with surety acceptable to
Beneficiary, in the amount of the tax or
assessment being contested by Trustor and a
reasonable additional sum to pay all possible
costs, interest and penalties imposed or incurred
in connection therewith. Upon conclusion of such
contest Trustor shall promptly pay any amount
adjudged by a court of competent jurisdiction to
be due, with all costs, penalties and interest
thereon prior to the date such judgment becomes
final or any writ or order is issued under which
the Mortgaged Property may be sold pursuant to
such judgment.

     4.5 REPAIR: Following completion of the
improvements being constructed with the proceeds
of the Note, Trustor will keep or cause the
Mortgaged Property to be kept in a good condition
and presenting a good appearance and will make or
cause tenants of the Mortgaged Property to make
all repairs, replacements, renewals, additions,
betterments, improvements and alterations thereof
and thereto, interior and exterior, structural and
nonstructural, ordinary and extraordinary,
foreseen and unforeseen, which are necessary or
reasonably appropriate to keep same in such order
and condition, reasonable wear and tear excepted.
Trustor will also use all reasonable efforts to
prevent any act or occurrence


9



which might impair the value or usefulness of the
Mortgaged Property for its intended usages as set
forth in any plans and specifications for the
Improvements submitted to Beneficiary or in the
Security Documents. In instances where repairs,
replacements, renewals, additions, betterments,
improvements or alterations are required in and to
the Mortgaged Property on an emergency basis to
prevent loss, damage, waste or destruction
thereof, Trustor shall proceed to construct same,
or cause same to be constructed, notwithstanding
anything to the contrary contained in caragraph
5.2 hereinbelow; provided, however, that in
instances where such emergency measures are to be
taken, Trustor will promptly notify Beneficiary in
writing of the commencement of such emergency
measures and, when same are completed, the
completion date and the measures actually taken.

     4.6 INSURANCE: Trustor shall obtain and
maintain, or cause to be obtained and maintained,
insurance upon and relating to the Mortgaged
Property as provided in the Loan Agreement.

     4.7 RESTORATION FOLLOWING CASUALTY: If any
act or occurrence of any kind or nature (including
any casualty for which insurance was not obtained
or obtainable) shall result in damage to or loss
or destruction of the Mortgaged Property, Trustor
will give notice thereof to Beneficiary.

     (A) CASUALTY DURING CONSTRUCTION TERM. In
case of any act
or occurrence of any kind or nature shall result
in damage to or loss or destruction of the
Mortgaged Property during the "Construction Term"
as defined on the Loan Agreement, (i) Beneficiary,
at its option, shall be entitled to receive and
retain the proceeds of all insurance policies
related to such damage or loss and apply same to
the Indebtedness, and (ii) if Beneficiary makes
the proceeds of insurance available to Trustor for
purposes of restoring the Mortgaged Property,
Trustor will promptly and at Trustor's sole cost
and expense commence and continue diligently to
completion to restore, repair, replace and rebuild
the Mortgaged Property as nearly as possible to
its value, condition, and character immediately
prior to such damage, loss or destruction. In such
a circumstance, such insurance proceeds shall be
disbursed in the same manner and subject to the
same condition and requirement as contained in the
Loan Agreement with respect to advances of the
proceeds of the Note.

     (b) CASUALTY DURINC PERMANENT TERM. In case
of any act or occurrence of any kind or nature
shall result in damage or loss or destruction of
the Mortgaged Property during the "Permanent Term"
as defined in the Loan Agreement, the terms of
this subparagraph (b! shall apply. In case of loss
in which the cost of the restoration, repair or
replacement (hereinafter referred to as the
"Work") of the Mortgaged Property estimated by
Beneficiary shall not exceed the proceeds paid to
Beneficiary, then such proceeds may be used for
the prosecution of the Work in the manner
hereinafter provided. If the cost of the Work
estimated by Beneficiary shall exceed the proceeds
paid to Beneficiary, then unless Trustor deposits
with Beneficiary the difference between the
estimated cost of the Work and the amount of such
proceeds paid to Beneficiary within thirty (30)
days after written demand therefor, Beneficiary,
at its option, shall be entitled to receive and
retain the proceeds of the insurance policies,
applying the same upon the Indebtedness.
Notwithstanding anything herein to the contrary if
any loss shall occur (i) within one (1) year prior
to the scheduled maturity date of the Note, or
(ii) at anytime when there shall exist an Event of
Default hereunder, Beneficiary shall be entitled
to the benefit of all insurance policies held by
or for any Trustor, to the extent as if same had
been made payable to Beneficiary to the extent of
the Indebtedness; and upon foreclosure hereunder,
Beneficiary shall become the owner of any
insurance proceeds paid or to be paid under said
policies to the extent of the Indebtedness.
Subject to the foregoing, Beneficiary shall make
such insurance proceeds

                                             10



available to Trustor to rebuild the Mortgaged
Property. Unless Beneficiary is entitled to retain
the insurance proceeds, Trustor will promptly and
at Trustor's sole cost and expense and regardless
of whether the insurance proceeds (if any) shall
be aufficient for the purpose, commence and
continue diligently to completion to restore,
repair, replace and rebuild the Mortgaged Property
as nearly as possible to its value, condition and
character immediately prior to such damage, loss
or destruction.

     (c) DISBURSEMENT OF INSURANCE PROCEEDS.
Notwithstanding the foregoing to the contrary, if
the proceeds of the insurance described in
Paragraph 4.6 hereinabove are to be used for the
prosecution of the Work, such proceeds shall be
paid out by Beneficiary from time to time to
Trustor (or, at the option of Beneficiary, jointly
to Trustor and the persons furnishing labor and/or
material incident to such restoration, repair or
replacement or directly to such persons) as the
Work progresses, subject to the following
conditions: (aan architect or engineer, approved
by Beneficiary, shall be retained by Trustor (at
Trustor's expense) and charged with the
supervision of the Work and Trustor shall have
prepared, submitted to Beneficiary and secured
Beneficiary's written approval of the plans and
specifications for such Work which shall not be
unreasonably withheld or delayed; (b) each request
for payment by Trustor shall be made on ten (10)
days prior written notice to Beneficiary and shall
be accompanied by a certificate executed by the
architect or engineer supervising the Work
stating, among such other matters as may be
reasonably required by Beneficiary that: (i) all
of the Work completed has been done in compliance
with the approved plans and specifications; (ii)
the sum requested is justly required to reimburse
Trustor for payments by Trustor to, or is justly
due to, the contractor, subcontractors,
materialmen, laborers, engineers, architects or
other persons rendering services or materials for
the Work (giving a brief description of such
services and materials); (iii) when added to all
sums previously paid out by Trustor, the sum
requested does not exceed the value of the Work
done to the date of such certificate; and (iv) the
amount of insurance proceeds remaining in the
hands of Beneficiary will be aufficient on
completion of the Work to pay for the same in full
(giving in such reasonable detail as the
Beneficiary may require an estimate of the cost of
such completion); (c) each request shall be
accompanied by waivers of lien satisfactory in
form and substance to Beneficiary covering that
part of the Work completed prior to that part of
the Work for which payment or reimbursement is
being requested and by a search prepared by a
title company or licensed abstracter or by other
evidence satisfactory to Beneficiary that there
has not been filed with respect to the Mortgaged
Property any mechanic's lien or other lien,
affidavit or instrument asserting any lien or any
lien rights with respect to the Mortgaged
Property; (d) there has not occurred any Event of
Default (as herein defined) since the hazard,
casualty or contingency giving rise to payment of
the insurance proceeds occurred; (e) in the case
of the request for the final disbursement, such
request is accompanied by a copy of any
certificate of occupancy or other certificate
required by any Legal Requirement to render
occupancy of the damaged portion of the Mortgaged
Property lawful; and (f) if, in Beneficiary's
reasonable judgment, the amount of such insurance
proceeds will not be aufficient to complete the
Work (which determination may be made prior to or
during the performance of the Work), Trustor shall
deposit with Beneficiary, within thirty (30) days
after written
request therefor, an amount of money which when
added to such insurance proceeds will be
aufficient, in Beneficiary's reasonable judgment,
to complete the Work. If, upon completion of the
Work, any portion of the insurance proceeds has
not been disbursed to Trustor (or one or more of
the other aforesaid persons) incident thereto,
Beneficiary may at Beneficiary's option, disburse
such balance to Trustor or apply such balance
toward the payment of the Indebtedness. Nothing
herein shall be interpreted to prohibit
Beneficiary from (y) withholding from each such
disbursement ten percent ( 10%) (or such greater
amount, if permitted or required by any Legal
Requirement) of the amount otherwise herein
provided to be disbursed, and then continuing to
withhold such sum until the time



11



permitted for perfecting liens against the
Mortgaged Property has expired, at which time the
amount withheld shall be disbursed to Trustor (or
to Trustor and/or any person or persons furnishing
labor and/or material for the Work or directly to
such persons), or (z) applying at any time the
whole or any part of such insurance proceeds to
the curing of any Event of Default.

     4.8 LEASES AND RENTS: The form and content of
all Leases of the Mortgaged Property shall be
reasonably acceptable to Beneficiary; however,
Beneficiary may elect to approve the standard form
of residency agreement in advance, in which event
Trustor shall be authorized to enter into Leases
on such form without, in each instance,
Beneficiary's consent. All Leases shall contain
provisions, in such form and content as shall be
reasonably acceptable to Beneficiary,
subordinating such leases, in lien and priority to
all payments due Beneficiary under this Deed of
Trust and the Security Documents. Trustor shall
not modify or amend the terms of any such Lease
without the prior written consent of Beneficiary
other than in the ordinary course of Trustor's
business.

     4.9 INSPECTION: Trustor will permit Trustee
and Beneficiary and their agents, representatives
and employees to inspect the Mortgaged- Property
at all times, provided such inspection does not
unreasonably interfere with the conduct of
business by tenants occupying the Mortgaged
Property. Trustee and Beneficiary will notify
Trustor prior to any inspection.

     4.10 DEFENSE OF TITLE: If the title of
Trustee to, or the interest of Beneficiary in, the
Mortgaged Property hereby conveyed, or any part
thereof, shall be endangered or shall be attached,
directly or indirectly, Trustor shall, at the sole
expense of Trustor or any title insurance company
issuing a policy of title insurance affecting the
Mortgaged Property, take (or cause such title
insurance company to take) all necessary and
proper steps for the defense of such title or
interest, including the employment of counsel, the
prosecution or defense of litigation and the
compromise or discharge of claims made against
such title or interest in the Mortgaged Property.
Trustor will indemnify and hold Beneficiary
harmless from and against any and all loss, cost,
damage, liability or expense (including all court
costs and attorneys' fees) incurred by Beneficiary
in protecting its interests hereunder in such an
event. In the event Beneficiary, in Beneficiary's
sole discretion is not satisfied with Trustor's
actions in such regard, Trustor hereby authorizes
Beneficiary, at Trustor's expense, to take all
necessary and proper steps for the defense of such
title or interest, including the employment of
counsel, the prosecution or defense of litigation
and the compromise or discharge of claims made
against such title or interest in the Mortgaged
Property.

     4.11 FUTURE IMPOSITIONS: At any time any law
shall be enacted imposing or authorizing the
imposition of any tax upon this Deed of Trust or
upon any rights, titles, liens or security
interests created hereby or upon the Note, or any
part thereof, Trustor shall immediately pay all
such taxes; provided that, in the alternative,
Trustor may, in the event of the enactment of such
a law, and must if it is unlawful for Trustor to
pay such taxes, prepay the Note together with the
applicable "Prepayment Fee" as defined in the
Note, in full within sixty (60) days after demand
therefor by Beneficiary.

     4.12 ESTOPPEL CERTIFICATES. Trustor shall,
upon request, promptly furnish, at any time and
from time to time a written statement or
affidavit, in such form as may be reasonably
required by Beneficiary, stating the amount of the
unpaid balance of the Note and that there are no
offsets or defenses against full payment of the
Note and performance of the terms hereof or, if
there are any such offsets and defenses,
specifying them in detail.



12



4.13 ENVIRONMENTAL MATTERS:

     (a) REPRESENTATIONS COVENANTS AND WARRANTIES.
Except as may be otherwise expressly stated in the
Disclosure Schedule attached as Exhibit "B" to the
Environmental Certificate (the "Disclosure
Schedule"), Trustor hereby represents, covenants
and warrants to Beneficiary and its successors and
assigns, as follows, and as to such
representations and warranties, the same are made
based upon contents of the Phase I report
described in the Disclosure Schedule and to the
best of Trustor's knowledge:

     (i) The location and construction, occupancy,
operation and use of all Improvements do not and
will not violate any applicable laws, statute,
ordinance, rule, regulation, policy, order or
determination of any Governmental Authority or any
board of fire underwriters (or other body
exercising similar functions), or any restrictive
covenant or deed restriction affecting any portion
of the Mortgaged Property, including without
limitation, any applicable zoning ordinances and
building codes, flood disaster laws and health and
environmental laws, rules and regulations
(hereinafter collectively called the "Applicable
Laws").

     (ii) Without in any way limiting the
generality of (a) above, neither the Mortgaged
Property nor the Trustor are the subject of any
pending or, to the best of Trustor's knowledge,
threatened investigation or inquiry by any
Governmental Authority, or are subject to any
remedial obligations under any Applicable Laws
pertaining to health or the environment
("Applicable Environmental Laws"), including,
without limitation, the Comprehensive
Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), the
Resource Conservation and Recovery Act of 1987, as
amended ("RCRA"), and the Toxic Substances Control
Act, The Clean Air Act, and The Clean Water Act,
and applicable state laws, and this representation
and warranty would continue to be true and correct
following disclosure to any applicable
Governmental Authority of all relevant facts,
conditions and circumstances pertaining to the
Mortgaged Property and/or the Trustor.

     (iii) Trustor is not required to obtain any
permits, licenses or authorizations to construct,
occupy, operate or use any portion of the
Mortgaged Property by reason of any Applicable
Environmental Laws, or if any such permits,
licenses or authorizations are required by any
Applicable Envirorimental Laws, such permits,
licenses or authorizations have, as of the date
hereof, been obtained or will be obtained in the
manner required by any Applicable Environmental
Laws in a timely manner.

     (iv) Trustor has determined, to the best of
its knowledge, that no hazardous substances, solid
wastes, or other substances known or suspected to
pose a threat to health or the environment
("Hazards") have been disposed of or otherwise
released on or to the Mortgaged Property or exist
on or within any portion of the Mortgaged Property
except as described on the Disclosure Schedule. No
prior use, either by Trustor or the prior owners
of the Mortgaged Property, has occurred which
violates any Applicable Environmental Laws. The
use which Trustor makes and intends to make of the
Mortgaged Property will not result in the disposal
or release of any hazardous substance, solid waste
or Hazards on, in or to the Mortgaged Property
except as described on the Disclosure Schedule.
The terms "hazardous substance" and "release"
shall each have the meanings specified in CERCLA,
including, without limitation, petroleum products
and petroleum wastes of any kind, and the terms
"solid waste" and "disposal" (or"disposed") shall
each have the meanings specified in RCRA;
provided, however, that in the event either that
CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective
date of



13



such amendment; and provided further that, to the
extent that the laws of the State of California
establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is
broader than that specified in either CERCLA or
RCRA, such broader definition shall apply.

     (v) To the best of Trustor's knowledge and
belief, there are no on-site or off-site locations
where hazardous substances generated from the
Mortgaged Property, including such substances as
asbestos and Polychlorinated Biphenyls, solid
wastes, or Hazards, have been stored, treated,
recycled, or disposed of except as described on
the Disclosure Schedule.

     (vi) To the best of Trustor's knowledge and
belief, there has been no litigation brought or
threatened nor any settlement reached by or with
any parties alleging the presence, disposal,
release, or threatened release, of any hazardous
substance, solid wastes or Hazards from the use or
operation of the Mortgaged Property.

     (vii) To the best of Trustor's knowledge and
belief, the Mortgaged Property is not on any
federal or state "Superfund" list, and not on
EPA's Comprehensive Response, Compensation &
Liability System (CERCLIS) list or on any state
environmental agency list of sites under
consideration for CERCLIS, nor subject to any
environmentally related liens.

     (viii) Neither Trustor nor, to the best of
Trustor's knowledge and belief, any tenant of any
portion of the Mortgaged Property, has received
any notice from any Governmental Authority with
respect to any violation of any Applicable Laws.

     (ix) Trustor shall not cause any violation of
any Applicable Environmental Laws, or permit any
tenant of any portion of the Mortgaged Property to
cause such a violation, nor permit any
environmental liens to be placed on any portion of
the Mortgaged Property.  All of the foregoing
representations and warranties shall be continuing
and shall be true and correct for the period from
the date hereof through and as of the date of the
final payment of all indebtedness owed by Trustor
to Beneficiary and the final performance of all
obligations under all instruments evidencing,
governing, securing or relating to such
indebtedness, with the same force and effect as if
made each day throughout such period, and all of
such representations and warranties shall survive
such payment and performance.

     (b) COVENANT TO CLEAN UP AND NOTIFY. Trustor
shall conduct and complete, or cause to be
conducted and completed, all investigations,
studies, sampling, and testing and all remedial,
removal, and other actions necessary to clean up
and remove hazardous substances, solid wastes, or
Hazards on, in, from or affecting any portion of
the Mortgaged Property (a) in accordance with all
Applicable Laws, (b) to the satisfaction of
Beneficiary, and (c) in accordance with the orders
and directives of all Governmental Authorities.
Trustor shall (a) give notice to Beneficiary
immediately upon (i) Trustor's receipt of any
notice from any Governmental Authority of a
violation of any Applicable Laws or acquiring
knowledge of the receipt of any such notice by any
tenant of any portion of the Mortgaged Property
and (ii) acquiring knowledge of the presence of
any hazardous substances, solid wastes or Hazards
(other than those described in the Disclosure
Schedule) on the Mortgaged Property in a condition
that is resulting or could reasonably be expected
to result in any adverse environmental impact,
with a full description thereof; (b) promptly
comply with all Applicable Environmental Laws
requiring the notice, removal, treatment, or
disposal of such hazardous substances, solid
wastes or Hazards and provide Beneficiary with
satisfactory evidence of such compliance; and (c)
provide Beneficiary, within thirty (30) days after
demand by



14



Beneficiary, with a bond, letter of credit, or
similar financial assurance evidencing to
Beneficiary's satisfaction that aufficient funds
are available to pay the cost of removing,
treating, and disposing of such hazardous
substances, solid wastes or Hazards and
discharging any assessments that may be
established on the Mortgaged Property as a result
thereof.

     (c) SITE ASSESSMENT. If Beneficiary shall
ever have reason to believe that there are
hazardous substances, solid wastes or Hazards
(other than those described in the Disclosure
Schedule) affecting any of the Mortgaged Property,
Beneficiary (by its officers, employees and
agents) at any time and from time to time, either
prior to or after the occurrence of an Event of
Default,- may contract for the services of persons
(the "Site Reviewers") to perform environmental
site assessments ("Site Assessments") on the
Mortgaged Property for the purpose of determining
whether there exists on the Mortgaged Property any
environmental condition that could result in any
liability, cost, or expense to the owner,
occupier, or operator of such Mortgaged Property
arising under any Applicable Environmental Laws.
The Site Assessments may be performed at any time
or times, upon reasonable notice, and under
reasonable conditions established by Trustor that
do not impede the performance of the Site
Assessments. The Site Reviewers are hereby
authorized to enter upon the Mortgaged Property
for such purposes. The Site Reviewers are further
authorized to perform both above and below the
ground testing for environmental damage or the
presence of hazardous substances, solid wastes and
Hazards on the Mortgaged Property and such other
tests on the Mortgaged Property as may be
necessary to conduct the Site Assessments in the
reasonable opinion of the Site Reviewers. Trustor
will supply to the Site Reviewers such historical
and operational information regarding the
Mortgaged Property as may be reasonably requested
by the Site Reviewers to facilitate the Site
Assessment and will make available for meetings
with the Site Reviewers appropriate personnel
having knowledge of such matters. On request,
Beneficiary shall make the results of such Site
Assessments fully available to Trustor, which
(prior to an Event of Default) may, at its
election, participate under reasonable procedures
in the direction of such Site Assessments and the
description of tasks of the Site Reviewers. The
cost of performing such Site Assessments shall be
paid by Trustor upon demand of Beneficiary.

     (d) INDEMNITY AND HOLD HARMLESS. Trustor
hereby defends, indemnifies and holds harmless
Beneficiary, its employees, agents, shareholders,
officers and directors (collectively, the
"Indemnified Parties"), from and against any
claims, demands, obligations, penalties, fines,
suits, liabilities, settlements, damages, losses,
costs or expenses (including, without limitation,
attorney and consultant fees and expenses,
investigation and laboratory fees and expenses,
cleanup costs, and court costs and other
litigation expenses) of whatever kind or nature,
known or unknown, contingent or otherwise, arising
out of or in any way related to (i) the presence,
disposal, release, threatened release, removal or
production of any hazardous substances, solid
wastes or Hazards which are on, in, from or
affecting any portion of the Mortgaged Property;
(ii) any personal injury (including wrongful
death) or property damage (real or personal)
arising out of or related to such hazardous
substances, solid wastes or Hazards; (iii) any
lawsuit brought or threatened, settlement reached,
or order by Governmental Authority relating to
such hazardous substances, solid wastes or
Hazards; and/or (iv) any violation of any
Applicable Laws, or demands of Governmental
Authorities, or violation of any policies or
requirements of Beneficiary, which are based upon
or in any way related to such hazardous
substances, solid wastes or Hazards, regardless of
whether or not any of the conditions described
under any of the foregoing subsections (i) through
(iv!, inclusive, was or is caused by or within the
control of Trustor. Trustor agrees, upon notice
and request by an Indemnified Party, to contest
and defend any demand, claim, suit, proceeding or
action with respect to which Trustor has
hereinabove indemnified and held the Indemnified
Parties harmless and to bear all costs and
expenses of such contest


15



and defense. Trustor further agrees to reimburse
any Indemnified Party upon demand for any costs or
expenses incurred by any Indemnified Party in
connection with any matters with respect to which
Trustor has hereinabove indemnified and held the
Indemnified Parties harmless. The provisions of
this paragraph shall be in addition to any other
obligations and liabilities Trustor may have to
Beneficiary at common law, in equity or under
documentation executed in connection with the
Note, and shall survive the closing, funding and
payment in full of the Note, as well as any
foreclosure or granting of any deed in lieu of
foreclosure and the recordation of any release of
the lien of this Deed of Trust.

     (e) BENEFICIARY'S RIGHT TO REMOVE HAZARDOUS
MATERIALS. Beneficiary shall have the right, but
not the obligation, without in any way limiting
Beneficiary's other rights and remedies under the
Mortgage, to enter onto the Mortgaged Property or
to take such other actions as it deems necessary
or advisable to clean up, remove, resolve, or
minimize the impact of, or otherwise deal with,
any hazardous substances, solid wastes or Hazards
on or affecting the Mortgaged Property following
receipt of any notice from any person or entity
asserting the existence of any hazardous
substances, solid wastes or Hazards pertaining to
the Mortgaged Property or any part thereof that,
if true, could result in an order, notice, suit,
imposition of a lien on the Mortgaged Property, or
other action or that, in Beneficiary's sole
opinion, could jeopardize Beneficiary's security
under this Deed of Trust. All reasonable costs and
expenses paid or incurred by Beneficiary in the
exercise of any such rights shall be Indebtedness
secured by this Deed of Trust and shall be payable
by Trustor upon demand.

     (f) RELIANCE AND BINDING NATURE. Trustor
acknowledges that Beneficiary has and will rely
upon the representations, covenants, warranties
and agreements set forth in closing and funding
the loan evidenced by the Note and that the
execution and delivery of this Deed of Trust is an
essential condition but for which Beneficiary
would not close or fund the Note. The
representations, covenants, warranties and
agreements herein contained shall be binding upon
Trustor, its successors, assigns and legal
representatives and shall inure to the benefit of
Beneficiary, its successors, assigns and legal
representatives.


ARTICLE V

                                   NEGATIVE
COVENANTS

     Trustor hereby covenants and agrees with
Beneficiary that, until the entire Indebtedness
shall have been paid in full and all of the
Obligations which are then subject to performance
and discharge shall have been fully performed and
discharged:

     5.1 USE VIOLATIONS: Trustor will not use,
maintain, operate or occupy, or allow the use,
maintenance, operation or occupancy of the
Mortgaged Property in any manner which (a)
violates any Legal Requirement, including, without
limitation, Legal Requirements with respect to the
disposal of medical waste products, (b) may be
dangerous unless safeguarded as required by law,
or (c) constitutes a public or private nuisance.

     5.2 ALTERATIONS: Trustor (i) will not commit
or permit any waste of the Mortgaged Property and
(ii) will not (subject to the provisions of
paragraph 4.5 and 4.7 herein), after completion of
the construction of the Improvement as
contemplated by the Loan Agreement, without the
prior written consent of Beneficiary, make or
permit to be




16



made any alterations or additions to the Mortgaged
Property which affect the structural portions of
any Improvements, the exterior side or common
areas of any Improvements, or any areas visible
from the exterior or common areas of the
Improvements.

     5.3 REPLACEMENT OF FIXTURES AND PERSONALTY:
Trustor will not, without the prior written
consent of Beneficiary, permit any of the Fixtures
or Personalty to be removed at any time from the
Land or Improvements unless the removed item is
removed temporarily for maintenance and repair or,
if removed permanently, is replaced by a new
article of equal suitability and value, owned by
Trustor, free and clear of any lien or security
interest except such as may be first approved in
writing by Beneficiary. The foregoing shall not
limit the right of tenants under Leases to install
removable fixtures subject to security interests
on the Mortgaged Property which can be removed
without darnage to the Mortgaged Property and
which pursuant to the Leases and the written
consent of Trustor obtained prior to installation
shall remain the property of such tenants and
shall not be considered part of the Mortgaged
Property.

     5.4 ZONING: TITLE MATTERS: Trustor will not,
without Beneficiary's express prior written
consent, (A) initiate or support any zoning
reclassification of the Mortgaged Property or seek
any variance under existing zoning ordinances
applicable thereto; (B) modify, amend or
supplement any Permitted Encumbrances; (C) impose
any restrictive covenants or any other encumbrance
upon the Mortgaged Property,
execute or file any subdivision plat affecting the
Mortgaged Property or consent to the annexation of
the Mortgaged Property to any municipality; or (D)
permit or offer the Mortgaged Property to be used
by the public or any person in such manner as
might make possible a claim of adverse usage or
possession or of any implied dedication or
easement by prescription.

     5.5 NO FURTHER ENCUMBRANCES. Trustor will
not, without the prior written consent of
Beneficiary, crate, place, suffer or permit to be
created or placed or, through any act or failure
to act, acquiesce in the placing of or allow to
remain, any mortgage, pledge, lien (statutory,
constitutional or contractual), security interest,
encumbrance or charge on, or conditional sale or
other title retention agreement, regardless of
whether same are expressly subordinate to the
lines of the Security Documents, with respect to
the Mortgaged Property, other (i) than the
Permitted Encumbrances, (ii) the Emeritus Deed of
Trust and (iii) leases or financing agreements for
furniture, fixtures, equipment and other personal
property used on the Mortgaged Property provided
that (A) the amount of all such financing does not
exceed $250,000 outstanding at any one time, and
(B) Trustor has first offered to permit
Beneficiary to enter into any such lease or
financing agreement on the same terms and
conditions offered by a third party lender and
Beneficiary has refused such offer.


ARTICLE VI

                                            EVENTS
OF DEFAULT

     6.1 DEFAULT. Any "Event of Default" as
described in the Loan Agreement or under any of
the other Security Documents shall constitute an
"EVENT OF DEFAULT" hereunder and under the
Security Documents.









17




ARTICLE VII

                         DEFAULT AND FORECLOSURE

     7.1 REMEDIES: Upon the occurrence of an Event
of Default, Beneficiary may at any time, at its
option and in its sole discretion, declare the
entire Indebtedness to be due and payable and the
same shall thereupon become immediately due and
payable, including the Prepayment Fee payable
under the terms of the Note. Beneficiary may also
do any or all of the following although it shall
have no obligation to do any of the following:

     (a) Either in person or by agent, with or
without bringing any action or proceeding, or by a
receiver appointed by a court and without regard
to the adequacy of Beneficiary's security, enter
upon and take possession of the Mortgaged
Property, or any part thereof, and do any acts
which Beneficiary deems necessary or desirable to
preserve the value, marketability or rentability
of the Mortgaged Property, or to increase the
income therefrom or to protect the security hereof
and, with or without taking possession of any of
the Mortgaged Property, sue for or otherwise
collect all rents and profits, and expenses of
operation and collection, including attorney's
fees and expenses, upon the Indebtedness, all in
such order as Beneficiary may determine. The
collection of rents and profits and the
application thereof shall not cure or waive any
Event of Default or notice thereof or invalidate
any act done in response thereto or pursuant to
such notice.

     (b) Bring an action in any court of competent
jurisdiction to foreclose this Deed of Trust or to
enforce any of the covenants hereof.

     (c) Exercise any or all of the remedies
available to a secured party under the UCC,
including, but not limited to:

     (1) either personally or by means of a court
appointed receiver, take possession of all or any
of the Collateral and exclude therefrom Trustor
and all others claiming under Trustor and
thereafter hold, store, use, operate, manage,
maintain and control, make repairs, replacements,
alterations, additions and improvements to and
exercise all rights and powers of Trustor in
respect to the Collateral; and in the event
Beneficiary demands or attempts to take possession
of the Collateral in the exercise of any of its
rights hereunder, Trustor promises and agrees
promptly to turn over and deliver complete
possession thereof to Beneficiary;

     (2) without notice to or demand upon Trustor,
make such payments and do such acts as Beneficiary
may deem necessary to protect its security
interest in the Collateral, including, without
limitation, paying, purchasing, contesting or
compromising any encumbrance, charge or lien which
is prior or superior to the security interest
granted hereunder, and in exercising any such
powers or authority, to pay all expenses incurred
in connection therewith;

     (3) require Trustor to assemble the
Collateral on the Land and promptly to deliver
such Collateral to Beneficiary or an agent or
representative designated by it. Beneficiary, its
agents and representatives, shall have the right
to enter upon any or all of the Trustor's premises
and property to exercise the Beneficiary's rights
hereunder; and








18



     (4) sell, lease or otherwise dispose of the
Collateral at public sale, with or without having
the Collateral at the place of sale, and upon such
terms and in such manner as Beneficiary may
determine; and Beneficiary may be a purchaser at
any such sale. Beneficiary shall not be deemed to
have accepted any property other than cash in
satisfaction of the Indebtedness or any portion
thereof unless Beneficiary shall make an express
written election of said remedy under UCC  9505
or other applicable law.

     (d) Elect to sell by power of sale the
portion of the Mortgaged Property which is real
property and such portion of the Mortgaged
Property which is personal property or fixtures
which Beneficiary shall elect to include in such
sale, and upon such election, such notice of Event
of Default and election to sell shall be given as
may then be required by law. Thereafter, upon the
expiration of such time and the giving of such
notice of sale as may then be required by law, at
the time and place specified in the notice of
sale, Trustee shall sell such property, or any
portion thereof specified by Beneficiary, at
public auction to the highest bidder for cash in
lawful money of the United States. Trustee may,
and upon request of Beneficiary shall, from time
to time, postpone the sale by public announcement
thereof at the time and place noticed therefor. If
the Mortgaged Property consists of several lots,
parcels or interests, Beneficiary may designate
the order in which the same shall be offered for
sale or sold. Trustor waives all rights to direct
the order in which any of the Mortgaged Property
will be sold in the event of any sale under this
Deed of Trust, and also of any right to have any
of the Mortgaged Property marshalled upon any
sale. In the case of a sale under this Deed of
Trust, the said property, real, personal and
mixed, may be sold in one parcel or more than one
parcel. Should Beneficiary desire that more than
one such sale or other disposition be conducted,
Beneficiary may, at its option, cause the same to
be conducted simultaneously, or successively on
the same day, or at such different days or times
and in such order as Beneficiary may deem to be in
its best interest. Any person, including Trustor,
Trustee or Beneficiary, may purchase at the sale.
Upon any sale, Trustee shall execute and deliver
to the purchaser or purchasers a deed or deeds
conveying the property so sold, but without any
covenant or warranty whatsoever, express or
implied, whereupon such purchaser or purchasers
shall be let into immediate possession.
Beneficiary, from time to time before the
trustee's sale pursuant to this section, may
rescind any notice of breach or default and of
election to cause to be sold the Mortgaged
Property by executing and delivering to Trustee a
written notice of such rescission, which notice,
shall also constitute a cancellation of any prior
declaration of default and demand for sale. The
exercise by Beneficiary of such right of
rescission shall not constitute a waiver of any
breach or default then existing or subsequently
occurring or impair the right of Beneficiary to
execute and deliver to Trustee, as above provided,
other declarations of default and demands for
sale, and notices of breach or default of the
obligations hereof, nor otherwise affect any
provision, covenant or condition of the Note
and/or of this Deed of Trust or any of the rights,
obligations or remedies of the parties thereunder
or hereunder.

     (e) Exercise each of its other rights and
remedies under this Deed of Trust and each of the
other Security Documents.

     (f) Except as otherwise required by law,
apply the proceeds of any foreclosure or
disposition hereunder to payment of the following:
(i) the expenses of such foreclosure or
disposition, (ii) the cost of any search or other
evidence of title procured in connection therewith
and revenue stamps on any deed or conveyance,
(iii) all sums expended under the terms hereof,
not then repaid, with accrued interest in the
amount provided herein, (iv) all other sums
secured hereby and (v) the remainder, if any, to
the person or persons legally entitled thereto.





19



     (g) Upon any sale or sales made under or by
virtue of this Paragraph, whether made under the
power of sale or by virtue of judicial proceedings
or of a judgment or decree of foreclosure and
sale, Beneficiary may bid for and acquire the
Mortgaged Property or any part thereof. In lieu of
paying cash for the Mortgaged Property,
Beneficiary may make settlement for the purchase
price by crediting against the Indebtedness the
sale price of the Mortgaged Property, as adjusted
for the expenses of sale and the costs of the
action and any other sums for which Trustor is
obligated to reimburse Trustee or Beneficiary
under this Deed of Trust.

     (h) In the event that Trustor has an equity
of redemption and the Mortgaged Property is sold
pursuant to the power of sale or otherwise under
or by virtue of this Paragraph, the purchaser may,
during any redemption period allowed, make such
repairs or alterations on said property as may be
reasonably necessary for the proper operation,
care, preservation, protection and insuring
thereof. Any sums so paid together with interest
thereon from the time of such expenditures at the
Default Rate provided in the Loan Agreement shall
be added to and become a part of the amount
required to be paid for redemption from such saie.

     7.2 WAIVERS: To the fullest extent permitted
by law, Trustor hereby waives the benefit of all
laws now existing or hereafter enacted providing
for the pleading of any statute of limitation as a
defense to any of the Indebtedness or the
Obligations or extending the time for the
enforcement of the collection of any of the
Indebtedness or the performance of the
Obligations; and Trustor agrees that Trustor shall
not at any time insist upon, plead, claim or take
the benefit or advantage of any law now or
hereafter in force providing for any stay of
execution, extension or marshalling in the event
of foreclosure of the liens and security interests
hereby created. In addition, Trustor expressly
waives and relinquishes any and all rights and
remedies which Trustor may have or be able to
assert by reason of any laws pertaining to the
rights and remedies of sureties or any law
pertaining to the marshalling of assets, the
administration of estates of decedents and any
exemption from execution or sale of the Mortgaged
Property or any part thereof. Further, Trustor
shall not at any time claim, take or insist upon
any benefit or advantage now or hereafter in force
providing for the valuation or appraisal of the
Mortgaged Property, or any part thereof, prior to
any sale or sales thereof, nor after any such sale
or sales, claim or exercise any right under any
statute to redeem the property so sold or any
property thereof.

     7.3 PREPAYMENT: If Beneficiary shall
accelerate the Indebtedness following the
occurrence of an Event of Default, any payments
received by Beneficiary following such
acceleration (including voluntary payments made by
Trustor and payments received by Beneficiary as a
result of the sale of the Mortgaged Property at
foreclosure) shall be deemed voluntary prepayments
of the Note and accordingly, the Prepayment Fee
required under the Note shall also be payable by
Trustor; provided, however, that the obligation of
Trustor to pay any such Prepayment Fee is
expressly subject to Paragraph 1 1.10 of this Deed
of Trust.


ARTICLE VIII


CONDEMNATION

     8.1 APPLICATION OF PROCEEDS: If the Mortgaged
Property or any part thereof, shall be condemned
or otherwise taken for public or quasi-public use
under the power of eminent domain, or be
transferred in lieu thereof, all damages or other
amounts awarded Trustor for the taking, or injury
to, the Mortgaged Property (the "Award") shall be
paid to Beneficiary to be applied towards the
Indebtedness. To enforce its rights hereunder,
Beneficiary shall be entitled to participate in
and control any


20



condemnation proceedings and to be represented
therein by counsel of its own choice, and Trustor
will deliver, or cause to be delivered, to
Beneficiary such instruments as may be requested
by it from time to time to permit such
participation. In the event Beneficiary, as a
result of any such judgment, decree or award,
believes that the payment or performance of any
obligation secured by this Deed of Trust is
impaired, Beneficiary may declare all of the
Indebtedness secured hereby immediately due and
payable.

     In case of a taking during the "Permanent
Term" (as defined in the Loan Agreement) in which
the cost of the restoration, repair or replacement
(hereinafter referred to as the "Restoration") of
the Mortgaged Property reasonably estimated by
Beneficiary shall not exceed the proceeds paid to
Beneficiary then such Award may be used for the
prosecution of the Restoration in the manner
hereinafter provided. If the cost of the
Restoration reasonably estimated by geneficiarv
shall exceed the Award, then unless Trustor
deposits with Beneficiary or causes to be
deposited with Beneficiary the difference between
the estimated cost of the Restoration and the
amount of the Award within ninety (90) days after
written demand therefor, Beneficiary, at its
option, shall be entitled to receive and retain
the Award, applying the same upon the
Indebtedness. Notwithstanding anything herein to
the contrary, if any Award is made (i) within one
(1) year prior to the original stated maturity
date of the Note, unless said maturity date has
been extended by Trustor by giving notice in
accordance with the Note or is extended by Trustor
in accordance with the Note within thirty (30)
days after said taking, (ii) within one ( 1 ) year
prior to the extended maturity date of the Note,
if Trustor has extended such maturity date in
accordance with the Note, or (iii) at any time
when there shall exist an Event of Default
hereunder, Beneficiary shall be entitled to
receive and retain the Award and apply same upon
the Indebtedness. In the event Beneficiary elects
to make such Award available to Trustor for such
purpose, Trustor will promptly or will promptly
cause and at the sole cost and expense of Trustor
and regardless of whether the Award (if any) shall
be aufficient for the purpose, commence and
continue diligently to completion to restore,
repair, replace and rebuild the Mortgaged Property
as nearly as possible to its value, condition and
character immediately prior to such taking subject
to the conditions and restrictions applicable to
Trustor's use of insurance proceeds contained in
the second paragraph of Section 4.7 above. Trustor
hereby irrevocably and unconditionally waives all
rights of a property owner under the provisions of
CaliforniavCode of Civil Procedure Section
1265.225(a), or any successor statute, providing
for the allocation of condemnation proceeds
between a property owner and a lienholder.

                                         ARTICLE
IX

                            SECURITY AGREEMENT

     9.1 Security Agreement and Fixture Filing:

     (a) Insofar as (i) any of the Mortgaged
Property and, (ii) all other Personal Mortgaged
Property either referred to or described in this
Deed of Trust, or in any way connected with the
use or enjoyment of the Mortgaged Property
(hereinafter collectively referred to as
'Collateral"), this Deed of Trust, in compliance
with the provisions of Article 9 of the UCC, as it
may be amended from time to time, is hereby made
and declared to be a security agreement,
encumbering the Collateral. Trustor does hereby
grant to Beneficiary a continuing lien and
security interest in and to all of said Collateral
and all replacements, substitutions, additions and
proceeds thereof and all after-acquired property
relating thereto. A financing statement or
statements affecting all of the Collateral
aforementioned, shall be executed by Trustor and
appropriately filed. Trustor covenants and agrees
that, prior to changing its name, identity or
structure, it will so notify Beneficiary and will
promptly execute any financing statements or other
instruments deemed necessary by Beneficiary to
prevent any filed financing statement


21



from becoming seriously misleading or losing its
perfected status, and, failing to do so,
authorizes Beneficiary to file such financing
statements and irrevocably constitutes and
appoints Beneficiary, or any officer of
Beneficiary, as its true and lawful
attorney-in-fact to execute the same on behalf of
Trustor. The remedies for any violation of the
covenants, terms and conditions of the security
agreement herein contained shall be (i) as
prescribed herein, (ii) as prescribed by general
law, or (iii) as prescribed by the specific
statutory consequences now or hereafter enacted
and specified in the UCC, all at Beneficiary's
sole election. Trustor and Beneficiary agree that
the filing of such financing statement(s) in the
records normally having to do with personal
property shall never be construed in anywise
derogating from or impairing this declaration and
hereby stated intention of Trustor and Beneficiary
that everything used in connection with the
production of income from the Mortgaged Property,
adapted for use therein, and/or which is described
in this Deed of Trust, is, and at all times and
for all purposes and in all proceedings both legal
or equitable shall be, regarded as part of the
real estate irrespective of whether (a) any such
item is physically attached to the improvements,
(btserial numbers are used for the better
identification of certain items capable of being
thus identified in a recital contained herein, or
(c) any such item is referred to or reflected in
any such financing statement(s) so filed at any
time. Similarly, the mention in any such financing
statement(s) of the rights in and to (act) the
proceeds of any insurance policy relating to the
Mortgaged Property, or (bb) any award in eminent
domain proceedings for a taking or for loss of
value, or (cc) Trustor's interest as lessor in any
present or future Lease, sublease, or rights to
income growing out of the use and/or occupancy of
the Mortgaged Property, or any business or other
activity conducted thereon, whether pursuant to
Lease, sublease, or otherwise, shall never be
construed as in anywise altering any of the rights
of Beneficiary as determined by this Deed of Trust
or impugning the priority of Beneficiary's lien
granted hereby or by any other recorded documents,
but such mention in .such financinP statement(s)
is declared to be for the protection of
Beneficiary in the event any court shall at any
time hold with respect to the foregoing (aa), (bb)
or (cc), that notice of Beneficiary's priority of
interest to be effective against a particular
class of persons, must be filed in the UCC
records. The information contained herein is
provided in order that this Deed of Trust shall
comply with the requirements of the UCC for
instruments to be filed as financing statements or
fixture filings. For such purposes, the "Debtor"
is Trustor; the "Secured Party" is Beneficiary,
the principal place of business of the "Debtor" is
set forth on Page 1 of this Deed of Trust, the
mailing addresses of the "Debtor" and "Secured
Party" are as set forth on Page 1. of this Deed of
Trust and the types or items of collateral are as
described hereinabove in this Paragraph.

     (b) This Deed of Trust constitutes a
financing statement filed as a fixture filing
under UCC Section 9402(6) in the official records
of the county in which the Mortgaged Property is
located with respect to any and all fixtures
included within the term "Mortgaged Property" and
with respect to any goods or other personal
property that may now be or hereafter become such
a fixture. PARTS OF THE COLLATERAL ARE, OR ARE TO
BECOME, FIXIXURES ON THE MORTGAGED PROPERTY.

     (c) Beneficiary has no responsibility for,
and does not assume any of, Trustor's obligations
or duties under any agreement or obligation which
is part of the Collateral or any obligation
relating to the acquisition, preparation, custody,
use, enforcement or operation of any of the
Mortgaged Property.

     (d) It is understood and agreed that, in
order to protect Beneficiary from the effect of
UCC Section 9313, as amended from time to time, in
the event that (A) Trustor intends to purchase any
goods which may become fixtures to the Mortgaged
Property, or any part thereof, and (B) such goods
will be subject to a security interest held by a
seller or any other party, Trustor shall, before
executing any security agreement or other



22



document evidencing such security interest, obtain
the prior written approval of Beneficiary, and all
requests for such written approval shall be in
writing and contain the following information:

     (1) A description of the Collateral to be
replaced, added to, installed or substituted;

     (2) The address at which the Collateral will
be replaced, added to, installed or substituted;
and

     (3) The name and address of the proposed
holder and proposed amount of the security
interest; and any failure of Trustor to obtain
such approval shall be a material breach of
Trustor's covenants under this Deed of Trust, and
shall, at the option of Beneficiary, entitle
Beneficiary to all rights and remedies provided
for herein upon an Event of Default. No consent by
Beneficiary pursuant to this section shall be
deemed to constitute an agreement to subordinate
any right of Beneficiary in fixtures or other
property covered by this Deed of Trust.

     (e) Beneficiary shall have the right to
acquire by assignment from the holder of such
security interest any and all contract rights,
accounts receivable, negotiable or non-negotiable
instruments or other evidence of Trustor's
indebtedness for such Collateral and, upon
acquiring such interest by assignment, shall have
the right to enforce the security interest as
assignee thereof, in accordance with the terms and
provisions of the UCC then in effect and in
accordance with any other provisions of law.

     (f) Beneficiary is aware that Borrower has
only a limited right to use the name "NorthBay."


ARTICLE X

                             CONCERNING THE
TRUSTEE

     10.1 NO LIABILITY: Trustee shall not be
personally liable in case of entry by him or
anyone acting by virtue of the powers herein
granted him upon the Mortgaged Property for debts
contracted or liability or damages incurred in the
management or operation of the Mortgaged Property.
Trustee shall have the right to rely on any
instrument, document or signature authorizing or
supporting any action taken or proposed to be
taken by him hereunder or believed by him in good
faith to be genuine. Trustee shall be entitled to
reimbursement for expenses incurred by him in the
performance of his duties hereunder.

     10.2 RETENTION OF MONIES: All monies received
by Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for
which they were received, but need not be
segregated in any manner from any other monies
(except to the extent required by law), and
Trustee shall be under no liability for interest
on any monies received by him hereunder.

     10.3 ACTIONS OF TRUSTEE: At any time upon
written request of Beneficiary, payment of its
fees and presentation of this Deed of Trust and
the Note tor endorsement (in case of full
reconveyance, for cancellation and retention)
without
affecting the liability of any person for the
payment of the Indebtedness, Trustee may (a)
consent to the making of any map or plat of the
Mortgaged Property, (b) join in granting any
easement or creating any restriction thereon, (c)
join in any subordination or other agreement
affecting this Deed of Trust or the lien or charge
thereof, and (d) reconvey,



23



without warranty, all or any part of the Mortgaged
Property. The grantee in any reconveyance may be
described as the "person or persons legally
entitled thereto," and the recitals therein of any
matters of facts shall be conclusive proof of the
truthfulness thereof. Trustor agrees to pay a
reasonable Trustee's fee for full or partial
reconveyance, together with a recording fee if
Trustee, at its option, elects to record said
reconveyance.

     10.4 SUBSTITUTE TRUSTEE: Beneficiary may
substitute Trustee hereunder in any manner now or
hereafter provided by law or, in lieu thereof,
Beneficiary may from time to time, by an
instrument in writing, substitute a successor or
successors to any Trustee named herein or acting
hereunder, which instrument, executed and
acknowledged by Beneficiary and recorded in the
office of the recorder of the county or counties
in which the Land and Improvements are situated,
shall be conclusive proof of proper substitution
of such successor Trustee, who shall thereupon and
without conveyance from the predecessor Trustee,
succeed to all its title, estate, rights, powers
and duties.

     10.5 SUCCESSION INSTRUMENTS: Any new Trustee
appointed pursuant to any of the provisions hereof
shall, without any further act, deed or
conveyance, become vested with all the estates,
properties, rights, powers and trusts of its or
his predecessor in the rights hereunder with like
effect as if originally named as Trustee herein;
but, nevertheless, upon the written request of
Beneficiary or his successor trustee, Trustee
ceasing to act shall execute and deliver an
instrument transferring to such successor trustee,
upon the trust herein expressed, all the estates,
properties, rights, powers and trusts of Trustee
so ceasing to act, and shall duly assign, transfer
and deliver any of the property and monies held by
Trustee to the successor trustee so appointed in
its or his place.

     10.6 PERFORMANCE OF DUTIES BY AGENTS: Trustee
may authorize one or more parties to act on his
behalf to perform the ministerial functions
required of him hereunder, including, without
limitation, the transmittal and posting of any
notices.


ARTICLE XI

                                     MISCELLANEOUS

     11.1 SURVIVAL OF OBLIGATIONS: Each and all of
the Obligations shall
survive the execution and delivery of the Security
Documents and
the consummation of the loan called for therein
and shall continue in full force and effect until
the Indebtedness shall have been paid in full.

     11.2 FURTHER ASSURANCES: Trustor, upon the
request of Trustee or Beneficiary, will execute,
acknowledge, deliver and record and/or file such
further instruments and do such further acts as
may reasonably be necessary, desirable or proper
to carry out more effectively the purposes of the
Security Documents, to subject to the liens and
security interests thereof any property intended
by the terms thereof to be covered thereby,
including, specifically, without limitation, any
renewals, additions, substitutions, replacements
or appurtenances to the Mortgaged Property, and to
complete, execute, record and file any document or
instrument necessary to place third parties on
notice of the liens and security interests granted
under the Security Documents. Trustor hereby
irrevocably appoints Trustee and Beneficiary as
its agents to execute and deliver all such
instruments and additionally to record and file
any of the same as may be necessary.





24



     11.3 RECORDING AND FILING: Trustor will cause
the Security Documents and all amendments and
supplements thereto and substitutions therefor to
be recorded, filed, re-recorded and refiled in
such manner and in such places as Trustee or
Beneficiary shall reasonably request and will pay
all such recording, filing, re-recording and
refiling taxes, fees and other charges.

     11.4 NOTICES: Any notice, request or other
communication required or permitted to be given
hereunder may be given and shall conclusively be
deemed and considered to have been given and
received upon the deposit thereof, in writing, in
the U.S. Mails, certified mail, return receipt
requested, postage prepaid, and addressed to the
party to receive such notice at the address set
forth below or such address elected in writing by
the party to receive such notice; but actual
notice however given or received, shall always be
effective. The last preceding sentence shall not
be construed in anywise to effect or impair the
waiver of notice or demand to or upon Trustor in
any situation or for any reason (except as
otherwise specifically provided).

     If to Trustor: Fairfield Retirement Center,
LLC
                              c/o NorthBay Health
Advantage
                        1200 B. Gale Wilson
Boulevard
                        Fairfield,California 91533

              With Copy to:     Emeritus
Corporation
                                          3131
Elliott Avenue, Suite 500
                                          Seattle,
Washington 98121

                                         BW
(Fairfield) Real Estate Corporation
                                         4755
Amigo Avenue
                                         Tarzana,
California 91356

                                         Randi
Nathanson
                                         The
Nathanson Group
                                         1411
Fourth Avenue, Suite 905
                                         Seattle,
Washington 98101

            If to Beneficiary: FINOVA Capital
Corporation
                                        3200 Park
Center Drive, Fifth Floor
                                        Costa
Mesa, California 92626

            with copy to:        FINOVA Capital
Corporation
                      7272 East Indian School
Road, Suite 410
                           Scottsdale, Arizona
85251
                      Attn.: Vice President -
Group Counsel

     11.5 NO WAIVER: Any failure by Trustee or
Beneficiary to insist, or
any election by Trustee or Beneficiary not to
insist, upon strict performance by Trustor of any
of the terms, provisions or conditions of the
Security Documents shall not be deemed to be a
waiver of the same or of any other term, provision
or condition thereof, and Trustee or Beneficiary
shall have the right at any time or times
thereafter to insist upon strict performance by
Trustor of any and all of such terms, provisions
and conditions.

     11.6 BENEFICIARY'S RIGHT TO PAY INDEBTEDNESS
AND PAY OBLIGATIONS: If Trustor shall default
under any of the Security Documents, then at any
time thereafter and without further notice to or
demand upon Trustor or any other party, without
waiving or releasing any other right, remedy or
recourse Beneficiary may have because of the same,
Beneficiary may (but shall not be obligated to)
make such


25



payment or perform such act for the account of and
at the expense of Trustor and shall have the right
to enter upon the Mortgaged Property for such
purpose and to take all such action thereon with
respect to the Mortgaged Property as it may deem
necessary or appropriate. Trustor shall be
obligated to repay Beneficiary for all sums
advanced by it pursuant to this Paragraph 11.6 and
shall indemnify and hold Beneficiary harmless from
and against any and all loss, cost, expense,
liability, damage and claims and causes of action,
including reasonable attorney's fees, incurred or
accruing by any acts performed by Beneficiary
pursuant to the provisions of this Paraaraph 11.6
or by reason of any other provision of the
Security Documents. All sums paid by Beneficiary
pursuant to this Paragraph 11.6 and all other sums
expended by Beneficiary to which it shall be
entitled to be indemnified, together with interest
thereon at the "Default Rate" as defined in the
Loan Agreement from the date of such payment or
expenditure, shall constitute additions to the
Indebtedness and Obligations, shall be secured by
the Security Documents and shall be paid by
Trustor to Beneficiary upon demand.

     11.7 COVENANTS RUNNING WITH THE LAND: All
obligations contained in the Security Documents
are intended by the parties to be and shall be
construed as covenants running with the Mortgaged
Property.

     11.8 SUCCESSORS AND ASSIGNS: All of the terms
of the Security Documents shall apply to, be
binding upon and inure to the benefit of the
parties thereto, their respective successors,
assigns, heirs and legal representatives and all
other persons claiming by, through or under them.

     11.9 SEVERABILITY: The Security Documents are
intended to be performed in accordance with, and
only to the extent permitted by, all applicable
Legal Requirements. If any provision of any of the
Security Documents or the application thereof to
any person or circumstance shall, for any reason
and to any extent, be invalid or unenforceable,
neither the remainder of the instrument in which
such provision is contained nor the application of
such provision to other persons or circumstances
or other instruments referred to hereinabove shall
be affected thereby, but rather the same shall be
enforced to the greatest extent permitted by law.

     11.10 USURY: It is the intention of Trustor
and Beneficiary to comply with the applicable law
governing the rate of interest or maximum amount
of interest payable on or in connection with the
Note and the loan transaction evidenced thereby,
therefore (i) in the event that the Indebtedness
is prepaid or the maturity of the Indebtedness and
Obligations is accelerated by reason of an
election by Beneficiary, unearned interest shall
be canceled and, if theretofore paid, shall either
be refunded to Trustor or credited on the
Indebtedness, as Beneficiary may elect; (ii) the
aggregate of all interest and other charges
constituting interest under applicable laws and
contracted for, chargeable or receivable under the
Note, the Tndebtedness (if unpaid), the other
Security Documents or otherwise in connection with
the loan transaction contemplated thereby shall
never exceed the maximum amount of interest, nor
produce a rate in excess of the maximum contract
rate of interest that Beneficiary is authorized to
charge Trustor under applicable law; and (iii) if
any excess interest is provided for, it shall be
deemed a mistake, and the same shall, at the
option of Beneficiary, either be refunded to
Trustor or credited on the unpaid principal amount
(if any), and the Indebtedness shall be
automatically reformed as to permit only the
collection of the maximum legal contract rate.

     11.11 ENTIRE AGREEMENT AND MODIFICATION: The
Security Documents contain the entire agreements
between the parties relating to the subject matter
hereof and thereof, and all prior agreements
relative thereto which are not contained herein or
therein are terminated. The Security Documents may
be amended,



26



revised, waived, discharged, released or
terminated only by a written instrument or
instruments executed by the party against which
enforcement of the amendment, revision, waiver,
discharge, release or termination is asserted. Any
alleged amendment, revision, waiver, discharge,
release or termination which is not so documented
shall not be effective as to any party.

     11.12 COUNTERPARTS: This Deed of Trust may be
executed in any number of counterparts, each of
which shall be an original, but all of which
together shall constitute but one instrument.

     11.13 UNIFORM COMMERCIAL CODE: All terms used
herein which are defined in the UCC shall be used
with the definition therefor in said Code.

     11. 1 4 IMPOSITIONS AND INSURANCE ESCROW: To
implement the provisions of Paragraphs 4.4 and 4.6
hereof, upon the occurrence of an Event of
Default, Trustor, at Beneficiary's request, shall
pay to Beneficiary in advance, as and when
directed by Beneficiary and as escrowed sums, an
amount equal to the sums of: (a) the annual
Impositions (estimated wherever necessary) to
become due for the tax year during which such
payment is so directed; and (b) the insurance
premiums for the same year for those insurance
policies as are required hereunder. If Beneficiary
determines that any amounts theretofore paid by
Trustor are insufficient for the payment in full
of such Impositions and insurance premiums,
Beneficiary shall notify Trustor of the increased
amounts required to provide a aufficient fund,
whereupon Trustor shall pay to Beneficiary within
thirty (30) days thereafter the additional amount
so stated in Beneficiary's notice. The escrowed
sums may be held by Beneficiary in non-interest
bearing accounts and may be commingled with
Beneficiary's other funds. Upon assignment of this
Deed of Trust, Beneficiary shall have the right to
pay over the balance of the escrowed sums then in
its possession to its assignee, whereupon
Beneficiary and its Trustee shall then become
completely released from all liability with
respect thereto. Upon payment of the Indebtedness
and Obligations, or at such earlier time that
Beneficiary may elect, the balance of the escrowed
sums in its possession may be paid over to
Trustor, and no other party shall have any right
or claim thereto. If no Event of Default shall
have occurred or be continuing hereunder, the
escrowed sums may, at the option of Beneficiary,
be repaid to Trustor in aufficient time to allow
Trustor to satisfy Trustor's obligations under the
Security Documents to pay the Impositions and the
required insurance premiums or may be paid by
Beneficiary directly to the Governmental Authority
and the insurance company entitled thereto. If an
Event of Default shall have occurred or be
continuing hereunder, however, Beneficiary shall
have the additional option of crediting the full
amount of the escrowed sums against the
Indebtedness. Notwithstanding anything to the
contrary contained in this Paragraph 11.14 or
elsewhere in this Deed of Trust, Beneficiary
hereby reserves the right to waive the payment by
Trustor to Beneficiary of the escrowed sums and,
in the event Beneficiary does so waive such
payment, it shall be without prejudice to
Beneficiary's right to insist, at any subsequent
time or times, that such payments be made in
accordance herewith.

     11.15 HEADINGS AND GENERAL APPLICATION: The
article, paragraph and subparagraph entitlements
hereof are inserted for convenience or reference
only and shall in no way affect, modify or define,
or be used in construing, the text of such
article, paragraph or subparagraph. If the context
requires, words used in the singular shall be read
as including the plural, and pronouns of any
gender shall include all genders.

     11.16 SOLE BENEFIT: This instrument and the
other Security Documents have been executed for
the sole benefit of Trustor and Beneficiary and
the heirs, successors, assigns and legal
representatives of Beneficiary. No other party
shall have rights



27



thereunder nor be entitled to assume that the
parties thereto will insist upon strict
performance of their mutual obligations hereunder,
any of which may be waived from time to time.
Trustor shall have no right to assign any of their
rights under the Security Documents to any party
whatsoever, including the right to receive
advances under the Note or otherwise.

     11.17 SUBROGATION: If any or all of the
proceeds of the Indebtedness or the Obligations
have been used to extinguish, extend or renew any
indebtedness heretofore existing against the
Mortgaged Property or to satisfy any indebtedness
or obligation secured by a lien or encumbrance of
any kind (including liens securing the payment of
any Impositions), such proceeds have been advanced
by Beneficiary at Trustor's request, and, to the
extent of such funds so used, the Indebtedness and
Obligations in this Deed of Trust shall be
subrogated to and extend to all of the rights,
claims, liens, titles and interests heretofore
existing against the Mortgaged Property to secure
the indebtedness or obligation so extinguished,
paid, extended or renewed, and the former rights,
claims, liens, title and interest, if any, shall
not be waived, but rather shall be continued in
full force and effect and in favor of Beneficiary
and shall be merged with the lien and security for
the repayment of the Indebtedness and satisfaction
of the Obligations; but, in no event shall the
foregoing provision result in Beneficiary
recovering more than the full amount of the
Indebtedness.

     11.18 BUSINESS OR COMMERCIAL PURPOSE: Trustor
warrants that the extension of credit evidenced by
the Note secured hereby is solely for business or
commercial purposes, other than agricultural
purposes. Trustor further warrants that the credit
transaction evidenced by the Note is specifically
exempted under Regulation Z issued by the Board of
Governors of the Federal Reserve System and Title
I (Consumer Credit Cost Disclosure) of the
Consumer Credit Protection Act and that no
disclosures are required to be given under such
regulations and federal laws in connection with
the above transaction.

     11.19 STATEMENT OF CONDITION: Beneficiary
shall furnish any statement required by law
regarding the Indebtedness and the Obligations
secured hereby or regarding the amounts held in
any trust or reserve fund hereunder. For any such
statement, Beneficiary may charge a reasonable
fee, not to exceed the maximum amount permitted by
law at the time of the request therefor.

     11.20 NO OFFSET: Under no circumstances shall
Trustor fail or delay to perform (or resist the
enforcement of) any of its obligations in
connection with any of the Security Documents
because of any alleged offsetting claim or cause
of action against Beneficiary (or any indebtedness
or obligation of Beneficiary) which has not been
confirmed in a final judgment of a court of
competent jurisdiction (sustained on appeal, if
any) against Beneficiary, and Trustor hereby
waives any such rights of setoff (or offset) which
it might otherwise have with respect to any such
claims or causes of action against Beneficiary (or
any such obligations or indebtedness of
Beneficiary), unless and until such right of
setoff is confirmed and liquidated by such final
judgment.

     1 1.21 NO PARTNERSHIP OR JOINT VENTURE:
Nothing contained herein or in the Note or any
Security Documents, nor the acts or omissions of
the parties hereto, shall be construed to create a
partnership or joint venture between Trustor and
Beneficiary. The relationship between Trustor and
Beneficiary is the relationship of "debtor" and
"creditor." Trustor shall indemnify and hold
Beneficiary harmless from and against any and all
suits, actions, claims, proceedings (including
third party proceedings), damages, losses,
liabilities and expenses (including, without
limitation, reasonable attorneys' fees) which may
be incurred by or asserted against Beneficiary
with respect to



28



any claim or assertion which, if true, would be
inconsistent with or contradict the statements
made in the preceding two sentences. The
provisions of this Paragraph 11.21 shall survive
the repayment of the Indebtedness.

     11.22 WAIVER OF JURY TRIAL: FOR AND IN
CONSIDERATION OF BENEFICIARY'S ADVANCEMENT TO
TRUSTOR OF THE PRINCIPAL SUMS IN THE AMOUNT OF UP
TO TWELVE MILLION EIGHT HUNDRED THOUSAND AND
NO/100 DOLLARS ($12,800,000.00), TRUSTOR, BEING AN
EXPERIENCED OWNER AND OPERATOR OF REAL ESTATE AND
PARTICIPANT IN SOPHISTICATED REAL ESTATE VENTURES,
AND HAVING CONSULTED WITH COUNSEL OF ITS CHOOSING,
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION OR PROCEEDING (1) BROUGHT BY
TRUSTOR, BENEFICIARY OR ANY OTHER PERSONS RELATING
TO (A) THE LOAN OR (B) THE SECURITY DOCUMENTS OR
(2) TO WHICH BENEFICIARY IS A PARTY. TRUSTOR
HEREBY AGREES THAT THIS DEED OF TRUST CONSTITUTES
A WRITTEN CONSENT TO WAIVER OF TRIAL BY JURY, AND
TRUSTOR DOES HEREBY CONSTITUTE AND APPOINT
BENEFICIARY ITS TRUE AND LAWFUL ATTORNEY IN FACT,
WHICH APPOINTMENT IS COUPLED WITH AN INTEREST AND
IRREVOCABLE, AND TRUSTOR DOES HEREBY AUTHORIZE AND
EMPOWER BENEFICIARY, IN THE NAME, PLACE, AND STEAD
OF TRUSTOR, TO FILE THIS DEED OF TRUST WITH THE
CLERK OR JUDGE OF ANY COURT OF COMPETENT
JURISDICTION AS A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. TRUSTOR ACKNOWLEDGES THAT ITS
WAIVER OF TRIAL BY JURY HAS BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY TRUSTOR AS PART OF
A BARGAINED FOR LOAN TRANSACTION. TRUSTOR WILL NOT
SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A
JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION
IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN
WAIVED.

     11.23 JURISDICTION AND VENUE: TRUSTOR HEREBY
AGREES THAT ALL ACTIONS OR PROCEEDINGS INITIATED
BY
TRUSTOR AND ARISING DIRECTLY OR INDIRECTLY OUT OF
THIS DEED OF TRUST OR THE OTHER SECURITY DOCUMENTS
SHALL BE LITIGATED IN THE SUPERIOR COURT OF
ARIZONA, MARICOPA COUNTY DIVISION, OR THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA OR,
IF BENEFICIARY INITIATES SUCH ACTION, IN ADDITION
TO THE
FOREGOING COURTS ANY COURT IN WHICH BENEFICIARY
SHALL
INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION; PROVIDED, HOWEVER, THAT THE EXTENT
THAT THE
FOREGOING ARIZONA COURTS DO NOT HAVE JURISDICTION
OVER THE
LAND FOR PURPOSES OF A JUDICIAL FORECLOSURE OF THE
LAND,
SUCH FORECLOSURE SHALL BE LITIGATED IN THE
APPROPRIATE
COURT FOR THE COUNTY OF SOLANO, CALIFORNIA.
TRUSTOR HEREBY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
BY
BENEFICIARY IN ANY OF SUCH COURTS AND HEREBY
WAIVES
PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR
OTHER
PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT
SERVICE OF
SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR
PAPERS
MAY BE MADE BY ACTUAL DELIVERY OR REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO TRUSTOR AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT HEREIN.
TRUSTOR
WAIVES ANY CLAIM THAT PHOENIX, ARIZONA OR THE
DISTRICT OF



29



ARIZONA IS AN INCONVENIENT FORUM OR AN IMPROPER
FORUM
BASED ON LACK OF VENUE. SHOULD TRUSTOR, AFTER
BEING SO SERVED, FAIL TO APPEAR OR ANSWER TO ANY
SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED
WITHIN THE NUMBER OF DAYS PRESCRIBED BY LAW AFTER
THE MAILING THEREOF, TRUSTOR SHALL BE DEEMED IN
DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED BY BENEFICIARY AGAINST TRUSTOR AS DEMANDED
OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS, PROVIDED, HOWEVER, BENEFICIARY MAY NOT
SEEK A DEFAULT JUDGMENT FOR AT LEAST THIRTY (30)
DAYS AFTER THE DATE OF PROOF OF SERVICE. THE
EXCLUSIVE CHOICE OF FORUM FOR TRUSTOR SET FORTH
HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT, BY BENEFICIARY, OF ANY JUDGMENT
OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY
BENEFICIARY, OF ANY ACTION TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE JURISDICTION, AND TRUSTOR
HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY
SUCH JUDGMENT OR ACTION.

11.24 APPLICABLE LAW. THIS DEED OF TRUST AND THE
OTHER SECURITY DOCUMENTS SHALL BE DEEMED TO HAVE
BEEN DELIVERED AND ACCEPTED IN, AND THIS DEED OF
TRUST, AND THE OTHER SECURITY DOCUMENTS SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF, THE STATE OF
ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS OF LAW
PRINCIPLES), THE STATE IN WHICH BENEFICIARY'S
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF TRUSTOR AND BY ACCEPTANCE HEREOF,
BENEFICIARY, EACH AGREE THAT SUCH LAWS AND
DECISIONS OF THE STATE OF ARIZONA SHALL GOVERN
THIS DEED OF TRUST AND THE OTHER SECURITY
DOCUMENTS, NOTWITHSTANDING THE FACT THAT THERE MAY
BE OTHER JURISDICTIONS WHICH MAY BEAR A REASONABLE
RELATIQNSHIP TO THE TRANSACTIONS CONTEMPLATED
HEREBY; PROVIDED, HOWEVER, THAT WITH RESPECT TO
THE PROCEDURAL AND SUBSTANTIVE MATTERS RELATING
ONLY TO THE CREATION, VALIDITY, PERFECTION AND
ENFORCEMENT BY BENEFICIARY OF ITS RIGHTS AND
REMEDIES AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL LOCATED IN ANY STATE OTHER THAN
ARIZONA, SUCH MATTERS SHALL BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH SUCH PROPERTY IS
LOCATED.

     IN WITNESS WHEREOF, this Deed of Trust has
been duly executed
and acknowledged by Trustor as of the day and year
first above written.

     TRUSTOR PLEASE NOTE: UPON THE OCCURRENCE OF
AN EVENT OF DEFAULT (AS DEFrNED 1N ARTICLE VI
HEREIN), CALIFORNIA PROCEDURE PERMITS THE TRUSTEE
TO SELL THE MORTGAGED PROPERTY AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION
OF A PERIOD PRESCRIBED BY LAW. UNLESS YOU PROVIDE
AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT
BE ENTITLED TO NOTICE OF THE COMMENCEMENT OF SALE
PROCEEDINGS. BY EXECUTION OF THIS DEED OF TRUST,
YOU CONSENT TO SUCH PROCEDURE. BENEFICIARY URGES
YOU TO GIVE PROMPT NOTICE OF ANY CHANGE [N YOUR
ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY
NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.





30




FAIRFIELD RETIREMENT CENTER
                                          a
California limited liability company

                                         By:
Emeritus Corporation, a Washington

corporation

                                         Its:
Managing Member

                                         By: /s/
Kelly J. Price
                                                --
- ---------------------------
                                         Name:
Kelly J. Price
                                         Its:
Secretary/Director of Finance and CFO


THE STATE OF WASHINGTON         )

)
 COUNTY OF KING                              )

     On this 10th day of January 1997, before me,
Catherine L. Pasquan, the undersigned notary
public, duly commissioned and sworn, personally
appeared Kelly J. Price, personally known to me
(or proved to me on the basis of satisfactory
evidence) to be the person that executed the
within instrument and acknowledged to me that he
or she executed the same in his or her authorized
capacity and that by his or her signature in the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.

     In witness whereof, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.


/s/ Catherine L. Pasquan

- -------------------------------------

NOTARY PUBLIC

(SEAL)






















31

EX-10.31.4

GUARANTY

(Emeritus)

     
     WHEREAS, Fairfield Retirement Center, LLC, a
California limited liability company ("Borrower"),
is or will become indebted to FINOVA Capital
Corporation ("Lender").

     NOW, THEREFORE, for valuable consideration,
the receipt and adequacy of which are hereby
acknowledged, the undersigned (whether one or
more,
"Guarantor") hereby guarantees to Lender the
prompt payment at maturity (by acceleration or
otherwise), and at all times thereafter, of the
Guaranteed Indebtedness (hereinafter defined),
this Guaranty being upon the following terms and
conditions:

     l. As used throughout this Guaranty, the term
"Borrower" shall include, without limitation,
Borrower, Borrower as a debtor-in-possession, and
any receiver, trustee, liquidator, conservator,
custodian, or similar party hereafter appointed
for Borrower or all or substantially all of its
assets pursuant to any liquidation,
conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency,
reorganization, or similar Debtor Relief Law
(hereinafter defined) from time to time in effect
affecting the rights of creditors generally.

     2. The term "Guaranteed Indebtedness," as
used herein, means the (a) "Indebtedness" as that
term is defined in the Deed of Trust, Security
Agreement
,Assignment of Leases and Rents and Fixture Filing
(herein called the "Deed of Trust") dated of even
date herewith, executed by Borrower in favor of
Chicago Title Company, as trustee for the benefit
of Lender including without limiting the
generality of the foregoing, the obligation to pay
when due all sums due under that certain
Promissory Note of even date therewith in the
original principal amount of $I2,800,000.00,
executed by Borrower and payable to the order of
Lender (the "Note"); (b) interest on any of the
indebtedness described in clause (a) preceding,
whether accruing prior to or after maturity of
such indebtedness; (c) any and all costs,
reasonable attorneys' fees,
and expenses incurred by Lender by reason of
Borrower's default in payment of any of the
foregoing indebtedness; and (d) any renewal or
extension of the indebtedness, costs, or expenses
described in clauses (a) through (c) preceding, or
any part thereof.

     3. This instrument shall be an absolute and
continuing Guaranty, and the circumstance that at
any time or from time to time the Guaranteed
Indebtedness may be paid in full shall not affect
the obligation of Guarantor with respect to the
indebtedness of Borrower to Lender thereafter
incurred.

     4. If Guarantor becomes liable for any
indebtedness owing by Borrower to Lender, by
endorsement or otherwise, other than under this
Guaranty. such liability shall not be in any
manner impaired or affected hereby, and the rights
of Lender hereunder shall be cumulative of any and
all other rights that Lender may ever have against
Guarantor. The exercise by Lender of any right or
remedy hereunder or under any other instrument, or
at law or in equity, shall not preclude the
concurrent or subsequent exercise of any other
right or remedy. Guarantor covenants and agrees
that it will not assert any rights arising from
payment or other performance hereunder until all
of






Guarantor's liability hereunder shall have been
discharged in full and all of the Guaranteed
Indebtedness existing at the time of such
discharge shall have been paid and performed in
full.

     5. Upon the occurrence of an "Event of
Default," as defined in the Loan Agreement of even
date herewith between Borrower and Lender (as
amended, the
"Loan Agreement"), Guarantor shall, on demand and
without further notice of dishonor, without any
notice having been given to Guarantor previous to
such demand of the acceptance by Lender of this
Guaranty, and without any notice having been given
to Guarantor previous to such demand of the
creating or incurring of such indebtedness, pay
the amount due thereon to Lender, and it shall not
be necessary for Lender, in order to enforce such
payment by Guarantor, first or contemporaneously
to institute suit or exhaust remedies against
Borrower or others liable on such indebtedness, or
to enforce rights against any security which shall
ever have been given to secure such indebtedness.

     6. All principal of and interest on all
indebtedness, liabilities and obligations to
Guarantor of Borrower, any partner of Borrower or
any other party guaranteeing all or any portion of
the Guaranteed Indebtedness (the "Subordinated
Debt") whether direct, indirect, fixed, contingent
liquidated unliquidated joint several, or joint
and several, now or hereafter existing, due or to
become due to Guarantor, or held or to be held by
Guarantor, whether created directly or acquired by
assignment or otherwise, and whether evidenced by
written instrument or not, shall be expressly
subordinated to the Guaranteed Indebtedness
pursuant to that certain Subordination Agreement
between Guarantor and Lender of even date
herewith.

     7. Guarantor hereby agrees that its
obligations under the terms of this Guaranty shall
not be released, diminished, impaired, reduced, or
affected by the occurrence of any one or more of
the following events: (a) the taking or accepting
of any other security or Guaranty for any or all
of the Guaranteed Indebtedness; (b) any release,
surrender, exchange, subordination, or loss of any
security at any time existing in connection with
any or all of the Guaranteed Indebtedness; (c) any
partial release of the liability of Guarantor
hereunder, or, if there is more than one person or
entity signing this Guaranty, the release of any
one or more of them hereunder, or the partial
release of any party at any time liable for the
payment of any or all of the Guaranteed
Indebtedness; (d) the death, insolvency,
bankruptcy, disability, or lack of partnership or
corporate power of Borrower, any of the
undersigned. or any party at any time liable for
the payment of any or all of the Guaranteed
Indebtedness. whether now existing or hereafter
occurring; (e) any renewal, extension, or
rearrangement of the payment of any or all of the
Guaranteed Indebtedness, either with or without
notice to or consent of Guarantor, or any
adjustment, indulgence, forbearance, or compromise
that may be granted or given by Lender to Borrower
or Guarantor; (f) any neglect, delay, omission,
failure, or refusal of Lender to take or prosecute
any action for the collection of any of the
Guaranteed Indebtedness or to foreclose or take or
prosecute any action in connection with any
instrument or agreement evidencing or securing all
or any part of the Guaranteed Indebtedness; (g)
any failure of Lender to notify Guarantor of any
renewal, extension, or assignment of the
Guaranteed Indebtedness or any part thereof, or
the release of any security or of any other action
taken or refrained from being taken by Lender
against Borrower or any new agreement between
Lender and Borrower, it being understood that



2



Lender shall not be required to give Guarantor any
notice of any kind under any circumstances
whatsoever with respect to or in connection with
the Guaranteed Indebtedness; (h) the
unenforceability of all or any part of the
Guaranteed Indebtedness against Borrower by reason
of the fact that the Guaranteed Indebtedness
exceeds the amount permitted by law, the act of
creating the Guaranteed Indebtedness, or any part
thereof, is ultra vires, or the partners creating
same acted in excess of their authority or
violated any fiduciary duties in connection
therewith; or (i) any payment by Borrower to
Lender is held to constitute a preference under
the bankruptcy laws or if for any other reason
Lender is required to refund such payment or pay
the amount thereof to someone else. Without
limiting the generality of the foregoing or any
other provisions hereof, the Guarantor expressly
waives any and all benefits which might otherwise
be available to Guarantor under California Civil
Code Sections 2809, 2810, 2839, 2845, 2849, 2850,
2899 and 3433, in each instance to the extent such
laws, or any one of them, are applicable to the
Guaranty, any of the Loan Documents, any of the
Obligations or any of the Indebtedness.

     8. Guarantor hereby waives all rights by
which it might be entitled to require suit on an
accrued right of action in respect of any of the
Guaranteed Indebtedness or require suit against
Borrower or others.

     9. The Guarantor shall not assert, enforce or
otherwise exercise any right of subrogation to any
of the rights or interests of the Lender against
the Borrower or any other obligor on the
Guaranteed Indebtedness or any collateral or other
security, any right of recourse, reimbursement,
contribution, indemnification or similar right
against the Borrower or any other obligor on all
or any part of the Guaranteed Indebtedness or any
guarantor thereof, and the Guarantor hereby
irrevocably waives any and all of the foregoing
rights. The Guarantor irrevocably waives the
benefit of and any right to participate in any
collateral or other security given to the Lender
to secure payment of the Guaranteed Indebtedness.

     10. Should Guarantor die, or become
insolvent, or fail to pay such Guarantor's debts
generally as they become due, or voluntarily seek,
consent to, or acquiesce in the benefit or
benefits of any Debtor Relief Law (as used herein,
"Debtor Relief Law" means the Bankruptcy Code [as
amended, herein so called] of the United States of
America and the Bankruptcy Act [as amended, herein
so called] of Canada and any other applicable
liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of
payments, or similar debtor relief law from time
to time in effect affecting the rights of
creditors generally), or become a party to (or be
made the subject of) any proceeding provided for
by any Debtor Relief Law (other than as a creditor
or claimant) that could suspend or otherwise
adversely affect the rights of Lender granted
hereunder, then, in any such event, the Guaranteed
Indebtedness shall be, as between Guarantor and
Lender, a fully matured, due, and payable
obligation of Guarantor to Lender (without regard
to whether there exists an Event of Default or
whether the Indebtedness, or any part thereof is
then due and owing by Borrower to Lender), payable
in full by Guarantor to Lender upon demand, which
shall be the estimated amount owing in respect of
the contingent claim created hereunder.





3



     11. Guarantor represents and warrants that
the value of the consideration received and to be
received by Guarantor is reasonably worth at least
as much as the liability and- obligation of
Guarantor hereunder, and such liability and
obligation may reasonably be expected to benefit
Guarantor directly or indirectly.

     12. By execution hereof, Guarantor covenants
and agrees to provide to Lender copies of those
financial statements and income tax returns of
Guarantor as required under the Loan Agreement.

     13. This Guaranty is for the benefit of
Lender and Lender's successors and assigns, and in
the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and
benefits hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred
with such indebtedness. This Guaranty is binding
not only on Guarantor, but on Guarantor's
successors and assigns and, if this Guaranty is
signed by more than one person or entity, then all
of the obligations of Guarantor arising hereunder
shall be jointly and severally binding on each of
the undersigned and their respective successors
and assigns. Lender shall have no recourse under
this Guaranty against the natural person who
executed this Guaranty or against any other
officer, director or shareholder of Guarantor;
however, the foregoing shall not affect or limit
Lender's remedies available by operation of law in
the event Guarantor dissolves, is liquidated or
otherwise ceases to exist.

     14. THIS GUARANTY SHALL BE DEEMIED TO HAVE
BEEN EXECUTED, DELIVERED AND ACCEPTED IN AND THIS
GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS AND DECISIONS OF THE
STATE OF ARIZONA (WITHOUT REGARD FOR ITS CONFLICTS
OF LAW PRINCIPLES), THE STATE IN WHICH LENDER'S
PRINCIPAL PLACE OF BUSINESS IS LOCATED, AND BY
EXECUTION HEREOF GUARANTOR AGREES THAT SUCH LAWS
AND DECISIQNS OF THE STATE OF ARIZONA SHALL GOVERN
THIS GUARANTY NOTWITHSTANDING THE FACT THAT THERE
MAY BE OTHER,TURISDICTIONS WHICH MAY BEAR A
REASQNABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY.

     15. GUARANTOR HEREBY AGREES THAT ALL ACTIONS
OR PROCEEDINGS INITIATED BY GUARANTOR AND ARISING
DIRECTLY OR INDIRECTLY OUT OF THIS GUARANTY OR THE
OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN THE
SUPERIOR COURT OF ARIZONA, MARICOPA COUNTY
DIVISION, OR THE UNITED STATES COURT FOR THE
DISTRICT OF ARIZONA OR, IF LENDER INITIATES SUCH
ACTION, IN ADDITION TO THE FOREGOING COURTS ANY
COURT IN WHICH ANY PROPERTY DESCRIBED IN THE LOAN
DOCUMENTS IS LOCATED, TO THE EXTENT SUCH COURT HAS
JURISDICTION. GUARANTOR I--IEREBY EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED
BY LENDER IN ANY OF SUCH COURTS, AND AGREES THAT
SERVICE OF ANY REQUIRED SUMMONS AND COMPLAINT OR
OTHER PROCEEDS OR PAPERS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO THE GUARANTOR AS
SET FORTH BELOW. GUARANTOR WAIVES ANY CLAIM THAT
PHOENIX, ARIZONA OR THE


4



DISTRICT OF ARIZONA IS AN INCONVENIENT FORUM OR AN
IMPROPER FORUM BASED ON LACK OF VENUE. SHOULD
GUARANTOR, AFTER BEING SO SERVED, FAIL TO APPEAR
OR ANSWER TO ANY SUMMONS, COMPLAINT PROCESS OR
PAPERS PROPERLY SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER TI-IE MAILING THEREOF,
GUARANTOR SHALL BE DEEMED IN DEFAULT AND AN ORDER
AND/OR JUDGMENT MAY BE ENTERED BY A COURT IN
ACCORDANCE WITH APPLICABLE LAW AND PROCEDURE
AGAINST GUARANTOR AS DEMANDED OR PRAYED FOR IN
SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS TO THE
EXTENT PERMITTED BY LAW. THE EXCLUSIVE CHOICE OF
FORUM FOR GUARANTOR SET FORTH HEREIN SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF
ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE
TAKING, BY LENDER OF ANY ACTION TO ENFORCE THE
SAME IN ANY OTHER APPROPRIATE JURISDICTION AND
GUARANTOR HEREBY WAIVES THE RIGHT TO COLLATERALLY
ATTACK ANY SUCH JUDGMENT OR ACTION.

     16. FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT TO BORROWER OF THE PRINCIPAL SUMS IN
THE AMOUNT OF UP TO TWELVE MILLION EIGHT HUNDRED
THOUSAND AND NO/100 DOLLARS ($12,800,000.00),
GUARANTOR, BEING A MEMBER OF BORROWER AND AN
EXPERIENCED OWNER AND OPERATOR OF REAL ESTATE AND
PARTICIPANT IN SOPHISTICATED REAL ESTATE VENTURES,
AND HAVING CONSULTED WITH COUNSEL OF ITS CHOOSING,
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION OR PROCEEDING ( 1 ) BROUGHT
BY GUARANTOR, LENDER OR ANY OTHER PERSONS RELATING
TO (A) THE LOAN EVIDENCED BY THE NOTE OR (B) THIS
GUARANTY OR (2) TO WHICH LENDER IS A PARTY.
GUARANTOR HEREBY AGREES THAT THIS GUARANTY
CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL
BY JURY, AND GUARANTOR DOES HEREBY CONSTITUTE AND
APPOINT LENDER ITS TRUE AND LAWFUL ATTORNEY IN
FACT, WHICH APPOINTMENT IS COUPLED WITH AN
INTEREST AND IRREVOCABLE, AND GUARANTOR DOES
HEREBY AUTHORIZE AND EMPOWER LENDER, IN THE NAME,
PLACE, AND STEAD OF GUARANTOR, TO FILE THIS
GUARANTY WITH THE CLERK OR JUDGE OF ANY COURT OF
COMPETENT JURISDICTION AS A WRITTEN CONSENT TO
WAIVER OF TRIAL BY JLTRY. GUARANTOR ACKNOWLEDGES
THAT ITS WAIVER OF TRIAL BY JURY HAS BEEN MADE
KNOWINGLY, INTENTIONALLY AND WILLINGLY BY
GUARANTOR AS PART OF A BARGAINED FOR LOAN
TRANSACTION. GUARANTOR WILL NOT SEEK TO
CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY TRIAL
HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED.

     17. THIS GUARANTY SHALL TERMINATE AND BE OF
NO FURTHER FORCE OR EFFECT UPON THE PAYMENT IN
FULL OF THE GUA.RANTEED INDEBTEDNESS AND NO
FURTHER WRITING SHALL BE REQUIRED TO EFFECTUATE
SUCH TERMINATION HEREOF IN SUCH EVENT.




5



     18. Provided there is no Event of Default or
Incipient Default of which Borrower has received
notice from Lender at such time, this Guaranty
Agreement shall terminate on the fifth anniversary
of the Loan Closing with such termination to be
evidenced by a written notification from Lender to
Guarantor to that effect which notification Lender
agrees to promptly give provided that the
conditions for such termination are satisfied. In
the event a Guarantor is not entitled to a
termination of its Guaranty because of the
existence of an Incipient Default of which
Lender has notified Borrower and such Incipient
Default is cured by Borrower within the time
period permitted in the Loan Documents, Guarantor
shall be entitled to a termination of this
Guaranty upon the date the Incipient Default is
cured.

     19. It is the intent of Guarantor and Lender
that the laws of the State of Arizona apply to
this Guaranty as set forth in paragraph 14 above;
however, in the event a court with jurisdiction
rules that the laws of the State of California
apply to and govern this Guaranty, then Guarantor
hereby waives (i) any and all benefits available
to sureties and creditors which might otherwise be
available to Guarantor under the California Civil
Code, including, without limitation, Sections
2809, 28 I 0, 2819, 2839, 2845, 2849, 2850, 2899
and 3433; and (ii) all defenses Guarantor may have
based upon any election of remedies by Lender
which destroys or impairs Guarantors subrogation
rights or Guarantor's rights to proceed against
Borrower or any other person for reimbursement,
including, without limitation, any loss of rights
that Guarantor may suffer by reason of any rights,
powers or remedies of Borrower in connection with
any anti-deficiency laws or any other laws
limiting, qualifying or discharging indebtedness
of or remedies against Borrower or any other party
(including, without limitation, Sections 726,
580a, 580b and 580d of the California Code of
Civil Procedure, as amended or recodified from
time to time). The foregoing waivers include any
requirement of law that Lender exhaust any
security for the Note before proceeding under this
Guaranty and any act or omission by Lender which
directly or indirectly results in or aids the
loss, limitation or impairment of the right to
recover any deficiency from Borrower due to
Lender's election to proceed under a power of sale
set forth in the Mortgage or any other deed of
trust, mortgage or lien on real property or due to
any fair value limitations or determinations in
connection with a judicial foreclosure of the real
property securing the Note. The Guarantor waives
all rights and defenses that the Guarantor may
have because the Borrower's debt is secured by
real property. This means, among other things: (i)
The Lender may collect from the Guarantor without
first foreclosing on any real or personal property
collateral pledged by the Borrower. (ii) If the
Lender forecloses on any real property collateral
pledged by the Borrower: (A) the amount of the
debt may be reduced only by the price for which
that collateral is sold at the foreclosure sale,
even if the collateral is worth more than the sale
price. (B) The Lender may collect from the
Guarantor even if the Lender, by foreclosing on
the real property collateral, has destroyed any
right the Guarantor may have to collect from the
Borrower. This is an unconditional and irrevocable
waiver of any rights and defenses the Guarantor
may have because the Borrower's debt is secured by
real property. These rights and defenses include,
but are not limited to, any rights or defenses
based upon Section 580(a), 580(b), 580(d), or 726
of the California Code of Civil Procedure.
Furthermore, the Guarantor waives all rights and
defenses arising out of an election of remedies by
the Lender, even though that election of remedies,
such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has
destroyed the Guarantor's rights of subrogation
and reimbursement against the Borrower by the
operation of Section 580(d) of the California Code
of Civil Procedure or otherwise.


6



     20. Any notice, request or other
communication required or permitted to be given
hereunder may be given and shall conclusively be
deemed and considered to have been given and
received upon the deposit thereof, in writing, in
the U.S. Mails, certified mail, return receipt
requested, postage prepaid, and addressed to the
party to receive such notice at the address set
forth below or such address elected in writing by
the party to receive such notice; but actual
notice however given or received, shall always be
effective. The last preceding sentence shall not
be construed in anywise to effect or impair the
waiver of notice or demand to or upon Guarantor in
any situation or for any reason (except as
otherwise specifically provided).


     If to Guarantor:         Emeritus Corporation
                    3131 Elliott Avenue, Suite 500
                    Seattle, Washington 98121

     with copy to:       Randi Nathanson
                    The Nathanson Group
                    1411 Fourth Avenue, Suite 905
               Seattle,
                    Washington 98101

     If to Lender:       FINOVA Capital
Corporation
                    3200 Park Center Drive, Fifth
               Floor
                    Costa Mesa, California 92626

     with copy to:       FINOVA Capital
Corporation
                    7272 East Indian School Road,
               Suite 410
                    Scottsdale, Arizona 85251
                    Attn.: Vice President - Group
               Counsel

     21. Unless otherwise defined herein, all
capitalized terms used herein shall have the same
meaning as set forth in the Loan Agreement.

     EXECUTED effective as of January 10, 1997.


                    EMERITUS CORPORATION, a
                    Washington corporation

                    By:  /s/ Kelly J. Price
                    ------------------------------
               ----------
                           Kelly J. Price

Secretary/Director of Finance and CFO








7



THE STATE OF Washington            )

)  ss
COUNTY OF King                             )

On this 10 day of January, 1997, before me,
Catherine L. Pasquan, the undersigned notary
public , duly commissioned and sworn, personally
appeared Kelly J. Price, and sworn, personally
known to me (or proved to on the basis of
satisfactory evidence) to be the person that
executed the within instrument and acknowledged to
me that the or she executed the same in his or her
authorized capacity and that by his or her
signature in the instrument the person, or the
entity upon behalf of which the person acted,
executed the instrument.

     IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and year
in this certificate first above written.


/s/ Catherine L. Pasquan

- ------------------------------------

Notary Public

My Commission Expires:
        March 30, 1999
[SEAL]
- -------------------------------




























8

EX-10.32.1

LOAN AGREEMENT

     THIS LOAN AGREEMENT (this "Agreement") is
made as of the 30th day of January, 1997, by and
between EMERITUS PROPERTIES m, INC., a Washington
corporation ("Borrower"), and OCWEN FEDERAL BANK
FSB, a federally chartered savings bank
("Lender").

     Terms which are used in this Agreement and
not otherwise defined herein shall have the
meanings set forth in Article I below.


RE CITALS

     Borrower has requested that Lender make a
loan to Borrower in the maximum aggregate
principal amount of Six Million Four Hundred
Sixty-Five Thousand and No/100 Dollars
($6,465,000.00) (the "Loan"), the proceeds of
which will be used for the acquisition of certain
real property situated in Pierce County,
Washington, and the construction of a one hundred
(100) unit Assisted Living Facility thereon.

     Lender has agreed to make the Loan upon and
subject to the terms and conditions set forth
herein.

     NOW, THEREFORE, in consideration of these
premises and the mutual promises herein contarned,
the parties intending to be legally bound agree as
follows:


ARTICLE I.

CERTAIN DEFINITIONS

     1.1. "ACCREDITATION BODY" shall have the
meaning ascribed to such term in the Operating
Agreement.

     1.2. "ACQUISITION ADVANCE" shall have the
meaning ascribed to such term in Section 3.
1(a)(ii).

     1.3. "ACQUISITION CONTRACT" shall mean the
purchase and sale agreement previously submitted
by Borrower to Lender pursuant to which Borrower
will acquire the Land.

     1.4. "ADDITIONAL INTEREST" shall have the
meaning ascribed to such term in the Note.

     1.5. "ADVANCE" shall mean a disbursement by
Lender of any of the proceeds of the Loan and, if
the context requires, a disbursement of any part
of Borrower's Deposit or the Mandatory Sweep
Account.

     1.6. "AFFILIATE" shall mean with respect to
an individual, any relative of such individual;
and with respect to any Person, any other Person
directly or indirectly controlling, controlled by
or under direct or indirect common control with,
such Person. A Person shall be deemed to control
another Person if such Person possesses, directly
or indirectly, the power to direct or cause the
direction of the management and policies of such
other Person, whether through the ownership of
voting securities, by contract or otherwise, or if
such Person owns or has the power to vote ten
percent (10%) or more of the outstanding voting
securities or interests in such other Person.

     1.7. "APPRAISAL" shall mean an appraisal of
the Project in form, substance, and amount
acceptable to Lender, prepared by an Appraiser who
is selected by or approved by Lender prior to the
Closing Date, and any subsequent appraisal of the
Project delivered to Lender pursuant to the terms
of this Agreement or obtained by Lender subsequent
to the Closing Date. The initial Appraisal shall
show (a) the value of


the Project in its "as is" condition and (b) the
value of the Project as constructed in accordance
with the Plans, with occupancy stabilized in
accordance with criteria approved by Lender.
Unless otherwise provided, references in this
Agreement to the "Appraisal" shall mean the most
recent Appraisal of the Project approved by
Lender.

     1.8. "APPRAISER" shall mean an independent
appraiser who (a) is a member of the American
Institute of Real Estate Appraisers - 1) or a
successor body hereafter constituted exercising a
similar function and licensed or otherwise
authorized to appraise real property in the State
of Washington, (b) has experience in appraising
projects similar or comparable to the Project, and
(c) is not employed by, or an Affiliate of, and
does not have any substantial direct or indirect
financial or other business interests in, Borrower
or Lender or any Affiliate of either of them.

     1.9. "APPROVED CONSTRUCTION BUDGET" shall
mean the budget prepared by Borrower and approved
by Lender at least sixty (60) days prior to the
Closing Date, which is attached hereto as Exhibit
A.

     1.10. "ARCHITECT" shall mean Architects Reed
Reinvald Johnson Willows PLLC, whose address is
201 North I Street, Tacoma, WA 98403.

     1.11. "ARCHITECT'S AGREEMENT" shall mean the
Standard Form of Agreement Between Owner and
Architect dated June 7, 1996, between Emeritus and
Architect, as assigned to Borrower and approved by
Lender.

     1.12. "ASSIGNMENT OF LICENSES AND PERMITS"
shall mean the Assignment of Licenses and Permits
dated of even date herewith executed by Borrower
and delivered to Lender, as the same may be
amended from time to time.

     1.13. "ASSIGNMENT OF RENTS AND LEASES" shall
mean the Assignment of Rents and Leases dated of
even date herewith executed by Borrower and
delivered to Lender, as the same may be amended
from time to time.

     1.14. "ASSISTED LIVING FACILITY" shall mean a
facility providing board and domiciliary care
pursuant to Chapter 18.20 of the Revised Code of
Washington, as amended from time to time.

     1.15. "BORROWER'S COUNSEL'S OPINION" shall
mean an opinion letter from Borrower's counsel and
from counsel to Emeritus satisfying the opinion
requirements set forth in the Loan Application and
such additional reasonable requirements as may
previously have been delivered by Lender to
Borrower.

     1.16. "BORROWER'S DEPOSIT" shall have the
meaning ascribed to such term in Section 2.5.

     1.17. "BORROWER'S EQUITY CONTRIBUTION" shall
mean the sum of: (a)(i)Total Project Costs less
(ii) the aggregate principal amount of the Loan
(as such principal amount may be limited by the
terms of the Loan Documents), plus (b) the portion
of any Borrower's Deposit advanced by Lender as
provided in Section 2.5 for the purpose of paying
construction cost overruns during the Construction
Period (i.e. construction costs in excess of the
amounts set forth in the Approved Construction
Budget).

     1.18. "BORROWING GROUP" shall mean,
collectively, Borrower, Guarantor, any Person
which is an Affiliate of Borrower or Guarantor or
any Manager which is an Affiliate of Borrower or
Guarantor.


2



     1.19. "BUSINESS DAY" shall mean any day other
than a Saturday or Sunday or any day which is a
legal holiday in Florida or any day on which
banking institutions are authorized or are
required by law or other governmental action to
close.

     1.20. "CHATTEL SEARCH OPINION" shall mean a
search report from the Title Company or reputable
search firm regarding the status of financing
statement filings naming Borrower and the seller
under the Acquisition Contract as debtors as of
the date thereof.

     1.21. "CLOSING COSTS ADVANCE" shall have the
meaning ascribed to such term in Section

     1.22. "CLOSING COSTS AMOUNT" shall mean the
portion of the bona fide fees and expenses
incident to the closing of the Loan which is
approved by Lender as appropriate for the Closing
Costs Advance and such other reimbursable costs
and expenses relating to the Project as Lender in
its reasonable discretion allows to be advanced at
Closing as a portion of the Closing Costs Advance.

     1.23. "CLOSING DATE" shall mean January 30,
1997.

     1.24. "COLLATERAL" shall mean all Property
that is covered by the Mortgage, any Security
Agreement, or any of the other Loan Documents and
identified as collateral or security for the Loan.

     1.25. "COMPLETION DATE" shall mean the date
one (1) year from the Closing Date, as such one
(1) year period may be extended for a period not
to exceed forty-five (45) days in accordance with
the provisions of Section 5.1 hereof as a result
of Force Majeure Events.

     1.26. "CONSENT OF CONTRACTOR" shall mean the
Consent of Contractor to be delivered by the
General Contractor and each Major Subcontractor to
Lender with respect to the Construction Contract
and each Major Subcontract, each of which shall be
in form and substance acceptable to Lender.

     1.27. "CONSENT OF DESIGN PROFESSIONAL" shall
mean the Consent of Design Professional to be
delivered by each Design Professional to Lender
with respect to their Design Services Contract
and, if applicable, the Plans, each of which shall
be in for.n and substance acceptable to Lender.

     1.28. "CONSTRUCTION ADVANCE" shall have the
meaning ascribed to such term in Section

     1.29. "CONSTRUCTION AMOUNT" shall mean the
total amount payable by Borrower under the General
Construction Contract.

     1.30. "CONSTRUCTION AND LEASE-UP TERM" shall
mean the period commencing on the Closing Date and
continuing for a period of twenty-four (24) months
thereafter.

     1.31. "CONSTRUCTION CONTRACTS" shall mean the
General Construction Contract and all other
const.uction contracts and subcontracts between
Borrower andlor the General Contractor and each
Major Subcontractor.

     1.32. "CONSTRUCTION INTEREST RESERVE ADVANCE"
shall have the meaning ascribed to such term in
Section 3.1(a)(iii).


3



     1.33. "CONSTRUCTION INTEREST RESERVE" shall
mean Three Hundred One Thousand Nine Hundred
Ninety Eight and No/100 Dollars ($301,998.00).

     1.34. "CONSTRUCTION LOAN TERM" shall mean the
period of time encompassed by both the
Construction and Lease-Up Term and the
Pre-Stabilization Period, not to exceed thirty-six
(36) months.

     1.35. "CONSTRUCTION PERIOD" shall mean the
one year period commencing on the Closing Date and
ending on the one year anniversary thereof,
provided, however, such one year period may be
extended for a period not to exceed forty-five
(45) days in accordance with the provisions of
Section 5.1 hereof as a result of Force Majeure
Events.

     1.36. "CONSULTING ENGINEERS" shall mean
Eckland Consultants, Inc., whose address is
Washington Mutual Tower, 1201 Third Avenue, Suite
2145, Seattle, WA 98101.

     1.37. "CONTRACTS" shall have the meaning
ascribed to such term in the Operating

     1.38. "DECLARATION" shall mean the
declaration of covenants, conditions and
restrictions to be entered into by and among
Borrower and certain adjacent property owners with
respect to the construction, maintenance and
operation of the property to be covered thereby,
including the Land.

     1.39. "DESIGN PROFESSIONAL" shall mean
individually or collectively, as the context may
require, the architects, engineers, other
professional consultants and planners, if any,
with whom Borrower contracts at any time to
provide planning, design, architectural,
engineering or other similar services relating to
the Project, including the Architect.

     1.40. "DESIGN SERVICES CONTRACT" shall mean
individually or collectively, as the context may
require, all contracts and agreements entered into
between Borrower and each Design Professional
pertaining to the planning, desigo, development,
engineering, and construction of the Project,
including the Architect's Agreement.

     1.41. "DEVELOPER" shall mean Emeritus.

     1.42. "DEVELOPER'S FEE" shall mean the fee
not to exceed Two Hundred Thousand and No/100
Dollars ($200,000) to be paid to Developer
pursuant to the Development Agreement simultaneous
with the last Construction Advance.

     1.43. "DEVELOPMENT AGREEMENT" shall mean the
agreement between Borrower and Developer providing
for the development of the Project in
consideration for the payment of the Developer's
Fee which has been approved by Lender. The
Development Agreement and the Developer's Fee
payable thereunder shall be subordinate to the
Loan and shall be terminable by Lender without
cost or liability upon the occurrence of an Event
of Default.

     1.44. "DISBURSING AGENT" shall mean Chicago
Title Insurance Company, 2601 South 35th Street,
Suite 100, Tacoma, WA 98409, Attention: Mr. Bruce
Judson, or such other Person as may be designated
by Lender as the disbursing agent for Lender under
this Agreement.
     
     
                                                4



     1.45. "EMERITUS" shall mean Emeritus
Corporation, a Washington corporation, whose
addressis3131 Elliott Avenue, Suite500,
Seattle,WA98121.

     1.46. "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, and the
regulations promulgated thereunder, as the same
may be amended from time to time.

     1.47. "EVENT OF DEFAULT" shall have the
meaning ascribed to such term in Article IX

     1.48. "FORCE MAJEURE EVENT" shall mean (a)
unusually prolonged periods of extreme and unusual
rain, floods, wind, ice or snow, (b) earthquake,
volcaoic eruption or other natural disaster, (c)
strikes or other labor troubles beyond the control
of Borrower, (d) unavailability of materials
beyond the control of Borrower (but not
unavailability resulting from failure to order
materials in a timely manner) or (e) national or
state emergency as declared by the President,
Governor of Washington or other appropriate
Governmental Authority.

     1.49. "GAAP" shall mean generally accepted
accounting principles applied on a consistent
basis, as set forth in the Opinions of the
Accounting Principles Board of the American
Institute of Certified Public Accountants or in
statements of the Financial Accounting Standards
Board or their respective successors and which are
applicable in the circumstances as of the date in
question.

     1.50. "GENERAL CONSTRUCTION CONTRACT" shall
mean the construction contract between Borrower
and the General Contractor which has been approved
by Lender.

     1.51. "GENERAL CONTRACTOR" shall mean
Rushforth Construction Company, Inc., whose
address is 1308 Alexander Avenue E, Tacoma, WA
98424.

     1.52. "GOVERNMENTAL AUTHORITY" shall mean the
United States, the state, the county, the city, or
any other political subdivision in which the
Property is located, and any other political
subdivision, agency or instrumentality exercising
jurisdiction over Borrower, Guarantor, the
Project, or if the context requires, any Design
Professional, the General Contractor, any
subcontractor, the Developer, or the Manager under
the Management Contract.

     1.53. "GOVERNMENTAL REQUIREMENTS" shall mean
all laws, statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders, writs,
injunctions, judgments, or decrees (including,
without limitation, all applicable building,
health code, zoning, subdivision, and other land
use and health-care licensing statutes,
ordinances, by-laws, codes, rules and regulations)
whether now or hereafter enacted, promulgated or
issued by any Governmental Authority,
Accreditation Body or Third Party Payor,
applicable at any time and from time to time to
Lender, any member of the Borrowing Group (to the
extent applicable to the Project or the Loan), the
Project, or if the context requires, any Design
Professional, the General Contractor, any
subcontractor, the Developer or the Manager under
the Management Contract, or the ownership,
construction, development, maintenance,
management, repair, use, occupancy, possession or
operation of the Project, or the operation of any
programs or services in connection with the
Project, including, without limitation, any of the
foregoing which may (i) require repairs,
modifications or alterations in or to the Project,
(ii) in any way affect (adversely or otherwise)
the use and enjoyment of the Project, or (iii)
require the assessment, monitoring, clean-up,
containment, removal, remediation or other
treatment



5



of any Substances (as deemed in the Mortgage) on,
under or from the Project. Without limiting the
foregoing, the term Governmental Requirements
includes all Permits and Contracts issued or
entered into by any Governmental Authority, any
Accreditation Body and/or any Third Party Payor
and the requirements of Chapter 18.20 of the
Revised Code of Washington.

     1.54. "GROSS REVENUES" shall have the meaning
ascribed to such term in the Note.

     1.55. "GUARANTOR" shall mean Emeritus. If,
after the Closing Date, any Person in addition to
Emeritus becomes directly liable or otherwise
obligated to Lender with respect to all or any
part of Borrower's obligations to Lender with
respect to the Loan, such Person shall also be
deemed a "Guarantorn.

     1.56. "GUARANTY" shall mean each guaranty
given at any time by any Guarantor to Lender to
secure the Loan in whole or in part, as the same
may be amended from time to time.

     1.57. "IMPROVEMENTS" shall mean all of the
improvements previously made or to be made, in,
on, under, and over the Land in connection with
the Project, including but not limited to all
buildings, appurtenant parking areas, driveways,
roadways, walkways and landscaped areas.

     1.58. "INSPECTION FEE" shall have the meaning
ascribed to such term in Section 5.7

     1.59. "INTEREST RESERVE ADVANCES" shall mean,
as applicable, Construction Interest Reserve
Advances or Lease-Up Interest Reserve Advances.

     1.60. "INTEREST RESERVE AMOUNT" shall mean,
as applicable, the Construction Interest Reserve
Amount or the Lease-Up Interest Reserve Amount.

     1.61. "LAND" shall mean the approximately
three (3) acres of real property situated in
Pierce County, Washington, upon which the Project
will be constructed, as more particularly
described on Exhibit C attached hereto.

     1.62. "LEASE-UP INTEREST RESERVE ADVANCES"
shall have the meaning ascribed to such term in
Section 3.1(a)(iv).

     1.63. "LEASE-UP INTEREST RESERVE AMOUNT''
shall mean Two Hundred Thousand and No/100 Dollars
($ 200,000.00).

     1.64. "LOAN APPLICATION" shall mean
collectively, the Application for Financing dated
September 3, 1996, referencing NWillow Gardens,
Puyallup, Washington" addressed to Emeritus from
Lender, and that certain letter dated October 25,
1996, from Lender to Emeritus providing
conditional approval of the Application, subject
to the terms and conditions set forth therein.

     1.65. "LOAN DISBURSING AGREEMENT" shall mean
the agreement entered into of even date herewith
by and among Lender, Borrower and the Disbursing
Agent pursuant to which the Disbursing Agent
agrees to disburse certain Advances upon the terms
and conditions set forth therein.





6



     1.66. "LOAN DOCUMENTS" shall mean the Loan
Application, this Agreement, the Note, the
Mortgage, the Assignment of Licenses and Permits,
the Assignment of Rents and Leases, the
Conditional Assignment of Management Contract, the
Operating Agreement, the Security Agreements, the
Guaranties, the Loan Disbursing Agreement,
Borrower's Counsel's Opinion, each Consent of
Design Professional, each Consent of Contractor
and all other documents, instruments and
agreements now existing or hereafter entered into
by Borrower or any Guarantor with or for the
benefit of Lender in relation to the Loan, as the
same may be amended from time to time, including
all documents evidencing the authority and
capacity of Borrower and Guarantor to consummate
the transactions contemplated by this Agreement.

     1.67. "MAJOR SUBCONTRACT" shall mean each
contract between the General Contractor and a
Major Subcontractor.

     1.68. "MAJOR SUBCONTRACTOR" shall mean each
subcontractor whose aggregate contract for the
construction of the Project exceeds One Hundred
Thousand Dollars ($100,000.00) or whose contract
involves a function Lender reasonably believes,
after consultation with Borrower and the
Consulting Engineers, to be essential to the
Project, including without limitation all
subcontractors performing site work and all
subcontractors performing work with regard to
HVAC, masonry, plumbing systems or equipment,
electrical systems or equipment, framing, roofing,
windows, cabinets and fire sprinkler systems,
regardless of the amounts payable to such
subcontractors.

     1.69. "MANAGEMENT CONTRACT" shall mean the
management agreement between Borrower and Manager
pursuant to which Manager agrees to operate the
Project as an Assisted Living Facility in
accordance with all applicable Governmental
Requirements and the Loan Documents. The
Management Contract and the fees payable to
Manager thereunder shall be subordinate to the
Loan and shall be terminable by Lender without
cost or liability upon the occurrence of an Event
of Default.

     1.70. "MANAGER" shall mean Emeritus, whose
address is 3131 Elliott Avenue, Suite 500, Seaule,
WA 98121, or any subsequent manager of the Project
approved by Lender.

     1.71. "MANDATORY SWEEP ACCOUNT" shall have
the meaning ascribed to such term in the

     1.72. "MORTGAGE" shall mean the mortgage or
deed of trust dated of even date herewith executed
by Borrower for the benefit of Lender covering the
Property, which will be recorded among the land
records of the jurisdiction in which the Land is
located, as the same may be amended from time to
time.

     1.73. "NET CASH FLOW" shall have the meaning
ascribed to such term in the Note.

     1.74. "NOTE" shall mean the Promissory Note
dated of even date herewith executed by Borrower
and made payable to the order of Lender in the
maximum pnncipal amount of the Loan, as the same
may be amended from time to time.

     1.75. "OPERATING AGREEMENT" shall mean that
certain Washington Assisted Living Facilities
Operating and Licensing Agreement dated of even
date herewith executed by Borrower and Lender.

     1.76. "OPERATING EXPENSES" shall have the
meaning ascobed to such term in the Note.


7



     1.77. "OPERATING RESERVE ADVANCES" shall have
the meaning ascribed to such term in Section
3.1(a)(viii).

     1.78. "OPERATING RESERVE AMOUNT" shall mean
Eighty Thousand and N0/100 Dollars ($80,000.00)
(Shown as Marketing Expenses in Cost Breakdown)

     1.79. "OPERATING RESERVE REQUEST" shall have
the meaning ascubed to such term in Section 3.9
hereof

     1.80. "PERMANENT LOAN CONDITIONS" shall have
the meaning ascribed to such term in

     1.81. "PERMANENT LOAN TERM" shall have the
meaning ascribed to such term in the Note.

     1.82. "PERMITS" shall have the meaning
ascribed to such term in the Operating Agreement.

     1.83. "PERMITTED ENCUMBRANCES" shall mean (i)
the liens and security interests of Lender arising
under the Loan Documents; (ii) such mauers as are
expressly stated as exceptions to title in any
Title Insurance Policy accepted by Lender; (iii)
liens for taxes, assessments, or governmental
charges or levies not yet due and payable, or
being contested in good faith by appropriate
proceedings promptly initiated and diligently
conducted, provided that a reserve or other
appropriate provision as may be required by GAAP
shall have been made therefor and no foreclosure,
distraint, sale or other similar proceedings shall
have been commenced and any additional
requirements with respect thereto imposed by the
Loan Documents have been satisfied; (iv) Resident
Agreements on a form previously approved by Lender
and other residency agreements that are acceptable
to Lender; and (v) such other mahers affecting the
Property as Lender may accept in writing from time
to time in Lender's sole discretion.

     1.84. "PERSON" shall mean any individual,
sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association,
corporation, institution, entity, party or
government (whether territorial, national,
federal, state, county, city, municipal or
otherwise, including, without limitation, any
instrumentality, division, agency, body or
department thereof).

     1.85. "PERSONAL PROPERTY" shall mean all of
Borrower's right, title and interest in and to all
now owned and hereafter acquired (a) tangible and
intangible personal property located on the Land
or in the Improvements or obtained or held in
connection with the Land, the Improvements, the
Project, or the Loan, regardless of where such
personality is located, including, but not by way
of limitation, all goods, consumer goods,
equipment, inventory, accounts, contract rights,
documents, chattel paper, general intangibles,
instruments, and money, which is attached to,
installed on or placed or used on, in connection
with or is acquired for such attachment,
installation, placement or use, or which arises
out or the development, improvement, financing,
leasing, operation or use of, the Land, the
Improvements, fixtures or other goods located on
the Land or Improvements, together with all
additions, accessions, accessories, amendments and
modifications thereto, extensions, renewals,
enlargements and proceeds thereof, substitutions
therefor, and income and proceeds therefrom; (b)
materials, supplies, equipment, apparatus and
other items now or hereafter attached to,
installed on or in the Land or the Improvements,
or which in some fashion are deemed to be fixtures
to the Land or the Improvements under the laws of
the State of Washington, including the Uniform
Commercial Code as adopted in Washington; and (c)
without limiting the



8



foregoing, all furniture, fixtures, furnishings
and specialized equipment and systems necessary or
customary (now or in the future) to operate the
Project for its Intended Use (as defined in the
Operating Agreement) in accordance with the all
applicable
Governmental Requirements and the terms of this
Agreement, including but not limited to all
equipment required for the operation of kitchens,
laundries and resident and health care facilities,
and all beds, mattresses, linens, bedding, towels,
chairs, desks, computers, copiers, tables, sofas,
wheel chairs, walkers, canes, vans and other
transportation equipment, televisions, radios,
intercoms, telephones and office equipment.

     1.86. "PERSONAL PROPERTY ADVANCES" shall have
the meaning ascribed to such term in Section 3.
l(a)(vi).

     1.87. "PLANS" shall mean the final plans,
drawings, and specifications for the construction
of the Project that have been or are to be
prepared by or under the supewision of the
Architect and other Design Professionals, and have
been or are to be delivered to, and must be
acceptable to, Lender and the Consulting
Engineers. To the extent the Plans are mod)fied
from time to time in accordance with the terms of
the Loan Documents, the term "Plans" shall mean
the previously existing Plans as so mod)fied.

     1.88. "PRE-STABILIZATION PERIOD" shall mean
the period commencing upon the expiration of the
Construction and Lease-Up Term and continuing
until the Permanent Loan Conditions are satisfied
in full; provided, however, if not sooner
terminated, the Pre-Stabilization Period will
automatically terminate on the date thirty-six
(36) months from the Closing Date.

     1.89. "PROGRESS SCHEDULE" shall mean have the
meaning ascribed to such term in Section 4. l(r).

     1.90. "PROJECT" shall mean the acquisition of
the Land and the development, construction and
operation of a one hundred (100) unit assisted
living facility thereon, including assisted living
residences and related amenities including
activity lounges, dining facilities, a library and
a barber/beauty salon. All references to the term
Project shall be deemed to include the Property.

     1.91. "PROPERTY" shall mean the Land, the
Improvements, and the Personal Property.

     1.92. "REQUISITIONS FOR ADVANCES" shall mean
the requisitions for Advances to be completed by
Borrower in accordance with the requirements of
Section 3.6 hereof as a condition precedent to any
Construction Advance, Personal Property Advance,
and Advances for payment of the Developer's Fee.

     1.93. "RESIDENT AGREEMENTS" shall mean all
contracts, agreements and consents executed by or
on behalf of any resident or other Person seeking
sewices at the Project, including, without
limitation, assignments of benefits and
guarantees. Resident Agreements shall include all
agreements pursuant to which Persons are granted
the right to reside or remain in the Project for
any period of time.

     1.94. "SECURITY AGREEMENT" shall mean each
security agreement other than the Mortgage, if
any, executed by Borrower to secure the Loan, as
the same may be amended from time to time.

     1.95. "SURVEY" means a survey prepared at
Borrower's expense in accordance with the survey
requirements previously delivered by Lender to
Borrower and approved by Lender, and any
subsequent survey of the Land and Improvements
delivered to Lender in accordance with this
Agreement and thereafter approved by Lender.


9


     1.96. "TANGIBLE NET WORTH" shall mean with
respect to any Person, the value of such Person's
gross assets less the value of such Person's
intangible assets less the amount of such Person's
liabilities.

     1.97. "THIRD PARTY PAYOR" shall have the
meaning ascribed to such term in the Operating
Agreement.

     1.98. "TITLE COMPANY" shall mean the National
Business Unit of Chicago Title Insurance Company,
701 Fifth Avenue, Seattle, Washington 98104, Attn:
Mr. Robert Anderson, or such other title insurance
company as may be acceptable to Lender.

     1.99. "TITLE INSURANCE COMMITMENT" shall mean
the Commitment for Title Insurance issued by the
Title Company under Commitment Number 14 5 8 6 3
and dated January 23, 1997, providing fior the
issuance of a Title Insurance Policy by the Title
Company.

     1.100. "TITLE INSURANCE POLICY" shall mean an
ALTA Loan Policy of Title Insurance in the amount
of the Loan issued by the Title Company, insuring
Lender that the Mortgage constitutes a first and
prior lien covering the Property, subject only to
those exceptions and encumbrances which Lender may
approve, with such endorsements as Lender may
request.

     1. 101. "TOTAL PROJECT COSTS" shall mean the
sum of (a) the costs of acquiring the Land in its
"as is" condition, including all bona fide
transaction costs incurred by Borrower in
connection with such acquisition, as approved by
Lender; (b) all "hard" and "soft" costs incurred
in connection with the development and
construction of the Project in accordance with the
Approved Construction Budget; (c) the Operating
Reserve Amount, to the extent actually advanced by
Lender; (d) the Interest Reserve Amount, to the
extent actually advanced by Lender; and (e) the
bona fide fees and expenses incident to the
closing of the Loan, as approved by Lender.

     1.102. "TOTAL PROJECT VALUE" shall mean the
value of the Project as constructed in accordance
with the Plans, as reflected in the initial
Appraisal of the Project approved by Lender.


ARTICLE II.

                                              THE
LOAN

     2.1. COMMITMENT TO MAKE ADVANCES. Lender
agrees, upon the terms and subject to the
conditions and limitations hereinafter set forth,
to make Advances to Borrower in the maximum
aggregate principal amount of the Loan.

     2.2. LOAN TO VALUE LIMITATIONS.
Notwithstanding any provision contained in this
Agreement or the other Loan Documents to the
contrary, the maximum aggregate principal amount
of the Loan shall be limited to the lesser of (a)
Six Million Four Hundred Sixty-Five Thousand and
No/100 Dollars (S6,465,000), (b) ninety percent
(90%) of Total Project Costs, or (c) eighty
percent (80%) of Total Project Value.

     2.3. INTEREST AND PRINCIPAL PAYMENTS.
Borrower shall make payments of interest and
principal to Lender in accordance with the terms
of the Note. All outstanding and unpaid principal
of the Loan, and all accrued but unpaid interest
thereon and all Additional Interest payable with
respect thereto, unless sooner paid, shall be due
and payable in full on the Maturity Date (as
defined in the Note).



10



     2.4. ADDITIONAL PAYMENTS. In addition to the
payments of principal and interest to be made
pursuant to the Note, Borrower shall also make all
other payments required by the Loan Documents, as
and when required by such Loan Documents.

     2.5. BORROWER'S DEPOSIT. If at any time
Lender, in its sole discretion, determines that
the undisbursed proceeds of the Loan are
insufficient to meet the costs of completing
construction of the Project in accordance with the
Plans and any Governmental Requirements and
thereafter, leasing and operating the Project in
accordance with the Operating Agreement, including
all costs covered by the Approved Construction
Budget and, to the extent not covered by such
budget, the costs of insurance, ad valorem taxes
and other costs incident to the construction
contemplated by the Plans, Lender may refuse to
make additional Advances to Borrower until
Borrower deposits with Lender aufficient
additional funds ("Borrower's Deposit") to cover
the deficiency which Lender deems to exist.
Borrower agrees to make the Borrower's Deposit
with Lender within fifteen (15) days of written
demand therefor by Lender. The Borrower's Deposit
will be disbursed by Lender to Borrower pursuant
to the terms and conditions hereof as if it
constituted a portion of the Loan being made
hereunder, provided, however, Lender shall be
entitled to disburse the Borrower's Deposit prior
to advancing any of the Loan proceeds and the
Borrower's Deposit actually disbursed by Lender
for the purpose of paying construction cost
overruns during the Construction Period (i.e.,
construction costs in excess of the amounts set
forth in the Approved Construction Budget) shall
constitute a portion of Borrower's Equity
Contribution. Any portion of Borrower's Deposit
disbursed for the purpose of paying Operating
Expenses, interest, principal with respect to the
Loan or for any purpose other than construction
cost overruns shall not constitute a portion of
Borrower's Equity Contribution. Unless required by
Governmental Requirements, Lender shall not be
required to pay interest on the Borrowefs Deposit.


ARTICLE III


ADVANCES

     3.1. USE OF ADVANCES.

     (a) Upon and subject to the terms, conditions
and limitations set forth in this Agreement,
Lender shall make Advances solely for the
following purposes:

     (i) for the purpose of paying bona fide fees
and expenses incident to the closing of the Loan
and such other reimbursable costs and expenses
relating to the Project as Lender in its sole
discretion may approve ("Closing Costs Advance");
provided that the aggregate amount of the Closing
Costs Advance shall not exceed the Closing Costs
Amount, and provided, further, that all such fees
and expenses shall be subject to the approval of
Lender;

     (ii) for the purpose of paying the costs of
acquiring the Land pursuant to the Acquisition
Contract ("Acquisition Advance"), provided that
the aggregate amount of the Acquisition Advance
shall not exceed the lesser of seventy-five
percent (75%) of the lower of (A) the value of the
Land in its "as is" condition as reflected in the
initial Appraisal, or (B) the purchase price for
the Land as set forth in the Acquisition Contract;

     (iii) during the Construction Period only,
for the purpose of paying a portion of the
interest which hereafter accrues on outstanding
Advances during such period ("Construction
Interest Reserve Advances"), provided that the
aggregate amount of all Construction Interest
Reserve Advances shall not exceed the Construction
Interest Reserve Amount;


11



     (iv) during the period commencing upon the
expiration of the Construction Period and
continuing only until the expiration of the
Construction Loan Term, for the purpose of paying
a portion of the interest which then accrues on
outstanding Advances during such period ("Lease-Up
Interest Reserve Advances"), provided that the
aggregate amount of all Lease-Up Interest Reserve
Advances shall not exceed the Lease-Up Interest
Reserve Amount;

     (v) for the purpose of paying the costs
identified in the Approved Construction Budget as
"hard" costs as well as the costs identified
therein for site improvements and the other
expenses directly related to the construction of
the Improvements and identified as being covered
by the General Construction Contract
("Construction Advances"), provided that,
Construction Advances shall not exceed the
aggregate of (A) the costs of labor, materials,
services and other expenses incorporated into the
Improvements or the Project in a manner acceptable
to Lender, plus tO if approved by Lender, the
purchase price of all uninstalled materials to be
utilized in the construction of the Improvements
and stored on the Property, if properly secured
and insured to the satisfaction of Lender, plus
(C) the "General Contractor's Fee" payable under
the General Construction Contract, less (D)
retainage as required by Section 3.8 of this
Agreement, and less (O all prior Advances for
payment of the costs of labor, materials, services
and expenses for the construction of the
Improvements; and provided, further, that the
aggregate amount of all Construction Advances
shall not exceed the Construction Amount;

     (vi) for the purpose of paying the costs of
acquiring and installing the Personal Property
necessary for the operation of the Project, to the
extent the costs of such Personal Property are not
covered by the Construction Amount ("Personal
Property Advances"), provided that the aggregate
amount of Personal Property Advances shall not
exceed the total costs for such Personal Property
set forth in the Approved Construction Budget;

     (vii) for the purpose of paying the
Developer's Fee as and when such fee becomes due
and payable under the Development Agreement,
provided that the aggregate amount of Advances
available for paying such Developer's Fee shall
not exceed the Developer's Fee Amount; and

     (viii) no sooner than 120 days prior to the
scheduled expiration of the Construction Period,
for the purpose of paying Operating Expenses
consisting only of marketing expenses for the
Project, and except with respect to such marketing
expenses, after the expiration of the Construction
Period only, for the purpose of paying Operating
Expenses (all Advances for purposes described in
this Section 3. l(a)(viii) being "Operating
Reserve Advances"); provided that the aggregate
amount of all Operating Reserve Advances shall not
exceed the Operating Reserve Amount.

     (b) Upon the occurrence of an Event of
Default under this Agreement, whether or not
declared to be such by Lender, Lender shall have
the right to withhold all further Advances, but at
the sole election of Lender, without waiving such
Event of Default or being required to make any
further or future Advances, Lender may (i) make
Advances to pay interest and/or principal which is
due and payable under the Note, (ii) make Advances
either to Borrower, the General Contractor,
subcontractors, laborers, materialmen, or other
persons furnishing labor, services, or materials
used or to be used on or in the construction of
the Project (including extras approved by Lender)
for the purpose of paying the fees and expenses of
such parties, (iii) make Advances to pay taxes or
insurance premiums which may be due and payable,
(iv) make Advances to pay license, permit, or
other fees payable in connection with any
Governmental Requirements




12



and, (v) make such additional Advances as may be
necessary or desirable, in the sole judgment of
Lender, to preserve and protect the Project and
the value of the Collateral for the Loan.

     3.2. REALLOCATIONS. From time to time
Borrower may request that Lender disburse Loan
proceeds allocated to any of the items in the
Approved Construction Budget for other purposes
and Lender, in its sole discretion, may elect to
approve or disapprove such requested
reallocations. Borrower shall not be entitled to
require that Lender reallocate funds among such
items and Borrower shall not be entitled to
reallocate items of cost or change the Approved
Construction Budget without the prior written
consent of Lender. Lender reserves the right, at
its option, to disburse Loan proceeds allocated to
any of the items in the Approved Construction
Budget for such other purposes or in such
different proportions as Lender, in its sole
discretion, deems necessary or advisable.

     3.3. CONTINGENG ALLOCATIONS. Any amount
allocated in the Approved Construction Budget for
"contingencies" or other non-specific purposes
may, in Lender's discretion, be disbursed by
Lender to pay future contingent costs and expenses
of maintaining, leasing, operating and promoting
the Project and such other costs or expenses as
Lender shall approve. Under no circumstances shall
Borrower have the right to require Lender to
disburse any amounts so allocated and Lender may
impose such requirements and conditions as it
deems prudent and necessary should it elect to
disburse all or any portion of the amounts so
allocated.

     3.4. WITHHOLDING OF ADVANCES.

     (a) Provided that Lender has first not)fied
Borrower of the circumstances upon which it relies
in exercising its rights under this Section
3.4(a), Lender may withhold from an Advance or, on
account of subsequently discovered evidence,
withhold from a later Advance under this
Agreement, or require Borrower to repay to Lender
the whole or any part of any earlier Advance, to
such extent as may be necessary to protect Lender
from loss on account of (i) defective work not
remedied or requirements of this Agreement not
performed, (ii) liens filed or reasonable evidence
indicating probable filing of liens against the
Property, (iii) failure of Borrower or the General
Contractor to make payments to subcontractors for
material or labor, or (iv) a reasonable doubt that
the construction can be completed for the balance
of the Loan then undisbursed. When all such
grounds for withholding advances are removed,
payment shall be made of any amount so withheld
because of them, provided Lender shall have no
obligation to make such payment until the next
scheduled Advance.

     (b) Lender shall be entitled to refrain from
making Advances at any time after Lender has
requested that Borrower make a Borrower's Deposit
until such time as the requested Borrower's
Deposit is made. In addition, even if Lender has
not previously requested that Borrower make a
Borrower's Deposit with Lender, Lender shall be
entitled to refrain from making Advances at any
time that Lender, in its sole discretion, deems
the undisbursed proceeds of the Loan to be
insufficient to complete the construction of the
Project, including all items covered by the
Approved Construction Budget and, to the extent
not covered by such budget, the costs of
insurance, ad valorem taxes and other costs
incident to the construction contemplated by the
Plans.

     3.5. ADVANCES AT CLOSING. The Closing Costs
Advance and the Acquisition Advance will be made
on the Closing Date, upon satisfaction of the
applicable conditions to such Advances set forth
in Article IV. The Closing Costs Advance and the
Acquisition Advance will be funded by Lender to
the Title Company for application in accordance
with closing instructions to be delivered to the
Title Company by Lender.


13


     3.6. REQUISITIONS FOR ADVANCES.

     (a) Unless Lender makes direct payments under
Section 3.7, Construction Advances, Personal
Property Advances and Advances for payment of the
Developer's Fee shall be made after satisfaction
of all applicable conditions precedent set forth
in Article IV, following receipt, review and
approval by Lender and the Consulting Engineer of
periodic Requisitions for Advances on the standard
A I.A. "Application and Certificate for Payment"
signed by Borrower, the General Contractor, the
appropriate Design Professionals, and the
Consulting Engineers, which shall set forth in
trade breakdown form, showing percentage of
completion, and in such detail as Lender may
require, the amounts expended or costs incurred
for work done and necessary material delivered to
the Land and incorporated in the Project since the
previous requisition. Each Requisition for Advance
shall be accompanied by a certificate in the form
attached hereto as Exhibit B signed by Borrower,
the General Contractor, the appropriate Design
Professionals, and the Consulting Engineers, and,
unless previously delivered in accordance with
subsection (d) below, receipts and partial lien
releases or waivers from the General Contractor
and all appropriate subcontractors or suppliers
evidencing payment for all labor and material
funded by Lender under prior Requisitions for
Advance.

     (b) Construction Advances and Personal
Property Advances shall be made not more
frequently than once each month and only after
Borrower has made all required payments of
Additional Interest and all required deposits of
Net Cash Flow to the Mandatory Sweep Account, as
set forth in the Note, and delivered all required
reports with respect thereto.

     (c) Borrower shall submit Requisitions for
Advances to Lender and the Consulting Engineers at
least fifteen (15) days before the date of a
requested Construction Advance, Personal Property
Advance or Advance for payment of the Developer's
Fee. If Borrower does not submit a complete
Requisition for Advance, including all required
supporting information, certifications, releases
and waivers, at least fifteen (15) days before the
date of such a requested Advance, Lender shall
have no obligation to make the requested Advance
on the date requested; provided, however, Lender
shall make such requested Advance no later than
fifteen ( 15) days after receipt and approval of
all such supporting documentation.

     (d) Notwithstanding the requirements of
subsection (a) above, Borrower shall be required
to deliver partial lien releases or waivers
evidencing payment for all labor and materials
funded under any Construction Advance within
thirty (30) days following such Construction
Advance. Accordingly, to the extent more than
thirty (30) days have elapsed since the
immediately preceding Construction Advance, the
requirements of subsection (a) with respect to
partial lien releases and waivers shall be deemed
modified to provide that such lien releases and
waivers shall have been delivered within the
required thirty (30) day period.

     (e) All Requisitions for Advances signed by
Borrower shall be deemed representations and
covenants that all items noted thereon are
expenses properly incurred in respect of the
construction of the Project. Upon funding of any
requisition by Lender or the Disbursing Agent to
Borrower, Borrower shall promptly use such
proceeds to pay all items noted on such
requisition.

     3.7. TO WHOM CONSTRUCTION ADVANCES, PERSONAL
PROPERTY ADVANCES AND ADVANCES FOR DEVELOPER'S FEE
MADE. All Construction Advances, Personal Property
Advances and Advances for payment of the
Developer's Fee shall be disbursed by Lender to
the Disbursing Agent (net of any


14



amounts payable thereunder to Lender). Upon
receipt of such Advances, and provided all
conditions to disbursement set forth in the Loan
Disbursing Agreement have been met, the Disbursing
Agent shall disburse such Advances to Borrower or,
at Lender's sole option as evidenced by written
directions from Lender to the Disbursing Agent, in
one of the following manners: (a) jointly to
Borrower and the General Contractor, or applicable
subcontractor or material or Personal Property
supplier or the Developer; or (b) directly to the
General Contractor or applicable subcontractor or
material or Personal Property supplier or the
Developer.

     3.8. RETAINAGE FROM CONSTRUCTION ADVANCES.
Until such time as construction of the Project is
fifty percent (50%) complete, as confirmed in
writing to Lender by the Consulting Engineers and
the General Contractor, Lender shall retain from
each Construction Advance an amount equal to 10%
of the amount requisitioned and as a result, shall
advance not more than 90/O of each requisitioned
Construction Advance. Thereafter, Lender shall
retain from each Construction Advance (other than
the last Construction Advance) an amount equal to
5% of the amount requisitioned and as a result,
shall advance, not more than 95% of each such
requisitioned Construction Advance. Amounts
retained by Lender pursuant to this Section 3.8
shall be advanced by Lender pursuant to Section
4.3.

     3.9. OPERATING RESERVE ADVANCES. From time to
time during the Construction Loan Term when Gross
Revenues are insufficient to pay the Operating
Expenses of the Project, Borrower may request that
Lender make Operating Reserve Advances to pay
Operating Expenses by submitting a written request
therefor ("Operating Reserve Request") at least
fifteen (15) days prior to the date of the
requested Advance, accompanied by invoices and
such additional information as Lender may
reasonably request to evaluate and confirm that
such invoices relate to bona fide Operating
Expenses of the Project which are then due and
payable and that there are insufficient Gross
Revenues or other available funds to pay such
Operating Expenses. So long as all conditions
applicable to Operating Reserve Advances under
Article IV have been satisfied and no Event of
Default has occurred and is continuing, Lender
shall make the requested Operating Reserve Advance
on the first day of the first calendar month
immediately following receipt and approval of
Borrower's Operating Reserve Request, by advancing
the requested Operating Reserves to the Disbursing
Agent, or at the option of Lender, by advancing
the requested Operating Reserves in direct payment
of the invoices submitted by Borrower; provided,
hawever, Lender shall have no obligation to make
any Operating Reserve Advance if such Advance,
when combined with all previous Operating Reserve
Advances, would exceed the Operating Reserve
Amount. Upon receipt of any Operating Reserve
Advance, provided all conditions to disbursement
set forth in the Loan Disbursing Agreement have
been satisfied, the Disbursing Agent shall
disburse the Operating Reserve in one of the
following manners, as directed by Lender in
writing: (a) directly to Borrower, (b) jointly to
Borrower and the Person to whom the Operating
Expenses covered thereby are due, or (c) directly
to the Person to whom the Operating Expenses
covered thereby are due.

     3.10. INTEREST RESERVE ADVANCES.

     (a) At any time during the Construction
Period when there is insufficient Net Cash Flow
from the Project and an insufficient balance in
the Mandatory Sweep Account to pay interest which
has become due and payable, so long as all
conditions applicable to Interest Reserve Advances
under Article IV have been satisfied and no Event
of Default has occurred and is continuing, Lender
shall make Construction Interest Reserve Advances
not to exceed in the aggregate the Construction
Interest Reserve Amount. Lender shall have no
obligation to make any Construction Interest
Reserve Advance if such Advance, when combined
with all previous Construction Interest Reserve


15



Advances, would exceed the Construction Interest
Reserve Amount. Lender's obligation to make
Construction Interest Reserve Advances shall
terminate without any further action upon the
expiration of the Construction Period.

     (b) At any time after the expiration of the
Construction Period but before the commencement of
the Permanent Loan Term, if there is insufficient
Net Cash Flow from the Project and an insufficient
balance in the Mandatory Sweep Account to pay
interest which has become due and payable, so long
as all conditions applicable to Interest Reserve
Advances under Article IV have been satisfied and
no Event of Default has occurred and is
continuing, Lender shall make Lease-Up Interest
Reserve Advances not to exceed in the aggregate
the Lease-Up Interest Reserve Amount. Lender shall
have no obligation to make any Lease-Up Interest
Reserve Advance if such Advance, when combined
with all previous Lease-Up Interest Reserve
Advances, would exceed the Lease-Up Interest
Reserve Amount. Lender's obligation to make
Lease-Up Interest Reserve Advances shall terminate
without any further action upon the expiration of
the Construction Loan Term.

     (c) To the extent authorized as provided
above, all Lnterest Reserve Advances will be made
on the first day of a calendar month to pay
accrued, unpaid interest on the Loan and shall be
applied directly to the Loan without being funded
to Borrower.

     3.11. ADVANCES TO DISBURSING AGENT. Borrower
hereby acknowledges and agrees that all advances
by Lender to the Disbursing Agent in accordance
with this Agreement shall constitute an Advance to
Borrower under this Agreement and the other Loan
Documents and that interest shall accrue and be
computed thereon from the date advanced by Lender
to the Disbursing Agent, notwithstanding any
subsequent delay in delivery of such Advance to
Borrower or any other Person entitled to the
proceeds of such Advance under the terms of this
Agreement. Notwithstanding the foregoing, nothing
contained herein shall be construed to modify,
limit or impair any rights or remedies of Borrower
contained in the Disbursing Agreement.

     3.12. LIABILITY OF LENDER TO THIRD PARTIES.
Lender shall in no event be responsible or liable
to any person other than Borrower for any Advance
of or failure to advance the proceeds of the Loan
or any part thereof, and no contractor,
subcontractor, supplier, or other person shall
have any right or claim against Lender under or
with respect to this Agreement or the
administration thereof.


ARTICLE IV.
                             CONDITIONS TO
ADVANCES

     4.1. CONDITIONS TO INITIAL ADVANCES. Unless
waived by Lender in writing, the following shall
be conditions precedent to the initial Advance
under this Agreement:

     (a) LOAN DOCUMENTS. Borrower and each other
party to the Loan Documents shall have executed
and de&vered to Lender all of the Loan Documents
requested by Lender, all of which shall be in form
and content acceptable to Lender. All Loan
Documents required by Lender to be recorded or
filed, shall have been recorded or filed and
Lender shall have received evidence satisfactory
to it that it has a first priority, perfected
security interest in, or first priority lien upon,
the Collateral.

     (b) LOAN FEE. Lender shall have received, in
immediately available funds, a non-refundable loan
fee equal to $64,650.



16




     (c) BORROWER'S EQUITY CONTRIBUTION. Borrower
shall have made Borrower's Equity Contribution (as
estimated by Lender and Borrower) and any required
Borrower's Deposit, both of which must be made
from funds other than proceeds of the Loan.

     (d) INSURANCE POLICIES. Lender shall have
received counterpart originals of each insurance
policy (or satisfactory certificates of insurance)
required under the Operating Agreement or any
other of the other Loan Documents. All such
insurance policies shall be in form and substance,
and in amounts, satisfactory to Lender, and shall
be endorsed as required by the Operating
Agreement.

     (e) TITLE INSURARNCE. Borrower shall have
caused the Title Company to deliver to Lender the
Title Insurance Commitment, together with written
assurance that the Title Insurance Policy will be
delivered to Lender within thirty (30) days ofthe
Closing Date.

     (f) SURVEY. Lender shall have received the
Survey.

     (g) SEPARATE TAX LOT. Lender shall have
received evidence satisfactory to Lender that the
Land is carried on all applicable tax rolls as a
separate tax lot or more than one separate tax
lot, and that no property not part of the Land is
included within any tax lot that includes all or
part of the Land.

     (h) APPRAISAL. Lender shall have received the
Appraisal.

     (i) ENVIRONMENTAL REPORT. Lender shall have
received and approved the phase I environmental
report with respect to the Land ordered by Lender
from an environmental firm acceptable to Lender,
and Borrower shall have completed (or caused to be
completed) all clean-up work required or
recommended by such report.

     (j) PLANS. The Plans shall have been approved
by Lender and authenticated by signatures of
Borrower, the Design Professional(s) responsible
for preparation of the Plans, the General
Contractor, the Consulting Engineers, and all
Governmental Authorities having jurisdiction,
including without limitation the Washington
Department of Social and Health Services pursuant
to Washington Administrative Code Chapter 246-316;
one copy ofthe Plans, as so authenticated, shall
have been delivered to Lender and the Consulting
Engineers; and the Plans shall have been assigned
to Lender as collateral for the Loan.

     (k) PERMITS. All necessary building and other
Permits and all other governmental and private
authorizations and approvals necessary for
construction of the Improvements in accordance
with the Plans and all Governmental Requirements
shall have been obtained and copies thereof
delivered to Lender and the Consulting Engineers.

     (1) PLANNING AND ZONING APPROVALS. A
favorable certificate as to any required planning
and zoning approvals required in connection with
the construction of the Project in accordance with
the Plans and any Governmental Requirements shall
have been issued by the Governmental Authorities
having jurisdiction and furnished to Lender and
the Consulting Engineers.

     (m) UTILITY AVAILABILITY. Lender shall have
received satisfactory written evidence of the
availability of utilities (including without
limitation adequate water, storm water sewer,
sanitary sewer, electricity and gas, if required
by the Plans) adequate to serve the Project.



17



     (n) DEVELOPER. Lender shall have approved the
Development Agreement and such approved
Development Agreement shall have been assigned to
Lender as Collateral for the Loan.

     (o) GENERAL CONTRACTOR. Lender, in
consultation with the Consulting Engineers, shall
have approved the General Contractor, its
construction manager for the Project, and the
General Construction Contract, and such General
Construction Contract shall have been assigned to
Lender as Collateral for the Loan.

     (p) SUBCONTRACTORS. Borrower shall have
furnished to Lender a list of the names of all
subcontractors which have been identified as of
the Closing Date. In addition, the Consulting
Engineers shall have approved all Major
Subcontractors and the terms and conditions of
their Major Subcontracts.

     (q) PAYMENT AND PERFORMANCE BONDS.
Performance and labor and material payment bonds
in the full amount of the General Construction
Contract and in form and substance and from a
company satisfactory to Lender, shall have been
issued in respect of the General Construction
Contract, naming Lender as an obligee. In
addition, the form and content of the dual obligee
rider naming Lender as an obligee shall have been
reviewed and approved by Lender.

     (r) PROGRESS SCHEDULE. Borrower shall have
furnished Lender with a construction progress
schedule, in form and substance satisfactory to
Lender and the Consulting Engineers, which must
show the anticipated completion of the
construction of the Project in accordance with the
Plans and all Governmental Requirements on or
before the Completion Date (as such schedule may
be modified from time to time with the consent of
Borrower, Lender and the Consulting Engineers, the
"Progress Schedule").

     (s) MATERIALS. Borrower shall have furnished
to Lender a list of the materials, equipment, and
names of the manufacturers of all materials to be
incorporated into the Project pursuant to the
Plans, all of which and all of whom shall be
satisfactory to Lender and approved by the
Consulting Engineers.

     (t) GOVERNMENTAL REQUIREMENTS. Borrower shall
have delivered to Lender evidence satisfactory to
Lender demonstrating that the Project as designed
and constructed in accordance with the Plans and
operated by the Manager under the Management
Contract will qualify for all applicable Permits
and other Governmental Requirements necessary to
operate the Project as an Assisted Living
Facility.

     (u) MANAGEMENT CONTRACT. Lender shall have
approved the Management Contract and such approved
Management Contract shall have been assigned to
Lender as Collateral for the Loan.

     (v) DRAFT FORM OF RESIDENT AGREEMENTS.
Borrower shall have delivered, and Lender shall
have approved, the draft form of Resident
Agreement(s) Borrower currently intends to use for
the Project.

     (w) LAND ACQUISITION. Emeritus shall have
assigned to Borrower all of its right, title and
interest in and to the Acquisition Contract and
all conditions to the purchase and sale
contemplated thereby shall have been satisfied as
provided therein.

     (x) CONSULTING ENGINEER'S REPORT. Borrower
shall have satisfied each of the requirements set
forth on Schedule I attached hereto to the
satisfaction of Lender and the Consulting
Engineers.



18



     4.2. CONDITIONS TO SUBSEQUENT CONSTRUCTION
ADVANCES. Unless otherwise waived in writing by
Lender, Lender shall have no obligation to make
any Construction Advance after the first
Construction Advance if the Title Company has not
actually issued and delivered to Lender the Title
Insurance Policy, together with such reinsurance
agreements and direct access agreements as Lender
shall designate as requirements on or before the
Closing Date, all of which shall be in form and
substance acceptable to Lender.

     4.3. CONDITIONS TO FINAL CONSTRUCTION ADVANCE
AND ADVANCE OF DEVELOPER'S FEE.

     (a) Prior to the final Construction Advance,
which Advance shall include all retainage withheld
by Lender pursuant to Section 3.8, and the Advance
of any portion of the Developer's Fee, the
following conditions shall have been satisfied:

     (i) the construction of the Project in
accordance with the Plans and all Governmental
Requirements shall have been completed, as
evidenced by the issuance of a certificate of
substantial completion by the Architect and
Consulting Engineers and a "punch list" of
outstanding items approved by Borrower and the
Consulting Engineers as being the only items
remaining to be completed under the General
Construction Contract;

     (ii) final and unconditional lien releases
from the General Contractor and all
subcontractors, suppliers, and any other Person
entitled to file a mechanic's lien with respect to
the Project shall have been furnished to Lender in
form and substance satisfactory to Lender and no
mechanics' or materialmen's liens shall have been
filed against the Property; provided, however, to
the extent sums remain outstanding as a result of
"punch list" items identified as provided in
Section 4.3(a)(i) above, such lien releases may be
conditioned upon or subject to payment of such
outstanding sums only.

     (iii) Lender shall have received copies of
the final certificates of occupancy issued by the
appropriate Governmental Authorities for each
building and for any other portion of the Project
for which certificates of occupancy must be issued
as a result of Governmental Requirements to enable
the Project to open for business and accept
residents;

     (iv) all Permits necessary for the
administration, operation, occupancy and use of
the Project as an Assisted Living Facility shall
be in full force and effect and free from default,
complaint or challenge by any Governmental
Authority having jurisdiction.

     (v) Borrower shall have delivered, and Lender
shall have approved, the final form of Resident
Agreement(s) to be used for the Project;

     (vi) if requested by Lender, no later than
five (5) Business Days prior to the date of such
Advance, Lender shall have received an updated
as-built survey of the Project, in form and
substance satisfactory to Lender;

     (vii) all insurance required to be maintained
pursuant to the Operating Agreement, including
without limitation "all-risk" property insurance,
shall be in full force and effect and copies of
such policies or certificates with respect thereto
as provided by the Operating Agreement shall have
been delivered to Lender, and

     (viii) no Event of Default shall have
occurred and be continuing.



                                            19





     (b) Notwithstanding anything to the contrary
contained herein, after consulting with, and
obtaining the approval of, Borrower and the
Consulting Engineer, Lender, in its sole
discretion, may release the final holdback often
percent (10%) or five percent (5%), as applicable,
of Construction Advances withheld as to any
contractor or subcontractor at such time as (i)
such contractor or subcontractor has completed its
work to the satisfaction of Lender and the
Consulting Engineers and (ii) Lender has been
furnished with an executed final release of
mechanics' kens from each such contractor or
subcontractor.

     (c) To the extent any Person delivers a lien
release pursuant to Section 4.3(a)(ii) which is
conditioned upon receipt of payment for
outstanding "punch list" items, such Person shall
be obligated to complete its "punch list" work
promptly and upon completion thereof and payment
therefor, Borrower shall obtain a final and
unconditional lien release.

     4.4. CONDITIONS TO EACH ADVANCE. The
following shall be conditions precedent to each
Advance (except to the extent waived by Lender or
otherwise expressly provided below), including the
Closing Costs Advance, the Acquisition Advance,
each Construction Advance, each Personal Property
Advance, each Interest Reserve Advance and each
Operating Reserve Advance:

     (a) CONDITIONS TO INITIAL ADVANCE. The
conditions set forth in Section 4. l(a)-(x) shall
have been satisfied.

     (b) REPRESENTATIONS AND WARRANTIES. As of the
date any Advance is made, the representations and
warranties made by Borrower in the Loan Documents
shall be true and correct on and as of such time
with the same effect as though such
representations and warranties had been made on
and as of such time, except to the extent that
such representations and warranties expressly
relate to an earlier date.

     (c) COVENANTS. Borrower shall have furfilled
each and every covenant of this Agreement
(including, but not limited to, the afflrmative
covenants set forth in Article V of this Agreement
and the negative covenants set forth in Article VI
of this Agreement) and the other Loan Documents.

     (d) NO DEFAULT. As of the date such Advance
is made, no Event of Default, nor any event that,
with the passage of time or the giving of notice,
or both, would become an Event of Default, shall
have occurred and be continuing.

     (e) NO ADVERSE CHANGE. There shall not have
occurred any material and adverse change in
Borrower's or Emeritus' financial position since
the date of this Agreement, nor any condition,
event, or act that, in any case or in the
aggregate, would materially and adversely affect
Borrower's or Emeritus' ability to complete the
construction of the Project in accordance with the
Plans and any Governmental Requirements and to
repay the Loan.

     (f) REQUISITIONS. With respect to
Construction Advances and Personal Property
Advances only, Borrower shall have delivered to
Lender a properly executed Requisition for Advance
and the additional documentation and
certifications required to be delivered or to have
been delivered pursuant to Section 3.6 hereof.
With respect to Operating Reserve Advances only,
Borrower shall have delivered to Lender a properly
executed Operating Reserve Request and the
additional documentation required to be delivered
pursuant to Section 3.9 hereof



20



     (g) CONSTRUCTION PROGRESS. The construction
of the Project shall be proceeding in accordance
with the Progress Schedule and the Plans, as
determined by Lender, Borrower and the Consulting
Engineers. As a condition to any Construction
Advance and if required by Lender, any other
Advance, Lender shall receive a certification from
the Consulting Engineers certifying that the
construction of the Project to date has been
completed in accordance with the Plans and all
Governmental Requirements and that the
construction is on schedule in accordance with the
Progress Schedule.

     (h) CERTIFICATION OF CONSULTING ENGINEERS.
The Consulting Engineers shall have certified that
they have no reason to believe the construction of
the Project cannot or will not be completed in
accordance with the Plans by the Completion Date
with the balance of the funds then held by Lender
and available for Construction Advances and
Personal Property Advances under the provisions of
this Agreement. If the Consulting Engineers cannot
make such a certification, whether by reason of
changes in the Plans or for any other reason
whatsoever, Borrower shall, before any further
Advance is made by Lender, make a Borrower's
Deposit with Lender in the amount requested by
Lender or, with the consent of Lender, take such
action as will justify a certification by the
Consulting Engineers as herein required.

     (i) TITLE BRING-TO-DATE. The Title Company
shall have issued a title bring-todate showing
that title to the Land is free and clear of liens
(other than the lien of the Mortgage and Permitted
Encumbrances, if any) to the date of such Advance,
and the Title Company shall have delivered an
endorsement to the Title Insurance Policy to such
effect in form and substance satisfactory to
Lender.

     ( ) CHATTEL SEARCH If requested by Lender,
Lender shall have been provided with a current
Chattel Search Opinion showing no additional
financing statement filings since the Closing Date
other than financing statements naming Lender as
secured party.

     (k) SURVEY. If requested by Lender, no later
than five (5) Business Days prior to the date of
such Advance, Borrower shall provide Lender with a
current survey of the Land, which survey must be
satisfactory to Lender. All such surveys shall
show the location of the Improvements on the Land
with relation to the boundary lines of the Land
and all easements and set-back lines, shall be
prepared by a registered engineer who shall
guaranty thereon that such location is in
compliance with all set-back lines and other
applicable restrictions, and shall comply with the
Survey Requirements heretofore delivered to
Borrower. As soon as the footings and foundations
of each building or structure are in place,
Borrower shall deliver a survey to Lender showing
the location thereof and showing monuments placed
at all major corners of the boundary of the
Property. At any time a survey is required from
Borrower, as aforesaid, an original print thereof
shall be supplied to the Title Company, and it
shall be a condition precedent to making any
subsequent Advance that the Title Company shall
certify that the same discloses no violations,
encroachments, or variations of set-back or other
restrictions, except such which Lender may waive
in writing.

     (1) INSURANCE. All insurance required by the
Loan Documents shall be in full force and effect,
and Lender shall have been provided with
satisfactory evidence of such coverage in
accordance with the Loan Documents.

     (m) BONDS IN EFFECT. Borrower shall not have
done and shall not have permitted anything to be
done that would affect the coverage of any
performance or labor and material payment bonds
required by the terms of this Agreement, and
Borrower shall, within one (1) Business Day
following demand of Lender, furnish a written
statement from the bonding company assuring that
such coverage continues in full force and effect.


21


     (n) ADDITIONAL BONDS. With respect to all
Major Subcontractors identified after the Closing
Date, Lender shall have approved such Major
Subcontractors and their respective construction
contracts, and if required by Lender, such parties
shall have delivered performance and labor and
material payment bonds, in form, substance and
amount and from companies satisfactory to Lender.

     (o) PERMITS AND APPROVALS IN EFFECT. The
building and other Permits and all other
governmental and private approvals and
authorizations required or obtained under
applicable law pertaining to the construction of
the Project in accordance with the Plans and
Governmental Requirements shall have been issued
and continue in force and effect.


ARTICLE V.

AFfIRMATIVE COVENANTS

     Borrower covenants and agrees that from the
date hereof and until payment in full of all
amounts owing by Borrower to Lender, unless Lender
shall otherwise consent in writing:

     5.1. CONSTRUCTION OF PROJECT.

     (a) Borrower will commence construction of
the Project within ten (10) Business Days of the
Closing Date, but in no event prior to the
execution of this Agreement and the recordation of
the Mortgage, and will thereafter proceed with
diligence and continuity, in a good and
workmanlike manner, to construct the Project in
accordance with the Plans, all Governmental
Requirements and the requirements of the Loan
Documents in accordance with the Progress
Schedule, and Borrower shall not permit cessation
of work for a period in excess of fifteen (15)
consecutive days without the prior written consent
of Lender, provided, hawever, that the
restrictions of this sentence shall not apply in
the case of any failure to commence construction
or any such cessation of work due to one or more
Force Majeure Events, provided, further, hawever,
that (i) Borrower shall give prompt written notice
(a "Force Majeure Notice") of such cause or delay
to Lender, and Borrower shall promptly commence or
recommence work immediately upon termination of
such cause of delay and thereafter diligently
prosecute such work to completion as required
hereby, and (ii) no such failure to commence
construction or any such cessation of work shall
in any event continue for more than forty-five
(45) consecutive days without the prior written
consent of Lender. Any notice provided by Borrower
pursuant to the immediately preceding sentence
shall be designated a Force Majeure Notice and
shall include therein a description of the events
or circumstances which Borrower believes
constitute a Force Majeure Event and Borrower's
good faith determination of the date on which the
Force Majeure Event began. Unless Lender not)fies
Borrower within ten (10) Business Days following
receipt of such Force Majeure Notice that Lender
disputes Borrower's characterization of the Force
Majoure Event or the commencement date thereof,
the Completion Date and the Completion Period
shall be extended for a period equal to the number
of days during which the Force Majeure Event of
which Lender has received notice continues, as
such period is approved by Borrower and Lender,
such approval not to be unreasonably withheld, but
in no event more then forty-five (45) days in the
aggregate (regardless of the number of Force
Majeure Events which may occur or the period or
periods of time they may actually last). Borrower
shall complete construction of the Project in
accordance with the Plans and all Governmental
Requirements on or before the Completion Date.

     (b) All costs of construction of the Project
in accordance with the Plans and Governmental
Requirements, including the fees and expenses of
the Consulting Engineers, shall be paid by
Borrower. Except as provided in Section 5.1(c)
below, no


22



work other than that shown in the Plans and the
Approved Construction Budget shall be authorized
or undertaken in the construction of the Project.
The cost of the construction of the Project shall
include all costs of construction (both direct and
indirect) and all other costs. Borrower agrees to
pay all costs as they become due and payable. If
the General Contractor does not proceed diligently
with the completion of the work described in the
Plans as required under the General Construction
Contract or fai!.s for any reason to complete the
work in accordance with its obligations under the
General Construction Contract, Borrower agrees to
cause another contractor or contractors
satisfactory to Lender to be employed at
Borrower's expense to complete such work.

     (c) No changes shall be made in either the
General Construction Contract or in any contract
with a Major Subcontractor without the prior
written approval of the Consulting Engineers and
the prior written consent of Lender. No change
orders will be permitted pursuant to the General
Construction Contract or any Major Subcontract
without the prior written consent of Lender, the
Consulting Engineers, and if required by Lender or
the terms of any such contract, the Design
Professionals and any governmental authorities
having jurisdiction. Lender agrees to act
reasonably promptly and non-arbitrarily in the
consideration of any such changes. Except when any
Governmental Authority requires Lender's consent
prior to giving its consent to any such change,
Lender shall not be required to consider any
change unless the same has first been approved in
writing by the other Persons whose written
approval is required under this Section.

     (d) Borrower will deliver to Lender, on
demand, any contracts, bills of sale, statements,
receipts, vouchers or agreements under which
Borrower claims title to any materials, fixtures
or articles incorporated in the Improvements or
subject to the lien of the Mortgage;

     5.2. EXISTENCE, PROPERTIES, ETC Borrower will
(a) do or cause to be done all things necessary to
preserve and keep in full force and effect its
corporate existence; and (b) do or cause to be
done all things necessary to obtain, extend,
preserve, renew, and keep in full force and effect
the rights, licenses, permits, franchises,
patents, copyrights, trademarks, and trade names
material to the conduct of its business; maintain
and operate such business in substantially the
manner in which it is presently conducted and
operated; comply in all material respects with all
Governmental Requirements and with any and all
other applicable laws, rules, regulations, and
governmental orders; and at all times maintain,
preserve, and protect all property material to the
conduct of such business and keep such property in
good repair, working order, and condition and from
time to time make, or cause to be made, all needed
and proper repairs, renewals, additions,
improvements, and replacements thereto necessary
in order that the business carried on in
connection therewith may be properly conducted at
all times; provided, however, nothing herein shall
be construed to require Borrower to participate in
or, if at any time during the Term Borrower elects
to participate in, to continue to participate in,
the Medicare/Medicaid programs or any successors
thereto. Borrower shall not abandon the Property.

     5.3. PAYMENT OF INDEBTEDNESS. Borrower will
pay all of its indebtedness and obligations
promptly and in accordance with the terms and
conditions thereof and before the same become in
default or subject to fine or penalty and in all
events before any property of Borrower may become
subject to a lien or security interest as a result
of such nonpayment; provided, however, to the
extent allowed by the Operating Agreement and the
other Loan Documents, Borrower shall be allowed to
contest the validity of any such liabilities and
obligations.




23



     5.4. PURSUIT OF PERMITS. Borrower will
undertake all actions necessary or desirable to
obtain the Permits necessary to open and operate
the Project as quicl;ly as possible and in any
event not later than thirty (30) days after
issuance of the final or permanent certificates of
occupancy delivered to Lender pursuant to Section
4.3(a)(iii) hereof, including without limitation a
"Boarding Home" License issued pursuant to Chapter
18.20 of the Revised Code of Washington. Lender
recognizes that certain Permits may not be
obtained prior to Gompletion or substantial
completion of the Project, but Borrower
nevertheless covenants and agrees that it will
undertake and diligently pursue all applications
and other actions possible under applicable
Governmental Requirements (consistent with any
stage of construction and prudent business
practices) to cause all necessary Governmental
Authorities to issue the Permits as soon as
lawfully possible and within the time periods
prescribed by the Loan Documents.

     5.5. NOTICE OF DEFAULT. In the event any
officer or agent of Borrower knows of any Event of
Default which shall have occurred or knows of the
occurrence of any event which, upon notice or
lapse of time or both, would constitute an Event
of Default, Borrower shall promptly furnish to
Lender a written statement as to such occurrence,
specifying the nature and extent thereof and the
action (if any) which is proposed to be taken with
respect thereto.

     5.6. NOTICE OF LITIGATION. Borrower shall
promptly give Lender notice in writing of all
litigation and of all proceedings before any
governmental or regulatory agencies which, if
adversely determined, would materially affect the
Project, the availability of the Permits necessary
to open and operate the Project as required by
this Agreement and the Operating Agreement, or
Borrower's or Guarantor's financial or operating
condition. Upon Lender's request from time to
time, Borrower shall provide Lender with a current
list of all litigation or other proceedings
pending against Borrower or Guarantor.

     5.7. PAYMENT OF COSTS AND EXPENSES. The Loan
shall be made without cost or expense to Lender.
Borrower will pay all costs and expenses
(including attorneys' fees and the fees of the
Consulting Engineers and the fees and expenses of
the Disbursing Agent) incurred by Lender for
preparation of the Loan Documents, perfecting the
security interests of Lender in the Collateral,
and all other reasonable expenses related to the
Loan, whether such expenses are incurred before or
after the date of this Agreement, and regardless
of whether any Advance is made under the Loan
(unless Lender improperly refuses to make an
Advance in accordance with the Loan Documents) and
including all such costs and expenses as may be
incurred by Lender in collecting the Loan. Without
limiting the generality of the foregoing, Borrower
agrees to pay on demand all recordation taxes,
filing or recording fees, mortgage and documentary
taxes, transfer taxes, certificate of title fees,
and all other governmental assessments, taxes,
charges, and fees that may be due upon the filing
or recording of any financing statement, security
agreement, mortgage, document, or like instrument
for purposes of documenting or perfecting Lender's
security interests in any of Borrower's real or
personal property and Lender's security interests
in any real or personal property given by any
Guarantor to secure the Loan. As part of the costs
to be paid by Borrower in accordance with this
Section, Borrower shall pay to Lender a fee of
$1,200 for each inspection visit of the Project
made by Lender (the "Inspection Fee"); provided,
however, that during the Construction Period, so
long as no Event of Default has occurred and is
continuing, Borrower shall not be obligated to pay
such Inspection Fee more than once each calendar
quarter. The Inspection Fee shall be payable in
full upon receipt of Lender's invoice therefor.




24



     5.8. ACCESS TO PROJECT. Borrower shall permit
representatives of Lender, including without
limitation the Consulting Engineers, to enter upon
the Land to inspect the Project at all reasonable
times and also to examine all books and records of
the Project, including all detailed plans, shop
drawings, and specifications.

     5.9. FURTHER ASSURANCES. Borrower will
execute any and all further documents and take all
further actions which may be required under
applicable law, or which Lender may reasonably
request, to grant, preserve, protect, and perfect
Lender's first priority security interest in the
Collateral.

     5.10. APPRAISAL Borrower, at Borrower's sole
cost and expense, shall deliver a current
Appraisal to Lender, within fifteen (15) Business
Days aBer Lender's request, aRer a default by
Borrower or Guarantor under the Loan Documents.

     5.11. TITLE INSURANCE. Borrower shall cause
the Title Company to issue the Title Insurance
Policy pursuant to the Title Insurance Commitment
within thirty (30) days of the Closing Date.

     5.12. SECURITY INTEREST. To further secure
this Agreement and the Loan made hereunder, and
without limiting the scope, effect, or generality
of any Security Agreement, Borrower hereby grants
to Lender a security interest in the Personal
Property. Borrower agrees to execute such further
documents, financing statements and other
instruments as may be reasonably requested by
Lender in order to perfect the security interests
granted herein. To the extent that possession of
the Personal Property is necessary or advisable to
perfect the security interest, Borrower shall
deliver such Personal Property to Lender upon
Lender's request. Borrower agrees to provide such
evidence as Lender shall request from time to time
as to the perfection and first priority of such
security interests and liens.

     5.13. PROCEEDS OF THE LOAN TO BE DRAWN.
Borrower shall cause the requisitions and
certifications referred to herein to be made and
delivered to Lender promptly so as to obtain funds
as they become available for advance under the
terms of this Agreement. Borrower will not borrow
from any other source any amount or use any other
funds which would result in postponing an Advance
or would reduce the amount of an Advance that
otherwise would be made under the terms of this
Agreement. Borrower will provide Lender, from time
to time, with evidence satisfactory to Lender that
Borrower is complying with the conditions of this
Section.

     5.14. DECLARATION. Promptly following
Closing, Borrower shall use all reasonable efforts
to negotiate the Declaration with the other
Persons who will be parties thereto. Lender shall
have the right to review and approve the
Declaration and upon receipt of Lender's approval,
the Declaration shall be recorded in the real
property records of Pierce County, Washington, and
become a Permitted Encumbrance. Upon receipt of a
written request from Borrower, Lender shall
consider whether the lien of the Mortgage shall be
subordinated to the Declaration, which decision
shall be based upon such considerations and
subject to such conditions as Lender, in its sole
discretion, deems necessary to protect and
preserve the Collateral, including the value
thereof


ARTICLE VI.
                                         NEGATIVE
COVENANTS

     Borrower covenants and agrees that, from the
date hereof and until payment in full of all
amounts owed by Borrower to Lender, unless Lender
shall otherwise consent in writing:



25



     6.1. CONSOLIDATIONS, MERGERS AND
ACQUISITIONS. Borrower will not merge or
consolidate with or into any corporation or other
entity or acquire any ongoing business or group of
assets which together constitute an operating
business, or enter into any consolidation,
recapitalization, or reorganization, or invest in
or advance funds to any subsidiary or affiliated
corporation or commence an initial public offering
of the equity interests in Borrower to the public.

     6.2. INVESTMENTS, LOANS, AND ADVANCES.
Borrower will not purchase, hold or acquire
baneficially any stock other securities, or
evidences of indebtedness of, or make or permit to
exist any loans or advances to, or make any
investment or acquire any interest whatsoever in,
any other Person.

     6.3. SALE OF INTERESTS IN BORROWER. Borrower
will not sell, grant or issue any interest in
Borrower to any Person.

     6.4. EQUAL DISTRIBUTIONS. Until the Permanent
Loan Term commences, Borrower shall not make
distributions of any of Borrower's cash or
property to any Person now or hereafter owning an
equity interest in Borrower. Without limiting the
foregoing, Lender hereby acknowledges and agrees
that fees payable to the Manager under the
Management Contract and payment of the Developer's
Fee in accordance with the terms of this Agreement
shall not constitute a distribution in violation
of the terms of this Section 6.4.

     6.5. Judgments Borrower will not permit any
judgment entered against it to remain unsatisfied
for a period of more than thirty (30) days after
the judgment has become final and unappealable.


ARTICLE VIl.

ASSIGNMENTS

     7.1. ASSIGNMENT OF CONSTRUCTION CONTRACT.

     As additional security for the payment of the
Loan, Borrower hereby grants, transfers and
assigns to Lender all of Borrower's rights and
interest, but not its obligations, in, under and
to each Construction Contract upon the following
terms and conditions:

     (a) Borrower represents and warrants that the
copy of each Construction Contract the Borrower
has furnished or wiLl furnish to Lender is or wiLI
be (as applicable) a true and complete copy
thereof, including aLI amendments thereto, if any,
and that Borrower's interest therein is not
subject to any claim, setoffor encumbrance.

     (b) Neither this assignment nor any action by
Lender shall constitute an assumption by Lender of
any obligations under any Construction Contract,
and Borrower shall continue to be liable for all
obligations of Borrower thereunder, Borrower
hereby agreeing to perform aLI of its obligations
under each Construction Contract. Borrower agrees
to indemnify and hold Lender harmless against and
from any loss, cost, liability or expense
(including but not limited to attorneys' fees)
resulting from any failure of Borrower to so
perform.

     (c) Lender shall have the right at any time
(but shall have no obligation) to take in its name
or in the name of Borrower such action as Lender
may at any time determine to be necessary or
advisable to cure any default under any
Construction Contract or to protect the rights of
Borrower or Lender thereunder. Lender shall incur
no liability if any action so taken by it or in
its behalf shall prove to be inadequate or
invalid, and Borrower


26



agrees to indemnify and hold Lender harmless
against and from any loss, cost, liability or
expense (including but not limited to reasonable
attorneys' fees) incurred in connection with any
such action, excepting only liability arising
solely from the gross negligence, willful
misconduct or fraud of Lender or Lender's
officers, directors, employees or duly authorized
agents.

     (d) Prior to the occurrence of an Event of
Default and aBcer any Event of Default is cured to
the satisfaction of Lender, Borrower shall have
the right to exercise its rights as owner under
each Construction Contract, provided that Borrower
shaLI not cancel or amend any Construction
Contract or do or suffer to be done any act which
would impair the security constituted by this
assignment without the prior written consent of
Lender. Subject to the limitations of the
preceding sentence, and subject to the approval
and consent rights otherwise provided in the Loan
Documents, unless an Event of Default has occurred
and is continuing, Lender shall not exercise the
rights of Borrower under the Construction
Contract.

     (e) Borrower hereby irrevocably constitutes
and appoints Lender as Borrower's
attorney-in-fact, in Borrower's or Lender's name,
to enforce all rights of Borrower under each
Construction Contract, to the extent authorized by
this Agreement. Such appointment is coupled with
an interest and is therefore irrevocable.

     (f) This assignment shall inure to the
benefit of Lender and its successors and assigns,
any purchaser upon foreclosure of the Mortgage,
any receiver in possession of the Property and any
corporation affiliated with Lender which assumes
Lender's rights and obligations under this
Agreement.

     7.2. ASSIGNMENT OF PLANS.

     As additional security for the Loan, Borrower
hereby grants, transfers and assigns to Lender all
of Borrower's right, title and interest in and to
the Plans and hereby represents and warrants to
and agrees with Lender as follows:

     (a) Each schedule of the Plans delivered or
to be delivered to Lender is and shatl be a
complete and accurate descHption of the Plans.

     (b) The Plans are and shall be complete and
adequate for the construction of the Project and
there have been no mod)fications thereof except as
described in the schedules thereof delivered or to
be delivered to Lender as provided above. The
Plans shall not be mod)fied without the phor
wdtten consent of Lender.

     (c) Lender may use the Plans for any purpose
relating to the Project, including but not limited
to inspections of construction and the completion
of the construction of the Project.

     (d) Lender's acceptance of this assignment
shall not constitute approval of the Plans by
Lender. Lender has no liability or obligation in
connection with the Plans and no responsibility
for the adequacy thereof or for the construction
of the Project contemplated by the Plans. Lender
has no duty to inspect the construction of the
Project, and if Lender should inspect the
construction, Lender shall have no liability or
obligation to Borrower or any other party arising
out of such inspection. No such inspection nor any
failure by Lender to make objections after any
such inspection shall constitute a representation
by Lender that the construction is in accordance
with the Plans or any other requirement or
constitute a waiver of Lender's right thereaRer to
insist that the construction be completed in
accordance with the Plans or any other
requirement.



27



     (e) This assignment shall inure to the
benefit of Lender and its successors and assigns,
any purchaser upon foreclosure of the Mortgage,
any receiver in possession of the Property and any
corporation affiliated with Lender which assumes
Lender's dghts and obligations under this
Agreement.

     7.3. ASSIGNMENT OF DESIGN SERVICES CONTRACT.

     As additional security for the payment of the
Loan, Borrower hereby grants, transfers and
assigns to Lender all of Borrower's rights and
interest, but not its obligations, in, under and
to each Design Services Contract upon the
following terms and conditions:

     (a) Borrower represents and warrants that the
copy of each Design Services Contract the Borrower
has furnished or will furnish to Lender is or will
be (as applicable) a true and complete copy
thereof, including all amendments thereto, if any,
and that Borrower's interest therein is not
subject to any claim, setoffor encumbrance.

     (b) Neither this assignment nor any action by
Lender shall constitute an assumption by Lender of
any obligations under any Design Services
Contract, and Borrower shall continue to be liable
for all obligations of Borrower thereunder,
Borrower hereby agreeing to perform all of its
obligations under each Design Services Contract.
Borrower agrees to indemnify and hold Lender
harmless against and from any loss, cost,
liability or expense (including but not limited to
attorneys' fees) resulting from any failure of
Borrower to so perform.

     (c) Lender shall have the right at any time
(but shall have no obligation) to take in its name
or in the name of Borrower such action as Lender
may at any time determine to be necessary or
advisable to cure any default under any Design
Services Contract or to protect the rights of
Borrower or Lender thereunder. Lender shall incur
no liability if any action so taken by it or in
its behalf shall prove to be inadequate or
invalid, and Borrower agrees to indemnify and hold
Lender harmless against and from any loss, cost,
liability or expense (including but not limited to
reasonable attorneys' fees) incurred in connection
with any such action, excepting only liability
arising solely from the gross negligence, willful
misconduct or fraud of Lender or Lender's
officers, directors, employees or duly authorized
agents.

     (d) Prior to the occurrence of an Event of
Default and after any Event of Default is cured to
the satisfaction of Lender, Borrower shall have
the right to exercise its rights as owner under
each Design Services Contract, provided that
Borrower shall not cancel or amend any Design
Services Contract or do or suffer to be done any
act which would impair the security constituted by
this assignment without the prior written consent
of Lender. Subject to the limitations of the
preceding sentence, and subject to the approval
and consent rights otherwise provided in the Loan
Documents, unless an Event of Default has occurred
and is continuing, Lender shall not exercise the
rights of Borrower under any Design Services
Contract.

     (e) Borrower hereby irrevocably constitutes
and appoints Lender as Borrower's
attorney-in-fact, in Borrower's or Lender's name,
to enforce all rights of Borrower under each
Design Services Contract, to the extent authorized
by this Agreement. Such appointment is coupled
with an interest and is therefore irrevocable.

     (f) This assignment shall inure to the
benefit of Lender and its successors and assigns,
any purchaser upon foreclosure of the Mortgage,
any receiver in possession of the Property and any
corporation affiliated with Lender which assumes
Lender's rights and obligations under this
Agreement.





     7.4. ASSIGNMENT OF DEVELOPMENT AGREEMENT.

     As additional security for the payment of the
Loan, Borrower hereby grants, transfers and
assigns to Lender all of Borrower's rights and
interest, but not its obligations, in, under and
to the Development Agreement upon the following
terms and conditions:

     (a) Borrower represents and warrants that the
copy of the Development Agreement the Borrower has
furnished or will furnish to Lender is or will be
(as applicable) a true and complete copy thereof,
including all amendments thereto, if any, and that
Borrower's interest therein is not subject to any
claim, setoff or encumbrance.

     (b) Neither this assignment nor any action by
Lender shall constitute an assumption by Lender of
any obligations under the Development Agreement,
and Borrower shall continue to be liable for all
obligations of Borrower thereunder, Borrower
hereby agreeing to perform all of its obligations
under the Development Agreement. Borrower agrees
to indemnify and hold Lender harmless against and
from any loss, cost, liability or expense
(including but not limited to attorneys' fees)
resulting from any failure of Borrower to so
perform.

     (c) Lender shall have the right at any time
(but shall have no obligation) to take in its name
or in the name of Borrower such action as Lender
may at any time determine to be necessary or
advisable to cure any default under the
Development Agreement or to protect the rights of
Borrower or Lender thereunder. Lender shall incur
no liability if any action so taken by it or in
its behalf shall prove to be inadequate or
invalid, and Borrower agrees to indemnify and hold
Lender harmless against and from any loss, cost,
liability or expense (including but not limited to
reasonable attorneys' fees) incurred in connection
with any such action, excepting only liability
arising solely from the gross negligence, willful
misconduct or fraud of Lender or Lender's
officers, directors, employees or duly authorized
agents.

     (d) Prior to the occurrence of an Event of
Default and after any Event of Default is cured to
the satisfaction of Lender, Borrower shall have
the right to exercise its rights as owner under
the Development Agreement, provided that Borrower
shall not cancel or amend the Development
Agreement or do or suffer to be done any act which
would impair the security constituted by this
assignment without the prior written consent of
Lender. Subject to the limitations of the
preceding sentence, and subject to the approval
and consent rights otherwise provided in the Loan
Documents, unless an Event of Default has occurred
and is continuing, Lender shall not exercise the
rights of Borrower under the Development
Agreement.

     (e) Borrower hereby irrevocably constitutes
and appoints Lender as Borrower's
attorney-in-fact, in Borrower's or Lender's name,
to enforce all rights of Borrower under the
Development Agreement, to the extent authorized by
this Agreement. Such appointment is coupled with
an interest and is therefore irrevocable.

     (f) This assignment shall inure to the
benefit of Lender and its successors and assigns,
any purchaser upon foreclosure of the Mortgage,
any receiver in possession of the Property and any
corporation affiliated with Lender which assumes
Lender's rights and obligations under this
Agreement.







29




ARTICLE VIII.
                           REPRESENTATIONS AND
WARRANTIES

     Borrower makes the following representations
and warranties to Lender on the date hereof and at
the time any Advance is made, and with respect to
each such Advance; provided, hcswever, if at the
time that an Advance is requested Borrower is
unable to make one or more of the following
representations or warranties, then Borrower shall
not be required to make such representation or
warranty if Borrower shall have given Lender
written notice of, and Lender shall have accepted,
Borrower's inability to make such representation
or warranty, which notice shall identify each
representation and warranty that Borrower is
unable to make and shall include an explanation in
reasonable detail as to why Borrower is unable to
make such representation or warranty. If Borrower
is unable to make one or more of the
representations or warranties contained in this
Article with respect to any requested Advance and
such inability is not accepted by Lender as
provided in the preceding sentence, such inability
shall constitute a failure to satisfy the
condition precedent set forth in Section 4.4 with
respect to such requested Advance.

     8.1. ORGANIZATION, POWER, ETC. Borrower (a)
is a corporation, duly formed, validly existing
and in good standing under the laws of the State
of Washington, (b) has the corporate power and
authority to own its properties and assets and to
carry on its business as now conducted, (c) has
the corporate power to execute, deliver and
perform its obligations under each of the Loan
Documents and each agreement or instrument
contemplated thereby to which it is or will be a
party, and (d) is qualified to do business in
every jurisdiction where such qualification is
necessary except where the failure so to qualify
would not have a materially adverse effect on its
business, properties, operations, prospects or
condition, financial or otherwise, or would impair
its ability to perform its obligations under or in
connection with the Loan Documents.

     8.2. AUTHORIZATION OF BORROWING, ETC The
borrowings hereunder and the execution, delivery
and performance of each of the Loan Documents have
been duly authorized by all requisite action on
the part of Borrower and will not (a) contravene
any provision of law, any order of any court or
other agency of government, which contravention
could reasonably be expected to have a material
adverse effect upon the prospects, profits, or
financial or operating condition of Borrower or
Borrower's ability to perform its obligations
under the Loan Documents, or (b) contravene the
articles of incorporation, bylaws, or other
charter documents governing Borrower or any
indenture, agreement, or other instrument binding
upon Borrower, which contravention could
reasonably be expected to have a material adverse
effect upon the prospects, profits, or financial
or operating condition of Borrower or Borrower's
ability to perform its obligations under the Loan
Documents, or (c) be in conflict with, result in
the breach of or constitute (with due notice or
lapse of time or both) a default under any such
indenture, agreement, document or other instrument
binding upon Borrower, which default or breach
could reasonably be expected to have a material
adverse effect upon the prospects, profits, or
financial or operating condition of Borrower or
Borrower's ability to perform its obligations
under the Loan Documents, or (d) result in the
creation or imposition of any lien, charge, or
encumbrance of any nature whatsoever upon any of
the property or assets of Borrower, except
pursuant to the Loan Documents.

     8.3. GOVERNMENTAL APPROVAL Except as provided
in the Operating Agreement with respect to the
Permits necessary to construct, open and operate
the Project as an assisted living facility, no
action or consent of, or registration or filing
with, any Governmental Authority is required under
existing law in connection with the execution,
delivery, and performance by Borrower of this
Agreement, the borrowings hereunder or the
execution and delivery by Borrower of any of the
Loan Documents, or, if any such action, consent,
filing, or registration is required, Borrower has
given Lender


30



written notice thereof, including notice that (a)
the required action has been taken, (b) the
required consent has been obtained, and/or (c) the
required filing or registration has been made.

     8.4. PLANS APPROVED. The Plans have been
approved by all Governmental Authorities having
jurisdiction, and all necessary building and all
other construction related Permits and all other
governmental and private authorizations and
approvals with respect to the Plans and
construction of the Improvements have been
obtained.

     8.5. LITIGATION.

     (a) On the date of this Agreement, there are
no actions, suits, or proceedings at law or in
equity or by or before any Governmental Authority
pending against Borrower or Emeritus or affecting
the Project or the Property other than as
disclosed on Schedule II hereto, and, to
Borrower's knowledge, there are no actions, suits,
or proceedings threatened against or affecting
Borrower or Emeritus or any property or rights of
Borrower or Emeritus, including the Project or the
Property.

     (b) There are no pending actions, suits, or
proceedings at law or in equity or by or before
any Governmental Authority which if adversely
determined would have a material adverse effect
upon the prospects, profits, or financial or
operating condition of Borrower or Emeritus.

     (c) Neither Borrower nor Emeritus is in
default with respect to any judgment, order, writ,
injunction, decree, demand, rule, or regulations
of any court, arbitrator, grand jury, or of any
Governmental Authority.

     8.6. AGREEMENTS Neither Borrower nor Emeritus
is a party to, or bound by, any contract or
instrument, or subject to any charter or other
corporate restriction, materially and adversely
affecting the business, property, assets,
operations or condition, financial or otherwise,
of Borrower or Emeritus.

     8.7. TAXES. Borrower and Emeritus have filed
and will continue to file all United States income
tax returns and all state income tax returns that
are required to be filed, and have paid, or made
adequate provisions for the payment of, all taxes
that have or may become due pursuant to said
returns or pursuant to any assessment received by
Borrower or Emeritus, except such taxes, if any,
as are being contested in good faith and as to
which adequate reserves have been provided.

     8.8. COMPLIANCE WITH LAW. To the best of
Borrower's knowledge, after due investigation and
inquiry, Borrower and Emeritus are in compliance,
in all material respects, with all applicable
statutes, rules, regulations, orders, and
restrictions of any Governmental Authority having
jurisdiction over the conduct of their businesses
or the ownership of their properties. The
construction to be performed on the Land in
accordance with the Plans and upon obtaining the
required Permits described in the Operating
Agreement, the use and continued use of the
Project as an Assisted Living Facility, will not
violate any environmental, ecological,
subdivision, zoning, use, or other Governmental
Requirement or any agreement applicable to the
Land, the Property or the Project.

     8.9. ERISA. Based upon ERISA and published
interpretations thereunder, Borrower, Emeritus,
their affiliates and any employee plan or pension
plan of Borrower or Emeritus are in compliance in
all material respects with ERISA.




31



     8.10. FINANCIAL STATEMENTS. Each financial
statement of Borrower and Emeritus delivered to
Lender heretofore, concurrently herewith, or
hereafter, was and will be prepared in conformity
with GAAP, or other good accounting principles
approved by Lender in writing, applied on a basis
consistent with that of previous statements and
completely and accurately discloses the financial
condition of Borrower and Emeritus (including all
contingent liabilities) as of the date thereof and
for the period covered thereby, and there has been
no material adverse change in either Borrower's or
Emeritus' financial condition subsequent to the
date of the most recent financial statement of
Borrower and Emeritus delivered to Lender.

     8.11. FISCAL YEARS. Borrower's fiscal year
begins on January 1 and ends on December 31. The
fiscal year of Emeritus begins on January 1 and
ends on December 31.

     8.12. PLACE OF BUSINESS On the date of this
Agreement, the address of Borrower's chief
executive offlce and chief place of business is
3131 Elliott Avenue, Suite 500, Seaule, Washington
98121, which is the mailing address for Borrower.

     8.13. BROKERAGE COMMISSION. Borrower has not
made any agreement or taken any action that may
cause anyone to become entitled to a commission or
finder's fee directly attributable to the making
of the Loan or the acquisition of the Property,
except as disclosed in the Loan Application and
the Acquisition Contract.


ARTICLE IX.
              EVENTS OF DEFAULT AND CERTAIN
REMEDIES

     9.1. DEFAULT. The occurrence of any of the
following shall be deemed an Event of

     (a) A failure to pay any sum due and payable
under the terms of the Note, the Mortgage, this
Agreement or any of the other Loan Documents as
and when the same becomes due and payable and the
continuation of such failure a period of ten (10)
days after such payment is due; provided that in
the case of any payment of Additional Interest due
and payable under the terms of the Note, the grace
period afforded Borrower shall be limited to five
(5) days; and provided, further, that in the case
of payments due on the Maturity Date of the Note,
no grace period shall apply; or

     (b) A failure to perform any term, condition
or covenant of the Note, the Mortgage, this
Agreement or any of the other Loan Documents
(other than a failure to pay any sum due and
payable thereunder) as and when required by the
terms of such Loan Documents, and unless otherwise
provided in this Agreement or the other Loan
Documents, the continuation of such failure for a
period of thirty (30) days following wriKen notice
of such failure from Lender to Borrower, or

     (c) Any representation, warranty, or
statement made by Borrower or Emeritus in, under,
or pursuant to the Loan Documents is determined by
Lender to be false or misleading in any material
respect as of the date hereof or thereof or shall
become so at any time prior to the repayment in
full of the Loan; or

     (d) Any representation, warranty, or
statement made by the Architect or any other
Design Professional, the General Contractor or any
subcontractor or any other Person engaged by or on
behalf of Borrower or Emeritus in connection with
the development, construction or operation of the
Project, in, under or pursuant to the Loan
Documents is determined by Lender to be false or
misleading in any material respect as of the date
hereof or thereof or shall become so at any time
prior to the repayment in full of the Loan; or


32



     (e) Failure of the Title Company to deliver
the Title Insurance Policy as required herein
within thirty (30) days of the Closing Date and
the continuation of such failure for a period of
five (5) Business Days following wriKen notice of
such failure from Lender to Borrower; or

     (f) Failure to complete construction of the
Improvements in accordance with the Plans and all
applicable Governmental Requirements on or before
the expiration of the Construction Period, as
evidenced by the issuance of a certificate of
substantial completion by the Architect and
Consulting Engineers and a "punch list" of
outstanding items approved by Borrower and the
Consulting Engineers as being the only items
remaining to be completed under the General
Construction Contract; or

     (g) If the Project is so materially injured
or destroyed by fire or other casualty that the
Consulting Engineers are unable to certify to
Lender or Lender, in its sole discretion, is
otherwise unable to confine, that the construction
of the Project in accordance with the Plans and
all Governmental Requirements and any additional
construction or repair necessary as a result of
the fire or other casualty will be completed prior
to the Completion Date (as such Completion Date
may be extended in accordance with the provisions
of Section 5.1 hereof as a result of Force Majeure
Events); or

     (h) If Borrower fails to satisfy the
conditions to any Advance within thirty (30) days
following the submission of a Requisition for
Advance requesting such Advance; or

     (i)  Any change in the stock ownership of
Borrower; or

     (j) If Borrower or its directors or
stockholders shall institute any proceedings for
the dissolution or liquidation of Borrower or fail
to protect and preserve Borrower's independent
corporate franchise or pay taxes imposed in
connection therewith or comply with any and all
additional requirements under Governmental
Requirements necessary thereto; or

     (k) Any court of competent jurisdiction shall
sign an order (i) adjudicating Borrower or any
Guarantor bankrupt, (ii) appointing a trustee or
receiver of the Property or any substantial or
material portion thereof, or (iii) approving a
petition for, or effecting, an arrangement in
bankruptcy, or any other judicial mod)fication or
alteration of the rights of Lender or of other
creditors of Borrower or any Guarantor, or if
Borrower or any Guarantor shaD (A) file any
petition in bankruptcy or become the subject of
any involuntary petition filed in bankruptcy or
(B) consent to any other action seeking any such
judicial order; or if Borrower or any Guarantor
shaD make an assignment for the benefit of
creditors or shad admit in writing its inability
to pay its or their debts generally as they become
due; it being agreed that for purposes of this
provision, the term Borrower shaR be deemed to
include aD Persons included in the Borrowing Group
if the rights of Lender under the Loan Documents
or the enforcement of any remedies of Lender under
the Loan Documents are chaRenged, stayed or
affected in or as a result of any proceedings
involving any such member of the Borrowing Group;
or

     (l) If the Tangible Net Worth of Emeritus as
set forth in the financial statements required to
be delivered to Lender with respect to Emeritus
pursuant to the Operating Agreement is less than
$25,000,000 or if Borrower or Emeritus fails to
deliver such financial statements (without
intending to waive any Event of Default which
might otherwise result from such failure), if
Lender otherwise determines that the Tangible Net
Worth of Emeritus is less than $25,000,000; or





33



     (m) The occurrence of an event of default
(regardRess of how such default may be defined or
described) under any of the other Loan Documents
and the expiration of any cure period expressly
provided with respect thereto.

     9.2. Remedies Upon the occurrence of an Event
of Default, Lender may exercise any one or more of
the following rights or remedies or any other
rights or remedies available to Lender at law or
in equity upon the occurrence of an Event of
Default hereunder:

     (a) Lender shall have no further obligation
to make any additional Advances to Borrower, and
Lender may declare the Note to be immediately due
and payable, whereupon the Note shall become
immediately due and payable, both as to principal
and interest, without presentment, protest, notice
of acceleration, notice of intent to accelerate or
other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in
the Note to the contrary notwithstanding.

     (b) Lender may (but shall not be obliged to)
apply any part of the undisbursed proceeds of the
Loan to the payment of all costs and expenses that
may be incurred by Lender under any Loan Document
as a result of an Event of Default and to the
payment of interest on the Note.

     (c) Lender may, at its election, proceed to
finish construction of the Project, and for that
purpose may employ such contractors, agents, and
employees as it deems appropriate and may advance
any proceeds of the Loan remaining unadvanced, as
well as any previously made Borrower's Deposit and
any balance in the Mandatory Sweep Account, which
proceeds and other sums, together with any
additional sums required to protect and preserve
the Project and Lender's interest therein, shall
be secured by the Mortgage.

     (d) Borrower hereby irrevocably constitutes
and appoints Lender Borrower's attorney-in-fact
(which appointment shall be deemed coupled with an
interest) for and in its name or the name of
Borrower to perform all the obligations of
Borrower under the terms of this Agreement, and to
exercise all the rights and powers of Borrower
under the General Construction Contract, the
contracts with the Design Professionals, and such
other contracts and agreements as Borrower has
executed or should have executed or intends to
execute in connection with completion of
construction of the Project, and payment of all
costs relating thereto. Borrower hereby grants and
gives to Lender full power and authority to do and
perform all and every act and thing whatsoever
authorized, permitted, requisite, or necessary to
be done by Borrower to complete construction of
the Project in accordance with the Plans and all
Governmental Requirements and to pay all costs in
connection therewith, to all intents and purposes
the same as Borrower migh't do, hereby ratifying
and confirming all the said attorney shall
lawfully do or choose to do or be done by virtue
hereof, it being understood and agreed that the
aforesaid provisions impose no duty or obligation
on Lender to do or perform any act whatsoever. Any
such action by Lender shall not relieve Borrower
of its responsibility to furnish any additional
funds needed to complete construction of the
Project in accordance with the Plans and all
Governmental Requirements. Upon demand by Lender,
any or all agreements or contracts with the
General Contractor, subcontractors, and suppliers
shall be assigned to Lender by Borrower and/or the
General Contractor, subcontractors, and suppliers.
After an Event of Default, Lender may, at its sole
discretion, continue to make Advances and all sums
so advanced shall be deemed Advances under this
Agreement and not modifications thereof.





34



     9.3. REMEDIES CUMULATIVE. The rights and
remedies of Lender upon the occurrence of an Event
of Default set forth herein are in addition to the
rights and remedies contained elsewhere in the
Loan Documents, and available at law and in
equity. No failure by Lender to exercise and no
delay in exercising any right, power, or privilege
under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise
of any right, power, or privilege hereunder
preclude any other further exercise thereof or the
exercise of any other right, power, or privilege.
Each waiver shall be strictly construed and shall
apply only to the next succeeding disbursement.

                                         ARTICLE
X.
LENDER'S DISCLAIMERS - BORROWER'S INDEMNITIES

     10.1. NO OBLIGATION BY LENDER TO CONSTRUCT.
Lender has no liability or obligation whatsoever
or howsoever in connection with the Property or
the development, construction, or completion
thereof or work performed thereon, and has no
obligation except to disburse the Loan proceeds as
herein agreed. Lender is not obligated to inspect
the Project nor is Lender liable, and under no
circumstances whatsoever shall Lender be or become
liable, for the performance or default of any
contractor or subcontractor, or for any failure to
construct, complete, protect or insure the
Property, or any part thereof, or for the payment
of any cost or expense incurred in connection
therewith, or for the performance or
nonperformance of any obligation of Borrower or
Guarantor to Lender or to any other person, firm
or entity without limitation. Nothing, including
without limitation any disbursement of Loan
proceeds or the Borrower's Deposit or funds from
the Mandatory Sweep Account nor acceptance of any
document or instrument, shall be construed as such
a representation or warranty, express or implied,
on Lender's part.

     10.2. NO OBLIGATION BY LENDER TO OPERATE. Any
term or condition of any of the Loan Documents to
the contrary notwithstanding, Lender shall not
have, and by its execution and acceptance of this
Agreement hereby expressly disclaims, any
obligation or responsibility for the management,
conduct or operation of the business and affairs
of Borrower or Guarantor. Moreover, Lender's
approval of the Plans is solely for the benefit of
Lender and shall not be deemed a representation,
warranty or guaranty as to the completeness,
correctness or adequacy (legal, technical or
otherwise) of the Plans or the work of any person
who prepared the Plans, and Lender's approval of
the Plans shall not be relied upon by Borrower,
Guarantor or any other person for any purpose. Any
term or condition of the Loan Documents which
permits Lender to disburse funds, whether from the
proceeds of the Loan, the Borrower's Deposit, the
Mandatory Sweep Account or otherwise, or to take
or refrain from taking any action with respect to
Borrower, Guarantor, the Property or any other
Collateral, shall be deemed to be solely to permit
Lender to audit and review the management,
operation and conduct of the business and affairs
of Borrower and Guarantor, and to maintain and
preserve the security given by Borrower to Lender
for the Loan, and may not be relied upon by any
other person. Further, Lender shall not have, has
not assumed and by its execution and acceptance of
this Agreement hereby expressly disclaims any
liability or responsibility for the payment or
performance of any indebtedness or obligation of
Borrower or Guarantor and no term or condition of
the Loan Documents shall be construed otherwise.
Borrower hereby expressly acknowledges that no
term or condition of the Loan Documents shall be
construed so as to deem the relationship between
Borrower, Guarantor and Lender to be other than
that of borrower, guarantor and lender, and
Borrower shall at all times represent that the
relationship between Borrower, Guarantor and
Lender is solely that of borrower, guarantor and
lender. Borrower hereby indemnifies and agrees to
hold Lender harmless from and against any cost,
expense or liability incurred or suffered by
Lender as a result of any assertion or claim of
any obligation or responsibility of Lender for the
management, operation and


35



conduct of the business and affairs of Borrower or
Guarantor, or as a result of any assertion or
claim of any liability or responsibility of Lender
for the payment or performance of any indebtedness
or obligation of Borrower or Guarantor.

     10.3. INDEMNTY BY BORROWER BORROWER HEREBY
INDEMNIFES LENDER, ANY SUBSEQUENT HOLDER OF THE
NOTE AND OCWEN FINANCL9L CORPORATION AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AND
AGENTS FROM, AND HOLDS EACH OF THEM HARMLESS
AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, COSTS, AND EXPENSES TO WHICH ANY OF THEM
MAY BECOME SUBJECT, INSOFAR AS SUCH LOSSES,
LIABILITES, CLAIMS, DAMAGES, COSTS, AND EXPENSES
ARISE FROM OR RELATE TO ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY OR
FROM ANY INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
THREATENED INVESTIGATION, LITIGATION, OR OTHER
PROCEEDING RELATING TO ANY OF THE FOREGOING
(WHETHER OR NOT THE NEGLIGENCE OF TEE INDEMNIFED
PARTY WAS TlE SOLE OR A CONTRlBUTlNG CAUSE THEREOF
TO THE EXTENT PERMITTED BY APPLICABLE LAW;
PROVIDED, HOWEVER, NOTWITHSTANDING ANY PROVISION
OF THE LOAN DOCUMENTS TO THE CONTRARY, 1N NO EVENT
SHALL BORROWER'S DEFENSE AND INDEMNIFICATION
OBLIGATIONS UNDER THE LOAN DOCUMENTS EXTEND TO ANY
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR FRAUD OF
LENDER, OR LENDER'S OFFICERS, DIRECTORS, EMPLOYEES
OR DULY AUTHORIZED AGENTS). WITHOUT INTENDING TO
LIMIT THE REMEDIES AVAILABLE TO LENDER WITH
RESPECT TO THE ENFORCEMENT OF ITS INDEMNIFICATION
RIGHTS AS STATED HEREIN OR AS STATED IN ANY LOAN
DOCUMENT, IN THE EVENT ANY CLAD!vI OR DEMAND IS
MADE OR ANY OTHER FACT COMES TO THE ATTENTION OF
LENDER IN CONNECTION WITH, RELATING OR PERTAINING
TO, OR ARISING OUT OF THE TRANSACTIONS
CONTEMPLATED BY 'l'HlS AGREEMENT, WHICH LENDER
REASONABLY BELIEVES MIGHT INVOLVE OR LEAD TO SOME
LIABILITY OF LENDER, BORROWER SHALL, IMMEDIATELY
UPON RECEIPT OF WRITTEN NOTIFICATION FROM LENDER
OF ANY SUCH CLAIM OR DEMAND OR UPON OBTAINING
ACTUAL NOTICE THEREOF, WHICHEVER OCCURS FIRST,
ASSUME 1N FULL THE PERSONAL RESPONSIBILITY FOR AND
THE DEFENSE OF ANY SUCH CLAIM OR DEMAND AND PAY 1N
CONNECTION THEREWITH ANY LOSS, DAMAGE, DEFICIENCY,
LIABILITY OR OBLIGATION, INCLUDING, WITHOUT
LIMITATION, LEGAL FEES AMD COURT COSTS INCURRED IN
CONNECTION THEREWITH. IN THE EVENT OF COURT ACTION
1N CONNECTION WITH ANY SUCH CLAIM OR DEMAND,
BORROWER SHALL ASSUME 1N FULL THE RESPONSIBILITY
FOR THE DEFENSE OF ANY SUCH ACTION AMD SHALL
IMMEDIATELY SATISFY AND DISCHARGE ANY FINAL AND
NONAPPEALABLE DECREE OR JUDGMENT RENDERED THEREIN.
LENDER MAY, IN ITS SOLE DISCRETION, MAKE ANY
PAYMENTS SUSTAINED OR INCURRED BY REASON OF ANY OF
THE FOREGOING; AND BORROWER SHALL IMMEDIATELY
REPAY TO LENDER, IN CASH AND NOT WITH PROCEEDS OF
THE LOAN, OR AMOUNT OF SUCH PAYMENT, WITH INTEREST
THEREON AT THE MAXIMUM RATE OF INTEREST PERMITTED
BY APPLICABLE LAW FROM THE DATE OF SUCH PAYMENT.
LENDER SHALL HAVE THE RIGHT TO JOIN BORROWER AS A
PARTY DEFENDANT IN ANY LEGAL ACTION BROUGHT
AGAINST LENDER, AND BORROWER HEREBY CONSENTS TO
THE ENTRY OF AN ORDER MAKING BORROWER A PARTY
DEFENDANT TO ANY SUCH ACTION.



36




     10.4. NO AGENCY. Nothing herein shall be
construed as making or constituting Lender as the
agent of Borrower in making payments pursuant to
any Construction Contracts or subcontracts entered
into by Borrower for construction of the
Improvements or otherwise. The purpose of all
requirements of Lender hereunder is solely to
allow Lender to check and require documentation
(including, but not limited to, lien waivers)
sufficient to protect Lender and the Loan
contemplated hereby. Borrower shall have no right
to rely on any procedures required by Lender,
Borrower hereby acknowledging that Borrower has
sole responsibility for constructing the Project
in accordance with the Plans and Governmental
Requirements and paying for work done in
accordance therewith and that Borrower has solely,
on Borrower's own behalf, selected or approved
each contractor, each subcontractor and each
materialman, Lender having no responsibility for
any such persons or entities or for the quality of
their materials or workmanship.

     10.5. RELATIONSHIP OF PARTIES. THE
RELATIONSHIP BETWEEN BORROWER AND LENDER IS, AND
AT ALL TIMES SHALL REMAIN, SOLELY THAT OF DEBTOR
AND CREDITOR, AND SHALL NOT BE, OR BE CONSTRUED TO
BE, A JOINT VENTU1lE, EQUITY VENTVRE, PARTNERSHIP
OR OTHER RELATIONSHIP OF ANY NATURE.

     10.6. LIABILITY OF LENDER. Lender shall not
be liable hereunder for any act or omission by it,
in the absence of fraud, willful misconduct or
gross negligence. Lender shall incur no liability
to Borrower by acting upon any certificate or
other paper believed by it to be genuine and
purporting to be assigned by the proper party or
with respect to anything which Lender may do or
refrain from doing unless it amounts to fraud,
willful misconduct or gross negligence. Lender may
consult with counsel selected by it, and any
action taken or suffered in good faith by it in
accordance with the opinion of such counsel shall
be full justification and protection to it.


ARTICLE XI.

MISCELLANEOUS

     11.1. AMENDMENT; WAIVER. No amendment or
waiver of any provision of this Agreement or the
other Loan Documents and no consent to any
departure by Borrower therefrom shall in any event
be effective unless the same shall be in writing
and signed by Lender. Any such waiver, consent, or
approval shall be effective only in the specific
instance and for the purpose for which given. No
notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or
demand in the same, similar, or other
circumstances. Each holder of the Note shall be
bound by any modification, waiver, or consent
authorized by this Section whether or not the Note
shall have been marked to indicate such
modification, waiver, or consent. No waiver by
Lender of any breach or default of or by Borrower
under this Agreement shall be deemed a waiver of
any other previous breach or default or any
thereafter occurring. In no event shall the delay
of enforcement of any rights or remedies available
to Lender, or any other indulgence, be construed
as a waiver of rights or remedies unless the same
shall be agreed to in writing by Lender.

     11.2. SEVERABILITY. In the event any
provision of this Agreement is declared or
adjudged to be unenforceable or unlawful by any
Governmental Authority, then such unenforceable or
unlawful provision shall be excised herefrom, and
the remainder of this Agreement, together with all
rights and remedies granted thereby, shall
continue and remain in full force and effect.





37



     11.3. ESTOPPEL CERTIFICATES. Borrower, within
ten Business Days (10) days aRer written request
by mail, will furnish an estoppel certificate or
written statement, duly acknowledged, stating (a)
the amounts advanced to it under this Agreement,
(b) the amounts due under the Note, (c) the
indebtedness secured by the Mortgage, (d) whether
any offsets or defenses exist thereunder or
against the said indebtedness secured by the
Mortgage, and (e) such other maners as may be
reasonably requested by Lender.

     11.4. ADVERTISING BY LENDER. Borrower agrees
that during the Loan term, Lender may erect and
maintain on the Property one or more advertising
signs indicating that the construction financing
for the Project has been provided by Lender and
may, from time to time during or after the term of
the Loan, place in one or more newspapers or other
publications advertisements, announcements and
other similar notices indicating that financing
for the Project has been provided by Lender.

     11.5. PARTICIPATIONS. Lender shall have the
right at any time to sell, assign, transfer,
negotiate or grant participations in all or any
part of the Loan or the Note. Borrower hereby
acknowledges and agrees that any such disposition
will give rise to a direct obligation of Borrower
to each such participant. Notwithstanding the
sale, assignment, negotiation or grant of
participations in the Loan or the Note, (a)
Borrower shall be entitled to rely conclusively on
any consent, approval or notice given by Lender to
Borrower pursuant to this Agreement and the other
Loan Documents and (b) Borrower shall have no
obligation to request any consent or approval
from, give any notice to or respond to any notice
given by, any purchaser or assignee of, or
participant in, all or any part of the Loan or the
Note.

     11.6. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF WASHINGTON (EXCLUDING
CONFLICTS OF LAWS) AND THE UNITED STATES OF
AMERICA. PIERCE COUNTY, WASHINGTON, SHALL BE A
PROPER PLACE OF V1INUE FOR ALL SUITS TO ENFORCE
THIS AGREEMENT. BORROWER AND LENDER EACH HEREBY
IRREVOCABLY AGREE THAT ANY LEGAL PROCEEDING
ARISING OUT OF OR 1N CONNECTION WITH THIS
AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS
SHALL BE BROUGHT 1N THE SUPERIOR COURTS OF PIERCE
COUNTY, WASHINGTON, OR THE UNITED STATES DISTRICT
COURT FOR THE WESTERN DISTRICT OF WASHINGTON.
BORROWER HEREBY SUBMITS TO THE JURISDICTION OF
SUCH COURTS AND ACKNOWLEDGES AND AGREES THAT
BORROWER'S AGREEMENT TO SUBMIT TO SUCH
JURISDICTION IS A MATERIAL INDUCEMENT TO LENDER TO
MAKE THE LOAN.

     11.7. HEADINGS. The captions used for the
Articles and Sections in this Agreement are
inserted only as a matter of convenience and for
reference and in no way define, limit or describe
the scope or intent of this Agreement or any
Article or Section hereof.

     11.8. NOTICES. No notice or other
communication shall be deemed given unless sent in
the manner, and to the persons, specified in this
Section at the addresses or telecopy numbers (or
at such other address or telecopy number for a
party as will be specified by lilce notice) set
forth in this Section 11.8. All notices and other
communications hereunder shall be in writing and
shall be deemed given (a) upon receipt if
delivered personally or if deposited with the
United States Postal Service as registered or
certified mail, return receipt requested, (b) at
noon on the first Business Day after dispatch if
sent by reputable overnight courier capable of
providing evidence of delivery,



38



or (c) upon the completion of transmission (which
is confirmed telephonically by the receiving
party) if transmitted by telecopy or other means
of facsimile which provides immediate or near
immediate transmission to compatible equipment in
the possession of the recipient:

If to Borrower:          Emeritus Properties III,
Inc.
               c/o Emeritus Corporation
               3131 Elliott Avenue, Suite 500
               Seattle, Washington 98121
               Attention: President
               Telecopy or Facsimile Number: (206)
          301-4500
               Confirmation Number: (206) 298-2909

With a copy to:          The Nathanson Group
               1411 Fourth Avenue, Suite 905
               Seattle, Washington 98101
               Attention: RandiNathanson,Esq.
               Telecopy or Facsimile Number:
          (206)623-1738
               Confirmation Number: (206) 623-6239

If to Lender:       Ocwen Federal Bank FSB
               1675 Palm Beach Lakes Boulevard
               West Palm Beach, Florida 33401
               Attention: Secretary
               Telecopy or Facsimile Number: (561)
          681-8177
               Confirmation Number: (561) 681-8000

Notwithstanding the foregoing, any notice in fact
received shall be effective as of the time of
receipt.

     11.9. SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and
warranties made herein and in the certificates
delivered pursuant hereto shall survive the making
by Lender of the Loan and the execution and
delivery to Lender of the Note and shall continue
in full force and effect so long as the Note or
any amount due hereunder is outstanding and
unpaid.

     11.10. MUTUAL WAIVER OF JURY TRIAL. LENDER
AND BORROWER EACH WAIVE ALL RIGHTS TO TRIAL BY
JURY OF ANY AND ALL CLAIMS, COUNTER CLAMIS, AND
DEFENSES AMONG AND BETWEEN ANY OF THEM ARISING
UNDER THIS AGREEMENT, THE NOTE, THE OTHER LOAN
DOCUMENTS, OR ANY OTHER AGREEMENT OR AGREEMENTS
BETWEEN OR AMONG ANY OF THEM AT ANY TIME RELATING
TO THE LOAN, INCLUDING ANY SUCH AGREEMENTS,
WHETHER WRITTEN OR ORAL, MADE OR ALLEGED TO HAVE
BEEN MADE AT ANY TIME PRIOR TO THE DATE HEREOF,
AND ALL AGREEMENTS MADE HEREAFTER OR
OTHERWISE. IN MAKING THIS WAIVER LENDER AND
BORROWER
ACKNOWLEDGE AND AGREE THAT ANY AND ALL SUCH CLASS,
COUNTERCLAIMS, AND DEFENSES SHALL BE HEARD BY A
JUDGE OF A COURT  OF COMPETENT JURISDICTION,
WITHOUT A JURY. LENDER AND BORROWER ACKNOWLEDGE
AND AGREE THAT THIS WAIVER OF TRIAL BY JURY IS A
MATERIAL ELEMENT OF THE CONSIDERATION FOR THIS
AGREEMENT. LENDER AND BORROWER ACKNOWLEDGE THAT
THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THIS
WAIVER IS MADE KNOWINGLY AND VOLUNTARILY AFTER
CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT
WITH, COUNSEL OF ITS CHOICE.


39


     11.11. CONTROLLING DOCUMENT. In the event of
a conflict between the terms and conditions of
this Agreement and the terms and conditions of any
other Loan Document (other than the Note), the
terms and conditions of this Agreement shall
control. In the event of a conflict between the
terms and conditions of this Agreement and the
terms and conditions of the Note, the terms and
conditions of the Note shall control.

     11.12. SUCCESSORS; NO ASSIGNMENT. This
Agreement shall be binding upon and inure to the
benefit of Borrower, its successors, and those
assigns consented to in writing by Lender, and
upon Lender, its successors and assigns. Any
assignment attempted by Borrower without the
written consent of Lender shall be void. Wherever
the word "Lender" is used herein it shall be
deemed to include also the successors and assigns
of Lender, and the word "Borrower" shall include
the successors of Borrower and shall include those
assignees of Borrower consented to in writing by
Lender. No consent by Lender of an assignment by
Borrower shall release Borrower as a party
primarily obligated and liable under the terms of
this Agreement unless Borrower shall be released
specifically by Lender in writing. No consent by
Lender to an assignment shall be deemed to be a
waiver of the requirement of consent by Lender of
each and every further assignment, as a condition
precedent to the effectiveness of such assignment.

     11.13. TIME. Time is of the essence of this
Agreement and each and every term, covenant, and
condition herein.

     11.14. COUNTERPARTS. This Agreement may be
executed in multiple counterparts, each of which
shall be deemed an original, and all of which when
taken together shall be construed as a single
instrument.

     11.15. FINAL AGREEMENT OF THE PARTIES. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED (OR CANCELED) BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL
AGREEMENTS BETWEEN THE PARTES.

     11.16. NO ORAL AGREEMENTS. ORAL AGREEMENTS OR
ORAL COMMITMENTS TO LOAN MONEY. EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.


















40




     WITNESS WHEREOF, and intending to be legally
bound hereby, Borrower and Lender execute this
Agreement under seal the day and year first above
wntten.


               BORROWER:

               EMERITUS PROPERTIES III, INC.,
               a Washington corporation

               By: /s/ Kelly J. Price
               Name: Kelly J. Price
               Title: Secretary

               LENDER:

               OCWEN FEDERAL BANK FSB

               By: /s/ John W. Halverson
               Name: John W. Halverson
               Title: Vice President




































41

EX-10.32.2

PROMISSORY NOTE

$6,465,000.00
West Palm Beach, Florida

January 30,1997

     FOR VALUE RECEIVED, EMERITUS PROPERTIES III,
INC., a Washington corporation ( Maker ), promises
to pay to the order of OCWEN FEDERAL BANK FSB, a
federally chartered savings bank ("Payee," which
term shall also include any subsequent holder of
this Note), the principal sum of Six Million Four
Hundred Sixty-Five Thousand and No/100 Dollars
($6,465,000.00), or so much thereof as shall be
advanced under the provisions of the Loan
Agreement (the "Loan Agreement") dated of even
date herewith between Maker, as Borrower, and
Payee, as Lender, with interest until paid as set
forth in this Note.

     1. DEFINITIONS.
Terms which are used in this Note and not
otherwise defined herein shall have the meanings
set forth in this Paragraph 1, or if no meaning is
set forth in this Paragraph 1, then the meanings
ascribed to such terms in the Loan Agreement.

     "ADDITIONAL INTEREST" shall mean the
additional interest required to be paid by Maker
to Payee in accordance with Paragraph 3(E) hereof.

     "AFFILIATE" shall mean with respect to an
individual, any relative of such individual; and
with respect to any Person, any other Person
directly or indirectly controlling, controlled by
or under direct or indirect common control with,
such Person. A Person shall be deemed to control
another Person if such Person possesses, directly
or indirectly, the power to direct or cause the
direction of the management and policies of such
other Person, whether through the ownership of
voting securities, by contract or otherwise, or if
such Person owns or has the power to vote ten
percent (10%) or more of outstanding voting
securities or interests in such other Person.

     "AMORTIZATION PERIOD" shall mean the twenty-
five (25) year period commencing on the first day
of the Permanent Loan Term and continuing for
twenty-five (25) years thereafter.

     "APPRAISAL" shall mean a written appraisal of
the fair market value of the Project, as
determined by an Appraiser on the basis of an all
cash offer, arm's length transaction involving a
willing seller and willing buyer, assuming a
marketing period of six (6) months.

     "APPRAISED VALUE" shall mean the fair market
value of the Project determined in accordance with
the provisions of Paragraphs 3(E)(v)-(vii) hereof.
"Appraiser" shall mean an independent appraiser
who (i) is a member of the American Institute of
Real Estate Appraisers (MAI) or a successor body
hereafter constituted exercising a similar
function and licensed or otherwise authorized to
appraise real property in the State of Washington,
(ii) has experience in appraising projects similar
or comparable to the Project, and (iii) is not
employed by, or an affiliate of, and does not have
any substantial direct or indirect financial or
other business interests in, Maker or Payee or any
Affiliate of either of them.





     "APPROVED CLOSING COSTS" shall mean all
reasonable and customary closing costs and
adjustments actually incurred by Maker in
connection with an Approved Sale of the Project
which are (i) not payable to any parties related
to or affiliated with Maker or any Affiliate of
Maker and (ii) approved by Payee in its sole
discretion as being reasonable and customary;
provided that Approved Closing Costs shall in no
event exceed three percent (3%) of the gross
sales. price of the Project as reflected in the
sales contract for such Approved Sale of the
Project. By way of example, closing costs may
include, without limitation, title insurance
premiums, title company charges, Permitted
Commissions (but not other broker's commissions or
finder's fees), attorneys' fees, and customary
recordation charges and transfer taxes, if any.

     "APPROVED REFINANCING COSTS" shall mean all
reasonable and customary loan closing costs
approved by Payee in its sole discretion and
actually incurred by Maker in connection with any
refinancing of the Loan; provided that Approved
Refinancing Costs shall in no event exceed three
percent (3%) of the actual loan proceeds funded to
or for the account of Maker in connection with any
refinancing of the Loan.

     "APPROVED RESTORATION COSTS" shall mean the
reasonable out-of-pocket costs actually incurred
by Maker following a condemnation or casualty for
the restoration of the Project as required by the
applicable Loan Documents (excluding all costs
paid for with the proceeds of any insurance
maintained by or on behalf of Maker); provided
that Approved Restoration Costs shall in no event
exceed three percent (3%) of the total
condemnation or casualty proceeds actually
recovered by Maker as a result of such casualty or
condemnation.

     "APPROVED SALE" shall mean a bona fide, arms-
length sale, transfer or conveyance of the Project
to any third party not related to or affiliated
with Maker or any Affiliate of Maker.

     "BASE INTEREST RATE" shall mean, as the
context shall require, either the Construction
Base Interest Rate or the Permanent Base Interest
Rate.
"Borrower's Equity Contribution" shall have the
meaning ascribed to such term in the Loan
Agreement.

     "BUSINESS DAY" shall mean any day other than
a Saturday or Sunday or any day which is a legal
holiday in Florida or any day on which banking
institutions are authorized or are required by law
or other governmental action to close.

     "CLOSING DATE" shall mean January 30,1997.

     "CONSTRUCTION BASE INTEREST RATE" shall mean,
as the context shall require: (i) during the
Construction and Lease-Up Term, a variable rate of
interest from time to time in effect equal to one
hundred twenty-five (125) basis points in excess
of the Prime Rate, and (ii) during the Pre
Stabilization Period, if any, a variable rate of
interest from. time to time in effect equal to two
hundred twenty-five (225) basis points in excess
of the Prime Rate.




2



     "CONSTRUCTION AND LEASE-UP TERM" shall mean
the period commencing on the Closing Date and
continuing for a period of twenty-four (24) months
thereafter.

     "CONSTRUCTION LOAN TERM" shall mean the
period of time encompassed by both the
Construction and Lease-Up Term and the Pre-
Stabilization Period, not to exceed thirty-six
(36) months.

     "DEBT SERVICE COVERAGE" shall mean the ratio
of Net Cash Flow during any prescribed period of
time to Scheduled Debt Service during that same
period of time.

     "DEFAULT RATE" shall mean the greater of (i)
five percent (5%) in excess of the Base Interest
Rate then in effect, or (ii) the rate of interest
applicable to unpaid judgments in the State of
Washington, but in no event more than the Highest
Lawful Rate (as defined in Paragraph 9 hereof).

     "DISPOSITION PROCEEDS" shall mean the gross
proceeds of any sale or other transfer ,
condemnation of, or casualty to the Project, or in
the case of a refinancing of the Loan, the maximum
principal amount to be advanced from the proceeds
of such refinancing.

     "EVENT.OF DEFAULT" shall have the meaning
ascribed to such term in the Loan Agreement.

     "GAAP" shall mean generally accepted
accounting principles applied on a consistent
basis, as set forth in the Opinions of the
Accounting Principles Board of the American
Institute of Certified Public Accountants or in
statements of the Financial Accounting Standards
Board or their respective successors and which are
applicable in the circumstances as of the date in
question.

     "GOVERNMENTAL AUTHORITY" shall mean shall
have the meaning ascribed to such term in the Loan
Agreement.

     "GOVERNMENTAL REQUIREMENTS" shall have the
meaning ascribed to such term in the Loan
Agreement.

      "GROSS REVENUES" shall mean all gross
revenues of every kind and nature derived by or on
behalf of Maker, from, in or about the Project or
from any other facility operated in connection
with the Project, including without limiting the
generality of the foregoing, the following: all
rental payments of every kind; all lease or other
payments for the use or occupancy of space in the
Improvements; all payments made by Third Party
Payors as a result of Third Party Payor Programs
or otherwise; forfeited security deposits; parking
revenues; income from vending machines, photocopy
machines and other such devices; late charges;
interest on past due rentals; payments under
licenses, concessions or other agreements for
advertising signs, telecommunications services,
antennas or disks; all subletting and assignment
rents and other receipts; all lease modification,
surrender or cancellation payments; all payments
under business interruption insurance policies;
a11 escalation payments; all payments made by
tenants or



3



other occupants of the Project for extra services,
including the use of any Personal
Property used in connection with the Project and
the provision of any health care or other personal
services; and all interest income of Maker. Gross
Revenues shall not include proceeds from the sale
of the Property or proceeds from the Loan or the
refinancing of the Loan.

     "HIGHEST LAWFUL RATE" shall have the meaning
ascribed to such term in Paragraph 9 of this Note.
"Loan" shall mean the credit extended to Maker by
Payee pursuant to the terms of the Loan Agreement
and the other Loan Documents, as evidenced by this
Note.
     
     "LOAN DOCUMENTS" shall have the meaning
ascribed to such term in the Loan Agreement.

     "LOAN TERM" shall mean the Construction Loan
Term and, if applicable, the Permanent Loan Term,
which together shall not exceed forty-eight (48)
months.

     "LOAN YEAR" shall mean each twelve month
period during the Loan Term, beginning January l,
1998; provided, that the first Loan Year shall be
the period beginning on the Closing Date and
ending at the close of business on December 31,
1997; and provided, further, that the last Loan
Year shall be the period beginning January 1 of
the calendar year in which the Maturity Date
occurs and ending on the Maturity Date.

     "MANAGEMENT AGREEMENT" shall have the meaning
ascribed to such term in the Loan Agreement.
"Mandatory Sweep Account" shall have the meaning
ascribed to such term in Paragraph 4(A) of this
Note.

     "MATURITY DATE" shall mean either: (a)
January 29, 2001, or (b) such earlier date on
which the entire Outstanding Principal Balance,
together with accrued and unpaid interest thereon
and all other sums payable pursuant to the terms
and provisions of this Note and/or the Loan
Documents become due and payable, whether by
reason of the acceleration of the maturity of this
Note, failure of the Permanent Loan Conditions to
occur prior to the expiration of the Construction
Loan Term, the occurrence of an Event of Default,
or otherwise.

     "NET CASH FLOW" shall mean for any period for
which net cash flow of the Project is to be
determined, the Gross Revenues actually collected
during such period, less the Operating Expenses
actually incurred during such period, determined
on a cash basis.

     "NET CASH FLOW REPORT" shall mean a monthly
written report prepared by Maker's chief financial
officer, showing (i) all Gross Revenues, all
Operating Expenses, and the calculation of Net
Cash Flow for the calendar month covered thereby,
together with such underlying documentation and
substantiation as Payee shall request, and (ii) a
cumulative calculation of Net Cash Flow for the
twelve (12) month period preceding the date
thereof.




4



     "NET ECONOMIC VALUE" shall mean the amount,
if any, by which the then-current Appraised Value
exceeds the Total Obligations.
     
     "NET PROCEEDS" shall mean the amount, if any,
by which the Disposition Proceeds from any
Approved Sale, refinancing of the Loan or
Significant Event exceed the sum of (i) the Total
Obligations and (ii) in the case of an Approved
Sale, the Approved Closing Costs; in the case of
the refinancing of the Loan, the Approved
Refinancing Costs; or in the case of a
condemnation or casualty, the Approved Restoration
Costs; provided that all such costs have been
incurred in arms-length transactions with Persons
other than Maker or any Affiliate of Maker. The
Disposition Proceeds from any Approved Sale,
refinancing of the Loan or Significant Event shall
include any portion of the consideration for such
Approved Sale, refinancing of the Loan or
Significant Event which is deferred and/or
contingent in any respect, including installment
sales and long term leases, or any part for which
the purchaser gives a purchase money note,
involves a like-kind exchange or any other non-
cash imputed income.

     "OPERATING AGREEMENT" shall mean that certain
Washington Assisted Living Facilities Operating
And Licensing Agreement dated of even date
herewith executed by Maker and Payee.

     "OPERATING EXPENSES" shall mean the expenses
which are directly associated with the maintenance
and operation of the Project and which are
actually paid by Maker. Operating Expenses shall
include, by way of example, management fees not to
exceed five percent (5%) of Gross Revenues from
the Project, salaries of on-site personnel not
paid under the Management Agreement except for
amounts payable to Maker or any Affiliate of
Maker; reasonable costs of advertising and
promotion; reasonable costs of maintenance and
repairs (including capital expenditures to the
extent expressly provided for in this definition),
including seasonal expenses such as window
washing, snow plowing, landscaping and planting;
reasonable costs of security services; costs of
utility services; ad valorem taxes and
assessments; insurance premiums for casualty,
liability and business interruption insurance. If
insurance on the Property is maintained as part of
a blanket policy covering the Property and other
properties, the insurance premium included in
Operating Expenses shall be that premium fairly
allocable to the Property (as determined by the
Property's insurance underwriter). In no event
shall the following be considered Operating
Expenses: depreciation or amortization, interest
or. principal payments on the Loan or any other
indebtedness of Maker or income taxes. Capital
expenditures (being any expenditures which, in
accordance with GAAP, would be required to be
capitalized rather than expensed for financial
accounting purposes) shall be considered Operating
Expenses to the extent (and only to the extent)
such expenditures have been provided for in the
Capital Improvements Budget and Annual Plan then
in effect pursuant to the Operating Agreement. Any
Tax Deposits and Insurance Deposits made pursuant
to the Operating Agreement (but only to the extent
actually made by Maker) shall be deemed Operating
Expenses only during the month in which such
deposits are actually made to the appropriate
escrow accounts maintained by Payee, regardless of
when the taxes, assessments and insurance premiums
are actually made or paid. In no event shall
Operating Expenses include both the deposits into
the escrow accounts maintained by Payee and the
taxes, assessments and insurance



5



premiums paid out of such escrow accounts. If any
Operating Expenses are paid to an Affiliate of
Maker, such Operating Expenses shall not exceed
amounts reasonably incurred for such expenses in
the operation of properties similar to the Project
for similar types of expenses.

     Notwithstanding the foregoing, none of the
foregoing expenses shall be considered Operating
Expenses for purposes of this Note or the other
Loan Documents to the extent such expenses are
paid with proceeds of the Loan.
"Original Principal Amount" shall mean Six Million
Four Hundred Sixty-Five Thousand and No/100
Dollars ($6,465,000.00).

     "OUTSTANDING PRINCIPAL BALANCE" shall mean
the aggregate of all sums advanced by Payee to or
for the benefit of Maker under this Note and not
repaid.

     "PAYMENT DATE" shall mean the first day of
March, 1997, and the first day of each calendar
month thereafter during the Loan Term.
"Permanent Base Interest Rate" shall mean a fixed
rate of interest equal to three hundred twenty-
five (325) basis points in excess of the U.S.
Treasury rate on obligations with a maturity date
most closely approximating the maturity date of
the Loan Term (rounded upward to the nearest one-
eighth of one percent) as of the date which is
five (5) Business Days prior to the expiration of
the Construction Loan Term. For purposes of
calculating Threshold Debt Service only, Permanent
Base Interest shall be calculated as of the date
five (5) Business Days before the date on which
such calculation is actually made by Payee.

     "PERMANENT LOAN CONDITIONS" shall mean the
following conditions collectively, all of which
must be satisfied in order for the Permanent Loan
Conditions to be satisfied:

     (i)  No Event of Default shall have occurred
and be continuing as of the expiration of the
Construction Loan Term and all conditions to the
final Construction Advance as set forth in the
Loan Agreement shall have been satisfied in full;

     (ii) Lender shall have received copies of the
final certificates of occupancy issued by the
appropriate Governmental Authorities for each
building and for any other portion of the Project
for which certificates of occupancy must be issued
as a result of Governmental Requirements to enable
the Project to open for business and accept
residents and all dwelling units included in the
Project shall be available for immediate
occupancy;

     (iii)     Effective no earlier than thirty
(30) days prior to the expiration of the
Construction Loan Term, Payee shall have received
an endorsement to the Title Insurance Policy
showing that no mechanics' or materialmens' liens
have been filed against the Land or Improvements
as of the date thereof and that no additional
restrictions or other encumbrances have been filed
of record since the Closing Date other than
Permitted Encumbrances, and the costs of such
endorsement shall have been paid in full by Maker;




6



     (iv) As of the expiration of the Construction
Loan Term, all Permits necessary for the
administration, operation, occupancy and use of
the Project as an Assisted Living Facility shall
be in full force and effect and free from default,
complaint or challenge by any Governmental
Authority having jurisdiction and Payee shall have
determined, to its satisfaction, that the
construction and operation of the Project pursuant
to the Management Agreement as an Assisted Living
Facility is in full compliance with all applicable
Governmental Requirements;

     (v)  There shall have been no material or
adverse change in the financial condition of Maker
or Emeritus, as reflected in the financial
statements and other financial information
delivered to Payee pursuant to the Operating
Agreement and verified by Payee;

     (vi) The Project shall have achieved eighty
percent (80%) physical occupancy pursuant to
binding Resident Agreements with Persons who are
not Affiliates of Maker during the calendar month
immediately prior to the expiration of the
Construction Loan Term, as verified by Payee; and

     (vii)     Net Cash Flow for the calendar
month immediately preceding the expiration of the
Construction Loan Term, as reflected in the Net
Cash Flow Report with respect to such calendar
month to be delivered to Payee pursuant to
Paragraph 4 (B) below and verified by Payee,
divided by Threshold Debt Service, shall be an
amount not less than 1.00.

     "PERMANENT LOAN TERM" shall mean the period
commencing upon the first to occur of (i)
expiration of the, Construction Loan Term,
provided no Event of Default has occurred and is
continuing or (ii) satisfaction of the Permanent
Loan Conditions, and ending on the date four (4)
years from the Closing Date.

     "PERMITS" shall have the meaning ascribed to
such term in the Operating Agreement.

     "PERMITTED COMMISSION" shall mean in the case
of a foreclosure sale or an Approved Sale, a sales
or brokerage commission not in excess of the then
prevailing market rate in the geographic area in
which the Project is situated, and in any case,
only in the event such commission or fee is
actually paid to a third party broker which is not
related to or affiliated with Maker or any
Affiliate of Maker, upon consummation of the
applicable transaction.

     "PERMITTED ENCUMBRANCES" shall have the
meaning ascribed to such term in the Loan
Agreement.

     "PREPAYMENT FEE" shall mean the sum of
$150,000, or, if an Additional Interest in an
amount less than $150,000 is actually paid to
Payee at the time the Prepayment Fee is due and
payable hereunder, the Prepayment Fee shall be
adjusted to equal the positive difference between
$ 150,000 and the Additional Interest actually
paid. If Additional Interest equal to or greater
than $ 150,000 is actually paid to Payee at the
time the Prepayment Fee is due and payable
hereunder, the Prepayment Fee shall be waived and
equal to $0.


7



     "PERSON" shall mean any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association,
corporation, institution, entity, party or
government (whether territorial; national,
federal, state, county, city; municipal or
otherwise, including, without limitation, any
instrumentality, division, agency, body or
department thereof.

     "PRE-STABILIZATION PERIOD" shall have the
meaning ascribed to such term in the Loan
Agreement.

     "PRIME RATE" shall mean the highest prime
rate (or base rate) reported in the Money Rates
column or section of The Wall Street Journal
(rounded upward to the nearest one-eighth of one
percent) from time to time as the rate in effect
for corporate loans at large U.S. money center
commercial banks (whether or not such rate has
actually been charged by any such bank). If The
Wall Street Journal ceases publication of the
Prime Rate, then "Prime Rate" shall mean the prime
rate (or base rate) announced by Bankers Trust
Company, New York, New York (whether or not such
rate has actually been charged by such bank). If
such bank discontinues the practice of announcing
the Prime Rate, the "Prime Rate" shall mean the
highest rate charged by such bank on short term,
unsecured loans to its most credit-worthy large
corporate borrowers. If The Wall Street Journal
(i) publishes more than one Prime Rate, the higher
or highest of such rates shall apply, or (ii)
publishes a retraction or correction of such rate,
the rate reported in such retraction or correction
shall apply. The Construction Base Interest Rate
shall be adjusted from time to time to reflect the
Prime Rate in effect at the close of regular
banking hours on each day of the Loan Term when
the Construction Base Interest Rate is in effect
or is to be calculated hereunder.

     "PROJECT" shall have the meaning ascribed to
such term in the Loan Agreement.

     "RESIDENT AGREEMENTS" shall have the meaning
ascribed to such term in the Loan Agreement.

     "SCHEDULED DEBT SEWICE" shall mean (i) during
the Construction Loan Term, the monthly payments
of interest at the Base Interest Rate required to
be paid pursuant to the terms of this Note, and
(ii) during the Permanent Loan Term, if any, the
equal monthly payments of principal and interest
at the Base Interest Rate required to be paid
pursuant to the terms of this Note (but not
including any mandatory payments of principal
required by Paragraph 4(D) below).

     "SIGNIFICANT EVENT" shall mean a total
condemnation of or casualty to the Project
(partial condemnations of or casualties to the
Project shall not be considered Significant Events
so long as the condemnation or casualty insurance
recoveries with respect thereto are applied to the
Loan or to restoration of the Project in
accordance with the Loan Documents.)

     "THIRD PARTY PAYOR PROGRAMS" shall have the
meaning ascribed to such term in the Operating
Agreement.



8




     "THIRD PARTY PAYORS" shall have the meaning
ascribed to such term in the Operating Agreement.

     "THRESHOLD DEBT SEWICE" shall mean at any
time when such calculation is made, the equal
monthly payments of principal and interest at the
Base Interest Rate applicable during the Permanent
Loan Term which would be required to be made
pursuant to this Note if each of the following
facts were true at the time such calculation is
made: (a) the Permanent Loan Conditions have been
satisfied; (b) the Outstanding Principal Balance
of the Loan as of the first day of the Permanent
Loan Term is equal to the Original Principal
Balance of this Note; (c) no repayments of
principal are made during the period for which
such calculation is being made, and (d) interest
accrues during such period at the Permanent Base
Interest Rate in effect during the previous
calendar month.

     "TOTAL OBLIGATIONS" shall mean from time to
time, the sum of the then Outstanding Principal
Balance plus Borrower's Equity Contribution.

     2. ACCRUAL OF INTEREST.
Prior to the occurrence of an Event of Default or
the Maturity Date, interest shall accrue on the
Outstanding Principal Balance at the Base Interest
Rate and, except as provided in Paragraph 3(A)
hereof, shall be payable in arrears as provided in
Paragraph 3 below. In addition to interest at the
Base Interest Rate, all Additional Interest shall
become due and payable as provided in Paragraph 3
below. Upon the occurrence of an Event of Default
and until such Event of Default has been cured,
and at all times after the Maturity Date, interest
shall accrue on the Outstanding Principal Balance
at the Default Rate. Interest shall be calculated
on the basis of a 360-day year for the actual
number of days elapsed in any period.

     3. PAYMENTS OF INTEREST, PRINCIPAL AND OTHER
REQUIRED SUMS.
     
     (A) On the date hereof, Maker shall pay to
Payee an amount equal to interest at the Base
Interest Rate on the Outstanding Principal Balance
for the period commencing on the date of this Note
through and including the last day of the calendar
month in which the Closing Date occurs.

     (B) Commencing on March l, 1997 and on each
Payment Date thereafter through and including the
last month of the Construction Loan Term, Maker
shall pay to Payee accrued and unpaid interest on
the Outstanding Principal Balance. If all of the
Permanent Loan Conditions have not been satisfied
as of the last day of the Construction Loan Term,
then the last day of the Construction Loan Term
shall be the Maturity Date and on such date, Maker
shall pay to Payee, unless sooner prepaid, a final
payment in the amount of the then Outstanding
Principal Balance, plus all accrued but unpaid
interest thereon, plus all other amounts due and
owing to Payee under this Note or under any of the
other Loan Documents on or as of the Maturity
Date.





9




     (C) Provided the Maturity Date has not
previously occurred, then commencing on the first
day of the first calendar month of the Permanent
Loan Term and continuing on each Payment Date
thereafter through and including the first day of
the last month of the Permanent Loan Term, Maker
shall pay to Payee principal, together with
interest thereon at the Permanent Base Interest
Rate, in an amount sufficient to cause the entire
Loan to be paid in full over the Amortization
Period; provided, however, that notwithstanding
the foregoing, nothing contained in this Paragraph
3(C) shall be deemed to modify, alter or extend
the Maturity Date.

     (D)  On the Maturity Date, Maker shall pay to
Payee, unless sooner prepaid, a final payment in
the amount of the then Outstanding Principal
Balance, together with all accrued but unpaid
interest thereon and all other amounts due and
owing to Payee under this Note and the other Loan
Documents.

     (E) In addition to the payments of interest
and principal to be made as provided above, Maker
shall pay to Payee the following additional
amounts as Additional Interest:

     (i) Immediately upon the closing of (A) any
Approved Sale or (B) any refinancing of the Loan,
an amount shall be due and payable to Payee as
Additional Interest equal to thirty percent (30%)
of the greater of (1) the Net Proceeds or (2) the
Net Economic Value. In the event of an escrow
closing of such Approved Sale or refinancing,
Maker shall direct the escrow agent responsible
for the closing to pay all sums due and payable
hereunder directly to the Payee on the day of
closing. Distribution of that portion of the Net
Proceeds due Maker shall be made only after all
liabilities and obligations of Maker under the
Loan Documents other than Additional Interest have
been satisfied in full.

     (ii) Upon the occurrence of (A) the Maturity
Date, (B) a Significant Event, (C) any transfer of
the Project or any substantial portion thereof
(other than an Approved Sale), including without
limitation any transfer of the Project to any
Affiliate or any direct or indirect transfer of an
interest in Maker (in one or more transactions),
(D) an acceleration of the Loan and foreclosure by
Payee (or deed in lieu thereof, or (E) any other
circumstance (other than an Approved Sale) where
total repayment of the Loan is made or is required
to be made hereunder for any other reason other
than those enumerated in clauses (A) through (D)
of this paragraph, whether voluntary or
involuntary and whether upon maturity of the Loan
or by earlier demand, acceleration, voluntary
prepayment or otherwise, an amount equal to thirty
percent (30a%) of the greater of: (1) the Net
Proceeds or (2) the Net Economic Value. The
Additional Interest due under this Paragraph
3(E)(ii) shall be due and payable upon the
occurrence of the event or circumstance described
in (A) through (E) above, as applicable.

     (iii) Upon an Approved Sale, a Significant
Event which results in all outstanding principal
of the Loan and accrued interest thereon becoming
due and payable, a refinancing of the Loan, or a
payment of the Loan described in Paragraph
3(F)(ii) above, all sums secured by the Mortgage
and the other Loan Documents, including, but not
limited to Additional Interest, shall be paid to
Payee prior to any distributions to Maker.




10



     (iv) Nothing in Paragraphs 3(i) or 3(E)(ii)
is intended to contradict in any way, or to
modify, limit or eliminate the restrictions on
transfer or the limitations (if any) on prepayment
contained in the Loan Agreement or elsewhere in
the Loan Documents, or, following an Event of
Default, the right of the Payee to accelerate
payment of this Note and declare immediate
maturity of the Loan.  The provisions of
Paragraphs 3(i) and 3(ii) are to be liberally
construed so as to require payment of Additional
Interest if any event takes place which does not
literally require the payment of Additional
Interest, but which is substantially equivalent to
one or more of the events giving rise to the
obligations to pay Additional Interest.

     (v) The Appraised Value of the Project for
purposes of calculating the Net Economic Value of
the Project shall be determined not more than one
hundred eighty (180) days prior to the event
triggering the payment or calculation of
Additional Interest, unless otherwise agreed in
writing by Payee. To that end, to the extent
feasible, within one hundred eighty (180) days
prior to the time Maker or Payee anticipates
needing to calculate Additional Interest, Maker
and Payee shall attempt to agree in writing on the
Appraised Value of the Project. In the event Maker
and Payee are unable to agree in writing upon the
Appraised Value of the Project within five (5)
days of submitting their respective valuations of
the Project to each other, Payee shall appoint an
Appraiser (the "Lender's Appraiser") to determine
the Appraised Value of the Project and Maker shall
appoint an Appraiser (the "Maker's Appraiser") to
determine the Appraised Value of the Project. If
the Appraised Value of the Project as determined
by Lender's Appraiser and the Appraised Value of
the Project as determined by Maker's Appraiser
differ by an amount equal to or less than ten
percent (l0%) of the lower appraised value, then
the Appraised. Value of the Project shall be
determined by averaging the Appraised Value as
determined by Lender's Appraiser and the Appraised
Value as determined by Maker's Appraiser. If the
Appraised Value of the Project as determined by
Lender's Appraiser and the Appraised Value of the
Project as determined by Maker's Appraiser differ
by an amount greater than ten percent (l0%) of the
lower appraised value, then Lender's Appraiser and
Maker's Appraiser shall mutually agree on a third
Appraiser (the "Mutual Appraiser") to determine
the Appraised Value of the Project. If. the Mutual
Appraiser's determination of the Appraised Value
of the Project shall be identical to the Appraised
Value of the Project as determined by either
Lender's Appraiser or Maker's Appraiser, then the
Appraised Value of the Project as determined by
the Mutual Appraiser shall be final and shall be
deemed to be the Appraised Value of the Project
for all purposes hereof. If the Appraised Value of
the Project as determined by the Mutual Appraiser
shall be different than either the Appraised Value
determined by Lender's Appraiser and the Appraised
Value determined by Maker's Appraiser, then the
Appraised Value of the Project shall be determined
by selecting among the three Appraisals the two
numerically closest appraisals and then
calculating the arithmetic mean thereof. If the
three appraisals differ by the same numerical
amount, then the Appraised Value of the Project
shall be determined by calculating the average of
the three appraisal values. Each Appraisal
performed pursuant to this Paragraph 3(E)(v) shall
be delivered by the Appraiser preparing the same
simultaneously to each of Payee and Maker. The
costs and expenses of Lender's Appraiser shall be
paid by Payee, and the costs and expenses of
Maker's Appraiser shall be paid by Maker. The
costs and expenses of the Mutual Appraiser shall
be shared equally between Payee and Maker.




11



     (vi) Notwithstanding anything contained in
this Paragraph 3 to the contrary, if at any time
during the Loan Term Maker notifies Payee of its
intention to sell the Project and the price at
which Maker would be willing to sell the Project,
Payee will notify Maker in writing within five (5)
Business Days after receipt of Maker's notice
either: (1) that Payee approves of the sale price,
or (2) that Payee will seek an Appraisal of the
Project. If Payee notifies Maker that it has
approved the sale price as provided in (1) above,
Maker may sell the Project at a sale price not
less than ninety-five percent (95%) of the price
specified in its notice, and such actual sales
price shall be binding on the parties as the
Appraised Value of the Project. If Payee notifies
Maker that it will seek an Appraisal of the
Project, then Payee and Maker will initiate the
Appraisal of the Project contemplated by the other
paragraphs of this Paragraph 3, and Maker shall be
authorized to sell the Project at the price set
forth in its notice, provided, however, for
purposes of calculating the Additional Interest
payable to Payee hereunder, the Appraised Value of
the Project shall be the value as determined by
Appraisal in accordance with Paragraph 3(E)(v)
above, regardless of Maker's actual sales price.

     (vii) Any Appraised Value of the Project
determined in accordance with Paragraph 3(E)(v)(i)
above and any sales price approved by Payee under
the provisions of Paragraph(E)(v)(i) above shall
be valid for a period of six (6) months from the
date such value or sales price is established
either by mutual agreement of Maker and Payee,
Appraisal, or Payee's approval of a proposed sales
price, as the case may be.

     (F) Upon the occurrence of an Event of
Default, Payee may, at its sole option and
discretion, require that Maker make the Tax
Deposits described in the Operating Agreement.
Reference is hereby made to the Operating
Agreement for a complete description of the Tax
Deposits and Maker's and Payee's agreements with
respect thereto.

     (G) Upon the occurrence of an Event of
Default, Payee may, at its sole option and
discretion, require that Maker make the Insurance
Deposits described in the Operating Agreement.
Reference is hereby made to the Operating
Agreement for a complete description of the
Insurance Deposits and Maker's and Payee's
agreements with respect thereto.

     (H)  Maker shall have the right to prepay
this Note in whole or in part at any time,
provided, however, in the event Maker elects to
prepay this Note at any time on or before January
29, 1999, such prepayment shall be accompanied by
the Prepayment Fee and any Additional Interest and
other sums due and payable hereunder and under the
other Loan Documents, and provided, further, that
at any time after January 29, 1999, any such
prepayment shall be accompanied by any Additional
Interest and other sums due and payable hereunder
and under the other Loan Documents.

     (I) All payments required to be made pursuant
to this Note shall be made during regular business
hours to Payee's account at Ocwen Federal Bank
FSB, Account
Number: 0606.15301, in the name of Payee, or at
such other place as Payee may from
time to time designate in writing, either by wire
transfer of United States Dollars, ABA Number: 221-
271-1 I 3, Ocwen Loan Number 067001, Attention:
(Account Representative as noted on Borrower's
statement), or by cashier's check, or in coin or
currency of the United States of America which at
the time of payment is legal tender for



12



the payment of public or private debts. Payments
sent via U.S. Mail shall be sent addressed as
follows: Ocwen Federal Bank FSB, P.O. Box 220231,
Great Neck, NY 11022. Payments sent via certified
U.S. mail or by overnight courier shall be sent
addressed as follows: Ocwen Federal Bank FSB, c/o
Fiserv, Attn: AM Lockbox, I75 Community Drive,
Great Neck, NY 11021. Interest shall be payable
for the Closing Date, but not for the day of any
payment on the amount paid if such payment is
received by Payee prior to two o'clock p.m. E.S.T.
(or E.S.D.T. as the case may be). If any payment
of principal or interest shall be due on a day
which is not a Business Day, such payment shall be
made on the next succeeding Business Day, and in
the case of a principal payment, such extension of
time shall be included in computing interest in
connection with such payment. Any payment of
principal and interest received after two o'clock
p.m. E.S.T. (or E.S.D.T. as the case may be) shall
be deemed to have been received by Payee on the
next succeeding Business Day and shall bear
interest accordingly. Any payment tendered other
than in coin or currency of the United States as
aforesaid shall be accepted by Payee subject to
collection, and interest shall accrue until the
Business Day on which good funds are available for
immediate use by Payee on or before two o'clock
p.m. E.S.T. (or E.S.D.T. as the case may be).

     (J)  Time is of the essence. In the event
that any installment of principal, interest or any
other amount due under this Note (including,
without limitation, any installment or payment of
any Additional Interest), is made more than five
(5) days after its due date, then Payee shall be
entitled, at its option, to collect a "late
charge" in an amount equal to the lesser of five
percent (5%) of the installment then due or the
maximum rate provided by law.

     4. MANDATORY SWEEP ACCOUNT

     (A) During the Construction Loan Term, Maker
shall become obligated, without any further action
on the part of Payee, to deposit with Payee one
hundred percent (100%) of positive Net Cash Flow,
to be held in an interest bearing escrow account
(the "Mandatory Sweep Account"), and disbursed as
provided in this Paragraph 4.

     (B) Maker shall make its deposits of Net Cash
Flow to the Mandatory Sweep Account on the twenty-
fifth (25th) day of the first calendar month
immediately following the first Payment Date and
shall thereafter make deposits of Net Cash Flow on
the twenty-fifth (25th) day of each consecutive
calendar month until the expiration of the
Construction Loan Term. Each deposit of Net Cash
Flow shall be accompanied by a Net Cash Flow
Report.

     (C) During the Construction Loan Term, if
there is insufficient Net Cash Flow from the
Project to pay Scheduled Debt Service and
sufficient funds are otherwise not
available to Maker to pay such Scheduled Debt
Service, then so long as no Event of Default has
occurred and is continuing, upon receipt of a
written request therefor from Maker at least five
(5) Business Days prior to any Payment Date, Payee
shall disburse to itself from the Mandatory Sweep
Account an amount sufficient to pay Scheduled Debt
Service. To the extent there are insufficient
funds in the Mandatory Sweep Account to pay the
Scheduled Debt Service, Maker shall be liable to
pay the deficiency and nothing contained in this
Paragraph4(C) shall be construed to waive, release
or forgive Maker's obligation to pay Scheduled
Debt Service as provided herein.


13



     (D) Provided no Event of Default has occurred
and is continuing, on the first day of the
Permanent Loan Term, any funds then remaining in
the Mandatory Sweep Account, including the
deposits made by Maker and any interest earned
thereon, shall be returned to Maker.

     5. YIELD PROTECTION.

     If any treaty, law or any governmental rule,
regulation, policy, guideline or directive, or any
interpretation thereof, or compliance of Payee
with such,

     (A) subjects Payee to any tax, duty, charge
or withholding on or from payments due from Maker
(excluding United States, state, local and city
taxation of the net income of Payee), or changes
the basis of taxation of payments to Payee in
respect of the Loan or other amounts due Payee
hereunder (other than a mere increase in the rates
of taxation); or

     (B) imposes or increases or deems applicable
any reserve, assessment, insurance charge, special
deposit or similar requirement against the non-
physical assets of, deposits with or for the
account of, or credit extended by Payee; or

     (C) imposes any other condition directly
related to this Loan transaction or the process or
manner or making of funding the Loan under this
Note or obtaining the sources of funds for such
Loan, the result of which is to increase the cost
to Payee of making, funding or maintaining loans
or reduces any amount receivable by Payee in
connection with U.S. Dollar loans, or requires
Payee to make any payment calculated by reference
to the amount of loans held or interest received
by it; or

     (D) affects the amount of capital required or
expected to be maintained by Payee or any
corporation controlling Payee and Payee determines
the amount of capital required is increased by or
based upon the existence of this Note;

     then, within fifteen (15) days of demand by
Payee, Maker shall pay Payee that portion of such
increased expense incurred or reduction in an
amount received which Payee determines is
attributable to making, funding and maintaining
the Loan.

     6.  DEFAULT; ACCELERATION.

     It is expressly agreed that time is of the
essence of this Note and, notwithstanding anything
to the contrary contained herein, upon the
occurrence of either (A) an Event of Default, or
(B) any other event which, under the terms of any
of the Loan Documents, including this Note,
entitles Payee to accelerate the indebtedness
evidenced by this Note, then, and in any of such
events, Payee may, at its option, exercise any or
all of the rights, powers and remedies afforded
Payee under this Note or at law, including,
without limitation, the right to declare the
entire Outstanding Principal Balance hereof,
together with all accrued and unpaid interest
thereon, all late charges and liquidated damages
provided for herein, and all other sums due to
Payee under any of the other Loan Documents, to be
immediately due and payable without demand or
further notice to Maker or any other Person, and
the exercise or failure to exercise any or all of
such rights, powers and remedies shall not
constitute a waiver of the right to the later


14



exercise thereof or any other right, power or
remedy at any subsequent time in respect of the
same Event of Default or any other Event of
Default. All costs of collection or of enforcement
of Payee's rights hereunder or under any of the
other Loan Documents executed in connection
herewith, including reasonable attorneys fees,
whether suit is brought or not, shall be paid by
Maker on demand.

     7. APPLICATION OF PAYMENTS.

     Prior to the occurrence of an Event of
Default, all payments received by Payee on account
of the Loan (whether due by reason of acceleration
pursuant to Paragraph 6 above or otherwise) shall
be applied in the following order of priority:

     (A) first, toward repayment of all amounts
advanced by Payee under the provisions of the Loan
Documents to protect and preserve the collateral
described in such Loan Documents (if any),
together with the interest to be paid with respect
to such sums as provided in the Loan Documents;

     (B) second, to the payment of all other
reasonable costs and expenses incurred by Payee in
connection with the Loan which are payable by
Maker pursuant to the terms of this Note or any of
the other Loan Documents;

     (C) third,  if applicable,. to the payment of
the Tax Deposits and Insurance Deposits required
under this Note;

     (D) fourth, to the payment of interest at the
Base Interest Rate which has accrued on the
Outstanding Principal Balance and which is then
due and payable;

     (E) fifth, to the payment of Additional
Interest which is then due and payable; and

     (F) sixth to the payment of the Outstanding
Principal Balance.

     All unpaid interest at the Base Rate and all
unpaid Additional Interest which has accrued on
the Outstanding Principal Balance, whether prior
to or subsequent to the occurrence of an Event of
Default, shall be paid at the time of, and as a
condition precedent to, the curing of the Event of
Default. While an Event of Default exists, Payee
is expressly authorized to apply payments received
by it as Payee, in its sole discretion, may elect
against (i) any or all amounts, or portions
thereof, then due and payable hereunder or under
any of the other Loan Documents, (ii) the
Outstanding Principal Balance, or (iii) any
combination thereof.

     8. REMEDIES.

     (A) The remedies of Payee, as provided herein
or in any of the other Loan Documents, shall be
cumulative and concurrent, and may be pursued
singularly, successively or together, at the sole
discretion of Payee, and may be exercised as often
as occasion therefor shall arise. No act of
omission or commission of Payee, including,
without limitation, any failure to exercise any
right, remedy or recourse, shall be deemed to be a
waiver or release of the same, such waiver or
release to be effected only through a


15



written document executed by Payee and then only
to the extent specifically recited therein. A
waiver or release with reference to any one event
shall not be construed as continuing, as a bar to,
or as a waiver or release of, any subsequent
right, remedy or recourse as to a subsequent
event. The acceptance by Payee of any payment
hereunder which is less than the payment in full
of all amounts due and payable at the time of such
payment shall not constitute a waiver of the right
to exercise any of the rights, powers and remedies
hereunder or at law at that time, or at any
subsequent time, or nullify any prior exercise of
any such right, power or remedy without the
written consent of Payee evidenced through a
written document as above described.

     (B) If this Note is placed in the hands of
any attorney for collection or is collected
through any legal proceeding, Maker promises to
pay, to the extent permitted by law, all
reasonable expenses, all accountants' and
attorneys' fees, and all reasonable costs of
litigation through and including post judgment and
appellate proceedings, if any, incurred by Payee.

     (C) Maker and all endorsers and guarantors
hereof and all others who may become liable for
all or any part of the obligation evidenced
hereby, agree to be jointly and severally bound
hereby, and they do jointly and severally waive
and renounce any and all exemption rights,
including that of homestead, and the benefit of
all valuation and appraisement privileges
available to them or any of them pursuant to the
Constitution and laws of the United States or of
any state, territory or jurisdiction, as against
this debt or any renewal or extension thereof, and
jointly and severally waive presentment, demand,
protest, notice of nonpayment, and any and all
lack of diligence or delays in collection or
enforcement hereof. Maker and all endorsers and
guarantors hereof, further jointly and severally
agree with the Payee hereof that said Payee may,
without notice, in such manner, on such terms and
for such time(s) as Payee may see fit, (i) agree
with Maker to alter, extend, or renew this Note,
and/or (ii) release any maker, endorser or
guarantors hereof, and/or substitute or release
collateral or any part thereof, all without in any
way affecting, releasing, or foregoing the joint
and several liability of Maker and all endorsers
and guarantors hereof. The pleading of any statute
of limitations as a defense to any demand against
Maker, all endorsers and guarantors hereof, and
all others who may become liable for all or any
part of the obligation evidenced hereby is
expressly waived by and on behalf of each and all
of said parties.

     9. USURY LIMITATIONS.

     It is the intention of the parties to conform
strictly to applicable usury laws from time to
time in force, and all agreements between Maker
and Payee, whether now existing or hereafter
arising and whether oral or written, are hereby
expressly limited so that in no contingency or
event whatsoever, whether by acceleration of
maturity hereof or otherwise, shall the amount
paid or agreed to be paid to Payee, or collected
by Payee, for the use, forbearance or detention of
the money to be loaned hereunder. or otherwise, or
for the payment or performance of any covenant or
obligation contained herein, in the Mortgage or in
any other Loan Document, or in any other document
evidencing, securing, or pertaining to the
indebtedness evidenced hereby, exceed the maximum
amount permissible under applicable usury laws
(the "Highest Lawful Rate"). If under any
circumstances whatsoever fulfillment of any
provision hereof or of the Mortgage or any other
Loan Documents, at the time performance of such
provision shall be due, shall


16



involve an amount or any portion thereof in excess
of the Highest Lawful Rate, then ipso facto, the
payment to be made or the amount to be delivered
to be fulfilled shall be reduced to the limit of
such validity; and if under any circumstances
Payee shall ever receive an amount deemed interest
by applicable law which would exceed the Highest
Lawful Rate, such amount that would be excessive
interest under applicable usury laws shall be
applied to the reduction of the principal amount
owing hereunder or to other indebtedness secured
by the Mortgage and not to the payment of
interest, or if such excessive interest exceeds
the unpaid balance of principal and other
indebtedness, the excess shall be deemed to have
been a payment made by mistake and shall be
refunded to Maker or to any other Person making
such payment on Maker's behalf All sums paid or
agreed to be paid to Payee for the use,
forbearance or detention of the indebtedness of
Maker evidenced hereby, outstanding from time to
time shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread
from the date of disbursement of the proceeds of
this Note until payment in full of such
indebtedness so that the actual rate of interest
on account of such indebtedness is uniform through
the term hereof. The terms and provisions of this
paragraph shall control and supersede every other
provision of all agreements between Payee and
Maker and any endorser or guarantor of this Note.

     10. MISCELLANEOUS.

     (A) Any notice, demand, request or other
communication which any party hereto may be
required or may desire to give hereunder shall be
given in the manner set forth in Section 11.8 of
the Loan Agreement governing notices. Notices
given in any other fashion shall be deemed
effective only upon receipt.

     (B) The payment of this Note is secured by,
inter alia, the Mortgage and the Assignment of
Rents and Leases, each of which affects the real
estate located in Pierce County, Washington which
is legally described on Exhibit A attached hereto
and described in the Loan Agreement as the Land.
Reference is hereby made to the Loan Agreement,
Mortgage, Assignment of Rents and Leases and the
Loan Documents described in the Loan Agreement for
certain additional rights and remedies afforded
Payee in connection with the Loan and the Land.

     (C) Paragraph headings in this Note have been
included solely for convenience, are not to be
considered part of this Note, and are not intended
to modify, explain or to be a full or accurate
description of the content thereof.

     (D) In addition to the Outstanding Principal
Balance, interest and all other amounts set forth
herein, this Note also evidences all indebtedness
due under the terms of the other Loan Documents. .

     (E) Nothing contained in this Note or any of
the other Loan Documents shall constitute Maker
and Payee as joint venturers or partners with or
agents for one another, or either of them liable
for any debts or obligations of the other.





17




     (F) This Note shall be governed by and
construed in accordance with the laws of the State
of Washington (excluding conflicts of law) and the
United States of America. Pierce County,
Washington, shall be a proper place of venue for
all suits to enforce this Note. Maker and Payee
each hereby irrevocably agree that any legal
proceeding arising out of or in connection with
this Note shall be brought in the superior courts
of Pierce County, Washington or the United States
District Court for the Western District of
Washington.

     11. LOSS, THEFT, DESTRUCTION OR MUZTLATION OF
NOTE.

     In the event of the loss, theft or
destruction of this Note prior to the payment in
full of all amounts evidenced hereby, upon Maker's
receipt of a reasonably satisfactory
indemnification agreement executed in favor of
Maker by the party who held this Note immediately
prior to its loss, theft or destruction, or in the
event of the mutilation of this Note, upon Payee's
surrender to Maker of the mutilated Note, Maker
shall execute and deliver to such party or Payee,
as the case may be, a new promissory note in form
and content identical to this Note in lieu of the
lost, stolen, destroyed or mutilated Note.

     12. ORAL AGREEMENTS.

     ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY. EXTEND CREDIT OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A . DEBT.ARE NOT ENFORCEABLE UNDER
WASEINGTON LAW.


MAKER:


EMERITUS PROPERTIES III, INC.,

a Washington corporation


By:  /s/ Kelly J. Price

- -----------------------------

Kelly J. Price

Secretary

















18

EX-10.32.3

RECORDING REQUESTED BY AND WHEN RECORDED RETURN
TO:

GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166
Attn: Deborah E. Miller

            DEED OF TRUST, SECURITY AGREEMENT,
FlNANCING
                   STATEMENT AND ASSIGNMENT OF
RESIDENT
                                     AGREEMENTS
AND RENTS
                   (Secunty For Construction And
Mini-Pennanent Loan)

Grantor (Borrower): Emeritus Properties m, Inc.
Grantee (Lender): Ocwen Federal Bank FSB
Grantee (Trustee): Chicago Title Insurance Company
Legal Description (abbreviated): Lot 1, Columbia
Pacific Management Building Site Plan,
9507190625; Additional legal on Exhibit A
Assessor's Tax Parcel ID#6021650010

                THIS DOCUMENT TO BE RECORDED BOTH
AS
                   A DEED OF TRUST AND FIXTURE
FILING

      THIS DOCUMENT SECURES OBLIGATIONS WHICH
CONTAIN
               PROVISIONS FOR A VARIABLE RATE OF
ITEREST

     THIS DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RESIDENT
AGREEMENTS AND RENTS (this "Deed of Trust") is
made as of the 30th day of January, 1997, by and
between EMERITUS PROPERTIES III, INC., a
Washington corporation whose address is 3131
Elliott Avenue, Suite 500, Seattle, Washington
98121 ("Grantor"), CHICAGO TITLE INSURANCE
COMPANY, a Missouri corpora1ion, whose address is
2601 South 35th Street, Suite 100, Tacoma,
Washington 98409, Attn: Bruce Judson, as Trustee
("Trustee") and OCWEN FEDERAL BANK FSB, a
federally chartered savings bank whose address is
1675 Palrn Beach Lakes Boulevard, West Palrn
Beach7 Florida 33401, Attention: Secretary
("Beneficiary").

     Terms which are used in this Deed of Trust
and not otherwise defined herein shall have the
meanings ascribed to such terms in Article I
below.


RECITALS

     THIS DEED OF TRUST CONSTITUTES A FIXTURE
FILING UNDER SECTIONS 9-313 AND 9-402 OF THE
UNIFORM COMMERCIAL CODE AS ADOPTED BY THE STATE OF
WASHINGTON. TO THE EXTENT THE GOODS ARE FIXTURES
UNDER THE LAWS OF THE STATE OF WASHINGTON, THE
FIXTURES ARE OR ARE TO BECOME FIXTURES ON THE REAL
PROPERTY LOCATED IN THE COUNTY OF PIERCE, STATE OF
WASHINGTON, MORE PARTICULARLY DESCRIBED ON EXHIBIT
A ATTACHED HERETO. THE NAME OF THE RECORD OWNER OF
THE REAL PROPERTY IS GRANTOR


     
     


     Of even date herewith, Grantor, as Borrower,
and Beneficiary, as Lender, have entered into a
Loan Agreement (the "LOAN AGREEMENT") pursuant to
which Beneficiary has agreed to make a loan (the
"Loan") to Grantor in the original principal sum
of Six Million Four Hundred Sixty-Five Thousand
and No/100 Dollars ($6,465,000) upon the terms and
conditions set forth therein. The Loan is
evidenced by a Promissory Note (the "Note") in the
original principal amount of the Loan executed by
Grantor and payable to the order of Beneficiary.

     As security for the Loan, and as partial
consideration therefor, Grantor has agreed to
execute and deliver this Deed of Trust as one of
the Loan Documents described in the Loan
Agreement.

     NOW, THEREFORE, in consideration of the
making of the Loan and other good and valuable
consideration, the receipt, adequacy and
sufficiency of which are hereby conclusively
acknowledged, to secure the Loan and the other
Indebtedness, Grantor has granted, mortgaged,
bargained, sold, alienated, enfeoffed, released,
conveyed and confirmed, and by these presents does
grant, mortgage, bargain, sell, alienate, enfeoff,
release, convey and confirm unto the Trustee, in
trust, WITH POWER OF SALE, in fee simple, all that
land situated in Pierce County, Washington, and
more particularly described on Exhibit A attached
hereto and made a part hereof for all purposes
(the "Land"), together with the buildings and
improvements erected or to be erected thereon,
including but not limited to all appurtenant
parking areas, driveways, roadways, walkways and
landscaped areas (the "IMPROVEMENTS");

     TOGETHER with all the walks, fences,
shrubbery, driveways, fixtures, equipment,
machinery, apparatus, fittings, building materials
and other articles of personal property of every
kind and nature whatsoever, now or hereafter
ordered for eventual delivery to the Land (whether
or not delivered thereto), and all such as are now
or hereafter located in or upon any interest or
estate in the Land or any part thereof and used or
usable in connection with any present or future
operation of the Land now owned or hereafter
acquired by Grantor, including, without limiting
the generality of the foregoing, all heating,
lighting, laundry, clothes washing, clothes
drying, incinerating and power equipment, engines,
boilers, pipes, tanks, motors, conduits,
switchboards, plumbing, lifting, cleaning,
fire-prevention, fire-extinguishing,
refrigerating, ventilating, and communications
apparatus, telephones and offfice equipment,
television sets, radio systems, recording systems,
computer equipment, copiers, chairs, desks,
tables, sofas, air-cooling and air-conditioning
apparatus, elevators, escalators, shades, awnings,
draperies, curtains, curtain rods, mirrors,
paneling, fans, furniture, furnishings, beds,
mattresses, linens, bedding, towels, wheel chairs,
walkers, canes, medical equipment and supplies,
vans and other transportation equipment,
carpeting, linoleum and other floor coverings,
screens, storm doors and windows, stoves, dishes,
glasses, silverware and other kitchen and
restaurant equipment and supplies, gas and
electric ranges, refrigerators, garbage disposals,
sump pumps, dishwashers, bath tubs, water heaters,
water closets, sinks, attached cabinets,
partitions, ducts and compressors, landscaping,
swimming pools, lawn and garden equipment,
security systems and including all materials and
equipment installed or to be installed or used or
usable in the construction, reconstruction,
alteration, repair and operation of the building
or buildings or appurtenant facilities erected or
to be erected in or upon the Land; it being
understood that all of the aforesaid shall be
deemed to be fuctures and part of the Land, but
whether or not of the nature of fixtures they
shall be deemed and shall constitute part of the
security for the Indebtedness and shall be covered
by this Deed of Trust excluding, however, only
personal property owned by any resident actually
occupying all or part of the premises. Except as
otherwise expressly allowed pursuant to this Deed
of Trust, disposition of any of the aforesaid or
of any interest therein is prohibited; however, if
any disposition is made in violation hereof,
Beneficiary shall have a security interest in the
proceeds therefrom to the fullest extent permitted
by the laws of the State of Washington; and


2



     TOGETHER with all and singular the rights,
rights-of-way, strips and gores of land, streets,
alleys, ways, passages, sewer rights, water, water
courses, water rights and powers, air rights and
development rights, mineral, oil and gas rights,
easements, tenements, privileges, advantages,
accessions, hereditaments and appurtenances
belonging or in any way appertaining to the Land
and other property described herein, and the
reversions and remainders, earnings, revenues,
rents, royalties, issues and profits thereof and
including any right, title, interest or estate
hereafter acquired by Grantor in the Land and
other property described herein, and all land
lying in the bed of any street, road or avenue,
opened or proposed, in front of or adjoining the
Mortgaged Property (hereinafta defined) to the
center line thereof and all the estates, rights,
titles, interests, dower and rights of dower,
curtesy and rights of curtesy, property,
possession, claim and demand whatsoever both at
law and in equity, of Grantor of, in and to the
Mortgaged Property and every part and parcel
thereof, with the appurtenances thereto; and

     TOGETHER with all the right, title and
interest (but not the obligations) of Grantor,
present and future, in and to all present and
future accounts, contract rights (including all
rights of Grantor set forth in the Loan
Agreement), general intangibles, chattel paper,
documents and instruments including but not
limited to licenses, construction contracts,
management contracts, service contracts, utility
contracts, options, Permits, public works
agreements, architectural and engineering
agreements, all architectural, engineering and
similar plans, specifications, drawings, reports,
surveys, plats, permits, bonds, deposits and
payments thereunder, relating or appertaining to
the Land and other property described herein and
its development, occupancy and use; provided,
however, that nothing herein shall be construed to
grant Trustee or Beneficiary any right, title, or
interest in or to any such items, to the extent
such grant would be in violation of any applicable
Governmental Requirement; and

     TOGETHER with any right to payment of the
rental for the use or occupancy (transient or
otherwise) of rooms or other space, including,
without limitation, any residential unit or bed,
any hotel or motel rooms, meeting, banquet,
restaurant, parking, health or health service,
medical recreational or spa facilities, or for
goods sold or leased or for services rendered,
whether or not yet earned by performance, arising
from the operation of the Improvements or any
other facility on the Land, including, without
limitation, (1) all accounts arising from the
operation of the Improvements and all proceeds
thereof (whether cash or noncash, movable or
immovable, tangible or intangible) received upon
the sale, exchange, transfer, collection or other
disposition or substitution thereof, and (2) all
rights to payment from any consumer credit/charge
card organization or entity, including, without
limitation, payments arising from the use of the
American Express Card, Visa Card, Carte Blanche
Card, MasterCard, Diner's Club, or any other
credit card, including those now existing or
hereafter created or any substitutions therefor
and all proceeds thereof (whether cash or
non-cash, movable or immovable, tangible or
intangible) received upon the sale, exchange,
transfer, collection, or other disposition or
substitution thereof; provided, hawever, that
nothing herein shall be construed to grant Trustee
or Beneficiary any right, title, or interest in or
to any such items, to the extent such grant would
be in violation of any applicable Governmental
requirement; and

     TOGETHER with all of the rents, royalties,
revenues, income, proceeds, profits and other
benefits paid or payable by parties to the
Resident Agreements for using, leasing, licensing,
possessing, occupying, operating from, residing
in, selling or otherwise enjoying the Land, the
improvements, and other property securing the
Indebtedness, or any portion thereof; provided,
however, that nothing herein shall be construed to
grant Trustee or Beneficiary any right, title, or
interest in or to any such items, to the extent
such grant would be in violation of any applicable
Governmental Requirement; and


3



     TOGETHER with all of Grantor's right, title
and interest in and to any and all judgments,
awards of damages (including but not limited to
severance and consequential damages), payments,
proceeds, settlements or other compensation
(collectively, the "Awards") heretofore or
hereafter made, including interest thereon, and
the right to receive the same, as a result of, in
connection with, or in lieu of: (a) any taking of
the Mortgaged Property or any part thereof by the
exercise of the power of condemnation or eminent
domain, or the police power; (b) any change or
alteration of the grade of any street or (c) any
other injury or decrease in the value of the
Mortgaged Property or any part thereof (including
but not limited to destruction or decrease in
value by fire or other casualty), all of which
Awards, rights thereto and shares therein are
hereby assigned to Beneficiary, who is hereby
authorized to collect and receive the proceeds
thereof and to give property receipts and
acquittances therefor and to apply, at its option,
the net proceeds thereof, after deducting expenses
of collection, as a credit upon any portion, as
selected by Beneficiary, of the Indebtedness
secured hereby; and

     TOGETHER with all of Grantor's right, title
and interest in and to any and all payments,
proceeds, settlements or other compensation
heretofore or hereafter made, including any
interest thereon, and the right to receive the
same from any and all insurance policies covering
the Property or any portion thereof, or any of the
other property described herein; and

     TOGETHER with the interest of Grantor in any
cash escrow fund and in any and all funds,
securities, instruments, documents and other
property which are at any time paid to, deposited
with, under the control of, or in the possession
of Beneficiary, or any of its agents, branches,
affiliates, correspondents or others acting on its
behalf, which rights shall be in addition to any
right of set-off or right of lien that Beneficiary
may otherwise enjoy under applicable law,
regardless of whether the same arose out of or
relates in any way, whether directly or
indirectly, to the Mortgaged Property; and

     TOGETHER with the interest of Grantor in and
to any and all funds created or established and
held by Beneficiary pursuant to any indenture of
trust or similar instrument authorizing the
issuance of bonds or notes for the purpose of
financing the Project; and

     TOGETHER with all inventory, including raw
materials, components, work-inprogress, finished
merchandise and packing and shipping materials
owned by Grantor and located on the Mortgaged
Property; and

     TOGETHER with all proceeds, products,
returns, additions, accessions and substitutions
of and to any or all of the above; and

     TOGETHER with all of the records and books of
account now or hereafter maintained by or on
behalf of Grantor in connection with the Project;
and

     TOGETHER with all names now or hereafter used
in connection with the Project and the goodwill
associated therewith.

     The Land, the Improvements and all of the
property, rights, privileges and franchises
referenced hereinabove and/or granted herein by
Grantor to Beneficiary, together with the
proceeds, products, replacements, additions,
substitutions, renewals and accessions of or to
any and all of the foregoing, are collectively
referred to herein as the "MORTGAGED PROPERTY."





4



     TO HAVE AND TO HOLD all and singular the
Mortgaged Property unto the Trustee, its
successors and assigns forever; PROVIDED, HOWEVER,
that these presents are upon the condition that if
Grantor shall pay and fully perform the Loan,
including, without limitation, all sums,
including, without limitation, the principal,
interest and Additional Interest payable in
respect to the Note, Loan Agreement and Loan
Documents and all amounts and any other promissory
note or evidence of indebtedness secured by this
Deed of Trust, at the times and in the manner
stipulated therein and herein, all without any
deduction or credit for taxes or other similar
charges paid by Grantor, and shall keep, perform
and observe all and singular the terms,
conditions, covenants and provisions in the Note,
Loan Agreement and Loan Documents, and any
renewal, extension, consolidation or modification
thereof and in this Deed of Trust expressed to be
kept, performed and observed by and on the part of
Grantor, all without fraud or delay, then the
Trustee shall, upon receipt of the written request
of Holder, and at the expense of Grantor, release
and discharge this Deed of Trust of record and
shall transfer and deliver up to Grantor any
property at the time subject to this Deed of Trust
which may be then in its possession, provided the
Trustee hereunder shall be entitled to a
reasonable fee for the release and reconveyance of
such property.

     This Deed of Trust does not secure any funded
or unfunded commitment to any governmental agency
to pay for the construction or maintenance of any
sidewalks, roads, traffic controls, storm or
sanitary sewer lines, landscaping or other
improvements to or in the vicinity of the
Mortgaged Property or any extension fees or other
sums due in connection therewith if and to the
extent such commitment is or becomes secured by a
separate deed of trust.


ARTICLE I


DEFINITIONS

     When used in this Deed of Trust, the
following terms shall have the respective meanings
assigned to them or if no definition is set forth
herein, then the meanings assigned to such terms
in the Loan Agreement:

     "ACCREDITATION BODY" shall have the meaning
ascribed to such term in the Operating

     "AFFILIATE" shall have the meaning ascribed
to such term in the Operating Agreement.

     "ASSIGNMENT OF LICENSES AND PERMITS" shall
mean the Assignment of Licenses and Permits dated
of even date herewith executed by Grantor and
delivered to Beneficiary, as the same may be
amended from time to time.

     "ASSIGNMENT OF RENTS AND LEASES" shall mean
the Assignment of Rents and Leases dated of even
date herewith executed by Grantor and delivered to
Beneficiary, as the same may be amended from time
to time.

     "ASSISTED LIVING FACILITY" shall have the
meaning ascribed to such term in the Loan

     "BORROWING GROUP" shall mean collectively,
Grantor, Guarantor, any Person which is an
Affiliate of Grantor or Guarantor or any Manager
which is an Affiliate of Grantor or Guarantor.



5




     "BUSINESS DAY" shall mean any day other than
a Saturday or Sunday or any day which is a legal
holiday in Florida or any day on which banking
institutions are authorized or are required by law
or other governmental action to close.

     "COLLATERAL" shall mean the Mortgaged
Property and all additional property covered by
any Security Agreement or any of the other Loan
Documents and identified as collateral or security
for the Loan.

     "CONTRACTS" shall mean all agreements
(including, without limitation, Provider
Agreements and Resident Agreements), contracts
(including without limitation, construction
contracts, subcontracts, and architects'
contracts), contract rights, warranties and
representations, franchises, and records and books
of account banefiting, relating to or affecting
the Project or the ownership, construction,
development, maintenance, management, repair, use,
occupancy, possession, or operation thereof, or
the operation of any programs or services in
conjunction with the Project and all renewals,
replacements and substitutions therefor, now or
hereafter issued by or entered into with any
Governmental Authority, Accreditation Body or
Third Party Payor or maintained or used in
conjunction with the Project by any member of the
Borrowing Group or entered into in conjunction
with the Project by any member of the Borrowing
Group with any other Person.

     "DEFAULT RATE" shall mean the rate of
interest set forth in the Note as the applicable
interest rate after the occurrence of an Event of
Default or after the Maturity Date.

     "ENVIRONNNENTAL LAWS" shall mean any
Governmental Requirement applicable to Grantor or
to the Mortgaged Property relating to industrial
hygiene or to environmental or unsafe conditions,
including but not limited to, those relating to
the generation, manufacture, storage, handling,
transportation, disposal, release, emission or
discharge of Substances, those in coMection with
the construction, fuel supply, power generation
and transmission, waste disposal or any other
operations or processes relating to the Mortgaged
Property, and those relating to the atmosphere,
soiL surface and ground water, wetlands, stream
sediments and vegetation on, under, in or about
the Mortgaged Property. Environmental Laws also
shall include, but not be limited to, the Model
Toxics Control Act, as adopted in the State of
Washington and amended from time to time, the
Comprehensive Environmental Response, Compensation
and Liability Act, the Emergency PlaMing and
Community Right-to-Know Act of 1986, the Hazardous
Materials Transportation Act, the Resource
Conservation and Recovery Act, the Solid Waste
Disposal Act, the Clean Water Act, the Clean Air
Act, the Toxic Substance Control Act, the Safe
Dnnking Water Act and the Occupational Safety and
Health Act, and all regulations adopted in respect
to the foregoing laws.

     "ENVIRONMENTAL REPORT" shall mean the Phase I
Environmental Report dated October 3, 1996,
prepared by Eckland Consultants, Inc. with respect
to the Land.

     "GOVERNMENTAL AUTHORITY" shall mean the
United States, the state, the county, the city, or
any other political subdivision in which the
Mortgaged Property is located, and any other
political subdivision, agency or instrumentality
exercising jurisdiction over Grantor, Guarantor,
the Project, or if the context requires, any
Design Professional, the General Contractor, any
subcontractor, the Developer, or the Manager under
the Management Contract.





6




     "GOVERARNENTAL REQUIREMENTS" shall mean shall
mean all laws, statutes, ordinances, bylaws,
codes, rules, regulations, restrictions, orders,
writs, injunctions, judgments or decrees
(including, without limitation, all applicable
building, health code, zoning, subdivision, and
other land use and health-care licensing statutes,
ordinances, by-laws, codes, rules and
regulations), whether now or hereafter enacted,
promulgated or issued by any Governmental
Authority, Accreditation Body or Third Party
Payor, applicable at any time and from time to
time to Beneficiary, any member of the Borrowing
Group (to the extent applicable to the Project or
the Loan), the Project or if the context requires,
any Design Professional, the General Contractor,
any subcontractor, the Developer or the Manager
under the Management Contract, or the ownership,
construction, development, maintenance,
management, repair, use, occupancy, possession or
operation of the Project, or the operation of any
programs or services in comection with the
Project, including, without limitation, any of the
foregoing which may (i) require repairs,
modifications or alterations in or to the Project7
(ii) in any way affect (adversely or otherwise)
the use and enjoyment of the Project7 or (iii)
require the assessment, monitoring, clean-up,
containment, removal, remediation or other
treatment of any Substances on7 under or from the
Project. Without limiting the foregoing, the term
Governmental Requirements includes all Permits and
Contracts issued or entered into by any
Governmental Authority, any Accreditation Body
and/or any Third Party Payor and the requirements
of Chapter 18.20 of the Revised Code of
Washington.

     "HIGHEST LAWFUL RATE" shall have the meaning
ascribed to such term in Section 5.8

     "INDEBTEDNESS" shall mean the Loan7 all
liabilities and obligations of Grantor, Guarantor
and other Persons owing to Lender under the Loan
Documents and all other amounts which by the terms
of this Deed of Trust or the Loan Documents are
secured by this Deed of Trust.

     "INTENDED USE" shall mean the use of the
Land, Improvements and other Mortgaged Property as
an assisted living facility and such ancillary
uses as are permitted by law and may be necessary
in coMection therevvith or incidental thereto.

     "LOAN DOCUMENTS" shall mean the Loan
Application7 the Loan Agreement, the Note, this
Deed of Trust, the Assignment of Licenses and
Permits, the Assignment of Rents and Leases, the
Conditional Assignment of Management Contract, the
Operating Agreement, the Security Agreements, the
Guaranties, the Loan Disbursing Agreement,
Borrower's Counsel's Opinion7 each Consent of
Design Professional, each Consent of Contractor,
and all other documents, instruments and
agreements now existing or hereafter entered into
by Grantor or any Guarantor with or for the
benefit of Beneficiary in relation to the Loan7 as
the same may be amended from time to time,
including all documents evidencing the authority
and capacity of Grantor and Guarantor to
consummate the transactions contemplated by the
Loan Agreement.

     "MEDICAID" shall have the meaning ascribed to
such term in the Operating Agreement.

     "MEDICARE" shall have the meaning ascribed to
such term in the Operating Agreement.

     "OPERATING AEREEMENT" shall mean that certain
Washington Assisted Living Facilities Operating
and Licensing Agreement dated of even date
herewith executed by Grantor and Beneficiary.



7



     "PERMITS" shall mean collectively, all
permits, licenses, approvals, variances,
permissive uses, accreditations, certificates,
certifications, consents, agreements, contracts,
contract rights, franchises, interim licenses,
permits and other authorizations of every nature
whatsoever required by, or issued under,
applicable Governmental Requirements banefiting,
relating or affecting the Project or the
construction, development, maintenance,
management, use or operation thereof, or the
operation of any programs or services in
conjunction with the Project and all renewals,
replacements and substitutions therefor, now or
hereafter required or issued by any Governmental
Authority, Accreditation Body or Third Party
Payor, or maintained or used in conjunction with
the Project by any member of the Borrowing Group,
or entered into in conjunction with the Project by
any member of the Borrowing Group with any Person.

     "PERMITTED ENCUMBRANCES" shall mean (i) the
liens and security interests of Beneficiary
arising under this Deed of Trust and the other
Loan Documents; (ii) such matters as are expressly
stated as exceptions to title in any Title
Insurance Policy accepted by Beneficiary; (iii)
liens for taxes, assessments, or governmental
charges or levies not yet due and payable, or
being contested in good faith by appropriate
proceedings promptly initiated and diligently
conducted, provided that a reserve or other
appropriate provision as may be required by GAAP
shall have been made therefor and no foreclosure,
distraint, sale or other similar proceedings shall
have been commenced and any additional
requirements with respect thereto imposed by the
Loan Documents have been satisfied; (iv) Resident
Agreements on a form previously approved by
Beneficiary and other residency agreements that
are acceptable to Beneficiary; and (v) such other
matters affecting the Mortgaged Property as
Beneficiary may accept in writing from time to
time in Baneficiaris sole discretion.

     "PERSON" shall mean any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association,
corporation, institution, entity, party or
government (whether territorial, national,
federal, state, county, city, municipal or
otherwise, including, without limitation, any
instrumentality, division, agency, body or
department thereof).

     "PROJECT" shall mean the acquisition of the
Land and the development, construction and
operation of a one hundred (100) unit Assisted
Living Facility thereon, including assisted living
residences and related amenities including
activity lounges, dining facilities, a library and
a barber/beauty salon. All references to the term
Project shall be deemed to include the Mortgaged
Property.

     "PROVIDER AGREEMENT" shall have the meaning
ascribed to such term in the Operating

     "RESIDENT AGREEMENTS" shall mean all
contracts, agreements and consents executed by or
on behalf of any resident or other Person seeking
services at the Project, including without
limitation, assignments of benefits and
guarantees. Resident Agreements shall include all
agreements pursuant to which Persons are granted
the right to reside or remain in the Project for
any period of time.

     "SUBSTANCES" shall mean all substances which
are regulated by Environmental Laws or other
Governmental Requirements as to use, generation,
collection, storage, treatment or disposal.and
include, without limitatiorg petroleum and
petroleum products (excluding a small quantity of
gasoline used in maintenance equipment on the
Mortgaged Property), fammable explosives,
radioactive materials (excluding radioactive
materials in smoke detectors), polychlorinated
biphenyL asbestos in any form that is or could
become friable, hazardous waste, toxic or
hazardous substances or other related materials
whether in the form of chemical element,


8



compound, solution, mixture or otherwise,
including but not limited to, those materials
defined as "hazardous substances,n "extremely
hazardous substances,n "hazardous chernicals,n
"toxic waste," "toxic materials," "hazardous
materials," "toxic substances," ntoxic chemicals,n
"air pollutants," "toxic pollutants," "hazardous
wastes," "extremely hazardous waste," or
"resuicted hazardous waste" by Environmental Laws.

     "THIRD PARTY PAYORS" shall have the meaning
ascribed to such term in the Operating

                                      ARTICLE II

        COVENANTS, AGREEMENTS, REPRESENTATIONS
                       AND WARRANTIES OF GRANTOR

     2. l TITLE TO MORTGAGED PROPERTY. Grantor
represents and warrants to Beneficiary that at the
time of the execution and delivery of this Deed of
Trust it has good title to all of the Mortgaged
Property described in the granting clauses of this
Grantor as being presently granted, assigned,
conveyed and transferred hereunder. Grantor hereby
warrants generally and shall defend the title to
the Mortgaged Property, and every part thereof,
whether now owned or hereafter acquired, unto
Trustee, its successors and assigns, against all
claims and demands by any Person whatsoever,
subject only to the Permitted Encumbrances.
Grantor covenants that Grantor shall comply with
all the terms, covenants and conditions of all
agreements and instruments, recorded and
unrecorded, affecting the Mortgaged Property,
including all Permitted Encumbrances.

     2.2 GRANTOR.

     2.2.1 SINGLE ASSET ENTITY. Grantor shall own
only the Mortgaged Property as its sole asset and
shall not own or operate any other real or
personal property other than the Mortgaged
Property, shall not operate or conduct any
business other than the operation of the Mortgaged
Property, and shall not incur any liability or
obligation other than those incurred in connection
with the ownership and operation of the Mortgaged
Property.

     2.2.2 NO OTHER NAME. Grantor has never used
any other name (including a trade name) other than
the name set forth in the first paragraph of this
Deed of Trust, and Grantor has not changed its
identity or partnership or corporate structure, as
applicable, so as to make the use of Grantor's
name as set forth in the first paragraph of this
Deed of Trust in a filed financing statement
materially misleading.

     2.3 FURTHER ASSURANCES.

      2.3.1 ASSURANCES. At any and all times
Grantor shall furnish and record all and every
such further assurances as may be requisite or as
Beneficiary shall reasonably require for the
better assuring and confirming unto Trustee and/or
Beneficiary of the estate and property hereby
granted, assigned, conveyed or transferred, or
intended so to be whether now owned or hereafter
acquired, and Grantor shall bear all expenses,
charges and taxes in connection therewith.

     2.3.2 AMENDMENTS TO FINANCING STATEMENTS. If,
at any time, any of the information contained in
any financing statement filed in connection with
the security interests created by this Deed of
Trust, including without limitation, the
description of the Collateral, shall change in any
manner so as to cause such financing statement to
become misleading in any material respect or to
impair the perfection of the





security interests intended to be created by this
Deed of Trust, then Grantor shall immediately
advise Beneficiary of such change and, upon
Beneficiary's request, Grantor shall promptly
prepare any amendments to any affected financing
statement necessary in order to protect and
continue the perfection of the security interest
intended to be created thereby, and will obtain
the signatures of the debtor and secured party to
such amendment, and file the same in all offices
where such amendment is required to be filed in
order to protect and continue the perfection of
the security interest intended to be created
thereby. Grantor shall prepare, have executed and
file (and hereby irrevocably constitutes and
appoints Beneficiary as its attorney-in-fact to
prepare, execute and file) any amendments to the
financing statements filed with respect to the
security interests created by this Deed of Trust
in such form as Beneficiary may require in order
to continue the perfection of such security
interests. Grantor shall pay all costs and
expenses incurred in connection with the
performance of its obligations set forth in this
Section.

     2.4 CHANCE IN TAX LAW. In the event of the
passage of any law after the date of this Deed of
Trust, which law changes in any way the laws for
the taxation of mortgages, deeds of trust or debts
secured by mortgages or deeds of trust, or the
manner of collection of any such taxation so as to
affect this Deed of Trust, Beneficiary may give
thirty (30) days' written notice to Grantor
requiring the payment of the Indebtedness secured
hereby. If such notice be given, the Indebtedness
secured hereby shall become due and payable at the
expiration of said thirty (30) days; provided,
hawever, that such requirement of payment shall be
ineffective if Grantor is permitted by law to pay
the whole of such tax in addition to all other
payments required hereunder, without any penalty
or charge thereby accruing to Beneficiary, and if
Grantor expressly assumes in writing the
obligation to pay to Beneficiary an amount equal
to, and in fact pays the amount of, such tax to
Beneficiary prior to the date upon which such tax
is due and payable by Beneficiary.

     2.5 MAINTENANCE AND CONTINUED OWNERSHIP OF
MORTGAZED PROPERTY.

     2.5.1 REPAIR. Grantor (a) shall repair,
restore, replace or rebuild any part of the
Mortgaged Property that is damaged or destroyed by
casualty or the remainder of the Mortgaged
Property after a taking by eminent domain
proceedings whether or not covered by insurance or
award; (b) shall keep the Mortgaged Property in
good order, condition and repair, and shall not
commit, permit or suffer any waste thereof; (c)
shall make all needful and commercially reasonable
renewals, replacements and additions of and to the
same and shall permit Beneficiary or its designee
to enter upon and inspect the Mortgaged Property
at any time or times; (d) shall not alter or tear
down the Improvements on or to be made on the Land
or change them nor permit them to be torn down or
changed, without the written consent of
Beneficiary; and (e) shall not make or permit
residents, tenants or others to make any
improvements to or on the Mortgaged Property,
without the written consent of Beneficiary.

     2.5.2 NO IMPAIRMENT. Grantor shall not suffer
any act to be done or any conditions to exist on
the Mortgaged Property or any part thereof or any
thing or article to be brought thereon (a) which
may cause structural injury to the Improvements;
or (b) which would cause the value or usefulness
of the Mortgaged Property or any part thereof to
diminish (ordinary wear and tear excepted); or (c)
which may be dangerous, unless safeguarded as
required by law; or (d) which may in fact or in
law, constitute a nuisance, public or private; or
(e) which may void or make voidable any insurance
then in force or required by the terms of the
Operating Agreement and other Loan Documents to be
in force.




10



     2.5.3 COMPLIANCE WITH GOVERNMENTAL
REQUIREMENTS. Grantor shall observe and comply
with all conditions and requirements necessary to
obtain, preserve and extend any and all Permits
and shall promptly and faithfully comply with and
obey all other Governmental Requirements with
respect to the Mortgaged Property; provided,
however, nothing herein or in any of the other
Loan Documents shall be construed to require
Grantor to participate in or, if at any time
during the term of the Loan Grantor elects to
participate in, to continue to participate
Medicare or Medicaid.

     2.5.4 NO TRANSFER. It is understood and
agreed by Grantor that as part of the inducement
of Beneficiary to make the Loan, Beneficiary has
relied upon the creditworthiness and the
reliability and reputation of Grantor. Grantor
shall not sell, abandon, cease to own, lease
(except as authorized herein), assign, transfer,
or dispose of the Mortgaged Property or any
interest therein or portion thereof (except as
authorized herein) nor permit the sale,
assignment, or transfer of any shares or
partnership interests, as applicable, in Grantor,
without the prior written consent of Beneficiary
other than in the ordinary course of the operation
of the Project for its Intended Use. Any such
sale, conveyance, transfer, pledge, lease or
encumbrance made without Beneficiary's prior
written consent shall constitute an Event of
Default hereunder. Baneficiaris consent may be
withheld in its absolute and sole discretion, or
it may be conditioned upon a number of actions to
be determined in Beneficiary's sole discretion,
including but not limited to a determination of
the transferee's creditworthiness, the payment of
any assumption fee and associated costs and
expenses, and a modification of the Note, this
Deed of Trust, the Loan Agreement or the other
Loan Documents, and any and all terms and
provisions thereof. A contract to deed or an
agreement for deed or an assignment of beneficial
interest in any trust shall constitute a transfer
pursuant to the provisions of this Section. If any
Person should obtain any interest in all or any
part of the Mortgaged Property (without implying
Beneficiary's consent or acquiescence to such
acquisition, which consent is hereby expressly
denied), whether pursuant to execution or
enforcement of any lien, security interest or
other right, equal or subordinate to this Deed of
Trust or the lien and security interests hereof,
such event shall be deemed to be a transfer by
Grantor and unless expressly authorized herein or
approved hereunder, shall be an Event of Default
under this Deed of Trust.

     2.6 ENCUMBRANCES.

     2.6.1 NO FURTHER ENCUMBRANCES. Grantor shall
keep the Mortgaged Property free from all liens,
claims, and other encumbrances of every kind
except the Permitted Encumbrances and such other
encumbrances as are approved in writing by
Beneficiary. In the event Beneficiary consents to
an encumbrance on the Property, a default under
the terms of any document creating such an
encumbrance shall be an Event of Default
hereunder.

     2.6.2 NO TITLE RETENTION. Grantor shall not,
without the prior written permission of
Beneficiary, place any personal property upon the
Mortgaged Property or any part thereof or attach
any fixture that is subject to a title retention
agreement, security agreement, or other
encumbrance, whether said lien or interest is
prior to the legal operation and effect of this
Deed of Trust or subsequent thereto, nor shall
Grantor place or permit to be placed any personal
property upon the Mortgaged Property or any part
thereof, other than the personal property of
Grantor, of any resident or tenant actually
occupying all or part of the Mortgaged Property
pursuant to a binding Resident Agreement, or of
the Manager pursuant to the Management Contract.





11




     2.7 RESIDENT AGREEMENTS.

     2.7.1 COMPLIANCE WITH RESIDENT ACREEMENTS.
Grantor shall carry out or cause to be carried out
all of the agreements and covenants of owner or
landlord under the Resident Agreements and not
further encumber, assign or permit further
encumbrance or assignment of the owner's or
landlord's interest in such agreements. No
Resident Agreement shall include any space, or
grant to any resident any right or interest in any
area outside of the limits of the Mortgaged
Property and no Resident Agreement shall obligate
the owner or landlord thereunder to provide
services outside of the Mortgaged Property, except
as otherwise agreed by Beneficiary, which approval
may be evidenced by Beneficiary's approval of a
form of Resident Agreement as provided in the Loan
Agreement. Upon demand of Beneficiary, Grantor
shall furnish Beneficiary with an executed copy of
each Resident Agreement immediately upon its
execution. All Resident Agreements shall be
written on the standard form accepted by
Beneficiary, with only such changes as Beneficiary
shall have approved in writing or pursuant to
agreements otherwise approved by Beneficiary.

     2.7.2 ASSIGNMENT OF RESIDENT AGREEMENTS.
Grantor hereby assigns and transfers to
Beneficiary all Resident Agreements, subleases,
rents, issues and profits of the Mortgaged
Property. Grantor hereby irrevocable appoints
Beneficiary its true and lawful attorney-in-fact,
at the option of Beneficiary, at any time and from
time to time, to demand, receive and enforce
payment, give receipts, releases and
satisfactions, and to sue, in the name of Grantor
or Beneficiary, for all such rents, issues and
profits. Grantor, however, shall have the right to
collect such rents, issues and profits (but not
more than one (l) month in advance) prior to or at
any time there is not an Event of Default under
this Deed of Trust. The assignment of Resident
Agreements, subleases, rents, issues and profits
of the Mortgaged Property in this Section is
intended to operate as an absolute assignment, not
merely the passing of a security interest, to the
fullest extend permissible by Washington law. If
required by Beneficiary, Grantor will specifically
assign to Beneficiary all such Resident Agreements
whether now existing or hereafter created.

     2.7.3 COLLECTION UPON DEFAULT. Beneficiary
may, upon any Event of Default under this Deed of
Trust, and at any time thereafter without notice
unless such Event of Default has been cured to
Beneficiary's satisfaction and Beneficiary has not
elected to exercise its remedies in accordance
with Article IV hereof, and either in person, by
agent or by a receiver appointed by the court, and
without regard to the adequacy of any security for
the Indebtedness hereby secured, enter upon and
take possession of the Mortgaged Property, or any
part thereof. Upon any Event of Default,
Beneficiary may, in its own name, sue for or
otherwise collect such rents, issues, and profits,
including those past due and unpaid, and apply
same less costs and expenses of operation and
collection, including litigation expenses, court
costs, costs of suit, cost of an abstract of title
and other title evidence and attorneys' fees, and
paralegal charges, including all appellate
proceedings and disbursements, upon any
Indebtedness secured hereby and in such order as
Beneficiary may determine. The collection of such
rents, issues and profits or the entering upon and
taking possession of the Mortgaged Property, or
application thereof as aforesaid, shall not cure
or waive any default or notice of default
hereunder or invalidate any act done in response
to such default or pursuant to such notice of
default, or otherwise invalidate, impair, nullify,
waive or extinguish the rights and protections
afforded Beneficiary under the other provisions of
this Deed of Trust or the provisions of any of the
other Loan Documents. Furthermore, upon the
occurrence of an Event of Default, Beneficiary may
apply for a court order requiring Grantor to
deposit all rents in the court registry. Grantor
hereby consents to entry of such an order upon the
sworn ex parse motion of Beneficiary that an Event
of Default has occurred hereunder.




12



     2.7.4 MODIFICATION OF RESIDENT AGREEMENTS.
Other than may be reasonably necessary in the
ordinary course of Grantor's business or as
required by applicable Governmental Requirements,
Grantor will not modify, surrender, or terminate,
either orally or in writing, any Resident
Agreement now existing or hereafter created upon
the Mortgaged Property, nor will Grantor permit an
assignment or sublease thereof without the express
prior written consent of Beneficiary, which
consent shall not be unreasonably withheld.

     2.7.5 ASSIENMENT OF BANKRUPTCV AWARDS.
Grantor hereby assigns to Beneficiary any award
made hereafter to Grantor in any bankruptcy,
insolvency or reorganization proceeding (whether
federal or state) involving any of the residents
of the Project and all payments by any tenant in
lieu of rent pursuant to or as a result of such
proceedings.

     2.7.6 LIMITATION OF LIABILITY UNDER RESIDENT
AGREEMENTS. Beneficiary shall not be obligated to
perform or discharge any obligation or duty to be
performed or discharged by Grantor under any
Resident Agreement; and Grantor hereby agrees to
indemnify Beneficiary for and to save Beneficiary
harmless from, any and all liability arising from
any Resident Agreement, or this assigarnent
thereof, except liability resulting solely from
the gross negligence, willfull misconduct or fraud
of Beneficiary or Beneficiarys officers,
directors, employees or duly authorized agents,
and this assignment shall not place the
responsibility for the control, care, management
or repair of the Mortgaged Property upon
Beneficiary, nor make Beneficiary liable for any
negligence in the management, operation, upkeep,
repair or control of the Mortgaged Property
resulting in loss or injury or death to any
tenant, agent, guest, or stranger.

     2.8 CONTRACTS.

     2.8.1 COMPLIANCE WITH CONTRACTS. Grantor
shall carry out or cause to be carried out all of
its agreements and covenants under and relating to
all Contracts and not permit a lien or other
encumbrance superior to such Contracts other than
this Deed of Trust and the Permitted Encumbrances.
Upon demand of Beneficiary, Grantor shall furnish
Beneficiary an executed copy of each Contract
immediately upon its execution.

     2.8.2 ASSIGNMENT OF CONTRACTS. Grantor hereby
assigns and transfers to Beneficiary all Contracts
and all rents, issues, profits and other revenues
generated from such Contracts. Grantor hereby
irrevocably appoints Beneficiary its true and
lawful attorney-in-fact, at the option of
Beneficiary, at any time and from time to time, to
demand, receive and enforce payment, give
receipts, releases and satisfactions, and to sue,
in the name of Grantor or Beneficiary, for or
under all such Contracts. Grantor, however, shall
have the right to collect such issues and profits
prior to or at any time there is not an Event of
Default under this Deed of Trust. The assignment
of Contracts, rents, issues and profits of the
Mortgaged Property in this Section is intended to
operate as an absolute assignment, not merely the
passing of a security interest, to the fullest
extent permissible by Washington law. If required
by Beneficiary, Grantor will specifically assign
to Beneficiary all Contracts whether now existing
or hereafter created.

     2.8.3 COLLECTION UPON DEFAULT. Beneficiary
may, upon any Event of Default under this Deed of
Trust, and at any time thereafter without notice
unless such Event of Default has been cured to
Baneficiaris satisfaction and Beneficiary has not
elected to exercise its remedies in accordance
with Article IV hereof, in its own name, sue for
or otherwise collect all revenues generated by all
Contracts ("Revenues"), including those past due
and unpaid, and apply same less costs and expenses
of operation and collection, including litigation
expenses, court costs, costs of suit, cost of an
abstract of title and other title evidence and
attorneys' fees, and paralegal charges, including
all


13



appellate proceedings and disbursements, upon any
Indebtedness secured hereby and in such order as
Beneficiary may determine. The collection of such
Revenues or application thereof as aforesaid,
shall not cure or waive any default or notice of
de&tilt hereunder or invalidate any act done in
response to such default or pursuant to such
notice of default, or otherwise invalidate,
impair, nullify, waive or extinguish the rights
and protections afforded Beneficiary under
Washington law. Furthermore, upon the occurrence
of an Event of Default, Beneficiary may apply for
a court order requiring Grantor to deposit all
Revenues in the court registry. Grantor hereby
consents to entry of such an order upon the sworn
ex parse motion of Beneficiary that an Event of
Default has occurred hereunder.

     2.8.4 LIMITATION OF LIABILITY UNDER
CONTRACTS. Beneficiary shall not be obligated to
perform or discharge any obligation or duty to be
performed or discharged by Grantor under any
Contract and Grantor hereby agrees to indemnify
Beneficiary for and to save Beneficiary harmless
from, any and all liability arising from any
Contract, or this assignment thereof, except
liability resulting solely from the gross
neglicence, willful misconduct or fraud of
Beneficiary or Beneficiarys officers, directors,
employees or duly authorized agents, and this
assignment shall not place the responsibility for
the control, care, management or repair of the
Mortgaged Property upon Beneficiary nor make
Beneficiary liable for any negligence in the
management, operation, upkeep, repair or control
of the Mortgaged Property resulting in loss or
injury or death to any resident, tenant, agent,
guest, or stranger.

     2.9 ENVIRONMENTAL MATTERS.

     2.9.1 NO SUBSTANCES PRESENT. Grantor hereby
represents and warrants to Beneficiary that, to
the best of its knowledge, after a physical
inspection of the Mortgaged Property and all
appropriate investigation, except as disclosed in
the Environmental Report, (a) there are not now
and have never been any Substances located on or
near the Mortgaged Property other than those being
used in compliance with all applicable
Environmental Laws, and (b) the Mortgaged Property
is not now being used nor has it ever been used in
the past for any activities involving the use,
generation, collection, storage, treatment, or
disposal of any Substances. Grantor will not place
or permit to be placed any Substances on or near
the Mortgaged Property except for those Substances
that (i) are typically used in connection with the
maintenance and operation of an Assisted Living
Facility, provided the same are in appropnate
quantities to ensure compliance with all
applicable Environmental Laws and other
Governmental Requirements, (ii) are stored, used,
and disposed of properly, or (iii) are approved in
writing by Beneficiary.

     2.9.2 ACTING UPON PRESENCE OF SUBSTANCES.
Grantor hereby covenants and agrees that, if at
any time (a) Substances are spilled, emitted,
disposed, or leaked on, in, or under the Mortgaged
Property in any amount in excess of that permitted
under applicable Environmental Laws, or (b) it is
determined that there are Substances located on,
in, or under the Mortgaged Property other than
those of which Beneficiary has approved in writing
or which are permitted to be used on the Mortgaged
Property without Beneficiarys written approval
pursuant to subsection 2.9.1 of this Section,
Grantor shall immediately notify Beneficiary and
any Governmental Authorities or private Persons
required by law to be not)fied, and shall, within
thirty (30) days thereafter or sooner if required
by Beneficiary or any Governmental Authority, take
or cause to be taken, at Grantor's sole expense,
such action as may be required by Beneficiary or
any Governmental Authority. If Grantor shall fail
to take such action, Beneficiary may make advances
or payments towards performance or satisfaction of
the same but shall be under no obligation so to
do; and all sums so advanced or paid,



14



including all sums advanced or paid in connection
with any investigation or judicial or
administrative proceeding relating thereto,
including, without limitation, reasonable
attorneys' fees, expert fees, fines, or other
penalty payments, shall be at once repayable by
Grantor and shall bear interest at the Default
Rate, from the date advanced or paid by
Beneficiary until the date paid by Grantor to
Beneficiary, and all sums so advanced or paid,
with interest as aforesaid, shall become a part of
the Indebtedness secured hereby. Notwithstanding
the foregoing, nothing contained herein shall be
construed to prevent Grantor from seeking
reimbursement for, or other compensation for, the
existence of any Substances on, in, or under the
Mortgaged Property from any Person responsible
therefor, provided Grantor's obligations to
Beneficiary hereunder shall not be conditioned or
dependent upon any such reimbursement or
compensation.

     2.9.3 ENVIRONMENTAL AUDITS. Grantor, promptly
upon the written request of Beneficiary from time
to time, shall provide Beneficiary, at Grantor's
expense, from time to time with an environmental
site assessment or environmental audit report, or
an update of such an assessment or report, all in
scope, form, and content satisfactory to
Beneficiary.

     2.9.4 ENVIRONMENTAL NOTICES. Grantor shall
furnish to Beneficiary duplicate copies of all
correspondence, notices, or reports it receives
from any Governmental Authority or any other
Person regarding environmental matters or
Substances at or near the Mortgaged Property,
immediately upon Grantor's receipt thereof.

     2.9.5 CONDITION OF PROPERTY. Grantor hereby
represents and warrants that, to the best of its
knowledge, after a physical inspection of the
Mortgaged Property and all appropriate
investigation, except as disclosed in the
Environmental Report and on the Survey, there are
no wells or septic tanks on the Mortgaged Property
serving any other property; no wells or septic
tanks on other property serving the Mortgaged
Property; no burial grounds, archeological sites,
or habitats of endangered or threatened species on
the Mortgaged Property; and that no part of the
Mortgaged Property is subject to tidal waters; has
been designated as wetlands by any Governmental
Authority; or is located in a special flood hazard
area.

     2.9.6 ENVIRONMENTAL INDEMNITY.

     2.9.6.1 Grantor shall at all times indemnify
and hold harmless Beneficiary and Trustee against
and from any and all claims, suits, actions,
debts, damages, costs, losses, obligations,
judgments, charges, and expenses, of any nature
whatsoever suffered or incurred by Beneficiary or
Trustee, whether as Beneficiary or trustee of this
Deed of Trust, as Beneficiary in possession, or as
successor-in-interest to Grantor by foreclosure
deed or deed in lieu of foreclosure, under or on
account of the Environmental Laws or any similar
laws or regulations, including the assertion of
any lien thereunder, with respect to:

     (a) any discharge of Substances, the threat
of a discharge of any Substances, or the presence
of any Substances affecting the Mortgaged Property
whether or not the same originates or emanates
from the Mortgaged Property or any contiguous real
estate including any loss of value of the
Mortgaged Property as a result of any of the
foregoing;

     (b) any costs of removal or remedial action
incurred by any state or the United States
Government or any costs incurred by any other
person or damages from injury to, destruction of,
or loss of natural resources, including reasonable
costs of assessing such injury, destruction or
loss incurred pursuant to any Environmental Laws;



15



     (c) liability for personal injury or property
darnage arising under any statutory or common law
tort theory, including, without limitation,
damages assessed for the maintenance of a public
or private nuisance or for the carrying on of an
abnormally dangerous activity at or near the
Mortgaged Property; and/or

     (d) any other environmental matter affecting
the Property within the jurisdiction of the
Environmental Protection Agency or any other
Governmental Authority.

     2.9.6.2 Grantor's obligations under this
Section shall arise upon the discovery of the
presence of any Substance, whether or not the
Environmental Protection Agency or any other
Governmental Authority has taken or threatened any
action in connection with the presence of any
Substances.

     2.9.7 CONTROLLING AGREEMENT. Grantor
acknowledges that Beneficiary has agreed to make
the Loan in reliance upon Grantor's
representations, warranties and covenants in this
Section 2.9. Grantor further acknowledges that in
addition to the representations, warranties and
covenants contained in this Section 2.9, Grantor
has made additional representations, warranties
and covenants with respect to Substances and
Environmental Laws in the Environmental Indemnity
Agreement dated of even date herewith by and among
Grantor, Emeritus and Beneficiary, and that such
additional representations, warranties and
covenants are intended to be in addition to, and
not in lieu of, the representations, warranties
and covenants set forth herein. Moreover, although
Grantor and Beneficiary intend for all such
representations, warranties and covenants
regarding Substances and Environnnental Laws to be
read together and to be consistent, to the extent
of any inconsistencies between the
representations, warranties and covenants set
forth in this Deed of Trust regarding Substances
and Environmental Laws and those set forth in the
Environmental Indemnity Agreement, the
representations, warranties and covenants set
forth in the Environmental Indemnity Agreement
shall govern All of the representations,
warranties, covenants and indemnities of this
Section 2.9 shall survive the repayment of the
Note and/or the release of the operation and
effect of this Deed of Trust and shall survive the
transfer of any or all right, title and interest
in and to the Mortgaged Property by Grantor to any
party, whether or not affiliated with Grantor.

     2.10 ADDITIONAL ADVANCES. If Grantor shall
fail to perform any of the covenants or satisfy
any of the conditions contained herein,
Beneficiary may make advances or payments towards
performance or satisfaction of the same but shall
be under no obligation so to do; and all sums so
advanced or paid shall be at once repayable by
Grantor and shall bear interest at the Default
Rate from the date advanced until the date paid,
and all sums so advanced or paid, with interest as
aforesaid, shall become a part of the Indebtedness
secured hereby; but no such advance or payment
shall relieve Grantor from any default or Event of
Default hereunder. If Grantor shall fail to
perform any of the covenants or satisfy any of the
conditions contained herein, Beneficiary may use
any funds of Grantor, including any funds held as
Tax Deposits or Insurance Deposits under the
Operating Agreement, towards performance or
satisfaction of the same but shall be under no
obligation so to do; and no such use of funds
shall relieve Grantor from any default hereunder,
including the obligation to make sufficient Tax
Deposits and Insurance Deposits as required by the
Operating Agreement.

     2.11 CONDEMNATION AWARDS. Should the
Mortgaged Property or any part thereof or interest
therein be taken or damaged by reason of any
public use or improvement or by condemnation or
eminent domain proceedings or in any other manner,
or should the grade of any street be altered as a
result of condemnation or eminent domain
proceedings or otherwise, all or such part of any
award or proceeds derived therefrom as Beneficiary
in its sole discretion may determine in writing
shall be


16



paid to Beneficiary and applied to the payment of
the Indebtedness secured hereby (in such manner or
combination thereof, including inverse order of
maturity of installments of principal, if any, as
Beneficiary may, in its sole discretion, elect)
and all such proceeds are hereby assigned to
Beneficiary; provided. however. should Beneficiary
notify Grantor that Grantor is obligated to repair
or replace any portion of the Mortgaged Property
damaged or taken in such condemnation proceeding,
Beneficiary shall make the proceeds of such
condemnation actually received by Beneficiary
available to Grantor for such purposes. Any such
condemnation proceeds shall be advanced to Grantor
in accordance with the provisions of the Loan
Agreement governing Advances, following receipt
and approval by Beneficiary of such plans,
specifications, construction contracts,
contractors, suppliers and similar matters as
Beneficiary deems reasonably necessary to ensure
that the necessary repair and replacement is
completed in accordance with the requirements of
the Loan Documents and that sufficient funds are
available for such purpose.

     2.12 COSTS OF DEFENDING AND ENFORCING LIEN.
Grantor shall pay all costs, charges and expenses,
including appraisals, title examinations, and
reasonable attorney's fees, which Beneficiary may
incur in defending or enforcing the validity or
priority of the legal operation and effect of this
Deed of Trust, or any term, covenant or condition
hereof, or in collecting any sum secured hereby,
or in protecting the security of Beneficiary,
including without limitation being a party in any
condemnation, bankruptcy or administrative
proceedings, or, if an Event of Default shall
occur, in administering and executing the trust
hereby created and performing its powers,
privileges and duties hereunder. Beneficiary may
make advances or payments for such purposes but
all advances or payments made by Beneficiary for
such purposes shall be repayable immediately by
Grantor and shall bear interest at the Default
Rate from the date the same shall become due and
payable until the date paid, and any such sum or
sums with interest as aforesaid shall become a
part of the indebtedness secured hereby; but no
such advance or payment shall relieve Grantor from
any default hereunder.

     2.13 MODIFICATION OF TERMS: NO NOVATION.
Beneficiary may at any time, and from time to
time, extend the time for payment of the
Indebtedness secured hereby, or any part thereof,
or interest thereon, and waive, modify or amend
any of the terms, covenants or conditions in the
Note, in this Deed of Trust or in any other paper
or document executed in connection with the Loan,
in whole or in part, either at the request of
Grantor or of any person having an interest in the
Mortgaged Property, accept one or more notes in
replacement or substitution of the Note, consent
to the release of all or any part of the Mortgaged
Property from the legal operation and effect of
this Deed of Trust, take or release other
security, release any party primarily or
secondarily liable on the Note or hereunder or on
such other security, grant extensions, renewals or
indulgences therein or herein, apply to the
payment of the principal and interest and premium,
if any, of the Indebtedness secured hereby any
part or all of the proceeds obtained by sale or
otherwise as provided herein, uithout resort or
regard to other security, or resort to any one or
more of the securities or remedies which
Beneficiary may have and which in its absolute
discretion it may pursue for the payment of all or
any part of the Indebtedness secured hereby, in
such order and in such manner as it may determine,
all without in any way releasing Grantor or any
party secondarily liable from any of the terms,
covenants or conditions of the Note, this Deed of
Trust, or other paper or document executed in
connection with the Loan, or relieving the
unreleased Mortgaged Property from the legal
operation and effect of this Deed of Trust for all
amounts owing under the Note and this Deed of
Trust. Beneficiary and Grantor recognize and agree
that the provisions of this Deed of Trust, the
Note, and the other Loan Documents may be modified
by agreement between Beneficiary and Grantor or
their successors or assigns at any time before or
after default (which modification may involve
increasing the rate of interest in the Note,
agreeing that other charges should be paid, or
modifying any other provision in any such


17



instruments). Beneficiary may extend the time of
payment, may agree to alter the terms of payment
of the Indebtedness, and may grant partial
releases of any portion of the property included
herein. No such modification by Beneficiary and
Grantor nor any such action by Beneficiary
referred to above shall be a substitution or
novation of the original Indebtedness or
instruments evidencing or securing the same, but
shall be considered a possible occurrence within
the original contemplation of the parties.

     2.14 GOVERNMENTAL ACTION ADVERSELY AFFECTING
MORTGAGED PROPERTY. Grantor agrees that in the
event of the enactment of any law or ordinance,
the promulgation of any zoning or other
governmental regulation, or the rendition of any
judicial decree restricting or affecting the use
of the Mortgaged Property or rezoning the area
wherein the same shall be situate which
Beneficiary reasonably believes adversely affects
the Mortgaged Property or the ability of Grantor
to maintain and operate the Project for its
Intended Use, Beneficiary may, upon at least sixty
(60) days' written notice to Grantor, require
payment of the Indebtedness secured hereby at such
time as may be stipulated in such notice, and the
whole of the Indebtedness secured hereby, shall
thereupon become due and payable.

     2.15 USE OF MORTGAGED PROPERTY. Grantor shall
at all times operate the Mortgaged Property for is
Intended Use in accordance with the requirements
of the Operating Agreement.


ARTICLE III

                                       EVENTS OF
DEFAULT

     The occurrence of one of more of the
following events (herein called an "Event of
Default") shall constitute and be an Event of
Default:

     (a) Any sale, lease, exchange, assignment,
conveyance, transfer of possession or other
transfer or disposition of the Mortgaged Property
or any portion thereof or interest therein other
than as expressly permitted in the Loan Documents
or in the ordinary course of the operation of the
Project for its Intended Use, regardless of
whether such sale, lease or other disposition
shall diminish the value of the security for the
Indebtedness, increase the LikeLihood of the
occurrence of some other Event of Default,
increase the Likelihood that Beneficiary will have
to resort to any security for payment of the
Indebtedness or add or remove the liability of any
Person for payment or performance of the
Indebtedness; or

     (b) If title of Grantor to any or all of the
Mortgaged Property or the status of this Deed of
Trust as a first and prior lien and security
interest on the Mortgaged Property shall be
challenged or endangered by any Person whatsoever,
and Grantor shall fail to cure the same upon
demand by Beneficiary; or

     (c) The occurrence of an event of default
(regardless of how such default may be defined or
described) under the Note or any of the other Loan
Documents and the expiration of any cure period
expressly provided with respect thereto.










18




ARTICLE IV


REMEDIES

     4.1 ACCELERATION. If one or more of the
Events of Default shall occur, Beneficiary may, at
its option, declare the entire unpaid principal
amount of the Note (if not already due and
payable) to be due and payable immediately, by
delivery to Trustee of written declaration of
default and demand for sale and written notice of
default and of election to cause the Mortgaged
Property to be sold, which notice Trustee shall
cause to be duly filed for record. Beneficiary
shall also deposit with the Trustee this Deed of
Trust, the Note and all documents evidencing the
expenditures secured hereby. If Beneficiary
exercises Beneficiary's option to declare the
entire unpaid principal amount of the Note to be
due and payable, Grantor covenants to pay
immediately the full amount of the Indebtedness
secured hereby even though foreclosure or other
court proceedings to collect the Indebtedness have
not been commenced. Acceleration of maturity, once
declared by Beneficiary, may at the option of
Beneficiary, be rescinded by written
acknowledgment to that effect by Beneficiary, but
the tender and acceptance of partial payments
alone shaLI not rescind or affect in any way such
acceleration of maturity.

     4.2 POSSESSION OF MORTGAGED PROPERTY. If one
or more of the Events of Default shall occur,
Grantor shall, upon demand, forthwith surrender
the actual possession, and, to the extent
permitted by law, Beneficiary, by such officers or
agents as it may appoint, may enter and take
possession of the Mortgaged Property and may
exclude Grantor, its agents and servants, wholly
therefrom, and having and holding the same, may
use, operate, manage and control the Mortgaged
Property or any part thereof, and upon every such
entry Beneficiary, at the expense of Grantor and
of the Mortgaged Property, from time to time may
make all necessary or proper repairs, renewals,
replacements and useful or required alterations,
additions, betterments and improvements to and
upon the Property as to it may seem judicious and
pay all costs and expenses of so taking, holding
and managing the same, including reasonable
compensation to its employees and other agents
(including, without Limitation, attorneys' fees
and management and rental commissions) and any
taxes, assessments and other charges prior to the
legal operation and effect of this Deed of Trust
which Beneficiary may deem it wise or desirable to
pay, and in such case Beneficiary shall have the
right to manage the Mortgaged Property and to
carry on the business and exercise all rights and
powers of Grantor, either in the name of Grantor,
or otherwise, as Beneficiary shall deem advisable;
and Beneficiary shall be entitled to collect and
receive all rents thereof and therefrom. The
taking of possession and collection of rents by
Beneficiary shall not be construed to be an
affirmation of any Resident Agreement or
acceptance of anornment with respect to any
Resident Agreement covering all or any portion of
the Mortgaged Property. After deducting the
expenses of operating the Mortgaged Property and
of conducting the business thereof, and of all
repairs, maintenance, renewals, replacements,
alterations, additions, beuerments, improvements
and all payments which it may be required or may
elect to make for taxes or other proper charges on
the Mortgaged Property, or any part thereof, as
well as just and reasonable compensation for all
its employees and other agents (including, without
limitation, anorney's fees and management and
rental commissions) engaged and employed, the
moneys arising as aforesaid shall be applied to
the Indebtedness secured hereby. Whenever all that
is due upon the principal of and interest on the
Note and under any of the terms of this Deed of
Trust shall have been paid and all defaults made
good, Beneficiary shall surrender possession to
Grantor. The same right of entry, however, shall
exist if any subsequent Event of Default shall
occur.




19




     4.3 APPOINTMENT OF A RECEIVER. Until one or
more of the Events of Default shall occur (but not
thereafter), Grantor shall have possession of the
Mortgaged Property and shall have the right to use
and enjoy the same and to receive the rents
thereof and therefrom. If one or more of the
Events of Default shall occur, and without the
requirement of any other showing, Beneficiary
shall be entitled as a matter of right and to the
extent permiKed by law, without notice to Grantor,
and without regard to the adequacy of the
security, to the immediate appointment of a
receiver of the Mortgaged Property in an ex parse
proceeding with all such other powers as the court
or courts making such appointment shall confer to
take charge of, manage, preserve, protect,
complete construction of and operate the Mortgaged
Property and any business or businesses located
thereon; to collect rents, issues, profits and
income therefrom from whatever source derived; to
make all necessary and needed repairs to the
Mortgaged Property; to pay all taxes and
assessments against the Mortgaged Property and
insurance premiums for insurance thereon and
thereupon, it being hereby expressly covenanted
and agreed that the court shall forthwith appoint
such receiver with the usual powers and duties in
like cases; and such appointment shall be made by
the court as a matter of strict right to the
Beneficiary, and without reference to the adequacy
or inadequacy of the value of the Mortgaged
Property, or to the solvency or insolvency of
Grantor, and after payment of the expense of the
receivership, including reasonable attorney's fees
to Beneficiary's anorney, and after compensation
to the receiver for management and completion of
the Mortgaged Property, to apply the net proceeds
derived therefrom in reduction of the Indebtedness
secured hereby or in such other manner as such
court shall direct. All expenses, fees and
compensation incurred pursuant to a receivership
approved by such court shall be secured by the
lien of this Deed of Trust until paid. Grantor
hereby specifically waives the right to object to
the appointment of a receiver as aforesaid and
hereby consents that such appointment shall be
made as an admired equity and as a matter of
absolute right to the Beneficiary and that the
same may be done without notice to Grantor or any
other defendant to such suit and without the
requirement of any other showing and without
regard to the adequacy of the security. Grantor
shall deliver to the receiver appointed pursuant
to the provisions of this Section, or to
Beneficiary in the event of entry pursuant to the
terms of the preceding Section, all original
records, books, bank accounts, Resident Agreement,
agreements, security deposits of the residents and
all other materials relating to the operation of
the Mortgaged Property except those, if any, which
Grantor is required to maintain as confidential or
in its possession pursuant to applicable
Governmental Requirements.

     4.4 POSSESSION AND DISPOSITION OF PERSONAL
PROPERTY.

     4.4.1 ASSEMBLY OF MORTGAGED PROPERTY. If one
or more of the Events of Default shall occur,
Beneficiary may at its discretion require Grantor
to assemble such items of the Mortgaged Property
as may be designated by Beneficiary and make them
available to Beneficiary at a place reasonably
convenient to both parties to be designated by
Beneficiary. Upon the occurrence of an Event of
Default under this Deed of Trust, Beneficiary
shall have the right to take possession of such
items of the Mortgaged Property as Beneficiary may
elect except those, if any, which Grantor is
required to maintain as confidential or in its
possession pursuant to applicable Governmental
Requirements. In taking possession Beneficiary may
proceed without judicial process if this can be
done without breach of the peace. Beneficiary
shall have the further right to remove such items
of the Mortgaged Property as it may choose to any
location or locations selected by Beneficiary
except those, if any, which Grantor is required to
maintain as confidential or in its possession
pursuant to applicable Governmental Requirements,
and Grantor shall pay the costs of such removal
and for the storage and protection of such items
immediately upon demand therefor.




20



     4.4.2 SECURITY AGREEMENT. This Deed of Trust
shall be construed as a security agreement and
financing statement under the Uniform Commercial
Code as adopted and in force, from time to time,
in the State of Washington, and shall be operative
and effective as such in addition to, and not in
substitution for, any other security agreement
executed by Grantor in connection with the
transaction secured hereby. This Deed of Trust
further constitutes a fixture filing under
Sections 62A9-313 and 62A9-402(6) of the
Washington Uniform Commercial Code, as amended or
recodified from time to time; provided, however
that the execution and/or filing hereof does not
imply that the items of personal property included
in the Mortgaged Property are or are to become
fixtures. The filling hereof as a fixture filing
is intended to protect the parties from
unwarranted assertions by third Persons. Grantor
agrees to and shall, upon the request of
Beneficiary, execute and deliver to Beneficiary,
in form satisfactory to Beneficiary, such
"financing statements," descriptions of property
and such further assurances as Beneficiary, in its
sole discretion, may, from time to time, consider
necessary to create, perfect and preserve the lien
and encumbrance hereof and the security interest
granted herein upon and both the real property,
the Improvements, and all rights and interest of
Grantor in the Mortgaged Property described
herein. Beneficiary, at the expense of Grantor,
may cause such statements, descriptions and
assurances, and this Deed of Trust to be recorded
and re-recorded, filed and remfiled, at such times
and in such places as may be required or permitted
by law to so create, perfect and preserve the lien
and encumbrance hereof and the security interest
granted herein upon and in all of said Mortgaged
Property. With respect to such Mortgaged Property,
the Beneficiary is a "secured party" and the
Grantor is a "debtor" under the Washington Unifomn
Commercial Code with its address being as set
forth in this Deed of Trust. If Beneficiary elects
to proceed under the Washington Uniform Commercial
Code to dispose of some of the Mortgaged Property,
Beneficiary shall give Grantor notice by certified
mail, postage prepaid, retum receipt requested, of
the time and place of any public sale of any of
such property, or of the time after which any
private sale or other intended disposition thereof
is to be made by sending notice to Grantor at
least five (5) Business Days before the time of
the sale or other disposition, which provisions
for notice Grantor and Beneficiary agree are
reasonable; provided, however, that nothing herein
shall preclude Beneficiary from proceeding as to
all the Mortgaged Property to the maximum extent
pemitted by applicable Washington law in
accordance with the rights and remedies of
Beneficiary in respect of the real property.
Notwithstanding any release of any or all of the
property included in the Mortgaged Property which
is deemed "real property", any proceedings to
foreclose this Deed of Trust, or its satisfaction
of record, the temls hereof shall survive as a
security agreement with respect to the security
interest created hereby and referred to above
until the repayment or satisfaction in full of the
obligations of Grantor as are now or hereafter
evidenced by the Note and Loan Agreement.

     4.5 FORECLOSURE SALE.

     4.5.1 If one or more of the Events of Default
shall occur, Beneficiary may request that Trustee
sell the Mortgaged Property in accordance with the
Deed of Trust Act of the State of Washington (RCW
Chapter 61.24 as existing now, or hereafter
amended) and the Unifomm Commercial Code of the
State of Washington where applicable, at public
auction to the highest bidder for cash at such
time and at such place as are statutorily
prescribed. Grantor acknowledges that there is no
right to an extension of the trustee's sale on
"equitable" or other grounds, and that
Beneficiary's remedies under this Deed of Trust
shall not be affected or impaired by the exercise
of any right of setoff or to collect and apply
rents, profits, insurance proceeds or condemnation
awards.





21



Any person except Trustee may bid at a Trustee's
sale. The Trustee is not obligated to notify any
party hereto of pending sale under any other deed
of trust or of any action or proceeding in which
Grantor, Trustee or Beneficiary shall be a party,
unless such action or proceeding is brought by the
Trustee. If the Mortgaged Property consists of
several known lots or parcels, Beneficiary may
designate the order in which such parcels shall be
sold or offered for sale.

     4.5.2 Trustee may postpone sale of all or any
portion of the Mortgaged Property by public
announcement at such time and place of sale, and
from time to time thereafter may postpone such
sale by public announcement at the time fixed by
the preceding postponement.

     4.5.3. Without declaring the entire unpaid
principal balance due, Beneficiary may foreclose
only as to the sum past due without injury to this
Deed of Trust or the displacement or impairment of
the remainder of the lien thereof and at such
foreclosure sale the Mortgaged Property shall be
sold subject to all remaining items of
Indebtedness and Beneficiary may again foreclose
in the same manner as often as there may be any
sum past due.

     4.5.4 Beneficiary shall have the right to
judicially foreclose this Deed of Trust as a
mortgage. If this Deed of Trust is foreclosed by
judicial procedure, Beneficiary will be entitled
to a judgment which will provide that if the
foreclosure sale proceeds are insufficient to
satisfy the judgment, execution may issue for any
amount by which the unpaid balance of the
obligations secured by this Deed of Trust exceeds
the net sale proceeds payable to Beneficiary,
subject to any limitations with respect thereto
set forth in the Note. In the event Grantor
remains in possession of the Mortgaged Property
after the Mortgaged Property is sold as provided
above or Beneficiary otherwise becomes entitled to
possession of the Mortgaged Property upon default
of Grantor, Grantor shall become a tenant at will
of Beneficiary or the purchaser of the Mortgaged
Property and shall pay a reasonable rental for use
of the Mortgaged Property while in Grantor's
possession. The purchaser at any foreclosure sale
may (but shall be under no obligation to), during
any redemption period, make -such repairs and
alterations to the improvements as may be
appropriate for the proper operation, care,
preservation, and protection thereof-, pay any
taxes and assessments due during such period;
insure the improvements on the Mortgaged Property
against loss by casualty and itself against
liability arising from its ownership and use of
the Mortgaged Property; and pay liens not
extinguished by the foreclosure and any other
amounts relating to the Mortgaged Property to the
extent due during such redemption period, and all
of such expenses and payments, together with
interest thereon from the date so paid to
reimbursement at the rate provided for any other
redemption amounts, shall be included in the
amount required to be paid by any person to redeem
the Mortgaged Property.

     4.5.5 Beneficiary may exercise all other
remedies available, whether at law or equity, in
such order as Beneficiary may elect. All such
other rights and remedies available to Beneficiary
with respect to this Deed of Trust shall be
cumulative and may be pursued concurrently or
successively. The failure or omission on the part
of Beneficiary to exercise the option for
acceleration of maturity and/or foreclosure
following any default, as aforesaid, or to timely
exercise any other option, right, or remedy
conferred upon the Beneficiary herein, or the
acceptance by Beneficiary of partial payments
hereunder, shall not constitute a waiver of any
such default or the right to exercise any such
option, but such operation shall remain
continuously in force.

     4.5.6 Beneficiary may bid and become the
purchaser at any sale under this Deed of Trust. If
Beneficiary is the purchaser at any such sale,
Beneficiary may apply the outstanding Indebtedness
against all or any portion of the purchase price,
including the deposit.


22



ARTICLE V


MISCELLANEOUS

     5.1 TRUSTEE.

     5.1.1 ACTIONS OF TRUSTEE. The Trustee shall
be protected in acting upon any notice, request,
consent, demand, statement, note or other paper or
document believed by it to be genuine and to have
been signed by the party or parties purporting to
sign the same. The Trustee shall not be liable for
any error of judgment, nor for any act done or
step taken or omitted, nor for any mistake of law
or fact, nor for anything which it may do or
refrain from doing in good faith nor generally
shall a Trustee have any accountability hereunder
except for its own individual willful default.

     5.1.2 RETENTION OF MONIES. All monies
received by Trustee shall, until used or applied
as herein provided, be held in trust for the
purposes for which they were received, but need
not be segregated in any manner from any other
monies (except to the extent required by law) and
Trustee shall have no liability for interest on
any monies received by it hereunder.

     5.1.3 TRUSTEE AS ATTORNEY. The Trustee may
act hereunder and may sell and convey the
Mortgaged Property as herein provided although the
Trustee has been, may now be or may hereafter be,
an attorney or agent of Beneficiary, in respect of
any matter or business whatsoever.

     5.1.4 SUCCESSOR TRUSTEE. Trustee may resign
by giving of notice of such resignation in writing
to Beneficiary. If Trustee shall die, resign or
become disqualified from acting in the execution
of this trust or shall fail or refuse to exercise
the same when required by Beneficiary so to do or
if for any reason and without cause Beneficiary
shall prefer to appoint a substitute trustee to
act instead of the original Trustee named herein,
or any prior successor or substitute trustee,
Beneficiary shall have full power to appoint a
substitute trustee and, if preferred, several
substitute trustees in succession who shall
succeed to all the estates, rights, powers and
duties of the aforenamed Trustee.

     5.1.5 SUCCESSION INSTRUMENTS. Any new Trustee
appointed pursuant to any of the provisions hereof
shall, without any further act, deed or
conveyance, become vested with all the estates,
property, title, rights, powers, privileges,
discretions, trusts, duties and obligations of its
predecessor or predecessors in the trust hereunder
with lilce effect as if originally named as
Trustee hereunder; but nevertheless, upon the
written request of Beneficiary or its successor
trustee, the Trustee ceasing to act shall execute
and deliver an instrument transferring to such
successor trustee, upon the trust herein
expressed, all the estates, properties, rights,
powers and trusts of the Trustee so ceasing to
act, and shall duly assign, transfer and deliver
any of the property and monies held by the Trustee
to the successor trustee so appointed in its or
his place.

     5.1.6 PERFORMANCE OF DUTIES BY AGENT. Trustee
may authorize one or more parties to act on its
behalf to perform the ministerial functions
required of Trustee hereunder including, without
limitation, the transmittal and posting of any
notices.









23



     5.2 ASSIGNMENT OF BANK ACCOUNTS. Upon the
occurrence of an Event of Default under this Deed
of Trust any funds on deposit with Beneficiary in
the name of Grantor, and any securities and
property given unto or left in the possession of
the Beneficiary by Grantor, whether as collateral
security or held in escrow or otherwise, are
hereby assigned to Beneficiary, shall be held by
it as additional security for the Loan and may be
applied to the payment of any sums due it under
the terms of the Note or the other Loan Documents.

     5.3 FUTURE ADVANCES. This Deed of Trust is
given to secure not only the existing Indebtedness
of the Grantor to the Beneficiary evidenced by the
Loan Documents secured hereby, but also such
future advances, plus interest thereon, together
with any disbursements made by Beneficiary for
payment of taxes, insurance or other liens on the
Mortgaged Property, together with interest on such
disbursements at the maximum rate permitted under
Washington law, which advances shall be secured
hereby to the same extent as if such future
advances were made on this date. The total amount
of Indebtedness secured hereby may increase or
decrease from time to time. This Deed of Trust
shall also secure any sums due pursuant to the
Loan Documents as a charge, fee or premium
expressly provided for in the Loan Documents in
the event of acceleration of any monetary
obligations due to a default therein or a
prepayment thereof. The provisions of this Section
shall not be construed to imply any obligation on
Beneficiary to make any future advances, it being
the intention of the parties that any future
advances shall be solely at the discretion and
option of Beneficiary (except as may be otherwise
expressly provided in the Loan Agreement). Any
reference to monetary obligations in this Deed of
Trust shall be construed to reference any future
advances made pursuant to this Section.

     5.4 SUBROGATION. This Deed of Trust, as
additional security, is hereby subrogated to the
lien or liens and to the rights of the owners and
holders thereof of each and every mortgage, lien
or other encumbrance on the Mortgaged Property, or
any part thereof, or any claim or demand which is
paid or satisfied, in whole or in part, out of the
proceeds of the Indebtedness secured hereby and
the respective liens of said mortgages, liens and
other encumbrances and claims and demands shall
pass to and be held by Beneficiary as additional
security for the Indebtedness to Beneficiary to
the same extent that they would have been
preserved and would have been passed to and been
held by Beneficiary had they each been duly and
regularly assigned, transferred, set over and
delivered to Beneficiary by separate deed of
assignment, notwithstanding the fact the same may
be or may have been satisfied and canceled of
record, it being the intention of the parties
hereto that the same will be satisfied and
canceled of record at or about the time they are
paid or satisfied out of the proceeds of the Loan.

     5.5 NOTICES. No notice or other communication
shall be deemed given unless sent in the manner,
and to the persons, specified in this Section at
the addresses or telecopy numbers (or at such
other address or telecopy number for a party as
will be specified by like notice), set forth in
this Section 5.6. All notices and other
communications hereunder shall be in writing and
shall be deemed given (a) upon receipt if
delivered personally or if deposited with the
United States Postal Service as registered or
certified mail, return receipt requested, (b) at
noon on the first Business Day ader dispatch if
sent by reputable overnight courier capable of
providing evidence of delivery, or (c) upon the
completion of transmission (which is confirmed
telephonically by the receiving party) if
transmitted by telecopy or other means of
facsimile which provides immediate or near
immediate transmission to compatible equipment in
the possession of the recipient.





                                              24




     If to Grantor: Emeritus Properties m, Inc.
                        c/o Emeritus Corporation
                        3131 Elliott Avenue, Suite
500
                        Seattle, Washington 98121
                        Attention: President
                        Telecopy or Facsimile
Number: (206) 3014500
                        Confirmation Number: (206)
298-2909

     With a copy to:     The Nathanson Group
                         1411 Fourth Avenue, Suite
905
                        Seattle, Washington 98101
                        Attention: Randi
Nathanson, Esq.
                              Telecopy or
Facsimile Number: (206) 623-1738
                         Confirmation Number:
(206) 623-6239

     If to Beneficiary:  Ocwen Federal Bank FSB
                         1675 Palm Beach Lakes
Boulevard
                        West Palm Beach, Florida
33401
                         Attention: Secretary
                         Telecopy Number: (561)
820-8838

ConfirmationNumber: (561) 832-2221

     Notwithstanding the foregoing, any notice in
fact received shall be effective as of the time of
receipt.

     5.6 LEGAL CONSTRUCTION. This Deed of Trust
shall be govemed by and construed in accordance
with the laws of the State of Washington
(excluding conflicts of law) and the United States
of America. Pierce County, Washington, shall be a
proper place of venue for all suits to enforce
this Deed of Trust. Grantor and Beneficiary each
hereby irrevocably agree that any legal proceeding
arising out of or in connection with this Deed of
Trust shall be brought in the superior courts of
Pierce County, Washington or the United States
District Court for the Westem District of
Washington.

     5.7 UNENFORCEABLE PROVISIONS. In the event
any provision of this Deed of Trust is declared or
adjudged to be unenforceable or unlawful by any
Govemmental Authority, then such unenforceable or
unlawful provisions shall be excised herefrom, and
the remainder of this Deed of Trust, together with
all rights and remedies granted thereby, shall
continue and remain in full force and effect.

     5.8 USURY LIMITATIONS. It is the intention of
the parties to confomn strictly to applicable
usury laws from time to time in force, and all
agreements between Grantor and Beneficiary,
whether now existing or hereafter arising and
whether oral or written, are hereby expressly
limited so that in no contingency or event
whatsoever, whether by acceleration of maturity of
the Note or otherwise, shall the amount paid or
agreed to be paid to Beneficiary, or collected by
Beneficiary, for the use, forbearance or detention
of the money to be loaned pursuant to the Loan
Agreement, this Deed of Trust or the other Loan
Documents or otherwise, or for the payment or
performance of any covenant or obligation
contained herein or in any other Loan Document, or
in any other document evidencing, securing, or
pertainLng to the Indebtedness secured hereby,
exceed the maximum amount permissible under
applicable usury laws (the "Highest Lawful Rate").
If under any circumstances whatsoever furfillment
of any provision hereof or any other Loan
Documents, at the time performance of such
provision shall be due, shall involve an amount or
any portion thereof in excess of the Highest
Lawful Rate, then ipso facto, the payment to be
made or the amount to be delivered to be furfilled
shall be reduced to


25




the limit of such validity; and if under any
circumstances Beneficiary shall ever receive an
amount deemed interest by applicable law which
would exceed the Highest Lawful Rate, such amount
that would be excessive interest under applicable
usury laws shall be applied to the reduction of
the principal amount owing under the Note or to
other Indebtedness secured by this Deed of Trust
and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of
principal and other indebtedness, the excess shall
be deemed to have been a payment made by mistake
and shall be refunded to Grantor or to any other
person making such payment on Grantor's behalf.
All sums paid or agreed to be paid to Beneficiary
for the use, forbearance or detention of the
indebtedness of Grantor evidenced and secured
hereby, outstanding from time to time shall, to
the extent permitted by applicable law, be
amortized, prorated, allocated and spread from the
date of disbursement of the proceeds of the Note
until payment in full of such indebtedness so that
the actual rate of interest on account of such
indebtedness is uniform through the term hereof.
The terms and provisions of this paragraph shall
control and supersede every other provision of all
agreements between Beneficiary and Grantor and any
endorser or guarantor of the Note.

     5.9 RIGHTS OF BENEFICIARY.

     5.9.1 RIGHTS NOT LIMITED. The rights, powers,
privileges and discretions (hereinafter
collectively called the "rights") specifically
granted to Beneficiary under this Deed of Trust
are not in limitation of but in addition to those
to which they are entitled under any general or
local law relating to deeds of trust and mortgages
in the State of Washington, now or hereafter
existing.

     5.9.2 BENEFIT TO SUCCESSORS AND ASSIGNS. The
rights to which Beneficiary may be entitled shall
inure to the benefit of its successors and
assigns.

     5.9.3 RIGHTS CUMULATIVE. All the rights of
Beneficiary are cumulative and not alternative and
may be enforced successively or concurrently.

     5.10 NO WAIVER. Failure of Beneficiary to
exercise any of its rights shall not impair any of
its rights nor be deemed a waiver thereof, and no
waiver of any of its rights shall be deemed to
apply to any other such rights, nor shall it be
effective unless in writing and signed by the
party waiving the right. The acceptance by
Beneficiary of any partial payment after default
or an Event of Default, with or without knowledge
of the default or Event of Default, shall not be a
waiver of the default or Event of Default unless
Beneficiary shall specifically state in writing
that the acceptance waives the default or Event of
Default or states further conditions which must be
satisfied to constitute such a waiver. The failure
of Beneficiary to exercise the option for
acceleration of maturity, foreclosure, or either,
following an Event of Default or to exercise any
other option or privilege granted to Beneficiary
hereunder in any one or more instances, shall not
constitute a waiver of any such default, but such
option or privilege shall remain continuously in
force.

     5.11 MUTUAL WAIVER OF JURY TRIAL. GRANTOR AND
BENEFICIARY EACH WAIVE ALL RIGHTS TO TRIAL BY JURY
OF ANY AND ALL CLAIMS, COUNTERCLAIMS, AND DEFENSES
AMONG AND BETWEEN ANY OF THEM ARISING UNDER THIS
DEED OF TRUST OR THE OTHER LOAN DOCUMENTS, OR ANY
OTHER AGREEMENT OR AGREEMENTS BETWEEN OR AMONG ANY
OF THEM AT ANY TIME RELATING TO THE LOAN,
INCLUDING ANY SUCH AGREEMENTS, WHETHER WRITTEN OR
ORAL, MADE OR ALLEGED TO HAVE BEEN MADE AT ANY
TIME PRIOR TO THE DATE HEREOF, AND ALL AGREEMENTS
MADE HEREAFTER OR OTHERWISE. IN


26


MAKING THIS WAIVER GRANTOR AND BENEFICIARY
ACKNOWLEDGE AND AGREE THAT ANY AND ALL SUCH
CLAIMS, COUNTERCLAIMS, AND DEFENSES SHALL BE HEARD
BY A JUDGE OF A COURT OF COMPETENT JURISDICTION,
WITHOUT A JURY. GRANTOR AND BENEFICIARY
ACKNOWLEDGE AND AGREE THAT THIS WAIVER OF TRIAL BY
JURY IS A MATERIAL ELEMENT OF THE CONSIDERATION
FOR THIS DEED OF TRUST. GRANTOR AND BENEFICIARY
ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT
AND THAT TH[S WAIVER IS MADE KNOWINGLY AND
VOLUNTARILY AFTER CONSULTATION WITH, OR THE
OPPORTUNITY TO CONSULT WITH COUNSEL OF ITS CHOICE.

     5.12 NO PARTNERSHIP. Grantor acknowledges and
agrees that nothing contained in the terms and
conditions of this Deed of Trust or any other Loan
Document shall be deemed to create a partnership,
joint venture or joint enterprise between the
parties hereto, each of which is acting
independently and for its own account and benefit.
The relationship created is that of lender and
borrower. The Beneficiary's commitment to make the
Loan and its financing of the development and
construction of the Project does not create, and
shall not be deemed to create, a partnership,
joint venture or joint enterprise between the
parties.

     5.13 BINDING EFFECT. This Deed of Trust shall
be binding upon and inure to the benefit of
Grantor, its successors, and those assigns
consented to in writing by Beneficiary, and upon
Beneficiary, its successors and assigns. Any
assignment attempted by Grantor without the
written consent of Beneficiary shall be void.
Wherever the word "Beneficiary" is used herein it
shall be deemed to include also the successors and
assigns of Beneficiary, and the word "Grantor"
shall include the successors of Grantor and shall
include those assignees of Grantor consented to in
writing by Beneficiary. No consent by Beneficiary
of an assignment by Grantor shall release Grantor
as a party primarily obligated and liable under
the terms of this Deed of Trust unless Grantor
shall be released specifically by Beneficiary in
writing. No consent by Beneficiary to an
assignment shall be deemed to be a waiver of the
requirement of consent by Beneficiary of each and
every further assignment, as a condition precedent
to the effectiveness of such assignment.

     5.14 GENDER. Unless the context clearly
indicates to the contrary, words singular or
plural in number shall be deemed to include the
other and pronouns having a neuter, masculine or
feminine gender shall be deemed to include the
others.

     5.15 TIME OF ESSENCE. Time is of the essence
of the obligations of Grantor in this Deed of
Trust and each and every term, covenant and
condition made herein by or applicable to Grantor.

     5.16 CAPTIONS. The captions used for the
Articles and Sections in this Deed of Trust are
inserted only as a matter of convenience and for
reference and in no way define, limit or describe
the scope or intent of this Deed of Trust or any
Article or Section hereof.

     5.17 DRAFTING OF LOAN DOCUMENTS. The parties
hereto acknowledge and agree that the terms,
covenants, and conditions of the Loan Documents
have been drafted, reviewed, negotiated, and
revised by all the parties, with the assistance of
counsel of their choice, and that should any
ambiguities occur herein, such ambiguities shall
not be construed or interpreted against one party
or another by virtue of that party's status as
drafting or reviewing party.

     5.18 ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.


27



     IN WITNESS WHEREOF, Grantor has caused this
Deed of Trust to be duly executed on its behalf as
of the date first above written.

                                      EMERITUS
PROPERTIES III, INC,
                                      a Washington
corporation

                                      By: /s/
Kelly J. Price
                                            ------
- --------------------
                                      Name: Kelly
J. Price
                                      Title:
Secretary














































                                               28





STATE OF WASHINGTON     )

) ss.
     COUNTY OF KING   )

     On this 31st day of January, 1997, before me
personally, appeared Kelly J. Price, to me
personally known to be the Secretary of Emeritus
Properties III, Inc., the corporation that
executed the within and foregoing instrurnent, and
acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath
stated that (s)he was authorized to execute said
instrument and that the seal affixed, if any, is
the seal of said corporation.

     IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my seal the day and year first
above written.

     (Seal or Stamp)


/s/ Anthony G. Ross

- ------------------------------------

Notary Public in and for the State of

Washington residing at Bellevue


Printed Narne Anthony G. Ross


My appointment expires: 7-24-98






























29

EX-10.35.2

FIRST AMENDMENT TO LEASE

     This First Amendment to Lease (the
"Amendment") is entered into as of December 31,
1996, by and between AHP OF WASHINGTON, INC., a
Washington corporation ("Landlord") and EMERITUS
CORPORATION, a Washington corporation ("Tenant").
The Amendment is effective as of July 24, I 996.


RECITALS

     A. Landlord and Tenant have heretofore
entered into the Lease, dated as of Jul 24 1996
(the "Lease") whereby Tenant leased from Landlord
that certain real property located in the City of
Walla Walla, County of Walla Walla, State of
Washington more particularly described in Exhibit
A attached hereto.

     B. Landlord and Tenant desire to amend the
Lease by deleting Tenant's option to purchase and
replacing such option with a right of first
refusal and for other purposes, and to ratify and
confirm the Lease as so amended.


AGREEMENT

     NOW, THEREFORE, in consideration of the
following mutual covenants and agreements, and for
other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:

     1. Defined Terms. Unless otherwise defined in
this Amendment, capitalized terms used herein
which are defined in the Lease shall have the same
meanings as the meanings assigned to such terms in
the Lease.

     2. Article I of the Lease is hereby amended
by adding the following definitions in
alphabetical order thereto:

     "Emeritus Properties" shall mean any Property
defined in and subject to an Additional Lease.

     "Offer of Purchase" shall mean any bona fide
offer received by Landlord to purchase one,
several or all of the Emeritus Properties on terms
and conditions satisfactory to Landlord.

     "Sale Properties" shall mean the Emeritus
Properties designated for sale by Landlord in its
sole discretion.

     3. Section 26.2 of the Lease is hereby
amended by deleting such section in its entirety
and replacing it with the following:











     26.2 TENANT'S RIGHT OF FIRST REFUSAL.
Provided that no Event of Default specified in
Sections 17.1 (a), (e), (f) or (g) hereof has
occurred and is continuing, and if at any time
during the Fixed Term or the Extended Term of this
Lease, Landlord receives an Offer of Purchase for
or if Landlord decides to sell all, several or any
of the Emeritus Properties, Landlord shall first
give Tenant the privilege to purchase such Sale
Properties. Landlord shall give to Tenant written
notice of Landlord's decision to sell the Sale
Properties or of Landlord's receipt of an Offer of
Purchase for the Sale Properties, together with
the terms and conditions contained in any such
Offer of Purchase. To exercise this right of first
refusal, Tenant must give Landlord written notice
that Tenant intends to purchase all of the Sale
Properties within thirty (30) days after receipt
of Landlord's notice. If Tenant does not notify
Landlord of its intent to purchase all of the Sale
Properties within the thirty (30) day time period,
Landlord will have the right to market and sell
the Sale Properties, and Landlord's right to
market and sell will be free and clear of any
rights, claims or interest of Tenant under this
Section 26.2.

     If Tenant provides to Landlord its written
notice of intent to purchase the Sale Properties
within thirty days, the sale of the Sale
Properties will be consummated through an escrow
to be opened with a mutually acceptable title or
escrow company, and will close within ninety (90)
days following the date of Tenant's written notice
to Landlord.

     If Tenant chooses to purchase the Sale
Properties in response to an Offer of Purchase,
the purchase price for each Sale Property will be
the greater of (a) the purchase price contained in
the Offer of Purchase or (b) Landlord's Total
Investment, and Tenant must comply with reasonably
equivalent terms and conditions acceptable to
Landlord. If
Tenant chooses to purchase the Sale Properties in
response to Landlord's unsolicited decision to
sell, the purchase price for each Sale Property
will be the greater of(a) Fair Market Value or (b)
Landlord's Total Investment. The purchase price of
each Sale Property (net of the principal balance
of any Facility Mortgages placed on such Property
by Landlord and expressly assumed by Tenant and
the amount of any damages owing by Landlord to
Tenant) shall be deposited into escrow by wire
transfer of Federal Funds at least two business
days prior to close of escrow and shall be paid to
Landlord at close of escrow by wire transfer of
Federal Funds to such account as Landlord shall
designate. Each Sale Property will be transferred
by statutory warranty deed.

     Tenant acknowledges and agrees that it shall
purchase each of the Sale Properties from Landlord
"AS IS" and subject to all faults, defects in
title and other matters whatsoever, including, but
not limited to, all matters of record, other than
(a) Facility Mortgages not expressly assumed by
Tenant and (b) any other liens, encumbrances,
attachments, levies or claims encumbering, at the
instance of Landlord, such Sale Property, all of
which shall be removed of record prior to
purchase. Landlord will make no warranty or
representation regarding the title, condition or
other status of any of the Sale Properties
whatsoever, except that it has removed all liens
and encumbrances referenced in clauses (a) and (b)
in the preceding sentence. All title insurance
premiums and other closing costs associated with
the purchase of the Sale Properties by Tenant
pursuant to this Section 26.2 shall be paid by
Tenant.






2



     4.  MISCELLANEOUS.

     a. This Amendment is an amendment to the
Lease, and the Lease, as hereby amended, is
ratified, approved and confirmed by Landlord and
Tenant in each and every respect. All references
to the Lease in any other agreement, document,
instrument or writing shall hereafter be deemed to
refer to the Lease as amended hereby.

     b. Captions used in this Amendment are for
convenience of reference only and shall not affect
the construction of this Amendment.

     c. This Amendment shall be binding upon
Landlord and Tenant and their respective
successors and permitted assigns, and shall inure
to the benefit of Landlord and Tenant and their
respective successors and permitted assigns.

     d. This Amendment may be executed in
counterparts, and when a copy hereof has been
executed by Landlord and Tenant, each such
counterpart shall constitute an original copy
hereof.

                              THE REMAINDER OF
THIS PAGE INTENTIONALLY BLANK































                                                 3



     IN WITNESS WHEREOF, the undersigned parties
have executed this Amendment as of the date first
above written.


LANDLORD:


AHP OF WASHINGTON, INC.,

a Washington corporation


/s/ Thomas T. Schleck,
                                                 -
- -----------------------------

Thomas T. Schleck

Vice President



TENANT:

EMERITUS CORPORATION,

a Washington corporation


/s/ Raymond R. Brandstrom
                                                 -
- -------------------------------------

Raymond R. Brandstom

President





























4

EX-10.37.1

                     SECOND AMENDMENT TO LEASE
ROOSEWOOD COURT FACILITY

     This Second Amendment to Lease ("Second
Amendment") is dated as of December 30, 1996 by
and between HEALTH CARE PROPERTY INVESTORS, INC.,
Maryland corporations ("Lessor") and EMERITUS
CORPORATION, a Washington corporation ("Lessee").


RECITALS

     A. Lessor and Lessee entered into that
certain Lease (Rosewood Court Facility) dated as
of March 29, 1996 for a facility located in
Fullerton, California, as amended by that First
Amendment to Lease dated as of April 25, 1996
(together with any and all amendments, the
"Lease").

     B. Lessor and Lessee desire to amend certain
provisions of the Lease.


AGREEMENT

     Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in
the Lease. Lessor and Lessee hereby amend the
Lease, effective retroactively to the Commencement
Date, as follows:

     1. The following terms and their definitions
are deleted from Article II, paragraph 2:
"Appreciation Amount, "Lessor's Shared
Appreciation Amount, " "Outside Closing Date, "
and "Shared Appreciation Purchase Price. "

     2. The following terms and their definitions
are added to Article II, paragraph 2:

     "OFFER: As defined in Article XXXV.

     FIRST REFUSAL PERIOD: As defined in Article
XXXV. "

     3. Article XXXV is deleted and replaced in
its entirety by the following provision:


ARTICLE XXXV

     35.1 FIRST REFUSAL TO PURCHASE. During the
last six (6) months of the Term, as the same may
have been extended ("First Refusal Period"),
provided no Event of Default, or event which, with
notice or the lapse of time or both, would
constitute an Event of Default, has occurred and
is continuing hereunder, Lessee shall have a right
of first refusal to purchase the Leased Property
upon the same terms and conditions of any offer or
counter offer from a third party to purchase the
Leased Property which Lessor intends to accept (or
has accepted subject to Lessee's right of first
refusal herein) (the "Offer"); provided, however
that such right of first refusal shall not apply
to (a) any sale, transfer or other conveyance of
the Leased Property or any interest therein by
Lessor to an Affiliate of Lessor, (b) a sale or
transfer of all or substantially all of the
outstanding capital stock of Lessor or a sale or
transfer of all or substantially all of the assets
of Lessor, in each case to a single purchaser or
transferee in a single transaction or (c) a





merger, consolidation or stock exchange to which
Lessor is a party; and provided further that in no
event shall Lessor be required to make or provide
to Lessee any representations or warranties with
respect to the Leased Property, notwithstanding
the terms of any such Offer. If, during a First
l2efusal Period, Lessor desires to accept (or has
accepted subject to Lessee's right of first
refusal herein) an Offer, Lessor shall promptly
notify Lessee of the same, which notice shall set
forth all of the material terms and conditions of
such Offer, including the purchase price for the
Leased Property. Lessee shall have fifteen (15)
days after receipt of such notice from Lessor
within which time to exercise Lessee's right of
first refusal. Lessee may exercise such right of
first refusal by (i) delivering written notice to
Lessor stating that Lessee unequivocally accepts
the terms and conditions of the Offer applicable
to Lessee as herein provided within such fifteen
(15) day period and (ii) opening an escrow (the
"Escrow") with a national title company reasonably
acceptable to Lessor ("Escrow Holder") and
depositing five percent (5%) of the purchase price
(the "Opening Deposit") with Escrow Holder. If
Lessee exercises its right of first refusal within
the time and in the manner herein provided, then
such transaction shall be consummated on or before
the date specified for closing in the terms of the
Offer at the price and otherwise in accordance
with (A) the terms and conditions of such Offer
applicable to Lessee as herein provided and (B)
the provisions of Article XVIII and Section 35.2
to the extent not inconsistent therewith. If
Lessee shall not exercise Lessee's right of first
refusal in the manner and within the time period
herein provided, Lessor shall be free for the
remainder of such First Refusal Period after the
expiration of said fifteen (IS) day period to sell
the Leased Property to any third party at a price
and upon terms no less favorable to Lessor than
those so offered to Lessee pursuant to the Offer.
If such sale is consummated, Lessee's right of
first refusal hereunder shall automatically
terminate and the same shall not apply to any
subsequent sale of the Leased Property or any
interest therein to any subsequent purchaser or
transferee. If such sale is not consummated,
Lessee's right of first refusal as provided in
this Section shall be reinstituted as to any
subsequent sale of the Leased Property during any
First Refusal Period.

     35.2 DEFAULTS

     35.2.1 LIQUIDATED DAMAGES. IF, FOLLOWING A
VALID AND PROPER EXERCISE OF THE FOREGOING RIGHT
OF FIRST REFUSAL, LESSEE FAILS TO COMPLETE THE
PURCHASE OF THE LEASED PROPERTY AND SUCH FAILURE
CONSTITUTES A BREACH HEREOF, THEN LESSOR, AT ITS
OPTION, MAY TERMINATE THE PURCHASE CONTRACT FORMED
BY LESSEE'S EXERCISE OF SUCH RIGHT OF FIRST
REFUSAL AND THE ESCROW BY GIVING WRITTEN NOTICE TO
LESSEE AND ESCROW HOLDER AND, THEREUPON, THE
ESCROW SHALL BE CANCELLED, ALL DOCUMENTS SHALL BE
RETURNED TO THE RESPECTIVE PARTIES WHO DEPOSITED
THE SAME, AND LESSEE SHALL PAY ALL TITLE AND
ESCROW CANCELLATION CHARGES AND ALL OF LESSOR'S
LEGAL FEES AND COSTS. IN ADDITION, LESSOR AND
LESSEE AGREE THAT, BASED ON THE CIRCUMSTANCES NOW
EXISTING, KNOWN OR UNKNOWN, IT WOULD BE
EXCESSIVELY COSTLY AND IMPRACTICABLE TO ESTABLISH
LESSOR'S DAMAGES BY REASON OF LESSEE'S DEFAULT
RESULTING IN A FAILURE OF THE ESCROW TO CLOSE,
AND, THEREFORE, LESSOR AND LESSEE AGREE THAT IT
WOULD BE REASONABLE TO AWARD LESSOR LIQUIDATED
DAMAGES IN THE AMOUNT



2


OF THE OPENING DEPOSIT PLUS ANY ACCRUED INTEREST
ON THE OPENING DEPOSIT. BY THEIR RESPECTIVE
INITIALS SET FORTH BELOW, LESSOR AND LESSEE
ACKNOWLEDGE AND AGREE THAT THE OPENING DEPOSIT,
PLUS ANY INTEREST ACCRUED ON THE OPENING DEPOSIT
,TOGETHER WITH PAYMENT OF LESSOR'S LEGAL FEES AND
COSTS, IS REASONABLE AS LIQUIDATED DAMAGES FOR A
DEFAULT OF LESSEE UNDER THE PURCHASE CONTRACT
FORMED BY LESSEE'S EXERCISE OF SUCH RIGHT OF FIRST
REFUSAL THAT RESULTS IN A FAILURE OF THE ESCROW TO
CLOSE AND SHALL BE IN LIEU OF ANY OTHER RELIEF,
RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH
LESSOR MIGHT OTHERWISE BE ENTITLED BY REASON OF A
LESSEE'S DEFAULT THAT RESULTS IN A FAILURE OF THE
ESCROW TO CLOSE, BUT NOTHING CONTAINED HEREIN
SHALL LIMIT LESSOR'S RIGHTS AND REMEDIES FOR
LESSEE'S DEFAULT OCCURRING AFTER THE CLOSE OF
ESCROW OR FOR LESSEE'S DEFAULT UNDER THIS LEASE.
ESCROW HOLDER IS HEREBY AUTHORIZED AND INSTRUCTED
TO RELEASE THE OPENING DEPOSIT PLUS ACCRUED
INTEREST THEREON TO LESSOR UPON THE DELIVERY OF
UNILATERAL WRITTEN INSTRUCTIONS THEREOF TO ESCROW
HOLDER BY LESSOR, AND ESCROW HOLDER IS HEREBY
RELIEVED OF ALL LIABILITY THEREFOR. IF LESSEE
ATTEMPTS TO INTERFERE WITH THE RELEASE OF ANY SUCH
SUMS BY ESCROW HOLDER TO LESSOR, OR COMMENCES ANY
ACTION AGAINST LESSOR OR THE LEASED PROPERTY
ARISING OUT OF THIS ARTICLE, THEN LESSOR SHALL NOT
BE LIMITED IN THE AMOUNT OF DAMAGES IT MAY RECOVER
FROM LESSEE.

     35.2.2 OTHER DEFAULTS. A default under any
other lease or other agreement, including any
purchase contract formed upon exercise of any
other right of first refusal, between Lessor or
any Affiliate of Lessor and Lessee or any
Affiliate of Lessee where such default is not
cured within the applicable time period, if any,
shall be deemed a default under this Article XXXV
and the purchase contract formed upon proper
exercise by Lessee of the right of first refusal
herein provided, entitling Lessor, as seller, at
its option, to terminate such purchase contract
and the Escrow and upon any such termination the
Opening Deposit plus all accrued interest shall be
paid over to Lessee.

     35.3 LESSOR'S OPTION TO PURCHASE THE LESSEE'S
PERSONAL PROPERTY.  Effective on not less than
ninety (90) days prior written notice, or such
shorter notice as shall be appropriate if this
Lease is terminated prior to its expiration date,
Lessor shall have the option to purchase some or
all of Lessee's Personal Property, at the
expiration or termination of this Lease, for an
amount equal to the then net book value thereof as
shown on Lessee's books, subject to, and with
appropriate price adjustments for, all equipment
leases, conditional sale contracts, UCC-1
financing statements and other encumbrances to
which such personal property is subject."

     4. Except as amended above, the Lease shall
remain in full force and effect.

     5. This Amendment may be executed in any
number of counterparts, all of which together
shall constitute one and the same instrument.



3



     IN WITNESS WHEREOF, the parties hereto have
caused this Second Amendment to be executed as of
the day and year first above written.

HEALTH CARE PROPERTY
EMERITUS CORPORATION, a
INVESTORS, INC., a Maryland
Washington corporation

By: /s/ Stephan Maulbetsch
By: /s/ Raymond R. Brandstrom
      ------------------------------------
- --------------------------------------
Its:   Senior Vice President
Its:   President
      ------------------------------------
- --------------------------------------








































4

EX-10.54.4

FIRST AMENDMENT TO PURCHASE AND SALE
AGREEMENT

     This First Amendment to Purchase and
Sale Agreement is entered into effective
November 1, 1996, by and between
HEARTHSTONE-5K FAMILY LIMITED PARTNERSHIP,
a Washington limited partnership
("Seller") and EMERITUS CORPORATION, a
Washington corporation ("Purchaser").


RECITALS:

     A.  Seller and Purchaser have hereto
fore entered into a Purchase and Sale
Agreement dated August 20, 1996 (the
"Purchaser").

     B.  At the time of execution of the
Purchase and Sale Agreement, Exhibits "A"
(Real Property Description), "B" (Personal
Property List), "C" ("Purchase Price
Allocation"), "G" ("Facility Lease"), "H"
("Rent Roll"), "I" ("Labor Disputes"), and
"J" ("Operating Contracts") were not
attracted to the Purchase and Sale
Agreement").

     C.  Seller and Purchase desire to
agree upon Permitted Exceptions as defined
in Paragraph 11(a)(ii) of the Purchase and
Sale Agreement.

     D.  Purchaser and Seller desire to
acknowledge that Purchaser has completed
Purchaser's Due diligence review and that
Purchaser is satisfied with the results of
the Due Diligence Review.

     E.  Purchaser and Seller desire to
acknowledge that the conditions to closing
set forth in Paragraphs 13 and 14 of the
Purchase and Sale Agreement have been met.

     NOW, THEREFORE, in consideration of
the mutual covenants and conditions herein
contained, the parties hereto hereby amend
and supplement the Purchase and Sale
Agreement and agree as follows:

     Attached hereto marked Exhibit "A",
is the Real Property Description which is
Exhibit "A" to the Purchase and Sale
Agreement.  Attached hereto, marked as
Exhibit "B", is the Personal Property
List, which is Exhibit "B" to the Purchase
and Sale Agreement.  Attached hereto,
marked as Exhibit "C", is the Purchase
Price allocation, which is Exhibit "C" to
the Purchase and Sale Agreement.  Attached
hereto, marked as Exhibit "G", are copies
of the Facility Lease, which is Exhibit
"G" to the Purchase and Sale Agreement.
Attached hereto, marked Exhibit "H",  is
the Rent roll, which is Exhibit "H" to the
Purchase and Sale Agreement.  Attached
hereto, marked as Exhibit "I", is a list
of all Labor Disputes, which is exhibit
"I" to the Purchase and Sale Agreement.
Attached hereto, marked as Exhibit "J",
are copies of all Operating Contracts
which is Exhibit "J" to the Purchase and
Sale Agreement.  Such exhibits are
incorporated herein by this reference, and
are hereby made part of the Purchaser and
Sale Agreement.





     The Permitted Exceptions pursuant to
the Purchase and Sale Agreement are those
matters described on Exhibit B to the
Warranty Deed, a copy of which is attached
hereto, marked Exhibit 2, and incorporated
herein by this reference.

     Purchaser acknowledges that Purchaser
has completed Purchaser's Due Diligence
Review as contemplated by the Purchase and
Sale Agreement and that Purchase is
satisfied with the same.  However, it its
understood that Purchaser's acceptance of
such Due Diligence Review shall not be
construed as amending or modifying in any
manner the representations or warranties
of Seller set forth in the Purchase and
Sale Agreement or relieving Seller from
its obligations to ensure that said
representations and warranties are true
and correct at closing, which
representations and warranties shall be
separate from and unaffected by
Purchaser's Due Diligence review except to
the extent that Seller is able to
demonstrate that Purchaser acquired actual
knowledge prior to closing of any facts or
circumstances inconsistent with any of
Seller's representations and warranties,
Seller failed to take any corrective
action with respect to said inconsistency
and Purchaser nonetheless elected to close
the transaction provided for in the
Purchase and Sale Agreement.

     Those Operating Contracts attached
hereto as Exhibit J are the Operating
Contracts which Purchaser elects to assume
at closing.

     Purchaser is satisfied with the
results of the ALTA Survey and the UCC
search and waives the provisions of
Paragraphs 13(f) and 13(g) of the Purchase
and Sale Agreement.

     Purchaser acknowledges and represents
that Purchaser has received the approval
of its Board of Directors, and a copy of
such approval is attached hereto, marked
as Exhibit 6, and incorporated herein by
this reference, and Purchaser acknowledges
that Purchaser has received all consents
and approvals as may be necessary for it
to won and operate the facility and
Purchaser waives the provisions of
Paragraph 13(i) of the Purchaser and Sale
Agreement.

     Purchaser acknowledges that Purchaser
has secured a written commitment from an
institutional lender to finance the
transaction provided for in the Purchase
and Sale Agreement on terms acceptable to
Purchaser.

     The exhibits attached hereto are
incorporated into the Purchaser and Sale
Agreement by reference herein.  The
Purchase and Sale Agreement is
incorporated herein by this reference, and
except as modified and supplemented
hereby, remains unmodified and remains in
full force and effect.






2



     IN WITNESS WHEREOF, the parties
hereto have executed this Agreement.


HEARTHSTONE-5K FAMILY LIMITED

PARTNERSHIP


By: /s/ Margaret e. Wagner

- ----------------------------------

General Partner


EMERITUS CORPORATION,

a Washington Corporation


By /s/ Frank A. Ruffo

- -----------------------------------

Executive Vice President



































3

EX-10.54.5

[Loan No. 04-751-610092-9]


PROMISSORY NOTE

$4,160,000 (U.S.)
Seattle, Washington October 30, 1996

     FOR VALUE RECEIVED, the undersigned
(individually and collectively,
"Borrower"), jointly and severally,
promise to pay to the order of WASHINGTON
MUTUAL BANK, a Washington corporation, at
its office at 1201 Third Avenue, Seattle,
Washington 98101, or at such other place
as the holder of this Note (hereinafter,
"holder") may from time to time designate
in writing, the sum of FOUR MILLION ONE
HUNDRED SIXTY THOUSAND DOLLARS
($4,160,000) in lawful money of the United
States, with interest thereon from the
date of this Note until paid at the rates
set forth below, computed on monthly
balances. Interest for each full calendar
month during the term of this Note shall
be calculated on the basis of a 360-day
year and twelve 30-day months. Interest
for any partial calendar month at the
beginning or end of the term of this Note
shall be calculated on the basis of a 365
or 366-day year and the actual number of
days in that month.

     SECTION l. INITIAL INTEREST RATE.

     The per annum interest rate hereunder
(the "Note Rate") shall initially be eight
and three-eighths percent (8. 375%) (the
"Initial Rate"). The Note Rate is subject
to adjustment as provided below.

     SECTION 2. INTEREST RATE ADJUSTMENTS.

     Beginning on May 1, 1997 (the
"Initial Interest Adjustment Date") the
Note Rate shall be adjusted every six (6)
months to a rate that is three percent
(3.00%) per annum above the then-
applicable "Adjustable Index Rate" (as
hereinafter defined) rounded upward to the
nearest one-eighth of one percent (.125%).
Any date on which the Note Rate is to be
adjusted as provided in this Note is
referred to herein as the "Interest
Adjustment Date".

     For purposes of this Note, the
"Adjustable Index Rate" shall be based on
the weekly average constant maturity
yields reported in Federal Reserve
Statistical Release H.15 (519), Selected
Interest Rates ("Publication H.15"). The
figures in the most recent edition of
Publication H.15 available as of the
Interest Adjustment Date that appear in
the column for the week ending immediately
preceding the date of such edition shall
be used for purposes of the Adjustable
Index Rate calculation. The Adjustable
Index Rate shall be the yield adjusted to
constant maturities stated in Publication
H.15 for six (6) month United States
government securities.









     Holder may, in its reasonable
discretion, select an
alternative source of the Adjustable Index
Rate if Publication H.15 ceases to be
available, or if the method of calculating
treasury constant maturity yield figures
set forth therein changes so as to
substantially impact the calculation of
the Adjustable Index Rate.

     SECTION 3. MONTHLY PAYMENTS.

     Beginning on December l, 1996 and on
the same day of each and every calendar
month thereafter throughout the term of
this Note (the "Monthly Payment Dates"),
Borrower shall make monthly payments to
holder (the "Monthly Payment Amounts") of
accrued interest only.

     SECTION 4. MATURITY.

     Unless sooner repaid by Borrower, the
entire unpaid principal balance of this
Note, plus all accrued but unpaid
interest, and all other amounts owing
hereunder or under the Security Documents
(as defined in Section 8) shall be due and
payable in full on November l, 1999 (the
"Maturity Date").

     SECTION 5. APPLICNTION OF PAYMENTS.

     Payments shall be applied: (i) first,
to the payment of accrued interest; (ii)
second, at the option of holder, to the
payment of any other amounts owing under
this Note or secured by the Security
Documents, other than accrued interest and
principal, including, but not limited to
advances holder may have made for
attorneys, fees or for taxes, assessments,
insurance premiums or other charges on any
property given as security for this Note
and late charges due hereunder; and (iii)
third, to the reduction of principal of
this Note.

     SECTION 6. PREPAYMENT.

     Borrower may, upon thirty (30) days,
prior written notice to holder, prepay its
obligation under this Note in full or in
part on any Monthly Payment Date without
premium or penalty.

     SECTION 7. LATE CHARGE.

     If any amount payable hereunder is
paid more than ten (10) days after the due
date thereof, Borrower promises to pay a
late charge of five percent (5%) of the
delinquent amount as liquidated damages
for the extra expense in handling past due
payments.






2




     SECTION 8. SECURITY.

     This Note is secured by a deed of
trust, security agreement, assignment of
leases and rents and fixture filing (the
"Deed of Trust" ) of even date herewith
and executed by Borrower, encumbering real
property located in Grant County,
Washington. The Deed of Trust and any and
all other documents securing this Note are
collectively referred to as the "Security
Documents"; provided, however, that
"Security Documents" specifically shall
not mean and shall not include the
certificate and indemnity agreement
regarding hazardous substances being
delivered concurrently herewith to holder
by Borrower (the "Indemnity Agreement").
The real property and the other collateral
provided for in the Security Documents are
collectively referred to as the
"Property".

     SECTION 9. DEFAULT: REMEDIES.

     If default is made in the payment of
any amount payable hereunder when due or
in the keeping of any covenant of the
Security Documents, then, at the option of
holder, the entire indebtedness evidenced
hereby shall become immediately due and
payable. Upon default, and without notice
or demand, all amounts owed under this
Note, including all accrued but unpaid
interest, shall thereafter bear interest
at a variable rate, adjusted at the times
at which the Note Rate would otherwise
have been adjusted pursuant to Section 2,
of five percent (5%) per annum above the
Note Rate which would have been applicable
from time to time had there been no
default (the "Default Rate") until such
default is cured. Failure to exercise any
option granted to holder hereunder shall
not waive the right to exercise the same
in the event of any subsequent default.
Interest at the Default Rate shall
commence to accrue upon default under this
Note, including the failure to pay this
Note at maturity.

     SECTION 10. ATTORNEYS' FEES.

     In the event of any default under
this Note, or in the event that any
dispute arises relating to the
interpretation, enforcement or performance
of this Note, holder shall be entitled to
collect from Borrower on demand all
reasonable fees and expenses incurred in
connection therewith, including but not
limited to fees of attorneys, accountants,
appraisers, environmental inspectors,
consultants, expert witnesses,
arbitrators, mediators and court
reporters. Without limiting the generality
of the foregoing, Borrower shall pay all
such costs and expenses incurred in
connection with: (a) arbitration or other
alternative dispute resolution
proceedings, trial court actions and
appeals; (b) bankruptcy or other
insolvency proceedings of Borrower, any
guarantor or other party liable for any of
the obligations of this Note or any party
having any interest in any security for
any of those obligations; (c) judicial or
nonjudicial foreclosure on, or appointment
of a receiver for, any property securing
this Note; (d) post-judgment collection
proceedings; (e) all claims,
counterclaims, cross-claims and defenses
asserted in any of the



3



foregoing whether or not they arise out of
or are related to this Note or any
security for this Note; (f) all
preparation for any of the foregoing; and
(g) all settlement negotiations with
respect to any of the foregoing.

     SECTION 11. MISCELLANEOUS.

     (a) Every person or entity at any
time liable for the payment of the
indebtedness evidenced hereby waives
presentment for payment, demand and notice
of nonpayment of this Note. Every such
person or entity further hereby consents
to any extension of the time of payment
hereof or other modification of the terms
of payment of this Note, the release of
all or any part of the security herefor or
the release of any party liable for the
payment of the indebtedness evidenced
hereby at any time and from time to time
at the request of anyone now or hereafter
liable therefor. Any such extension or
release may be made without notice to any
of such persons or entities and without
discharging their liability.

     (b) Each person or entity who signs
this Note is jointly and severally liable
for the full repayment of the entire
indebtedness evidenced hereby and the full
performance of each and every obligation
contained in the Security Documents.

     (c) The headings to the various
sections have been inserted for
convenience of reference only and do not
define, limit, modify, or expand the
express provisions of this Note.

     (d) Time is of the essence under this
Note and in the performance of every term,
covenant and obligation contained herein.

     (e) This Note is made with reference
to and is to be construed in accordance
with the laws of the state of Washington.

     (f) Each married person who executes
this Note as a Borrower agrees that
recourse hereunder can be had to his or
her separate property as well as the
assets of his or her marital community.


     DATED as of the day and year first
above written.

     ORAL AGREEMENTB OR ORAL COMMITMENTS
TO LEND MONEY EXTEND CREDIT OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEAHLE UNDER WASHINGTON LAW.


EMERITUS CORPORATION,

a Washington corporation


/s/ Kelly J. Price

- ------------------------------

Secretary


4

EX-10.55.1

PROMISSORY NOTE

$17,000,000.00
November 26, 1996

     FOR VALUE RECEIVED, the undersigned,
ESC II, L.P., a Washington limited
partnership (herein sometimes called
"MAKER"), hereby promises to pay to the
order of GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
(herein sometimes called "PAYEE"), the
principal sum of SEVENTEEN MILLION AND
NO/100 DOLLARS ($17,000,000.00), or so
much thereof as shall be advanced, with
interest on the unpaid balance thereof
from date of advancement until maturity at
the Applicable Rate (as hereinafter
defined), both principal and interest
payable as hereinafter provided in lawful
money of the United States of America at
the offices of GMAC Commercial Mortgage
Corporation, 100 South Wacker Drive, Suite
400, Chicago, Illinois 60606, or at such
other place as from time to time may be
designated by the holder of this Note,
payable as follows:

     (a)  Commencing on December 1, 1996, and
       continuing on the first day of each month
       thereafter through and including the last
       to occur of (i)  the Conversion Date 9as
       hereinafter defined) or (ii) November 26,
       1998, Maker shall make a payment to Payee
       of interest only in an amount equal to the
       accrued but unpaid interest on the
       Principal Amount from time to time
       outstanding calculated at the Construction
       Loan Period Rate (as hereinafter defined).

     (b)  Commencing on the first day of the
       first month following the month of the
       Conversion Date, and continuing on the
       first day of each month thereafter until
       November 26, 2001, maker shall make a
       monthly payment to Payee of accrued and
       unpaid interest calculated at the Term
       Loan Period Rate (as hereinafter defined)
       plus a principal installment sufficient to
       fully amortize the then unpaid Principal
       Amount of this Note over twenty-five (25)
       years, applying such monthly payments
       first to interest at the Term Loan Period
       Rate and then to principal. In the event
       the Earnout Requirements (as hereinafter
       defined) are satisfied, the principal
       installment payments shall be recalculated
       based on the adjusted Principal Amount.

     (c)  On the maturity Date (as hereinafter
       defined), or earlier date if this Note is
       accelerated, Maker shall pay Payee all
       accrued but unpaid interest, and all
       outstanding principal and any other sums
       due to Payee under the Loan Documents (as
       hereinafter defined).

     As herein provided the unpaid
Principal Amount (as hereinafter defined)
of this Note (or portions thereof) from
time to time outstanding shall bear
interest prior to maturity at the
Applicable Rate; provided, that in no
event shall the Applicable Rate exceed the
Maximum Rate (as hereinafter defined).
Notwithstanding the foregoing, if at any
time the



Applicable Rate exceeds the Maximum Rate,
the rate of interest payable under this
Note shall be limited to the maximum Rate,
but any subsequent reductions in the
Applicable Rate shall not reduce the
Applicable Rate below the Maximum Rate
until the total amount of interest accrued
on this Note equals the total amount of
interest which would have accrued at the
Applicable Rate if the Applicable Rate had
at all times been in effect.  The
applicable Rate shall change monthly on
the first day of each month during the
term hereof ("Rate Change Date"),
commencing on the first day of December,
1996; provided, however, that if the first
day of any month during the term hereof is
not a Business Day, then the Rate Change
Date shall be the first business Day
following the first day of such month.
Any such Applicable Rate change shall be
effective on the rate Change Date and
accrued interest at such Applicable Rate
change shall be paid on the first day of
the following month.  Interest hereunder
shall be calculated for the actual number
of days elapsed on the basis of a 360-day
year, subject to the provisions hereof
limiting interest tot he Maximum Rate.

     As used in this Note, the following
terms shall have the meanings indicated
opposite them:

     "Applicable Rate" - The interest rate
in effect at the time as provided in
paragraphs (a) and (b) above.

     "Business Day" - Any day on which
banks (i) are not required or authorized
to close in New York City, and (ii) are
open for dealing in interbank deposits in
London pursuant to the terms hereof.

     "Construction Loan Period" -
Commencing on the date hereof and ending
on the Conversion Date.

     "Construction Loan Period Rate" - For
the purpose of computing interest due on
this Note during the Construction Loan
Period, the rate shall be the sum of (i)
the Current Index (as hereinafter defined)
plus (ii) the Margin during the
Construction Loan Period (as hereinafter
defined).

     "Conversion Date" - The date on which
the Conversion Requirements have been
satisfied which shall be no earlier than
November 26, 1998.

     "Conversion Requirements" - The
requirements established and defined in
the Loan Agreement (as hereinafter
defined).

     "Current Index" - The published Index
that is effective two Business Days before
the applicable Rate Change Date.

     "Deed of Trust" - The Deed of Trust,
Mortgage and Security Agreement of even
date herewith more particularly described
herein.



2



     "Default Rate" - The rate per annum
which is four percent (4%) above the
Applicable Rate.

     "Earnout Requirements" - The
requirements established and defined in
the Loan Agreement.

     "Index" - The average of London
interbank offered rates ("LIBOR") for
dollar deposits in an amount equal to
$1,000,000 offered in the London interbank
Eurodollar market for a term of thirty
(30) days at 10:00 a.m. (London time) two
Business Days prior to the applicable Rate
Change Date, for LIBOR rates, as published
in THE WALL STREET JOURNAL or any other
publication, selected by Payee, which
routinely publishes LIBOR rates shall be
used.

     "Interest Period" - The period
commencing on each Rate Change Date and
ending on the next succeeding Rate Change
Date.

     "Loan" - The $17,000,000.00 loan (or
so much thereof as shall be advanced
hereunder) to be made to Maker by Payee
pursuant to the terms and conditions of
the Loan Agreement and evidenced hereby.

     "Loan Agreement" - The Construction
Loan Agreement of even date herewith
between Payee and Maker pursuant to which
the Loan is being made.

     "Margin during the Construction Loan
Period" - Two and three-quarters percent
(2 3/4%).

     "Margin during the Term Loan Period"
- - Two and one-half percent (2 1/2%).

     "Maturity Date" - November 26, 1998,
unless Maker satisfies the conversion
Requirements, in which case the Maturity
Date is November 26, 2001.

     "Maximum Rate" - The maximum interest
rate permitted under applicable law, it
being understood that, if applicable law
provides for a ceiling under Tex. Rev.
Civ. Stat. Ann. Art. 5069-1.04, such
ceiling shall be the indicated rate
ceiling.

     "Mortgage Property" - The real
property, improvements, fixtures and other
property and interest described in the
Deed of Trust (hereinafter defined).

     "Principal Amount" - that portion of
the loan other than accrued unpaid
interest evidenced hereby as is from time
to time outstanding.

     "Term Loan Period" - Commencing on
the first day immediately following the
Conversion Date and ending on November 26,
2001.


3



     "Term Loan Period Rate" - For the
purpose of computing interest due on this
Note during the Term Loan Period, the rate
shall be the sum of (i) the Current Index
plus (ii) the Margin during the Term Loan
Period.

     On the Maturity Date, Maker shall pay
to Payee as an "Exit Fee", a sum equal to
One Hundred Twenty-Seven Thousand Five
Hundred Dollars ($127,500.00), subject to
the provisions hereof limiting interest to
the Maximum Rate; provided, however, that
the Exit Fee shall be waived in the event
(a) Payee arranges or refinances this Note
with a new loan, (b) Payee elects not to
refinance this Note of (c) Payee is not
competitive with other institutional
lenders in connection with the refinancing
of this Note, at the time of the Maturity
Date, as to loan fees, loan constant and
loan to value ratios.

     After an event of default under any
of the Loan Documents and after the
Maturity Date, the Principal Amount shall
bear interest from the date of such event
of default of the Maturity Date as the
case may be, until paid at the default
Rate, provided that in no event shall such
interest rate be more than the Maximum
Rate.  Interest on such payment so unpaid
shall be compounded monthly and shall be
payable upon demand.  In addition, if any
payment is not paid within ten (10)
calendar days from the date such becomes
due or any other payment hereunder is not
paid on or before the Maturity date, Maker
shall pay a reasonable late or collection
charge equal to the lesser of (a) the
maximum Rate permitted to be charged on
such late payment amount or (b) five
percent (5%) of the amount so unpaid.
Payee and Maker agree that the actual
damages and costs sustained by Payee due
to the failure to make timely payments
would be extremely difficult to measure
and that the charges specified in this
paragraph represent a reasonable estimate
by maker and Payee of a fair average
compensation for such damages and costs.
Such charges shall be paid by Maker
without prejudice to the right of Payee to
collect any other amounts provide3d to be
paid under this Note or any other
agreement or, with respect to late
payments, to declare an a default
hereunder.

     Both principal and interest shall be
paid by maker in lawful money of the
United States of America such that Payee
has received immediately available funds
for the credit of Maker not later than
3:00 p.m. Eastern Standard time on the
date that such payment is due.  Any
payment made after 3:00 p.m. Eastern
Standard time shall be deemed received on
the next Business Day.  If any payment
becomes due on any day which is not a
Business Day, such payment shall be made
on the next succeeding Business Day
without penalty, but without waiver of any
interest accrued between such due date and
the extended date of payment.

     During the Construction Loan Period,
this Note may not be prepaid in whole or
in part, without the prior written consent
of Payee.  During the Term Loan Period,
Maker shall have the right to prepay this
Note, in whole but not in part, upon
written notice thereof given to Payee by
prepaid registered or certified mail at
least thirty (30) days prior to the date
to be fixed therein for prepayment, upon
payment of a prepayment


4


premium of One Hundred Twenty-Seven
Thousand Five Hundred Dollars
($127,500.00) of this Note and upon the
payment of all accrued interest on the
amount prepaid (and any interest at the
Default Rate and other sums that may be
payable hereunder) to the date so fixed;
provided, however, that if Maker shall
have made application to or through Payee
for a New Loan, setting forth the terms
and conditions for the New loan which
would be acceptable to maker and Payee,
and this Note is paid in full from the
proceeds of the New Loan originated by or
through Payee, maker shall not be required
to pay the said prepayment premium.

     Maker hereby agrees that it shall be
bound by any agreement extending the time
or modifying the above terms of payment,
made by Payee and the owner or owners of
the Mortgage Property, and Maker shall
continue liable to pay the amount due
hereunder, but with interest at a rate no
greater than the applicable Rate according
to the terms of any such agreement of
extension or modification.

     This Note has been executed and
delivered pursuant to the Loan Agreement
between Maker and Payee which provides for
the construction of certain improvements
by maker and the disbursement from time to
time of the proceeds of this Note for use
in paying for the costs thereof.

     This Note is secured, inter alia, by
the Deed of Trust, evidencing a lien on
certain real property in Dallas County,
Texas, described therein, and evidencing a
security interest in certain personal
property described therein, to which Deed
of Trust reference is here made for a
description of the property covered
thereby and the nature and extent of the
security and the rights and powers of the
holder of this Note in respect of such
security.  Upon the occurrence of a
default specified in the Deed of Trust or
in the Loan Agreement or any other
document or instrument evidencing or
securing the repayment of this Note (all
of the foregoing documents and instruments
are hereinafter collectively called the
"LOAN DOCUMENTS"), the holder of this Note
or any part thereof shall have the option
of declaring the Principal Amount hereof
and the interest accrued heron to be
immediately due and payable.

     It is the intent of Payee and Maker
in the execution of this Note and all
other instruments now or hereafter
securing this Note to contract in strict
compliance with applicable usury law.  In
furtherance thereof, Payee and Maker
stipulate and agree that none of the terms
and provisions continued in this Note, or
in any other instrument executed in
connection herewith, shall ever be
construed to create a contract to pay for
the use, forbearance or detention or
money, or interest at a rate in excess of
the Maximum Rate.  Neither Maker nor any
guarantors, endorsers or other parties now
or hereafter becoming liable for payment
of this Note shall ever be required to pay
interest on this Note at a rate in excess
of the Maximum Rate that may be lawfully
charged under applicable law, and the
provisions of this paragraph shall control
over all other provisions of this Note and
any other instruments now or hereafter
executed in connection herewith which may
be in apparent conflict herewith.  Payee,
including each holder of this


5


Note, expressly disavows any intention to
charge or collect excessive unearned
interest or finance charges in the event
the maturity of this Note is accelerated.
If the maturity of this Note shall be
accelerated for any reason or if the
principal of this Note is paid prior to
the end of the term of this Note, and as a
result thereof the interest received for
the actual period of existence of the Loan
exceeds the amount of interest that would
have accrued at the Maximum Rate, the
holder of this Note shall, at its option,
either refund to Maker the amount of such
excess or credit the amount of such excess
against the Principal Amount and thereby
shall render inapplicable any and all
penalties of any kind provided by
applicable law as a result of such excess
interest.  In the event that Payee or any
other holder of this Notes shall collect
monies and/or any other thing of value
which are deemed to constitute interest
which would increase the effective
interest rate on this Note to a rate in
excess of that permitted to be charged by
applicable law, all such sums deemed to
constitute interest in excess of the
amount of interest at the lawful rate
shall, upon such determination, at the
option of the holder of this Note, be
either immediately returned to Maker or
credited against the Principal Amount, in
which event any and all penalties of any
kind under applicable law as a result of
such excess interest shall be applicable.
By execution of this Note, Maker
acknowledges that it believes the Loan
evidenced by this Notes to be non-usurious
and agrees that if at any time, Maker
should have reason to believe that the
Loan is in fact usurious, it will give the
holder of this Note notice of such
condition and Maker agrees that said
holder shall have ninety (90) days in
which to make appropriate refund or other
adjustment in order to correct such
condition if in fact such exists.  The
term "applicable law" as used in this Note
shall mean the laws of the State of Texas
or the laws of the United States,
whichever laws allow the greater rate of
interest, as such laws now exist or may be
changed or amended or come into effect in
the future.

     Should the indebtedness represented
by this Note or any part thereof be
collected at law or in equity or through
any bankruptcy, receivership, probate or
other court proceedings or if this Note is
placed in the hands of attorneys for
collection after default, Maker and all
endorsers, guarantors and sureties of this
Note jointly and severally agree to pay to
the holder of this Note, in addition to
the principal and inter4est due and
payable hereon, all actual costs and
expenses of said holder in enforcing this
Note including, without limitation,
reasonable attorney's and collection fees.

     Maker and all endorsers, guarantors
and sureties of this Note and all other
persons liable or to become liable on this
Note severally waive presentment for
payment, demand, notice of demand and of
dishonor and nonpayment of this Note,
notice of intention to accelerate the
maturity of this Note, notice of
acceleration, protest and notice of
protest, diligence in collecting, and the
bring of suit against any other party, and
agree to all renewals, extensions,
modifications, partial payments, releases
or substitutions or security, in whole or
in part, with or without notice, before or
after maturity.


6



     THIS NOTE AND THE OTHER LOAN
DOCUMENTS AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS (WITHOUT
GIVING EFFECT TO TEXAS' PRINCIPLES OF
CONFLICTS OF LAW) AND THE LAWS OF THE
UNITED STATES APPLICABLE TO TRANSACTIONS
IN SUCH STATE.  MAKER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY TEXAS OR FEDERAL COURT SITTING IN
TEXAS OVER ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS NOTE OR
ANY OF THE LOAN DOCUMENTS, AND MAKER
HEREBY AGREES AND CONSENTS THAT, I
ADDITION TO ANY METHODS OF SERVICE OF
PROCESSPROVIDED FOR UNDER APPLICABLE LAW,
ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING IN ANY TEXAS OR
FEDERAL COURT SITTING IN TEXAS MAY BE MADE
BY CERTIFIED OR REGISTREED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO MAKER AT
THE ADDRESS OF MAKER FOR THE GINVING OF
NOTICES UNDER THE DEED OF TRUST, AND
SERVICE SO MADE SHALL BE COMPLETE FIVE (5)
DAYS AFTER THE SAME SHALLHAVE BEEN SO
MAILED.

     Maker hereby expressly and
unconditionally waives, in connection with
any suit, action  or proceeding brought by
the holder of this Note in connection with
any of the Loan Documents, any and every
right it may have to (i) injunctive
relief, (ii) a trial by jury, (iii)
interpose any counterclaim therein and
(iv) have the same consolidated with any
other or separate suit, action or
proceeding.  Nothing herein contained
shall prevent or prohibit Maker from
instituting or maintaining a separate
action against the holder of this Note
with respect to any asserted claim.


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


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

corporation, general partner


Federal Tax I.D. No.             By:  /s/
Raymond R. Brandstrom

- ----------------------------------
      91-1741859                     Name:
Raymond R. Brandstom
    ----------------
Title:  President









7

EX-10.55.2

                                 CONSTRUCTION LOAN
AGREEMENT

     THIS AGREEMENT made and entered into as of
the 26th day of November,1996 by and between ESC
II, L.P., a Washington limited partnership
(hereinafter called "BORROWER"), and GMAC
COMMERCIAL MORTGAGE CORPORATION, a California
corporation (hereinafter called "LENDER").


WITNESSETH:

     WHEREAS, Borrower has obtained from Lender a
Commitment (as hereinafter defined) for a Loan (as
hereinafter defind); and

     WHEREAS, Borrower and Lender wish to enter
into this Agreement in order to set forth the
terms and conditions of the disbursement of the
Loan to be made in accordance with the Commitment;

     NOW THEREFORE, in consideration of the mutual
promises hereinafter contained and of other
valuable consideration, the receipt and
sufficiency of which are hereby acknowledged,
Borrower and Lender hereby agree as follows:


ARTICLE 1.

1.1 DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings shown:

     (a) "Affidavit of Commencement of
Construction." As defined in subsection 4.1 (I).

     (b) "Affidavit of Completion." As defined in
Section 7.4.

     (c) "Architect." ROFDW Architects.

     (d) "Architects Certificate and Consent." The
Architects Certificate and Consent as provided for
herein and in the form attached hereto as Exhibit
F.

     (e) "Assignment of Architect Contract and
Plans." The Assignment of Architect Contract and
Plans as provided for herein and in the form
attached hereto as Exhibit E.

     (f) "Assignment of Construction Contract."
The Assignment of Construction Contract as
provided for herein and in the form attached
hereto as Exhibit C.
THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
WHICH, AMONG OTHER MATTERS AND IN CERTAIN
CIRCUMSTANCES, INDEMNIFY LENDER AGAINST THE
CONSEQUENCES OF LENDER'S OWN NEGLIGENCE AND
AGAINST ANY STRICT LIABILITY IMPOSED ON LENDER

     (g) "Assignment of Engineering Contract and
Plans." The Assignment of Engineering Plans as
provided for herein and in the form attached
hereto as Exhibit G.






     (h) "Assignment of Leases and Rents." The
Assignment of Leases and Rents of even date
herewith from Borrower to Lender covering certain
leases described therein, providing a source of
future payment of the Note.

     (i) "Borrower's Affidavit." An affidavit by a
partner or officer of Borrower setting forth
certain facts relating to the Premises, the
Borrower and the Loan.

     (j) "Certificate of Non Foreign Status." A
certificate by Borrower as required by Section
1445 of the Internal Revenue Code.

     (k) "Commitment." A commitment agreement
dated October 31,1996, by and between Lender and
Borrower, in which Lender agrees to lend, and
Borrower agrees to borrow and take down, the Loan
in accordance with the terms, provisions and
conditions set forth therein, together with all
modifications and amendments to said commitment
agreement.

     (l) "Completion Date." January 1,1998.

     (m) "Construction Contract." An agreement
providing for the furnishing of labor and/or
materials to be used in the construction and/or
installation of the Improvements, including all
additions, changes and other amendments thereto,
and an agreement providing for the abatement of
asbestos or asbestos-containing material.

     (n) "Construction Loan Period." The term of
the Loan commencing on the date hereof and ending
on the Conversion Date.

     (o) "Construction Schedule." As defined in
subsection 4.1 (h).

     (p) "Contractor." Shall include Miner-
Dederick Constructors, Inc. as to the construction
of the Improvements and Total Abatement Systems
Corp. as to asbestos abatement of the existing
improvements on the Land.

     (q) "Contractor's Consent, Agreement and
Certification." The Contractor's Consent,
Agreement and Certification as provided for herein
and in the form attached hereto as Exhibit D.

     (r) "Conversion Date." The date on which the
Conversion Requirements have been satisfied in
Lender's sole discretion.

     (s) "Conversion Requirements." The following
requirements:

          (i) The conditions to the final
     construction advance hereunder has been
     satisfied and the final construction advance
     of the Loan has been made, as provided in
     Section 7.4 hereof.

          (ii) All Licensing Requirements have
     been satisfied.

          (iii) Borrower has assigned to Lender
     all its right, title and interest to all
     licenses required for the ownership and
     operation of the Property.


2



          (iv) No "Event of Default" exists under
     the Loan Documents.

          (iv) On a date not earlier than November
     26,1998.

     (t) "DHS." The Texas Department of Human
Services and its successors.

     (u) "Debt Coverage Ratio." A fraction, the
numerator of which is the Net Operating Income and
the denominator of which is an amount equivalent
to the monthly installments required to amortize
principal and interest in three hundred (300)
equal monthly payments, assuming interest during
such period on the Maximum Loan Amount at a rate
of 9.5ob per annum.

     (v) "Earnout Advance." The amount of the
advance of the Loan proceeds as determined
pursuant to Section 7.5 hereof.

     (w) "Earnout Requirements." On or before a
date that is not later than six (6) months prior
to the maturity date of the Term Loan Period,
Borrower shall furnish evidence satisfactory to
Lender that the Improvements have produced a Net
Operating Income of not less than $200,000 for
each twelve (12) consecutive months, with a Debt
Coverage Ratio of not less than 1.35, and Lender
shall be in receipt of the Earnout Appraisal (as
hereinafter defined).

     (x) "Engineer." Leigh Engineering, Inc.

     (y) "Engineer's Certificate and Consent." The
Engineer's Certificate and Consent as provided for
herein and in the form attached hereto as Exhibit
H.

     (z) "Engineering Plans." The plans and
specifications prepared by the Engineer listed in
the Assignment of Engineering Contract and Plans
to be used in connection with the construction of
the Improvements.

     (aa) "Financing Statement." A Financing
Statement between Borrower and Lender, perfecting
the security interest in personal property created
by the Mortgage.

     (ab) "Forecast." As defined in subsection 4.1
     (e).

     (ac) "Governmental Authority." The United
States, the State, the county, and the city, or
any other political subdivision in which the Land
is located, and any other political subdivision,
agency or instrumentality exercising jurisdiction
over Borrower, Guarantor or the Premises.

     (ad) "Governmental Requirements". All laws,
ordinances, statutes, codes, rules, regulations,
orders and decrees of any Governmental Authority
applicable to Borrower, Guarantor on the Premises.

     (ae) "Guaranty." A Guaranty of even date
herewith made by Emeritus Corporation, a
Washington corporation (hereinafter called
"GUARANTOR," whether one or more) guaranteeing the
payment of the Note and the performance by
Borrower of its obligations under the Mortgage,
this Agreement and the other Loan Documents.


3



     (af) "Hard Costs." The direct costs of
constructing the Improvements, such as labor,
services, supplies, and materials incurred in
connection with off-site improvements, sitework,
concrete, masonry, metals, wood, roofing,
insulation, doors and windows, finishes,
specialties/fireplaces, appliances, furnishings,
special construction, elevators, mechanical,
electrical, general conditions, and construction
contingency;

     (ag) "Improvements." The improvements to be
constructed on the Land consisting of construction
modifications to existing buildings, construction
of a new central building and a new heating,
ventilating and air condition system, in
accordance with the Plans and Specifications (as
hereinafter defined) as provided herein and
contemplated hereby, for a total of 301 Units (152
independent Units and 149 assisted living Units).

     (ah) "Initial Advance." The first advance
under the Loan pursuant to this Agreement which
such advance shall be made on the date hereof in
the amount of $7,140,628.47.

     (ai) "Inspecting Architect." Any
representative of Lender designated to review the
Plans and Specifications on behalf of Lender and
to make monthly inspections of the construction of
the Improvements on behalf of Lender, such
representative may be an architect or engineer
selected by Lender. The expenses and fees of the
Inspecting Architect shall be paid by Borrower
upon demand.

     (aj) "Land." The real property described in
Exhibit A attached hereto and made a part hereof.

     (ak) "Licensing Requirements." All
requirements of the DHS and any other Governmental
Authority with respect to the licensing and
operation of the Property as an "assisted living
facility" or "personal care facility," as such
terms are defined by the DHS.

     (al) "Loan." A loan in the maximum principal
amount of Seventeen Million and No/100 Dollars
($17,000,000) (the "MAXIMUM LOAN AMOUNT") from
Lender to Borrower; provided that advances under
the Loan for the Project Budget shall not exceed
$14,800,000 (the "MAXIMUM CONSTRUCTION LOAN
AMOUNT"), secured by a first lien on the Premises
(as hereinafter defined).

     (am) "Loan Documents." This Agreement and the
documents described in certain subsections of this
Section 1.1.

     (an) "Mortgage." A Deed of Trust, Mortgage
and Security Agreement of even date herewith,
conveying the Premises to Lender, as mortgagee,
and granting a security interest in certain
property and rights, to secure the payment of the
Note.

     (ao) "Net Operating Income." Project Revenues
for the period in question, less all actual costs
and expenses paid to third parties in connection
with the operation and maintenance of the Premises
that are allocable to such period, computed
without regard to depreciation, amortization or
debt service, but otherwise in accordance with
sound accounting principles consistently applied.



4



     (ap) "Note." A promissory note of even date
herewith payable to the order of Lender and in the
principal amount of the Loan.

     (aq) "Notice and Agreement." An instrument
executed by Borrower and Lender pursuant to
Subsection 26.02 of the Texas Business and
Commerce Code.

     (ar) "Payment and Performance Bond." As
defined in subsection 3.1 (p).

     (as) "Plans and Specifications." Plans and
specifications prepared or to be prepared by the
Architect for the construction of the Improvements
listed in the Assignment of Architect Contract and
Plans, including all additions, changes and other
amendments thereto.

     (at) "Premises." The Land and the
Improvements.

     (au) "Project Budget: ' As defined in
subsection 4.1 (e) and as attached hereto as
Exhibit B.

     (av) "Project Costs." As defined in
subsection 4.1 (e).

     (aw) "Project Revenues." As defined in
subsection 4.1 (e).

     (ax) "Soft Costs." The indirect costs of
constructing the Improvements, such as accounting,
appraisal, market study, architectural fees,
engineering fees, legal fees, financing costs,
construction period interest, insurance,
marketing, municipal development fees, taxes
(construction period), title work, general
administration costs, underwriting fees and
developer fees.

     (ay) "Unit(s)." An individual apartment or
place of residence within the Improvements.

     (az) 'Term Loan Period." In the event the
Conversion Requirements are satisfied, the period
from the first day immediately following the
Conversion Date to November 26, 2001.

     (ba) 'Title Company." American Title Company,
agent for Chicago Title Insurance Company.
     
     
     
     
     
     
     
     
     
     
     
     
     
                                                5
     
     
     

ARTICLE 2.


THE LOAN

2.1 THE LOAN. Subject to and upon the terms,
conditions and limitations contained in this
Agreement and the Commitment and relying on the
representations and warranties contained in this
Agreement and the other Loan Documents and the
Commitment, Lender agrees to lend, and Borrower
agrees to borrow and take down, the Loan, to be
evidenced by the Note. All proceeds of the Loan
shall be advanced against the Note as provided in
Article 7 hereof and shall be used by Borrower to
pay for Project Costs as contained in the Project
Budget. The principal amount actually owing on the
Note from time to time shall be the aggregate of
all advances theretofore made by the Lender
against the Note less all payments theretofore
made on the principal of the Note.

2.2 SECURITY FOR THE LOAN. The Loan, as evidenced
by the Note, shall be secured by inter alia, the
Mortgage, the Assignment of Leases, the Assignment
of Construction Contract, the Assignment of
Architect Contract and Plans and the Assignment of
Engineering Contract and Plans, and shall be
guaranteed by the Guaranty.

2.3 SCHEDULE OF DISBURSEMENTS. Disbursement of the
proceeds of the Loan is to be made by Lender to
Borrower in accordance with the Project Budget.

2.4 FINAL DISBURSEMENT. Lender shall have no
obligation to make any
disbursement of the Loan after the maturity of the
Note.

                                          ARTICLE
3.

REPRESENTATIONS AND WARRANTIES OF BORROWER

3.1 Representations. Warranties and Covenants of
Borrower. Borrower hereby represents, warrants and
covenants to Lender that:

     (a) STATUS AND AUTHORITY. Borrower is a
Washington limited partnership duly organized and
existing as a foreign limited partnership under
the laws of the State of Texas and has the power,
authority and legal right to carry on the business
now being conducted by it and to enter into, and
to engage in the transactions contemplated by, the
Loan Documents. The execution and delivery of the
Loan Documents and the performance and observance
of the provisions thereof are authorized by all of
the partners of Borrower.

     (b) VALIDITY OF LOAN DOCUMENTS. The Loan
Documents are in all respects legal, valid and
binding obligations of Borrower according to their
terms subject to principles of equity acting as
limitations on creditors' rights generally and the
effect of bankruptcy, insolvency, moratorium, and
other similar laws of general application and the
Mortgage grants to Lender a direct, valid and
enforceable first lien upon and security interest
in the Premises and the personal property and
fixtures to be located thereon.





6



     (c) PRIORITY OF LIEN ON PERSONALTY. No
security interest (except in favor of Lender)
exists with respect to any personal property,
chattel or fixture used in, or in connection with,
the construction, operation or maintenance of the
Improvements.

     (d) CONFLICTING TRANSACTIONS OF BORROWER. The
consummation of the transactions hereby
contemplated and the performance of the
obligations of Borrower and the Guarantor under
and by virtue of the Loan Documents will not
result in any breach of, or constitute a default
under, any mortgage, deed of trust, lease, loan or
credit agreement, corporate charter, bylaws,
articles of partnership or other instrument to
which Borrower or the Guarantor is a party or by
which it or the Premises may be bound or affected.

     (e) PENDING LITIGATION. There are no actions,
suits or proceedings pending, or to the knowledge
of Borrower or the Guarantor threatened, against
or affecting Borrower or the Guarantor or the
Premises, or involving the validity or
enforceability of any of the Loan Documents or the
priority of the lien thereof, at law or in equity,
or before or by any governmental authority, except
actions, suits and proceedings which are fully
covered by insurance and which, if adversely
determined, would not substantially impair the
ability of Borrower or any Guarantor to perform
each and every one of its obligations under and by
virtue of the Loan Documents; and to Borrower's
knowledge it is not in default with respect to any
order, writ, injunction, decree or demand of any
court or any governmental authority.

     (f)  VIOLATIONS OF GOVERNMENTAL REQUIREMENTS.
       Borrower has no knowledge, after due inquiry, of
       any violations or notices of violations of any
       Governmental Requirements.

     (g) NO CONSENTS NECESSARY. No consent of any
other party, and no consent, license, approval or
authorization of, or registration or declaration
with, any governmental authority is required in
connection with the execution, delivery,
performance, validity or enforceability of the
transactions contemplated by this Agreement or the
Loan Documents. Borrower shall promptly submit its
plan for landscaping for approval by the
applicable authority, and shall obtain such
approval prior to the issuance of the final
certificate of occupancy for the Improvements.

     (h) AVAILABILITY OF UTILITIES. All utility
and municipal services necessary for the
construction, occupancy and proper operation of
the Improvements for their intended purpose are
available at the Premises, including water supply,
storm and sanitary sewer facilities, gas or
electricity and telephone facilities, or will be
available at the Premises when constructed or
installed as part of the Improvements, and written
permission has been or will be obtained from the
applicable utility companies or municipalities to
connect the Improvements into each of said
services, and Borrower will supply evidence
thereof satisfactory to Lender. All of such
utility and municipal services will, to Borrower's
knowledge, after due inquiry, comply with all
applicable Governmental Requirements.






7



     (i) ROADS. All roads necessary for the full
utilization of the Improvements for their intended
purposes have been completed or the necessary
rights-of-way therefor have either been acquired
by the appropriate Governmental Authority or have
been dedicated to the public use and accepted by
such Governmental Authority and all necessary
steps have been taken by Borrower and any such
Governmental Authority to assure the complete
construction and installation thereof.

     (j) BUILDING PERMITS. All zoning, utility,
building, health and operating permits (if any)
required for the construction and operation of the
Improvements have been obtained or will be
obtained prior to commencement of construction of
the Improvements and copies of same will be
delivered to Lender.

     (k) CONDITION OF PREMISES. The Premises are
not now damaged or injured as a result of any
fire, explosion, accident, flood or other
casualty.

     (l) CONSTRUCTION CONTRACT. Borrower has
entered into no contracts or agreements with third
parties (either written or oral) providing for the
furnishing of
labor or materials to be used in the construction
or installation of the Improvements and will enter
into no such contracts or agreements except the
Construction Contract with Contractor, and
contracts with the Architect and Engineer, in such
form and upon such terms as shall be approved in
writing by Lender.

     (m) SUFFICIENCY OF FUNDS. Sufficient funds
are available to Borrower in addition to proceeds
of the Note to pay all Project Costs. Upon request
of Lender, Borrower will demonstrate to Lender
that such funds are available.

     (n) FINANCIAL STATEMENTS. The financial
statements and information regarding Borrower and
Guarantor heretofore delivered to Lender are true
and correct in all respects, having been prepared
in accordance with accounting principles applied
on a consistent basis throughout the period
covered thereby, and fairly present the financial
condition of Borrower and Guarantor as of the date
thereof. No material adverse change has occurred
in the financial condition of Borrower and
Guarantor reflected therein since the date
thereof.

     (o) BROKERAGE COMMISSIONS. Any brokerage
commissions due in connection with the transaction
contemplated hereby have been paid in full and any
such commissions coming due in the future will be
promptly paid by Borrower. BORROWER AGREES TO AND
SHALL INDEMNIFY LENDER FROM ANY LIABILITY, CLAIMS
OR LOSSES ARISING BY REASON OF ANY SUCH BROKERAGE
COMMISSIONS. THIS PROVISION SHALL SURVIVE THE
REPAYMENT OF THE LOAN MADE IN CONNECTION HEREWITH
AND SHALL CONTINUE IN FULL FORCE AND EFFECT SO
LONG AS THE POSSIBILITY OF SUCH LIABILITY, CLAIMS
OR LOSSES EXISTS.








8



     (p) PAYMENT AND PERFORMANCE BOND. Borrower
has furnished to Lender a payment and performance
bond which includes a dual obligee endorsement
(herein called the "PAYMENT AND PERTORMANCE BOND")
which satisfies all applicable requirements of
Subchapter I of Chapter 53 of the Texas Property
Code (Sections 53.201 et seq.). Without limiting
the generality of the foregoing, Borrower has
caused a payment bond for the benefit of claimants
to payment for labor and materials furnished in
the construction of the Improvements to be issued
by a corporate surety authorized and admitted to
do business in Texas and licensed by the State of
Texas to execute bonds as surety, which are in the
penal sum of at least the total of the
Construction Contract price, in favor of Borrower,
has the written approval of Borrower endorsed on
it, executed by the Contractor as principal and
the issuing surety and conditioned on prompt
payment for all labor, subcontracts, materials,
specially fabricated materials, and normal and
usual extras not exceeding 15 percent of the
Construction Contract price, which bond shall,
upon the approval of Lender, be filed with the
county clerk of Dallas County, Texas, together
with a copy of the Construction Contract.


ARTICLE 4.

                           COVENANTS OF BORROWER

4.1 Borrower hereby covenants and agrees with
Lender as follows:

     (a) COMMITMENT. Borrower shall permit no
Event of Default under the terms of the
Commitment.

     (b) TITLE INSURANCE. Borrower shall furnish
to Lender, at Borrower's expense, a mortgagee
title insurance policy (herein called the
"MORTGAGEE TITLE POLICY") showing Lender as the
insured thereunder, in the amount of the Loan and
in form and substance and written by the Title
Company on behalf of an underwriter satisfactory
to Lender insuring a valid first lien upon the
Premises by virtue of the Mortgage and containing
no exceptions except those specifically waived in
writing by Lender. If the underwriter issuing the
Mortgagee Title Policy becomes insolvent or is
placed in receivership or for any other reason
such Policy becomes unenforceable, Borrower shall
furnish Lender, at Borrower's expense, another
mortgagee title insurance policy in the amount and
in substitution for the original Mortgagee Title
Policy and meeting the above requirements.

     (c) INSURANCE. Borrower shall obtain and
maintain such insurance or evidence of insurance
as Lender may reasonably require, written by
companies with a rating of A- or better from A.M.
Best Company, including but not limited to the
following:










9



          (i) BUILDER'S RISK INSURANCE - All Risk
     Builder's Risk with replacement cost. Limit
     should be for completed value risk with
     coverage until! Improvements are occupied and
     such other hazard insurance as Lender may
     require against all risks of physical loss
     including debris removal, collapse and
     transit coverage, with deductibles not to
     exceed $5,000, with noncontributing mortgagee
     clauses and standard subrogation clauses and
     a mortgagee's loss payable endorsement making
     loss payable to Lender, such insurance to be
     in such amounts covering the total value of
     work performed and equipment, supplies and
     materials furnished and in such form and by
     such companies as shall be approved by
     Lender, and the originals of such policies
     (together with appropriate endorsements
     thereto, evidence of payment of premiums
     thereon and written agreement by the insurer
     or insurers therein to give Lender thirty
     (30) days prior written notice of
     modification or intention to cancel) shall be
     promptly delivered to Lender; said insurance
     coverage to be kept in full force and effect
     at all times until the completion of
     construction of the Improvements.

          (ii) PERMANENT/HAZARD INSURANCE - As
     completion and occupancy of the Improvements
     requires, All Risk coverage insurance with
     deductibles not to exceed $5,000 (or such
     greater amount as Lender may approve in
     writing); such insurance shall provide for
     claims to be settled on a replacement cost
     basis, and shall include an agreed amount
     clause with an inflation guard or similar
     provision for maintaining insurance to value;
     such insurance to be kept in full force and
     effect at all times thereafter until the
     payment in full of the Loan.

          (iii) PUBLIC LIABILIY AND WORKER'S
     COMPENSATION INSURANCE - A certificate from
     an insurance company indicating Borrower and
     Contractor are covered to the satisfaction of
     Lender by public liability and worker's
     compensation insurance.
          
          (iv) BUSINESS AUTOMOBILE INSURANCE - A
     certificate from an insurance company
     indicating that Borrower and Contractor are
     covered by commercial automobile liability
     insurance, including owned, non-owned and
     hired vehicles.

          (v) LOSS OF RENTS/EARNINGS - A
     certificate from an insurance company
     indicating coverage for anticipated income
     from the Premises for a period of one (1 )
     year from the date of loss, in an amount
     equal to one (1) year projected
     rents/earnings.

          (vi) FLOOD INSURANCE - Flood coverage,
     if covered properly (whether equipment,
     inventory or contents) is located in an A or
     V flood hazard zone.

          (vii) EXCESS LIABILITY - Minimum of
     $6,000,000 for excess over all liability
     policies. Deferred cost should be covered on
     a "first dollar" basis, in addition to policy
     limits.




10



          (viii) OTHER INSURANCE - Such other
     insurance as may be reasonably required by
     the Mortgage.

     (d) COLLECTION OF INSURANCE PROCEEDS.
Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any insurance or other
proceeds lawfully or equitably payable to it in
connection with the transactions contemplated
hereby and the collection of any indebtedness or
obligation of Borrower to Lender incurred
hereunder (including the payment by Borrower of
the expense of an independent appraisal on behalf
of lender in case of a fire or other casualty
affecting the Premises).

     (e) PROJECT BUDUET AND APPLICATION OF LOAN
PROCEEDS. Contemporaneously with or prior to the
execution of this Agreement, Borrower shall submit
to Lender for approval by Lender a Project Budget
which shall include all Project Costs (as
hereinafter defined) as "uses of funds; '
including a category for contingencies, and shall
designate the "sources of funds," that is,
proceeds of the Loan, Project Revenues (as
hereinafter defined) and Borrower's equity. The
Project Budget shall include a forecast
(hereinafter called the "FORECAST") of the timing
of the sources and uses of funds through the
maturity date of the Loan. The Project Budget
shall specify the interest rate projections and
leasing assumptions used to determine the Project
Costs and the Forecast. "PROJECT COSTS" shall mean
all costs incurred in connection with the
construction, leasing and operation of the
Improvements until the maturity date of the Loan,
including without limitation Hard Costs and Soft
Costs (including interest expense). "PROJECT
REVENUES" shall mean all receipts and revenues
generated by or in connection with the Premises,
including without limitation rents, interest
income, insurance proceeds, condemnation awards
and payments received from interest rate hedging
or similar agreements. Borrower agrees to give
Lender prompt written notice of any changes that
should be made in the Project Costs or the
Forecast so that the Project Budget accurately and
realistically represents the sources and uses of
funds for the Premises. In addition, Lender may
notify Borrower that, in Lender's judgment,
changes need to be made in the Project Budget. If,
after consultation and consideration of the view
of Borrower and supporting documentation, Borrower
and Lender do not agree as to what modifications
need to be made in the Project Budget, the
determination of Lender shall govern. Lender shall
confirm to Borrower the most current approved
Project Budget. Borrower shall use the proceeds of
the Loan solely for the purpose of paying for the
Project Costs as set forth in the Project Budget
and shall in no event use any of the Loan proceeds
for any other purpose.

     (f) CONSTRUCTION DOCUMENTS. Borrower shall
deliver to Lender a copy of the Construction
Contract executed by Borrower and the Contractor,
a copy of any contract executed by Borrower and
the Architect and executed copies of any other
contracts by Borrower with architects and
engineers. Borrower shall furnish Lender with a
complete list of all persons, firms or entities
which the Borrower proposes to engage to furnish
labor and/or materials in constructing the
Improvements, will periodically update such list
to reflect the persons, firms or entities working
on the Improvements, and will furnish Lender with
true copies of all written agreements (including
contracts, subcontracts and purchase orders)
therefor and the terms of all verbal agreements
therefor. All Construction Contracts shall be in
form and content satisfactory to Lender.



11



If, in the sole judgment of Lender, such contracts
and subcontracts do not cover all of the work
necessary for completion of construction of the
Improvements, including the installation of such
fixtures and equipment as are required for the
operation of the Improvements and including all
work required by any leases then in effect or to
make any portion of the Improvements rentable
(whether to be done and paid for by Borrower or by
the Tenant), Borrower shall cause to be furnished
firm bids from responsible parties, or estimates
and other information satisfactory to Lender, for
the work not so covered, to enable Lender to
ascertain the total estimated cost of all work
done and to be done. The Construction Contract
together with all other contracts, subcontracts
lists, agreements and terms of verbal agreements
described in this subparagraph shall herein be
called the "CONSTRUCTION DOCUMENTS."

     (g) CONSTRUCTION CONTRACT. Borrower shall (i)
permit no Event of Default under the terms of the
Construction Contract, (ii) waive none of the
obligations of the Contractor thereunder, (iii) do
no act which would relieve Contractor from its
obligations to construct the Improvements
according to the Plans and Specifications, and
(iv) make no amendments to, or change orders with
respect to, the Construction Contract or any other
Construction Document, without the prior written
consent of Lender.

     (h) CONSTRUCTION SCHEDULE. Borrower shall
furnish to Lender a schedule (herein called the
"CONSTRUCTION SCHEDULE") showing the timing of
construction of the Improvements with a breakdown
by trade.

     (i) COMMENCEMENT AND COMPLETION OF
CONSTRUCTION. Borrower has commenced construction
of the Improvements and shall diligently pursue
said construction to completion, and shall supply
such moneys and perform such duties as may be
necessary to complete the construction of the
Improvements pursuant to and in conformity with
the Plans and Specifications (including the
Engineering Plans) and in accordance with good
building practice and in full compliance with all
terms and conditions of the Commitment and the
Loan Documents, all of which shall be accomplished
on or before the Completion Date, and without
liens, claims or assessments (actual or
contingent) asserted against the Premises for any
material, labor or other items furnished in
connection therewith, and all in full compliance
with all Governmental Requirements. Borrower will
provide to Lender upon request therefor evidence
of satisfactory compliance with all of the
foregoing.

     (j) RIGHT OF LENDER TO INSPECT PREMISES. At
all reasonable times and upon reasonable notice to
Borrower, Borrower shall permit Lender and its
representatives and agents, including the
Inspecting Architect, to enter upon the Premises
and to inspect the Improvements and all materials
to be used in the construction thereof and all
books, records, contracts, statements, invoices,
bills, plans and specifications, shop drawings,
appraisals, title and other insurance, reports,
lien waivers and all other instruments and
documents of any kind relating to the
construction, leasing and operation of the
Improvements; shall cooperate and cause Architect,
and Contractor to cooperate with Lender and its
representatives and agents during such inspections
and shall maintain all of the foregoing for said
inspections; shall permit the photographing of any
portions of the Premises or any materials thereon;
and shall, if requested by Lender or its
representatives or agents, move, remove or uncover
such materials or portions of



12



the Improvements as shall be reasonably necessary
to fully and completely inspect the Premises;
provided, however, that this provision shall not
be deemed to
impose upon Lender any duty or obligation
whatsoever to undertake such inspections, to
correct any defects in the Improvements or to
notify any person with respect thereto.

     (k) AFFIDAVIT OF COMMENCEMENT OF
CONSTRUCTION. Borrower and Contractor shall
jointly file an Affidavit of Commencement with the
county clerk of the county in which the Land is
located not later than the 30th day after the date
of actual commencement of construction of the
Improvements or delivery of materials to the Land.
Such affidavit shall be in the form attached
hereto as Exhibit I, shall contain the information
required by Section 53.124(c) of the Texas
Property Code, shall not be fled prior to approval
thereof in writing by Lender (which approval shall
be given promptly by Lender if the requirements
set forth in this paragraph have been satisfied)
and shall in no event be filed showing a date of
commencement of construction which is prior to the
filing of the Mortgage with the county clerk of
the county where the Land is located.

     (l) CORRECTION OF DEFECTS. Borrower shall
promptly correct any structural defect in the
Improvements or any departure from the Plans and
Specifications not previously approved by lender
and any violation of any requirement of any
governmental entity. The advance of any Loan
proceeds shall not constitute a waiver of Lender's
right to require compliance with this covenant.

     (m) OFF-SITE WORK. To the extent required by
the Plans and Specifications or the Engineering
Plans, Borrower shall promptly commence and
complete any and all off-site improvements
(including public streets, walks and like areas
adjoining the Improvements) as and if required and
provide any and all utilities and other facilities
required, all in accordance with the requirements
of all Governmental Authorities having
jurisdiction thereof. Unless otherwise provided
for, such off-site improvements shall be deemed
part of the work of construction of the
Improvements. Borrower expressly agrees to
indemnify Lender and to hold it harmless against
any claim of surety furnishing bond for such work
to the Governmental Authorities having
jurisdiction, whether such claims be founded upon
existing or future liability, and whether such
liability be expressed or implied.

     (n) STORAGE OF MATERIALS. Borrower shall
cause all materials supplied for or intended to be
utilized in the construction of the Improvements
but not affixed to or incorporated into the
Premises to be stored on the Premises or at such
other location as may be approved by Lender in
writing, with adequate safeguards to prevent loss,
theft, damage or commingling with other materials
not intended to be utilized in the construction of
the Improvements.

     (o) VOUCHERS. Borrower shall deliver to
Lender, on demand, any contracts, bills of sale,
statements, receipted vouchers or agreements under
which Borrower claims title to any materials,
fixtures or articles incorporated in the
Improvements or otherwise subject to the lien of
the Mortgage.






13



     (p) ENCROACHMENTS. Borrower agrees that (i)
the Improvements shall be constructed entirely on
the Land; (ii) until the Loan is discharged, no
conveyances of any portion of or interest in the
Premises will be made by Borrower which will cause
any encroachment above, on, or under the surface
of the Premises; (iii) such construction will not
encroach upon or overhang any easement or right-of
- -way upon the land of others; (iv) the
Improvements when completed shall be wholly within
applicable building restriction lines however
established; and (v) upon request Borrower will,
from time to time, furnish satisfactory evidence
of the foregoing.

     (q) LIENS. Borrower will not install nor
otherwise incorporate in the Improvements any
materials, equipment or fixtures under any
conditional sales agreements or security agreement
whereby the right is reserved or accrued to anyone
to remove or repossess any such items in excess of
$25,000 in the aggregate. Borrower will not cause
or permit any lien or claim for lien for any labor
and/or material to be fled or to become valid or
effective against the Premises; provided, however,
that the existence of any unperfected and
unrecorded mechanic's lien shall not constitute a
violation of this subsection if payment is not yet
due for the work giving rise to the lien.
Notwithstanding the foregoing, Borrower may in
good faith, by appropriate proceedings, contest
the validity, applicability or amount of any
asserted mechanic's or materialmen's lien and
pending such contest there shall be no Event of
Default hereunder as a result thereof, if Borrower
provides Lender with security reasonably
satisfactory to Lender and if Borrower promptly
causes to be paid any amount adjudged by a court
of competent jurisdiction to be due, with all
costs and interest thereon, promptly after such
judgment; provided, however, that in any event
each such contest shall be concluded and the lien,
interest and costs shall be paid, bonded around or
otherwise removed upon completion of construction
as provided in Section 4.1 (i) hereof.

     (r) COOPERATION WITH INSPECTING ARCHITECT.
Borrower shall cooperate with the Inspecting
Architect and will cause the Architect, the
Contractor and the employees of each of them to
cooperate with the Inspecting Architect and, upon
request, will furnish the Inspecting Architect
whatever he may consider necessary or useful in
connection with the performance of his duties
including but not limited to permits,
subcontracts, purchase orders, lien waivers and
other documents relating to the construction of
the Improvements. Borrower acknowledges that the
duties of the Inspecting Architect run solely to
Lender and that the Inspecting Architect shall
have no obligations or responsibilities whatsoever
to Borrower, the Architect, the Contractor or to
any of their respective agents or employees.

     (s) EARNOUT APPRAISAL. As one of the Earnout
Requirements, Borrower shall submit to Lender, an
MAI appraisal of the Premises by a licensed
appraiser satisfactory to Lender, such appraisal
to be in the form satisfactory to Lender and
reflect a market value of the Premises of not less
than $21,250,000 (the "EARNOUT APPRAISAL").

     (t) ESTOEPEL CERTIFICATE. Borrower shall
deliver to Lender, promptly after a request
therefor by Lender, an Estoppel Certificate, duly
acknowledged, stating the amount advanced to
Borrower under this Agreement and the amounts due
on the Note and whether any offsets or defenses
exist under or against the Note.



14



     (u) LEASES. Borrower shall deliver to Lender
monthly leasing and/or occupancy reports and rent
rolls with respect to all executed leases and/or
other occupancy agreements (the "LEASES") covering
any part of the Premises. Prior to the execution
of any Leases covering the Premises or any part
thereof, Borrower will obtain the prior written
approval of Lender except for Leases on the form
and at rental rates as provided in Section 4.1
(ad) hereof.
     
     (v) ADDITIONAL EXPENDITURES BY LENDER.
Borrower agrees that all sums paid or expended by
Lender under the terms of this Agreement in excess
of the amount of the Loan shall be considered to
be an additional loan to Borrower and the
repayment thereof, together with interest thereon
at the rate of interest payable on matured but
unpaid principal of or interest on the Note, shall
be secured by the Mortgage and the other Loan
Documents and shall be immediately due and payable
without notice, and Borrower agrees to pay such
sum upon demand. Nothing contained herein,
however, shall obligate Lender to make such
advances.

     (w) INDEMNITY OF LENDER. BORROWER SHALL
INDEMNIFY AND HOLD HARMLESS LENDER (FOR PURPOSES
OF THIS SUBSECTION, THE TERM "LENDER" SHALL
INCLUDE THE DlRECTORS, OFFICERS, EMPLOYEES AND
AGENTS OF LENDER, ANY PARTICIPANTS IN THE LOAN,
AND ANY PERSONS OR ENTITIES OWNED OR CONTROLLED
BY, OWNING OR CONTROLLING, OR UNDER COMMON CONTROL
OR AFFILIATED WITH LENDER) FROM AND AGAINST, AND
REIMBURSE THEM FOR, ALL CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEY'S FEES ACTUALLY INCURRED) WHICH MAY BE
IMPOSED UPON, ASSERTED AGAINST OR INCURRED OR PAID
BY THEM BY REASON OF, ON ACCOUNT OF OR IN
CONNECTION WITH ANY BODILY INJURY OR DEATH OR
PROPERTY DAMAGE OCCURRING IN OR UPON OR IN THE
VICINITY OF THE PREMISES THROUGH ANY CAUSE
WHATSOEVER OR ASSERTED AGAINST THEM ON ACCOUNT OF
ANY ACT PERFORMED OR OMITTED TO BE PERFORMED
HEREUNDER BY BORROWER OR ITS AGENTS OR ON ACCOUNT
OF ANY TRANSACTION ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE PREMISES OR WITH THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT. WITHOUT LIMITATION, IT
IS THE INTENTION OF BORROWER AND BORROWER AGREES
THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PARTYWITH RESPECT TO CLAIMS, DEMANDS,
LIABILITIES,
LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS,
PENALTIES, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEY'S FEES) WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED
PARTY. HOWEVER, SUCH INDEMNITIES SHALL NOT APPLY
TO ANY INDEMNIFIED PARTY TO THE EXTENT THE SUBJECT
OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT
OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PARTY. THE FOREGOING INDEMNITIES
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT,
THE FORECLOSURE OF THE MORTGAGE OR



15



CONVEYANCE IN LIEU OF FORECLOSURE AND THE
REPAYMENT OF THE LOAN AND THE DISCHARGE AND
RELEASE OF THE LOAN DOCUMENTS. ANY AMOUNT TO BE
PAID HEREUNDER SHALL BE SUBJECT TO AND GOVERNED BY
THE PROVISIONS OF SECTION 4.2 HEREOF.

     (x) EXPENSES AND APPROVAL OF DOCUMENTS.
Borrower shall pay all costs of closing the Loan
and all expenses of Lender with respect thereto,
including but not limited to, legal fees
(including legal fees incurred by Lender
subsequent to the closing of the Loan but incurred
in connection with the disbursement,
administration, collection or transfer of the
Loan), title insurance premiums and other charges
of the title company issuing the Mortgagee Title
Policy, appraisal fees, consulting architect fees,
consulting inspection fees, advances, recording
expenses, surveys, intangible taxes, expenses of
foreclosure (including reasonable attorneys' fees)
and similar items, and shall allow all closing
papers, Loan Documents and other legal matters to
be subject to the approval of Lender's attorneys.

     (y) ADDITIONAL DOCUMENTS. Borrower shall:

          (i) REGARDING CONSTRUCTION - furnish to
     Lender all instruments, documents, initial
     surveys, footing or foundation surveys,
     certificates, plans and specifications,
     appraisals, title and other insurance,
     reports and agreements and each and every
     other document and instrument required to be
     furnished by the terms of the Commitment, all
     at Borrower's expense.

          (ii) REGARDING PRESERVATION OF SECURITY
     - sign and deliver to Lender such documents,
     instruments, assignments and other writings,
     and to do such other acts necessary or
     desirable, to preserve and protect the
     collateral at any time securing or intended
     to secure the Note, as Lender may require;

          (iii) REGARDING THIS AGREEMENT - do and
     execute all and such further lawful and
     reasonable acts, conveyances and assurances
     for the better and more effective carrying
     out of the intents and purposes of this
     Agreement as Lender shall require from time
     to time; and

          (iv) REGARDING PERMITS AND APPROVALS -
     furnish to Lender
     (x) evidence satisfactory to Lender that the
     Plans and Specifications and the Engineering
     Plans and construction pursuant thereto and
     the use of the Premises contemplated thereby
     comply with all applicable utility
     requirements, restrictive covenants,
     Governmental Requirements and all standards
     and regulations of appropriate supervising
     boards of fire underwriters and similar
     agencies, (y) that the engineering
     specifications contained in the Plans and
     Specifications are within applicable
     environmental standards, and (z) all permits
     and approvals issued by applicable
     Governmental Authorities pursuant to
     Governmental Requirements, approving the
     Plans and Specifications and the commencement
     of construction of the Improvements.
     
     
     
                                                16
     
     
     
     
     
     (z) FURTHER ASSURANCES. Borrower shall sign
and deliver to Lender such documents, instruments,
assignments and other writings, and do such other
acts necessary or desirable, to preserve and
protect the collateral at any time securing or
intended to secure the Note, as Lender may
reasonably require; and shall do and execute all
and such further lawful and reasonable acts,
conveyances and assurances in the law for the
better and more effective carrying out of the
intents and purposes of this Agreement as Lender
shall reasonably require from time to time.

     (aa) NOTICES BY DHS OR OTHER GOVERNMENTAL
AUTHORITY. Borrower has notified DHS of the
commencement of construction of the Improvements.
Borrower shall timely comply with and promptly
furnish to Lender within five (5) days true and
complete copies of any notice or claim by DHS or
any Governmental Authority pertaining to the
Premises.

     (ab) LICENSURE COMPLIANCE.

          (i) Borrower shall immediately and
     diligently pursue all Licensing Requirements.
     Following the issuance of a license to
     operate a personal care facility, Borrower
     shall maintain in full force and effect all
     Licensing Requirements and Borrower agrees to
     provide a Certificate of Good Standing within
     thirty (30) days from the end of each
     calendar quarter, in form substantially
     similar to that reflected on Exhibit M
     attached hereto, which Certificate will
     include an attestation from Borrower as to
     the existence and status of any and all
     complaints made to any Governmental Authority
     involving tenants, occupants or residents
     (collectively, 'TENANTS") or the facilities,
     services or supplies at the Premises.
          
          (ii) Borrower agrees to promptly furnish
     Lender a true and correct copy of each and
     every survey or inspection conducted of or at
     the Premises by DHS or by any other
     Governmental Authority, which survey or
     inspection could have a bearing or impact on
     Borrower's license to operate a personal care
     facility and/or to receive state or federal
     reimbursement for services provided under
     such license. Such information shall be
     accompanied by a duly executed Certificate of
     Licensure Compliance in form substantially
     similar to that reflected on Exhibit N
     attached hereto, noting any deficiencies
     found as a result of such survey or
     inspection, as well as the corrective action
     plan necessary to correct such deficiencies
     or concerns.

     (ac) ASSIGNMENT OF LICENSING. To the extent
allowed by applicable laws and regulations,
Borrower agrees to collaterally assign to Lender
all licenses and permits necessary for the
ownership and operation of the Premises. All such
assignments shall be in form and substance
acceptable to Lender in its sole discretion.

     (ad) AGREEMENTS FOR SERVICES. Borrower agrees
to enter into Leases or agreements with Tenants of
the personal care facility or assisted living
facility within the Improvements only (a) on the
forms of agreement attached hereto as Exhibit K
which are approved by Lender, and (b) for amounts
at an average rate for occupied Units equal to or
in excess of the amounts per unit per month, as
set forth on Exhibit O of the attached hereto.
                                               17


     (ae) MINIMUM CAPITAL EXPENDITURE REQUIREMENT.
Borrower shall expend a minimum capital
expenditure of $150 for each bed in each Unit
based on such Units which have been licensed by
the DHS, annually during the last two years of the
Term Loan Period (which such capital expenditure
may include ordinary repairs needed to maintain or
improve the condition of the Units). Borrower
shall furnish to Lender evidence, as reasonably
required by Lender, that such capital expenditures
have been made, within thirty (30) days of
Lender's request. If Borrower fails to provide
evidence to Lender that it has expended such
funds, Borrower shall immediately escrow with
Lender the difference between the amount required
to be expended and the amount actually expended,
such escrow to be pledged, pursuant to a pledge
agreement in form acceptable to Lender, as
additional collateral for the Loan.

     (af) DEBT SERVICE COVERANE. Within three (3)
months after the Conversion Date, the Improvements
shall achieve and maintain a Debt Coverage Ratio,
on a combined basis (after deduction of an assumed
management fee of 5% of net revenues, regardless
of actual management fees paid or incurred) of not
less than 1.35, such Debt Coverage Ratio to be
reviewed by Lender each calendar quarter, based on
the operation of the Premises the preceding twelve
(12) months.

     (ag) FINANCIAL REPORTS. Borrower shall
deposit with Lender during the entire term of the
Loan, within the times as hereinafter set forth,
the following:

          (i)  Within one hundred twenty (120)
     days after the end of the fiscal year of
     Borrower and Guarantor, audited financial
     statements of each of such entities, prepared
     by nationally recognized accounting firms or
     independent certified public accounting firms
     acceptable to Lender, which statements shall
     include a balance sheet and a statement of
     income and expenses for the year then ended.

          (ii)  Within forty-five (45) days after
     the end of each fiscal quarter, unaudited
     interim financial statements of Guarantor,
     certified as true and correct in all material
     respects by a financial officer of Guarantor,
     prepared in accordance with generally
     accepted accounting principles consistently
     applied, which statements shall include a
     balance sheet and statement of income and
     expenses for the quarter then ended.

          (iii)  Within forty-five (45) days after
     the end of each fiscal quarter of Borrower,
     unaudited interim financial statements
     pertaining to the operation of the Premises,
     certified as true and correct in all material
     respects by a financial officer of Borrower,
     prepared in accordance with generally
     accepted accounting principles consistently
     applied, which statements shall include a
     balance sheet, statement of income and
     expenses for the quarter then ended, and
     quarterly census information of the Premises
     in sufficient detail to show occupant-mix on
     a daily average basis for such quarter.







18



          (iv)  Within thirty (30) days after the
     end of each calendar month, unaudited interim
     financial statements pertaining to the
     operation of the Premises, certified as true
     and correct in all material respects by a
     financial officer of Borrower, prepared in
     accordance with generally accepted accounting
     principles consistently applied, including a
     rent roll reflecting all occupants of the
     Premises in detail as reasonably required by
     Lender.

          (v)  Within twenty (20) days of receipt
     by Borrower, copies of all licensure and
     certification survey reports (with plans of
     correction attached thereto).

          (vi)  Within ten (10) days of receipt by
     Borrower, any and all notices (regardless of
     form) from any and all licensing and/or
     certifying agencies that any Improvements'
     license is being downgraded to a substandard
     category, revoked, or suspended, or that
     action is pending or being considered to
     downgrade to a substandard category, revoke,
     or suspend any Improvements' license or
     certification.

          (vii) If requested by Lender, evidence
     of payment by Borrower or any - lessee, of
     any applicable provider bed taxes or similar
     taxes.

          (viii) If requested by Lender, an
     accounts aging report of the Premises.
     Borrower shall correct any deficiency
     (identified pursuant to (v) or (vi) above) by
     the date required by the licensure and
     certification agency or other Governmental
     Authority.

4.2 FAILURE TO PERFORM.  If Borrower fails to
perform any act or to take any action or to pay
any amount provided to be paid by it under the
provisions of any of the covenants and agreements
contained in this Agreement, Lender may but shall
not be obligated to perform or cause to be
performed such act or take such action or pay such
money, and any expenses so incurred by Lender and
any money so paid by Lender shall be an advance
against the Note and shall bear interest from the
date of making such payment until paid at the rate
of interest payable on matured but unpaid
principal of or interest on the Note and shall be
part of the indebtedness secured by the Mortgage,
and Lender upon making any such payment shall be
subrogated to all rights of the person,
corporation or body politic receiving such
payment.















19




ARTICLE 5.

                             PLANS AND
SPECIFICATIONS

5.1 PLANS AND SPECIFICATIONS. Borrower shall
furnish Lender the Plans and Specifications for
construction of the Improvements within sixty (60)
days after the date hereof, which include
engineering studies and plans, complete
architectural plans, specifications and working
drawings, projected costs and related information,
site plans, and proposed plat dedications and
proposed development restrictions and conditions
and copies of all requisite building permits
authorizing construction of the Improvements.
Borrower has also furnished Lender with a detailed
listing of the Plans and Specifications. The Plans
and Specifications and the Improvements shall
comply with all applicable restrictive covenants
and Governmental Requirements and all standards
and regulations of appropriate supervising boards
of fire underwriters and similar agencies (and the
engineering specifications contained in the Plans
and Specifications are within applicable
environmental standards). The Plans and
Specifications as approved will not be modified or
supplemented in any respect without the prior
written approval of Lender pursuant to Section 5.3
hereof.

5.2 SUPPLEMENTAL DATA. Borrower shall promptly
submit to Lender a statement of the projected cost
of constructing the Improvements, including a
description of all contracts let or to be let by
Borrower for the design, engineering, construction
and equipping of the Improvements, setting forth
the name or names of the contractor or
contractors, the date of the contracts and of any
supplements or amendments thereto, the scope of
the work covered thereby, and the aggregate
amounts payable to the
contractors thereunder, and further stating
whether said contract or contracts embrace - all
of the work required to be done and all of the
material necessary for completion of construction,
and, if not, setting forth sufficient information
to enable Lender to determine the estimated cost
of any work or materials not so covered.

5.3 CHANGES IN PLANS. All requests for approval of
changes in the Plans and Specifications must be in
writing, signed by Borrower, and shall be
conditioned upon acceptance by Lender, which
acceptance shall be subject to such conditions and
qualifications as Lender in its sole and absolute
discretion may reasonably prescribe.
Notwithstanding the foregoing, Lender's approval
shall not be required if all of the following
conditions are satisfied:

     (a) Said changes do not have a material
effect on the structural portions or the exterior
appearance of the Improvements or the
architectural design concept thereof;

     (b) None of said changes increases the cost
of construction by more than $25,000;

     (c) The aggregate of all of said changes does
not increase the cost of construction by more than
$100,000; and

     (d) At the end of each month Borrower submits
to Lender copies of all change orders effecting
said changes made in such month.



20



                                           ARTICLE
6.

6.1 LOAN FUNDING. The Initial Advance under the
Loan shall take place in the offices of Lender or
at such other place as Lender may designate, on
the date hereof.

6.2  CONDITIONS PRECEDENT TO LOAN FUNDING. The
following shall be conditions precedent to
Lender's obligations to make the Initial Advance
under the Loan and any other funding or disbursal
of the Loan (unless waived by Lender) :

     (a) REPRESENTATIONS AND WARRANTIES. On the
date of disbursal of the Loan (hereinafter called
the "LOAN FUNDING DATE"), all of Borrower's
representations and warranties contained herein or
in any other Loan Document or in the Commitment
shall be true and correct in all material
respects.

     (b) COVENANTS AND AGREEMENTS. On the Loan
Funding Date, Borrower shall have performed each
covenant and agreement to be performed by Borrower
pursuant to this Agreement, any other Loan
Document or the Commitment, within the time
specified.

     (c) OTHER CONDITIONS. The conditions to each
disbursement described - in Section 7.2 hereof
shall be satisfied.

     (d) DUE EXECUTION AND RECORDINA OF LOAN
DOCUMENTS. Borrower shall have delivered to Lender
evidence, in form satisfactory to Lender, that the
Loan Documents have each been duly executed and
constitute valid, binding documents, enforceable
in accordance with their respective terms and have
been filed or recorded, as appropriate, in all
proper of ices.

     (e) MORTGAGEE TTLE POLICY. Borrower shall
have furnished Lender with the Mortgagee Title
Policy.

     (f) INSURANCE. Borrower shall have obtained
the insurance and delivered the policies and
certificates to Lender as required by subsection
4.1 (c) above.

     (g) PROJECT BUDGET. Lender shall have
approved the Project Budget and all changes
thereto.

     (h) FINAL PLANS AND SPECIFCATIONS. No
disbursement shall be made unless Borrower shall
have delivered to Lender final Plans and
Specifications for the portion of Improvements for
which the disbursement is being made.

     (i) CONSTRUCTION CONTRACT AND OTHER
CONSTRUCTION DOCUMENTS. Lender shall have approved
the Construction Contract and all other
Construction Documents and all changes to any
thereof. .

     (J) CONSTRUCTION SCHEDULE. Lender shall have
approved the Construction Schedule and all changes
thereto.




21



     (k) COMMENCEMENT OF CONSTRUCTION. Lender
shall have received and approved the Affidavit of
Commencement of Construction and such other
evidence regarding commencement of construction as
is required by Lender.

     (l) ASSIGNMENT OF CONSTRUCTION CONTRACT AND
SUBCONTRACTS. Borrower shall have furnished Lender
with the executed Assignment of Construction
Contract and with each Assignment of Construction
Sub-Contract executed by the Contractor.

     (m) CONTRACTOR'S CONSENT. AAREEMENT AND
CERTIFICATION. Borrower shall have furnished
Lender with the executed Contractor's Consent,
Agreement and Certification.

     (n) ASSIGNMENT OF ARCHITECT AND ENQINEERINQ
CONTRACT AND PLANS. Borrower shall have furnished
Lender with the executed Assignment of Architect
Contract and Plans and the Assignment of
Engineering Contract and Plans.

     (o) ARCHITECT'S CERTIFICATE AND CONSENT AND
ENGINEER'S CERTIFCATE AND CONSENT. Borrower shall
have furnished Lender with the executed
Architect's Certificate and Consent and Engineer's
Certificate and Consent.

     (p) APPRAISAL. Borrower shall have furnished
Lender or paid Lender's cost of acquiring an MAI
appraisal of the Premises and the proposed
Improvements by a licensed appraiser satisfactory
to Lender, such appraisal to be in the form
satisfactory to Lender and reflect a market value
of not less than $18,500,000.

     (q) SURVEY. Borrower shall have furnished to
Lender a certified plat of survey of the Premises
made by a licensed surveyor or civil engineer
satisfactory to Lender meeting the requirements
contained in the Pre-Closing Document List
furnished Borrower by Lender.

     (r) ZONING AND COMPLIANCE WITH LAWS. Borrower
shall have delivered to Lender evidence, in form
satisfactory to Lender, that the Premises are
zoned for the use for which the proposed
Improvements are designed and are otherwise in
compliance with all applicable Governmental
Requirements, including, if applicable, all
provisions of environmental statutes.

     (s) UTILITIES. Borrower shall have furnished
Lender with evidence satisfactory to Lender that
all utilities and municipal services (including
such utilities as are necessary to secure a
certificate of occupancy or equivalent) will in a
timely manner be supplied to the Premises upon
completion of construction, including commitment
letters from the agencies or entities supplying
such services.









22



     (t) PERMITS. No disbursement of the Loan
shall be made unless Borrower shall have furnished
Lender (A) two complete and true copies of the
building permits and any other permits, licenses
or certificates which are required in connection
with construction of the portion of the
Improvements for which the disbursement is being
made in accordance with the Plans and
Specifications, issued by the appropriate
Governmental Authorities with jurisdiction over
the Premises, and (B) a verified statement that no
proceedings of any kind are pending or threatened
by any person, firm, corporation or public agency
with respect to the revocation or suspension of
any permits, licenses or certificates.

     (u) SOILS REPORT. Borrower shall have
furnished Lender a soils report, prepared by a
licensed soil engineer, showing that the condition
of the soil of the land is adequate to support the
Improvements which soils report shall have been
approved by Lender.
     
     (v) BALANCE SHEET. Borrower shall have
furnished Lender a current balance sheet and
income statement for Borrower, or Borrower's
parent company if a consolidated accounting format
is used.

     (w) OTHER DOCUMENTS. Borrower shall have
delivered to Lender such other documents and
certificates as Lender or Lender's counsel may
reasonably request.

     (x) ORGANIZATIONAL DOCUMENTS. Borrower shall
have furnished Lender with copies of corporate
resolutions of its corporate general partner
authorizing the execution of the Loan Documents by
an appropriate officer of the general partner of
Borrower and the consummation of the matters
contemplated hereby. Borrower shall have furnished
Lender certified copies of the certificate of
limited partnership agreement of Borrower
currently in full force and effect, certificates
of existence and good standing from the state of
incorporation of the general partner of Borrower
and the incumbency certificate of the general
partner of Borrower.

     (y) FINANCING FEE. Borrower shall have paid
to Lender the financing fee as required by the
Commitment.

     (z) ENVIRONMENTAL REPORT. Borrower shall have
supplied to Lender an environmental report in form
and content satisfactory to and approved by
Lender.
Notwithstanding the above conditions precedent to
the Initial Advance, Lender may waive any such
requirements with respect to the Initial Advance,
but such requirements shall be conditions
precedent to all subsequent advances hereunder.
Borrower acknowledges that certain documents set
forth below, required by Lender, are not available
on the date hereof, but Borrower covenants and
agrees to diligently pursue obtaining and
delivering to Lender each and every one of the
following as and when reasonably obtainable or
available:

     (a) Copies of documents relevant to licensing
requirements of DHS;
     
     (b) Assignment of all licenses and permits
issued to Borrower after the date hereof necessary
for the operation of the Property as a personal
care or assisted living facility;


23



     (c) Building permits for the Improvements;

     (d) Certificates of occupancy after the
Improvements are completed;

     (e) Certificate from the Texas Department of
Licensing and Regulation certifying that the Plans
and Specifications comply with Tex. Rev. Civ.
Stat. Ann. art. 9102 and the regulations
promulgated thereunder.


ARTICLE 7

        METHOD AND CONDITIONS OF DISBURSEMENTS
                                  OF LOAN PROCEEDS

7.1 DISBURSEMENT PROCEDURE. Disbursement of the
proceeds of the Loan (less a ten percent (10%)
retainage (the "RETAINAGE") from each advance
hereunder for costs of construction of the
Improvements), shall be made by Lender to Borrower
in accordance with the following procedure:

     (a) CERTIFCATE FOR PAYMENT. At such time as
Borrower shall desire to obtain, subject to the
requirements contained herein, a disbursement of
any portion of the Loan proceeds, Borrower shall
complete, execute and deliver to Lender a request
for an advance in the form of a certificate for
payment approved by Lender and the Title Company
pursuant to the Construction Loan Disbursement
Agreement, in the form attached hereto as Exhibit
L.

     (b) EVIDENCE OF PROGRESS OF CONSTRUCTION, The
said Certificate for Payment (hereinafter so
called) shall, upon the request of Lender, be
accompanied by evidence in form and content
satisfactory to Lender, including but not limited
to certificates and affidavits of Borrower,
Architect and/or Contractor or such other person
as Lender may require, showing:

          (i) The value of that portion of the
     Improvements completed at that time;

          (ii) That all outstanding claims for
     labor, materials and fixtures have been paid;

          (iii) That there are no liens
     outstanding against the Premises, except for
     Lender's lien and security interest evidenced
     by the Mortgage, other than inchoate liens
     for property taxes not yet due;

          (iv) That Borrower has complied with all
     of Borrower's obligations ,
     as of the date thereof, under the Loan
Documents and under the Commitment;

          (v) That all construction prior to the
     date of the request for an advance has been
     performed and completed in accordance with
     the Plans and Specifications;




24



          (vi) That all funds previously disbursed
     by Lender have been applied directly to the
     cost of acquiring the Land and the
     construction of Improvements and other
     incidental costs, all as set forth in the
     Project Budget or otherwise as Lender shall
     have approved in writing;

          (vii) That all change orders in any
     amount whatsoever shall have been approved in
     writing by Lender, and, if required by
     Lender, by any surety and any Guarantor,
     except as provided in Section 5.3 hereof;

          (viii) In reasonable detail but only if
     applicable, all tangible personal property
     installed in or appurtenant to the
     Improvements, but not considered to be
     fixtures, and the value thereof;

          (ix) That the amount of undisbursed Loan
     proceeds is sufficient to pay the cost of
     completing the Improvements in accordance
     with the Plans and Specifications;

          (x) That the location of the
     Improvements will not encroach upon any
     adjoining properties or interfere with any
     easement;

          (xi) That all of Borrower's
     representations and warranties contained
     herein or in any other Loan Document or in
     the Commitment are true and correct as of the
     date of such advance;

          (xii) That Borrower has performed each
     covenant and agreement to be performed by
     Borrower pursuant to this Agreement, any
     other Loan Document or the Commitment, within
     the time specified;

          (xiii) That, if payments are to be made
     on account of materials or equipment not
     incorporated in the work but delivered and
     suitably stored on the Premises, or at some
     other location agreed upon in writing, such
     payments shall be conditioned upon submission
     to Lender by Borrower of bills of sale or
     such other procedures satisfactory to Lender
     to establish Borrower's title to, and
     Lender's lien upon, such materials or
     equipment or otherwise protect Lender's
     interest; and

          (xiv) That neither the Premises nor the
     Improvements are the subject of any
     litigation which adversely affects or could
     adversely affect the title thereof and/or the
     validity or priority of the Mortgage or the
     right of the Borrower to construct the
     Improvements;

and shall be accompanied by copies of all bills or
statements for expenses for which the advance is
requested.

     (c) CERTIFICATE OF INSPECTING ARCHITECT. Each
request for disbursement shall be accompanied by
written certification from the Inspecting
Architect indicating the status of construction,
compliance with the Plans and Specifications, and
approval of the disbursement request. Borrower
shall pay all fees and expenses of such architect
or engineer for monthly inspections, or more
frequently if such inspections result from more
frequent disbursement requests from
Borrower.

25


     (d) CONTINUATION OF TITLE INSURANCE COVERAGE.
The above said request for disbursement shall, at
the request of Lender, be accompanied by a
satisfactory down date endorsement to the
previously delivered Mortgagee Title Policy which
endorsement shall (i) extend the effective date of
the Mortgagee Title Policy to the date of
advancement and show that since the effective date
of said Policy (or the effective date of the last
such endorsement, if any) there has been no change
in the status of the title to the Premises and no
new encumbrance thereon and (ii) state the amount
of coverage then existing under the Mortgagee
Title Policy which shall be the total of all
disbursements of the Loan including the
disbursement which is made concurrently with the
down date endorsement.

7.2 CONDITIONS TO EACH DISBURSEMENT. At no time
and in no event shall Lender be obligated to
disburse funds:

     (a) In excess of the amount recommended by
the Lender's Inspecting Architect;

     (b) If any Event of Default as described in
Article 8 hereof shall have occurred;

     (c) If Lender in its reasonable discretion is
not satisfied that the construction of the
Improvements will be completed on or before the
date specified herein;

     (d) If the Loan is not "in balance" as
provided in Section 7.3 following;
or

     (e) If the Premises shall have been damaged
by fire or other casualty and Lender shall not
have received insurance proceeds sufficient in the
sole judgment of Lender to effect the restoration
of the Improvements in accordance with Plans and
Specifications and to permit the completion of the
Improvements on or before the Completion Date set
forth herein.

7.3 BALANCING OF LOAN AND BORROWER'S DEPOSIT.

     (a) The Loan shall be deemed to be "in
balance" only at such time as Borrower has paid a
sufficient amount of Project Costs from its own
funds so that the undisbursed portion of the Loan,
together with projected Project Revenues as set
forth in the Project Budget, are sufficient, in
the reasonable judgment of Lender, to pay all
Project Costs until the Conversion Date and the
achievement of ninety-five percent (95%) occupancy
of the Units under Leases approved by Lender. In
determining whether the Loan is in balance, Lender
shall determine, among other things, whether the
amounts allocated for each category of Project
Costs in the Project Budget are sufficient and
whether the timing of receipts and expenditures
set forth in the Forecast are realistic and
achievable.

     (b) Within ten (10) days after written notice
from Lender to Borrower that the Loan is not in
balance, Borrower shall deposit with Lender
sufficient funds (herein called "BORROWER'S
DEPOSIT") with Lender to bring the Loan in
balance. The Borrower's Deposit will be held by
Lender in a non-interest bearing account
collaterally assigned to secure the Loan and will
be disbursed by Lender to pay Project Costs
pursuant to this Agreement, prior to the
disbursement of any additional proceeds of the
Loan. Upon the occurrence of an Event of Default
under this Agreement, Lender may apply Borrower's


26



Deposit against the unpaid indebtedness evidenced
by the Note, principal, accrued interest or
attorney's fees, in such order as Lender may
determine. Upon the payment in full of the Loan
and all other obligations of Borrower to Lender
hereunder, Lender shall return the remaining
balance of Borrower's Deposit, if any, to
Borrower.

     (c) Borrower agrees to use all Project
Revenues for payment of Project Costs and to
provide Lender with satisfactory evidence of such
payment. To the extent Project Revenues are
available, they will be used to pay Project Costs
prior to the use of Loan proceeds. Project
Revenues may not be distributed to partners or
shareholders or members of Borrower, or used for
anything other than Project Costs, prior to
completion of the Improvements and occupancy of
the Units by Tenants. Monthly Project Revenues in
excess of Project Costs up to $250,000 (the
"EXCESS FUNDS") shall be remitted to Lender on a
monthly basis and shall be applied by Lender
toward the payment of accrued interest due on the
Note or any other sum then due and owing to Lender
in such order of priority as determined by Lender.
The balance of the Excess Funds (after such
application as aforesaid) shall be deposited in an
interest bearing account (the "EXCESS FUNDS
ACCOUNT"), as selected by Lender, and such Excess
Funds Account and the Excess Funds shall be
collaterally pledged to Lender pursuant to a
pledge agreement, in form and substance
satisfactory to Lender (the "PLEDGE AND SECURITY
AGREEMENT"). At such time as Excess Funds in the
Excess Funds Account reach $250,000, Borrower's
obligation to continue making such monthly
disbursements shall cease until such time as
Lender advises Borrower that the Excess Funds in
the Excess Funds Account are less than $250,000.

     (d) Borrower will provide Lender with draw
request documents, satisfactory title endorsements
and other information required hereunder with
respect to funds used to pay Project Costs under
subsections (b) and (c) above, on a monthly basis,
as if such funds were disbursements of the Loan.

7.4 FINAL CONSTRUCTION ADVANCE. The final
construction advance hereunder together with the
Retainage shall be disbursed only upon compliance
with the following requirements (in addition to
the requirements for all other disbursements):

     (a) Receipt by Lender of satisfactory
evidence of the substantial completion of the
Improvements in accordance with Plans and
Specifications and approval of such completion by
Governmental Authorities having jurisdiction and
approval of such completion by the Inspecting
Architect, including, but not limited to, delivery
to Lender of certificates of occupancy (or other
similar evidence of right to occupancy) permitting
the Units to be legally occupied;

     (b) Receipt by Lender of a satisfactory "as-
built" blueprint or survey reflecting the location
of the Improvements on the Land in accordance with
the Plans and Specifications;

     (c) Receipt by Lender of either (i) lien
waivers or lien subordination's or releases from
all contractors, subcontractors, laborers and
materialmen employed in furnishing labor or
materials in connection with the construction of
the Improvements or (ii) an affidavit of
Contractor sufficient in the opinion of the Title
Company to issue a mortgagee title policy covering
the Premises with no exception with respect to
liens arising by


27



reason of unpaid bills or claims for work
performed or materials furnished in connection
with the Improvements or to remove any such
exception from the Mortgagee Title Policy covering
the Premises previously issued to Lender;

     (d) A period of thirty (30) days shall have
elapsed after the later of (i) the date of
completion of construction of the Improvements or
(ii) the date of filing with the County Clerk of
the County where the Land is located of an
Affidavit of Completion by Borrower in the form
attached hereto as Exhibit J and otherwise meeting
the requirements of Section 53.106 of the Texas Property
Code, provided that a copy of said affidavit is
sent to the parties and within the time periods
required by said Section 53.106; and

     (e) Receipt by Lender of such other
certificates, assurances and opinions as Lender
shall reasonably require.

7.5 EARNOUT ADVANCE. At such time as the Earnout
Requirements are satisfied, and in addition to the
requirements for all other disbursements
hereunder, Lender shall make a Loan advance to
Borrower in an amount equal to the difference
between the then unpaid principal amount of the
Note and the Maximum Loan Amount.

7.6 NOTICE FREQUENCY AND PLACE OF DISBURSEMENTS.
The Certificate for Payment shall be submitted to
Lender at least ten (10) business days prior to
the date of the requested advance. Disbursements
shall be no more frequently than monthly and,
except for the final advance hereunder, in amounts
of not less than Fifty Thousand Dollars ($50,000).
All disbursements shall be made at the principal
office of Lender in Chicago, Illinois, or at such
other place as Lender may designate. All
disbursements shall be made on the 25th day of a
calendar month (or, if not a business day, on the
first business day following).

7.7 DEPOSIT OF FUNDS ADVANCED. Borrower will
immediately deposit all Loan proceeds advanced by
Lender in a separate and exclusive account, to be
withdrawn and
used solely for the purposes permitted under the
provisions of this Agreement, and will promptly
furnish Lender with evidence thereof.

7.8 ADVANCES TO CONTRACTOR. At its option, Lender
may make any or all advances of the Loan directly
to Contractor for deposit in an appropriately
designated special bank account and the execution
of this Agreement by Borrower shall, and hereby
does, constitute an irrevocable direction and
authorization to so advance the funds. No further
direction or authorization from Borrower shall be
necessary to warrant such direct advances to
Contractor and all such advances shall satisfy pro
tanto the obligations of Lender hereunder and
shall be secured by the Mortgage and the other
Loan Documents as fully as if made to Borrower,
regardless of the disposition thereof by
Contractor.

7.9 ADVANCES DO NOT CONSTITUTE A WAIVER. No
advance of Loan proceeds hereunder shall
constitute a waiver of any of the conditions of
Lender's obligation to make further advances nor,
in the event Borrower is unable to satisfy any
such condition, shall any such advance have the
effect of precluding Lender from thereafter
declaring such inability to be an Event of Default
hereunder.




28




ARTICLE 8.

8.1 EVENT OF DEFAULT. An "Event of Default" shall
be deemed to have occurred hereunder if:

     (a) DEFAULT UNDER LOAN DOCUMENTS. Any default
or event of default occurs under any of the Loan
Documents; or

     (b) FAILURE TO OBTAIN AN ADVANCE. Borrower is
unable to satisfy any condition of its right to
the receipt of any advance hereunder for a period
in excess of fifteen (15) days; or

     (c) BREACH OF COVENANT. Borrower breaches or
fails timely and properly to observe, keep or
perform any covenant, agreement, warranty or
condition herein required to be observed, kept or
performed, other than those referred to in any
other subsection hereof; or

     (d) BREACH OF REPRESENTATION. Any
representation contained herein or in any other
Loan Documents or in the Commitment is false or
misleading in any material respect; or

     (e) FILING OF LIENS AGAINST THE PREMISES. Any
lien for labor, material, taxes or otherwise shall
be filed against the Premises and shall not be
removed within twenty (20) days after such fling
except for any lien being contested as provided in
Paragraph 2.2(f) of the Mortgage and Section 4.1
(r) hereof; or

     (f) LITIGATION AGAINST BORROWER. Any suit
shall be fled against Borrower or any Guarantor
under the Guaranty, which if adversely determined,
could substantially impair the ability of Borrower
or the Guarantor to perform each and every one of
its obligations under and by virtue of the Loan
Documents; or

     (g) LEVY UPON THE PREMISES. A levy be made
under any process on, or a receiver be appointed
for, the Premises or any other property of
Borrower; or

     (h) ACCELERATION OF OTHER DEBTS. Borrower or
any Guarantor does, or omits to do, any act, or
any event occurs, as a result of which any
material obligation of Borrower or such Guarantor,
not arising hereunder, is declared immediately due
and payable by the holder thereof; provided,
however, with respect to Guarantor such act or
event must also materially and adversely affect
the ability of Guarantor to perform its
obligations under the Guaranty; or

     (i) NONCOMPLIANCE WITH LAWS. The Improvements
are not constructed in compliance with all
Governmental Requirements and regulations of
appropriate supervising boards of fire
underwriters and similar agencies; or







29




     (j) DEVIATION FROM PLANS AND SNECIFCATIONS.
There is any substantial deviation in the work of
construction from the Plans and Specifications
without the prior written approval of Lender, or
there is incorporated in the Improvements any
substantially defective workmanship or materials,
which said deviation or defect is not commenced to
be corrected within ten (10) days after written
notice thereof and such correction diligently
continued to its conclusion; or

     (k) ENCROACHMENTS. There appears on any
survey required hereunder encroachments which have
occurred without the approval of Lender and which
are not commenced to be removed or corrected
within ten (10) days after receipt of Lender's
notification to Borrower of the existence thereof
and such removal or correction diligently
continued to its conclusion; or

     (l) CESSATION OF WORK. There occurs cessation
of the work of construction prior to completion of
the Improvements for a continuous period of ten
(10) days or more for causes other than those
beyond the control of Borrower or consented to in
writing by Lender; or
     
     (m) INJUNCTION. Any person obtains an order
or decree in any court of competent jurisdiction
enjoining the construction of the Improvements or
enjoining or prohibiting Borrower or Lender from
performing this Agreement, and such proceedings
are not properly contested or such decree is not
vacated within sixty (60) days after the granting
thereof; or

     (n) LAPSE OF PERMIT. Borrower neglects,
fails, or refuses to keep in full force and effect
any required permit or approval with respect to
the construction of the Improvements; or

     (o) FAILURE TO DISPROVE EVENT OF DEFAULT.
Lender shall reasonably suspect the occurrence of
one or more of the above said Events of Default
and Borrower, upon request of the Lender, shall
fail to provide evidence reasonably satisfactory
to Lender that such event or Events of Default
have not in fact occurred.


ARTICLE 9.

REMEDIES

9.1 REMEDIES. Upon the occurrence of any one or
more of the Events of Default set out in Article 8
hereof, Lender shall at its option be entitled to
proceed to exercise any of the following remedies:

     (a) Borrower agrees that the occurrence of
such Event of Default shall constitute a default
under each of the Loan Documents, thereby
entitling Lender (i) to exercise any of the
various remedies therein provided including the
acceleration of the indebtedness evidenced by the
Note and the foreclosure of the Mortgage and.(ii)
cumulatively to exercise all other rights, options
and privileges provided by law.





30



     (b) Lender shall have the right:

          (i) to take whatever action is necessary
     or appropriate by the use of legal.
     proceedings or otherwise (A) to cause
     Borrower to vacate the Premises and (B) to
     take possession of the Premises;

          (ii) to perform or cause to be performed
     any and all work and labor necessary to
     complete the Improvements in accordance with
     Plans and Specifications;

          (iii) to employ security watchmen to
     protect the Premises; and

          (iv) to disburse that portion of the
     Loan proceeds not previously disbursed
     (including any retainage) and the Borrower's
     Deposit to the extent necessary to complete
     construction of the Improvements in
     accordance with the Plans and Specifications,
     and if the completion requires a larger sum
     than the remaining undisbursed portion of the
     Loan, to disburse such additional funds, all
     of which funds so disbursed by Lender shall
     be deemed to have been disbursed to Borrower
     and shall be secured by the Mortgage and the
     other Loan Documents. For this purpose,
     Borrower hereby constitutes and appoints
     Lender its true and lawful attorney-in-fact
     with full power of substitution to complete
     the construction of the Improvements in the
     name of the Borrower and hereby empowers
     Lender as said attorney to take all actions
     necessary in connection therewith, including
     but not limited to the following: to use any
     funds of Borrower including the Borrower's
     Deposit and any balance which may be held in
     escrow and any Loan or other funds which may
     remain unadvanced hereunder for the purpose
     of completing the Improvements in the manner
     called for by the Plans and Specifications;
     to make such additions and changes and
     corrections in the Plans and Specifications
     which shall be necessary or desirable to
     complete the Improvements in substantially
     the manner contemplated by the Plans and
     Specifications, to employ such contractors,
     subcontractors, agents, architects and
     inspectors as shall be required for said
     purposes; to pay, settle or compromise all
     existing or future bills and claims which are
     or may be liens against said Premises or as
     may be necessary or desirable for the
     completion of the Improvements or the
     clearance of title to the Premises; to
     execute all applications and certificates in
     the name of Borrower which may be required by
     any construction contract and to do any and
     every act with respect to the construction of
     the Improvements which Borrower may do in its
     own behalf. It is understood and agreed that
     this power of attorney shall be deemed to be
     a power coupled with an interest which cannot
     be revoked by death or otherwise. Said
     attorney-in-fact shall also have power to
     prosecute and defend all actions or
     proceedings in connection with the
     construction of the Improvements and to take
     such action and require such performance as
     it deems necessary. In accordance therewith
     Borrower hereby assigns and quitclaims to
     Lender all sums to be advanced hereunder
     including retainage and the Borrower's
     Deposit and any sums in escrow conditioned
     upon the use of said sums, if any, for the
     completion of the Improvements. Lender shall
     have no obligation to undertake any of the
     foregoing actions and if Lender shall do so,
     it shall have no liability to Borrower for
     the sufficiency or adequacy of any such
     actions taken by Lender.

31


     (c) Lender may declare all indebtedness
secured by the Mortgage immediately due and
payable and credit the same in such manner as it
elects upon such indebtedness, and thereupon
Lender shall be released from all obligations to
Borrower under this Agreement. Such application
shall not operate to waive or cure any Event of
Default existing under the Mortgage or Note or any
other Loan Documents, nor to invalidate any notice
of an Event of Default or any act done pursuant to
such notice and shall not prejudice any rights of
the Mortgagee under the Mortgage or any other Loan
Documents.

     (d) Lender shall have the right at any time
and from time to time, without notice to Borrower
(any such notice being expressly waived), to set-
off and apply
any and all deposits (general or special, time or
demand, provisional or final) at
any time held, and any other indebtedness at any
time owing by Lender to or for the credit or the
account of Borrower, against any and all of the
indebtedness of Borrower evidenced by the Note or
this Agreement and/or secured by the Mortgage,
irrespective of whether or not Lender shall have
made any demand under this Agreement or the Note
and although such indebtedness may be unmatured.
Lender agrees to notify Borrower promptly after
any such set-off and application, provided that
the failure to give such notice shall not affect
the validity of such set-off and application. The
rights of Lender under this subsection are in
addition to any other rights and remedies
(including, without limitation, other rights of
set-off) which Lender may have under the Note or
the other Loan Documents or otherwise.


ARTICLE 10.

                                   GENERAL
CONDITIONS

10.1 RIGHTS OF THIRD PARTIES. All conditions of
the obligations of Lender hereunder, including the
obligation to make advances, are imposed solely
and exclusively for the benefit of Lender and its
successors and assigns and no other person shall
have standing to require satisfaction of such
conditions in accordance with their terms or be
entitled to assume that Lender will make advances
or refuse to make advances in the absence of
strict compliance with any or all thereof and no
other person shall, under any circumstances, be
deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or
in part by Lender at any time if in its sole
discretion it deems it desirable to do so. In
particular, Lender makes no representations and
assumes no duties or obligations as to third
parties concerning the quality of the construction
by Borrower of the Improvements or the absence
therefrom of defects. Failure to inspect the
construction of the Improvements or any part
thereof or inspection whether or not followed by
notice of an Event of Default shall not constitute
a waiver of any of Lender's rights hereunder nor
shall it constitute a representation that there
has been compliance with the Plans and
Specifications or that the construction of the
Improvements is free from defective materials or
workmanship. In this connection borrower agrees to
and shall indemnify Lender from any liability,
claims or losses resulting from the disbursement
of the Loan proceeds or from the condition of the
Premises whether related to the quality of
construction or otherwise and whether arising
during or after the term of the Loan. This
provision shall survive the repayment of the Loan
and shall continue in full force and effect so
long as the possibility of such liability, claims
or losses exists.



32



10.2 WAIVERS. No waiver of or consent to any
departure from any provision hereof shall be
effective unless in writing and signed by Lender
and shall be effective only in the specific
instance for the purpose for which given and to
the extent specified in such writing. No advance
of Loan proceeds hereunder shall constitute a
waiver of any of the conditions to Lender's
obligation to make further advances nor, in the
event Borrower fails to satisfy any such
condition, shall any advance have the effect of
precluding Lender
from thereafter declaring such failure to be an
Event of Default. No waiver of any Event of
Default hereunder shall affect or constitute a
waiver of any later Event of Default. No delay or
omission of Lender to exercise any right or remedy
upon the happening of any Event of Default shall
impair any such right or remedy or be deemed to be
a waiver of such Event of Default.

10.3 EVIDENCE OF SATISFACTION OF CONDITIONS. Any
condition of this Agreement which requires the
submission of evidence of the existence or
nonexistence of a specified fact or facts implies
as a condition the existence or nonexistence, as
the case may be, of such fact or facts, and Lender
shall, at all times, be free independently to
establish to its satisfaction and in its absolute
discretion such existence or nonexistence.

10.4 ASSIGNMENT BY BORROWER. Anything to the
contrary herein notwithstanding, Borrower shall
have no right to assign its rights hereunder or
the proceeds of the Loan without the written
consent of Lender and any such assignment or
purported assignment shall, at Lender's option,
relieve Lender from all further obligations
hereunder and shall constitute an Event of Default
under this Agreement.

10.5 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES.
Whenever in this Agreement one of the parties
hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such
party shall be included and all covenants and
agreements contained in this Agreement by or on
behalf of the Borrower or by or on behalf of
Lender shall bind and inure to the benefit of
their respective heirs, legal representatives,
successors and assigns, whether so expressed or
not.

10.6 EXERCISE OF RIGHTS AND REMEDIES. All rights
and remedies of Lender hereunder or under the Note
or under the Mortgage or under any other Loan
Document shall be separate, distinct and
cumulative and no single, partial or full exercise
of any right or remedy shall exhaust the same or
preclude Lender from thereafter exercising in full
or in part the same right or remedy or from
concurrently or thereafter exercising any other
right or remedy which Lender may have hereunder,
under the Note or Mortgage or any other Loan
Document, or at law or in equity, and each and
every such right and remedy may be exercised at
any time or from time to time.

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








33



10.8 APPLICABLE LAW. THIS AGREEMENT HAS BEEN
EXECUTED IN DALLAS, TEXAS, AND SHALL BE GOVERNED
BY AND CONSTRUED ACCORDING TO THE LAWS OF THE
STATE OF TEXAS (EXCLUSIVE OF ITS CHOICE OF LAW
RULES) AND THE LAWS OF THE UNITED STATES
APPLICABLE TO TRANSACTIONS IN TEXAS. BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY TEXAS OR FEDERAL COURT SITTING
IN DALLAS, TEXAS OVER
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS, AND
BORROWER HEREBY AGREES AND CONSENTS THAT, IN
ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF
PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
ANY TEXAS OR FEDERAL COURT SITTING IN DALLAS,
TEXAS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT
THE ADDRESS BELOW, AND SERVICE SO MADE SHALL BE
COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE
BEEN SO MAILED.

10.9 SUPPLEMENTS MORTGAGE. The provisions of this
Agreement are not intended to supersede the
provisions of the Mortgage but shall be construed
as supplemental thereto. In the event of any
inconsistency between the provisions hereof and
the Mortgage, it is intended that, during the
applicability of this Agreement, this Agreement
shall be controlling.

10.10 USURY. It is the intent of Lender and
Borrower in the execution of the Note, this
Agreement and all other instruments now or
hereafter securing the Note or executed in
connection therewith or under any other written or
oral agreement by Borrower in favor. of Lender to
contract in strict compliance with applicable
usury law. In furtherance thereof, Lender and
Borrower stipulate and agree that none of the
terms and provisions contained in the Note, this
Agreement or any other instrument securing the
Note or executed in connection herewith, or in any
other written or oral agreement by Borrower in
favor of Lender, shall ever be construed to create
a contract to pay for the use, forbearance or
detention of money, or interest at a rate in
excess of the maximum interest rate permitted to
be charged by applicable law. Neither Borrower nor
any guarantors, endorsers or other parties now or
hereafter becoming liable for payment of the Note
or the other indebtedness secured by the Loan
Documents shall ever be required to pay interest
on the Note or on indebtedness arising under any
instrument securing the Note or executed in
connection therewith, or in any other written or
oral agreement by Borrower in favor of Lender, at
a rate in excess of the maximum interest that may
be lawfully charged under applicable law, and the
provisions of this Section shall control over all
other provisions of the Note, this Agreement and
any other instruments now or hereafter securing
the Note or executed in connection herewith or any
other oral or written agreements which may be in
apparent conflict herewith. Lender expressly
disavows any intention to charge or collect
excessive unearned interest or finance charges in
the event the maturity of the Note is accelerated.
If the maturity of the Note shall be accelerated
for any reason or if the principal of the Note is
paid prior to the end of the term of the Note, and
as a result thereof the interest received for the
actual period of existence of the Loan exceeds the
applicable maximum lawful rate, Lender shall, at
its option, either refund to



34



Borrower the amount of such excess or credit the
amount of such excess against the principal
balance of the Note then outstanding and thereby
shall render inapplicable any and all penalties of
any kind provided by applicable law as a result of
such excess interest. In the event that Lender
shall collect monies and/or any other thing of
value which are deemed to constitute interest
which would increase the effective interest rate
on the Note or the other indebtedness secured by
the Loan Documents to a rate in excess of that
permitted to be charged by applicable law, an
amount equal to interest in excess of the lawful
rate shall, upon such determination, at the option
of Lender, be either immediately returned to
Borrower or credited against the principal balance
of the Note then outstanding or the other
indebtedness secured by the Loan Documents, in
which event any and all penalties of any kind
under applicable law as a result of such excess
interest shall be inapplicable. By execution of
this Agreement, Borrower acknowledges that it
believes the Loan to be non-usurious and agrees
that if, at any time, Borrower should have reason
to believe, that the Loan is in fact usurious, it
will give Lender notice of such condition and
Borrower agrees that Lender shall have ninety (90)
days after receipt of such notice in which to make
appropriate refund or other adjustment in order to
correct such condition if in fact such exists. The
term "applicable law" as used in this Section
shall mean the laws of the State of Texas or the
laws of the United States, whichever laws allow
the greater rate of interest, as such laws now
exist or may be changed or amended or come into
effect in the future.

10.11 INVALID PROVISIONS TO AFFECT NO OTHERS. If
fulfillment of any provision hereof or any
transaction related hereto at the time performance
of such provisions shall be due, shall involve
transcending the limit of validity prescribed by
law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such
validity, and if. any clause or provisions herein
contained operates or would prospectively operate
to invalidate this agreement in whole or in part,
then such clause or provision only shall be held
for naught, as though not herein contained, and
the remainder of this Agreement shall remain
operative and in full force and effect.

10.12 NUMBER AND GENDER. Whenever the singular or
plural number, masculine or feminine or neuter
gender is used herein, it shall equally include
the other.

10.13 AMENDMENTS. Neither this Agreement nor any
provision hereof may be changed, waived,
discharged or terminated orally, but only by an
instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge
or termination is sought.

10.14 NOTICE. Any notice or communication required
or permitted hereunder shall be given in writing,
sent by (a) personal delivery, or (b) expedited
delivery service with proof of delivery, or (c)
United States Mail, postage prepaid, registered or
certified mail, or (d) prepaid telegram, telex or
telecopy, addressed as follows:


To Lender:     100 South Wacker Drive
          Suite 400
          Chicago, Illinois 60606
          Attn: Phillip J. Keel

          
          
                                       35


          With a copy to:     Andrew D. Rooker,
     Esq.
                    Locke Purnell Rain Harrell
                    2200 Ross Avenue, Suite 2200
                    Dallas, Texas 75201-6776
                    Fax: (214) 740-8800

To Borrower:   ESC II, L.P.
          3131 Elliott Avenue
          Suite 500
          Seattle, Washington 98121
          Attn: President of ESC G.P. II, Inc.

          With a copy to:    Thomas A. Barkewitz
                    Perkins Coie
                    1201 Third Avenue
                    40th Floor
                    Seattle, Washington 98101-3099

or to such other address or to the attention of
such other person as hereafter shall be designated
in writing by the applicable party sent in
accordance herewith. Any such notice or
communication shall be deemed to have been given
either at the time of personal delivery or, in the
case of delivery service or mail as of the date of
first attempted delivery at the address and in the
manner provided herein, or in the case of
telegram, telex or telecopy, upon receipt.

10.15 LEGAL PROCEEDINGS. Lender shall have the
right to commence, appear in, or to defend any
action or proceeding purporting to affect the
rights or duties of the parties hereunder or the
payment of any funds, and in connection therewith
pay necessary expenses, employ counsel and pay its
reasonable fees. Any such expenditures shall be
considered additional advances hereunder and shall
bear interest at the rate payable under the Note
for installments of principal and/or interest
after maturity shall be secured by the Loan
Documents and shall be paid by Borrower to Lender
upon demand.

10.16 ASSIANMENT BY LENDER. Lender shall have the
right to assign any portion of this Agreement
and/or the Loan to a responsible institutional
lender and to disseminate to such lender any
information it has pertaining to the Loan,
including without limitation, complete and current
credit information on Borrower, any of its
principals and any Guarantor. In the event of such
an assignment, Borrower will agree to such
modifications to this Agreement as will facilitate
such assignment, provided that such modifications
will not materially add to the obligations of
Borrower. It is understood that any assignment by
Lender will not result in additional cash expense
to Borrower. Neither the shareholders, nor the
trustees of a real estate investment trust
assignee shall be personally liable for the
obligations of such trust and Borrower will agree
to look solely to the trust property for
the payment of any claim hereunder.






36



10.17 LENDER NOT A JOINT VENTURER. Notwithstanding
anything to the contrary herein contained, Lender,
by entering into this Agreement or by any action
taken pursuant hereto, will not be deemed a
partner or joint venturer with Borrower, and
Borrower will indemnify and hold Lender harmless
from any and all damages resulting from such a
construction of the parties and their
relationship.

10.18 SURVIVAL OF COVENANTS. All covenants of
either party contained herein shall continue and
survive until the Loan has been fully paid and
discharged.

10.19 TME IS OF THE ESSENCE. Time is of the
essence of this Agreement.

10.20 WAIVER OF JUDICIAL PROCEDURAL MATTERS.
Borrower hereby expressly and unconditionally
waives, in connection with any suit, action or
proceeding brought by Lender in connection with
any of the Loan Documents, any and every right it
may have to (i) injunctive relief, (ii) a trial by
jury, (iii) interpose any counterclaim therein and
(iv) have the same consolidated with any other or
separate suit, action or proceeding. Nothing
herein contained shall prevent or prohibit
Borrower from instituting or maintaining a
separate action against Lender with respect to any
asserted claim.

10.21 LOAN PARTICIPATION. Borrower acknowledges
and agrees that Lender may, from time to time,
sell or offer to sell interests in the Loan and
Loan Documents to one or more participants.
Borrower authorizes Lender to disseminate to such
participant or prospective participant, any
information it has pertaining to the Loan,
including without limitation, complete and current
credit information on the Borrower; any of its
principals and any Guarantor.

10.22 COMPLIANCE WITH LAWS AND RESTRICTIONS.
Borrower hereby covenants and agrees that it has
examined, is familiar with, and shall comply with
all applicable conditions, covenants,
restrictions, easements; reservations, rights, or
rights-of-way, laws, ordinances, and all
applicable administrative rules and regulations of
any governmental agency involved affecting the
Premises, compliance with which is necessary for
completion of the Improvements in substantial
conformance with the Plans and Specifications or
for issuance of a Certificate of Occupancy for the
Improvements. Except as permitted herein, Borrower
shall not create or cause or suffer to become
effective any lien (except for taxes and
assessments not delinquent), restriction,
encumbrance, or title limitation affecting the
Premises or the Improvements without the prior
written approval of Lender.

10.23 RIGHT OF FIRST REFUSAL. Borrower hereby
grants to Lender the right of first refusal and
last refusal to provide permanent loan financing
or to negotiate an equity sale of the Premises.

10.24 WAIVER OF CONSUMER RIGHTS. Borrower hereby
voluntarily consents to waive its rights under the
Deceptive Trade Practices-Consumer Protection Act
("DTPA"), Section 17.41 et seq., Business &
Commerce Code, a law that gives consumers special
rights and protections, and after consultation
with an attorney of its own selection, expressly
recognizes that (i) Borrower is not in a
significantly disparate bargaining position
relative to other parties to this Agreement, and
(ii) Borrower is represented by legal counsel in
this transaction.


37



10.25 COUNTERPART ORIGINALS. This Agreement may be
executed and delivered in any number of
counterparts, each of which so executed and
delivered shall be deemed to be an original and
all of which shall constitute one and the same
instrument.


     IN WITNESS WHEREOF, Borrower and Lender have
hereunto caused these presents to be executed on
the date first above written.



BORROWER:


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


By: ESC G.P. II, INC., a Washington

corporation, general partner

                               By:  /s/ Raymond R.
                    Brandstrom
                                      ------------
                    ------------------------------
                    ----
                                 Name:  Raymond R.
                    Brandstrom
                                      ------------
                    ------------------------------
                    ----
                                 Title:
                    President
                    

                               LENDER:

                               GMAC COMMERCIAL
                    MORTGAGE
                               CORPORATION, a
                    California corporation
                    
                               By:  /s/ Phillip J.
                    Keel
                                       -----------
                    ------------------------------
                    -----
                                Name:  Phillip J.
                    Keel
                                       -----------
                    ------------------------------
                    -----
                                 Title:   Vice
                    President
                    


















38

EX-10.55.3

                                  DEED OF
TRUST, MORTGAGE AND

SECURITY AGREEMENT

THE STATE OF TEXAS     )

)  KNOW ALL MEN BY THESE PRESENTS: COUNTY OF
DALLAS       )

     THAT, ESC II, L.P., a Washington limited
partnership (hereinafter called "GRARZTOR"
whether one or more), for and in
consideration of the sum of Ten Dollars
($10.00) to Grantor in hand paid by Andrew D.
Rooker, Trustee, of Dallas County, Texas
(hereinafter called the TRUSTEE"), in order
to secure the payment of the indebtedness
hereinafter referred to and the performance
of the obligations, covenants, agreements and
undertakings of Grantor hereinafter
described, does hereby GRANT, BARGAIN, SELL,
CONVEY, TRANSFER, ASSIGN and SET OVER to the
Trustee the real estate situated in the
County of Dallas and State of Texas described
in Exhibit A attached hereto and made a part
hereof, together with all of Grantor's right,
title and interest in and to (i) all the
buildings and other improvements now on or
that may be placed hereafter on said land
during the existence of this lien; (ii) all
materials, equipment, fixtures or other
property whatsoever now or hereafter attached
to, installed in, or used in connection with
the buildings and other improvements now
erected or hereafter to be erected on said
land, including, but not limited to, all
heating p g lighting, water heating, cooking,
laundry, refrigerating, incinerating,
ventilating and air conditioning equipment,
disposals, dishwashers, refrigerators and
ranges, recreational equipment and apparatus,
utility lines and equipment (whether owned
individually or jointly with others),
sprinkler systems, fire extinguishing
apparatus and equipment, water tanks,
swimming pools, engines, machines, elevators,
motors, cabinets, shades, blinds, partitions,
window screens, screen doors, storm windows,
awnings, drapes, and rugs and other floor
coverings, and all fixtures, accessions and
appurtenances thereto, and all renewals or
replacements of or substitutions for any of
the foregoing, all of which property and
things are hereby declared to be permanent
fixtures and accessions to the freehold and
part of the realty conveyed herein as
security for the indebtedness herein
mentioned, but excluding specifically any
personal property owned by tenants, residents
or occupants (collectively, the 'TENANTS");
(iii) all easements and rights of way used in
connection with any of the foregoing property
or as a means of ingress to or egress from
said property; (iv) all interests of Grantor
in and to any streets, ways, alleys and/or
strips of land adjoining said land or any
part thereof; and (v) all rights, estates,
powers and privileges appurtenant or incident
to the foregoing.
     
THIS AGREEMENT CONTAINS INDEMNIFICATION
PROVISIONS
WHICH, AMONG OTHER MATTERS AND IN CERTAIN
CIRCUMSTANCES, INDEMNIFY THE NOTEHOLDER
AGAINST THE
CONSEQUENCES OF THE NOTEHOLDER'S OWN
NEGLIGENCE AND AGAINST ANY STRICT LIABIUTY
IMPOSED ON THE NOTEHOLDER





     TO HAVE AND TO HOLD the foregoing
property (herein called the "MORTGAGED
PROPERTY") unto the Trustee and his
successors or substitutes in this trust and
to his or their successors and assigns, IN
TRUST, however, upon the terms, provisions
and conditions herein set forth.
In order to secure the payment of the
indebtedness hereinafter referred to and the
performance of the obligations, covenants,
agreements and undertakings of Grantor
hereinafter described, Grantor hereby grants
to the Noteholder (as hereinafter defined) a
security interest in all goods, equipment,
furnishings, fixtures, furniture, chattels
and personal property of whatever nature
owned by Grantor now or hereafter attached or
affixed to or used in and about the building
or buildings or other improvements now
erected or hereafter to be erected on the
lands described in Exhibit A attached hereto
and made a part hereof, or otherwise located
on said lands, and all fixtures, accessions
and appurtenances thereto, and all renewals
or replacements of or substitutions for any
of the foregoing, all building materials and
equipment now or hereafter delivered to said
premises and intended to be installed
therein, all security deposits and advance
rentals under lease agreements now or at any
time hereafter covering or affecting any of
the Property (as hereinafter defined) and
held by or for the benefit of Grantor, all
monetary deposits which Grantor has been
required to give to any public or private
utility with respect to utility services
furnished to the Property, all rents, issues
and profits from leases of all or any part of
the Property, all proceeds (including premium
refunds) of each policy of insurance relating
to the Property, all proceeds from the taking
of the Property or any part thereof or any
interest therein or right or estate
appurtenant thereto by eminent domain or by
purchase in lieu thereof, all contracts
related to the Property, all money, funds,
accounts, instruments, documents, general
intangibles (including trademarks, trade
names and symbols used in connection
therewith), all notes or chattel paper
arising from or related to the Property, all
permits, licenses, franchises, certificates,
and other rights and privileges obtained in
connection with the Property, including
without limitation and to the extent
assignable, all licenses and permits now or
hereafter issued by the Texas Department of
Human Services or its successors or any other
applicable governmental authority in
connection with the operation of a personal
care facility or assisted living facility
within the Property, all plans,
specifications, maps, surveys, reports,
architectural, engineering and construction
contracts, books of account, insurance
policies and other documents, of whatever
kind or character, relating to the use,
construction upon, occupancy, leasing, sale
or operation of the Property, all proceeds
and other amounts paid or owing to Grantor
under or pursuant to any and all contracts
and bonds relating to the construction,
erection or renovation of the Property, all
oil, gas and other hydrocarbons and other
minerals produced from or allocated to the
Property and all products processed or
obtained therefrom, the proceeds thereof, all
accounts and general intangibles under which
such proceeds may arise, together with any
sums of money that may now or at any time
hereafter become due and payable to Grantor
by virtue of any and all royalties,
overriding royalties, bonuses, delay rentals
and any



2



other amount of any kind or character arising
under any and all present and future oil, gas
and mining leases covering the Property or
any part thereof, and all inventory now or
hereinafter situated or located in or about
the building or buildings or other
improvements now erected or hereafter to be
erected on the lands described in Exhibit A
attached hereto and made a part hereof (all
of the property described in this paragraph
hereinafter collectively called the
"COLLATERAL") and all proceeds of the
Collateral. (The Mortgaged Property and the
Collateral are herein sometimes collectively
called the "PROPERTY").


ARTICLE 1

                               SECURED
INDEBTEDNESS

     1.1 SECURED INDEBTEDNESS. This Deed of
Trust, Mortgage and Security Agreement
(hereinafter called this "MORTGAGE") is made
to secure and enforce the payment of the
following note, obligations, indebtedness and
liabilities: (a) one certain promissory note
of even date herewith in the principal amount
of Seventeen Million and No/100 Dollars
($17,000,000.00) made by Grantor, and payable
to the order of GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation, with
interest at the rate or rates therein
provided, both principal and interest being
payable as therein provided and all amounts
remaining unpaid thereon, and containing a
provision for the payment of a reasonable
additional amount as attorney's fees, and all
other notes given in substitution therefor or
in modification, increase, renewal or
extension thereof, in whole or in part, such
note and all other notes given in
substitution therefor or in modification,
increase, renewal or extension thereof, in
whole or in part, being hereinafter called
the "NOTE", and said payee and all subsequent
holders of the Note or any part thereof or
any interest therein or any of the "secured
indebtedness" (as hereinafter defined) being
hereinafter called the "NOTEHOLDER"; and (b)
all loans and future advances made by the
Noteholder to Grantor and all other debts,
obligations arid liabilities of every kind
and character of Grantor now or hereafter
existing in favor of the Noteholder
(including all indebtedness incurred or
arising pursuant to the provisions of this
Mortgage or any loan agreement relating to
the above described indebtedness or any other
instrument now or hereafter evidencing,
governing or securing the above described
indebtedness or any part thereof) whether
such debts, obligations or liabilities be
direct or indirect, primary or secondary,
joint or several, fixed or contingent, and
whether such debts, obligations and
liabilities are evidenced by note, open
account, overdraft, endorsement, surety
agreement, .guaranty or otherwise, it being
contemplated that Grantor may hereafter
become indebted to the Noteholder in further
sum or sums. The indebtedness referred to in
this Paragraph is hereinafter sometimes
called the "SECURED INDEBTEDNESS" or the
"INDEBTEDNESS SECURED HEREBY."




3




ARTICLE 2

             REPRESENTATIONS: WARRANTIES AND
COVENANTS

     2.1 REPRESENTATIONS. WARRANTIES AND
COVENANTS. Grantor represents, warrants and
covenants to and with the Noteholder as
follows:

     (a) FINANCIAL MATTERS. Grantor is
solvent, is not bankrupt and has no
outstanding liens, suits, garnishments,
bankruptcies or court actions which could
render Grantor insolvent or bankrupt. There
has not been filed by or against Grantor a
petition in bankruptcy or a petition or
answer seeking an assignment for the benefit
of creditors, the appointment of a receiver,
trustee, custodian or liquidator with respect
to Grantor or any substantial portion of
Grantor's property, reorganization,
arrangement, rearrangement, composition,
extension, liquidation or dissolution or
similar relief under the Federal Bankruptcy
Code or any state law. All reports,
statements and other data furnished by
Grantor to the Noteholder in connection with
the loan evidenced by the Note are true and
correct in all material respects and do not
omit to state any fact or circumstance
necessary to make the statements contained
therein not misleading. No material adverse
change has occurred since the dates of such
reports, statements and other data in the
financial condition of Grantor or of any
Tenants under Leases described in such
reports, statements and other data. For the
purposes of this paragraph, Grantor shall
also include any surety(ies) and any joint
venturer or general partner of Grantor.

     (b) TITLE AND AUTHORITY. Grantor is the
lawful owner of good and indefeasible title
to the Property and has good right and
authority to grant, bargain, sell, transfer,
assign and mortgage the Mortgaged Property
and to grant a security interest in the
Collateral. Grantor does not do business with
respect to the Property under any trade name.

     (c) PERMITTED ENCUMBRANCES. The Property
is free and clear from all liens, security
interests and encumbrances except the lien
and security interest evidenced hereby and
the encumbrances set forth in Exhibit B
attached hereto and made a part hereof
(hereinafter called the "PERMITTED
ENCUMBRANCES"). There are no mechanic's or
materialmen's liens, or other claims
constituting or that may constitute a lien on
the Property, or any part thereof.
     
     (d) NO FINANCING STATEMENT. There is no
financing statement covering the Property or
its proceeds on file in any public office.

     (e) LOCATION OF COLLATERAL. All tangible
Collateral is or will be located on the
property described in Exhibit A attached
hereto and made a part hereof.
     
     
     4
     


     (f) NO HOMESTEAD. No portion of the
Property is being used, or is intended to be
used in the future, as Grantor's business or
residential homestead.

     (g) NO DEFAULT OR VIOLATION. The
execution, delivery and performance of this
Mortgage, the Note and all other instruments
or documents evidencing, securing or relating
to the secured indebtedness (hereinafter
called the "LOAN DOCUMENTS") do not
contravene, result in a breach of or
constitute a default under any mortgage, deed
of trust, lease, promissory note, loan
agreement or other contract or agreement to
which Grantor is a party or by which Grantor
or any of its properties may be bound or
affected and do not violate or contravene any
law, order, decree, rule or regulation to
which Grantor is subject.

     (h) COMPLIANCE WITH COVENANTS AND LAWS.
The Property and the intended use thereof by
Grantor comply with all applicable
restrictive covenants, zoning ordinances and
building codes, flood disaster laws,
applicable health and environmental laws and
regulations and all other applicable laws,
statutes, ordinances, rules, regulations,
orders, determinations and court decisions
(all of the foregoing hereinafter sometimes
collectively called "APPLICABLE LAWS" without
reliance upon grandfather provisions or
adjacent or other properties; Grantor has
obtained, or will obtain prior to the
Noteholder's first disbursement for
construction costs, all requisite zoning,
utility, building, health and operating
permits from the governmental authority or
municipality having jurisdiction over the
Property. All engineering specifications with
respect to the Properly are within applicable
environmental standards.

     (i) ENVIRONMENTAL. Without limitation of
the foregoing, the Property and Grantor are
not in violation of or subject to any
existing, pending or threatened investigation
or inquiry by any governmental authority or
to any remedial obligations under any
Applicable Laws pertaining to health or the
environment (such Applicable Laws as they now
exist or are hereafter enacted and/or amended
hereinafter sometimes collectively called
"APPLICABLE ENVIRONMENTAL LAWS"), including
without limitation the Comprehensive
Environmental Response, Compensation, and
Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act
of 1986 (as amended, hereinafter called
"CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used
Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984
(as amended, hereinafter called "RCRA"), the
Texas Water Code and the Texas Solid Waste
Disposal Act, except as may be disclosed in
that certain environmental report dated
October 2, 1996, prepared by Atec Associates,
Inc., provided to the Noteholder, and to the
best of Grantor's knowledge, this
representation would continue to be true and
correct following disclosure to the
applicable governmental authorities of all
relevant facts, conditions and circumstances,
if any, pertaining to the Property and
Grantor.


5



Grantor has not obtained and is not required
to obtain any permits, licenses or similar
authorizations to construct, occupy, operate
or use any buildings, improvements, fixtures
and equipment forming a part of the Property
by reason of any Applicable Environmental
Laws. Grantor undertook, at the time of
acquisition of the Property, all appropriate
inquiry into the previous ownership and uses
of the Property consistent with good
commercial or customary practice. Grantor has
taken all steps necessary to determine and
has determined that no hazardous substances
or solid wastes have been disposed of or
otherwise released on or to the Property. The
use which Grantor makes and intends to make
of the Property will not result in the
disposal or other release of any hazardous
substance or solid waste on or to the
Property. The terms "hazardous substance" and
"release" as used in this Mortgage shall have
the meanings specified in CERCLA, and the
terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified
in RCRA; provided, in the event either CERCLA
or RCRA is amended so as to broaden the
meaning of any term defined thereby, such
broader meaning shall apply subsequent to the
effective date of such amendment and provided
further, to the extent that the laws of the
State of Texas establish a meaning for
"hazardous substance," "release," "solid
waste," or "disposal" (or "disposed") which
is broader than that specified in either
CERCLA or RCRA, such broader meaning shall
apply.

     (j) NO SUITS. There are no judicial or
administrative actions, suits or proceedings
pending or, to the best of Grantor's
knowledge, threatened against or affecting
Grantor, any other person liable, directly or
indirectly, for the secured indebtedness, or
the Property or involving the validity,
enforceability or priority of any of the Loan
Documents.

     (k) CONDITION OF PROPERTY. The Property
is or will be served by electric, gas, storm
and sanitary sewers, sanitary water supply,
telephone and other utilities required for
the use thereof as represented by Grantor at
or within the boundary lines of the Property.
All streets, alleys and easements necessary
to serve the Property for the use represented
by Grantor have been completed and are
serviceable and such streets have been
dedicated and accepted by applicable
governmental entities. The Property is free
from damage caused by fire or other casualty.
Grantor is aware of no latent or patent
structural or other significant deficit or
deficiency in the Property. Design and as-
built conditions of the Property are such
that no drainage or surface or other water
will drain across or rest upon either the
Property or land of others, except in the
manner permitted by applicable law. None of
the Property is within a flood plain except
as indicated on a survey of the Property
delivered to the Noteholder. None of the
improvements on the Property create an
encroachment over, across or upon any of the
Property boundary lines, rights of way or
easements, and no buildings or other
improvements on adjoining land create such an
encroachment.




6




     (l) ORGANIZATION. Grantor, if a
corporation, is duly incorporated and legally
existing under the laws of the State of its
incorporation and is duly qualified to do
business in the State of Texas. Grantor, if a
partnership or joint venture, is duly
organized under the Texas Revised Partnership
Act. Grantor, if a limited partnership, is
duly organized under the Texas Revised
Limited Partnership Act or if organized under
the laws of a state other than Texas, is
qualified under the Texas Revised Limited
Partnership Act. Grantor, if a limited
liability company, is duly organized under
the Texas Limited Liability Act, or if
organized under the laws of a state other
than Texas, is qualified under the Texas
Limited Liability Act. Grantor has all
requisite power and all governmental
certificates of authority, licenses, permits,
qualifications and other documentation to
own, lease and operate its properties and to
carry on its business as now conducted and as
contemplated to be conducted. The foregoing
representations in this subparagraph shall
also apply to any corporation, partnership,
joint venture or limited partnership which is
a general partner or joint venturer of
Grantor.

     (m) ENFORCEABILITY. The Note, this
Mortgage and all other instruments securing
the payment of the Note constitute the legal,
valid and binding obligations of Grantor
enforceable in accordance with their terms.
The execution and delivery of, and
performance under, the Note, this Mortgage
and all other instruments securing the
payment of the Note are within Grantor's
powers and have been duly authorized by all
requisite action and are not in contravention
of the powers of Grantor's charter, by-laws
or other corporate papers if Grantor is a
corporation, or of Grantor's partnership or
joint venture agreement if Grantor is a
partnership or joint venture, or of Grantor's
limited partnership agreement if Grantor is a
limited partnership, or of Grantor's articles
or operating agreement if Grantor is a
limited liability company.

     (n) NOT A FOREIGN PERSON. Grantor is not
a "foreign person" within the meaning of the
Internal Revenue Code of 1954, as amended
(hereinafter called the "CODE"), Sections
1445 and 7701 (i.e. Grantor is not a
nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign
estate as those terms are defined in the Code
and regulations promulgated thereunder).

     (o) WARRANTY. Grantor will warrant and
forever defend the title to the Property
against the claims of all persons whomsoever
claiming or to claim the same or any part
thereof, subject to the Permitted
Encumbrances.

     2.2. COVENANTS AND AGREEMENTS. So long
as the secured indebtedness or any part
thereof remains unpaid, Grantor covenants and
agrees with the Noteholder as follows:

     (a) PAYMENT. Grantor will make prompt
payment, as the same becomes due, of the Note
and of all installment of principal and
interest thereon and of all other secured
indebtedness.


7


     (b) EXISTENCE. Grantor will continuously
maintain its existence and its right to do
business in the State of Texas together with
its franchises and trade
names.

     (c) TAXES ON NOTE AND OTHER TAXES.
Grantor will promptly pay all income,
franchise and other taxes owing by Grantor
and any stamp taxes which may be required to
be paid with respect to the Note, this
Mortgage or any other instrument evidencing
or securing any of the secured indebtedness.

     (d) OPERATION OF PROPERTY. Grantor will
operate the Property in a good and
workmanlike manner and in accordance with all
Applicable Laws and will pay all fees or
charges of any kind in connection therewith.
Grantor will keep the Property occupied so as
not to impair the insurance carried thereon.
Grantor will not use or occupy, or allow the
use or occupancy of, the Property in any
manner which violates any Applicable Law or
which constitutes a public or private
nuisance or which makes void, voidable or
cancelable, or increases the premium of, any
insurance then in force with respect thereto.
Grantor shall cause the Property to be at all
times managed by a management agent,
acceptable to the Noteholder, pursuant to a
management agreement, in the form and
substance acceptable the to the Noteholder.
Grantor will not initiate or permit any
zoning reclassification of the Property or
seek any variance under existing zoning
ordinances applicable to the Property or use
or permit the use of the Property in such a
manner which would result in such use
becoming a nonconforming use under applicable
zoning ordinances or other Applicable Laws.
Grantor will not impose any restrictive
covenants or encumbrances upon the Property,
execute or file any subdivision plat
affecting the Property or consent to the
annexation of the Property to any
municipality, without the prior written
consent of the Noteholder. Grantor shall not
cause or permit any drilling or exploration
for, or extraction, removal or production of,
minerals from the surface or subsurface of
the Property. Grantor will not do or suffer
to be done any act whereby the value of any
part of the Property may be lessened. Grantor
will allow the Noteholder or its authorized
representative to enter the Property, after
reasonable notice and during normal business
hours, to inspect the Property and Grantor's
books and records pertaining thereto and
Grantor will assist the Noteholder or said
representative as reasonably necessary to
make such inspection. Prior to any such
inspection, Grantor shall provide the
Noteholder with a current certified rent roll
of all parties in possession and other data
reasonably necessary for the Noteholder or
its representative to conduct its inspection.
If Grantor receives a notice or claim from
any federal, state or other governmental
entity pertaining to the Property, including
specifically but without limitation a notice
that the Property is not in compliance with
any Applicable Law, Grantor will promptly
furnish a copy of such notice or claim to the
Noteholder.




8



     (e) DEBTS FOR CONSTRUCTION. Grantor will
cause all debts and liabilities of any
character, including without limitation all
debts and liabilities for labor, material and
equipment and all debts and charges for
utilities servicing the Property; incurred in
the construction, maintenance, operation and
development of the Property to be promptly
paid. Grantor shall comply with the Loan
Agreement relating to disbursement of
construction funds and lien waivers in
connection with such disbursements. Pursuant
to the Loan Agreement, Grantor shall cause
payment and performance bonds to be
maintained. If Grantor fails to maintain such
payment and performance bonds, and in the
event Grantor fails to discharge any
mechanic's liens filed against the Property
or any portion thereof, in addition to any
other right or remedy provided to the
Noteholder hereunder, the Noteholder may, but
shall not be obligated to, discharge the same
either by paying the amount claimed to be due
or by procuring the discharge of such lien by
deposit or by bonding proceedings;
notwithstanding the foregoing to the
contrary, Grantor shall have the right to
contest in good faith any such mechanic's
liens filed against the Property in
accordance with Section 4.1 (r) of the Loan
Agreement. It any suit or proceeding shall be
brought to foreclose or enforce any such
lien, Grantor shall, at its own sole cost and
expense, promptly pay, satisfy and discharge
any final judgment entered therein, and if
Grantor fails to do so, then the Noteholder,
at its option, may do so. All amounts,
charges, costs, expenses, fees and sums
incurred or disbursed by the Noteholder in
connection with the foregoing shall be a
demand obligation owing by Grantor to the
Noteholder pursuant to this Mortgage and
shall be subject to and covered by the
provision of paragraph 2.3 hereof.

     (f) AD VALOREM TAXES. Grantor will cause
to be paid prior to delinquency all taxes and
assessments heretofore or hereafter levied or
assessed against the Property, or any part
thereof, or against the Trustee or the
Noteholder (except for any income taxes or
franchise taxes levied or assessed against
the Trustee or the Noteholder) for or on
account of the Note or the other indebtedness
secured hereby or the interest created by
this Mortgage and will furnish the Noteholder
with receipts showing payment of such taxes
and assessments at least fifteen (15) days
prior to the applicable default date
therefor; except that Grantor may in good
faith, by appropriate proceedings, contest
the validity, applicability, or amount of any
asserted tax or assessment, and pending such
contest Grantor shall not be deemed in
default hereunder if (i) prior to delinquency
of the asserted tax or assessment Grantor
establishes an escrow acceptable to the
Noteholder adequate to cover the payment of
such tax or assessment with interest, costs
and penalties and a reasonable additional sum
to cover possible costs, interest and
penalties (which escrow shall be returned to
Grantor upon payment of all such taxes,
assessments, interest, costs and penalties);
(ii) Grantor pays to the Noteholder promptly
after demand therefor all costs and expenses
incurred by the Noteholder in connection with
such contest; and (iii) Grantor promptly
causes to be paid any amount adjudged by a



9



court of competent jurisdiction to be due,
with all costs, penalties and interest
thereon, promptly after such judgment becomes
final; provided, however, that in any event
each such contest shall be concluded and the
tax, assessment, penalties, interest and
costs shall be paid prior to the date any
writ or order is issued under which the
Property may be sold.

     (g) REPAIR AND MAINTENANCE. Grantor will
keep the Property in first class order,
repair, operating condition and appearance,
causing all necessary repairs, renewals,
replacements, additions and improvements to
be promptly made, and will not allow any of
the Property to be misused, abused or wasted
or to deteriorate. Grantor will promptly
replace all worn-out or obsolete fixtures or
personal property covered by this Mortgage
with fixtures or personal property comparable
to the replaced fixtures or personal property
when new, and will repaint the Property when
needed. Notwithstanding the foregoing,
Grantor will not, without the prior written
consent of the Noteholder, (i) remove from
the Property any fixtures or personal
property covered by this Mortgage except such
as is replaced by Grantor (if such
replacement is reasonably necessary or
required in the operation of Grantor's
business) by an article of equal suitability
and value, owned by Grantor, free and clear
of any lien or security interest (except that
created by this Mortgage), (ii) make any
structural alteration to the Property (other
than the initial construction of the
Mortgaged Property pursuant to the Loan
Agreement) or any other alterations thereto
which impair the value thereof or (iii)
during construction of improvements, make any
changes to the Plans and Specifications (as
defined in the Loan Agreement) except as
provided in the Loan Agreement and, following
completion of construction, make any
alteration to the Property involving an
estimated expenditure exceeding $25,000
except pursuant to plans and specifications
approved in writing by the Noteholder. Upon
request of the Noteholder, Grantor will
deliver to the Noteholder an inventory
describing and showing the make, model,
serial number and location of all fixtures
and personal property used in the management,
maintenance and operation of the Property
with a certification by Grantor that said
inventory is a true and complete schedule of
all such fixtures and personal property used
in the management, maintenance and operation
of the Property, that such items specified in
the inventory constitute all of the fixtures
and personal property required in the
management, maintenance and operation of the
Property, and that all such items are owned
by Grantor free and clear of any lien or
security interest (except that created by
this Mortgage).

     (h) INSURANCE AND CASUALTV. Grantor will
keep the Property insured against loss or
damage by fire, explosion, windstorm, hail,
flood (if the Property shall at any time be
located in an identified "flood prone area"
in which flood insurance has been made
available pursuant to the Flood Disaster
Protection Act of 1973), tornado and such
other hazards as may be required by the
Noteholder (including war damage if available
under sponsorship of the



10



United States Government when war is
threatened or declared) by policies of fire,
extended coverage and other insurance in such
company or companies, in such amounts, upon
such terms and provisions, and with such
endorsements, all as may be reasonably
acceptable to the Noteholder. Grantor will
also provide such other insurance as the
Noteholder may from time to time require, in
such companies, upon such terms and
provisions, in such amounts, and with such
endorsements, all as are reasonably approved
by the Noteholder. Grantor further agrees
that Grantor will deliver to the Noteholder
the original certificates evidencing such
insurance and any additional insurance which
shall be taken out upon any part of the
Property and receipts evidencing the payment
of all premiums, and will deliver
certificates evidencing renewals of all such
policies of insurance to the Noteholder at
least fifteen (15) days before any such
insurance shall expire. Without limiting the
discretion of the Noteholder with respect to
required endorsements to insurance policies,
Grantor further agrees that all such policies
shall provide that proceeds thereunder will
be payable to the Noteholder as its interest
may appear pursuant and subject to a mortgage
clause (without contribution) of standard
form attached to or otherwise made a part of
the applicable policy. In the event of
foreclosure of this Mortgage, or other
transfer of title to the Property in
extinguishment in whole or in part of the
secured indebtedness, all right, title and
interest of Grantor in and to such policies
then in force concerning the Property and all
proceeds payable thereunder shall thereupon
vest in the purchaser at such foreclosure or
the Noteholder or other transferee in the
event of such other transfer of title. In the
event any of the Property covered by such
insurance is destroyed or damaged by fire,
explosion, windstorm, hail or by any other
casualty against which insurance shall have
been required hereunder, (i) the Noteholder
may, but shall not be obligated to, make
proof of loss if not made promptly by
Grantor, (ii) each insurance company
concerned is hereby authorized and directed
to make payment for such loss directly to the
Noteholder instead of to Grantor, and (iii)
the Noteholder shall have the right to apply
the insurance proceeds as follows:

          (i) first, to reimburse the
     Noteholder or the Trustee for all costs
     and expenses, including reasonable
     attorney's fees, incurred in connection
     with the collection of such proceeds;
     and

          (ii) second, the remainder of said
     proceeds shall be applied, at the
     discretion of the Noteholder, in payment
     (without premium or penalty unless such
     are otherwise payable under the Note due
     to acceleration or otherwise) of the
     secured indebtedness, either in whole or
     in part, whether or not then due and
     payable, in the order determined by the
     Noteholder in its sole discretion, or to
     the repair, restoration or replacement,
     either partly or entirely, of the
     Property so destroyed or damaged,
     provided that, any insurance proceeds
     held by the Noteholder to be applied to
     the repair, restoration or replacement
     of the Property shall be so held without
     payment or allowance of interest thereon
     and shall be paid out from time to time
     upon compliance by Grantor with
     
     
     11


     
     such terms, conditions and requirements
     as may be imposed by the Noteholder.
     Notwithstanding the preceding sentence
     to the contrary, in the event any damage
     or destruction of the Property results
     in a claim of loss of less than
     $100,000, the remainder of said
     insurance proceeds (after reimbursement
     of the Noteholder or the Trustee for all
     costs and expenses, including reasonable
     attorney's fees, if any, incurred in
     connection with the collection of such
     proceeds) shall be applied to the
     repair, restoration or replacement of
     the portion of the Property so destroyed
     or damaged. In any event,
     notwithstanding the occurrence of any
     casualty, the unpaid portion of the
     secured indebtedness shall remain in
     full force and effect (except to the
     extent of application of insurance
     proceeds as provided above) and Grantor
     shall not be excused in the payment
     thereof. If any act or occurrence of any
     kind or nature (including any casualty
     on which insurance was not obtained or
     obtainable) shall result in damage to or
     loss or destruction of the Property,
     Grantor shall give immediate notice
     thereof to the Noteholder and, unless
     otherwise so instructed by the
     Noteholder, Grantor shall promptly, at
     Grantor's sole cost and expense and
     regardless of whether the insurance
     proceeds, if any, shall be made
     available to Grantor (after
     reimbursement of the Noteholder or the
     Trustee for all costs and expenses,
     including reasonable attorneys' fees, if
     any, incurred in connection with the
     collection of such proceeds) or
     regardless of whether the insurance
     proceeds, if any, shall be sufficient
     for the purpose, restore, repair,
     replace and rebuild the Property as
     nearly as possible to its value,
     condition and character immediately
     prior to such damage, loss or
     destruction in accordance with plans and
     specifications submitted to and approved
     by the Noteholder and otherwise in
     accordance with the provisions of this
     Mortgage.

     (i) CONDEMNATION. Immediately upon
obtaining knowledge of the
institution of any proceedings for the
condemnation of the Property or any portion
thereof, or any other proceedings arising out
of injury or damage to the Property, or any
portion thereof, Grantor will notify the
Noteholder of the pendency of such
proceedings. The Noteholder may participate
in any such proceedings, and Grantor shall
from time to time deliver to the Noteholder
all instruments requested by it to permit
such participation. Grantor shall, at its
expense, diligently prosecute any such
proceedings, and shall consult with the
Noteholder, its attorneys and experts, and
cooperate with them in the carrying on or
defense of any such proceedings. All proceeds
of condemnation awards or proceeds of sale in
lieu of condemnation with respect to the
Property and all judgments, decrees and
awards for injury or damage to the Property
shall be paid to the Noteholder and shall be
applied as follows:

          (i) first, to reimburse the
     Noteholder or the Trustee for all costs
     and expenses, including reasonable
     attorney's fees, incurred in connection
     with collection of such proceeds; and


12



          (ii) second, the remainder of said
     proceeds shall be applied, at the
     discretion of the Noteholder, to the
     payment (without premium or penalty
     unless such are otherwise payable under
     the Note due to acceleration or
     otherwise) of the secured indebtedness
     in the order determined by the
     Noteholder in its sole discretion or
     paid out to repair or restore the
     Property so affected by such
     condemnation, injury or damage in the
     same manner as provided in subparagraph
     (h) of this Paragraph 2.2. In any event,
     notwithstanding such condemnation, the
     unpaid portion of the secured
     indebtedness shall remain in full force
     and effect (except to the extent of
     application of condemnation proceeds as
     provided above) and Grantor shall not be
     excused in the payment thereof. Provided
     the Noteholder consents to the use of
     the proceeds to pay for the cost of
     repair, restoration or replacement of
     the Property, Grantor shall promptly
     commence and complete such repair,
     restoration or replacement of the
     Property as nearly as possible to its
     value, condition and character
     immediately prior to such damage or
     taking in accordance with plans and
     specifications submitted to and approved
     by the Noteholder and otherwise in
     accordance with the provisions of this
     Mortgage. Grantor hereby assigns and
     transfers all such proceeds, judgments,
     decrees and awards to the Noteholder and
     agrees to execute such further
     assignments of all such proceeds,
     judgments, decrees and awards as the
     Noteholder may request. The Noteholder
     is hereby authorized, in the name of
     Grantor, to execute and deliver valid
     acquittances for, and to appeal from,
     any such judgment, decree or award. The
     Noteholder shall not be, in any event or
     circumstances, liable or responsible for
     failure to collect, or exercise
     diligence in the collection of, any such
     proceeds, judgments, decrees or awards.

     (j) PROTECTION AND DEFENSE OF LIEN. If
the validity or priority of this Mortgage or
of any rights, titles, liens or security
interests created or evidenced hereby with
respect to the Property or any part thereof
shall be endangered or questioned or shall be
attacked directly or indirectly or if any
legal proceedings are instituted against
Grantor with respect thereto, Grantor will
give prompt written notice thereof to the
Noteholder and at Grantor's own cost and
expense will diligently endeavor to cure any
defect that may be developed or claimed, and
will take all necessary and proper steps for
the defense of such legal proceedings,
including but not limited to the employment
of counsel, the prosecution or defense of
litigation and the release or discharge of
all adverse claims, and the Trustee and the
Noteholder, or either of them (whether or not
named as parties to legal proceedings with
respect thereto) are hereby authorized and
empowered to take such additional steps as in
their judgment and discretion may be
necessary or proper for the defense of any
such legal proceedings or the protection of
the validity or priority of this Mortgage and
the rights, titles, liens and security
interests created or evidenced hereby,
including but not limited to the employment
of counsel, the prosecution


13



or defense of litigation, the compromise or
discharge of any adverse claims made with
respect to the Property (unless Grantor
notifies the Noteholder in writing that
Grantor disputes such claim which is the
subject matter of such compromise or
discharge in which event Grantor shall
immediately furnish to the Noteholder a
sufficient bond or other adequate security,
as reasonably required by the Noteholder,
while such claim is being disputed and
Grantor shall pursue such claim with due
diligence), the purchase of any tax title and
the removal of prior liens or security
interests (including but not limited to the
payment of debts as they mature or the
payment in full of matured or nonmatured
debts, which are secured by these prior liens
or security interests), and all expenses so
incurred of every kind and character shall be
a demand obligation owing by Grantor and the
party incurring such expenses shall be
subrogated to all rights of the person
receiving such payment.

     (k) NO OTHER LIENS. Grantor will not,
without the prior written consent of the
Noteholder, create, place or permit to be
created or placed, or through any act or
failure to act, acquiesce in the placing of,
or allow to remain, any deed of trust,
mortgage, voluntary or involuntary lien,
whether statutory, constitutional or
contractual (except for the lien for ad
valorem taxes on the Property which are not
delinquent), security interest, encumbrance
or charge, or conditional sale or other title
retention document, against or covering the
Property, or any part thereof, other than the
Permitted Encumbrances, regardless of whether
the same are expressly or otherwise
subordinate to the lien or security interest
created in this Mortgage, and should any of
the foregoing become attached hereafter in
any manner to any part of the Property
without the prior written consent of the
Noteholder, Grantor will cause the same to be
promptly discharged and released. Grantor
will own all parts of the Property and will
not acquire any fixtures, equipment or other
Property forming a part of the Properly
pursuant to a lease, license or similar
agreement, in excess of $25,000 in the
aggregate, without the prior written consent
of the Noteholder.

     (l) BOOKS AND RECORDS. Grantor will keep
accurate books and records in accordance with
sound accounting principles in which full,
true and correct entries shall be promptly
made as to all operations on the Property,
and will permit all such books and records
(including without limitation all contracts,
statements, invoices, bills and claims for
labor, materials and services supplied for
the construction and operation of the
improvements forming a part of the Property)
to be inspected by the Noteholder and its
duly accredited representatives at all times
during reasonable business hours.

     (m) FINANCIAL STATEMENTS AND REPORTS:
RENT ROLL. Grantor will deliver to the
Noteholder, within one hundred twenty (120)
days after the close of each fiscal year of
Grantor, a statement of condition or balance
sheet of Grantor as at the end of such fiscal
year. Grantor will deliver to the Noteholder,
within one hundred twenty (120) days after
the close of the fiscal year of each
guarantor of the indebtedness secured hereby,
a statement of


14



condition or balance sheet of such guarantor
as at the end of such fiscal year. Grantor
will deliver to the Noteholder, within thirty
(30) days after the close of each calendar
month, an operating statement showing in
reasonable detail all income and expenses of
Grantor with respect to the Property during
such month and for the fiscal year through
the end of such month. Said statements of
condition, balance sheets and operating
statements shall be in scope and detail
reasonably satisfactory to the Noteholder and
shall be prepared and certified as to
accuracy by an independent certified public
accountant or representative of Grantor
acceptable to the Noteholder. Grantor will
deliver to the Noteholder, within thirty (30)
days after the close of each calendar quarter
of Grantor, a rent roll of the Property
containing the name and address of all
Tenants then occupying portions of the
Property under valid and subsisting Leases
and, with respect to each of such Leases, the
rentals payable, square footage of the leased
or occupied premises, amount of security
deposit, lease commencement date, lease
expiration date, date through which rent is
paid and the nature and extent of any
material defaults by tenant, all certified as
to accuracy by a representative of Grantor
acceptable to the Noteholder. If, and as
often as, reasonably requested by the
Noteholder, Grantor will make further reports
of operations in such form as the Noteholder
reasonably prescribes, setting out full data
as reasonably requested by the Noteholder.

     (n) ESCROW. In order to secure the
performance and discharge of Grantor's
obligations under subparagraphs (f) and (h)
of this Paragraph 2.2, but not in lieu of
such obligations, Grantor will deposit with
the Noteholder, concurrently with the
execution and delivery of this Mortgage, a
sum equal to ad valorem taxes, assessments
and charges (which charges for the purpose of
this paragraph shall include without
limitation ground rents and water and sewer
rents and any other recurring charge which
could create or result in a lien against the
Property) against the Property for the
current year and the premiums for such
policies of insurance for the current year,
all as estimated by the Noteholder and
prorated to the end of the calendar month
following the month during which this
Mortgage is executed and delivered, and
thereafter will deposit with the Noteholder,
on each date when an installment of principal
and/or interest is due on the Note,
sufficient funds (as estimated from time to
time by the Noteholder) to permit the
Noteholder to pay, at least fifteen (15) days
prior to the due date thereof, the next
maturing ad valorem taxes, assessments and
charges and premiums for such policies of
insurance. If any such escrow funds are not
paid to the Noteholder within ten (10) days
from the date same shall become due, Grantor
shall pay a late or collection charge equal
to the lesser of (a) the maximum lawful rate
as permitted by applicable law (as such term
is defined in Section 5.15 hereof), or (b)
five percent (5%) of the unpaid escrow
amount. The Noteholder shall have the right
to rely upon tax information furnished by
applicable taxing authorities in the payment
of such taxes or assessments and shall have
no obligation to make any protest of any such
taxes or assessments. Any excess over the
amounts required for such purposes shall be
held by the Noteholder for future use or
refunded to Grantor,


15



at the Noteholder's option; and any
deficiency in such funds so deposited shall
be made up by Grantor upon demand of the
Noteholder. All such funds so deposited shall
not bear interest, may be mingled with the
general funds of the Noteholder and shall be
applied by the Noteholder toward the payment
of such taxes, assessments, charges and
premiums when statements therefor are
presented to the Noteholder by Grantor (which
statements shall be presented by Grantor to
the Noteholder a reasonable time before the
applicable amount is due) ; provided,
however, that, if a default shall have
occurred hereunder, such funds may at the
Noteholder's option be applied to the payment
of the secured indebtedness in the order
determined by the Noteholder in its sole
discretion, and that the Noteholder may at
any time, in its discretion, apply all or any
part of such funds (including accrued
interest thereon) toward the payment of any
such taxes, assessments, charges or premiums
which are past due, together with any
penalties or late charges with respect
thereto. The conveyance or transfer of
Grantor's interest in the Property for any
reason (including without limitation the
foreclosure of a subordinate lien or security
interest or a transfer by operation of law)
shall constitute an assignment or transfer of
Grantor's interest in and rights to such
funds held by the Noteholder under this
subparagraph (n) but subject to the rights of
the Noteholder hereunder.

     (o) FURTHER ASSURANCES. Grantor will, on
request of the Noteholder, (i) promptly
correct any defect, error or omission which
may be discovered in the contents of this
Mortgage or in any other instrument executed
in connection herewith or in the execution or
acknowledgment thereof; (ii) execute,
acknowledge, deliver and record or file such
further instruments (including without
limitation further deeds of trust, security
agreements, financing statements,
continuation statements and assignments of
rents or leases) and do such further acts as
may be reasonably necessary or proper to
carry out more effectively the purposes of
this Mortgage and such other instruments and
to subject to the liens and security
interests hereof and thereof any property
intended by the terms hereof and thereof to
be covered hereby and thereby including
specifically, but without limitation, any
renewals, additions, substitutions,
replacements or appurtenances to the
Property; (iii) execute, acknowledge,
deliver, procure and record or file any
document or instrument (including
specifically any financing statement)
reasonably required by the Noteholder to
protect the lien or the security interest
hereunder against the rights or interests of
third persons; and (iv) provide such
certificates, documents, reports,
information, affidavits and other instruments
and do such further acts as may be necessary
proper in the reasonable determination of the
Noteholder to enable the Noteholder to comply
with the requirements or requests of any
agency having jurisdiction over the
Noteholder or any examiners of such agencies
with respect to the indebtedness secured
hereby, Grantor or the Property; and Grantor
will pay all costs connected with any of the
foregoing.





16



     (p) FEES AND EXPENSES; INDEMNIFICATION.
Grantor will pay all actual appraisal fees,
filing and recording fees, inspection fees,
survey fees, taxes, brokerage fees and
commissions, abstract fees, title policy
fees, uniform commercial code search fees,
escrow fees, reasonable attorney's fees and
all other reasonable and actual costs and
expenses of every character incurred by
Grantor or the Noteholder in connection with
the loan evidenced by the Note, either at the
closing thereof or at any time during the
term thereof, or otherwise attributable or
chargeable to Grantor as owner of the
Property, and will reimburse the Noteholder
for all such costs and expenses incurred by
it as set forth herein. Grantor shall pay all
expenses and reimburse the Noteholder for any
expenditures, including reasonable attorney's
fees and legal expenses, incurred or expended
in connection with (i) the breach by Grantor
of any covenant herein or in any other
instrument securing the payment of the Note,
(ii) the Noteholder's exercise of any of its
rights and remedies hereunder or under the
Note or any other instrument securing the
payment of the Note or the Noteholder's
protection of the Property and its lien and
security interest therein, or (iii) any
amendments to this Mortgage, the Note or any
other Loan Document or any matter requested
by Grantor or any approval required
hereunder. Grantor will indemnify and hold
harmless the Trustee and the Noteholder (for
purposes of this paragraph, the terms "the
Trustee" and "the Noteholder" shall include
any financial institution or entity or person
owning all or part of the Note and the
directors, officers, partners, employees and
agents of the Trustee and the Noteholder,
respectively, and any persons or entities
owned or controlled by, owning or
controlling, or under common control or
affiliated with the Trustee and the
Noteholder, respectively) from and against,
and reimburse them for, all claims, demands,
liabilities, losses, damages, causes of
action, judgments, penalties, costs and
expenses (including, without limitation,
reasonable attorney's fees) which may be
imposed upon or incurred or paid by them by
reason of, on account of or in connection
with any bodily injury or death or property
damage occurring in or upon or in the
vicinity of the Property through any cause
whatsoever or asserted against them on
account of any act performed or omitted to be
performed hereunder or on account of any
transaction arising out of or in any way
connected with the Property or with this
Mortgage, the Note or any other instrument
securing the payment of the Note. WITHOUT
LIMITATION, IT IS THE INTENTION OF GRANTOR
AND GRANTOR AGREES THAT THE FOREGOING
INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION,
REASONABLE ATTORNEY'S FEES) WHICH IN WHOLE OR
IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY; PROVIDED, HOWEVER, SUCH
INDEMNITIES SHALL NOT APPLY TO ANY
INDEMNIFIED PARTY TO THE EXTENT THE
SUBJECT OF THE INDEMNIFICATION IS CAUSED BY
OR ARISES OUT OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH


17



INDEMNIFIED PARTY. The foregoing indemnities
shall not terminate upon release, foreclosure
or other termination of this Mortgage but
will survive foreclosure of this Mortgage or
conveyance in lieu of foreclosure and the
repayment of the secured indebtedness and the
discharge and release of this Mortgage and
the other documents evidencing and/or
securing the secured indebtedness. Any amount
to be paid under this subparagraph by Grantor
to the Noteholder and/or the Trustee shall be
a demand obligation owing by Grantor to the
Noteholder and/or the Trustee and shall be
subject to and governed by the provisions of
Paragraph 2.3 hereof.

     (q) LIABILITY INSURANCE. Grantor shall
maintain Comprehensive General Liability
insurance against claims for bodily injury or
death and property damage occurring in or
upon or resulting from the Property, in
standard form and with such insurance company
or companies as may be reasonably acceptable
to the Noteholder, such insurance to afford
immediate protection, in amounts reasonably
acceptable to the Noteholder. Such
Comprehensive General Liability insurance
shall include Blanket Contractual Liability
coverage which insures contractual liability
under the indemnifications of the Noteholder
and the Trustee by Grantor set forth in this
Mortgage (but such coverage or the amount
thereof shall in no way limit such
indemnifications). Grantor shall maintain
with respect to each policy or agreement
evidencing such Comprehensive General
Liability insurance such endorsements as may
be reasonably required by the Noteholder and
shall at all times deliver and maintain with
the Noteholder a certificate with respect to
such insurance in form satisfactory to the
Noteholder not less than fifteen (15) days
prior to the expiration date of each policy
of insurance required of Grantor pursuant to
this subparagraph 2.2(q), Grantor shall
deliver to the Noteholder an original
certificate evidencing a renewal policy or
policies and accompanied by evidence of
payment reasonably satisfactory to the
Noteholder. In the event of a foreclosure of
this Mortgage, the purchaser of the Property
shall succeed to all the rights of Grantor,
including any right to unearned premiums, in
and to all policies of insurance assigned
pursuant to the provisions of this
subparagraph, and Grantor hereby authorizes
the Noteholder to notify any or all insurance
carriers of this assignment.

     (r) TAX ON LIEN. In the event of the
enactment after this date of any law of the
State of Texas or of any other governmental
entity deducting from the value of property
for the purpose of taxation any lien or
security interest thereon, or imposing upon
the Noteholder the payment of the whole or
any part of the taxes or assessments or
charges or liens herein required to be paid
by Grantor, or changing in any way the laws
relating to the taxation of deeds of trust or
mortgages or security agreements or debts
secured by deeds of trust or mortgages or
security agreements or the interest of the
mortgagee or secured party in the property
covered thereby, or the manner of collection
of such taxes,
so as to affect this Mortgage or the
indebtedness secured hereby or the



18



Noteholder, then, and in any such event,
Grantor, upon demand by the Noteholder, shall
pay such taxes, assessments, charges or
liens, or reimburse the Noteholder therefor;
provided, however, that if in the opinion of
counsel for the
Noteholder (i) it might be unlawful to
require Grantor to make such payment or (ii)
the making of such payment might result in
the imposition of interest beyond the maximum
amount permitted by law, then and in such
event, the Noteholder may elect, by notice in
writing given to Grantor, to declare all of
the indebtedness secured hereby to be and
become due and payable ninety (90) days from
the giving of such notice.

     (s) CHANGE OF NAME. IDENTITY OR
STRUCTURE. Grantor will not change Grantor's
name, identity (including its trade name or
names) or, if not an individual, Grantor's
corporate, partnership or other structure
without notifying the Noteholder of such
change in writing at least thirty (30) days
prior to the effective date of such change.
Grantor will execute and deliver to the
Noteholder, prior to or contemporaneously
with the effective date of any such change,
any financing statement or financing
statement change required by the Noteholder
to establish or maintain the validity,
perfection and priority of the security
interest granted herein. At the request of
the Noteholder, Grantor shall execute a
certificate in form satisfactory to the
Noteholder listing the trade names under
which Grantor intends to operate the
Property, and representing and warranting
that Grantor does business under no other
trade name with respect to the Property.

     (t) LOCATION AND USE OF COLLATERAL. All
tangible Collateral will be used in the
business of Grantor and shall remain in
Grantor's possession or control at all times
at Grantor's risk of loss and shall be
located on the real property described in
Exhibit A hereto.

     (u) ESTOPPEL CERTIFCATE. Grantor shall
at any time and from time to time, but not
more than twice in any calendar year, furnish
promptly upon request by the Noteholder a
written statement in such form as may be
required by the Noteholder stating that the
Note, this Mortgage and the other instruments
securing the payment of the Note are valid
and binding obligations of Grantor,
enforceable against Grantor in accordance
with their terms; the unpaid principal
balance of the Note; the date to which
interest on the Note is paid; that the Note,
this Mortgage and the other instruments
securing the payment of the Note have not
been released, subordinated or modified; and
that there are no offsets or defenses against
the enforcement of the Note, this Mortgage or
any other instrument securing the payment of
the Note, or if any of the foregoing
statements are untrue, specifying the reasons
therefor.







19



     (v) PROCEEDS OF COLLATERAL. Grantor
shall account fully and faithfully for and,
if the Noteholder so elects, shall promptly
pay or turn over to the Noteholder the
proceeds in whatever form received from
disposition in any manner of any of the
Collateral, except as otherwise specifically
authorized herein. Grantor shall at all times
keep the Collateral and its proceeds separate
and distinct from other property of Grantor
and shall keep accurate and complete records
of the Collateral and its proceeds.

     (w) LOAN AGREEMENT. Grantor will
punctually perform and discharge each and
every obligation and undertaking of Grantor
under the Construction Loan Agreement of even
date herewith, as from time to time amended
or restated, (herein called the "LOAN
AGREEMENT") between Grantor and the
Noteholder and will not permit a default to
occur thereunder.

     (x) PERMITTED ENCUMBRANCES. Grantor will
comply with and will perform all of the
covenants, agreements and obligations imposed
upon it or the Property in the Permitted
Encumbrances in accordance with their
respective terms and provisions. Grantor will
not modify or permit any modification of any
Permitted Encumbrance, without the prior
written consent of the Noteholder.

     (y) ENVIRONMENTAL. Grantor will not
cause or permit the Property or Grantor to be
in violation of, or do anything or permit
anything to be done which will subject the
Property to any remedial obligations under,
any Applicable Environmental Laws, including
without limitation CERCLA, RCRA, the Texas
Water Code and the Texas Solid Waste Disposal
Act, assuming disclosure to the applicable
governmental authorities of all relevant
facts, conditions and circumstances, if any,
pertaining to the Property and Grantor and
Grantor will promptly notify the Noteholder
in writing of any existing, pending or, to
the best knowledge of Grantor, threatened
investigation or inquiry by any governmental
authority in connection with any Applicable
Environmental Laws. Grantor shall obtain any
permits, licenses or similar authorizations
to construct, occupy, operate or use any
buildings, improvements, fixtures and
equipment forming a part of the Property by
reason of any Applicable Environmental Laws.
Grantor shall take all steps necessary to
determine that no hazardous substances or
solid wastes are being disposed of or
otherwise released on or to the Property.
Grantor will not cause or permit the disposal
or other release of any hazardous substance
or solid waste on or to the Property and
covenants and agrees to keep or cause the
Property to be kept free of any hazardous
substance or solid waste and to remove the
same (or if removal is prohibited by law, to
take whatever action is required by law)
promptly upon discovery at its sole expense;
provided, however, Grantor shall be permitted
to keep small quantities of hazardous
substances on the Property which are utilized
by Grantor in the ordinary course of
Grantor's business, in full compliance with
Applicable Environmental Laws. Without
limitation of the Noteholder's rights to
declare a default hereunder and to exercise
all remedies



20



available by reason thereof, in the event
Grantor fails to comply with or perform any
of the foregoing covenants and obligations,
the Noteholder may (without any obligation,
express or implied) remove any hazardous
substance or solid waste from the Property
(or if removal is prohibited by law, take
whatever action is required by law) and the
cost of the removal or such other action
shall be a demand obligation owing by Grantor
to the Noteholder pursuant to this Mortgage
and shall be subject to and covered by the
provisions of Paragraph 2.3 hereof.  In the
event Grantor fails to comply with or perform
any of the foregoing covenants and
obligations, Grantor grants to the Noteholder
and its agents, employees, contractors and
consultants access to the Property and the
license (which is coupled with an interest
and irrevocable while this Mortgage is in
effect) to remove the hazardous substance or
solid waste (or if removal is prohibited by
law, to take whatever action is required by
law). Upon the Noteholder' s reasonable
request, but only if the Noteholder has
reason to believe there is a violation of
Applicable Environmental Laws, at any time
and from time to time during the existence of
this Mortgage, Grantor will provide at
Grantor's sole expense an inspection or audit
of the Property from an engineering or
consulting firm approved by the Noteholder,
indicating the presence or absence of
hazardous substances and solid wastes on the
Property. If Grantor fails to provide same
after thirty (30) days' notice (or such
additional time, not to exceed an additional
thirty (30) days, if Grantor is diligently
pursuing obtaining such report or audit), the
Noteholder may order same, and Grantor grants
to the Noteholder and its agents, employees,
contractors and consultants access to the
Property and a license (which is coupled with
an interest and irrevocable while this
Mortgage is in effect) to perform inspections
and tests. The cost of such inspections and
tests shall be a demand obligation owing by
Grantor to the Noteholder pursuant to this
Mortgage and shall be subject to and covered
by the provisions of Paragraph 2.3 hereof.

     (z) ASBESTOS. Grantor has informed the
Noteholder that certain portions of the
Property contain asbestos or material
containing asbestos which is or may become
friable or material containing asbestos
deemed hazardous by Applicable Environmental
Laws. Grantor will remove the same or take
whatever action is required by law by
implementing an operation and maintenance
program (the "O & M PROGRAM"), acceptable to
the Noteholder, at Grantor's sole expense,
not later than March 31,1997. Without
limitation of the Noteholder's rights to
declare an event of default hereunder and to
exercise all remedies available by reason
thereof, in the event Grantor fails to comply
with or perform any of the foregoing
covenants and obligations, the Noteholder may
(without any obligation, express or implied)
remove such asbestos or material containing
asbestos (or if removal is prohibited by law,
take whatever action is required by law
including without limitation implementing the
O & M Program) and the cost of removal or
such other action shall be a demand
obligation owing by Grantor to the Noteholder
pursuant to this Mortgage and shall be
subject to and covered by the provisions of
Paragraph 2.3 hereof. Grantor grants to the
Noteholder and its agents, employees,
contractors and


21



consultants access to the Property and a
license (which is coupled with an interest
and irrevocable while this Mortgage is in
effect) to remove such asbestos or materials
containing asbestos or take whatever action
is required by law, including without
limitation, implementing the O & M Program.
Upon the Noteholder's reasonable request, at
any time and from time to time during the
existence of this Mortgage, Grantor shall
provide, at Grantor's sole expense, an
inspection or audit of the Property from an
engineering or consulting firm approved by
the Noteholder, evidencing the implementation
of and compliance with the O & M Program. If
Grantor fails to provide same after ten (10)
days' notice, the Noteholder may order same,
and Grantor grants to the Noteholder and its
agents, employees, contractors and
consultants access to the Property and a
license (which is coupled with an interest
and irrevocable while this Mortgage is in
effect) to perform inspections and tests. The
cost of such inspections and tests shall be a
demand obligation owing by Grantor to the
Noteholder pursuant to this Mortgage and
shall be subject to and covered by the
provisions of Paragraph 2.3 hereof.

     2.3. RIGHT OF THE NOTEHOLDER TO PERFORM.
Grantor agrees that, if Grantor fails to
perform any act or to take any action which
hereunder Grantor is required to perform or
take, or to pay any money which hereunder
Grantor is required to pay, or takes any
action prohibited hereby, the Noteholder, in
Grantor's name or in its own name, may after
notice to Grantor as may be set forth herein,
but shall not be obligated to perform or
cause to be performed such act or take such
action or pay such money or remedy any action
so taken, and any expenses so incurred by the
Noteholder, and any money paid by the
Noteholder in connection therewith, shall be
a demand obligation owing by Grantor to the
Noteholder and the Noteholder, upon making
such payment, shall be subrogated to all of
the rights of the person, corporation or body
politic receiving such payment. Any amounts
due and owing by Grantor to the Noteholder
pursuant to this Mortgage shall bear interest
from the date such amount becomes due until
paid at the rate of interest payable on
matured but unpaid principal of or interest
on the Note and shall be a part of the
secured indebtedness and shall be secured by
this Mortgage and by any other instrument
securing the secured indebtedness.

     2.4. INDEMNIFICATION REAARDING
ENVIRONMENTAL MATTERS. Grantor agrees to
indemnify and hold the Noteholder and the
Trustee (for purposes of this paragraph, the
terms "the Noteholder" and "the Trustee"
shall include the directors, officers,
partners, employees and agents of the
Noteholder and the Trustee, respectively, and
any persons or entities owned or controlled
by, owning or controlling, or under common
control or affiliated with the Noteholder and
the Trustee respectively) harmless from and
against, and to reimburse the Noteholder and
the Trustee with respect to, any and all
claims, demands, losses, damages (including
consequential damages), liabilities, causes
of action, judgments, penalties, costs and
expenses (including attorneys' fees and court
costs) of any and every kind or character,
known or unknown,


22



fixed or contingent, imposed on, asserted
against or incurred by the Noteholder and/or
the Trustee at any time and from time to time
by reason of, in connection with or arising
out of (a) the breach of any representation
or warranty of Grantor as set forth herein
regarding asbestos, material containing
asbestos or Applicable Environmental Laws,
(b) the failure of Grantor to perform any
obligation herein required to be performed by
Grantor regarding asbestos, material
containing asbestos or Applicable
Environmental Laws, (c) any violation on or
before the Release Date (as hereinafter
defined) of any Applicable Environmental Law
in effect on or before the Release Date, (d)
the removal of hazardous substances or solid
wastes from the Properly (or if removal is
prohibited by law, the taking of whatever
action is required by law), (e) the
implementation of the O & M Program, (f) any
act, omission, event or circumstance existing
or occurring on or prior to the Release Date
(including without limitation the presence on
the Property or release from the Property of
hazardous substances or solid wastes disposed
of or otherwise released on or prior to the
Release Date), resulting from or in
connection with the ownership, construction,
occupancy, operation, use and/or maintenance
of the Property, regardless of whether the
act, omission, event or circumstance
constituted a violation of any Applicable
Environmental Law at the time of its
existence or occurrence, and (g) any and all
claims or proceedings (whether brought by
private party or governmental agency) for
bodily injury, property damage, abatement or
remediation, environmental damage or
impairment or any other injury or damage
resulting from or relating to any hazardous
substance or solid waste located upon or
migrating into, from or through the Property
(whether or not any or all of the foregoing
was caused by Grantor or its Tenants or
subtenants, or a prior owner of the Property
or its Tenants or subtenants, or any third
party and whether or not the alleged
liability is attributable to the handling,
storage, generation, transportation or
disposal of such substance or waste or the
mere presence of such substance or waste on
the Property). WITHOUT LIMITATION, THE
FOREGOING INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PARTY WITH RESPECT TO CLAIMS,
DEMANDS, LOSSES, DAMAGES (INCLUDING
CONSEQUENTIAL DAMAGES), LIABILITIES, CAUSES
OF ACTION, JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT
COSTS) WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY.
HOWEVER, SUCH INDEMNITIES SHALL NOTAPPLYTO
ANY INDEMNIFIED PARTY TO THE EXTENT THE
SUBJECT OF THE INDEMNIFICATION IS CAUSED BY
OR ARISES OUT OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PARTY.
The "Release Date" as used herein shall mean
the earlier of the following two dates: (i)
the date on which the indebtedness and
obligations secured hereby have been paid and
performed in full and this Mortgage has been
released, or (ii) the date on which the lien
of this Mortgage is foreclosed or a
conveyance by deed in lieu of such
foreclosure is fully effective; provided, if
such payment, performance, release,
foreclosure or conveyance is challenged, in


23



bankruptcy proceedings or otherwise, the
Release Date shall be deemed not to have
occurred until such challenge is rejected,
dismissed or withdrawn with prejudice. The
foregoing indemnities shall not terminate
upon the Release Date or upon the release,
foreclosure or other termination of this
Mortgage but will survive the Release Date,
foreclosure of this Mortgage or conveyance in
lieu of foreclosure, and the repayment of the
secured indebtedness and the discharge and
release of this Mortgage and the other
documents evidencing and/or securing the
secured indebtedness. Any amount to be paid
under this Paragraph by Grantor to the
Noteholder and/or the Trustee shall be a
demand obligation owing by Grantor to the
Noteholder and/or the Trustee and shall be
subject to and covered by the provisions of
Paragraph 2.3 hereof. Nothing in this
paragraph, elsewhere in this Mortgage or in
any other document evidencing, securing or
relating to the indebtedness secured hereby
shall limit or impair any rights or remedies
of the Noteholder and/or the Trustee against
Grantor or any third party under Applicable
Environmental Laws, including without
limitation any rights of contribution or
indemnification available thereunder.


ARTICLE 3


ASSIGNMENT OF RENTS

     3.1 ASSIGNMENT. In order to provide a
source of future payment of the indebtedness
secured hereby, Grantor does hereby
absolutely and unconditionally assign,
transfer and set over to the Noteholder all
of the rents, income, receipts, revenues,
issues, profits and other sums of money
(hereinafter collectively called the "RENT")
that are now or at any time hereafter become
due and payable to Grantor under the terms of
any leases, licenses, rental contracts and
other agreements relating to occupancy
(hereinafter called the "LEASES"), now or
hereafter covering or affecting the Property,
or any part thereof, or arising or issuing
from or out of the Leases or from or out of
the Property or any part thereof, including
but not limited to minimum rents, additional
rents, percentage rents, deficiency rents and
liquidated damages following default,
security deposits, advance rents, all
proceeds payable under any policy of
insurance covering loss of rents resulting
from untenantability caused by destruction or
damage to the Property, and all of Grantor's
rights to recover monetary amounts from any
lessee in bankruptcy including, without
limitation, rights of recovery for use and
occupancy and damage claims arising out of
lease defaults, including rejections, under
any applicable Bankruptcy Law (as hereinafter
defined), including specifically the
immediate and continuing right to collect and
receive each and all of the foregoing. Until
receipt from the Noteholder of notice of the
occurrence of a default specified in this
Mortgage (hereinafter called a "NOTICE OF
DEFAULT"), each lessee under the Leases shall
pay Rent directly to Grantor and Grantor
shall have the right to receive such Rent
provided that Grantor shall hold such Rent as
a trust fund to be applied as required by the
Noteholder and Grantor hereby covenants so to
apply the Rent, before using any part of the
same for any other purposes,


24



first, to the payment of taxes and
assessments upon the Property before penalty
or interest is due thereon; second, to the
cost of insurance, maintenance and repairs
required by the terms of this Mortgage;
third, to the satisfaction of all obligations
specifically set forth in the Leases; and,
fourth, to the payment of interest and
principal becoming due on the Note and this
Mortgage. Upon receipt from the Noteholder of
a Notice of Default, each lessee under the
Leases is hereby authorized and directed to
pay directly to the Noteholder all Rent
thereafter accruing and the receipt of Rent
by the Noteholder shall be a release of such
lessee to the extent of all amounts so paid.
The receipt by a lessee under the Leases of a
Notice of Default shall be sufficient
authorization for such lessee to make all
future payments of Rent directly to the
Noteholder and each such lessee shall be
entitled to rely on such Notice of Default
and shall have no liability to Grantor for
any Rent paid to the Noteholder after receipt
of such Notice of Default. Rent so received
by the Noteholder for any period prior to
foreclosure under this Mortgage or acceptance
of a deed in lieu of such foreclosure shall
be applied by the Noteholder to the payment
(in such order as the Noteholder shall
determine) of: (a) all expenses of managing
the Property, including but not limited to
the salaries, fees and wages to a managing
agent and such other employees as the
Noteholder may deem necessary or desirable;
all expenses of operating and maintaining the
Property, including but not limited to all
taxes, assessments, charges, claims, utility
costs and premiums for insurance, and the
cost of all alterations, renovations, repairs
or replacements; and all expenses incident to
taking and retaining possession of the
Property and/or collecting the Rent due and
payable under the Leases; and (b) the Note
and other indebtedness secured by this
Mortgage, principal, interest, attorneys' and
collection fees and other amounts, in such
order as the Noteholder in its sole
discretion may determine. In no event will
the assignment pursuant to this Paragraph
reduce the indebtedness evidenced by the Note
or otherwise secured by this Mortgage, except
to the extent, if any, that Rent is actually
received by the Noteholder and applied upon
or after said receipt to such indebtedness in
accordance with the preceding sentence.
Without impairing its rights hereunder, the
Noteholder may, at its option, at any time
and from time to time, release
to Grantor Rent so received by the Noteholder
or any part thereof. As between Grantor and
the Noteholder, and any person claiming
through or under Grantor, other than any
lessee under the Leases who has not received
a Notice of Default pursuant to this
Paragraph, the assignment contained in this
Paragraph is intended to be absolute,
unconditional and presently effective and the
provisions of this Paragraph for notification
of lessees under the Leases upon the
occurrence of a default specified in this
Mortgage are intended solely for the benefit
of each such lessee and shall never inure to
the benefit of Grantor or any person claiming
through or under Grantor, other than a lessee
who has not received such notice. It shall
never be necessary for the Noteholder to
institute legal proceedings of any kind
whatsoever to enforce the provisions of this
Paragraph. At any time during which Grantor
is receiving Rent directly from lessees under
the Leases, Grantor shall, upon receipt of
written direction from the Noteholder, make
demand and/or sue for all Rent due and
payable under one


25



or more Leases, as directed by the
Noteholder, as it becomes due and payable,
including Rent which is past due and unpaid.
In the event Grantor fails to take such
action, or at any time during which Grantor
is not receiving Rent directly from lessees
under the Leases, the Noteholder shall have
the right (but shall be under no duty) to
demand, collect and sue for, in its own name
or in the name of Grantor, all Rent due and
payable under the Leases, as it becomes due
and payable, including Rent which is past due
and unpaid. The Noteholder shall not be
deemed to have taken possession of the
Property except on the exercise of its option
to do so, evidenced by its demand and overt
act for such purpose. Grantor shall make no
assignment or other disposition of the Rent,
nor shall Grantor cancel or amend any Lease
or any other instrument under which Rent is
to be paid or waive, excuse, condone,
discount, set off, compromise or in any
manner release any obligation thereunder, nor
shall Grantor receive or collect any Rent for
a period of more than one month in advance of
the date on which payment thereof is due and
Grantor shall duly and punctually observe and
perform every obligation to be performed by
it under each Lease, and shall not do or
permit to be done anything to impair the
security thereof and shall enforce, to the
extent such enforcement would be reasonably
prudent under the circumstances, every
obligation of each other party thereto. The
assignment contained in this Paragraph 3.1
shall terminate upon the release of this
Mortgage but no lessee under the Leases shall
be required to take notice of such
termination until a copy of a release of this
Mortgage shall have been delivered to such
lessee.

     3.2 CONTROLLING PROVISION.
Contemporaneously with the execution of this
Mortgage, Grantor is executing an Assignment
of Leases and Rents (herein so called) in
favor of the Noteholder. To the extent any
provision of Paragraph 3.1 above is construed
to contradict, conflict with or be
inconsistent with any term, condition or
provision contained in the Assignment of
Leases and Rents, the applicable terms,
conditions and provisions of the Assignment
of Leases and Rents shall supersede such
contradicting, conflicting or inconsistent
provisions of paragraph 3.1 and shall
control.


ARTICLE 4

                     REMEDIES IN EVENT OF
DEFAULT

     4.1 DEFAULTS. The term "default" as used
in this Mortgage shall mean the occurrence of
any of the following events:

     (a) the failure of Grantor to make due
and punctual payment of the Note or of any
other secured indebtedness or of any
installment of principal thereof or interest
thereon, or any other amount required to be
paid under the Note, this Mortgage or any
other instrument securing the payment of the
Note, as the same shall become due and
payable, whether at maturity or when
accelerated pursuant to any power to
accelerate contained in the Note or


26



contained herein, and such failure continues
after a period of five (5) days from the day
written notice of such failure is given to
Grantor; provided, that the Noteholder shall
not be required to give such notice more than
two (2) times during any twelve (12) month
period; or

     (b) the failure of Grantor timely and
properly to observe, keep or perform any
covenant, agreement, warranty or condition
herein required to be observed, kept or
performed, other than those referred to in
subparagraph 4.1 (a) or in any other
subparagraph hereof, and such failure
continues after a period of thirty (30) days
from the day written notice of such failure
is given to Grantor; provided, that i   f
such failure because of its nature cannot
reasonably be cured within such thirty (30)
day period, and Grantor is diligently
pursuing such cure, Grantor shall have an
additional thirty (30) days to cure such
failure; or

     (c) any representation contained herein
or in any other instrument securing the Note
or otherwise made by Grantor or any other
person or entity to the Noteholder in
connection with the loan evidenced by the
Note is false or misleading in any material
respect; or

     (d) a default or event of default occurs
under any other instrument securing the
payment of the secured indebtedness or any
part thereof or under the Loan Agreement; or

     (e) Grantor becomes insolvent, or makes
a transfer in fraud of creditors, or makes an
assignment for the benefit of creditors, or
admits in writing its inability to pay its
debts as they become due; or

     (f) a receiver, trustee or custodian is
appointed for, or takes possession of, all or
substantially all of the assets of Grantor or
any of the Property, either in a proceeding
brought by Grantor or in a proceeding brought
against Grantor and such appointment is not
discharged or such possession is not
terminated within thirty (30) days after the
effective date thereof or Grantor consents to
or
acquiesces in such appointment or possession;
or

     (g) Grantor files a petition for relief
under the Federal Bankruptcy Code, or any
other present or future federal or state
insolvency, bankruptcy or similar law (all of
the foregoing including, without limitation,
the Federal Deposit Insurance Act,
hereinafter collectively called "applicable
Bankruptcy Law") or an involuntary petition
for relief is filed against Grantor under any
applicable Bankruptcy Law and such petition
is not dismissed within thirty (30) days
after the filing thereof, or an order for
relief naming Grantor is entered under any
applicable Bankruptcy Law, or any
composition, rearrangement, extension,
reorganization or other relief of debtors now
or hereafter existing is requested or
consented to by Grantor; or




27



     (h) the Property or any part thereof is
taken on execution or other process of law in
any action against Grantor; or

     (i) Grantor fails to have discharged
within a period of thirty (30) days any
attachment, sequestration or similar writ
levied upon any property of Grantor; or

     (j) Grantor fails to pay within thirty
(30) days any final (after all appeals are
exhausted) money judgment against Grantor; or

     (k) any of the events referred to in
subheadings (e), (f), (g), (i) or (j) shall
occur with respect to any joint venturer or
general partner of Grantor or any guarantor
of the payment of the secured indebtedness or
any part thereof and shall not be remedied
within the time set forth in said
subheadings; or
     
     (l) Grantor abandons all or a portion of
the Property; or

     (m) the holder of any lien or security
interest on the Property (without hereby
implying the consent of the Noteholder to the
existence or creation of any such lien or
security interest) institutes foreclosure or
other proceedings for the enforcement of its
remedies thereunder; or

     (n) without the prior written consent of
the Noteholder, Grantor sells, leases (other
than leases entered into with Tenants of the
Property in the ordinary course of business),
exchanges, assigns, transfers, conveys or
otherwise disposes of all or any part of the
Property or any interest therein (except for
the disposition of worn-out or obsolete
personal property or fixtures under the
circumstances described in subparagraph
2.2(g) hereof), or legal or equitable title
to the Property, or any interest therein, is
vested in any other party, in any manner
whatsoever, by operation of law or otherwise,
or submits the Property to a condominium
regime pursuant to the Condominium Act of the
State of Texas, it being understood that the
consent of the Noteholder required hereunder
may be refused by the Noteholder in its sole
discretion or may be predicated upon any
terms, conditions and covenants deemed
advisable or necessary in the sole discretion
of the Noteholder, including but not limited
to the right to change the interest rate,
date of maturity or payments of principal
and/or interest on the Note, to require
payment of any amount as additional
consideration as a transfer fee or otherwise
and to require assumption of the Note and
this Mortgage; or

     (o) without the prior written consent of
the Noteholder, Grantor creates, places or
permits to be created or placed, or through
any act or failure to act, acquiesces in the
placing of, or allows to remain, any deed of
trust, mortgage, voluntary or involuntary
lien, whether statutory, constitutional or
contractual (except for the lien for ad
valorem taxes on the Property which are not
delinquent), security interest, encumbrance
or charge, or conditional sale or other title
retention document, against or covering the
Property, or any part


28



thereof, other than the Permitted
Encumbrances, regardless of whether the same
are expressly or otherwise subordinate to the
lien or security interest created in this
Mortgage, subject, however, to Grantor's
right to contest same in good faith, pursuant
to the conditions for contesting liens in
Section 4.1 (r) of the Loan Agreement, or
acquires any fixtures, equipment or other
property forming a part of the Property
pursuant to a lease, license or similar
agreement in excess of $25,000 in the
aggregate; or

     (p) the Property is so demolished,
destroyed or damaged that, in the reasonable
judgment of the Noteholder, it cannot be
restored or rebuilt with available funds to a
profitable condition within a reasonable
period of time; or

     (q) so much of the Property is taken in
condemnation, or sold in lieu of
condemnation, or the Property is so
diminished in value due to any injury or
damages to the Property, that the remainder
thereof cannot, in the reasonable judgment of
the Noteholder, continue to be operated
profitably for the purpose for which it was
being used immediately prior to such taking,
sale or diminution; or

     (r) Grantor dissolves, liquidates,
merges or consolidates or more than forty
percent (40%) of any ownership interest in
Grantor is sold, assigned, transferred,
mortgaged, pledged, encumbered, or otherwise
disposed of, voluntarily or involuntarily,
without the prior written consent of the
Noteholder or, if an individual, Grantor dies
or becomes legally incapacitated; or

     (s) any failure of any representation or
warranty made under any Certification of Non-
Foreign Status furnished the Noteholder in
connection with the Note to be true and
correct in all respects or any failure to
perform or other breach of any covenant
therein; or

     (t) any failure of any representation or
warranty made in any guaranty of the payment
of the secured indebtedness or any part
thereof to be true and correct in all
material respects or any failure to perform
or other breach of any covenant in said
guaranty.

     4.2 ACCELERATION. Upon the occurrence of
a default, the Noteholder shall have the
option of declaring all secured indebtedness
in its entirety to be immediately due and
payable, and the liens and security interests
evidenced hereby shall be subject to
foreclosure in any manner provided for herein
or provided for by law as the Noteholder may
elect.






29




     4.3 POSSESSION. Upon the occurrence of a
default, or any event or circumstance which,
with the lapse of time or the giving of
notice, or both, would constitute a default
hereunder, the Noteholder is authorized prior
or subsequent to the institution of any
foreclosure proceedings to enter upon the
Property, or any part thereof, and to take
possession of the Property and of all books,
records and accounts relating thereto and to
exercise without interference from Grantor
any and all rights which Grantor has with
respect to the management, possession,
operation, protection or preservation of the
Property, including the right to rent the
same for the account of Grantor and to deduct
from such rents all costs, expenses and
liabilities of every character incurred by
the Noteholder in collecting such rents and
in managing, operating, maintaining,
protecting or preserving the Property and to
apply the remainder of such rents on the
indebtedness secured hereby in such manner as
the Noteholder may elect. All such costs,
expenses and liabilities incurred by the
Noteholder in collecting such rents and in
managing, operating, maintaining, protecting
or preserving the Property, if not paid out
of rents as hereinabove provided, shall
constitute a demand obligation owing by
Grantor and shall bear interest from the date
of expenditure until paid at the rate of
interest payable on matured but unpaid
principal of or interest on the Note, all of
which shall constitute a portion of the
secured indebtedness. If necessary to obtain
the possession provided for above, the
Noteholder may invoke any and all legal
remedies to dispossess Grantor, including
specifically one or more actions for forcible
entry and detainer, trespass to try title and
restitution. IN CONNECTION WITH ANY ACTION
TAKEN BY THE NOTEHOLDER PURSUANT TO THIS
PARAGRAPH 4.3, THE NOTEHOLDER SHALL NOT BE
LIABLE FOR ANY LOSS SUSTAINED BY GRANTOR
RESULTING FROM ANY FAILURE TO LET THE
PROPERTY, OR ANY PART THEREOF, OR FROM ANY
OTHER ACT OR OMISSION OF THE NOTEHOLDER IN
MANAGING THE PROPERTY (REGARDLESS OF WHETHER
SUCH LOSS IS CAUSED BY THE NEGLIGENCE OF THE
NOTEHOLDER) UNLESS SUCH LOSS IS CAUSED BY THE
WILLFUL MISCONDUCT AND BAD FAITH OF THE
NOTEHOLDER, NOR SHALL THE NOTEHOLDER BE
OBLIGATED TO PERFORM OR DISCHARGE ANY
OBLIGATION, DUTY OR LIABILITY UNDER ANY LEASE
AGREEMENT COVERING THE PROPERTY OR ANY PART
THEREOF OR UNDER OR BY REASON OF THIS
INSTRUMENT OR THE EXERCISE OF RIGHTS OR
REMEDIES HEREUNDER. GRANTOR SHALL AND DOES
HEREBY AGREE TO INDEMNIFY THE NOTEHOLDER FOR,
AND TO HOLD THE NOTEHOLDER HARMLESS FROM, ANY
AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY
OR MIGHT BE INCURRED BY THE NOTEHOLDER UNDER
ANY SUCH LEASE AGREEMENT OR UNDER OR BY
REASON OF THIS MORTGAGE OR THE EXERCISE OF
RIGHTS OR REMEDIES HEREUNDER AND FROM ANY AND
ALL CLAIMS AND DEMANDS WHATSOEVER WHICH MAY
BE ASSERTED AGAINST THE NOTEHOLDER BY REASON
OF ANY ALLEGED OBLIGATIONS OR UNDERTAKINGS ON
ITS PART TO PERFORM OR DISCHARGE ANY OF


30



THE TERMS, COVENANTS OR AGREEMENTS CONTAINED
IN ANY SUCH LEASE AGREEMENT, REGARDLESS OF
WHETHER SUCH LIABILITY, LOSS, DAMAGE, CLAIMS
OR DEMANDS ARE THE RESULT OF THE NEGLIGENCE
OF THE NOTEHOLDER. Should the Noteholder
incur any such liability, the amount thereof,
including costs, expenses and reasonable
attorney's fees, shall be secured hereby and
Grantor shall reimburse the Noteholder
therefor immediately upon demand. Nothing in
this Paragraph 4.3 shall impose any duty,
obligation or responsibility upon the
Noteholder for the control, care, management
or repair of the Property, nor for the
carrying out of any of the terms and
conditions of any such lease agreement; nor
shall it operate to make the Noteholder
responsible or liable for any waste committed
on the Property by the Tenants or by any
other parties or for any dangerous or
defective condition of the Property, or for
any negligence in the management, upkeep,
repair or control of the Property resulting
in loss or injury or death to any Tenants,
licensee, employee or stranger. Grantor
hereby assents to, ratifies and confirms any
and all actions of the Noteholder with
respect to the Property taken under this
Paragraph 4.3. For purposes of this
paragraph, the term "Noteholder" shall
include the directors, officers, partners,
employees, attorneys and agents of the
Noteholder and any persons or entities owned
or controlled by, owning or controlling, or
under common control or affiliated with the
Noteholder.

     4.4 FORECLOSURE. Upon the occurrence of
a default, the Trustee, his successor or
substitute, is authorized and empowered and
it shall be his special duty at the request
of the Noteholder to sell the Mortgaged
Property or any part thereof situated in the
State of Texas at the courthouse of any
county in the State of Texas in which any
part of the Mortgaged Property is situated,
at public venue to the highest bidder for
cash between the hours of 10 o'clock a.m. and
4 o'clock p.m. on the first Tuesday in any
month after having given notice of such sale
in accordance with the statutes of the State
of Texas then in force governing sales of
real estate under powers conferred by deed of
trust. Any sale made by the Trustee hereunder
may be as an entirety or in such parcels as
the Noteholder may request, and any sale may
be adjourned by announcement at the time and
place appointed for such sale without further
notice except as may be required by law. The
sale by the Trustee of less than the whole of
the Mortgaged Property shall not exhaust the
power of sale herein granted, and the Trustee
is specifically empowered to make successive
sale or sales under such power until the
whole of the Mortgaged Property shall be
sold; and, if the proceeds of such sale of
less than the whole of the Mortgaged Property
shall be less than the aggregate of the
indebtedness secured hereby and the expense
of executing this trust as provided herein,
this Mortgage and the lien hereof shall
remain in full force and effect as to the
unsold portion of the Mortgaged Property just
as though no sale had been made; provided,
however, that Grantor shall never have any
right to require the sale of less than the
whole of the Mortgaged Property but the
Noteholder shall have the right, at its sole
election, to request the Trustee to sell less
than the whole of the Mortgaged


31



Property. After each sale, the Trustee shall
make to the purchaser or purchasers at such
sale good and sufficient conveyances in the
name of Grantor, conveying the Property so
sold to the purchaser or purchasers in fee
simple with general warranty of title, and
shall receive the proceeds of said sale or
sales and apply the same as herein provided.
Payment of the purchase price to the Trustee
shall satisfy the obligation of purchaser at
such sale therefor, and such purchaser shall
not be responsible for the application
thereof. The power of sale granted herein
shall not be exhausted by any sale held
hereunder by the Trustee or his substitute or
successor, and such power of sale may be
exercised from time to time and as many times
as the Noteholder may deem necessary until
all of the Mortgaged Property has been duly
sold and all secured indebtedness has been
fully paid. In the event any sale hereunder
is not completed or is defective in the
opinion of the Noteholder, such sale shall
not exhaust the power of sale hereunder and
the Noteholder shall have the right to cause
a subsequent sale or sales to be made
hereunder. Any and all statements of fact or
other recitals made in any deed or deeds
given by the Trustee or any successor or
substitute appointed hereunder as to
nonpayment of the indebtedness secured
hereby, or as to the occurrence of any
default, or as to the Noteholder having
declared all of such indebtedness to be due
and payable, or as to the request to sell, or
as to notice of time, place and terms of sale
and of the properties to be sold having been
duly given, or as to the refusal, failure or
inability to act of the Trustee or any
substitute or successor, or as to the
appointment of any substitute or successor
trustee, or as to any other act or thing
having been duly done by the Noteholder or by
such Trustee, substitute or successor, shall
be taken as prima facie evidence of the truth
of the facts so stated and recited. The
Trustee, his successor or substitute, may
appoint or delegate any one or more persons
as agent to perform any act or acts necessary
or incident to any sale held by the Trustee,
including the posting of notices and the
conduct of sale, but in the name and on
behalf of the Trustee, his successor or
substitute.

     4.5 JUDICIAL FORECLOSURE. This
instrument shall be effective as a mortgage
as well as a deed of trust and upon the
occurrence of a default may be foreclosed as
to any of the Property in any manner
permitted by the laws of the State of Texas
or of any other state in which any part of
the Property is situated, and any foreclosure
suit may be brought by the Trustee or by the
Noteholder. In the event a foreclosure
hereunder shall be commenced by the Trustee,
or his substitute or successor, the
Noteholder may at any time before the sale of
the Property direct the said Trustee to
abandon the sale, and may then institute suit
for the collection of the Note and the. other
secured indebtedness, and for the foreclosure
of this Mortgage. It is agreed that if the
Noteholder should institute a suit for the
collection of the Note or any other secured
indebtedness and for the foreclosure of this
Mortgage, the Noteholder may at any time
before the entry of a final judgment in said
suit dismiss the same, and require the
Trustee, his substitute or successor to sell
the Property in accordance with the
provisions of this Mortgage.



32



     4.6 RECEIVER. In addition to all other
remedies herein provided for, Grantor agrees
that upon the occurrence of a default, the
Noteholder shall as a matter of right be
entitled to the appointment of a receiver or
receivers for all or any part of the
Property, whether such receivership be
incident to a proposed sale of such property
or otherwise, and without regard to the value
of the Property or the solvency of any person
or persons liable for the payment of the
indebtedness secured hereby, and Grantor does
hereby consent to the appointment of such
receiver or receivers, waives any and all
defenses to such appointment and agrees not
to oppose any application therefor by the
Noteholder, but nothing herein is to be
construed to deprive the Noteholder of any
other right, remedy or privilege it may now
have under the law to have a receiver
appointed; provided, however, that the
appointment of such receiver, trustee or
other appointee by virtue of any court order,
statute or regulation shall not impair or in
any manner prejudice the rights of the
Noteholder to receive payment of the rents
and income pursuant to Paragraph 3.1 hereof.
Any money advanced by the Noteholder in
connection with any such receivership shall
be a demand obligation owing by Grantor to
the Noteholder and shall bear interest from
the date of making such advancement by the
Noteholder until
paid at the rate of interest payable on
matured but unpaid principal of or interest
on the Note and shall be a part of the
secured indebtedness and shall be secured by
this Mortgage and by any other instrument
securing the secured indebtedness.

     4.7 PROCEEDS OF SALE. The proceeds of
any sale held by the Trustee or any receiver
or public officer in foreclosure of the liens
evidenced hereby shall be applied:
     
     FIRST, to the payment of all necessary
costs and expenses incident to such
foreclosure sale, including but not limited
to all court costs and charges of every
character in the event foreclosed by suit,
and a reasonable fee to the Trustee acting
under the provisions of paragraph 4.4 if
foreclosed by power of sale as provided in
said paragraph, not exceeding five percent
(5%) of the proceeds of such sale;

     SECOND, to the payment in full of the
secured indebtedness (including specifically
without limitation the principal, interest
and attorney's fees due and unpaid on the
Note and the amounts due and unpaid and owed
to the Noteholder under this Mortgage) in
such order as the Noteholder may elect; and

     THIRD, the remainder, if any there shall
be, shall be paid to Grantor or to such other
party or parties as may be entitled thereto
by law.






33



     4.8 THE NOTEHOLDER AS PURCHASER. The
Noteholder shall have the right to become the
purchaser at any sale held by any Trustee or
substitute or successor or by any receiver or
public officer, and any Noteholder purchasing
at any such sale shall have the right to
credit upon the amount of the bid made
therefor, to the extent necessary to satisfy
such bid, the secured indebtedness owing to
such Noteholder, or if such Noteholder holds
less than all of such indebtedness the pro
rata part thereof owing to such Noteholder,
accounting to all other Noteholders not
joining in such bid in cash for the portion
of such bid or bids apportionable to such
nonbidding Noteholder or Noteholders.
     
     4.9 UNIFORM COMMERCIAL CODE. Upon the
occurrence of a default, the Noteholder may
exercise its rights of enforcement with
respect to the Collateral under the Texas
Business and Commerce Code, as amended, and
in conjunction with, in addition to or in
substitution for those rights and remedies:

     (a) the Noteholder may enter upon the
Property to take possession of, assemble and
collect the Collateral or to render it
unusable; and

     (b) the Noteholder may require Grantor
to assemble the Collateral and make it
available at a place the Noteholder
designates which is mutually convenient to
allow the Noteholder to take possession or
dispose of the Collateral;
and

     (c) written notice mailed to Grantor as
provided herein five (5) days prior to the
date of public sale of the Collateral or
prior to the date after which private sale of
the Collateral will be made shall constitute
reasonable notice; and

     (d) any sale made pursuant to the
provisions of this paragraph shall be deemed
to have been a public sale conducted in a
commercially reasonable manner if held
contemporaneously with the sale of the
Mortgaged Properly under power of sale as
provided herein upon giving the same notice
with respect to the sale of the Collateral
hereunder as is required for such sale of the
Mortgaged Property under power of sale; and

     (e) in the event of a foreclosure sale,
whether made by the Trustee under the terms
hereof, or under judgment of a court, the
Collateral and the Mortgaged Property may, at
the option of the Noteholder, be sold as a
whole; and

     (f) it shall not be necessary that the
Noteholder take possession of the Collateral
or any part thereof prior to the time that
any sale pursuant to the provisions of this
paragraph is conducted and it shall not be
necessary that the Collateral or any part
thereof be present at the location of such
sale; and



34


     (g) prior to application of proceeds of
disposition of the Collateral to the secured
indebtedness, such proceeds shall be applied
to the reasonable expenses of retaking,
holding, preparing for sale or lease,
selling, leasing and the like and the
reasonable attorney's fees and legal expenses
incurred by the Noteholder; and

     (h) any and all statements of fact or
other recitals made in any bill of sale or
assignment or other instrument evidencing any
foreclosure sale hereunder as to nonpayment
of the indebtedness or as to the occurrence
of any default, or as to the Noteholder
having declared all of such indebtedness to
be due and payable, or as to notice of time,
place and terms of sale and of the properties
to be sold having been duly given, or as to
any other act or thing having been duly done
by the Noteholder, shall be taken as prima
facie evidence of the truth of the facts so
stated and recited; and

     (i) the Noteholder may appoint or
delegate any one or more persons as agent to
perform any act or acts necessary or incident
to any sale held by the Noteholder, including
the sending of notices and the conduct of the
sale, but in the name and on behalf of the
Noteholder.

     4.10 PARTIAL FORECLOSURE. In the event
of a default in the payment of any part of
the secured indebtedness, the Noteholder
shall have the right to proceed with
foreclosure of the liens and security
interests evidenced hereby without declaring
the entire secured
indebtedness due, and in such event any such
foreclosure sale may be made subject to the
unmatured part of the secured indebtedness;
and any such sale shall not in any manner
affect the unmatured part of the secured
indebtedness, but as to such unmatured part
this Mortgage shall remain in full force and
effect just as though no sale had been made.
The proceeds of any such sale shall be
applied as provided in Paragraph 4.7 except
that the amount paid under subparagraph
SECOND thereof shall be only the matured
portion of the secured indebtedness and any
proceeds of such sale in excess of those
provided for in subparagraphs FIRST and
SECOND (modified as provided above) shall be
applied to installments of principal of and
interest on the Note in the inverse order of
maturity. Several sales may be made hereunder
without exhausting the right of sale for any
unmatured part of the secured indebtedness.

     4.11 REMEDIES CUMULATIVE. All remedies
herein expressly provided for are cumulative
of any and all other remedies existing at law
or in equity and are cumulative of any and
all other remedies provided for in any other
instrument securing the payment of the
secured indebtedness, or any part thereof, or
otherwise benefiting the Noteholder, and the
Trustee and the Noteholder shall, in addition
to the remedies herein provided, be entitled
to avail themselves of all such other
remedies as may now or hereafter exist at law
or in equity for the collection of the
secured indebtedness and the enforcement of
the covenants here in and the foreclosure of
the liens and security interests


35



evidenced hereby, and the resort to any
remedy provided for hereunder or under any
such other instrument or provided for by law
shall not prevent the concurrent or
subsequent employment of any other
appropriate remedy or remedies.

     4.12 RESORT TO ANY SECURITY. The
Noteholder may resort to any security given
by this Mortgage or to any other security now
existing or hereafter given to secure the
payment of the secured indebtedness, in whole
or in part, and in such portions and in such
order as may seem best to the Noteholder in
its sole and uncontrolled discretion, and any
such action shall not in anywise be
considered as a waiver of any of the rights,
benefits, liens or security interests
evidenced by this Mortgage.

     4.13 WAIVER. To the full extent Grantor
may do so, Grantor agrees that Grantor will
not at any time insist upon, plead, claim or
take the benefit or advantage of any law now
or hereafter in force pertaining to the
rights and remedies of sureties or providing
for any appraisement, valuation, stay of
execution, or redemption, and Grantor, for
Grantor and Grantor's heirs, devisees,
representatives, successors and assigns, and
for any and all persons ever claiming any
interest in the Property, to the extent
permitted by law, hereby waives and releases
all rights of redemption, valuation,
appraisement, stay of execution, notice of
intention to mature or declare due the whole
of the secured indebtedness, notice of
election to mature or declare due the whole
of the secured indebtedness and all rights to
a marshaling of the assets of Grantor,
including the Property, or to a sale in
inverse order of alienation in the event of
foreclosure of the liens and security
interests hereby created. Grantor shall not
have or assert any right under any statute or
rule of law pertaining to the marshaling of
assets, sale in inverse order of alienation,
the exemption of homestead, the
administration of estates of decedents or
other matters whatever to defeat, reduce or
affect the right of the Noteholder under the
terms of this Mortgage to a sale of the
Property for the collection of the secured
indebtedness without any prior or different
resort for collection, or the right of the
Noteholder under the terms of this Mortgage
to the payment of such indebtedness out of
the proceeds of sale of the Property in
preference to every other claimant whatever.
If any law referred to in this paragraph and
now in force, of which Grantor or Grantor's
heirs, devisees, representatives, successors
and assigns and such other persons claiming
any interest in the Property might take
advantage despite this paragraph, shall
hereafter be repealed or cease to be in
force, such law shall not thereafter be
deemed to preclude the application of this
paragraph.

     4.14 DELIVER5I OF POSSESSION AFTER
FORECLOSURE. In the event there is a
foreclosure sale hereunder and at the time of
such sale Grantor or Grantor's heirs,
devisees, representatives, successors or
assigns or any other persons claiming any
interest in the Property by, through or under
Grantor are occupying or using the Property,
or any part thereof, each and all shall
immediately become the tenant of the
purchaser at such sale, which tenancy


36



shall be a tenancy from day-to-day,
terminable at the will of either landlord or
tenant, at a reasonable rental per day based
upon the value of the property occupied, such
rental to be due daily to the purchaser. In
the event the tenant fails to surrender
possession of said property upon demand, the
purchaser shall be entitled to institute and
maintain an action for forcible entry and
detainer of said property.

     4.15 TENDER AFTER ACCELERATION.  If,
following the occurrence of a default and the
acceleration of the secured indebtedness but
prior to the foreclosure of this Mortgage
against the Property; Grantor shall tender to
the Noteholder payment of an amount
sufficient to pay the entire secured
indebtedness, such tender shall be deemed to
be a voluntary prepayment under the Note and,
consequently, Grantor shall also pay to the
Noteholder any charge or premium required
under the Note to be paid in order to prepay
principal and, if such principal payment is
made during any period when prepayment is
prohibited by this Mortgage or the Note, the
applicable charge or premium shall be the
maximum prepayment penalty provided for in
the Note; provided, however, that in no event
shall any amount payable under this
paragraph, when added to the interest
otherwise payable on the Note and the other
secured indebtedness, exceed the maximum
interest permitted under applicable law.


ARTICLE 5


MISCELLANEOUS

     5.1 DEFEASANCE. If all of the secured
indebtedness be paid as the same becomes due
and payable and if all of the covenants,
warranties, undertakings and agreements made
in this Mortgage are kept and performed, then
and in that event only, all rights under this
Mortgage, except for Grantor's
indemnification obligations set forth herein,
shall terminate and the Property shall become
wholly clear of the liens, security
interests, conveyances and assignments
evidenced hereby, which shall be released by
the Noteholder in due form at Grantor's cost.

     5.2 SUCCESSOR TRUSTEE. The Trustee may
resign by an instrument in writing addressed
to the Noteholder, or the Trustee may be
removed at any time with or without cause by
an instrument in writing executed by the
Noteholder. In case of the death,
resignation, removal or disqualification of
the Trustee or if for any reason the
Noteholder shall deem it desirable to appoint
a substitute or successor trustee to act
instead of the herein named trustee or any
substitute or successor trustee, then the
Noteholder shall have the right and is hereby
authorized and empowered to appoint a
successor trustee, or a substitute trustee,
without other formality than appointment and
designation in writing executed by the
Noteholder and the authority hereby conferred
shall extend to the appointment of other
successor and substitute trustees
successively


37



until the indebtedness secured hereby has
been paid in full or until the Property is
sold hereunder. In the event the indebtedness
secured hereby is owned by more than one
person or entity, the holder or holders of
not less than a majority in the amount of
such indebtedness shall have the right and
authority to make the appointment of a
successor or substitute trustee provided for
in the preceding sentence. Such appointment
and designation by the Noteholder or by the
holder or holders of not less than a majority
of the indebtedness secured hereby shall be
full evidence of the right and authority to
make the same and of all facts therein
recited. If the Noteholder is a corporation
and such appointment is executed in its
behalf by an officer of such corporation,
such appointment shall be conclusively
presumed to be executed with authority and
shall be valid and sufficient without proof
of any action by the board of directors or
any superior officer of the corporation. Upon
the making of any such appointment and
designation, all of the estate and title of
the Trustee in the Property shall vest in the
named successor or substitute trustee and he
shall thereupon succeed to and shall hold,
possess and execute all the rights, powers,
privileges, immunities and duties herein
conferred upon the Trustee; but nevertheless,
upon the written request of the Noteholder or
of the successor or substitute Trustee, the
Trustee ceasing to act shall execute and
deliver an instrument transferring to such
successor or substitute Trustee all of the
estate and title in the Property of the
Trustee so ceasing to act, together with all
the rights, powers, privileges, immunities
and duties herein conferred upon the Trustee,
and shall duly assign, transfer and deliver
any of the properties and moneys held by said
Trustee hereunder to said successor or
substitute Trustee. All references herein to
the Trustee shall be deemed to refer to the
Trustee (including any successor or
substitute appointed and designated as herein
provided) from time to time acting hereunder.
Grantor hereby ratifies and confirms any and
all acts which the herein named Trustee or
his successor or successors, substitute or
substitutes, in this trust, shall do lawfully
by virtue hereof.

     5.3 LIABILITY AND INDEMNIFICATION OF
TRUSTEE. THE TRUSTEE SHALL NOT BE LIABLE FOR
ANY ERROR OF JUDGMENT OR ACT DONE BY THE
TRUSTEE IN GOOD FAITH, OR BE OTHERWISE
RESPONSIBLE OR ACCOUNTABLE UNDER ANY
CIRCUMSTANCES WHATSOEVER (INCLUDING THE
TRUSTEE'S NEGLIGENCE1 EXCEPT FOR THE
TRUSTEE'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. The Trustee shall have the right
to rely on any instrument, document or
signature authorizing or supporting any
action taken or proposed to be taken by him
hereunder, believed by him in good faith to
be genuine. All moneys received by the
Trustee shall, until used or applied as
herein provided, be held in trust for the
purposes for which they were received, but
need not be segregated in any manner from any
other moneys (except to the extent required
by law), and the Trustee shall be under no
liability for interest on any moneys received
by him hereunder. GRANTOR WILL REIMBURSE THE
TRUSTEE FOR AND INDEMNIFY AND SAVE HIM
HARMLESS AGAINST, ANY



38



AND ALL LIABILITY AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES) WHICH MAY BE
INCURRED BY HIM IN THE PERFORMANCE OF HIS
DUTIES HEREUNDER (INCLUDlNG
ANY LIABILITY AND EXPENSES RESULTING FROM THE
TRUSTEE'S OWN NEGLIGENCE). THE FOREGOING
INDEMNITY SHALL NOT TERMINATE UPON RELEASE,
FORECLOSURE OR OTHER TERMINATION OF THIS
MORTGAGE.

     5.4 WAIVER BY THE NOTEHOLDER. The
Noteholder may at any time and from time to
time in writing (a) waive compliance by
Grantor with any covenant herein made by
Grantor to the extent and in the manner
specified in such writing; (b) consent to
Grantor doing any act which hereunder Grantor
is prohibited from doing, or consent to
Grantor failing to do any act which hereunder
Grantor is required to do, to the extent and
in the manner specified in such writing; (c)
release any part of the Property, or any
interest therein, from the lien and security
interest of this Mortgage without the joinder
of the Trustee; or (d) release any party
liable, either directly or indirectly, for
the secured indebtedness or for any covenant
herein or in any other instrument now or
hereafter securing the payment of the secured
indebtedness, without impairing or releasing
the liability of any other party. No such act
shall in any way impair the rights of the
Noteholder hereunder except to the extent
specifically agreed to by the Noteholder in
such writing.

     5.5 ACTIONS BY THE NOTEHOLDER. The lien,
security interest and other security rights
of the Noteholder hereunder shall not be
impaired by any indulgence, moratorium or
release granted by the Noteholder, including
but not limited to (a) any renewal,
extension, increase or modification which the
Noteholder may grant with respect to any
secured indebtedness, (b) any surrender,
compromise, release, renewal, extension,
exchange or substitution which the Noteholder
may grant in respect of the Property, or any
part thereof or any interest therein, or (c)
any release or indulgence granted to any
endorser, guarantor or surety of any secured
indebtedness. The taking of additional
security by the Noteholder shall not release
or impair the lien, security interest or
other security rights of the Noteholder
hereunder or affect the liability of Grantor
or of any endorser or guarantor or other
surety or improve the right of any permitted
junior lienholder in the Property.

     5.6 RIGHTS OF THE NOTEHOLDER. The
Noteholder may waive any default without
waiving any other prior or subsequent
default. The Noteholder may remedy any
default without waiving the default remedied.
Neither the failure by the Noteholder to
exercise, nor the delay by the Noteholder in
exercising, any right, power or remedy upon
any default shall be construed as a waiver of
such default or as a waiver of the right to
exercise any such right, power or remedy at a
later date. No single or partial exercise by
the Noteholder of any right, power or remedy
hereunder shall exhaust the same or shall
preclude any other or further exercise
thereof, and every such right, power


39



or remedy hereunder may be exercised at any
time and from time to time. No modification
or waiver of any provision hereof nor consent
to any departure by Grantor therefrom shall
in any event be effective unless the same
shall be in writing and signed by the
Noteholder and then such waiver or consent
shall be effective only in the specific
instances, for the purpose for which given
and to the extent therein specified. No
notice to nor demand on Grantor in any case
shall of itself entitle Grantor to any other
or further notice or demand in similar or
other circumstances. Acceptance by the
Noteholder of any payment in an amount less
than the amount then due on any secured
indebtedness shall be
deemed an acceptance on account only and
shall not in any way affect the existence of
a default hereunder.

     5.7 NOTIFICATION OF ACCOUNT DEBTORS. The
Noteholder may at any time after default by
Grantor notify the account debtors or
obligors of any accounts, chattel paper,
negotiable instruments or other evidences of
indebtedness included in the Collateral to
pay the Noteholder directly.

     5.8 REPRODUCTION AS FINANCING STATEMENT.
A carbon, photographic or other reproduction
of this Mortgage or of any financing
statement relating to this Mortgage shall be
sufficient as a financing statement.

     5.9 FIXTURE FILING. This Mortgage shall
be effective as a financing statement file as
a fixture filing with respect to all fixtures
included within the Property and is to be
filed for record in the real estate records
in the Office of the County Clerk where the
Property (including said fixtures) is
situated. This Mortgage shall also be
effective as a financing statement covering
minerals or the like (including oil and gas)
and accounts subject to Subsection (e) of
Section 9.103 of the Texas Business and
Commerce Code, as amended, and is to be filed
for record in the real estate records of the
county where the Property is situated. The
mailing address of Grantor is set forth below
opposite the signature of Grantor to this
Mortgage and the address of the Noteholder
from which information concerning the
security interest may be obtained is the
address of the Noteholder set forth at the
end of this Mortgage.

     5.10 FILING AND RECORDATION. Grantor
will cause this Mortgage and all amendments
and supplements thereto and substitutions
therefor and all financing statements and
continuation statements relating hereto to be
recorded, filed, rerecorded and refiled in
such manner and in such places as the Trustee
or the Noteholder shall reasonably request,
and will pay all such recording, fling,
rerecording and refiling taxes, fees and
other charges.

     5.11 DEALING WITH SUCCESSOR. In the
event the ownership of the Property or any
part thereof becomes vested in a person other
than Grantor, the Noteholder may, without
notice to Grantor, deal with such successor
or successors in interest with reference to
this Mortgage and to the indebtedness secured
hereby in the same manner as with Grantor,
without in any way


40



vitiating or discharging Grantor's liability
hereunder or for the payment of the
indebtedness secured hereby. No sale of the
Property, no forbearance on the part of the
Noteholder and no extension of the time for
the payment of the indebtedness secured
hereby given by the Noteholder shall operate
to release, discharge, modify, change or
affect, in whole or in part, the liability of
Grantor hereunder or for the payment of the
indebtedness secured hereby or the liability
of any other person hereunder or for the
payment of the indebtedness secured hereby,
except as agreed to in writing by the
Noteholder.

     5.12 PLACE OF PAYMENT. The Note and all
other secured indebtedness which may be owing
hereunder at any time by Grantor shall be
payable at the place designated in the Note,
or if no such designation is made, at the
office of the Noteholder at the address
indicated in this Mortgage, or at such other
place as the Noteholder may designate in
writing.

     5.13 SUBROGATION. To the extent that
proceeds of the Note are used to pay
indebtedness secured by any outstanding lien,
security interest, charge or prior
encumbrance against the Property, such
proceeds have been advanced by the Noteholder
at Grantor's request and the Noteholder shall
be subrogated to any and all rights, security
interests and liens owned or held by any
owner or holder of such outstanding liens,
security interests, charges or encumbrances,
irrespective of whether said liens, security
interests, charges or encumbrances are
released; provided, however, that the terms
and provisions of this Mortgage shall govern
the rights and remedies of the Noteholder and
shall supersede the terms, provisions, rights
and remedies under and pursuant to the
instruments creating the lien or liens to
which the Noteholder is subrogated hereunder.

     5.14 APPLICATION OF INDEBTEDNESS. If any
part of the secured indebtedness cannot be
lawfully secured by this Mortgage or if any
part of the Property cannot be lawfully
subject to the lien and security interest
hereof to the full extent of such
indebtedness, then all payments made shall be
applied on said indebtedness first in
discharge of that portion thereof which is
unsecured by this Mortgage.

     5.15 USURY. It is the intent of the
Noteholder and Grantor in the execution of
the Note, this Mortgage and all other
instruments now or hereafter securing the
Note or executed in connection therewith or
under any other written or oral agreement by
Grantor in favor of the Noteholder to
contract in strict compliance with applicable
usury law. In furtherance thereof, the
Noteholder and Grantor stipulate and agree
that none of the terms and provisions
contained in the Note, this Mortgage or any
other instrument securing the Note or
executed in connection herewith, or in any
other written or oral agreement by Grantor in
favor of the Noteholder, shall ever be
construed to create a contract to pay for the
use, forbearance or detention of money,
interest at a rate in excess of the maximum
interest rate permitted to be charged by


41



applicable law. Neither Grantor nor any
guarantors, endorsers or other parties now or
hereafter becoming liable for payment of the
Note or the other indebtedness secured hereby
shall ever be required to pay interest on the
Note or on indebtedness arising under any
instrument securing the Note or executed in
connection therewith, or in any other written
or oral agreement by Grantor in favor of the
Noteholder, at a rate in excess of the
maximum interest that may be lawfully charged
under applicable law, and the provisions of
this paragraph shall control over all other
provisions of the Note, this Mortgage and any
other instruments now or hereafter securing
the Note or executed in connection herewith
or any other oral or written agreements which
may be in apparent conflict herewith. The
Noteholder expressly disavows any intention
to charge or collect excessive unearned
interest or finance charges in the event the
maturity of the Note is accelerated. If the
maturity of the Note shall be accelerated for
any reason or if the principal of the Note is
paid prior to the end of the term of the
Note, and as a result thereof the interest
received for the actual period of existence
of the loan evidenced by the Note exceeds the
amount of interest that would have accrued at
the applicable maximum lawful rate, the
Noteholder shall, at its option, either
refund to Grantor the amount of such excess
or credit the amount of such excess against
the principal balance of the Note then
outstanding and thereby shall render
inapplicable any and all penalties of any
kind provided by applicable law as a result
of the excess interest. In the event that the
Noteholder shall collect monies and/or any
other thing of value which are deemed to
constitute interest which would increase the
effective interest rate on the Note or the
other indebtedness secured hereby to a rate
in excess of that permitted to be charged by
applicable law, an amount equal to interest
in excess of the lawful rate shall, upon such
determination, at the option of the
Noteholder, be either immediately returned to
Grantor or credited against the principal
balance of the Note then outstanding or the
other indebtedness secured hereby, in which
event any and all penalties of any kind under
applicable law as a result of such excess
interest shall be inapplicable. By execution
of this Mortgage, Grantor acknowledges that
it believes the loan evidenced by the Note to
be non-usurious and agrees that if, at any
time, Grantor should have reason to believe
that such loan is in fact usurious, it will
give the Noteholder notice of such condition
and Grantor agrees that the Noteholder shall
have ninety (90) days after receipt of such
notice in which to make appropriate refund or
other adjustment in order to correct such
condition it in fact such exists. The term
"applicable law" as used in this paragraph
shall mean the laws of the State of Texas or
the laws of the United States, whichever laws
allow the greater rate of interest, as such
laws now exist or may be changed or amended
or come into effect in the future.








42



     5.16 NOTICE. Any notice, request, demand
or other communication required or permitted
hereunder, or under the Note, or under any
other instrument securing the payment of the
Note (unless otherwise expressly provided
therein) shall be given in writing by (a)
personal delivery, or (b) expedited delivery
service with proof of delivery, or (c) United
States Mail, postage prepaid, registered or
certified mail, return receipt requested, or
(d) prepaid telegram, telex or telecopy sent
to the intended addressee at the address
shown on the signature page of this Mortgage,
or to such different address as the addressee
shall have designated by written notice sent
in accordance herewith, and shall be deemed
to have been given and received either at the
time of personal delivery or, in the case of
delivery service or mail, as of the date of
first attempted delivery at the address and
in the manner provided herein, or in the case
of telegram, telex or telecopy, upon receipt;
provided that, service of a notice required
by Tex. Property Code Section 51.002 shall be
considered complete when the requirements of
that statute are met.

     5.17 HEIRS. SUCCESSORS AND ASSIGNS. The
terms, provisions, covenants and conditions
hereof shall be binding upon Grantor, and the
heirs, devisees, representatives, successors
and assigns of Grantor including all
successors in interest of Grantor in and to
all or any part of the Property, and shall
inure to the benefit of the Trustee and the
Noteholder and their respective heirs,
successors, substitutes and assigns and shall
constitute covenants running with the land.
All references in this Mortgage to Grantor,
Trustee or the Noteholder shall be deemed to
include all such heirs, devisees,
representatives, successors, substitutes and
assigns.

     5.18 SEVERABILITY. A determination that
any provision of this Mortgage is
unenforceable or invalid shall not affect the
enforceability or validity of any other
provision and any determination that the
application of any provision of this Mortgage
to any person or circumstance is illegal or
unenforceable shall not affect the
enforceability or validity of such provision
as it may apply to any other persons or
circumstances.

     5.19 GENDER AND NUMBER. Within this
Mortgage, words of any gender shall be held
and construed to include any other gender,
and words in the singular number shall be
held and construed to include the plural, and
words in the plural number shall be held and
construed to include the singular, unless in
each instance the context otherwise requires.

     5.20 COUNTERPARTS. This Mortgage may be
executed in any number of counterparts with
the same effect as if all parties hereto had
signed the same document. All such
counterparts shall be construed together and
shall constitute one instrument, but in
making proof hereof it shall only be
necessary to produce one such counterpart.




43



     5.21 JOINT AND SEVERAL. Where two or
more persons or entities have executed this
Mortgage, unless the context clearly
indicates otherwise, the term "Grantor" as
used in this Mortgage means the grantors
hereunder or either or any of them and the
obligations of Grantor hereunder shall be
joint and several.

     5.22 REPORTING REQUIREMENTS. Grantor
agrees to comply with any and all reporting
requirements applicable to the transaction
evidenced by the Note and secured by this
Mortgage which are set forth in any law,
statute, ordinance, rule, regulation, order
or determination of any governmental
authority, including but not limited to The
International Investment Survey Act of 1976,
The Agricultural Foreign Investment
Disclosure Act of 1978, The Foreign
Investment in Real Property Tax Act of 1980
and the Tax Reform Act of 1984 and further
agrees upon request of the Noteholder to
furnish the Noteholder with evidence of such
compliance.

     5.23 HEADINGS. The paragraph headings
contained in this Mortgage are for
convenience only and shall in no way enlarge
or limit the scope or meaning of the various
and several paragraphs hereof.

     5.24 CONSTRUCTION MORTGAGE. This
Mortgage is a construction mortgage (as that
term is defined in Section 9.313(a) (3) of
the Texas Business and Commerce Code) in that
it secures an obligation incurred for the
construction of an improvement on land
including the acquisition cost of the land.
It is understood and agreed that funds to be
advanced upon the Note are to be used in the
construction of certain improvements on the
land herein described in accordance with the
Loan Agreement.

     5.25 CONSENT OF THE NOTEHOLDER. Except
where otherwise provided herein, in any
instance hereunder where the approval,
consent or the exercise of judgment of the
Noteholder is required, the granting or
denial of such approval or consent and the
exercise of such judgment shall be within the
sole discretion of the Noteholder, and the
Noteholder shall not, for any reason or to
any extent, be required to grant such
approval or consent or exercise such judgment
in any particular manner, regardless of the
reasonableness of either the request or the
Noteholder's judgment.

     5.26 MODIFICATION OR TERMINATION. The
Loan Documents may only be modified or
terminated by a written instrument or
instruments executed by the party against
which enforcement of the modification or
termination is asserted. Any alleged
modification or termination which is not so
documented shall not be effective as to any
party.
     
     
     
     
     
     
     44


     
     5.27 NEGATION OF PARTNERSHIP. Nothing
contained in the Loan Documents is intended
to create any partnership, joint venture or
association between Grantor and the
Noteholder, or in any way make the Noteholder
a co-principal with Grantor with reference to
the Property, and any inferences to the
contrary are hereby expressly negated.

     5.28 MODIFICATION BY SUBSEQUENT OWNERS.
Grantor agrees that it shall be bound by any
modification of this Mortgage or any of the
other Loan Documents made by the Noteholder
and any subsequent owner of the Property,
with or without notice to Grantor, and no
such modification shall impair the
obligations of Grantor under this Mortgage or
under any Loan Document. Nothing in this
paragraph shall be construed as permitting
any transfer of the Property which would
constitute a default under this Mortgage.

     5.29 ENTIRE AGREEMENT. The Loan
Documents constitute the entire understanding
and agreement between Grantor and the
Noteholder with respect to the transactions
arising in connection with the indebtedness
secured hereby and supersede all prior
written or oral understandings and agreements
between Grantor and the Noteholder with
respect thereto. Grantor hereby acknowledges
that, except as incorporated in writing in
the Loan Documents, there are not, and were
not, and no persons are or were authorized by
the Noteholder to make, any representations,
understandings, stipulations, agreements or
promises, oral or written, with respect to
the transaction which is the subject of the
Loan Documents.

     5.30 APPLICABLE LAW. THIS MORTGAGE AND
THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER SHALL IN ALL RESPECTS BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH. THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO TEXAS' PRINCIPLES OF
CONFLICTS OF LAW) AND THE LAW OF THE UNITED
STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE. GRANTOR HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY TEXAS
OR FEDERAL COURT SITTING IN DALLAS. TEXAS OR
ANY COUNTY IN TEXAS WHERE ANY PORTION OF THE
PROPERZY IS LOCATED OVER ANY SUIT. ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY
OF THE LOAN DOCUMENTS. AND GRANTOR HEREBY
AGREES AND CONSENTS THAT IN ADDITION TO ANY
METHODS OF SERVICE OF PROCESS PROVIDED FOR
UNDER APPLICABLE LAW ALL SERVICE OF PROCESS
IN ANY SUCH SUIT ACTION OR PROCEEDING IN ANY
TEXAS OR FEDERAL COURT SITTING IN DALLAS.
TEXAS (OR SUCH OTHER COUNTY IN TEXAS) MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL. RETURN
RECEIPT REQUESTED DIRECTED TO GRANTOR AT THE
ADDRESS OF GRANTOR FOR THE GIVING OF NOTICES
PURSUANT TO PARAGRAPH
     
     
     45


     
     5.16 HEREOF AND SERVICE SO MADE SHALL BE
COMPLETE FIVE 5 DAYS AFTER THE SAME SHALL
HAVE BEEN SO MAILED.

     5.31 WAIVER OF JUDICIAL PROCEDURAL
MATTERS. Grantor hereby expressly and
unconditionally waives, in connection with
any suit, action or proceeding brought by the
Noteholder in connection with any of the Loan
Documents, any and every right it may have to
(i) injunctive relief, (ii) a trial by jury,
(iii) interpose any counterclaim therein, and
(iv) have the same consolidated with any
other or separate suit, action or proceeding.
Nothing herein contained shall prevent or
prohibit Grantor from instituting or
maintaining a separate action against the
Noteholder with respect to any asserted
claim.

     IN WITNESS WHEREOF, Grantor has executed
this Deed of Trust, Mortgage and Security
Agreement as of the 26th day of
November,1996.

The address of Grantor is:         ESC II,
L.P.,
                    a Washington limited
               partnership

                    By: ESC G.P. II, INC., a
          Washington
3131 Elliott Avenue      corporation, general
          partner
Suite 500
Seattle, Washington 98121     By:  /s/
Raymond R. Brandstrom

- -----------------------------------

Name:  Raymond R. Brandstom

Title:    President

The address of the
Noteholder is:

100 South Wacker Drive Suite 400
Chicago, Illinois 60606















46





THE STATE OF Washington  )
                    )
 COUNTY OF King          )

     This instrument was acknowledged before
me on November 25, 1996, by Raymond R.
Brandstrom, President of ESC G.P. II, INC., a
Washington corporation, in its capacity as
general partner of ESC II, L.P., a Washington
limited partnership, on behalf of said
corporation and limited partnership.


/s/ Catherine L. Pasquan

- -------------------------------
                            Notary Public
State of WA


Print Name of Notary:

Catherine L. Pasquan

- ---------------------------------

[SEAL]

My commission expires:

March 30, 1999
- ----------------------------
























47

EX-10.55.4

GUARANTY

     For a valuable consideration, receipt of
which is hereby acknowledged, the
undersigned, EMERITUS CORPORATION, a
Washington corporation (hereinafter called
"GUARANTOR"), absolutely, unconditionally and
irrevocably guarantees and agrees (a) to pay
to GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation (hereinafter called
"CREDITOR") at the address designated in the
Note (as hereinafter defined) for payment
thereof or as such address may be changed as
provided in the Note, all indebtedness of ESC
II, L.P., a Washington limited partnership
(hereinafter called "DEBTOR"), to Creditor
under the promissory note, dated of even date
herewith, in the original principal amount of
SEVENTEEN MILLION AND NO/100 DOLLARS
($17,000,000.00) payable to the order of
Creditor, and all modifications, renewals and
extensions of and substitutions for said
promissory note (said promissory note and all
modifications, renewals and extensions
thereof and all substitutions therefore
hereinafter called the "NOTE"), together with
all interest, reasonable attorneys' fees and
collection costs provided in the Note, and
all indebtedness under and pursuant to the
Deed of Trust, Mortgage and Security
Agreement (hereinafter called the "DEED OF
TRUST") securing the payment of the Note, and
all other instruments securing the payment of
the Note (all such indebtedness hereinafter
called the "INDEBTEDNESS"); (B) TO PERFOMR
FULLY AND PROMPTLY WHEN DUE ALL OF THE
COVENTANTS, AGREEMENTS AND OTHER OBLIGATIONS
UNDERTAKEN BY Debtor in the Note and the Deed
of Trust and all other instruments securing
the payment of the Note and in the
Construction Loan Agreement (the "LOAN
AGREEMENT"), of even date herewith between
Debtor and Creditor relating to the
indebtedness evidenced by the Note, including
without limitation, the completion of the
Improvements (as defined in the Loan
Agreement) (all of such instruments being
collectively hereinafter called the "LOAN
DOCUMENTS") and all of such covenants,
agreements and other obligations being
collectively hereinafter called the
"OBLIGATIONS"); and (c) to pay any and all
costs, attorney's fees and expenses incurred
or expended by Creditor in collecting any of
the Indebtedness or due to any default in the
performance of the Obligations or in
enforcing any right granted hereunder.

     Guarantor expressly waives presentment
for payment, demand, notice of demand and of
dishonor and nonpayment of the Indebtedness,
notice of intention to accelerate the
maturity of the Indebtedness or any part
thereof, notice of disposition of collateral,
protest and notice of protest, diligence in
collecting, and the bringing of suit against
any other party.  Creditor shall be under no
obligation to notify Guarantor of its
acceptance hereof or of any advances made or
credit extended on the faith hereof or the
failure of Debtor to pay any of the
Indebtedness as it matures or any default in
the performance of any of the Obligations, or
to use diligence in preserving the liability
of any person on the Indebtedness or the
Obligations or in bringing suit to enforce
collection of the Indebtedness or performance
of the Obligations.  Guarantor waives all
defenses given to sureties or guarantors at
law or in equity other than the actual
payment of the Indebtedness and performance
of the Obligations and all



1


defenses based upon questions as to the
validity, legality or enforceability of the
Indebtedness and/or the Obligations and
agrees that Guarantor shall be primarily
liable hereunder.

     Creditor, without authorization from or
notice to Guarantor and without impairing,
modifying, changing, releasing, limiting or
affecting the liability of Guarantor
hereunder, may from time to time at its
discretion and with or without valuable
consideration, after, compromise, accelerate,
renew, extend or change the time or manner
for the payment of any or all of the
Indebtedness, increase or reduce the rate of
interest thereon, take and surrender
security, exchange security by way of
substitution, or in any way it deems
necessary take, accept, withdraw,
subordinate, alter, amend, modify or
eliminate security, add or release or
discharge endorsers, guarantors, or other
obligors, make changes of any sort whatever
in the terms of payment of the Indebtedness,
in the Obligations or in the manner of doing
business with Debtor, or settle or compromise
with Debtor or any other person or persons
liable on the Indebtedness or the Obligations
on such terms as it may see fit, and may
apply all moneys received from the Debtor or
others, or from any security held (whether
held under a security instrument or not), in
such manner upon the Indebtedness (whether
then due or not) as it may determine to be in
its best interest, without in any way being
required to marshal securities or assets or
to apply all or any part of such moneys upon
any particular part of the Indebtedness. It
is specifically agreed that Creditor is not
required to retain, hold, protect, exercise
due care with respect thereto, perfect
security interests in or otherwise assure or
safeguard any security for the Indebtedness;
no failure by Creditor to do any of the
foregoing and no exercise or nonexercise by
Creditor of any other right or remedy of
Creditor shall in any way affect any of
Guarantor's obligations hereunder or any
security furnished by Guarantor or give
Guarantor any recourse against Creditor.

     The liability of Guarantor hereunder
shall not be modified, changed, released,
limited or impaired in any manner whatsoever
on account of any or all of the following:
(a) the incapacity, death, disability,
dissolution or termination of Guarantor,
Debtor, Creditor or any other person or
entity; (b) the failure by Creditor to file
or enforce a claim against the estate (either
in administration, bankruptcy or other
proceeding) of Debtor or any other person or
entity; (c) recovery from Debtor or any other
person or entity becomes barred by any
statute of limitations or is otherwise
prevented; (d) any defenses, set-offs or
counterclaims which may be available to
Debtor or any other person or entity; (e) any
transfer or transfers of any of the property
covered by the Deed of Trust or any other
instrument securing the payment of the Note;
(f) any release of Debtor, any coguarantor or
any other person (other than Guarantor)
primarily or secondarily liable for the
payment of the Indebtedness or the
performance of the Obligations or any part
thereof; (g) any modifications, extensions,
amendments, consents, releases or waivers
with respect to the Note, the Deed of Trust,
any other instrument now or hereafter
securing the payment of the Note, or this
Guaranty; (h) any failure of Creditor to give
any notice to Guarantor of any default under
the Note, the Deed of Trust, any other
instrument securing the payment of the Note,
or this Guaranty; (i) Guarantor is or becomes
liable for any indebtedness owing by Debtor
to Creditor other than under this Guaranty;
or (j)

2


any impairment, modification, change, release
or limitation of the liability of, or stay of
actions or lien enforcement proceedings
against, Debtor, its property, or its estate
in bankruptcy resulting from the operation of
an resent or future provision of the Federal
Bankruptcy Code (hereinafter called the
Bankruptcy Code ) or other similar federal or
state statute or from the decision of any
court.

    Creditor shall not be required to pursue
any other remedies before invoking the
benefits of the guaranties contained herein,
and specifically it shall not be required to
make demand upon or institute suit or
otherwise pursue its remedies against Debtor
or any surety other than Guarantor or to
proceed against any security now or hereafter
existing for the payment of any of the
Indebtedness. Creditor may maintain an action
on this Guaranty without joining Debtor
therein and without bringing a separate
action against Debtor.

     If for any reason whatsoever (including
but not limited to ultra vires, lack of
authority, illegality, force majeure, act of
God or impossibility) the Indebtedness or the
Obligations cannot be enforced against
Debtor, such unenforceability shall in no
manner affect the liability of Guarantor
hereunder and Guarantor shall be liable
hereunder notwithstanding that Debtor may not
be liable for such Indebtedness or such
Obligations and to the same extent as
Guarantor would have been liable if such
Indebtedness or Obligations had been
enforceable against Debtor.

    Guarantor absolutely and unconditionally
covenants and agrees that in the event that
Debtor does not or is unable so to pay the
Indebtedness or perform the Obligations for
any reason, including, without limitation,
liquidation, dissolution, receivership,
conservatorship, insolvency, bankruptcy,
assignment for the benefit of creditors, sale
of all or substantially all assets,
reorganization, arrangement, composition, or
readjustment of, or other similar proceedings
affecting the status; composition, identity,
existence, assets or obligations of Debtor,
or the disaffirmance or termination of any of
the Indebtedness or Obligations in or as a
result of any such proceeding, Guarantor
shall pay the Indebtedness and perform the
Obligations and no such occurrence shall in
any way affect Guarantor's obligations
hereunder.

    Should the status of Debtor change, this
Guaranty shall continue and also cover the
Indebtedness and Obligations of Debtor under
the new status according to the terms hereof.

        In the event any payment by Debtor to
Creditor is held to constitute a preference
under the bankruptcy laws, or if for any
other reason Creditor is required to refund
such payment or pay the amount thereof to any
other party, such payment by Debtor to
Creditor shall not constitute a release of
Guarantor from any liability hereunder, but
Guarantor agrees to pay such amount to
Creditor upon demand and this Guaranty shall
continue to be effective or shall be
reinstated, as the case may be, to the extent
of any such payment or payments.





3


     Guarantor agrees that it shall not have
(a) the right to the benefit of, or to direct
the application of, any security held by
Creditor (including the property covered by
the Deed of Trust and any other instrument
securing the payment of the Note), any right
to enforce any remedy which Creditor now has
or hereafter may have against Debtor, or an
right to participate in any security now or
hereafter held b Creditor, or (b) any defense
arising out of the absence, impairment or
loss of any right of reimbursement or
subrogation or other right or remedy of
Guarantor against Debtor or against any
security resulting from the exercise or
election of any remedies by Creditor
(including the exercise of the power of sale
under the Deed of Trust), or any defense
arising by reason of any disability or other
defense of Debtor or by reason of the
cessation, from any cause, of the liability o
f Debtor.
     
     The payment by Guarantor of any amount
pursuant to this Guaranty shall not in any
way entitle Guarantor to any right, title or
interest (whether by way of subrogation or
otherwise) in and to any of the Indebtedness
or any proceeds thereof, or any security
therefor, unless and until the full amount
owing to Creditor on the Indebtedness has
been fully paid, but when the same has been
fully paid Guarantor shall be subrogated as
to any payments made by it to the rights of
Creditor as against Debtor and/or any
endorsers, sureties or other guarantors.

     Guarantor expressly subordinates its
rights to payment of any indebtedness owing
from Debtor to Guarantor, whether now
existing or arising at any time in the
future, to the prior right of Creditor to
receive or require payment in full of the
Indebtedness and until payment in full of the
Indebtedness (and including interest accruing
on the Note after any petition under the
Bankruptcy Code, which post-petition interest
Guarantor agrees shall remain a claim that is
prior and superior to any claim of Guarantor
notwithstanding any contrary practice, custom
or ruling in proceedings under the Bankruptcy
Code generally), Guarantor agrees not to
accept any payment or satisfaction of any
kind of indebtedness of Debtor to Guarantor
or any security for such indebtedness. If
Guarantor should receive any such payment,
satisfaction or security for any indebtedness
of Debtor to Guarantor, Guarantor agrees
forthwith to deliver the same to Creditor in
the form received, endorsed or assigned as
may be appropriate for application on account
of, or as security for, the Indebtedness and
until so delivered, agrees to hold the same
in trust for Creditor.

     Notwithstanding anything to the apparent
contrary contained herein, Guarantor does not
herein expressly or impliedly waive or
release any rights of subrogation that
Guarantor may have against Debtor (except as
same are expressly subordinated as provided
herein), rights of contribution that
Guarantor may have against any other
guarantor of, or other person secondarily
liable for, the payment of the Indebtedness
or performance of the Obligations or rights
of reimbursement that Guarantor may have as
against Debtor (except as same may be limited
herein).




4



     It is the intent of Guarantor and
Creditor in the execution and acceptance of
this Guaranty to contract in strict
compliance with applicable usury law. In
furtherance thereof, Guarantor and Creditor
stipulate and agree that none of the terms
and provisions contained in this Guaranty, or
in any other instrument now or hereafter
executed in connection herewith, shall ever
be construed to create a contract to pay for
the use, forbearance or detention of money,
interest at a rate in excess of the maximum
interest rate permitted to be charged by
applicable law. Guarantor shall never be
required to pay interest on the Indebtedness
at a rate in excess of the maximum interest
that may be lawfully charged under applicable
law, and the provisions of this paragraph
shall control over all other provisions of
this Guaranty, and any other instruments now
or hereafter executed in connection herewith
or any other oral or written agreement which
may be in apparent conflict herewith.
Creditor expressly disavows any intention to
charge or collect excessive unearned interest
or finance charges in the event the maturity
of the Indebtedness is accelerated.  If the
maturity of the Note shall be accelerated for
any reason or if the principal of the Note is
paid prior to the end of the term of the
Note, and as a result thereof the interest
received from Guarantor for the actual period
of existence of the loan evidenced by the
Note exceeds the amount of interest at the
applicable maximum lawful rate under
applicable law, Creditor shall, at its
option, either refund to Guarantor the amount
of such excess or credit the amount of such
excess against the principal balance of the
Note then outstanding and thereby shall
render inapplicable any and all penalties of
any kind provided by applicable law as a
result of such excess interest. In the event
that Creditor shall collect moneys and/or any
other thing of value from Guarantor which are
deemed to constitute interest which would
increase the effective interest rate on the
Indebtedness to a rate in excess of that
permitted to be charged by applicable law, an
amount equal to interest in excess of the
lawful rate shall, upon such determination,
at the option of Creditor, be either
immediately returned to Guarantor or credited
against the principal balance of the Note
then outstanding, in which event any and all
penalties of any kind under applicable law as
a result of such excess interest shall be
inapplicable. By execution of this Guaranty,
Guarantor acknowledges that Guarantor
believes the Indebtedness to be non-usurious
and agrees that if, at any time, Guarantor
should have reason to believe that the
Indebtedness is in fact usurious
,Guarantor will give Creditor notice of such
condition and Guarantor agrees that Creditor
shall have ninety (90) days in which to make
appropriate refund or other adjustment in
order to correct such condition if in fact
such exists. The term "applicable law" as
used in this paragraph shall mean the laws of
the State of Texas or the laws of the United
States, whichever laws allow the greater rate
of interest, as such laws now exist or may be
changed or amended or come into effect in the
future.

     Each Guarantor hereby severally
represents, warrants and covenants to and
with Creditor as follows: (a) Guarantor is
solvent, is not bankrupt and has no
outstanding liens, garnishments, bankruptcies
or court actions which could render guarantor
insolvent or bankrupt, and there has not been
filed by or against Guarantor a petition in
bankruptcy or a petition or answer seeking an
assignment for the benefit of creditors, the
appointment of a receiver, trustee, custodian
or liquidator with respect to Guarantor or
any substantial portion of


5


Guarantor's property, reorganization,
arrangement, rearrangement, composition,
extension, liquidation or dissolution or
similar relief under the Bankruptcy Code or
any state law; (b) all reports, financial
statements and other financial and other data
which have been or may hereafter be furnished
by Guarantor to Creditor in connection with
this Guaranty are or shall be true and
correct in all material respects and do not
and will not omit to state any fact or
circumstance necessary to make the statements
contained therein not misleading and do or
shall fairly represent the financial
condition of Guarantor as of the dates and
the results of Guarantor's operations for the
periods for which the same are furnished, and
no material adverse change has occurred since
the dates of such reports, statements and
other data in the financial condition of
Guarantor (for the purposes of this clause
(b) and the preceding clause (a), Guarantor
shall also include any joint venturer or
general partner of Guarantor); (c) the
execution
,delivery and performance of this Guaranty do
not contravene, result in the breach of or
constitute a default under any mortgage, deed
of trust, lease, promissory note, loan
agreement or other contract or agreement to
which Guarantor is a party or by which
Guarantor or any of its properties may be
bound or affected and do not violate or
contravene any law, order, decree, rule or
regulation to which Guarantor is subject; (c)
there are no judicial or administrative
actions, suits or proceedings pending or, to
the best of Guarantor s knowledge, threatened
against or affecting Guarantor or involving
the validity, enforceability or priority of
this Guaranty; and (e) this Guaranty
constitutes the legal, valid and binding
obligation of Guarantor enforceable in
accordance with its terms.

     Each Guarantor will deliver to Creditor
within one hundred twenty (120) days after
the close of each fiscal year of Guarantor:
(a) a statement of condition or balance sheet
of Guarantor as at the end of such fiscal
year; (b) an annual operating statement
showing in reasonable detail all income and
expenses of Guarantor for such fiscal year;
(c) a cash flow statement showing in
reasonable detail all cash flow of Guarantor
for such fiscal year; and (d) a projected
cash flow statement showing in reasonable
detail all projected cash flow for the then
current fiscal year. All of the foregoing
shall be in scope and detail reasonably
satisfactory to Creditor and any or all of
the foregoing shall be furnished quarterly,
in addition to annually, upon request of
Creditor. The statements in (a), (b) and (c)
above shall be certified as to accuracy by an
independent certified public accountant or,
with the consent of Creditor, by a
representative of Guarantor acceptable to
Creditor. The statement described in (d)
above shall contain a representation or
certification in form reasonably satisfactory
to Creditor by Guarantor.

     Where two or more persons or entities
have executed this Guaranty, unless the
context clearly indicates otherwise, all
references herein to "Guarantor" shall mean
the guarantors hereunder or either or any of
them. Except for the obligation of Guarantor
to deliver the financial information
described in the immediately preceding
paragraph, all of the obligations and
liability of said guarantors hereunder shall
be joint and several. Suit may be brought
against said guarantors, jointly and
severally, or against any one or more of
them, less than all, without impairing the
rights of Creditor against the



6


other or others of said guarantors; and
Creditor may compound with any one or more of
said guarantors for such sums or sum as it
may see fit and/or release such of said
guarantors from all further liability to
Creditor for such indebtedness without
impairing the right of Creditor to demand and
collect the balance of such indebtedness from
the other or others of said guarantors not so
compounded with or released; but it is agreed
among said guarantors themselves, however,
that such compounding and release shall in
nowise impair the rights of said guarantors
as among themselves.

     The rights of Creditor are cumulative
and shall not be exhausted by its exercise of
any of its rights hereunder or otherwise
against Guarantor or by any number of
successive actions until and unless all
Indebtedness has been paid, all Obligations
have been performed and each of the
obligations of Guarantor hereunder has been
performed. The existence of this Guaranty
shall not in any way diminish or discharge
the rights of Creditor under any prior or
future guaranty agreement executed by
Guarantor.

     All property of Guarantor now or
hereafter in the possession or custody of or
in transit to Creditor for any purpose,
including safekeeping, collection or pledge,
for the account of Guarantor, or as to which
Guarantor may have any right or power, shall
be held by Creditor subject to a lien and
security interest in favor of Creditor to
secure payment and performance of all
obligations and liabilities of Guarantor to
Creditor hereunder. The balance of every
account of Guarantor with, and each claim of
Guarantor against, Creditor existing from
time to time shall be subject to a lien and
subject to set-off against any and all
liabilities of Guarantor to Creditor, and
Creditor may, at any time and from time to
time at its option and without notice,
appropriate and apply toward the payment of
any of such liabilities the balance of each
such account or claim of Guarantor against
Creditor.

     Any notice or communication required or
permitted hereunder shall be given in
writing, sent by (a) personal delivery, or
(b) expedited delivery service with proof of
delivery, or (c) United States mail, postage
prepaid, registered or certified mail, or (d)
prepaid telegram, telex or telecopy, sent to
the intended addressee at the address shown
below, or to such other address or to the
attention of such other person as hereafter
shall be designated in writing by the
applicable party sent in accordance herewith.
Any such notice or communication shall be
deemed to have been given and received either
at the time of personal delivery or, in the
case of delivery service or mail, as of the
date of first attempted delivery at the
address and in the manner provided herein, or
in the case of telegram, telex or telecopy,
upon receipt.
     
     THIS GUARANTY AND THE RIGHTS AND
OBLIGATIONS OF GUARANTOR HEREUNDER SHALL IN
ALL RESPECTS BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH. THE LAWS OF THE
STATE OF TEXAS (WITHOUT GIVING EFFECT TO
TEXAS' PRINCIPLES OF CONFLICTS OF LAW) AND
THE LAW OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS IN SUCH STATE. GUARANTOR HEREBY
IRREVOCABLY SUBMITS TO THE



7


NONEXCLUSIVE JURISDICTION OF ANY TEXAS OR
FEDERAL COURT SITTING IN DALLAS. TEXAS (OR
ANY COUNTY IN TEXAS WHERE ANY PORTION OF THE
PROPERTY COVERED BY THE DEED OF TRUST IS
LOCATED) OVER ANY SUIT. ACTION OR PROCEEDING
RISING OUT OF OR RELATING TO THIS GUARANTY OR
ANY OF THE LOAN DOCUMENTS AND GUARANTOR
HEREBY AGREES AND CONSENTS THAT IN ADDITION
TO ANY METHODS OF SERVICE OF PROCESS PROVIDED
FOR UNDER APPLICABLE LAW ALL SERVICE OF
PROCESS IN ANY SUCH SUIT ACTION OR PROCEEDING
IN ANY TEXAS OR FEDERAL COURT SITTING IN
DALLAS TEXAS MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL RETURN RECEIPT REQUESTED
DIRECTED TO GUARANTOR AT THE ADDRESS OF
GUARANTOR FOR THE GIVING OF NOTICES HEREUNDER
AND SERVICE SO MADE SHALL BE COMPLETE FIVE
(5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
MAILED.

     Guarantor hereby expressly and
unconditionally waives, in connection with
any suit, action or proceeding brought by
Creditor in connection with this Guaranty or
any of the loan documents, any and every
right it may have to (i) injunctive relief,
(ii) a trial by jury, (iii) interpose any
counterclaim therein, other than a compulsory
counterclaim) and (iv) have the same
consolidated with any other or separate suit,
action or proceeding. Nothing herein
contained shall prevent or prohibit Guarantor
from instituting or maintaining a separate
action against Creditor with respect to any
asserted claim.

     This Guaranty may be executed in any
number of counterparts with the same effect
as if all parties hereto had signed the same
document. All such counterparts shall be
construed together and shall constitute one
instrument, but in making proof hereof it
shall only be necessary to produce one such
counterpart.
     
     This Guaranty may only be modified,
waived, altered or amended by a written
instrument or instruments executed by the
party against which enforcement of said
action is asserted. Any alleged modification,
waiver, alteration or amendment which is not
so documented shall not be effective as to
any party.

     The terms, provisions, covenants and
conditions hereof shall be binding upon
Guarantor and the heirs, devisees,
representatives, successors and assigns of
Guarantor and shall inure to the benefit of
Creditor and all transferees, credit
participants, successors, assignees and/or
endorsees of Creditor. Within this Guaranty,
words of any gender shall be held and
construed to include any other gender and
words in the singular number shall be held
and construed to include the plural, unless
the context otherwise requires. A
determination that any provision of this
Guaranty is unenforceable or invalid shall
not affect the enforceability or validity of
any other provision and any determination
that the application of any provision of this
Guaranty to any person or circumstance is
illegal or unenforceable shall not affect the
enforceability or validity of such provision
as it may apply to any other persons or
circumstances.



8


     EXECUTED as of the 26th day of
November,1996.

The address of Guarantor is:

3131 Elliott Avenue
EMERITUS CORPORATION,
Suite 500
a Washington Corporation
Seattle, Washington 98121


By:       /s/ Raymond R. Brandstom

- --------------------------------

Name:  Raymond R. Brandstrom

- --------------------------------

Its:       President

- --------------------------------
The address of Creditor is:

100 South Wacker Drive Suite 400
Chicago, Illinois 60606

































9



STATE OF Washington     )
                                            )
COUNTY OF King            )

     The foregoing instrument was
acknowledged before me on 11-25, 1996, by
Raymond R. Brandstrom President of EMERITUS
CORPORATION, a Washington corporation, on
behalf of said corporation.


/s/ Catherine L. Pasquan

- ----------------------------------------

Notary Public, State of WA


Catherine L. Pasquan

- ----------------------------------------

Printed name of Notary

My Commission Expires:
3-30-99
- -----------------------------

[SEAL]






























10

EX-10.56.1

                                     PURCHASE AND
SALE AGREEMENT

      This Agreement is made and entered into this
9th day of July, 1996, by and between SUNDAY
ESTATES, INC, a Nevada ("Seller"), and EMERITUS
CORPORATION, a Washington corporation
("Purchaser").

PURCHASE AND SALE

1. On the terms and conditions set forth herein,
Seller shall sell to Purchaser and Purchaser shall
purchase from Seller the following:

     a. The real property situated in the state of
Nevada, which is more particularly described in
Exhibit A attached hereto (the "Real Property")
and the improvements on the Real Property which
are currently under construction and which upon
completion will constitute the 116-unit assisted
living facility to be known as Concorde Senior
Citizen Residence and located in Las Vegas, Nevada
(the "Facility").

     b. All equipment, furniture, fixtures,
inventory (including linens, dietary supplies and
housekeeping supplies but specifically excluding
food and other consumable inventories) and other
tangible and intangible personal property owned or
to be owned as of the Closing Date (as defined
below) by Seller and located or to be located as
of the Closing Date on the Real Property or used
in connection with the operation of the Facility,
including but not limited to, entitlements,
telephone numbers, any right, title or interest
which Seller may have in and to any service marks,
trademarks or trade names owned or employed by
Seller in conjunction with the operation of the
Facility specifically including the name "Concorde
Senior Citizen Residence" and any trade names and
trade marks related thereto and goodwill
associated therewith, and all motor vehicles owned
or leased by Seller and used in conjunction with
the operation of the business conducted at the
Facility, but specifically excluding cash, cash
equivalents and accounts receivable for the period
prior to the Closing Date (as defined below) (the
"Personal Property"), which Personal Property is
more particularly described in Exhibit B.

     c. The food and other consumable inventories
located at, and usable in the operation of, the
Facility on the Closing Date (the "Consumables").
Hereinafter the foregoing shall sometimes be
collectively referred to as "Seller's Assets."

PURCHASE PRICE

2. The purchase price payable by Purchase to
Seller for Seller's Assets shall be Eight Million
Four Hundred Thousand and no/100 Dollars
($8,400,000) and shall be payable as follows:

     a. Fifty Thousand and no/100 Dollars
($50,000) on execution of this Agreement (the
"First Earnest Money Payment") shall be delivered
by Purchaser to Fidelity National Title Insurance
Company, 6900 Westcliff, Suite 710, Las Vegas, NV
89128 (the "Escrow Agent") and Two Hundred
Thousand and no/100 Dollars ($200,000) (the
"Second Earnest Money : Payment" and together with
the First Earnest Money Payment, the



1



"Earnest Money") in the event Purchaser is
satisfied with the results of its due diligence
investigation conducted pursuant to Paragraph
11(a)(ii). In the event the purchase and sale
contemplated by this Agreement is consummated,
then the Earnest Money will be credited against
the Purchase Price at Closing. In the event the
purchase and sale contemplated by this Agreement
fails to occur, the Earnest Money shall be
remitted to Seller or Purchaser, as appropriate,
in accordance with the provisions of Paragraph 17
hereof. The Escrow Agent shall be authorized, at
Purchaser's option, to invest the Earnest Money in
such manner as Purchaser may direct with Seller's
reasonable written approval; provided, however,
that the Escrow Agent shall invest the Earnest
Money only in such manner as will allow Escrow
Agent to disperse the Earnest Money on two (2)
days' notice; and provided, further, that the
Escrow Agent shall be authorized to release the
Earnest Money to Seller prior to Closing upon
Seller's delivery to Purchaser of security for the
repayment thereof, in the event Purchaser is
entitled to the return thereof in accordance with
the terms of this Agreement, which security shall
be in the form of a second lien on the Real
Property evidenced by a Deed of Trust in form and
substance reasonably acceptable to Purchaser. All
interest or other earnings on the Earnest Money
shall become part of the Earnest Money and shall
be dispersed to the party who becomes entitled to
the Earnest Money pursuant to the provisions of
this Agreement; provided, however, that in the
event Seller requests an early release of the
Earnest Money in accordance with the terms hereof
and Seller is thereafter required by the terms of
this Agreement to return the same to Purchaser,
Seller shall be required to pay Purchaser interest
thereon at the same rate of interest that
Purchaser was earning or would have earned had the
Earnest Money been held by Escrow Agent;

     b. Two Million One Hundred Fifty Thousand and
no/100 Dollars ($2,150,000), as adjusted by any
costs and prorations provided for in Paragraph 5,
shall be due and payable in cash at Closing (as
defined below); and

     c. The balance by execution and delivery at
Closing of Purchaser's Promissory Note in the face
amount of Six Million and no/100 Dollars
($6,000,000) which Note shall (i) be in form and
substance acceptable to Purchaser and Seller, (ii)
shall be due and payable in full 18 months after
the Closing Date, (iii) shall bear no interest
during the first six months of the term thereof,
(iv) shall bear interest at the annual rate of
10"% per annum during the second six months of the
term thereof, with interest only due during said
six month period, (v) shall bear interest at the
rate of 11% per annum during the last six months
of the term thereof, with interest only due during
said six month period and (vi) shall be secured by
a first lien on the Seller' s Assets, with the
documents evidencing such lien to be in form and
substance acceptable to Seller and Purchaser;
provided, however, Seller shall have the right,
subject to Purchaser's consent, to place a first
lien of the Seller's Assets prior to Closing, to
transfer title to the Seller's Assets to Purchaser
subject to said first lien and to enter into an
All-Inclusive Note and Deed of Trust with
Purchaser which would "wrap" the obligations of
Purchaser to Seller around the obligations of
Seller to said lender; provided, however, that
Purchaser shall have no obligation to consent
thereto unless it is fully satisfied with the
terms of the underlying loan and lien documents
and its loan and lien documents with Seller and,
in, particular, with the protections afforded to
Purchaser thereunder to ensure that it will be
provided with notice of and an opportunity to cure
a default by Seller with respect to the underlying
loan and that such cure rights may be exercised by
Purchaser without any additional cost to Purchaser
under the terms hereof.


2



     d. The purchase price shall be allocated
among Seller's Assets in the manner set forth in
Exhibit C.
     
     Except as specifically provided in this
Agreement, Purchaser does not hereby or in
connection herewith assume any liability of Seller
whatsoever in relation to Seller's Assets, the
Real Property, the Personal Property or the
Facility which relates to the period prior to
Closing.
     
CLOSING

3. The Closing of the purchase and sale under this
Agreement (the "Closing") shall take place on or
before September 1,1996 (provided all of the
conditions to closing set forth in Paragraphs 13
and 14 have been satisfied or waived) (the
"Closing Date"); provided, however, that Purchaser
shall have the right on written notice to Seller
delivered on or prior to the Closing Date to
extend the Closing Date for a period of up to
thirty (30) days. Closing shall occur at the
offices of Escrow Agent or at such other place as
Purchaser and Seller may mutually agree. Time is
of the essence hereto.

CONVEYANCE

4. Conveyance of the Seller's Assets to Purchaser
shall be effected by a Warranty Deed and Bill of
Sale in form and substance substantially the same
as those attached hereto as Exhibits D and E. Fee
simple insurable title to the Real Property and
indefeasible title to the Personal Property shall
be conveyed from Seller to Purchaser free and
clear of all liens, charges, easements and
encumbrances of any kind, other than the
following:

     a. Liens for real estate taxes not yet due
and payable;

     b. Such items of record as described in the
Title Report (as defined below) which are not
objected to by Purchaser in accordance with the
terms of Paragraph 11(a)(ii);
     
     c. All laws, ordinances and governmental
regulations, including, but not limited to, all
applicable building, zoning, land use and
environmental ordinances and regulations;
provided, however, that the provisions of this
clause (c) shall be subject to Purchaser's right
to object thereto and Seller's agreement to take
corrective action in response to said objections
all as specified more fully in Paragraph
11(a)(ii);

     d. The rights of the residents or prospective
residents of the Facility under written rental
agreements; and

     e.  Any liens related to the financing
described in Paragraph 2(c).

COSTS. PRORATIONS AND AI)JUSTMENTS

5.  The costs of the transaction and the expenses
related to the ownership and operation of the
Seller's Assets shall be allocated among Seller
and Purchaser as follows:

     a. Seller shall pay any transfer or
documentary stamp tax due on the recording of the
Deed.
     
                                                3


     b. Purchaser shall pay any sales tax due on
the sale of the Personal Property.

     c. Seller shall pay the cost of the Title
Report and title insurance policy issued pursuant
thereto and the ALTA surrey required to deliver
the same; provided, however, Purchaser shall pay
the cost of any title endorsements requested by
Purchaser.

     d. Purchaser shall pay for any Phase I
Assessment of the Seller's Assets which it elects
to secure.

     e. Any revenues (including but not limited to
rent due from the residents of the Facility) and
expenses (including but not limited to payroll and
employee benefits) related to the ownership or
operation of the Seller's Assets shall be prorated
as of the Closing Date, with Seller responsible
therefore for the period prior to the Closing Date
and with Purchaser responsible therefor for the
period from and after the Closing Date, it being
understood and agreed that the Facility is under
construction and is to be delivered to Purchaser
at Closing in a turnkey condition and as such none
of the residents of the Facility may have
commenced occupancy thereof as of the: Closing
Date.

     f. Real and Personal Property taxes shall be
prorated as of the Closing Date, with Seller
responsible therefor for the period prior to the
Closing Date and with Purchaser responsible
therefor for the period from and after the Closing
Date.

     g. Seller shall arrange for a final statement
with respect to all utilities serving the Real
Property and the Facility as of the Closing Date
and shall pay all fees identified thereon and
Purchaser shall arrange for all such utilities to
be billed in its name from and after the Closing
Date and shall pay all fees due therefor as of the
Closing Date.

     h. Purchaser and Seller shall each pay their
own attorney's fees.

     i. Purchaser and Seller shall share recording
fees related to the recording of the Deed and any
escrow fees on a 50-50 basis.

     j. In the event Seller elects to cure any
objections Purchaser makes to the items described
in the Title Report or the UCC-1 search report,
then Seller shall pay the cost of obtaining and
recording any releases necessary to deliver title
to the Seller's Assets in accordance with the
terms of this Agreement.
     
POSSESSION

6. At Closing, Purchaser shall be entitled to
possession of the Seller's Assets, subject only to
the rights of the residents of the Facility under
the Facility Leases (as defined below), if
applicable.

REPRESENTATIONS AND WARRANTIES







4




7.   Seller hereby warrants and represents to
  Purchaser that:

     a. STATUS OF SELLER. Seller is a corporation
duly organized, validly existing and in good
standing under the laws of the State of Nevada.

     b. SELLER'S AUTHORITY. Seller has full power
and authority to execute and to deliver this
Agreement and all related documents, and to carry
out the transaction contemplated herein. This
Agreement is valid, binding and enforceable
against Seller in accordance with its terms,
except as such enforceability may be limited by
creditors' rights laws and applicable principles
of equity. The execution of this Agreement and the
consummation of the transaction contemplated
herein do not result in a breach of the terms and
conditions of nor constitute a default under or
violation of Seller's charter documents or any
law, regulation court order, mortgage, note, bond,
indenture, agreement, license or other instrument
or obligation to which Seller is now a party or by
which Seller or any of the assets of Seller may be
bound or affected.

     c. TITLE. Seller has good and insurable fee
simple title to the Real Property, and the
Facility, subject only to the easements,
reservations and encumbrances, if any, permitted
under Paragraph 4, and good and indefeasible title
to the Personal Property free and clear of all
leases, liens and encumbrances. The Personal
Property is, or as of Closing will be, all of the
furniture, fixtures and equipment necessary to
operate the Facility at full capacity unless
Purchaser elects to waive the requirement that
Seller furnish the bedrooms of the resident units
located within the Facility (the "Bedroom
Furnishings") in which case the Personal Property
shall include all furniture, fixtures and
equipment necessary for the operation of the
Facility at full capacity other than the Bedroom
Furnishings and all of such Personal Property is,
and at Closing will be, in good operating
condition and repair and accordingly in the same
or better condition and repair, as on the date of
Purchaser's inspection thereof pursuant to
Paragraph 11(a)(ii).

     d. THE REAL PROPEZTY. The Facility is located
on that certain parcel of land more particularly
described in Exhibit A attached hereto. The
Facility, including, the roof and all major
mechanical systems at the Facility, including, but
not limited to, the Air Conditioning, Electrical
and Heating and Ventilating Systems at Closing
shall be in the good operating condition and
repair and the construction of the Facility will
be completed as of the Closing Date to the
satisfaction of Purchaser and all necessary
approvals from the City of Las Vegas and the State
of Nevada related thereto have been or shall have
been secured by Seller and. delivered to Purchaser
as and when received.

     e. NECESSARY ACTION. Seller will proceed with
all due diligence to take all action and obtain
all consents prior to Closing necessary for it to
lawfully enter into and carry out the terms of
this Agreement.
     
     f. TAXES AND TAX RETURNS. All tax returns,
reports and filings of any kind or nature required
to be filed by Seller prior to Closing with
respect to its ownership and, if applicable,
operation of the Facility and its ownership of the
Real Property and the Personal Property have been
properly completed and timely filed in material
compliance with all applicable requirements and
all taxes or other obligations which are due and
payable by Seller have been timely paid.
     
                                                5


     
     g. LITIGATION. There is no litigation,
investigation, or other proceeding pending or, to
the best of Seller's knowledge, threatened against
or relating to Seller, its properties or business,
which is material to Seller's Assets, the
Facility, the Real Property or the Personal
Property or to this Agreement, or which would
prevent Seller from performing its obligations
hereunder, and the transaction contemplated herein
has not been challenged by any governmental agency
or any other person, nor does Seller know or have
reasonable grounds to know, of any basis for any
such litigation, investigation or other
proceeding. For purposes hereof, litigation, an
investigation or other proceeding shall be deemed
to be pending if the same has been served on
Seller or Seller has otherwise been advised either
orally or in writing of the pendency thereof.
     
     h. BOOKS AND RECORDS. All of the books and
records maintained by Seller with respect to its
ownership and/or, if applicable, operation of the
Seller's Assets are true and correct in all
material respects.
     
     i. THE FACILITY LEASES. In the event Seller
enters into any leases with residents or
prospective residents of the Facility prior to the
Closing Date, they shall be in the form of that
rental or admission agreement attached hereto as
Exhibit F (the "Facility Leases") and a true and
correct copy of each such Facility Lease, as and
when executed, shall be provided by Seller to
Purchaser. If applicable, at Closing Seller shall
deliver to Purchaser duly executed assignments of
the Facility Leases.

     j. RENT ROLL. In the event Seller enters into
any Facility Leases prior to the Closing Date, it
shall provide 1'urchaser with a true and correct
rent roll on a monthly basis from the date
executed to the Closing Date, which identifies
each of the residents of the Facility, the monthly
rent currently being paid by each such tenant and
the date to which said rent has been paid and, in
the event of any rent delinquencies, an
explanation of the reason therefor and the efforts
being undertaken by Seller to collect said rent.

     k. LIENS. There are no mechanics',
materialmen's or similar liens presently claimed-.
against the Seller's Assets for work performed or
commenced prior to the date hereof at the request
of Seller or of which Seller has knowledge in
connection with the construction and equipping of
the Facility, Seller having made or caused to be
made arrangements for payment of all those
improvements now under construction or development
and there will : be no such claims or liens at
Closing, it being understood and agreed that
Seller shall make arrangements for the full and
timely payment at or prior to Closing for all work
related to the construction of the Facility and
shall deliver to Purchaser at Closing duly
executed and filed unconditional lien waivers
executed by the contractor, all subcontractors,
suppliers and materialmen.
   
     l. ENVIRONMENTAL MATTERS. Except in
accordance with, and in full compliance with, any
and all applicable governmental laws, regulations
and requirements (collectively, the "Environmental
Laws") relating to environmental and occupational
health and safety matters and hazardous materials,
substances or wastes (as defined from time to time
under any. applicable federal, state or local
laws, regulations or ordinances), Seller has not
released into the environment, or discharged,
placed or disposed of any such hazardous
materials, substances or wastes or caused the same
to be so released into the environment or
discharged, placed or disposed of at, on or under
the Seller's Assets, Seller has not installed any
underground storage tanks on the Real Property and
Seller



6


has not used the Real Property as a dump for waste
material. To the best of Seller's knowledge, no
hazardous materials, substances or wastes are
located on the Real Property or the Facility or
have been released into the environment or
discharged, placed or disposed of in, on or under
the Real Property or the Facility; no underground
storage tanks are located on the Real Property;
the Real Property has never been used as a dump
for waste material and the Real Property and the
Facility and the prior uses of the Real Property
and the Facility at all times complied with all
Environmental Laws.

     m. EMPLOVEES: UNIONS. As of the date hereof,
there are no employees of the Facility. In the
event Seller hires any such employees prior to
Closing, it will permit Purchaser to participate
in the hiring of any and all needed Facility
employees and it will ensure that none of such
employees will be members of a labor union or
subject to a collective bargaining agreement with
respect to their employment at the Facility.

     n. COMPLIANCE WITH LAW

     (i) The Seller's Assets are, and upon
completion of the construction thereof, will be in
compliance with all currently applicable
municipal, county, state and federal laws, regula
tions, ordinances, standards and orders and with
all municipal, health, building and zoning by-laws
and regulations (including, without limitation,
the Americans with Disabilities Act and building
and zoning codes) where the failure to comply
therewith or to obtain a waiver therefrom could
have a material adverse effect on the business,
property, condition (financial or otherwise) or
operation of the Seller's Assets;

     (ii) There are no, and as of the Closing Date
there will not be, any outstanding: deficiencies
or work orders, of any authority having
jurisdiction over the Seller's Assets requiring
conformity to any applicable statute, regulation,
ordinance or by-law pertaining thereto; and

     (iii) Seller is not aware of any claim,
requirement or demand of any agency supervising or
having authority over the Facility to rework or
redesign it or to provide additional furniture,
fixtures or equipment so as to confirm to or
comply with any existing law, code or standard
which has not been fully satisfied prior to the
date hereof or which will not be satisfied prior
to the Closing Date.

     o. OPERATING CONTRACTS. Seller is not
currently a party to an operating contract in
connection with the operation of the Facility (the
"Operating Contracts"). In the event Seller
intends to enter into any such Operating Contracts
prior to Closing, it will (i) provide Purchaser
with a copy thereof, (ii) secure Purchaser's
consent thereto prior to executing the same, (iii)
provide a fully executed copy thereof to Purchaser
and (iv) assign the same to Purchaser at Closing.

     p: THE FACILITY. Upon completion of the
construction thereof, the Facility will be an
assisted living facility licensed by the State of
Nevada as a group care facility with a total of
116 units and shall not at Closing be certified to
participate in Medicare or Medicaid. Seller has no
reason to believe that the Facility will not be
fully qualified for licensure and, if applicable,
for Medicare and/or Medicaid certification upon
the completion of the construction thereof on or
prior to the Closing Date.




7


     q. INVENTORY. All inventories of central
supplies, linen, housekeeping and other supplies
located at the Facility on the Closing Date will
be in sufficient condition and quantity to operate
the Facility under applicable state and federal
law as of the Closing Date.
     
     r. DISCLOSURE. No representation or warranty
by Seller contained in this Agreement and no
statement contained in any certificate, list,
exhibit, or other instrument furnished or to be
furnished to Purchaser pursuant hereto, or in
connection with the transaction contemplated
hereby, contains or will contain any untrue
statement of a material fact, or omits or will
omit to state any material facts which are
necessary in order to make the statements
contained herein or therein not misleading.
The representations and warranties of Seller in
this Paragraph 7 shall be true and correct in all
respects, are made by Seller both as of the date
hereof and as of the date of Closing.

8. Purchaser hereby warrants and represents to
Seller that:

     a. STATUS OF PURCHASER. Purchaser is a
corporation duly organized and validly existing
under the laws of the state of Washington and is
in good standing under the laws thereof and is, or
prior to Closing will be, duly qualified to do
business in the State of Nevada.

     b. AUTHORITY. Subject to obtaining the
approval of its Board of Directors, which prior to
the end of the Due Diligence Period Purchaser
shall either have obtained or advised Seller that
it is not able to obtain the same, Purchaser has
full power and authority to execute and to deliver
this Agreement and all related documents, and to
carry out the transactions contemplated herein.
This Agreement is valid, binding and enforceable
as against Purchaser in accordance with its terms,
except as such enforceability may be limited by
creditors' rights laws and applicable principles
of equity. The execution of this Agreement and the
consummation of the transaction contemplated
herein do not result in a breach of the terms and
conditions of nor constitute a default under or
violation of Purchaser's Articles of Incorporation
or By-laws or any law, regulations, court order,
mortgage, note, bond, indenture, agreement,
license or other instrument or obligation to which
Purchaser is a party or by which Purchaser or any
of the assets or Purchaser may be bound or
affected.

     c. LITIGATION. There is no litigation,
investigation or other proceeding pending or, to
the best of Purchaser's knowledge, threatened
against or relating to Purchaser, its properties
or business which is material to this Agreement,
or which would prevent Purchaser from performing
its obligations hereunder, nor does Purchaser know
or have reasonable grounds to know of any basis
for any such action. For purposes hereof,
litigation, an investigation or a proceeding shall
be deemed to be pending if the same has been
served on Purchaser or Purchaser has been advised
either orally or in writing of the pendency
thereof.

     d. NECESSARV ACTION. Purchaser will proceed
with all due diligence to take all action and
obtain all consents prior to Closing necessary for
it to lawfully enter into and carry out the terms
of this Agreement, including, but not limited to,
using its best efforts to obtain the consent of
its Board of Directors within the time period
provided for in this Agreement.



8


     e. DISCLOSURE. No representation or warranty
by Purchaser contained in this Agreement and no
statement contained in any certificate, list,
exhibit, or other instrument furnished or to be
furnished to Seller pursuant hereto, or in
connection with the transaction contemplated
hereby, contains or will contain any untrue
statement of a material fact, or omits or will
omit to state any material facts which are
necessary in order to make the statements
contained herein or therein not misleading.
     
9. BROKER
     
     Each party hereby represents and warrants to
the other party that it has not contacted or
entered into any agreement with any real estate
broker, agent, finder, or any other party in
connection with this transaction and that it has
not taken any action which would result in any
real estate broker's, finder or other fees or
commissions being due and payable to any other
party with respect to the transaction contemplated
by this Agreement, other than Nathalie Koplan of
Empire Investments, who has been retained and
shall be compensated by Seller. Each patty hereby
indemnifies and agrees to hold the other party
harmless from any loss, liability, damage, cost,
or. expense (including reasonable attorney's fees)
resulting to the other party by reason of a breach
of the representation and warranty made by the
indemnifying party in this paragraph.
Notwithstanding anything to the contrary contained
in this Agreement, the indemnity set forth in this
paragraph and any sums due pursuant to such
indemnity shall constitute separate agreements in
causes of action in addition to any liquidated
damages provided for in this Agreement.

COVENANTS

10. SELLER
     
     a. PRE-CLOSING. Between the date hereof and
the Closing Date, except as contemplated by this
Agreement or with the consent of Purchaser:

     i. Other than as set forth in Paragraph 4
Seller will satisfy and discharge all claims,
liens, security interests, tenancies (other than
the Facility Leases and any Operating Contracts
which Purchaser assumes at Closing pursuant to the
terms hereof, and encumbrances on Seller's Assets;

     ii. Seller will file all tax returns, reports
and filings of any kind or nature required to be
filed by Seller and will timely pay all taxes or
other obligations which are due and payable with
respect to Seller's Assets;

     iii. Seller will not take any action
inconsistent with its obligations under this
Agreement or which could hinder or delay the
consummation of the transactions contemplated by
this Agreement, and Seller will continue until the
Closing to fulfill any obligations which it may
have under the Facility Leases;

     iv. Seller will operate the Facility only in
the ordinary course and with due regard to the
proper maintenance and repair of the Facility and
the Personal Property; provided, however, this
covenant shall not be applicable unless Seller has
commenced operations at the Facility prior to the
Closing Date;



9


     v. Seller will take all reasonable action to
preserve the goodwill of the residents of the
Facility; provided, however, this covenant shall
not be applicable unless Seller has commenced
operations at the Facility prior to the Closing
Date;
     
     vi. Seller will not make any material change
in the operation of the Facility; provided,
however, this covenant shall not be applicable
unless Seller has commenced operations at the
Facility prior to the Closing Date; and Seller
will not sell or agree to sell any of the items
which comprise the Personal Property nor otherwise
enter into an agreement materially- affecting any
of the Seller's Assets;

     vii. Seller will use its reasonable efforts
to retain the services and goodwill of the
employees located at or connected with the
operation of the Facility; provided, however, this
covenant shall not be applicable unless Seller has
commenced operations at the Facility or hired
employees for the Facility prior to the Closing
Date;

     viii. Seller will maintain in force the
existing hazard and liability insurance policies,
or comparable coverage, for the Seller's Assets as
now in effect,

     ix. Seller will not increase the compensation
or other benefits or bonuses payable or to become
payable to any of the Seller's employees connected
with the operation of the Facility, except for
increases substantially in accordance with
existing employment practices disclosed to and
approved by Purchaser, if any or except for
increases which will not affect Purchaser's
operations at the Facility after closing;
provided, however, this covenant shall not be
applicable unless Seller has commenced operations
at the Facility prior to the Closing Date;

     x. Subject to Seller's obligations under
Paragraph 7(o) with respect to the Operating
Contracts and such contracts or commitment as
Seller may need to enter into in connection with
the completion of the construction of the Facility
and for which Purchaser shall have no liability
after the Closing, Seller will not enter into any
contract or commitment affecting the Seller's
Assets except in the ordinary course of business
and Seller will advise Purchaser of any contracts
or commitments which it enters, whether in the
ordinary course of business or otherwise;

     xi. During normal business hours, Seller will
provide Purchaser and its agents with access (in
the company of a representative of Seller) on 24
hours notice to the Real Property and the
Facility, provided Purchaser does not, if
applicable, interfere with the operation of the
Facility and provided Purchaser uses its best
efforts not to disturb any residents of the
Facility during the course of such inspections and
at such times Seller shall permit Purchaser to
inspect the books and records and the physical and
structural condition of the Facility, the Real
Property and the Personal Property;

     xii. Seller will timely pay all obligations
which are due and payable with respect to the
Seller's Assets;

     xiii. Seller will operate the Facility in
substantial compliance with all applicable
municipal, county, state and federal laws,
regulations, ordinances, standards and orders as
now in effect (including without limitation, the
building and zoning codes as currently



10



applied with respect thereto) and with the
Environmental Laws, where the failure to comply
therewith could have a material adverse effect on
the business, property, condition (financial or
otherwise) or operation of the Facility or on the
Seller's Assets; provided, however, this covenant
shall not be applicable unless Seller has
commenced operations at the Facility prior; to the
Closing Date;

     xiv. Seller will take all reasonable action
to achieve substantial compliance in the
construction, equipping and, if applicable,
operation of the Facility with any laws,
regulations, ordinances, standards and orders
applicable to the Seller's Assets which are
enacted after execution of this Agreement and
prior to Closing;,

     xv. Seller will proceed with all due
diligence to secure any consents which may be
necessary for the assignment of the Facility
Leases; provided, however, this covenant shall not
be applicable unless Seller has commenced
operations at the Facility prior to the Closing
Date;

     xvi. As soon as practicable after the date
hereof but in no event later than twenty (20) days
following full execution of this Agreement, Seller
will (a) deliver to Purchaser a UCC-I search
report (herein so called), (b) shall cause Chicago
Title Insurance Company to furnish to Purchaser a
current title commitment (the "Title Report") for
the issuance to Purchaser of an extended coverage
Owner's title insurance policy with a value equal
to the purchase price (the "Title Policy"),
insuring Purchaser's interest in the Real Property
and the Facility, . subject to no exceptions other
than those of the usual printed exceptions, which
are acceptable to Purchaser and the Permitted
Exceptions (hereafter defined) and (c) arrange
with a survey firm acceptable to Purchaser for the
preparation and delivery of an ALTA Survey of the
Real Property and the Facility (the "Survey");

     xvii. Seller will provide Purchaser within
ten (10) days after execution of this Agreement
with copies of any environmental reports,
structural report or geological reports which may
be in Seller's possession with respect to the
Facility and the Real Property;

     xviii. Seller will cooperate with Purchaser
in any efforts which it may undertake to audit
Seller's financial statements with respect to the
Facility for the periods prior to the Closing if
and to the extent such an audit is required for
Purchaser's compliance with applicable securities
laws;

     xix. In the event Purchaser has not
terminated this Agreement as of the end of the Due
Diligence Period, Seller shall permit Purchaser
(A) to assume responsibility for the marketing of
the Facility in anticipation of the completion of
the construction thereof and (B) to request
changes in the design of the Facility or the
proposed furnishings, fixtures and equipment
therein if either the same will not increase the
cost of the completion thereof or Purchaser agrees
to assume said additional cost;

     xx. In the event Seller requests a release of
the Earnest Money in accordance with Paragraph 2,
Seller will execute any and all documents
reasonably requested by Purchaser to evidence the
security described in Paragraph 2(a); and




11



     xxi. Seller will proceed with all due
diligence to complete the construction of the
Facility in a timely and professional manner, in
accordance with all applicable requirements of and
the State of Nevada, including, but not limited
to, the requirements of Nevada law applicable to
the licensure of the Facility as a group care
home, and subject to those design modifications
requested by Purchaser and agreed to by Seller
which are more fully described in Exhibit G
hereto.

     b. CLOSING. On the Closing Date, Seller
agrees that it will:

     i. Execute and deliver to Purchaser a good
and sufficient Warranty Deed to the Real Property
(including the Facility) and Bill of Sale with
respect to the Personal Property and such
endorsements, assignments and other instruments of
transfer and conveyance as shall be necessary to
transfer and assign Seller's Assets to Purchaser
as herein provided;

     ii. Deliver to Purchaser a certificate dated
as of the Closing Date, certifying in such detail
as Purchaser may reasonably specify the
fulfillment of the conditions set forth in
Paragraph(s) 13(a) and (b) subject to the
limitations set forth in Paragraph 26 and setting
forth the incumbency of the officers executing
documents on behalf of Seller; a copy of the
resolutions adopted by Seller's Board of Directors
authorizing the transaction provided for herein
and the execution of this Purchase Agreement and
the other documents contemplated herein and
attaching a certificate of good standing issued by
the Nevada Secretary of State within no more than
thirty (30) days prior to Closing;

     iii. Deliver the tangible property included
in the Seller's Assets to Purchaser in the
condition and repair required by the terms of this
Agreement;

     iv. Deliver to Purchaser a duly executed
assignment of the Facility Leases (the "Facility
Lease Assignment Agreement"); provided, however,
this covenant shall not be applicable unless
Seller has executed any Facility Leases prior to
the Closing Date;

     v. Pay its share of the Closing costs,
including, but not limited to, the Title Report,
Title Policy and Survey described in Paragraph
10(a)(xvi);

     vi. Deliver to Purchaser an Assignment and
Assumption Agreement with respect to any of the
Operating Contracts which Purchaser elects to
assume at Closing pursuant to Paragraph 11 (a)(v)
(the "Operating Contract Assumption Agreement");
provided, however, this covenant shall not be
applicable unless Seller has executed any
Operating Contracts in accordance with the terms
hereof prior to the Closing Date;

     vii. Deliver to Purchaser the Resident
Deposits (as defined in Paragraph 20); provided,
however, this covenant shall not be applicable
unless Seller has executed any Facility Leases and
accepted any resident funds prior to the Closing
Date;

     viii. Deliver to Purchaser the Benefits
Schedule (as defined in Paragraph 19) and pay the
Vacation Pay to Purchaser in accordance with the
provisions of Paragraph 19 provided, however, this
covenant shall not be applicable unless Seller has
hired any employees prior to the Closing Date;



12



     ix. Deliver to Purchaser an Assignment and
Assumption Agreement with respect to all written
or oral warranties or indemnity agreements issued
to Seller by, and any rights which Seller may have
against any, third parties in connection with the
design and construction of the Facility; and :

     x. Deliver to Purchaser evidence of the
designation of a duly authorized representative to
act with full power and authority on behalf of
Seller with respect to any post-closing
obligations imposed on Seller hereunder.
     
     c. POST-CLOSING. After the Closing of this
Agreement, Seller agrees that, at Purchaser's sole
cost and expense, it will take such actions and
properly execute and deliver to Purchaser such
further instruments of assignment, conveyance and
transfer as, in the reasonable opinion of counsel
for Purchaser and Seller, may be reasonably
necessary to assure, complete and evidence the
full and effective transfer and conveyance of
Seller's Assets and cooperate with Purchaser in
any efforts which it may undertake to audit
Seller's financial statements with respect to the
Facility for the periods prior to the Closing if
and to the extent such an audit is required for
Purchaser's compliance with applicable securities
laws.

11.  PURCHASER

     a.  PRE-CLOSING. Between the date hereof and
the Closing Date, except as contemplated by this
Agreement or with the consent of Seller, Purchaser
agrees that:

     i. Purchaser will not take any action
inconsistent with its obligations under this
agreement or which could hinder or delay the
consummation of the transaction contemplated by
this Agreement;

     ii. Within ten ( 10) days after its receipt
of the UCC- I Search Report, the Title Report and
the Survey, Purchaser shall advise Seller in
writing of its objections, if any, to each of the
UCC-1 Search Report, the Title Report and the
Survey. In the event Purchaser fails to notify
Seller in writing of Purchaser's objections within
said ten (10) day period, Purchaser shall be
deemed to have waived its right to object. Within
five (5) days of Seller's receipt of Purchaser's
objections, Seller shall advise Purchaser whether
it intends to correct the defects to which
Purchaser has objected. Seller shall be obligated
to act in good faith in responding to Purchaser's
title objections. For purposes hereof, Seller
shall be deemed to have failed to act in good
faith if its refuses to correct any matter which
is the subject of such title objections where the
only costs to it in doing are normal filing or
recording fees or delivery charges and where the
objections relate to liens which appear of record
but relate to previously discharged debt or other
minor defects in record title. If Seller refuses
to correct some or all of such defects, Purchaser
shall have five (5) days to advise Seller of its
decision to close, notwithstanding the defects, or
to terminate this Agreement, in which case neither
party shall have any further rights or obligations
hereunder, other than Seller's obligation to
return or to direct the return of Purchaser's
Earnest Money. Any matter reflected in the UCC1
Search Report, the Title Report or the Survey not
objected to in accordance with the terms hereof
shall be deemed accepted by Purchaser and to be
"Permitted Exceptions" (herein so called).
Notwithstanding anything contained herein to the
contrary, in the event Seller requires additional
time to prepare



13



either the Survey or the Title Report, then Seller
shall have such additional time to deliver the
same to Purchaser, however, in no event shall such
extension be longer than fifteen (I5) additional
days;

     iii. Purchaser will proceed with all due
diligence to obtain all consents and approvals
necessary to permit the consummation of the
transaction contemplated by this Agreement and/or
necessary to permit Purchaser to own and to
operate the Facility, including, but not limited
to, a license from the Nevada State Division of
Health; and

     iv. Purchaser will proceed with all due
diligence and at its sole cost and expense to
conduct such investigations and to complete the
same on or before August 1,1996, with respect to
Seller's Assets as it deems to be reasonably
necessary in connection with its purchase thereof,
including, but not limited to, zoning
investigations, soil studies, environmental
assessments, seismic assessments, wetlands reports
and investigations of Seller's and the Facility's
books and records and operations, including a
review of the licensure or permitting files
maintained by the City of Las Vegas or the State
of Nevada with respect to the Facility to the
extent the same are publicly available, and
structural inspections, provided no investigations
will be physically intrusive on the Real Property
or the Facility unless Seller consents thereto,
which consent shall not be unreasonably withheld
(the "Due Diligence Review"); provided, however,
nothing herein shall be construed as amending or
modifying in any manner the representations or
warranties of Seller set forth in this Agreement,
which representations and warranties shall be
separate from and unaffected by Purchaser's Due
Diligence Review; and provided, further, that
Purchaser shall maintain the confidentiality of
any documents or information obtained by it during
the course of its Due Diligence Review and shall
return the same to Seller in the event the
transaction provided for herein fails close for
any reason whatsoever Purchaser shall indemnify,
defend and hold Seller and the Seller's Assets
harmless of and from any and all losses,
liabilities, costs, expenses (including without
limitation, reasonable attorney's fees and costs
of court at trial and on appeal), damages, liens,
claims (including, without limitation mechanics'
or materialmans' liens or claims of liens),
actions and causes of action arising from or
relating to Purchaser's (or Purchaser's Agents,
employees, or representatives) entering on the
Real Property and/or the Facility to test, study,
investigate or inspect the same or any part
thereof, whether pursuant to this paragraph or
otherwise or breach of its confidentiality
obligations hereunder. The foregoing indemnity
shall expressly survive the Closing or the earlier
termination of this Agreement.

     b. CLOSING. On the Closing Date, Purchaser
agrees that it will:

     i. Pay the balance of the cash portion of the
Purchase Price due at Closing;

     ii. Deliver the executed Note at Closing and
related loan documents all in accordance with
Paragraph 2(c);

     iii. Pay its share of the Closing costs as
herein provided;






14



     iv. Deliver to Seller a certificate of a
responsible officer dated as of the Closing Date,
certifying in such detail as Seller may reasonably
specify the fulfillment of the conditions set
forth in Paragraph(s) 14(a) and (b) subject to the
limitations set forth in Paragraph 26 and setting
forth the incumbency of the officers executing
documents on behalf of Purchaser, a copy of the
resolutions adopted by Purchaser's Board of
Directors authorizing the transaction provided for
herein and the execution of this Purchase
Agreement and the other documents contemplated
herein and attaching a certificate of good
standing issued by the Washington and Nevada
Offices of the Secretary of State within no more
than thirty (30) days prior to Closing;
iv. Execute the Operating Contract Assumption
Agreement, if applicable;

     v.  Execute the Facility Lease Assignment
Agreement, if applicable; and

     vi. Release and/or return any security
delivered to it by Seller in consideration for the
early release of the Earnest Money.

     c. POST-CLOSING. After the Closing of this
Agreement, Purchaser agrees that it will:

     i. Provide Seller with access during normal
business hours to any books or records which
Seller may need to file or to defend tax returns
or other filings filed prior or subsequent to the
Closing Date which relate to periods prior to the
Closing Date; and

     ii. Take such actions and properly execute
and deliver such further instruments as Seller may
reasonably request to assure, complete and
evidence the transaction provided for in this
Agreement.

12. MUTUAL

Following the execution of this Agreement,
Purchaser and Seller agree:

     a. If any event should occur, either within
or without the knowledge or control of Purchaser
or Seller, which would prevent fulfillment of the
conditions to the obligations of any party hereto
to consummate the transaction contemplated by this
Agreement, to use its or their reasonable efforts
to cure the same as expeditiously as possible; and

     b. To cooperate fully with each other in
preparing, filing prosecuting, and taking any
other actions which are or may be reasonable and
necessary to obtain the consent of any
governmental instrumentality or any third party or
to accomplish the transaction contemplated by this
Agreement. .

CONDITIONS

13. All obligations of Purchaser under this
Agreement are subject to fulfillment, prior to or
at Closing, of each of the following conditions,
any one or all or which may be waived in writing
by Purchaser:




15



     a.  SELLER'S REPRESENTATIONS AND WARRANTIES
TRUE AT CLOSING. Seller's representations and
warranties contained in this Agreement or in any
certificate delivered in connection with this
Agreement or the transactions contemplated herein
shall be true in all material respects at and as
of the date of Closing as though such
representations and warranties were then again
made.

     b. SELLER'S PERFORMANCE. Seller shall have
performed all of its obligations under this
Agreement that are to be performed prior to or at
Closing to the extent the same have not been
waived by Purchaser in accordance with the terms
hereof.

     c. NO DEFAULTS. Seller shall not be in
default, where said default cannot be cured by
Closing, under any mortgage, contract, lease or
other agreement to which Seller is a party or by
which Seller is bound and which affects or relates
to the Real Property, the Personal Property or the
Facility, including, but not limited to, the
Facility Leases.

     d. DUE DILIGENCE REVIEW. Purchaser shall be
satisfied with the results of its Due Diligence
Review, including, but not limited to the results
of an EPA Phase I Assessment of the Real Property
and the Facility within the period specified in
Paragraph 11 (a) (iv); provided, however, nothing
herein shall be construed as amending or modifying
in any manner the representations or warranties of
Seller set forth in this Agreement, which
representations and warranties shall be separate
from and unaffected by Purchaser's Due Diligence
Review except as to any representations or
warranties which, during the course of Purchaser's
Due Diligence Review, Seller demonstrates
Purchaser obtained knowledge of falsity or
inaccuracy thereof. In the event Purchaser elects
to terminate this Agreement within the period
specified in Paragraph 11 (a)(iv) and this
Paragraph 13(d), the parties shall have no further
rights or obligations hereunder, other than
Purchaser's right to the return of its Earnest
Money and Seller's obligation to pay any title
cancellation and UCC search fees incurred as a
result of such termination.

     e. TITLE. The Title Insurer shall issue to
Purchaser as of the date of Closing, an Owner's
extended coverage policy of title insurance for
the Real Property and the Facility in accordance
with the requirements of Paragraph 4.

     f.  SURVEY. Purchaser shall be satisfied as
to the results of the ALTA Survey in accordance
with the provisions of Paragraph 1 I (a)(ii).

     g. UCC SEARCH. Purchaser shall be satisfied
with- the results of the UCC search conducted by
Seller pursuant to Paragraph 10(a)(xvi) in
accordance with the provisions of Paragraph 11
(a)(ii).

     i. APPROVALS. Purchaser shall have received
all consents, and approvals as may be necessary
for it to own and to operate the Facility,
including, but not limited to, the issuance by the
Nevada State Division of Health to Purchaser of a
license to operate the Facility.







16



     j. FACILITY CONSTRUCTION. Construction of the
Facility shall be complete to the Purchaser's
satisfaction in accordance with the requirements
of this Agreement and Seller shall have delivered
to Purchaser written evidence that it has received
all necessary city and state approvals related
thereto, including, but not limited to, licensure
approval with respect to the beds included
therein, and lien waivers from all contractors and
subcontractors providing goods or services in
connection therewith and shall have delivered the
Facility to Purchaser in accordance with the
requirements of Exhibit H.
     
     Subject to the limitations set forth in the
foregoing Paragraph 13, in the event any of the
foregoing conditions is not satisfied by Seller or
Purchaser, as appropriate, or waived by Purchaser
prior to Closing, Purchaser shall have the right
to terminate this Agreement in accordance with the
provisions of Paragraph 17.
     
14.  CONDITIONS TO SELLER'S OBLIGATIONS.

     All obligations of Seller under this
Agreement are subject to the fulfillment, prior to
or at Closing, of each of the following
conditions, any one or all of which may be waived
by Seller in writing:

     a. PURCHASER'S REPRESENTATIONS AND WARRANTIES
TRUE AT CLOSING. Purchaser's representations and
warranties contained in this Agreement or in any
certificate or document delivered in connection
with this Agreement or the transactions
contemplated herein shall be true in all material
respects at and as of the date of Closing as
though such representations and warranties were
then again made.

     b. PURCHASER'S PERFORMANCE. Purchaser shall
have performed its obligations under this
Agreement that are to be performed prior to or at
Closing to the extent the same have not been
waived by Seller in accordance with the terms
hereof.
      
      Subject to the limitations set forth in the
foregoing Paragraph 14, in the event any of the
foregoing conditions is not satisfied by Seller or
Purchaser, as appropriate, or waived by Purchaser
prior to Closing, Purchaser shall have the right
to terminate this Agreement in accordance with the
provisions of Paragraph 17.

INDEMNIFICATION

15. Seller shall indemnify and hold Purchaser
harmless from and against:

     a. Except as otherwise provided in this
Agreement, any and all obligations relating to the
design and construction of the Facility, the
ownership of Seller's Assets and, if applicable,
the operation of the Facility which exist at the
Closing Date, including, but not limited to (i)
any obligations under any Facility Leases or
Operating Contracts executed by Seller in
accordance with the terms of this Agreement and
assumed by Purchaser at Closing and (ii) any
obligations with respect to any Resident Deposits;
provided, however, that with respect to the
construction of the Facility, Seller shall be
deemed to have fulfilled its obligations hereunder
with respect to claims which Purchaser may have
against third parties involved therein, if Seller
has assigned to Purchaser its rights against and
any warranties and indemnities received from any
third parties involved therein..


17



     b. Subject to the limitations set forth in
Paragraph 26, any and all damage, loss, or
liability resulting from any misrepresentation of
a material fact, breach of warranty or
nonfulfillment of any agreement on the part of
Seller under this Agreement or from any
misrepresentation in any certificate furnished or
to be furnished to Purchaser hereunder;

     c. Any and all liability or loss arising out
of or relating to any failure iii connection with
the transaction contemplated herein to comply with
the requirements of any laws or regulations
relating to bulk sales or transfers; and
d. Any and all actions, suits, proceedings,
demands, assessments, judgments, reasonable costs,
and other reasonable expenses, including, but not
limited to, reasonable attorney's fees, incident
to any of the foregoing.
     
     For purposes of Paragraph 15(a), an
obligation shall be deemed to "exist" as of the
Closing Date if it relates to the period prior to
the Closing Date even if it is not asserted until
after the Closing Date.

16. Purchaser shall indemnify and hold Seller
harmless from and against:

     a. Except as otherwise provided in this
Agreement, any and all obligations relating to the
ownership of the Seller's Assets and the operation
of the Facility from and after the; Closing Date,
including, but not limited to any obligations
under any Facility Leases or Operating Contracts
assumed by Purchaser at Closing and any
obligations with respect to any Resident Deposits
delivered to Purchaser at Closing;

     b. Subject to the limitations set forth in
Paragraph 26, any and all damage, loss or
liability resulting from any misrepresentation of
a material fact, breach of warranty or
nonfulfillment of any agreement on the part of
Purchaser under this agreement or from any
misrepresentation in any certificate furnished or
to be furnished to Seller hereunder;

     c. Any and all damage, loss or liability
resulting from the conduct by or the negligence or
willful misconduct of Purchaser in performing its
Due Diligence Review; and

     d. Any and all actions, suits, proceedings,
demands, assessments, judgments, reasonable costs
and other reasonable expenses, including, but not
limited to, reasonable attorney's fees, incident
to any of the foregoing.

TERMINATION

17.         a.  This Agreement may be terminated
and the transaction contemplated herein abandoned
at any time prior to Closing:

     i.   By mutual agreement of the parties;

     ii. By Seller, if any of the conditions set
forth in Paragraph 14 shall have become incapable
of fulfillment prior to the Closing Date or such
earlier date as may be specifically provided for
the performance thereof (as the same may be
extended) through no fault of Seller and as a
result of a material breach by Purchaser of its
obligations hereunder and the same shall not have
been waived by Seller;


18



     iii. By Purchaser, if any of the conditions
set forth in Paragraph 13 shall have become
incapable of fulfillment prior to the Closing Date
or such earlier date as may be specifically
provided for the performance thereof (as the same
may be extended) through no fault of Purchaser and
as a result of a material breach by Seller of its
obligations hereunder and the same shall not have
been waived by Purchaser;

     iv. By either Seller or Purchaser in the
event of a material breach by the other party of
its obligations hereunder;

     v.  If the Closing has not occurred by
October 1,1996 (the "Outside Closing Date"),
unless extended by mutual agreement of the
parties; provided, however, that in the event all
of the conditions to Closing provided for in
Paragraph 13 have been satisfied or waived by the
Outside Closing Date other than the Purchaser's
receipt of the License pursuant to Paragraph
13(i), provided Purchaser is diligently pursuing
the issuance of the License by the Nevada State
Division of Health, the Outside Closing Date shall
automatically be extended: for such additional
period of time as may be necessary to permit
Purchaser to secure the License; provided, further
that in the event Purchaser has not secured the
License by December 1,1996, this Agreement shall
thereafter terminate in accordance with the terms
hereof and the parties shall have no further
rights or obligations hereunder other than
Purchaser's right to the return of its Earnest
Money.

     b. In the event that prior to the Closing
Date, a material portion of the Real Property, the
Facility or the Personal Property shall have been
damaged or destroyed by fire or other casualty, or
shall have been taken or condemned by any: public
or quasi-public authority under the power of
eminent domain, Purchaser shall have the right to
terminate this Agreement on written notice to
Seller which notice must be delivered within ten
(10) days after Purchaser receives notice of such
damage, destruction or condemnation. In the event
Purchaser fails to exercise its termination rights
hereunder, then it shall be conclusively deemed to
have waived said right and Seller shall assign to
Purchaser all of its rights to any insurance
proceeds or condemnation award and all claims in
the connection therewith. In the event Purchaser
exercises its termination rights hereunder, the
parties shall have no further rights or
obligations hereunder other than Purchaser's right
to the return of its Earnest Money.

     c. Neither party to this Agreement may claim
termination or pursue any other remedy referred to
in Paragraph I 7(a) on account of a breach of a
condition, covenant or warranty by the other,
without first giving such other party written
notice of such breach and not less than ten (10)
days within which to cure such breach; provided,
however, in no event shall the Closing Date be
postponed beyond the Outside Closing Date.

     d. In the event of the termination of this
Agreement by Seller under Paragraphs 17(a)(ii) or
(iv) or under Paragraph 17(a)(v) in the event the
Closing has failed to occur as a result of a
material breach by Purchaser of its obligations
hereunder, Seller's sole remedy shall be to
terminate this Agreement and to retain Purchaser's
Earnest Money as full and complete liquidated
damages, the parties acknowledging and agreeing
that the amount of damages which Seller may incur
as a result of such termination may be difficult
to ascertain and that the amount of the Earnest
Money is a reasonable and fair estimate thereof,
after which the parties shall have no further
rights or obligations hereunder.


19



     e. In the event of the termination of this
Agreement by Purchaser under Paragraphs 17(a)(iii)
or (iv) or under Paragraph 17(a)(v) in the event
the Closing has failed to occur as of a material
breach by Seller of its obligations hereunder,
Purchaser shall have the right as Purchaser's sole
and exclusive remedies either to (i) terminate
this Agreement and demand the return of its
Earnest Money after which neither party shall have
any further rights or obligations hereunder or
(ii) seek specific performance of Seller's
obligations hereunder.

EMPLOYEE BENEFITS

18. At Closing, Seller shall terminate all of the
Facility employees and pay to Purchaser or, at the
option of Purchaser, directly to the employees of
the Facility, all earned and accrued vacation pay,
sick pay, holiday pay and other benefits due to
and/or coming due to any such employees of the
Facility as of or subsequent to the Closing Date,
but only in the case of those employees hired by
Purchaser effective as of the day after the
Closing Date, and Purchaser shall pay the same to
such employees after Closing as and when due. In
order to facilitate Purchaser's compliance with
the provisions of this Paragraph 18, at Closing,
Seller shall deliver to Purchaser a schedule which
reflects by employee earned and accrued vacation,
sick pay, holiday pay and other benefits (the
"Benefits Schedule"). In the case of any of the
employees not hired by Purchaser, Seller shall be
obligated to pay any and all earned and accrued
vacation pay, sick pay, holiday pay and other
benefits due to and/or coming due to any such
employees.

     Seller and Purchaser acknowledge and agree
that the provisions of this Paragraph 18 shall not
be applicable in the event Seller has not hired
any employees as of the Closing Date.

RESIDENT SECURITY DEPOSITS

19. At Closing, Seller shall provide Purchaser
with an accounting of all resident security
deposits being held by Seller as of the Closing
Date (the "Resident Deposits"). Such accounting
shall set forth the names of the residents or
prospective residents for whom such funds are
held, the amounts held on behalf of each resident
or prospective resident and the Seller's warranty
that the accounting is true, correct and complete.

20. On the Closing Date, Seller shall transfer the
Resident Deposits to the bank account designated
by the Purchaser and Purchaser shall in writing
acknowledge to Seller receipt of and expressly
assume all Seller's financial and custodial
obligations with respect thereto, it being the
intent and purpose of this provision that, at
Closing, Seller will be relieved of all fiduciary
and custodial obligations, and that Purchaser will
assume all such obligations and be directly
accountable to the residents and prospective
residents of the Facility, with respect thereto.

21. Notwithstanding the foregoing, Seller will
indemnify and hold Purchaser harmless from all
liabilities, claims and demands in the event the
amount of the Resident Deposits transferred to the
Purchaser's bank account as provided in Paragraph
21 did not represent the full amount of such
Resident Deposits then or thereafter shown to have
been delivered to Seller by the current residents
or prospective residents of the Facility.
     
     
                                                20
     
     
     
     Seller and Purchaser acknowledge and agree
that the provisions of Paragraphs 19-21 shall not
be applicable in the event Seller has not admitted
any residents or accepted deposits from
prospective residents as of the Closing Date.

NOTICES

22. Any notice, request or other communication to
be given by any party hereunder shall be in
writing and shall be sent by registered or
certified mail, postage prepaid, by overnight
courier. guaranteeing overnight delivery or by
facsimile transmission (if confirmed verbally or
in writing by mail as aforesaid), to the following
address:

     To Seller:     Sunday Estates
               c/o LSP Incorporated
               850 S. Rancho Drive Suite 1010
               Las Vegas, NV 89106
               Attn: Mr. James Jariv
               Phone No.: (702) 258-0711
               FAX No. :  (702) 25 8-913 6

     To Purchaser:  Emeritus Corporation
               Market Place One
               2003 Western Avenue Suite 660
               Seattle, WA 98121
               Phone No.: (206) 443-4313
               FAX No.: (206) 443-5432
     
     Notice shall be deemed given three (3)
business days after deposit in the mail, on the
next day if sent by overnight courier and on
receipt if sent by facsimile (and confirmed
verbally or by mail as aforesaid).

SOLE AGREEMENT

23. This Agreement may not be amended or modified
in any respect whatsoever except by instrument in
writing signed by the parties hereto. This
Agreement constitutes the entire agreement between
the parties hereto and supersedes all prior
negotiations, discussions, writings and agreements
between them.

SUCCESSORS

24. The terms of this Agreement shall be binding
upon and inure to the benefit of and be
enforceable by and against the heirs and
successors of the parties hereto, it being
specifically understood and agreed that Purchaser
shall have the right to assign in whole or in part
its rights and obligations hereunder to an
affiliate; provided no such assignment shall
relieve Purchaser of its obligations hereunder and
provided, further, that Purchaser shall provide
Buyer with notice of any such assignment and such
assignee shall assume all of Purchaser's
obligations hereunder in writing. In addition,
Purchaser shall have the right, on written notice
to Seller, to assign its rights hereunder to a
real estate investment trust (the "REIT") in
connection with its financing of the transaction
provided for herein, it being understood and
agreed that in the event of such an assignment,
the only right



21


which the REIT will assume is Purchaser's right to
take title to the Seller's Assets and the only
obligation which the REIT will assume is
Purchaser's obligation to pay the purchase price
in accordance with the terms hereof and that, in
any event, Purchaser shall not be relieved of any
of its obligations hereunder in the event of such
an assignment.

CAPTIONS

25. The captions of this Agreement are for
convenience of reference only and shall not define
or limit any of the terms or provisions hereof.

SURVIVAL/LIMITATION OF ACTIONS

26. All covenants, warranties and representations
of Purchaser and Seller herein other than Seller's
representation and warranty in Paragraph 7(I),
which shall survive for the applicable statute of
limitations period, shall survive for two years
after Closing after which they shall automatically
expire; provided, however, that in the event
notice of a claim is delivered by Seller or
Purchaser prior to expiration of said two year
period or applicable statute of limitation period
in the case of a claim brought under Paragraph
7(1), the representation, warranty or covenant
which is the subject of said claim shall survive
until the final, non-appealable resolution
thereof.

GOVERNING LAW

27. This Agreement shall be governed by and
construed in accordance with the laws of the State
of Nevada.

SEVERABILITY

28. Should any one or more of the provisions of
this Agreement be determined to be invalid,
unlawful or unenforceable in any respect, the
validity, legality and enforceability of the
remaining provisions hereof shall not in any way
be affected or impaired thereby.

COUNTERPARTS

29. This Agreement may be executed in any number
of counterparts, each of which shall be an
original; but such counterparts shall together
constitute but one and the same instrument. This
Agreement may be executed (i) on an original, (ii)
a copy of an original, or (iii) by a facsimile
transmission copy of an original followed within
five (5) calendar days with execution of an
original.

THIRD PARTY BENEFICIARY

30. The provisions of this Agreement are not
intended to confer any benefits upon any person or
entity not a party to this Agreement.







22



ACCOUNTS RECEIVABLE

31. Within ten days prior to the Closing Date,
Seller shall provide Purchaser with a detailed
listing of Seller's accounts receivable which are
anticipated to be outstanding on the Closing Date.

32. From and after the Closing Date, Purchaser
shall assume responsibility for the billing for
and collection of payments on account of services
rendered or goods sold by it on and after the
Closing Date and Seller shall retain all right,
title and interest in and to and all
responsibility for the collection of its accounts
receivable for services rendered or goods sold
prior to the Closing Date.

33. Any payments received by Purchaser after the
Closing Date from residents with balances due for
the period prior to and after the Closing Date,
shall be applied by Purchaser first to reduce any
post-Closing Date balances, with the excess, if
any, remitted to Seller to reduce any pre-Closing
Date balances due.

34. Seller shall have the right during normal
business hours and on reasonable notice to
Purchaser to inspect Purchaser's books and records
with respect to the accounts receivable received
by it after the Closing Date from residents with
balances due as of the Closing Date.
     
     Seller and Purchaser acknowledge and agree
that the provisions of Paragraphs 31-34 shall not
be applicable in the event Seller has not admitted
any residents or accepted deposits from
prospective residents as of the Closing Date:
     
     IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.

SELLER:                                  SUNDAY
ESTATES, INC.


By:  /s/ James Jariv

- --------------------------------------

Its:  Vice President


PURCHASER:                         EMERITUS
CORPORATION

                     By:  /s/ Raymond R. Brandstom
                             ---------------------
               ------------------
                     Its:  President
               
                     By:  /s/ Daniel R. Baty
                             ---------------------
               ------------------
                     Its:   Chairman
               





23

EX-10.56.2

       FIRST AMENDEMENT TO PURCHASE AND
SALE AGREEMENT

     This Agreement is made and entered
into this 11th day of July, 1996, by and
between SUNDAY ESTATES, Inc., a Nevada
("Seller"), and EMERITUS CORPORATION, a
Washington corporation ("Purchaser").


RECITALS

     A.   Seller and Purchaser are parties to
       that Purchase and Sale Agreement dated
       July 9, 1996 (the "Purchase Agreement")
       with respect to the purchase and sale of
       that 116 unit assisted-living facility
       currently under construction by Seller in
       Las Vegas, Nevada and to be known as
       Concorde Senior Citizen Residence (the
       "Facility").

     B.   After the execution of the Purchase
       Agreement the Seller requested that
       certain amendments be made to the Purchase
       Agreement to which Purchaser had agreed.

     C.   The Purchase Agreement provides that
       it may only be amended by written
       instrument signed by the parties thereto.

     D.   Seller and Purchase are desirous of
       documenting the terms of said amendments.

     NOW, THEREFORE, in consideration of
the foregoing premises and the mutual
covenants of the parties set forth herein,
IT IS HEREBY AGREED AS FOLLOWS:


AGREEMENT

1.   Section 2(a) is hereby deleted in its
  entirety and the following inserted
  instead:

     a.  Two Hundred Fifty Thousand and
no/100 Dollars ($250,000) on execution of
this Agreement (the "Earnest Money
Payment") shall be delivered by Purchaser
to Fidelity National Title Insurance
Company, 6900 Westcliff, Suite 710, Las
Vegas, NV 89128 (the "Escrow Agent").  In
the event the purchase and sale
contemplated by this Agreement is
consummated, then the Earnest Money will
be credited against the Purchase Price at
Closing.  In the event the purchase and
sale contemplated by this Agreement fails
to occur, the Earnest Money shall be
remitted to Seller or Purchaser, as
appropriate, in accordance with the
provisions of Paragraph 17 hereof.  The
Escrow Agent shall be authorized, at
Purchaser's option, to invest the Earnest
Money in such manner as Purchaser may
direct with Seller's reasonable written
approval; provided, however, that the
Escrow Agent shall invest the Earnest
Money only in such manner as will allow
Escrow Agent to disperse the Earnest Money
on two (2) days' notice; and provide,
further, that the Escrow Agent shall be
authorized to release the Earnest Money to
Seller prior to closing upon Seller's
delivery to Purchase


1


of security for the repayment thereof, in
the event Purchaser is entitled to the
return thereof in accordance with the
terms of this Agreement, which security
shall be in the form of a second lien on
the Real Property evidenced by a Deed of
Trust in form and substance reasonable
acceptable to Purchaser.  All interest or
other earnings on the Earnest Money shall
become part of the Earnest Money and shall
be dispersed to the party who becomes
entitled to the Earnest Money pursuant to
the provisions of this Agreement;
provided, however, that in the event
Seller requests an early release of the
Earnest Money in accordance with the terms
hereof and Seller is thereafter required
by the terms of this Agreement to return
the same to Purchaser, Seller shall be
required to pay Purchaser interest thereon
at the same rate of interest that
Purchaser was earning or would have earned
had the Earnest Money been held by Escrow
Agent;

2.   Section 2(c) is hereby deleted in its
  entirety and the following inserted
  instead:

     The balance by execution and delivery
at Closing of Purchaser's Promissory Note
in the face amount of Six Million and
no/100 Dollars ($6,000,000) which Note
shall (i) be in form and substance
acceptable to Purchaser and Seller, (ii)
shall be due and payable in full 18 months
after the Closing Date, (iii) shall bear
no interest during the first six months of
the term thereof, (iv) shall bear interest
at the annual rate of 10% per annum during
the second six month period, (v) shall
bear interest at the rate of 11% per annum
during the last six months of the term
thereof, with interest only due and
payable monthly during the said six month
period and (vi) shall be secured by a
first lien on the Seller's Assets, with
the documents evidencing such lien to be
in form and substance acceptable to Seller
and Purchaser, provided, however, Seller
shall have the right, subject to
purchaser's consent, to place a first lien
of the Seller's assets prior to Closing,
to transfer title to the Seller's Assets
to Purchase subject to said first lien and
to enter into an All-inclusive Note and
Deed of Trust with Purchaser which would
"wrap" the obligations of Purchaser to
Seller around the obligations of Seller to
said lender, provided, however, that
Purchaser shall have no obligation to
consent thereto unless it is fully
satisfied with the terms of the underlying
loan and lien documents and its loan and
lien documents with Seller and, in
particular, with the protections afforded
to Purchaser thereunder to ensure that it
will be provided with notice of and an
opportunity to cure a default by Seller
with respect to the underlying loan and
that such cure rights may be exercised by
Purchaser without any additional cost to
Purchaser under the terms hereof.

3.   Section 3 is hereby deleted in its
  entirely and the following inserted
  instead:

     The closing of the purchase and sale
under this Agreement (the "Closing") shall
take place on or before September 1,1996
(provided all of the conditions to closing
set forth in paragraphs 13 and 14 have
been satisfied or waived) (the "Closing
Date"); provided, however, that either
Purchaser or Seller shall have the right
on written notice to the other


2


delivered on or prior to the Closing Date
to extend the Closing Date for a period of
up to thirty (30) days.  Closing shall
occur at the offices of Escrow Agent or at
such other place as Purchaser and Seller
may mutually agree.  Time is of the
essence hereto.

4.   Section 17(a)(v) is hereby deleted in
  its entirety and the following inserted
  instead:

     If the Closing has not occurred by
October 1, 1996 (the "Outstanding Closing
Date"), unless extended by mutual
agreement of the parties; provided,
however, that in the event all of the
conditions to Closing provided for in
Paragraphs 13 and 14 have been satisfied
or waived by the Outside Closing Date
other than either the Purchaser's receipt
of the License pursuant to Paragraph 13(i)
or Seller's completion of the construction
of the Facility pursuant to Paragraph
13(j), provided, (A) in the case of the
condition set forth in Paragraph 13(i),
Purchaser is diligently pursuing the
issuance of the License by the Nevada
State Division of Health or, (B) in the
case of the condition set forth in
Paragraph 13(j), seller is diligently
pursuing the completion of the
construction of the Facility and the delay
in the completion thereof is due solely to
either a delay in the issuance of any
permits or licenses necessary to evidence
the completion thereof or the design
modifications requested by the Purchaser
as reflected in Exhibit G, the Outside
Closing Date shall automatically be
extended for such additional period of
time as may be necessary to permit
Purchaser to secure the License and/or
Seller to complete construction of the
Facility; provided, further that in the
event Purchaser has not secured the
License by December 1, 1996 and/or Seller
has not completed construction of the
Facility, this Agreement shall thereafter
terminate in accordance with the terms
hereof and the parties shall have no
further rights or obligations hereunder
other than Purchaser's right to the return
of its Earnest Money.

5.  Except as specifically set forth
herein, the Purchase Agreement shall
remain in full force and effect as
originally executed by Seller and
Purchaser.

6.  This Agreement may be executed in
counterparts, each of which shall be
deemed to be an original, but all of which
taken together shall constitute but one
and the same instrument.

     IN WITNESS WHEREOF,  the parties
hereby execute this Agreement as of the
day and year first set forth above.

SELLER:
SUNDAY ESTATES, INC.


By: /s/ James Jariv

- ---------------------------

James Jariv

- ---------------------------

Its:       Vice President

- ---------------------------


3


PURCHASER:
EMERITUS CORPORATION


By:  /s/ Raymond R. Brandstom

- ---------------------------------

Raymond R. Brandstrom

- ---------------------------------

Its:  President

- ---------------------------------

EX-10.56.3

DO NOT DESTROY THIS NOTE: WHEN PAID, THIS
NOTE WITH DEED OF TRUST SECURING SAME MUST
BE SURRENDERED TO TRUSTEE FOR CANCELLATION
BEFORE RECONVEYANCE WILL BE MADE

ALL-INCLUSIVE PROMISSORY NOTE SECURED BY
ALL-INCLUSIVE DEED OF TRUST


INSTALLMENT NOTE


Place:  Las Vegas

- -------------------------------

Date:   November 18, 1996

- -------------------------------

No.:    96-60-6339RJC

- -------------------------------

     For value received, the undersigned
("Maker") promises to pay Sunday Estates,
Inc. a Nevada Corporation ("Payee") or
order, at 850 South Rancho, Suite 1010,
Las Vegas, Nevada 89106 or such other
place as the Payee hereof may from time to
time designate, the principal sum of six
million dollars ($6,000,000.00), together
with interest on the unpaid principal
balance from the 18th day of November
1996, no payment will be made on this Note
and no interest will accrue until the 19th
day of  May, 1997, at which time Maker
shall make monthly interest installment
payments only at a rate of Ten percent
(10%) per annum until the 19th day of
November, 1997, at which time the interest
rate will increase to eleven percent (11%)
and Maker will make interest only monthly
installment payments until May 18, 1998.
On May 19th, 1998 the entire unpaid
principal and interest shall be due and
payable.

     The total principal amount of this
Note includes the unpaid principal balance
of the Promissory Note ("Senior Note")
secured by Deed of Trust ("Senior Deed of
Trust"), more particularly described as
follows:

     1.   A Deed of Trust recorded
       __________________ as Document No.
       _________________, in Book ______________,
       of Official Records of ___________________
       County, Nevada, in the original principal
       sum of FOUR MILLION DOLLARS
       ($4,000,000.00) executed by Sunday
       Estates, Inc. a Nevada Corporation, as
       Trustor, in favor of GMAC Commercial
       Mortgage Corporation as Beneficiary,
       securing a note dated November 15, 1996,
       in the original amount of FOUR MILLION
       DOLLARS ($4,000,000.00), in favor of GMAC
       COMMERCIAL MORTGAGE CORPORATION, A
       California Corporation, as Payee;







     
     At all times the equity of the Payee
of this Note shall be the difference
between the unpaid balance of this Note
and the total unpaid balance of the
principal and interest of the Senior Note
secured by the Senior Deed of Trust not of
record.
     
     Payee further agrees to provide Maker
with copies of any and all default notices
provided to it by the holder of the senior
notes.  The obligations of Payee hereunder
shall terminate upon the earliest of (i)
foreclosure of the lien of the All-
inclusive Deed of Trust securing this Note
("All-inclusive Deed of Trust") or (ii)
cancellation of this Note and reconveyance
of the lien of the All-inclusive Deed of
Trust.  Notwithstanding the foregoing,
Maker, with the written consent of Payee,
shall have the right to remit a portion of
each payment due hereunder directly to the
holder of the Senior Notes in satisfaction
of payee's obligation hereunder, in which
case Maker shall only be obligated to
remit to payee the balance each  payment
due hereunder.
     
     This Note is secured by the All-
inclusive Deed of Trust constituting a
lien on real property.  It is expressly
agreed that all of the covenants,
conditions and agreements contained in the
All-inclusive Deed of Trust, are hereby
made a part of this Note.  This Note may
or shall be considered in default upon any
default or event by which , under the
terms of the All-inclusive Deed of Trust,
this Note may or shall become due and
payable, or upon failure to pay any
installment of interest or principal or
any other amount as required to be paid
under this Note or under the All-inclusive
Deed to Trust on the due date thereof or
within ten (10) days thereafter.  In the
event of default which is not cured within
any applicable cure period, the Holder
may, at its option and without further
notice to Maker declare all unpaid
indebtedness evidenced by this Note and
any modifications thereof less the unpaid
balance of principal and interest of the
Senior Note immediately due and payable.
Failure at any time to exercise this
option shall not constitute a waiver of
the right to exercise the same at any
other time with respect to any other
uncured default.
     
     Should Maker be in default under the
terms of this Note, and Payee consequently
incurs any penalties, charges or other
expenses on account of the Senior Note
during the period of such default, the
amount of such penalties, charges and
expenses shall be added to the principal
amount of this Note and shall be
immediately payable by Maker to Payee.
     
     Maker shall have the right to prepay
this Note in whole or in part from time to
time without penalty or premium except as
set forth herein.  Notwithstanding
anything to the contrary herein contained,
the right of Maker to prepay all or any
portion of the principal of this Note
which is equal to the then outstanding
principal balance of the Senior Note is
limited to the same extent as the right to
prepay the principal of the Senior Note.
If any prepayments of principal of this
Note shall, by reason of the application
of any portion thereof by Payee to the
prepayment of the Senior Note, constitute
such prepayments for which the holder of
the Senior Note is
entitled to receive a prepayment penalty
or consideration shall be paid by Maker to
Payee upon demand, and any such amount
shall not reduce the unpaid balance of
principal or interest hereunder.


     All amount payable under this Note
and the All-inclusive Deed of Trust shall
be payable only in the lawful money of the
United States of America.
     
     In the event that an action is
commenced, whether or not a suit is
brought, and including bankruptcy and
appellate proceedings to enforce the terms
of this Note, the prevailing party shall
be entitled to recover all its costs of
enforcement, including its reasonable
attorneys' fees.  This Note may not be
terminated or amended orally, but only by
discharge in writing and signed by the
party who is the holder and owner of this
Note at the time enforcement of any
discharge is sought.  This Note shall be
governed by and construed in accordance
with the laws of the State of Nevada.
     
     This Note is secured by an All-
inclusive Deed of Trust, of even date
herewith, to Fidelity National Title
Insurance Company, an Arizona corporation,
as Trustee, and the following additional
security if any:  NONE
     
     IN WITNESS HEREOF, the parties do
hereby execute this note:
     
     MAKER(S)            PAYEE(S)
     
     Emeritus Corporation
     -----------------------------
     By: /s/ Daniel R. Baty
     -----------------------------
                 Daniel R. Baty
     -----------------------------
     Its:  Chairman

EX-10.56.4

Order No.
Escrow No.
Loan No.

WHEN RECORDED MAIL TO:

FIDELITY NATIONAL TITLE
7750 E. BROADWAY #B222
TUCSON, AZ 85710-3903
attn: Collection Dept.


- --------------------------------------------------
- ----------------

SPACE ABOVE THIS LINE FOR RECORDER'S USE

          ALL-INCLUSIVE DEED OF TRUST AND
ASSIGNMENT OF RENTS

This ALL-INCLUSIVE DEED OF TRUST, made NOVEMBER
18, 1996, between EMERITUS CORPORATION, a
Washington Corporation, hereinafter called
TRUSTOR, whose address is 3131 Elliott Avenue,
Suite 500, Seattle, WA 98121; FIDELITY NATIONAL
TITLE AGENCY OF NEVADA, INC., a Nevada Corporation
herein called TRUSTOR; SUNDAY ESTATES, INC., a
Nevada Corporation herein called BENEFICIARY,

WITNESSETH: That Trustor grants to Trustee in
Trust, with Power of Sale, that property in the
County of Clark, State of Nevada, described as:

     Government Lot Thirty-seven (37) in Section
13, Township 21 South, Range 61 East, M.D.B. & M.,
County of Clark, State of Nevada.

     EXCEPT that portion conveyed to the County of
Clark for road purposes by Deed recorded January
17, 1996, in Book 960117 as Document No. 01463 of
Official Records.

     ALSO excepting and reserving to the United
States all oil. gas, and other mineral deposits in
the land, together with the right to prospect for,
mine and remove the same according to the
provisions of the Act of June l, 1938, as reserved
in the Patent recorded April 15, 196o in Book 240,
as Document No. 294641 of Official Records, Clark
County, Nevada.

Together with the rents, issues and profits
thereof, subject, however to the right, power and
authority hereinafter given to and conferred upon
Beneficiary to collect and apply such rents,
issues and profits.

For the Purpose of Securing (1) payment of the sum
of SIX MILLION DOLLARS, ($6,000,000.00) with
interest thereon according to the terms of an all-
inclusive promissory note of even date herewith
(hereinafter "the Secured Note") made by Trustor,
payable to order of Beneficiary, and extensions or
renewals thereof, and (2) the performance of each
agreement of Trustor incorporated by reference
contained herein.



1



A. Senior Deed of Trust:

     This is an All-Inclusive Deed of Trust,
securing the Secured Note and is subject and
subordinate to the following instruments:
     
     (1) A Deed of Trust Security Agreement,
Assignment of Rents and Fixture Filing, recorded
11-18-96 , as Document No. 01171 , in Book 961118,
Page _______, of Official records of  Clark
County,
Nevada, in the original principal sum of FOUR
MILLION DOLLARS
($4, 000, 000. 00) in favor of GMAC Commercial
Mortgage Corporation a California corporation,
securing a note in the original amount of FOUR
MILLION DOL.LARS
($4, 000, 000. 00).

B. To protect the Security of the All-Inclusive
Deed of Trust, Trustor agrees:

     (1) To keep the property secured hereby in
good condition and repair; not to remove or
demolish any building thereon; to complete or
restore promptly and in good and workmanlike
manner any building which may be constructed,
damaged or destroyed thereon and to pay when due
all claims for labor performed and materials
furnished therefore; except to the extent any
claim for payment is being contested by Trustor
and Trustor has posted reasonable security for any
liens which may arise during the period of such
contest, to comply with all laws affecting the
property secured hereby or requiring any
alterations or improvements to be made thereon
except to the extent duly and
lawfully contested by Trustor; not to commit or
permit waste thereon; not to commit, suffer or
permit any act upon the property secured hereby in
violation of law to cultivate,
irrigate, fertilize, fumigate, prune and do all
other acts which from the character or use of the
property secured hereby may be reasonably
necessary, the specific enumerations herein not
excluding the general.

     (2) To provide, maintain and deliver to
Beneficiary fire,
vandalism and malicious mischief insurance
satisfactory to and with loss payable to
Beneficiary. The amount collected under any fire
or other insurance policy may be applied by
Beneficiary upon an indebtedness secured hereby
and in such order as Beneficiary may determine, or
at option of Beneficiary the entire amount so
collected or any part thereof maybe released to
Trustor.  However, provided that Trustor is not in
default hereunder, Beneficiary shall be required
to release all such proceeds to Trustor to be
applied to the reconstruction or repair of the
insured property.  Such application or release
shall not cure or waive any default or notice of
default hereunder or invalidate any act done
pursuant to such notice.

     (3) To appear in and defend any action or
proceeding
purporting to affect the security hereof or the
rights or powers of Beneficiary or Trustee and to
pay a?1 costs and expenses, including costs of
evidence of title and attorney fees in a
reasonable sum, in any such action or proceeding
in which Beneficiary or Trustee may appear, and in
any suit brought by Beneficiary to foreclose this
All-Inclusive Deed of Trust.





2



     (4) To pay; (a) before delinquency all taxes
and assessments affecting the property secured
hereby, including assessments on appurtenant water
stock; (b) when due, subject to the mutual
agreements of the parties as below set forth, all
encumbrances, charges and liens, with interest, on
the property secured hereby or any part thereof,
which appear to be prior or superior hereto other
than the Senior Deed of Trust which shall be and
remain the responsibility of Beneficiary, unless
Trustor has exercised its rights under the Note
secured hereby to pay a portion of the payments
due thereunder directly to the holder of the
Senior Note as defined therein; and (c) all
allowable expenses of this Trust.

     Should Trustor fail to make any payment or to
do any act as herein provided and should Trustor
fail to cure such failure within ten (l0) days
after written notice thereof in the case of a
monetary obligation or within thirty (30) days
after written notice thereof in the case of non-
monetary obligation, then Beneficiary or Trustee,
but without obligation so to do and without
further notice to or demand upon Trustor and
without releasing Trustor from any obligation
hereof, may: make or do the same in such manner
and to such extent as either may deem necessary to
protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the
property secured hereby for such purposes; appear
in and defend any action or proceeding purporting
to affect the security hereof or the rights or
powers of Beneficiary or Trustee; pay, purchase,
contest or compromise any encumbrance, charge or
lien which in the judgment of either appears to be
prior or superior hereto, other than the lien the
Senior Deed of Trust; and, in exercising any such
powers, pay allowable expenses.
     
     (5) To pay immediately and without demand all
sums so expended by Beneficiary or Trustee, with
interest from date of expenditure at the amount
allowed by law in effect at the date hereof.

C. It is mutually agreed:

     (1) That any award of damages in connection
with any condemnation for public use of or injury
to the property secured hereby or any part thereof
is hereby assigned and shall be paid to
Beneficiary which may or shall, as applicable,
apply or release such moneys received by it in the
same manner and with the same effect as above
provided for disposition of proceeds of fire or
other insurance.

     (2) That by accepting payment of any sum
secured hereby after its due date, Beneficiary
does not waive its right either co require prompt
payment when due of all other sums so secured or
to declare default for failure so to pay.
     
     (3) That at any time or from time to time,
without liability therefore and without notice,
upon written request of Beneficiary or Trustor and
presentation of this All-Inclusive Deed of Trust
and the Secured Note for endorsement, and without
affecting the personal liability of any person for
payment of the indebtedness secured hereby,
Trustee may: reconvey any part of the property
secured hereby; consent to the making of any map
or plat thereof; join in granting any easement
thereon; or join in any extension agreement or any
agreement subordinating the lien or charge hereof.





3



     (4) That upon written request of Beneficiary
stating that all sums secured hereby have been
paid, and upon surrender of this All-Inclusive
Deed of Trust and the Secured Note to Trustee for
cancellation and retention or other disposition as
Trustee in its sole discretion may choose and upon
payment of its fees, Trustee shall reconvey,
without warrant, the property then held hereunder.
The recitals in such reconveyance of any matters
or facts shall be conclusive proof of the
truthfulness thereof. The grantee is such
reconveyance may be described as "the person or
persons legally entitled thereto."

     (5) That as additional security, Trustor
hereby gives to and confers upon Beneficiary the
right, power and authority, during the continuance
of these Trusts, to collect the rents, issues and
profits of the property secured hereby, reserving
unto Trustor the right, prior to any default by
Trustor in payment of any indebtedness secured
hereby or in performance of any agreement
hereunder, to collect and retain such rents,
issues and profits as they become due and payable.
Upon any such default which is not cured within
any cure period provided for herein or in the
Secured Note, Beneficiary may at any time without
notice, either in person, by agent, or by receiver
to be appointed by a court, and without regard to
the adequacy of any security for the indebtedness
hereby secured, enter-upon and take possession of
the property secured hereby or any part thereof,
in its own name sue for or otherwise collect such
rents, issues and profits, including those past
due and unpaid, and apply the same, less allowable
expenses of operation, upon any indebtedness
secured hereby, and in such order as Beneficiary
may determine. The entering upon and taking
possession of the property secured hereby, the
collection of such rents, issues and profits, and
the application thereof as aforesaid, shall not
cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to
such notice.

     (6) That upon default by Trustor in payment
of any indebtedness secured hereby or in
performance of any agreement hereunder, which is
not cured within any cure period provided for
herein or in the Secured Note, Beneficiary may
declare all sums secured hereby immediately due
and payable by delivery to Trustee of written
declaration of default and demand for sale and of
written notice of default and of election to cause
to be sold the property secured hereby, which
notice Trustee shall cause to be filed for record.
Beneficiary also shall deposit with Trustee this
All-Inclusive Deed of Trust, the Secured Note and
all documents evidencing expenditures secured
hereby.

     After the lapse of such time as may then be
required by law following the recordation of said
notice of default, and notice of sale having been
given as then required by law, Trustee, without
demand on Trustor, shall sell the property secured
hereby at the time and place fixed by it in said
notice of sale, either as a whole or in separate
parcels, and in such order as it may determine, at
public auction to the highest bidder for cash in
lawful money of the United States, payable at time
of sale.  Trustee may postpone sale of all or any
portion of the property secured hereby by public
announcement at such time and place of sale, and
from time to time thereafter may postpone such
sale by public announcement at the time fixed by
the preceding postponement. Trustee shall deliver
to such purchaser its deed of conveying the
property so sold, but without any covenant or
warranty, express or implied. The recitals in such
deed of any matters of facts shall be conclusive
proof of the truthfulness thereof. Any person,
including Trustor, Trustee, or Beneficiary as
hereinafter defined, may purchase at such sale.
     
                                              4
     

     After deducting all costs, fees and expenses
of Trustee and of this Trust, including cost of
evidence of title in connection with sale, Trustee
shall apply the proceeds of sale to payment of all
sums expended under the terms hereof, not then
repaid, with accrued interest at the amount
allowed by law in effect at the date hereof; all
other sums then secured hereby; and the remainder,
if. any, Co the person or persons legally entitled
thereto.

     (7) Beneficiary, or any successor in
ownership of any
indebtedness secured hereby, may from time to
time, by instrument in writing, substitute a
successor or successors to any Trustee named
herein or acting hereunder, which instrument,
executed by the Beneficiary and duly acknowledged
and recorded in the office of the recorder of the
county or counties where the property secured
hereby is situated, shall be conclusive proof or
proper substitution of such successor Trustee or
Trustees, who shall, without conveyance from the
Trustee predecessor, succeed to all its title,
estate, rights, powers and duties. Said instrument
must contain the name of the original Trustor,
Trustee and Beneficiary hereunder, the book and
page where this All-Inclusive Deed of Trust is
recorded and the name and address of the new
Trustee.

     (8) That this All-Inclusive Deed of Trust
applies to,. inures to the benefit of, and binds
a12 parties hereto, their heirs, legatees,
devisees, administrators, executors, successors
and assigns. The term Beneficiary shall mean the
owner and holder, including pledgees, of the
Secured Note secured hereby, whether or not named
as Beneficiary herein. In this All-Inclusive Deed
of Trust, whenever the context so requires, the
masculine gender includes the feminine and/or
neuter, and the singular number includes the
plural.

     (9) That Trustee accepts this Trust when this
All-Inclusive Deed of Trust, duly executed and
acknowledged, is made a public record as provided
by law. Trustee is not obligated to notify any
party hereto of pending sale under any other Deed
of Trust or of any action or proceeding in which
Trustor, Beneficiary or Trustee shall be a party
unless brought by Trustee.

D. The Parties Further Agree:

     (1) By Beneficiary's acceptance of this All-
Inclusive Deed of Trust, Beneficiary agrees for
the benefit of Trustor, that provided Trustor is
not in default on the Secured Note, Beneficiary
shall pay all installments of principal and
interest which become due under the terms of the
Senior Note unless Trustor has exercised its
rights under the Secured Note to make payments on
behalf of Trustor directly to the holder of the
Senior Note. Notwithstanding the foregoing, in the
event Trustor shall be in default on the Secured
Note, although Beneficiary's obligation under the
Senior Note shall not be deferred until the
default on the Secured Note is cured, Trustor
shall, in such event, have no recourse against
Beneficiary for any damages suffered by it as a
result of Beneficiary's non-payment, if any, of
the Senior Note as a result of Trustor's default
hereunder.  Should the Beneficiary default in any
of the installments as to the payment of the
Senior Note at a time when Trustor is not in
default in the performance of the obligations
of the Trustor under the Secured Note or this All-
Inclusive Deed of Trust, the Trustor may make said
payments directly to the holder of such Senior
Note; any and all



5



payments so made shall be credited to the Secured
Note against the next succeeding installments of
principal and interest. Nothing contained herein
shall be construed to create a third party
beneficiary relationship between the Beneficiary
and any other person, other than the holder of the
Senior Note.

     (2) Notwithstanding any covenants contained
in the Senior Note or Deed of Trust securing same,
Beneficiary shall have no further duty under this
All-Inclusive Deed of Trust when; (i) the lien of
this All-Inclusive Deed of Trust has been
extinguished by foreclosure sale or (ii) this All-
Inclusive Deed of Trust has been duly reconveyed
after payment in full of the Secured Note and
subsequent to the payment by the Beneficiazy
herein of Trustor's porzion of the Senior Note
which the Beneficiary herein is required to pay to
the holder of said Senior Note.

     If at any time the total of the unpaid
balance of the Secured Note, the accrued interest
thereon, all other sums due under the terms
thereof and all sums advanced by Beneficiary
pursuant to the terms of the All-Inclusive Deed of
Trust, is equal to or less than the unpaid
principal balance of the Senior Note and accrued
interest thereon, the Secured Note shall be
canceled and the property secured hereby shall be
reconveyed from the lien of this All-Inclusive
Secured Deed of Trust.

     (3) Trustor and Beneficiary agree that in the
event the proceeds of any condemnation award or
settlement in lieu thereof or the proceeds of any
casualty insurance covering destructible
improvements located upon the property secured
hereby, are applied by the holder of the Senior
Note in reduction of the unpaid principal amount
thereof, the unpaid principal balance of the
Secured Note secured hereby shall be reduced by an
equivalent amount and be deemed applied to the
last sums due under the Secured Note.

     (4)  Any demand hereunder delivered by
Beneficiary to Trustee for the foreclosure of the
lien of this All-Inclusive Deed of Trust may be
not more than the sum of the following amounts:
(i) The equity of Beneficiary in the Secured Note
being the difference between the then unpaid
balance of principal and interest accrued and
unpaid on the Secured Note on the date of such
foreclosure sale and the then unpaid balance of
principal and interest so accrued and unpaid on
the Senior Note as of the date of such foreclosure
sale; plus (ii) The aggregate of all amounts
theretofore paid by Beneficiary pursuant to the
terms of this All-Inclusive Deed of Trust prior to
the date of such foreclosure sale, for taxes and
assessments, insurance premiums ,delinquency
charges, foreclosure costs, and any other sums
advanced by Beneficiary pursuant to the terms of
this All-inclusive Deed of Trust, to the extent
the same were not previously repaid by Trustor to
Beneficiary; plus (iii) The costs of foreclosure
together with attorney fees and costs incurred by
Beneficiary in enforcing this All-Inclusive Deed
of Trust or the Note secured hereby as permitted
by law.

     (5) Notwithstanding any provision to the
contrary herein contained, Beneficiary for itself,
its successors and its assigns, agrees that, in
the event of a foreclosure of this All-inclusive
Deed of Trust, it will, at the Trustee's sale,
offset its bid by an amount not exceeding the
amount representing the total amount then due
under the Secured Note plus any advances or other
disbursements which Beneficiary and its successors
or assigns, may, by law, be permitted to include
as an offset to its bid, less the then actual


6



total balance due upon any notes or obligations
secured by any and all Deeds of Trust having
priority over this All-Inclusive Deed of Trust and
covering the above described real property or any
portion thereof. The Trustee may rely on any
statements received from Beneficiary as to the
unpaid total balance, advances or disbursements,
and such statements shall be deemed binding and
conclusive as between Beneficiazy and Trustor, on
the one hand, and Trustee, on the other hand, to
the extent of such reliance.

     (6) Trustor covenants and agrees that Trustor
shall perform and observe all obligations to be
performed and observed by Trustor under this Deed
of Trust securing the Secured Note and Beneficiary
covenants and agrees that with the exception of
those obligations set forth in the Senior Note and
the Deed of Trust incorporated by reference in
Addendum A hereto, which Trustor agrees to perform
as and when due, Beneficiary shall perform and
observe all obligation to be performed and
observed by it under the Senior Note and the Deed
of Trust.

     (7) Beneficiary shall not have the right to
refinance the Senior Note unless (i) the principal
balance of the new debt after such refinancing
does not exceed the principal balance of the
Senior Note as the time of said refinancing, (ii)
the monthly principal and interest payments due
thereunder do not exceed the monthly interest
payments of Trustor due hereunder and (iii) the
holder thereof agrees to provide Trustor with
notice of any default thereunder and an
opportunity to cure same and with the right to
make a portion of the payments due under the
Secured Note directly to the holder thereof-

     (8) The terms of Addendum A are incorporated
by reference herein.

     (9) All of the rights granted to Beneficiary
hereunder are subject to the rights of the holder
of the Senior Note.

     (10) This Agreement may be executed in
counterparts.






















7



     IN WITNESS WHEREOF, the parties hereto
execute this All Inclusive Deed of Trust and
Assignment of Rents

            Trustor
Emeritus Corporation ,
By: /s/ Daniel R. Baty
      -----------------------
      Daniel R. Baty

Its: Chairman
      -----------------------

            Beneficiary
        Sunday Estates

By: /s/ James Jariv
       ----------------------
        James Jariv

Its:   Vice President
       ----------------------

STATE OF WASHINGTON  )
                                                 :
SS
COUNTY OF KING               )

On November 15, 1996, before me, the undersigned a
Notary Public in and for said State, personally
appeared, Daniel R. Baty, known to me to be the
person whose name subscribed to the within
instrument and acknowledged that he executed the
same.


WITNESS MY HAND AND OFFICIAL SEAL


/s/ Catherine L. Pasquan

- --------------------------------------------------
- ----

NOTARY PUBLIC in and for said County

and State

[SEAL]













8



STATE OF NEVADA            )
                                                 :
SS
COUNTY OF CLARK            )

On November 18, 1996, before me, the undersigned a
Notary Public in and for said State, personally
appeared, James Jariv known to me to be the person
whose name subscribed to the within instrument and
acknowledged that he executed the same.


WITNESS MY HAND AND OFFICIAL SEAL


/s/

- --------------------------------------------------
- ----

NOTARY PUBLIC in and for said County

and State

[SEAL]



































9

EX-10.56.5

ADDENDUM TO
    ALL-INCLUSIVE DEED OF TRUST AND
ASSIGNMENT OF RENTS


     This Addendum is attached to and
forms a part of that certain All-Inclusive
Deed of Trust and Assignment of Rents
dated __________ executed by EMERITUS
CORPORATION, a Washington corporation as
Trustor, in favor of  SUNDAY ESTATES,
INC., a Nevada corporation as Beneficiary
and shall be attached to and form a part
of said Deed of Trust.

     1.  Trustor has delivered a form of
Residence Agreement ("Residence
Agreement") which shall be used by Trustor
for each resident of the assisted living
facilities on the Property.  Beneficiary
has approved the form of said Residence
agreement and Trustor agrees that it will
not make any amendments or modifications
thereto which would have any material,
adverse effect on the operation,
maintenance or income from the Property
without the prior written consent of
Beneficiary.  Beneficiary's consent shall
not be unreasonably withheld or delayed.

     2.  By no later than the quarter
commencing twelve (12) months after the
"Funding Date" (as defined in the Senior
Note), the Property shall achieve and
maintain compliance with a minimum of 1.15
debt service coverage ratio (the "Debt
Coverage Ratios") to be tested quarterly
based on the operation of the Property.

     As used herein, "Debt Coverage Ratio"
means a ratio in which the first number is
the sum of net income from normal
operations for the Property (without
deduction for actual management fees
incurred or paid in connection with the
operation of the Property), calculated
based upon the preceding three (3) months,
plus interest expense or lease expense to
the extent deducted in determining net
income and non-cash expenses or allowances
for depreciation and amortization of the
Property for said period, less either
assumed management fees or actual
management fees (as applicable) for said
period, and the second number is the
interest expense relating to the Senior
Note for the applicable period.  In
calculating "net income," federal and
state taxes on such income shall be
deducted and any extraordinary income
shall be excluded.

     Trustor shall deposit cash or other
liquid collateral with Beneficiary (the
"Additional Collateral") in the event the
required debt service coverage ratio is
not achieved, which will be deposited by
Beneficiary with the holder of the Senior
Note as additional collateral for the
Senior Loan pursuant to a Deposit and
Security Agreement, in form and content
acceptable to Trustor, Beneficiary and the
holder of the Senior Note.  Initially, the
Additional Collateral will be equal to an
amount which, when added to the first
number of the debt service coverage
calculation, would have resulted in the
non-complying debt service requirement
having been met.  However, if the debt
service coverage ratio requirement is not
corrected within two (2) consecutive
quarters, Borrower will be required to





increase the Additional Collateral to an
amount which, if the same had been applied
on the first (1st) day of the prior three
(3) month period to reduce the outstanding
principal indebtedness of the Senior Note,
would have resulted in the non-complying
debt service coverage requirement having
been satisfied, which such increased
amount will be held for an additional two
(2) consecutive quarters.  Borrower's
failure to post either of the required
Additional Collateral amounts, or
Borrower's failure to correct the debt
service coverage requirements within the
period specified in the preceding sentence
shall constitute a default hereunder.  The
Additional Collateral shall be released to
Trustor upon satisfaction in full of the
Senior Note.

     Further, the Property shall maintain
an average annual occupancy of 80% or
greater (based on the number of units
available at the Property) upon
stabilization (which shall be deemed to
have occurred when the Property has been
80% occupied for three (3) consecutive
months) and continuing during the Loan
term.

     Trustor will furnish to Beneficiary,
or will cause the manager of the Property
to furnish to Beneficiary, within forty-
five (45) days of the end of each calendar
quarter, a certificate of a financial
officer of Trustor or such manager,
confirming compliance with the covenants
required by paragraph 42.

     3.  REPORTS AND STATEMENTS.  Trustor
shall deliver to Beneficiary throughout
the term of the Loan the following:

     (a)  Within ninety (90) days after
the end of the fiscal years of the
Property and Trustor (if different from
Property) audited financial statements of
the Trustors and Unaudited financial
statements of the Property, which
statements shall include a balance sheet
and a statement of income and expenses for
the year then ended, and shall be
certified as true and correct by a
financial officer of Trustor.

     (b)  Within forty-five (45) days
after the end of each fiscal quarter,
unaudited interim financial statements of
the Property and Trustor (if different
from Property), certified as true and
correct in all material respects by a
financial officer of the Trustor, prepared
in accordance with generally accepted
accounting principles consistently
applied, which such statements shall
include a balance sheet, statement of
income and expenses for the quarter then
ended, and quarterly census information of
the Property in sufficient detail to show
patient-mix on a daily average basis for
such quarter.

     (c)  In the event the Property is
certified to participate in Medicaid,
within forty-five (45) days of filing or
receipt, all Medicaid cost reports and any
amendments thereto filed with respect to
the Property and all responses, audit
reports, or inquiries received by Trustor
with respect to such cost reports.


2



     (d)  Within twenty (20) days of
receipt, copies of all licensure and
certification survey reports and
statements of deficiencies (with plans of
correction attached thereto is and to the
extent the same have been prepared and
filed within such 20-day period).

     (e)  Within three (3) days of
receipt, any and all notices (regardless
of form) from any and all licensing and/or
certifying agencies that the Property's
license is being downgraded to a
substandard category, revoked, or
suspended, or that action is pending or
being considered to downgrade to a
substandard category, revoke, or suspended
the Property's license or certification.

     (f)  Within ten (10) days after a
request by Beneficiary, evidence of
payment by Trustor or Manger of any
applicable provider bed taxes or similar
taxes.

     (g)  Within ten (10) days after a
request by Beneficiary, an accounts aging
report of each Property.

     (h)  In the event the Property is
certified to participate in Medicaid,
within ten (10) days of receipt, a copy of
the "Medicaid Rate Calculation Worksheet"
(or the equivalent thereof) from the
applicable agency.

     Any deficiency (identified pursuant
to (d) or (e) above) shall be corrected by
the date required by the licensure and
certification agency, if such deficiency
could adversely affect either the right to
continue participation in Medicaid for
existing patients or the right to admit
Medicaid patients, if applicable, or the
continued licensure of the Property.

     The Beneficiary reserves the right to
reasonably require such other financial
information of Trustor or the Property at
such other times as it shall deem
necessary.  All financial statements must
be in such form and detail as Beneficiary
shall from time to time reasonably
request.

     4.  Trustor hereby acknowledges that
Deed of Trust to which this Addendum is
attached is subordinate to the Senior Deed
of Trust, the Beneficiary of which is GMAC
Commercial Mortgage Corporation.  Trustor
agrees that the terms and conditions of
this Addendum shall be for the benefit of
GMAC Commercial Mortgage Corporation as
well as Beneficiary as long as said Senior
Deed of Trust remains as a first lien
against the Property.










3




     IN WITNESS WHEREOF, the undersigned
Trustor has executed this Addendum
concurrently with the execution of the
Deed of Trust to which it is attached.  In
the event of any conflict between the
terms of this Addendum and the terms of
the Deed of Trust, the terms of this
Addendum shall prevail.


EMERITUS CORPORATION,

a Washington corporation



By: /s/ Daniel R. Baty

- ---------------------------------

Daniel R. Baty


Its:  Chairman


STATE OF Washington         )

)  ss.
COUNTY OF King                )

     On November 15, 1996, before me,
Catherine L. Pasquan, a Notary Public in
and for said state, personally appeared
Daniel R. Baty, personally known to me (or
proved to me on the basis of satisfactory
evidence) to be the person whose name is
subscribed to the within instrument and
acknowledged to me that he/she executed
the same in his/her authorized capacity,
and that by his/her signature on the
instrument, the person, or the entity upon
behalf of which the person acted, executed
the instrument.

     WITNESS my hand and official seal.

               /s/ Catherine L. Pasquan
              ----------------------------
- ---
                    Catherine L. Pasquan

         Notary Public in and for said
State

[SEAL]










4

EX-10.57.1

THE FOLLOWING DOCUMENT IS SUBSTANTIALLY
THE SAME FOR THE HUTCHINSON PROPERTY AND
THE RIDGELAND PROPERTY WITH THE EXCEPTION
OF THE ORIGINAL MEDITRUST INVESTMENT IN
THE HUTCHINSON PROPERTY IS $9,600,000 AND
THE ORIGINAL MEDITRUST INVESTMENT IN THE
RIDGELAND PROPERTY IS $6,250,000.


















































EMERITUS



               FACILITY LEASE AGREEMENT

  MEDITRUST ACQUISITION CORPORATION I

                 (A Massachusetts
corporation)

                                      as
                                 Lessor


                                  AND

               EMERITUS PROPERTIES I, INC.

                    (A Washington
corporation)

                                      as
                                  Lessee




                     Dated as of March 15,
1996


                         For Premises
Located At
                       ________,
__________, _______


FACILITY LEASE AGREEMENT

     This FACILITY LEASE AGREEMENT
("Lease") is dated as of the 15 day of
March, 1996 and is between MEDITRUST
ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its
principal office at 197 First Avenue,
Needham Heights, Massachusetts 02194, and
EMERITUS PROPERTIES I, INC. ("Lessee"), a
Washington corporation, having its
principal office at c/o Emeritus
Corporation, 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121-2162.

ARTICLE 1

LEASED PROPERTY; TERM; CONSTRUCTION;
EXTENSIONS

     1.1  LEASED PROPERTY.  Upon and
subject to the terms and conditions
hereinafter set forth, Lessor leases to
Lessee and Lessee rents and leases from
Lessor all of Lessor's rights and
interests in and to the following real and
personal property (collectively, the
"Leased Property"):

          (a)  the real property described
in EXHIBIT A attached hereto (the "Land");

          (b)  all buildings, structures,
Fixtures (as hereinafter defined) and
other improvements of every kind
including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility
pipes, conduits and lines, and parking
areas and roadways appurtenant to such
buildings and structures presently or
hereafter situated upon the Land
(collectively, the "Leased Improvements");

          (c)  all easements, rights and
appurtenances of every nature and
description now or hereafter relating to
or benefitting any or all of the Land and
the Leased Improvements;

          (d)  all equipment, machinery,
building fixtures, and other items of
property (whether realty, personalty or
mixed), including all components thereof,
now or hereafter located in, on or used in
connection with, and permanently affixed
to or incorporated into the Leased
Improvements, including, without
limitation, all furnaces, boilers,
heaters, electrical equipment, heating,
plumbing, lighting, ventilating,
refrigerating, incineration, air and water
pollution control, waste disposal, air-
cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and
theft protection equipment, and built-in
oxygen and vacuum systems, all of which,
to the greatest extent permitted by law,
are hereby deemed by the parties hereto to
constitute real estate, together with all
replacements, modifications, alterations
and additions thereto, but specifically
excluding all items included within the
category of Tangible Personal Property (as
hereinafter defined) which are not
permanently affixed to or incorporated in
the Leased Property (collectively, the
"Fixtures"); and






     The Leased Property is leased in its
present condition, AS IS, without
representation or warranty of any kind,
express or implied, by Lessor and subject
to:  (i) the rights of parties in
possession; (ii) the existing state of
title including all covenants, conditions,
Liens (as hereinafter defined) and other
matters of record (including, without
limitation, the matters set forth in
EXHIBIT B); (iii) all applicable laws and
(iv) all matters, whether or not of a
similar nature, which would be disclosed
by an inspection of the Leased Property or
by an accurate survey thereof.

     1.2  TERM.  The term of this Lease
shall consist of:  the "Initial Term",
which shall commence on [March 15, 1996]
(the "Commencement Date") and end on March
31, 2009 (the "Expiration Date");
provided, however, that this Lease may be
sooner terminated as hereinafter provided.
In addition, Lessee shall have the
option(s) to extend the Term (as
hereinafter defined) as provided for in
Section 1.3.

     1.3  EXTENDED TERMS.  Provided that
this Lease has not been previously
terminated, and as long as there exists no
Lease Default (as hereinafter defined) at
the time of exercise and on the last day
of the Initial Term or the then current
Extended Term (as hereinafter defined), as
the case may be, Lessee is hereby granted
the option to extend the Initial Term of
this Lease for four (4) additional periods
(collectively, the "Extended Terms") as
follows:  four (4) successive five (5)
year periods for a maximum Term, if all
such options are exercised, which ends on
March 31, 2029.  Lessee's extension option
rights shall be exercised by Lessee by
giving written notice to Lessor of each
such extension at least one hundred eighty
(180) days, but not more than three
hundred sixty (360) days, prior to the
termination of the Initial Term or the
then current Extended Term, as the case
may be.  Lessee shall have no right to
rescind any such notice once given.
Lessee may not exercise its option for
more than one Extended Term at a time.
During each effective Extended Term, all
of the terms and conditions of this Lease
shall continue in full force and effect,
except that the Base Rent (as hereinafter
defined) for each such Extended Term shall
be adjusted as set forth in Section
3.1(a).

     Notwithstanding anything to the
contrary set forth herein, Lessee's rights
to exercise the options granted in this
Section 1.3 are subject to the further
condition that concurrently with the
exercise of any extension option
hereunder, Lessee shall have exercised its
option to extend the terms of all of the
Related Leases in accordance with the
provisions of the Agreement Regarding
Related Transactions and the provisions of
Section 1.3 of each of the Related Leases.








2


ARTICLE 2

DEFINITIONS AND RULES OF CONSTRUCTION

     2.1  DEFINITIONS.  For all purposes
of this Lease and the other Lease
Documents (as hereinafter defined), except
as otherwise expressly provided or unless
the context otherwise requires, (i) the
terms defined in this Article have the
meanings assigned to them in this Article
and include the plural as well as the
singular and (ii) all references in this
Lease or any of the other Lease Documents
to designated "Articles", "Sections" and
other subdivisions are to the designated
Articles, Sections and other subdivisions
of this Lease or the other applicable
Lease Document.

     ACCOUNTS: As defined in the UCC.

     ACCREDITATION BODY:  Any person,
including any Person having or claiming
jurisdiction over the accreditation,
certification, evaluation or operation of
the Facility.

     ADDED VALUE PERCENTAGE:  The
proportion of the Fair Market Added Value
of Capital Additions paid for or financed
by Lessee to the Fair Market Value of the
entire Leased Property, expressed as a
percentage.

     ADDITIONAL CHARGES:  As defined in
Article 3.

     ADDITIONAL LAND:  As defined in
Section 9.3.

     ADDITIONAL RENT:  As defined in
Article 3.

     ADDITIONAL RENT COMMENCEMENT DATE:
As defined in Article 3.

     AFFILIATE:  With respect to any
Person (i) any other Person which,
directly or indirectly, controls or is
controlled by or is under common control
with such Person, (ii) any other Person
that owns, beneficially, directly or
indirectly, five percent (5%) or more of
the outstanding capital stock, shares or
equity interests of such Person or (iii)
any officer, director, employee, general
partner or trustee of such Person, or any
other Person controlling, controlled by,
or under common control with, such Person
(excluding trustees and Persons serving in
a fiduciary or similar capacity who are
not otherwise an Affiliate of such
Person).  For the purposes of this
definition, "control" (including the
correlative meanings of the terms
"controlled by" and "under common control
with"), as used with respect to any
Person, shall mean the possession,
directly or indirectly, of the power to
direct or cause the direction of the
management and policies of




3


such Person, through the ownership of
voting securities, partnership interests
or other equity interests provided,
however, that, (a) for purposes of
determining a Related Party Default, the
percentage of outstanding capital stock,
shares or equity interests referenced in
(ii) above shall be fifty percent (50%)
and (b) any Person who is an Affiliate by
virtue of
the ownership thereof by Daniel R. Baty or
his status therein as an officer or
director shall not be deemed an Affiliate
for purposes of determining a Related
Party Default.

     AFFILIATED PARTY SUBORDINATION
AGREEMENT:  That certain Affiliated Party
Subordination Agreement of even date by
and among Lessee, the Guarantor, various
Affiliates of Lessee and various
Affiliates of Lessor.

     AGREEMENT REGARDING RELATED
TRANSACTIONS (ACQUISITION):  The Fourth
Amended and Restated Agreement Regarding
Related Transactions (Acquisition) of even
date, as amended from time to time,
between Lessee, Lessor and any Related
Party that is party to any Related Lease
or Related Party Agreement.  Lessor and
Lessee anticipate that the Agreement
Regarding Related Transactions will be
amended from time to time to include
Affiliates of Lessor and Lessee as parties
thereto in connection with future
transactions and acknowledge and agree
that for all purposes under this Lease
Agreement such amendments shall be deemed
to be included in this definition.

     ANNUAL FACILITY UPGRADE EXPENDITURE:
An aggregate annual amount equal to the
product of TWO HUNDRED DOLLARS ($200) (as
increased as of the first day of each
Lease Year in which the Annual Facility
Upgrade Expenditure is to be made by an
amount equal to the product of the CPI
Increase multiplied by TWO HUNDRED DOLLARS
($200)) times the number of units in the
Facility, such amount to be spent on
Upgrade Renovations.  The term "CPI
Increase" means a fraction, the numerator
of which is the Price Index in effect as
of the first day of the Lease Year in
which the Annual Facility Upgrade
Expenditure is to be made and the
denominator of which is the Price Index in
effect as of the date hereof.  The term
"Price Index" means the Consumer Price
Index for Urban Wage Earners and Clerical
Workers, All Items-Series A (1982-84=100),
published by the Bureau of Labor
Statistics, U.S. Department of Labor.  If
the Bureau of Labor Statistics should
cease to publish such Price Index in its
present form and calculated on the present
basis, then the most similar index
published by the same Bureau shall be used
for the same purpose.  If there is no such
similar index, a substitute index which is
then generally recognized as being similar
to such Price Index, such substitute index
to be reasonably selected by Lessor.

     APPURTENANT AGREEMENTS:
Collectively, all instruments, documents
and other agreements that now or hereafter
create any utility, access or other rights
or appurtenances benefiting or relating to
the Leased Property.


4


     AWARD:  All compensation, sums or
anything of value awarded, paid or
received on a total or partial
Condemnation.

     BASE GROSS REVENUES:  The annualized
Gross Revenues of the Facility for the
period from and including [___________]
and including [___________], initially as
shown by Lessee's certified Consolidated
Financial Statements and as later verified
by Lessee's Consolidated Financial
Statements.

     BASE RENT:  As defined in Section
3.1.

     BUSINESS DAY:  Any day which is not a
Saturday or Sunday or a public holiday
under the laws of the United States of
America, the Commonwealth of
Massachusetts, the State or the state in
which Lessor's depository bank is located.

     CAPITAL ADDITIONS:  Collectively, all
new buildings and additional structures
annexed to any portion of any of the
Leased Improvements and material
expansions of any of the Leased
Improvements which are constructed on any
portion of the Land during the Term,
including, without limitation, the
construction of a new wing or new story,
the renovation of any of the Leased
Improvements on the Leased Property and
any expansion, construction, renovation or
conversion in connection therewith (a) in
order to provide a functionally new
facility that is needed or used to provide
services not previously offered or (b) in
order to (i) increase the bed capacity of
a Facility, (ii) change the purpose for
which such beds are utilized and/or (iii)
change the utilization of any material
portion of any of the Leased Improvements
provided that for the purposes of Article
9 hereof the Project shall not be treated
as a Capital Addition.

     CAPITAL ADDITION COST:  The cost of
any Capital Addition made by Lessee
whether paid for by Lessee or Lessor.
Such cost shall include all costs and
expenses of every nature whatsoever
incurred directly or indirectly in
connection with the development,
permitting, construction and financing of
a Capital Addition as reasonably
determined by, or to the reasonable
satisfaction of, Lessor.

     CASH COLLATERAL:  As defined in the
Deposit Pledge Agreement.

     CASH FLOW:  The Consolidated Net
Income (or Consolidated Net Loss) before
federal and state income taxes for any
period plus (i) the amount of the
provision for depreciation and
amortization actually deducted on the
books of the applicable Person for the
purposes of computing such Consolidated
Net Income (or Consolidated Net Loss) for
the period involved, plus (ii) Rent and
interest on all other Indebtedness which
is fully subordinated to the Lease
Obligations, plus (iii) any indebtedness
which is fully subordinated to the Lease
Obligations pursuant to the Affiliated
Party Subordination Agreement or the
Management Subordination Agreement.


5


     CASUALTY:  As defined in Section
13.1.

     CHATTEL PAPER:  As defined in the
UCC.

     CLOSING:  As defined in Section
18.3.6.

     CODE:  The Internal Revenue Code of
1986, as amended.

     COLLATERAL:  All of the property in
which security interests are granted to
Lessor and the other Meditrust Entities
pursuant to the Lease Documents and the
Related Party Agreements to secure the
Lease Obligations, including, without
limitation, the Cash Collateral.

     COMPETITIVE ACTIVITY:  As defined in
Section 11.5.

     COMPLETION DATE:  As defined in the
Leasehold Improvement Agreement.

     COMPLETION OF THE PROJECT:  As
defined in the Leasehold Improvement
Agreement.

     CONDEMNATION:  With respect to the
Leased Property or any interest therein or
right accruing thereto or use thereof (i)
the exercise of any governmental
authority, whether by legal proceedings or
otherwise, by a Condemnor or (ii) a
voluntary sale or transfer by Lessor to
any Condemnor, either under threat of
Condemnation or Taking or while legal
proceedings for Condemnation or Taking are
pending.

     CONDEMNOR:  Any public or quasi-
public authority, or private corporation
or individual, having the power of
condemnation.

     CONSOLIDATED:  The consolidated
accounts of the relevant Person and its
Subsidiaries consolidated in accordance
with GAAP.

     CONSOLIDATED FINANCIALS:  For any
fiscal year or other accounting period for
any Person and its consolidated
Subsidiaries, statements of earnings and
retained earnings and of changes in
financial position for such period and for
the period from the beginning of the
respective fiscal year to the end of such
period and the related balance sheet as at
the end of such period, together with the
notes thereto, all in reasonable detail
and setting forth in comparative form the
corresponding figures for the
corresponding period in the preceding
fiscal year, and prepared in accordance
with GAAP, and disclosing all liabilities
of such Person and its consolidated
Subsidiaries, including, without
limitation, contingent liabilities.

     CONSULTANTS:  Collectively, the
architects, engineers, inspectors,
surveyors and other consultants that are
engaged from time to time by Lessor to
perform services for Lessor in connection
with this Lease.


6


     CONTRACTS:  All agreements
(including, without limitation, Provider
Agreements, to the extent applicable, and
any Residency Agreement), contracts
(including without limitation,
construction contracts, subcontracts, and
architects' contracts), contract rights,
warranties and representations,
franchises, and records and books of
account benefiting, relating to or
affecting the Leased Property or the
ownership, construction, development,
maintenance, management, repair, use,
occupancy, possession, or operation
thereof, or the operation of any programs
or services in conjunction with the
Facility and all renewals, replacement and
substitutions therefor, now or hereafter
issued to any member of the Leasing Group
by, or entered into by any member of the
Leasing Group with, any Governmental
Authority, Accreditation Body or Third
Party Payor or maintained or used by any
member of the Leasing Group or entered
into by any member of the Leasing Group
with any third Person.

     CURRENT ASSETS:  All assets of any
Person which would, in accordance with
GAAP, be classified as current assets.

     CURRENT LIABILITIES:  All liabilities
of any Person which would, in accordance
with GAAP, be classified as current
liabilities.

     DATE OF TAKING:  The date the
Condemnor has the right to possession of
the property being condemned.

     DEBT COVERAGE RATIO:  The ratio of
(i) Cash Flow for each applicable period
to (ii) the total of all Rent (excluding
Additional Rent due under this Lease) paid
or payable during such period or accrued
for such period.

     DECLARATION:  As defined in Article
23.

     DEED:  As defined in Section 18.3.

     DEPOSIT:  As defined in Section 18.3.

     DEPOSIT PLEDGE AGREEMENT:  The pledge
and security agreement so captioned and
dated as of even date herewith between
Lessee and Lessor.

     DOCUMENTS:  As defined in the UCC.

     ENCUMBRANCE:  As defined in Section
20.3.

     ENVIRONMENTAL INDEMNITY AGREEMENT:
The Environmental Indemnity Agreement of
even date herewith by and among Lessee the
Guarantor and Lessor.

     ENVIRONMENTAL LAWS:  As defined in
the Environmental Indemnity Agreement.


7


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

     EVENT OF DEFAULT:  As defined in
Article 16.

     EXCESS GROSS REVENUES:  Gross
Revenues less Base Gross Revenues.

     EXPIRATION DATE:  As defined in
Section 1.2.

     EXTENDED TERMS:  As defined in
Section 1.4.

     FACILITY:  The 90 unit, 110 bed,
fully licensed assisted living facility
known as American House Sarasota on the
Land (together with related parking and
other amenities), together with (after the
Completion Date) the fully licensed
assisted living facility addition (the
assisted living facility addition is
defined as the Project under the Leasehold
Improvement Agreement) to be constructed
on the Land (together with related parking
and other amenities).

     FAILURE TO OPERATE:  As defined in
Article 16.

     FAILURE TO PERFORM:  As defined
Article 16.

     FAIR MARKET ADDED VALUE:  The Fair
Market Value of the Leased Property
(including all Capital Additions) minus
the Fair Market Value of the Leased
Property determined as if no Capital
Additions paid for by Lessee had been
constructed.

     FAIR MARKET VALUE OF THE CAPITAL
ADDITION:  The amount by which the Fair
Market Value of the Leased Property upon
the completion of a particular Capital
Addition exceeds the Fair Market Value of
the Leased Property just prior to the
construction of the particular Capital
Addition.

     FAIR MARKET VALUE OF THE LEASED
PROPERTY:  The fair market value of the
Leased Property, including all Capital
Additions, and including the Land and all
other portions of the Leased Property, and
(a) assuming the same is unencumbered by
this Lease, (b) determined in accordance
with the appraisal procedures set forth in
Section 18.2 or in such other manner as
shall be mutually acceptable to Lessor and
Lessee and (c) not taking into account any
reduction in value resulting from any Lien
to which the Leased Property is subject
and which Lien Lessee or Lessor is
otherwise required to remove at or prior
to closing of the transaction.  However,
the positive or negative effect on the
value of the Leased Property attributable
to the interest rate, amortization
schedule, maturity date, prepayment
provisions and other terms and conditions
of any Lien on




8


the Leased Property which is not so
required or agreed to be removed shall be
taken into account in determining the Fair
Market Value of the Leased Property.  The
Fair Market Value shall be determined as
the overall value based on due
consideration of the "income" approach,
the "comparable sales" approach, and the
"replacement cost" approach.

     FEE MORTGAGE:  As defined in Section
20.3.

     FEE MORTGAGEE:  As defined in Section
20.3.

     FINANCING PARTY:  Any Person who is
or may be participating with Lessor in any
way in connection with the financing of
any Capital Addition.

     FINANCING STATEMENTS:  Uniform
Commercial Code financing statements
evidencing the security interests granted
to Lessor in connection with the Lease
Documents.

     FISCAL QUARTER:  Each of the three
(3) month periods commencing on January
1st, April 1st, July 1st and October 1st.

     FISCAL YEAR:  The twelve (12) month
period from January 1st to December 31st.

     FIXTURES:  As defined in Article 1.

     GAAP:  Generally accepted accounting
principles, consistently applied
throughout the relevant period.

     GENERAL INTANGIBLES:  As defined in
the UCC.

     GOVERNMENTAL AUTHORITIES:
Collectively, all agencies, authorities,
bodies, boards, commissions, courts,
instrumentalities, legislatures, and
offices of any nature whatsoever of any
government, quasi-government unit or
political subdivision, whether with a
federal, state, county, district,
municipal, city or otherwise and whether
now or hereinafter in existence.

     GROSS REVENUES:  Collectively, all
revenues generated by reason of the
operation of the Leased Property
(including any Capital Additions),
directly or indirectly received or to be
received by Lessee or any Affiliate of
Lessee, including, without limitation, all
resident revenues received or receivable
for the use of, or otherwise by reason of,
all rooms, units and other facilities
provided, meals served, services
performed, space or facilities subleased
or goods sold on or from the Leased
Property and further including, without
limitation, except as otherwise
specifically provided below, any
consideration received under any
subletting, licensing, or other
arrangements with any Person relating to
the possession or use of



9


the Leased Property and all revenues from
all ancillary services provided at or
relating to the Leased Property; provided,
however, that Gross Revenues shall not
include non-operating revenues such as
interest income or gain from the sale of
assets not sold in the ordinary course of
business; and provided, further, that
there shall be excluded or deducted (as
the case may be) from such revenues:

       (i)  all applicable contractual
     allowances (relating to any period
     during the Term of this Lease and
     thereafter until the Rent hereunder
     is paid in full), if any, for
     billings not paid by or received from
     the appropriate Governmental Agencies
     or Third Party Payors,

      (ii)  all applicable allowances
     according to GAAP for uncollectible
     accounts,

     (iii)  all proper resident billing
     credits and adjustments according to
     GAAP, if any, relating to health care
     accounting,

      (iv)  federal, state or local sales,
     use, gross receipts and excise taxes
     and any tax based upon or measured by
     said Gross Revenues which is added to
     or made a part of the amount billed
     to the resident or other recipient of
     such services or goods, whether
     included in the billing or stated
     separately,

       (v)  provider discounts for
     hospital or other medical facility
     utilization contracts, if any,

      (vi)  the cost, if any, of any
     federal, state or local governmental
     program imposed specially to provide
     or finance indigent resident care
     (other than Medicare, Medicaid and
     the like),

        (vii)  deposits refundable to
residents of the Facility, and

       (viii)  payments received on behalf
     of, and paid to, Persons who are not
     Affiliates of Lessee.

    To the extent that the Leased Property
is subleased or occupied by an Affiliate
of Lessee, Gross Revenues calculated for
all purposes of this Lease (including,
without limitation, the determination of
the Additional Rent payable under this
Lease) shall include the Gross Revenues of
such Sublessee with respect to the
premises demised under the applicable
Sublease (i.e., the Gross Revenues
generated from the operations conducted on
such subleased portion of the Leased
Property) and the rent received or
receivable from such Sublessee pursuant to
such Subleases shall be excluded from
Gross Revenues for all such purposes.  As
to any Sublease between Lessee and a non-
Affiliate of Lessee, only the rental
actually received by Lessee from such non-
Affiliate shall be included in Gross
Revenues.


10


    GROUP TWO ACQUISITION FACILITIES:  As
defined in the Agreement Regarding Related
Transactions.

    GUARANTOR:  Emeritus Corporation, a
Washington corporation, and its successors
and assigns.

    GUARANTY OF LEASE OBLIGATIONS:  The
Guaranty of Lease Obligations of even date
executed by Guarantor in favor of Lessor,
relating to the Lease Obligations.

    HAZARDOUS SUBSTANCES:  As defined in
the Environmental Indemnity Agreement.

    IMPOSITIONS:  Collectively, all taxes
(including, without limitation, all
capital stock and franchise taxes of
Lessor, all ad valorem, property, sales
and use, single business, gross receipts,
transaction privilege, rent or similar
taxes), assessments (including, without
limitation, all assessments for public
improvements or benefits, whether or not
commenced or completed prior to the date
hereof and whether or not to be completed
within the Term), ground rents, water and
sewer rents, water charges or other rents
and charges, excises, tax levies, fees
(including, without limitation, license,
permit, inspection, authorization and
similar fees), transfer taxes and
recordation taxes imposed as a result of
this Lease or any extensions hereof, and
all other governmental charges, in each
case whether general or special, ordinary
or extraordinary, or foreseen or
unforeseen, of every character in respect
of either or both of the Leased Property
and the Rent (including all interest and
penalties thereon due to any failure in
payment by Lessee), which at any time
prior to, during or in respect of the Term
hereof and thereafter until the Leased
Property is surrendered to Lessor as
required by the terms of this Lease, may
be assessed or imposed on or in respect of
or be a Lien upon (a) Lessor or Lessor's
interest in the Leased Property, (b) the
Leased Property or any rent therefrom or
any estate, right, title or interest
therein, or (c) any occupancy, operation,
use or possession of, sales from, or
activity conducted on, or in connection
with, the Leased Property or the leasing
or use of the Leased Property.
Notwithstanding the foregoing, nothing
contained in this Lease shall be construed
to require Lessee to pay (1) any tax based
on net income (whether denominated as a
franchise or capital stock or other tax)
imposed on Lessor or any other Person,
except Lessee or its successors, (2) any
net revenue tax of Lessor or any other
Person, except Lessee and its successors,
(3) any tax imposed with respect to the
sale, exchange or other disposition by
Lessor of the Leased Property or the
proceeds thereof, or (4) except as
expressly provided elsewhere in this
Lease, any principal or interest on any
Encumbrance on the Leased Property;
provided, however, the provisos set forth
in clauses (1) and (2) of this sentence
shall not be applicable to the extent that
any real or personal property tax,
assessment, tax levy or charge which
Lessee is obligated to pay pursuant to the
first sentence of this definition and
which is in effect at any time during the
Term hereof is totally or partially
repealed, and a tax, assessment, tax levy
or charge set


11


forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu
thereof.  In computing the amount of any
franchise tax or capital stock tax which
may be or become an Imposition, the amount
payable by Lessee shall be equitably
apportioned based upon all properties
owned by Lessor that are located within
the particular jurisdiction subject to any
such tax.

    INDEBTEDNESS:  The total of all
obligations of a Person, whether current
or long-term, which in accordance with
GAAP would be included as liabilities upon
such Person's balance sheet at the date as
of which Indebtedness is to be determined,
and shall also include (i) all capital
lease obligations and (ii) all guarantees,
endorsements (other than for collection of
instruments in the ordinary course of
business), or other arrangements whereby
responsibility is assumed for the
obligations of others, whether by
agreement to purchase or otherwise acquire
the obligations of others, including any
agreement contingent or otherwise to
furnish funds through the purchase of
goods, supplies or services for the
purpose of payment of the obligations of
others.

    INDEMNIFIED PARTIES:  As defined in
Section 12.2.2.

    INDEX:  The rate of interest of
actively traded marketable United States
Treasury Securities bearing a fixed rate
of interest adjusted for a constant
maturity of ten (10) years as calculated
by the Federal Reserve Board.

    INITIAL TERM:  As defined in Section
1.2.

    INSTRUMENTS:  As defined in the UCC.

    INSURANCE REQUIREMENTS:  All terms of
any insurance policy required by this
Lease, all requirements of the issuer of
any such policy with respect to the Leased
Property and the activities conducted
thereon and the requirements of any
insurance board, association or
organization or underwriters' regulations
pertaining to the Leased Property.

    LAND:  As defined in Article 1.

    LEASE:  As defined in the preamble of
this Lease.

    LEASE DEFAULT:  The occurrence of any
default or breach of condition continuing
beyond any applicable notice and/or grace
periods under this Lease and/or any of the
other Lease Documents.









12


    LEASE DOCUMENTS:  Collectively, this
Lease, the Guaranty of Lease Obligations,
the Agreement Regarding Related
Transactions, the Leasehold Improvement
Agreement, the Security Agreement, the
Deposit Pledge Agreement, the Negative
Pledge Agreement, the Permits Assignment,
the Financing Statements, the Affiliated
Party Subordination Agreement, the
Environmental Indemnity Agreement, and any
and all other instruments, documents,
certificates or agreements executed or
furnished by any member of the Leasing
Group in connection with the transactions
evidenced by the Lease and/or any of the
foregoing documents.

    LEASE OBLIGATIONS:  Collectively, all
indebtedness, covenants, liabilities,
obligations, agreements and undertakings
(other than Lessor's obligations) under
this Lease and the other Lease Documents.

    LEASE YEAR:  A twelve month period
ending on March 31st of each year;
provided, that the first Lease Year shall
begin on the Commencement Date and shall
end on March 31, 1997.

    LEASED IMPROVEMENTS:  As defined in
Article 1.

    LEASED PROPERTY:  As defined in
Article 1.

    LEASEHOLD IMPROVEMENT AGREEMENT:  The
Leasehold Improvement Agreement of even
date by and between Lessee and Lessor.

    LEASING GROUP:  Collectively, Lessee,
the Guarantor, the General Partner, any
Sublessee which is an Affiliate of Lessee
and any Manager which is an Affiliate of
Lessee.

    LEGAL REQUIREMENTS:   Collectively,
all statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders,
judgments, decrees and injunctions
(including, without limitation, all
applicable building, health code, zoning,
subdivision, and other land use and
assisted living licensing statutes,
ordinances, by-laws, codes, rules and
regulations), whether now or hereafter
enacted, promulgated or issued by any
Governmental Authority, Accreditation Body
or Third Party Payor affecting Lessor, any
member of the Leasing Group or the Leased
Property or the ownership, construction,
development, maintenance, management,
repair, use, occupancy, possession or
operation thereof or the operation of any
programs or services in connection with
the Leased Property, including, without
limitation, any of the foregoing which may
(i) require repairs, modifications or
alterations in or to the Leased Property,
(ii) in any way affect (adversely or
otherwise) the use and enjoyment of the
Leased Property or (iii) require the
assessment, monitoring, clean-up,
containment, removal, remediation or other
treatment of any Hazardous Substances on,
under or from the Leased Property.
Without limiting the foregoing, the term
Legal Requirements includes all
Environmental Laws and shall also include
all Permits and Contracts issued or
entered into by any



13


Governmental Authority, any Accreditation
Body and/or any Third Party Payor and all
Permitted Encumbrances.

    LESSEE:  As defined in the preamble of
this Lease and its successors and assigns.

    LESSEE'S ELECTION NOTICE:  As defined
in Section 14.3.

    LESSEE'S PURCHASE OPTION NOTICE:  As
defined in Section 18.3.

    LESSOR:  As defined in the preamble of
this Lease and its successors and assigns.

    LIEN:  With respect to any real or
personal property, any mortgage, easement,
restriction, lien, pledge, collateral
assignment, hypothecation, charge,
security interest, title retention
agreement, levy, execution, seizure,
attachment, garnishment or other
encumbrance of any kind in respect of such
property, whether or not inchoate, vested
or perfected.

    LIMITED PARTIES:  As defined in
Section 11.5.4; provided, however, in no
event shall the term Limited Parties
include any Person in its capacity as a
shareholder of a public entity, unless
such shareholder is a member of the
Leasing Group or an Affiliate thereof.

    MANAGED CARE PLANS:  All health
maintenance organizations, preferred
provider organizations, individual
practice associations, competitive medical
plans, and similar arrangements.

    MANAGEMENT AGREEMENT:  Any agreement,
whether written or oral, between Lessee or
any Sublessee and any other Person
pursuant to which Lessee or such Sublessee
provides any payment, fee or other
consideration to any other Person to
operate or manage the Facility.

    MANAGEMENT SUBORDINATION AGREEMENT:
The Management Subordination Agreement as
of even date herewith between Lessee and
Lessor.

    MANAGER:  Any Person who has entered
into a Management Agreement with Lessee or
any Sublessee.

    MATERIAL STRUCTURAL WORK:  Any (i)
structural alteration, (ii) structural
repair or (iii) structural renovation to
the Leased Property, which would
customarily require or which require the
design and/or involvement of a structural
engineer or architect or which would
require the issuance of a Permit.




14


    MEDICAID:  The medical assistance
program established by Title XIX of the
Social Security Act (42 USC 1396 et seq.)
and any statute succeeding thereto.

    MEDICARE:  The health insurance
program for the aged and disabled
established by Title XVIII of the Social
Security Act (42 USC 1395 et seq.) and any
statute succeeding thereto.

    MEDITRUST:  As defined in Article 23.

    MEDITRUST/EMERITUS TRANSACTION
AFFILIATE:  An Affiliate of Lessee, the
business and activities of which are
limited to those subject to
Meditrust/Emeritus Transaction Documents
(other than the Affiliated Party
Subordination Agreement, the Agreement
Regarding Related Transactions and
comparable agreement now or hereafter in
effect among Affiliates of Lessee and of
Lessor) to which such Affiliate is a
party.

    MEDITRUST/EMERITUS TRANSACTION
DOCUMENTS:  As defined in the Agreement
Regarding Related Transactions.

    MEDITRUST ENTITIES:  Collectively,
Meditrust, Lessor and any other Affiliate
of Lessor which may now or hereafter be a
party to any Related Party Agreement.

    MEDITRUST INVESTMENT:  The sum of (i)
the Original Meditrust Investment plus
(ii) the aggregate amount of all
Subsequent Investments plus (iii) so much
of the Project Funds as Lessor has
expended from time to time less the sum of
any Net Award Amounts and/or Net Proceeds
Amounts.

    MONTHLY DEPOSIT DATE:  As defined in
Section 4.6.

    NEGATIVE PLEDGE AGREEMENT:  The Group
Two Negative Pledge Agreement
(Acquisition) of even date by and between
Guarantor, Lessee and Lessor.

    NET AWARD AMOUNT:  As defined in
Section 3.7.

    NET INCOME (OR NET LOSS):  The net
income (or net loss, expressed as a
negative number) of a Person for any
period, after all taxes actually paid or
accrued and all expenses and other charges
determined in accordance with GAAP.

    NET PROCEEDS AMOUNT:  As defined in
Section 3.7.

    NET WORTH:  An amount determined in
accordance with GAAP equal to the total
assets of any Person, minus the total
liabilities of such Person.



15


    OBLIGATIONS:  Collectively, the Lease
Obligations and the Related Party
Obligations.

    OFFICER'S CERTIFICATE:  A certificate
of Lessee signed on behalf of Lessee by
the Chairman of the Board of Directors,
the President, any Vice President or the
Treasurer of Lessee, or another officer
authorized to so sign by the Board of
Directors or By-Laws of Lessee, or any
other Person whose power and authority to
act has been authorized by delegation in
writing by any of the Persons holding the
foregoing offices.

    ORIGINAL MEDITRUST INVESTMENT:  The
sum of SIX MILLION TWO HUNDRED FIFTY
THOUSAND DOLLARS ($6,250,000).

    OTHER PERMITTED USES:  To the extent
permitted under applicable Legal
Requirements and under Insurance
Requirements, and so long as the same do
not detract in any material manner from
the Primary Intended Use and do not occupy
more than ten percent (10%) of the useable
floor area of the building comprising the
Facility, such uses as Lessee reasonably
determines are appropriate and incidental
to the Primary Permitted Use.

    OVERDUE RATE:  On any date, a rate of
interest per annum equal to the greater
of:  (i) a variable rate of interest per
annum equal to one hundred twenty percent
(120%) of the Prime Rate, or (ii) eighteen
percent (18%) per annum; provided,
however, in no event shall the Overdue
Rate be greater than the maximum rate then
permitted under applicable law to be
charged by Lessor.

    PBGC:  Pension Benefit Guaranty
Corporation.

    PERMITS:  Collectively, all permits,
licenses, approvals, qualifications,
rights, variances, permissive uses,
accreditation, certificates,
certifications, consents, agreements,
contracts, contract rights, franchises,
interim licenses, permits and other
authorizations of every nature whatsoever
required by, or issued under, applicable
Legal Requirements relating or affecting
the Leased Property or the construction,
development, maintenance, management, use
or operation thereof, or the operation of
any programs or services in conjunction
with the Facility and all renewals,
replacements and substitutions therefor,
now or hereafter required or issued by any
Governmental Authority, Accreditation Body
or Third Party Payor to any member of the
Leasing Group, or maintained or used by
any member of the Leasing Group, or
entered into by any member of the Leasing
Group with any third Person with respect
to the Leased Property.

    PERMITS ASSIGNMENT:  The Collateral
Assignment of Permits, Licenses and
Contracts of even date granted by Lessee
to Lessor.

    PERMITTED ENCUMBRANCES:  As defined in
Section 10.1.18.


16


    PERMITTED PRIOR SECURITY INTERESTS:
As defined in Section 6.1.2.

    PERSON:  Any individual, corporation,
general partnership, limited partnership,
joint venture, stock company or
association, company, bank, trust, trust
company, land trust, business trust,
unincorporated organization,
unincorporated association, Governmental
Authority or other entity of any kind or
nature.

    PLANS AND SPECIFICATIONS:  As defined
in Section 13.1.3.

    PRIMARY INTENDED USE:  The use of the
Facility as an assisted living facility
with ninety (90) units, one hundred-ten
(110) beds prior to the Completion Date,
and additional units and beds after the
Completion Date consisting of (i) an
existing facility with ninety (90) units
one hundred-ten (110) beds; and (ii) an
assisted living addition as provided in
the Leasehold Improvement Agreement; or
such additional number of units or beds as
may hereafter be permitted under this
Lease, and such ancillary uses as are
permitted by law and may be necessary in
connection therewith or incidental
thereto.

    PRIME RATE:  The variable rate of
interest per annum from time to time
announced by the Reference Bank as its
prime rate of interest and in the event
that the Reference Bank no longer
announces a prime rate of interest, then
the Prime Rate shall be deemed to be the
variable rate of interest per annum which
is the prime rate of interest or base rate
of interest from time to time announced by
any other major bank or other financial
institution reasonably selected by Lessor.

    PRINCIPAL PLACE OF BUSINESS:  As
defined in Section 10.1.28.

    PROCEEDS:  As defined in the UCC.

    PROJECT:  As defined in the Leasehold
Improvement Agreement.

    PROJECT FUNDS:  As defined in the
Leasehold Improvement Agreement.

    PROVIDER AGREEMENTS:  All
participation, provider and reimbursement
agreements or arrangements, if any, now or
hereafter in effect for the benefit of
Lessee or any Sublessee in connection with
the operation of the Facility relating to
any right of payment or other claim
arising out of or in connection with
Lessee's or such Sublessee's participation
in any Third Party Payor Program.

    PURCHASE OPTION:  As defined in
Section 18.3.

    PURCHASE OPTION DATE:  As defined in
Section 18.3.


17


    PURCHASE OPTION PURCHASE PRICE:  As
defined in Section 18.3.

    PURCHASER:  As defined in Section
11.5.

    RECEIVABLES:  Collectively, (i) all
rights to payment for goods sold or leased
or services rendered by Lessee or any
other party, whether now in existence or
arising from time to time hereafter and
whether or not yet earned by performance,
including, without limitation, obligations
evidenced by an account, note, contract,
security agreement, chattel paper, or
other evidence of indebtedness, including
Accounts and Proceeds, and (ii) a license
to use such Instruments, Documents,
Accounts, Proceeds, General Intangibles
and Chattel Paper as are reasonably
required for purposes of exercising the
rights set forth in (i) above.

    REFERENCE BANK:  Fleet Bank of
Connecticut, N.A.

    RELATED LEASES:  The Group Two
Acquisition Facility Leases (as defined in
the Agreement Regarding Related
Transactions), together with such other
new leases identified from time to time in
the Agreement Regarding Related
Transactions.

    RELATED PARTIES:  Collectively, each
Person that may now or hereafter be a
party to any Related Party Agreement other
than the Meditrust Entities.

    RELATED PARTY AGREEMENT:  Any
agreement, document or instrument now or
hereafter evidencing or securing any
Related Party Obligation, including,
without limitation, the Related Leases.

    RELATED PARTY DEFAULT:  The occurrence
of a default or breach of condition
continuing beyond the expiration of any
applicable notice and grace periods, if
any, under the terms of any Related Party
Agreement.

    RELATED PARTY OBLIGATIONS:
Collectively, all indebtedness, covenants,
liabilities, obligations, agreements and
undertakings due to, or made for the
benefit of, Lessor or any of the other
Meditrust Entities by Lessee or any other
member of the Leasing Group or any of
their respective Affiliates in connection
with any of the properties described in
EXHIBIT E to the Agreement Regarding
Related Transactions, as the same may be
modified and amended from time to time;
whether such indebtedness, covenants,
liabilities, obligations, agreements
and/or undertakings are direct or
indirect, absolute or contingent,
liquidated or unliquidated, due or to
become due, joint, several or joint and
several, primary or secondary, now
existing or hereafter arising.

    RENT:  Collectively, the Base Rent,
Additional Rent, the Additional Charges
and all other sums payable under this
Lease and the other Lease Documents.

18


    RENT ADJUSTMENT DATE:  The first day
of any of the Extended Terms.

    RENT ADJUSTMENT RATE:  325 basis
points over the Index.

    RENT INSURANCE PROCEEDS:  As defined
in Section 13.8.

    RESIDENCY AGREEMENT:  All contracts,
agreements and consents executed by or on
behalf of any resident or other Person
seeking services at the Facility,
including, without limitation, assignments
of benefits and guarantees.

    RETAINAGE:  As defined in Section
13.1.3.

    SECURITY AGREEMENT:  The Security
Agreement as of even date herewith between
Lessee and Lessor.

    SELLER:  American House Sarasota
Limited Partnership, a Michigan limited
partnership.

    STATE:  The state or commonwealth in
which the Leased Property is located.

    SUBLEASE:  Collectively, all
subleases, licenses, use agreements,
concession agreements, tenancy at will
agreements and other occupancy agreements
of every kind and nature (but excluding
any Residency Agreement), whether oral or
in writing, now in existence or
subsequently entered into by Lessee,
encumbering or affecting the Leased
Property.

    SUBLESSEE:  Any sublessee, licensee,
concessionaire, tenant or other occupant
under any of the Subleases.

    SUBSEQUENT INVESTMENTS:  The aggregate
amount of all sums expended and
liabilities incurred by Lessor in
connection with Capital Additions.

    SUBSIDIARY OR SUBSIDIARIES:  With
respect to any Person, any corporation or
other entity of which such Person,
directly, or indirectly, through another
entity or otherwise, owns, or has the
right to control or direct the voting of,
fifty percent (50%) or more of the
outstanding capital stock or other
ownership interest having general voting
power (under ordinary circumstances).

    TAKING:  A taking or voluntary
conveyance during the Term of the Leased
Property, or any interest therein or right
accruing thereto, or use thereof, as the
result of, or in settlement of, any
Condemnation or other eminent domain
proceeding affecting the Leased Property
whether or not the same shall have
actually been commenced.



19


    TANGIBLE PERSONAL PROPERTY:  All
machinery, equipment, furniture,
furnishings, movable walls or partitions,
computers or trade fixtures, goods,
inventory, supplies, and other personal
property owned or leased (pursuant to
equipment leases) by Lessee and used in
the operation of the Leased Property.

    TERM:  Collectively, the Initial Term
and each Extended Term which has become
effective pursuant to Section 1.4, as the
context may require, unless earlier
terminated pursuant to the provisions
hereof.

    THIRD PARTY PAYOR PROGRAMS:
Collectively, all third party payor
programs in which Lessee or any Sublessee
presently or in the future may
participate, including without limitation,
Medicare, Medicaid, Blue Cross and/or Blue
Shield, Managed Care Plans, other private
insurance plans and employee assistance
programs.

    THIRD PARTY PAYORS:  Collectively,
Medicare, Medicaid, Blue Cross and/or Blue
Shield, private insurers and any other
Person which presently or in the future
maintains Third Party Payor Programs.

    TIME OF CLOSING:  As defined in
Section 18.3.

    UCC:  The Uniform Commercial Code as
in effect from time to time in the State.

    UNITED STATES TREASURY SECURITIES:
The uninsured treasury securities issued
by the United States Federal Reserve Bank.

    UNSUITABLE FOR ITS PRIMARY INTENDED
USE:  As used anywhere in this Lease, the
term "Unsuitable For Its Primary Intended
Use" shall mean that, by reason of
Casualty, or a partial or temporary Taking
by Condemnation, in the good faith
judgment of Lessor, the Facility cannot be
operated on a commercially practicable
basis for the Primary Intended Use, taking
into account, among other relevant
factors, the number of usable units or
beds affected by such Casualty or partial
or temporary Taking.

    UNAVOIDABLE DELAYS:  Delays due to
strikes, lockouts, inability to procure
materials, power failure, acts of God,
governmental restrictions, enemy action,
civil commotion, fire, unavoidable
casualty or other causes beyond the
control of the party responsible for
performing an obligation hereunder,
provided that lack of funds shall not be
deemed a cause beyond the control of
either party hereto.

    UPGRADE RENOVATIONS:  Repair and
refurbishing other than normal janitorial,
cleaning and maintenance activities.

    WORK:  As defined in Section 13.1.1.

    WORK CERTIFICATES:  As defined in
Section 13.1.3.


20


    WORKING CAPITAL LOAN:  As defined in
Section 6.1.3.

    WORKING CAPITAL STOCK PLEDGE:  As
defined in Section 16.1(h).

    2.2  RULES OF CONSTRUCTION.  The
following rules of construction shall
apply to the Lease and each of the other
Lease Documents:  (a) references to
"herein", "hereof" and "hereunder" shall
be deemed to refer to this Lease or the
other applicable Lease Document, and shall
not be limited to the particular text or
section or subsection in which such words
appear; (b) the use of any gender shall
include all genders and the singular
number shall include the plural and vice
versa as the context may require; (c)
references to Lessor's attorneys shall be
deemed to include, without limitation,
special counsel and local counsel for
Lessor; (d) reference to attorneys' fees
and expenses shall be deemed to include
all costs for administrative, paralegal
and other support staff and to exclude any
fees and expenses of attorneys who are
employees of an Affiliate of Lessor; (e)
references to Leased Property shall be
deemed to include references to all of the
Leased Property and references to any
portion thereof; (f) references to the
Lease Obligations shall be deemed to
include references to all of the Lease
Obligations and references to any portion
thereof; (g) references to the Obligations
shall be deemed to include references to
all of the Obligations and references to
any portion thereof; (h) the term
"including", when following any general
statement, will not be construed to limit
such statement to the specific items or
matters as provided immediately following
the term "including" (whether or not non-
limiting language such as "without
limitation" or "but not limited to" or
words of similar import are also used),
but rather will be deemed to refer to all
of the items or matters that could
reasonably fall within the broadest scope
of the general statement; (i) any
requirement that financial statements be
Consolidated in form shall apply only to
such financial statements as relate to a
period during any portion of which the
relevant Person has one or more
Subsidiaries; (j) all accounting terms not
specifically defined in the Lease
Documents shall be construed in accordance
with GAAP and (k) all exhibits annexed to
any of the Lease Documents as referenced
therein shall be deemed incorporated in
such Lease Document by such annexation
and/or reference.


ARTICLE 3

RENT

    3.1 RENT FOR LAND, LEASED
IMPROVEMENTS, RELATED RIGHTS AND FIXTURES.
Lessee will pay to Lessor, in lawful money
of the United States of America, at
Lessor's address set forth herein or at
such other place or to such other Person
as Lessor from time to time may designate
in writing, rent for the Leased Property,
as follows.



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        3.1.1 BASE RENT:  (a)  Pre-
    Conversion Base Rent:  From and after
    the Commencement Date and until the
    Conversion Date, Lessee shall pay,
    commencing on April 1, 1996, and on
    the first day of each calendar month
    thereafter and on the Conversion
    Date, a base rent (the "Pre-
    Conversion Base Rent") in arrears
    which is equal to the product of (i)
    the Original Meditrust Investment
    plus so much of the Project Funds as
    Lessor has expended from time to time
    multiplied by (ii) the Pre-Conversion
    Rent Adjustment Rate in effect from
    time to time, calculated on a daily
    basis.

        (b)  Post-Conversion Base Rent:
    From and after the Conversion Date,
    Lessee shall pay a base rent (the
    "Post-Conversion Base Rent") per
    annum which is equal to the product
    of (i) the Original Meditrust
    Investment plus the aggregate amount
    of the Project Funds as Lessor has
    expended as of the Conversion Date
    multiplied by (ii) the Rent
    Adjustment Rate which is in effect or
    calculated on the Conversion Date,
    payable in advance in equal,
    consecutive monthly installments due
    on the first day of each calendar
    month; provided, however, that on
    each Rent Adjustment Date, the Base
    Rent shall be adjusted to equal the
    greater of (i) the then current Post-
    Conversion Base Rent or (ii) an
    amount equal to Original Meditrust
    Investment plus the aggregate amount
    of the Project Funds as Lessor has
    expended as of the Conversion Date
    plus the Subsequent Advances
    multiplied by the Rent Adjustment
    Rate then in effect on such
    Subsequent Rent Adjustment Date and
    further, provided, however, that on
    the Conversion Date, Lessee shall pay
    to Lessor (x) the proportionate share
    of the Post-Conversion Base Rent due
    for the period from (and including)
    such date through the end of the
    calendar month during which such date
    occurred.

        3.1.2 ADDITIONAL RENT:  In
    addition to the Base Rent, Lessee
    shall also pay to Lessor additional
    rent (the "Additional Rent") in an
    amount equal to five percent (5%) of
    Excess Gross Revenues.  Additional
    Rent shall accrue commencing,
    September 1, 1998 (in each case, an
    "Additional Rent Accrual Date") and
    shall be payable during the Term,
    quarterly in arrears, commencing on
    the first day of the first fiscal
    quarter occurring following the
    Additional Rent Accrual Date and
    there shall be an annual
    reconciliation as provided in Section
    3.2 below.

         3.2  CALCULATION AND PAYMENT OF
         ADDITIONAL RENT; ANNUAL
         RECONCILIATION.

        3.2.1 OFFICER'S CERTIFICATE AND
    PRORATION.  Each quarterly payment of
    Additional Rent shall be delivered to
    Lessor, together with an Officer's
    Certificate setting


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    forth the calculation thereof, within
    thirty (30) days after the end of the
    corresponding quarter.  Additional
    Rent due for any portion of
    any calendar year shall be prorated
    accordingly.

        3.2.2 ANNUAL STATEMENT.  In
    addition, on or before the first day
    of April of each year following any
    calendar year for which Additional
    Rent is payable hereunder, Lessee
    shall deliver to Lessor an Officer's
    Certificate, reasonably acceptable to
    Lessor and certified by the chief
    financial officer of Lessee, setting
    forth the Gross Revenues for the
    immediately preceding calendar year.

        3.2.3 DEFICITS.  If the
    Additional Rent, as finally
    determined for any calendar year (or
    portion thereof), exceeds the sum of
    the quarterly payments of Additional
    Rent previously paid
    by Lessee with respect to said
    calendar year, within thirty (30)
    days after such determination is
    required to be made hereunder, Lessee
    shall pay such deficit to Lessor and,
    if the deficit exceeds five percent
    (5%) of the Additional Rent which was
    previously paid to Lessor with
    respect to said calendar year, then
    Lessee shall also pay Lessor interest
    on such deficit at the Overdue Rate
    from the date that such payment
    should have been made by Lessee to
    the date that Lessor receives such
    payment.

        3.2.4 OVERPAYMENTS.  If the
    Additional Rent, as finally
    determined for any calendar year (or
    portion thereof), is less than the
    amount previously paid with respect
    thereto by Lessee, Lessee shall
    notify Lessor either (a) to pay to
    Lessee an amount equal to such
    difference or (b) to grant Lessee a
    credit against Additional Rent next
    coming due in the amount of such
    difference.

        3.2.5 FINAL DETERMINATION.  The
    obligation to pay Additional Rent
    shall survive the expiration or
    earlier termination of the Term (as
    to Additional Rent payments that are
    due and payable prior to the
    expiration or earlier termination of
    the Term and during any periods that
    Lessee remains in possession of the
    Leased Property), and a final
    reconciliation, taking into account,
    among other relevant adjustments, any
    contractual allowances which related
    to Gross Revenues that accrued prior
    to the date of such expiration or
    earlier termination, but which have
    been determined to be not payable and
    Lessee's good faith best estimate of
    the amount of any unresolved
    contractual allowances, shall be made
    not later than two (2) years after
    said expiration or termination date.
    Within sixty (60) days after the
    expiration or earlier termination of
    the Term, Lessee shall advise Lessor
    of Lessee's best estimate of the
    approximate amount of such
    adjustments, which estimate shall not
    be binding on Lessee or have any
    legal effect whatsoever.



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        3.2.6 BEST EFFORTS TO MAXIMIZE.
    Lessee further covenants that the
    operation of the Facility shall be
    conducted in a manner consistent with
    the prevailing standards and
    practices recognized in the assisted
    living industry as those customarily
    utilized by reputable business
    operations.  Subject to any
    applicable Legal Requirements, the
    members of the Leasing Group shall
    use their best efforts to maximize
    the Facility's Gross Revenues.

    3.3 CONFIRMATION AND AUDIT OF
    ADDITIONAL RENT.

        3.3.1 MAINTAIN ACCOUNTING
    SYSTEMS.  Lessee shall utilize, or
    cause to be utilized, an accounting
    system for the Leased Property in
    accordance with usual and customary
    practices in the assisted living
    industry and in accordance with GAAP
    which will accurately record all
    Gross Revenues.  Lessee shall retain,
    for at least three (3) years after
    the expiration of each calendar year
    (and in any event until the final
    reconciliation described in Section
    3.2 above has been made), adequate
    records conforming to such accounting
    system showing all Gross Revenues for
    such calendar year.

        3.3.2 AUDIT BY LESSOR.  Lessor,
    at its own expense except as provided
    hereinbelow, shall have the right
    from time to time to have its
    accountants or representatives audit
    the information set forth in the
    Officer's Certificate referred to in
    Section 3.2 and in connection with
    such audits, to examine Lessee's
    records with respect thereto
    (including supporting data, income
    tax and sales tax returns), subject
    to any prohibitions or limitations on
    disclosure of any such data under
    applicable law or regulations.

        3.3.3 DEFICIENCIES AND
    OVERPAYMENTS.  If any such audit
    discloses a deficiency in the
    reporting of Gross Revenues, and
    either Lessee agrees with the result
    of such audit or the matter is
    compromised, Lessee shall forthwith
    pay to Lessor the amount of the
    deficiency in Additional Rent which
    would have been payable by it had
    such deficiency in reporting Gross
    Revenues not occurred, as finally
    agreed or determined, together with
    interest on the Additional Rent which
    should have been payable by it,
    calculated at the Overdue Rate, from
    the date when said payment should
    have been made by Lessee to the date
    that Lessor receives such payment.
    Notwithstanding anything to the
    contrary herein, with respect to any
    audit that is commenced more than two
    (2) years after the date Gross
    Revenues for any calendar year are
    reported by Lessee to Lessor, the
    deficiency, if any, with respect to
    Additional Rent shall bear interest
    as permitted herein only from the
    date such determination of deficiency
    is made,


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    unless such deficiency is the result
    of gross negligence or willful
    misconduct on the part of Lessee (or
    any Affiliate thereof).  If any audit
    conducted for Lessor pursuant to the
    provisions hereof discloses that
    (a) the Gross Revenues actually
    received by Lessee for any calendar
    year exceed those reported by Lessee
    by more than five percent (5%),
    Lessee shall pay the reasonable cost
    of such audit and examination or
    (b) Lessee has overpaid Additional
    Rent, Lessor shall so notify Lessee
    and Lessee shall direct Lessor either
    (i) to refund the overpayment to
    Lessee or (ii) grant a credit against
    Additional Rent next coming due in
    the amount of such difference.

        3.3.4 SURVIVAL.  The obligations
    of Lessor and Lessee contained in
    this Section shall survive the
    expiration or earlier termination of
    this Lease.

    3.4  ADDITIONAL CHARGES.  Subject to
the rights to contest as set forth in
Article 15, in addition to the Base Rent
and Additional Rent, (a) Lessee will also
pay and discharge as and when due and
payable all Impositions, all amounts,
liabilities and obligations under the
Appurtenant Agreements and all other
amounts, liabilities and obligations which
Lessee assumes or agrees to pay under this
Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those
items referred to in clause (a) above,
Lessee will also promptly pay and
discharge every fine, penalty, interest
and cost which may be added for non-
payment or late payment of such items (the
items referred to in clauses (a) and (b)
above being referred to herein
collectively as the "Additional Charges"),
and Lessor shall have all legal, equitable
and contractual rights, powers and
remedies provided in this Lease, by
statute or otherwise, in the case of non-
payment of the Additional Charges, as well
as the Base Rent and Additional Rent.  To
the extent that Lessee pays any Additional
Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be
relieved of its obligation to pay such
Additional Charges to any other Person to
which such Additional Charges would
otherwise be due.

    3.5  NET LEASE.  The Rent shall be
paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full
amount of the installments of Base Rent,
and the payments of Additional Rent and,
if and to the extent payable to Lessor,
Additional Charges throughout the Term.













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    3.6  NO LESSEE TERMINATION OR OFFSET.

        3.6.1 NO TERMINATION.  Except as
    may be otherwise specifically and
    expressly provided in this Lease,
    Lessee, to the extent not prohibited
    by applicable law, shall remain bound
    by this Lease in accordance with its
    terms and shall neither take any
    action without the consent of Lessor
    to modify, surrender or terminate the
    same, nor seek nor be entitled to any
    abatement, deduction, deferment or
    reduction of Rent, or set-off against
    the Rent, nor shall the respective
    obligations of Lessor and Lessee be
    otherwise affected by reason of (a)
    any Casualty or any Taking of the
    Leased Property, (b) the lawful or
    unlawful prohibition of, or
    restriction upon, Lessee's use of the
    Leased Property or the interference
    with such use by any Person (other
    than Lessor, except to the extent
    permitted hereunder) or by reason of
    eviction by paramount title; (c) any
    claim that Lessee has or might have
    against Lessor, (d) any default or
    breach of any warranty by Lessor or
    any of the other Meditrust Entities
    under this Lease, any other Lease
    Document or any Related Party
    Agreement, (e) any bankruptcy,
    insolvency, reorganization,
    composition, readjustment,
    liquidation, dissolution, winding up
    or other proceedings affecting Lessor
    or any assignee or transferee of
    Lessor or (f) for any other cause
    whether similar or dissimilar to any
    of the foregoing, other than a
    discharge of Lessee from any of the
    Lease Obligations as a matter of law.

        3.6.2 WAIVER.  Lessee to the
    fullest extent not prohibited by
    applicable law, hereby specifically
    waives all rights, arising from any
    occurrence whatsoever, which may now
    or hereafter be conferred upon it by
    law to (a) modify, surrender or
    terminate this Lease or quit or
    surrender the Leased Property or (b)
    entitle Lessee to any abatement,
    reduction, suspension or deferment of
    the Rent or other sums payable by
    Lessee hereunder, except as otherwise
    specifically and expressly provided
    in this Lease.

        3.6.3 INDEPENDENT COVENANTS.  The
    obligations of Lessor and Lessee
    hereunder shall be separate and
    independent covenants and agreements
    and the Rent and all other sums
    payable by Lessee hereunder shall
    continue to be payable in all events
    unless the obligations to pay the
    same shall be terminated pursuant to
    the express provisions of this Lease
    or (except in those instances where
    the obligation to pay expressly
    survives the termination of this
    Lease) by termination of this Lease
    other than by reason of an Event of
    Default.





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    3.7  ABATEMENT OF RENT LIMITED.  There
shall be no abatement of Rent on account
of any Casualty, Taking or other event,
except that (a) in the event of a partial
Taking or a temporary Taking as described
in Section 14.3, the Base Rent shall be
abated as follows:  (i) in the case of
such a partial Taking, the Meditrust
Investment shall be reduced for the
purposes of calculating Base Rent pursuant
to Section 3.1 by subtracting therefrom,
as applicable, the net amount of the Award
received by Lessor, and (ii) in the case
of such a temporary Taking, by reducing
the Base Rent for the period of such a
temporary Taking, by the net amount of the
Award received by Lessor and (b) in the
event of a Casualty, the Base Rent shall
be abated as follows: the Meditrust
Investment shall be reduced for the
purposes of calculating Base Rent pursuant
to Section 3.1 by subtracting therefrom,
as applicable, the net amount of the
insurance proceeds.

    For the purposes of this Section 3.7,
the "net amount of the Award received by
Lessor" shall mean the Award paid to
Lessor or Lessor's mortgagee on account of
such Taking, minus all costs and expenses
incurred by Lessor in connection
therewith, and minus any amounts paid to
or for the account of Lessee to reimburse
for the costs and expenses of
reconstructing the Facility following such
Taking in order to create a viable and
functional Facility under all of the
circumstances ("Net Award Amount") and the
"net amount of the insurance proceeds"
shall mean the insurance proceeds paid to
Lessor or Lessor's mortgagee on account of
such Casualty, minus all costs and
expenses incurred by Lessor in connection
therewith and minus any amounts paid to or
for the account of Lessee to reimburse for
the costs and expenses of reconstructing
the Facility following such Casualty in
order to create a viable and functional
Facility under all of the circumstances
("Net Proceeds Amount").


ARTICLE 4

IMPOSITIONS; TAXES; UTILITIES;
INSURANCE PAYMENTS

    4.1  PAYMENT OF IMPOSITIONS.

        4.1.1 LESSEE TO PAY.  Subject to
    the provisions of Article 15, Lessee
    will pay or cause to be paid all
    Impositions before any fine, penalty,
    interest or cost may be added for non-
    payment, such payments to be made
    directly to the taxing authority
    where feasible, and Lessee will
    promptly furnish Lessor copies of
    official receipts or other
    satisfactory proof evidencing payment
    not later than the last day on which
    the same may be paid without penalty
    or interest.  Subject to the
    provisions of Article 15 and Section
    4.1.2, Lessee's obligation to pay
    such Impositions shall be deemed
    absolutely fixed upon the date such
    Impositions become a lien upon the
    Leased Property or any part thereof.


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        4.1.2 INSTALLMENT ELECTIONS.  If
    any such Imposition may, at the
    option of the taxpayer, lawfully be
    paid in installments (whether or not
    interest shall accrue on the unpaid
    balance of such Imposition), Lessee
    may exercise the option to pay the
    same (and any accrued interest on the
    unpaid balance of such Imposition) in
    installments and, in such event,
    shall pay such installments during
    the Term hereof (subject to Lessee's
    right to contest pursuant to the
    provisions of Section 4.1.5 below) as
    the same respectively become due and
    before any fine, penalty, premium,
    further interest or cost may be added
    thereto.

        4.1.3 RETURNS AND REPORTS.
    Lessor, at its expense, shall, to the
    extent permitted by applicable law,
    prepare and file all tax returns and
    reports as may be required by
    Governmental Authorities in respect
    of Lessor's net income, gross
    receipts, franchise taxes and taxes
    on its capital stock, and Lessee, at
    its expense, shall, to the extent
    permitted by applicable laws and
    regulations, prepare and file all
    other tax returns and reports in
    respect of any Imposition as may be
    required by Governmental Authorities.
    Lessor and Lessee shall, upon request
    of the other, provide such data as is
    maintained by the party to whom the
    request is made with respect to the
    Leased Property as may be necessary
    to prepare any required returns and
    reports.  In the event that any
    Governmental Authority classifies any
    property covered by this Lease as
    personal property, Lessee shall file
    all personal property tax returns in
    such jurisdictions where it may
    legally so file.  Lessor, to the
    extent it possesses the same, and
    Lessee, to the extent it possesses
    the same, will provide the other
    party, upon request, with cost and
    depreciation records necessary for
    filing returns for any portion of
    Leased Property so classified as
    personal property.  Where Lessor is
    legally required to file personal
    property tax returns, if Lessee
    notifies Lessor of the obligation to
    do so in each year at least thirty
    (30) days prior to the date any
    protest must be filed, Lessee will be
    provided with copies of assessment
    notices so as to enable Lessee to
    file a protest.

        4.1.4 REFUNDS.  If no Lease
    Default shall have occurred and be
    continuing, any refund due from any
    taxing authority in respect of any
    Imposition paid by Lessee shall be
    paid over to or retained by Lessee.
    If a Lease Default shall have
    occurred and be continuing, at
    Lessor's option, such funds shall be
    paid over to Lessor and/or retained
    by Lessor and applied toward Lease
    Obligations which relate to the
    Leased Property in accordance with
    the Lease Documents.

        4.1.5 PROTEST.  Upon giving
    notice to Lessor, at Lessee's option
    and sole cost and expense, and
    subject to compliance with the
    provisions of Article 15, Lessee may
    contest, protest, appeal, or
    institute such other proceedings as
    Lessee may


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             deem appropriate to effect a
    reduction of any Imposition and
    Lessor, at Lessee's cost and expense
    as aforesaid, shall fully cooperate
    in a reasonable manner with Lessee in
    connection with such protest, appeal
    or other action.

    4.2  NOTICE OF IMPOSITIONS.  Lessor
shall give prompt notice to Lessee of all
Impositions payable by Lessee hereunder of
which Lessor at any time has knowledge,
but Lessor's failure to give any such
notice shall in no way diminish Lessee's
obligations hereunder to pay such
Impositions.

    4.3  ADJUSTMENT OF IMPOSITIONS.
Impositions imposed in respect of the
period during which the expiration or
earlier termination of the Term occurs
shall be adjusted and prorated between
Lessor and Lessee, whether or not such
Impositions are imposed before or after
such expiration or termination, and
Lessee's obligation to pay its prorated
share thereof shall survive such
expiration or termination.

    4.4  UTILITY CHARGES.  Lessee will pay
or cause to be paid all charges for
electricity, power, gas, oil, water,
telephone, cable television and other
utilities used in the Leased Property
during the Term and thereafter until
Lessee surrenders the Leased Property in
the manner required by this Lease.

    4.5  INSURANCE PREMIUMS.  Lessee will
pay or cause to be paid all premiums for
the insurance coverage required to be
maintained pursuant to Article 12 during
the Term, and thereafter until Lessee
yields up the Leased Property in the
manner required by this Lease.  All such
premiums shall be paid annually in advance
and Lessee shall furnish Lessor with
evidence satisfactory to Lessor that all
such premiums have been so paid prior to
the commencement of the Term and
thereafter at least thirty (30) days prior
to the due date of each premium which
thereafter becomes due.  Notwithstanding
the foregoing, Lessee may pay such
insurance premiums to the insurer in
monthly installments so long as the
applicable insurer is contractually
obligated to give Lessor not less than a
sixty (60) days notice of non-payment and
so long as no Lease Default has occurred
and is continuing.  In the event of the
failure of Lessee either to comply with
the insurance requirements in Article 12,
or to pay the premiums for such insurance,
or to deliver such policies or
certificates thereof to Lessor at the
times required hereunder, Lessor shall be
entitled, but shall have no obligation, to
effect such insurance and pay the premiums
therefor, which premiums shall be a demand
obligation of Lessee to Lessor.









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    4.6  DEPOSITS.

        4.6.1 LESSOR'S OPTION.  At the
    option of Lessor upon the occurrence
    of an event or circumstance which,
    with the giving of notice and/or the
    passage of time, would constitute a
    Lease Default, which may be exercised
    at any time thereafter, Lessee shall,
    upon written request of Lessor, on
    the first day on the calendar month
    immediately following such request,
    and on the first day of each calendar
    month thereafter during the Term
    (each of which dates is referred to
    as a "Monthly Deposit Date"), pay to
    and deposit with Lessor a sum equal
    to one-twelfth (1/12th) of the
    Impositions to be levied, charged,
    filed, assessed or imposed upon or
    against the Leased Property within
    one (1) year after said Monthly
    Deposit Date and a sum equal to one-
    twelfth (1/12th) of the premiums for
    the insurance policies required
    pursuant to Article 12 which are
    payable within one (1) year after
    said Monthly Deposit Date.  If the
    amount of the Impositions to be
    levied, charged, assessed or imposed
    or insurance premiums to be paid
    within the ensuing one (1) year
    period shall not be fixed upon any
    Monthly Deposit Date, such amount for
    the purpose of computing the deposit
    to be made by Lessee hereunder shall
    be estimated by Lessor based upon the
    most recent available information
    concerning said Impositions with an
    appropriate adjustment to be promptly
    made between Lessor and Lessee as
    soon as such amount becomes
    determinable.  In addition, Lessor
    may, at its option, from time to time
    require that any particular deposit
    be greater than one-twelfth (1/12th)
    of the estimated amount payable
    within one (1) year after said
    Monthly Deposit Date, if such
    additional deposit is required in
    order to provide to Lessor a
    sufficient fund from which to make
    payment of all Impositions on or
    before the next due date of any
    installment thereof, or to make
    payment of any required insurance
    premiums not later than the due date
    thereof.

        4.6.2 USE OF DEPOSITS.  The sums
    deposited by Lessee under this
    Section 4.6 shall be held by Lessor
    and shall be applied in payment of
    the Impositions or insurance
    premiums, as the case may be, when
    due.  Any such deposits may be
    commingled with other assets of
    Lessor, and shall be deposited by
    Lessor at such bank as Lessor may,
    from time to time select, and,
    provided that Lessor has invested
    such deposits in one or more of the
    investment vehicles described on
    SCHEDULE 4.6.2 attached hereto and
    incorporated by reference, Lessor
    shall not be liable to Lessee or any
    other Person (a) based on Lessor's
    (or such bank's) choice of investment
    vehicles, (b) for any consequent loss
    of principal or interest or (c) for
    any unavailability of funds based on
    such choice of investment.
    Furthermore, Lessor shall bear no
    responsibility for the financial
    condition of, nor any act or omission
    by, Lessor's depository bank.  The
    income from such


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             investment or interest on
    such deposit shall be paid to Lessee
    on a semi-annual basis as long as no
    Lease Default has occurred and is
    then continuing, and as long as no
    fact or circumstance exists which,
    with the giving of notice and/or the
    passage of time, would constitute a
    Lease Default.  Lessee shall give not
    less than ten (10) days prior written
    notice to Lessor in each instance
    when an Imposition or insurance
    premium is due, specifying the
    Imposition or premium to be paid and
    the amount thereof, the place of
    payment, and the last day on which
    the same may be paid in order to
    comply with the requirements of this
    Lease.  If Lessor, in violation of
    its obligations under this Lease,
    does not pay any Imposition or
    insurance premium when due, for which
    a sufficient deposit exists, Lessee
    shall not be in default hereunder by
    virtue of the failure of Lessor to
    pay such Imposition or such insurance
    premium and Lessor shall pay any
    interest or fine assessed by virtue
    of Lessor's failure to pay such
    Imposition or insurance premium.

        4.6.3 DEFICITS.  If for any
    reason any deposit held by Lessor
    under this Section 4.6 shall not be
    sufficient to pay an Imposition or
    insurance premium within the time
    specified therefor in this Lease,
    then, within ten (10) days after
    demand by Lessor, Lessee shall
    deposit an additional amount with
    Lessor, increasing the deposit held
    by Lessor so that Lessor holds
    sufficient funds to pay such
    Imposition or premium in full (or in
    installments as otherwise provided
    for herein), together with any
    penalty or interest due thereon.
    Lessor may change its estimate of any
    Imposition or insurance premium for
    any period on the basis of a change
    in an assessment or tax rate or on
    the basis of a prior miscalculation
    or for any other good faith reason;
    in which event, within ten (10) days
    after demand by Lessor, Lessee shall
    deposit with Lessor the amount in
    excess of the sums previously
    deposited with Lessor for the
    applicable period which would
    theretofore have been payable under
    the revised estimate.

        4.6.4 OTHER PROPERTIES.  If any
    Imposition shall be levied, charged,
    filed, assessed, or imposed upon or
    against the Leased Property, and if
    such Imposition shall also be a levy,
    charge, assessment, or imposition
    upon or for any other real or
    personal property that does not
    constitute a part of the Leased
    Property but for which a lien exists
    or can exist upon the Leased
    Property, then, at Lessor's
    reasonable discretion, the
    computation of the amounts to be
    deposited under this Section 4.6
    shall be based upon the entire amount
    of such Imposition and Lessee shall
    not have the right to apportion any
    deposit with respect to such
    Imposition.





31


        4.6.5 TRANSFERS.  In connection
    with any assignment of Lessor's
    interest under this Lease, the
    original Lessor named herein and each
    successor in interest shall transfer
    all amounts deposited pursuant to the
    provisions of this Section 4.6 and
    still in its possession to such
    assignee (as the subsequent holder of
    Lessor's interest in this Lease) and
    upon such transfer, the original
    Lessor named herein or the applicable
    successor in interest transferring
    the deposits shall thereupon be
    completely released from all
    liability with respect to such
    deposits so transferred and Lessee
    shall look solely to said assignee,
    as the subsequent holder of Lessor's
    interest under this Lease, in
    reference thereto.

        4.6.6 SECURITY.  All amounts
    deposited with Lessor pursuant to the
    provisions of this Section 4.6 shall
    be held by Lessor as additional
    security for the payment and
    performance of the Obligations and,
    upon the occurrence of any Lease
    Default, Lessor may, in its sole and
    absolute discretion, apply said
    amounts towards payment or
    performance of such Obligations.

        4.6.7 RETURN.  Upon the
    expiration or earlier termination of
    this Lease, provided that all of the
    Lease Obligations relating to the
    Leased Property have been fully paid
    and performed, any sums then held by
    Lessor under this Section 4.6 shall
    be refunded to Lessee.

        4.6.8 RECEIPTS.  Lessee shall
    deliver to Lessor copies of all
    notices, demands, claims, bills and
    receipts in relation to the
    Impositions and insurance premiums
    upon the earlier to occur of (a) ten
    (10) days following receipt thereof
    by Lessee and (b) in the case of an
    invoice, demand or bill for the
    payment of an Imposition, prior to
    the date when such Imposition is due
    and payable.


ARTICLE 5

OWNERSHIP OF LEASED PROPERTY AND PERSONAL
PROPERTY;
INSTALLATION, REMOVAL AND REPLACEMENT OF
PERSONAL PROPERTY;

    5.1  OWNERSHIP OF THE LEASED PROPERTY.
Lessee acknowledges that the Leased
Property is the property of Lessor and
that Lessee has only the right to the
exclusive possession and use of the Leased
Property upon the terms and conditions of
this Lease.







32


    5.2  PERSONAL PROPERTY; REMOVAL AND
REPLACEMENT OF PERSONAL PROPERTY.

        5.2.1 LESSEE TO EQUIP FACILITY.
    If and to the extent not included in
    the Leased Property, Lessee, at its
    sole cost and expense, shall install,
    affix or assemble or place on the
    Leased Property, sufficient items of
    Tangible Personal Property, to enable
    the operation of the Facility in
    accordance with the requirements of
    this Lease for the Primary Intended
    Use, and such Tangible Personal
    Property and replacements thereof,
    shall be at all times the property of
    Lessee.

        5.2.2 SUFFICIENT PERSONAL
    PROPERTY.  Lessee shall maintain,
    during the entire Term, the Tangible
    Personal Property in good order and
    repair and shall provide at its
    expense all necessary replacements
    thereof, as may be necessary in order
    to operate the Facility in compliance
    with all applicable Legal
    Requirements and Insurance
    Requirements and otherwise in
    accordance with customary practice in
    the industry for the Primary Intended
    Use and, if applicable, Other
    Permitted Uses.  In addition, Lessee
    shall furnish all necessary
    replacements of such obsolete items
    of the Tangible Personal Property
    during the Term as are necessary to
    enable the operation of the Facility
    in accordance with the requirements
    of this Lease for the Primary
    Intended Use.

        5.2.3 REMOVAL AND REPLACEMENT;
    LESSOR'S OPTION TO PURCHASE.  Lessee
    shall not remove from the Leased
    Property any one or more items of
    Tangible Personal Property (whether
    now owned or hereafter acquired), the
    fair market value of which exceeds
    TWENTY-FIVE THOUSAND DOLLARS
    ($25,000), individually or ONE
    HUNDRED THOUSAND DOLLARS
    ($100,000.00) collectively, if such
    Tangible Personal Property is
    necessary to enable the operation of
    the Facility in accordance with the
    requirements of this Lease for the
    Primary Intended Use.  At its sole
    cost and expense, Lessee shall
    restore the Leased Property to the
    condition required by Article 8,
    including repair of all damage to the
    Leased Property caused by the removal
    of the Tangible Personal Property,
    whether effected by Lessee or Lessor.
    Upon the expiration or earlier
    termination of this Lease, Lessor
    shall have the option, which may be
    exercised by giving notice thereof
    within twenty (20) days prior to such
    expiration or termination, of (a)
    acquiring the Tangible Personal
    Property (pursuant to a bill of sale
    and assignments of any equipment
    leases, all in such forms as are
    reasonably satisfactory to Lessor)
    upon payment of its fair market value
    or (b) requiring Lessee to remove the
    Tangible Personal Property.  If
    Lessor exercises its option to
    purchase the Tangible Personal
    Property, the price to be paid by
    Lessor shall be (i) reduced by the
    amount of all payments due on any
    equipment leases or any other
    Permitted Prior


33


             Security Interests assumed by
    Lessor and (ii) applied to the Lease
    Obligations before any payment to
    Lessee.  If Lessor requires the
    removal of the Tangible Personal
    Property, then all of the Tangible
    Personal Property that is not removed
    by Lessee within ten (10) days
    following such request shall be
    considered abandoned by Lessee and
    may be appropriated, sold, destroyed
    or otherwise disposed of by Lessor
    without first giving notice thereof
    to Lessee, without any payment to
    Lessee and without any obligation to
    account therefor.


ARTICLE 6

SECURITY FOR LEASE OBLIGATIONS

    6.1  SECURITY FOR LESSEE'S
OBLIGATIONS; PERMITTED PRIOR SECURITY
INTERESTS.

        6.1.1 SECURITY.  In order to
    secure the payment and performance of
    all of the Obligations, Lessee agrees
    to provide or cause there to be
    provided the following security:

                   (a)  a first lien and
         exclusive security interest in
         the Collateral, as more
         particularly provided for in the
         Security Agreement;

                   (b)  the Cash
         Collateral.

                   (c)  a first lien and
         exclusive pledge and assignment
         of, and security interest in,
         all Permits and Contracts, as
         more particularly provided for
         in the Collateral Assignment of
         Permits and Contracts; and

                   (d)  in the event
         that, at any time during the
         Term, Lessee holds the fee title
         to or a leasehold interest in
         any real property and/or
         personal property which is used
         as an integral part of the
         operation of the Leased Property
         (but is not subject to this
         Lease), Lessee shall (i) provide
         Lessor with prior notice of such
         acquisition and (ii) shall take
         such actions and enter into such
         agreements as Lessor shall
         reasonably request in order to
         grant Lessor a first priority
         mortgage or other security
         interest in such real property
         and personal property, subject
         only to the Permitted
         Encumbrances and other Liens
         reasonably acceptable to Lessor.
         Without limiting the foregoing,
         it is acknowledged and agreed
         that all revenues generated from
         the operation of such additional
         real property shall be included
         in the determination of Gross
         Revenues (subject to such
         adjustments as agreed upon
         hereunder).


34


                   Notwithstanding the
         foregoing, Lessor shall
         subordinate its security
         interest in Receivables to a
         prior security interest to
         secure a working capital line as
         provided in Section 6.1.3.

                   6.1.2     PURCHASE-
         MONEY SECURITY INTERESTS AND
         EQUIPMENT LEASES.
         Notwithstanding any other
         provision hereof regarding the
         creation of Liens, Lessee may
         (a) grant priority purchase
         money security interests in
         items of Tangible Personal
         Property, (b) lease Tangible
         Personal Property from equipment
         lessors as long as: (i) the
         aggregate value of such Tangible
         Personal Property shall not
         exceed TWO HUNDRED THOUSAND
         DOLLARS ($200,000) or (ii) (A)
         the secured party or equipment
         lessor enters into an
         intercreditor agreement with,
         and satisfactory to, Lessor,
         pursuant to which, without
         limiting the foregoing, (1)
         Lessor shall be afforded the
         option of curing defaults and
         the option of succeeding to the
         rights of Lessee and (2)
         Lessor's security interest in
         Tangible Personal Property shall
         be subordinated to the security
         interest granted to such secured
         party, (B) all of the terms,
         conditions and provisions of the
         financing, security interest or
         lease are reasonably acceptable
         to Lessor, (C) Lessee provides a
         true and complete copy, as
         executed, of each such purchase
         money security agreement,
         financing document and equipment
         lease and all amendments thereto
         and (D) no such security
         interest, financing agreement or
         lease is cross-defaulted or
         cross-collateralized with any
         other obligation.  Security
         interests granted by Lessee in
         full compliance with the
         provisions of this Section 6.1.2
         are referred to as "Permitted
         Prior Security Interests".

                   6.1.3     RECEIVABLES
         FINANCING.  Notwithstanding any
         other provision hereof regarding
         the creation of Liens, Lessee
         shall also be permitted to grant
         a prior security interest in
         Receivables (with the Lessor
         retaining a junior security
         interest therein) to an
         institutional lender which is
         providing a working capital line
         of credit (a "Working Capital
         Loan") for the exclusive use of
         Guarantor, Lessee and Affiliates
         of Lessee as long as such Lender
         enters into an intercreditor
         agreement with, and satisfactory
         to, Lessor pursuant to which,
         without limiting the foregoing,
         (1) Lessor shall be provided
         with  notice with respect to
         defaults under the Working
         Capital Loan simultaneously with
         the delivery of such notice to
         Lessee and shall be afforded the
         option of curing defaults
         thereunder, (2) such lender's
         use of Instruments, Documents,
         General Intangibles and Chattel
         Paper shall


35


                           be limited to a
         license only for the purpose of
         collecting Receivables and (3)
         the subordination of Lessor's
         interest in the Receivables
         shall be of no force and effect
         and Lessor's first priority
         security interest shall be
         reinstated from and after the
         occurrence of an Event of
         Default if, upon or following
         such Event of Default, Lessor
         either exercises any of its
         remedies set forth in Article 16
         or Lessor notifies in writing
         such lender of Lessor's
         intention to invoke its right to
         reinstate its first priority
         security interest in the
         Receivables.

    6.2  GUARANTY.  All of the Lease
Obligations shall be unconditionally and
irrevocably guaranteed by the Guarantor
pursuant to the Guaranty of Lease
Obligations.


ARTICLE 7

CONDITION AND USE OF LEASED PROPERTY;
MANAGEMENT AGREEMENTS

    7.1  CONDITION OF THE LEASED PROPERTY.
Lessee acknowledges that Lessee has caused
the Leased Property to be sold to Lessor
and has concurrently entered into this
Lease.  Lessee acknowledges receipt and
delivery of possession of the Leased
Property and that Lessee has examined and
otherwise has acquired knowledge of the
condition of the Leased Property prior to
the execution and delivery of this Lease
and has found the same to be in good order
and repair and satisfactory for its
purposes hereunder.  Lessee is leasing the
Leased Property "AS-IS" in its present
condition, provided, however, that nothing
herein contained in this Section 7.1 shall
be deemed to modify the terms and
provisions of the Leasehold Improvement
Agreement.  Lessee waives any claim or
action against Lessor in respect of the
condition of the Leased Property.  LESSOR
MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, WITH RESPECT TO THE
LEASED PROPERTY, EITHER AS TO ITS FITNESS
FOR ANY PARTICULAR PURPOSE OR USE, ITS
DESIGN OR CONDITION OR OTHERWISE, OR AS TO
DEFECTS IN THE QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT; IT
BEING AGREED THAT ALL RISKS RELATING TO
THE DESIGN, CONDITION AND/OR USE OF THE
LEASED PROPERTY ARE TO BE BORNE BY LESSEE.
LESSEE HEREBY ASSUMES ALL RISK OF THE
PHYSICAL CONDITION OF THE LEASED PROPERTY,
THE SUITABILITY OF THE LEASED PROPERTY FOR
LESSEE'S PURPOSES, AND THE COMPLIANCE OR
NON-COMPLIANCE OF THE LEASED PROPERTY WITH
ALL APPLICABLE REQUIREMENTS OF LAW,
INCLUDING BUT NOT LIMITED TO ENVIRONMENTAL
LAWS AND ZONING OR LAND USE LAWS.



36


    Upon the request of Lessor, at any
time and from time to time during the
Term, Lessee shall engage one (1) or more
independent professional consultants,
engineers and inspectors, qualified to do
business in the State and acceptable to
Lessor to perform any environmental and/or
structural investigations and/or other
inspections of the Leased Property and the
Facility as Lessor may reasonably request
in order to detect (a) any structural
deficiencies in the Leased Improvements or
the utilities servicing the Leased
Property or (b) the presence of any
condition that (i) may be harmful or
present a health hazard to the residents
and other occupants of the Leased Property
or (ii) constitutes a breach or violation
of any of the Lease Documents.  In the
event that Lessor reasonably determines
that the results of such testing or
inspections are unsatisfactory, within
thirty (30) days of notice from Lessor,
Lessee shall commence such appropriate
remedial actions as may be reasonably
requested by Lessor to correct such
unsatisfactory conditions and, thereafter,
shall diligently and continuously
prosecute such remedial actions to
completion within the time limits
prescribed in this Lease or the other
Lease Documents.

    7.2  USE OF THE LEASED PROPERTY;
COMPLIANCE; MANAGEMENT.

        7.2.1 OBLIGATION TO OPERATE.
    Lessee shall continuously operate the
    Leased Property in accordance with
    the Primary Intended Use and the
    Other Permitted Uses and maintain its
    qualifications for licensure and
    accreditation as required by all
    applicable Legal Requirements.

        7.2.2 PERMITTED USES.  During the
    entire Term, Lessee shall use the
    Leased Property, or permit the Leased
    Property to be used, only for the
    Primary Intended Use and, if
    applicable, the Other Permitted Uses.
    Lessee shall not use the Leased
    Property or permit the Leased
    Property to be used for any other use
    without the prior written consent of
    Lessor, which consent may be withheld
    in Lessor's sole and absolute
    discretion.

        7.2.3 COMPLIANCE WITH INSURANCE
    REQUIREMENTS.  No use shall be made
    or permitted to be made of the Leased
    Property and no acts shall be done
    which will cause the cancellation of
    any insurance policy covering the
    Leased Property, nor shall Lessee,
    any Manager or any other Person sell
    or otherwise provide to residents,
    other occupants or invitees therein,
    or permit to be kept, used or sold in
    or about the Leased Property, any
    article which may be prohibited by
    any of the Insurance Requirements.
    Furthermore, Lessee shall, at its
    sole cost and expense, take whatever
    other actions that may be necessary
    to comply with and to insure that the
    Leased Property complies with all
    Insurance Requirements.




37


        7.2.4 NO WASTE.  Lessee shall not
    commit or suffer to be committed any
    waste on, in or under the Leased
    Property, nor shall Lessee cause or
    permit any nuisance thereon.

        7.2.5 NO IMPAIRMENT.  Lessee
    shall neither permit nor knowingly
    suffer the Leased Property to be used
    in such a manner as (a) might
    reasonably tend to impair Lessor's
    title thereto or (b) may reasonably
    make possible a claim or claims of
    adverse usage or adverse possession
    by the public or of implied
    dedication of the Leased Property.

        7.2.6 NO LIENS.  Except as
    permitted pursuant to Section 6.1.2,
    Lessee shall not permit or suffer any
    Lien to exist on the Tangible
    Personal Property and shall in no
    event cause, permit or suffer any
    Lien to exist with respect to the
    Leased Property other than as set
    forth in Section 11.5.2.

    7.3  COMPLIANCE WITH LEGAL
REQUIREMENTS.  Lessee covenants and agrees
that the Leased Property shall not be used
for any unlawful purpose and that Lessee,
at its sole cost and expense, will
promptly (a) comply with, and shall cause
every other member of the Leasing Group to
comply with, all applicable Legal
Requirements relating to the use,
operation, maintenance, repair and
restoration of the Leased Property,
whether or not compliance therewith shall
require structural change in any of the
Leased Property or interfere with the use
and enjoyment of the Leased Property and
(b) procure, maintain and comply with (in
all material respects), and shall cause
every other member of the Leasing Group to
procure, maintain and comply with (in all
material respects), all Contracts and
Permits necessary or desirable in order to
operate the Leased Property for the
Primary Intended Use and/or, if
applicable, Other Permitted Uses, and for
compliance with all of the terms and
conditions of this Lease.  Unless a Lease
Default has occurred or any event has
occurred which, with the passage of time
and/or the giving of notice would
constitute a Lease Default, Lessee may,
upon prior written notice to Lessor,
contest any Legal Requirement to the
extent permitted by, and in accordance
with, Article 15 below.

    7.4  MANAGEMENT AGREEMENTS.
Throughout the Term, Lessee shall not
enter into any Management Agreement
without the prior written approval of
Lessor, in each instance, which approval
shall not be unreasonably withheld.
Lessee shall not, without the prior
written approval of Lessor, in each
instance, which approval shall not be
unreasonably withheld, agree to or allow:
(a) any change in the Manager or change in
the ownership or control of the Manager,
(b) the termination of any Management
Agreement (other than in connection with
the exercise by Lessee of any of its
remedies under the Management Agreement as
a result of any default by the Manager
thereunder), (c) any assignment by the
Manager of its interest under the
Management Agreement or (d) any material
amendment of the Management Agreement.  In
addition, Lessee


38


shall, at its sole cost and expense,
promptly and fully perform or cause to be
performed every covenant, condition,
promise and obligation of the licensed
operator of the Leased Property under any
Management Agreement.

    Each Management Agreement shall
provide that Lessor shall be provided
notice of any defaults thereunder and, at
Lessor's option, an opportunity to cure
such default.  Lessee shall furnish to
Lessor, within three (3) days after
receipt thereof, or after the mailing or
service thereof by Lessee, as the case may
be, a copy of each notice of default which
Lessee shall give to, or receive from any
Person, based upon the occurrence, or
alleged occurrence, of any default in the
performance of any covenant, condition,
promise or obligation under any Management
Agreement.

    Whenever and as often as Lessee shall
fail to perform, promptly and fully, at
its sole cost and expense, any covenant,
condition, promise or obligation on the
part of the licensed operator of the
Leased Property under and pursuant to any
Management Agreement, Lessor, or a
lawfully appointed receiver of the Leased
Property, may, at their respective options
(and without any obligation to do so),
after five (5) days' prior notice to
Lessee (except in the case of an
emergency) enter upon the Leased Property
and perform, or cause to be performed,
such work, labor, services, acts or
things, and take such other steps and do
such other acts as they may deem
advisable, to cure such defaulted
covenant, condition, promise or
obligation, and any amount so paid or
advanced by Lessor or such receiver and
all costs and expenses reasonably incurred
in connection therewith (including,
without limitation, attorneys' fees and
expenses and court costs), shall be a
demand obligation of Lessee to Lessor or
such receiver, and, Lessor shall have the
same rights and remedies for failure to
pay such costs on demand as for Lessee's
failure to pay any other sums due
hereunder.

    7.5  PARTICIPATION IN THIRD PARTY
PAYOR PROGRAMS.  No provision of this
Lease shall be deemed to require Lessee to
commence participation in any Third Party
Payor Program or any Managed Care Plan.


ARTICLE 8

REPAIRS; RESTRICTIONS

    8.1  MAINTENANCE AND REPAIR.

        8.1.1  LESSEE'S RESPONSIBILITY.
    Lessee, at its sole cost and expense,
    shall keep the Leased Property (with
    respect to the Project, to the extent
    consistent with the stage of
    construction of the Project) and all
    private roadways, sidewalks and curbs
    appurtenant thereto which are under
    Lessee's control in good order and
    repair (whether or not the need for
    such repairs occurs as a


39


             result of Lessee's use, any
    prior use, the elements or the age of
    the Leased Property or such private
    roadways, sidewalks and curbs or any
    other cause whatsoever other than
    Lessor's gross negligence or willful
    misconduct) and, subject to Articles
    9, 13 and 14, Lessee shall promptly,
    with the exercise of all reasonable
    efforts, undertake and diligently
    complete all necessary and
    appropriate repairs, replacements,
    renovations, restorations,
    alterations and modifications thereof
    of every kind and nature, whether
    interior or exterior, structural or
    non-structural, ordinary or
    extraordinary, foreseen or unforeseen
    or arising by reason of a condition
    (concealed or otherwise) existing
    prior to the commencement of, or
    during, the Term and thereafter until
    Lessee surrenders the Leased Property
    in the manner required by this Lease.
    In addition, Lessee, at its sole cost
    and expense, shall make all repairs,
    modifications, replacements,
    renovations and alterations of the
    Leased Property (and such private
    roadways, sidewalks and curbs) that
    are necessary to comply with all
    applicable Legal Requirements and
    Insurance Requirements so that the
    Leased Property can be legally
    operated for the Primary Intended Use
    and, if applicable, the Other
    Permitted Uses.  All repairs,
    replacements, renovations,
    alterations, and modifications
    required by the terms of this Section
    8.1 shall be (a) performed in a good
    and workmanlike manner in compliance
    with all applicable Legal
    Requirements, Insurance Requirements
    and the requirements of Article 9
    hereof, using new materials well
    suited for their intended purpose and
    (b) consistent with the operation of
    the Facility in a reputable manner.
    Lessee will not take or omit to take
    any action the taking or omission of
    which might materially impair the
    value or the usefulness of the Leased
    Property for the Primary Intended Use
    and, if applicable, the Other
    Permitted Uses.  To the extent that
    any of the repairs, replacements,
    renovations, alterations or
    modifications required by the terms
    of this Section 8.1 constitute
    Material Structural Work, Lessee
    shall obtain Lessor's prior written
    approval (which approval shall not be
    unreasonably withheld) of the
    specific repairs, replacements,
    renovations, alterations and
    modifications to be performed by or
    on behalf of Lessee in connection
    with such Material Structural Work.
    Notwithstanding the foregoing, in the
    event of a bona fide emergency during
    which Lessee is unable to contact the
    appropriate representatives of
    Lessor, Lessee may commence such
    Material Structural Work as may be
    necessary in order to address such
    emergency without Lessor's prior
    approval, provided, however, that
    Lessee shall immediately thereafter
    advise Lessor of such emergency and
    the nature and scope of the Material
    Structural Work commenced and shall
    obtain Lessor's approval of the
    remaining Material Structural Work to
    be completed.





40



        8.1.2  NO LESSOR OBLIGATION.
    Lessor shall not, under any
    circumstances, be required to build
    or rebuild any improvements on the
    Leased Property (or any private
    roadways, sidewalks or curbs
    appurtenant thereto), or to make any
    repairs, replacements, renovations,
    alterations, restorations,
    modifications, or renewals of any
    nature or description to the Leased
    Property (or any private roadways,
    sidewalks or curbs appurtenant
    thereto), whether ordinary or
    extraordinary, structural or non-
    structural, foreseen or unforeseen,
    or to make any expenditure whatsoever
    with respect thereto in connection
    with this Lease, or to maintain the
    Leased Property (or any private
    roadways, sidewalks or curbs
    appurtenant thereto) in any way.

        8.1.3  LESSEE MAY NOT OBLIGATE
    LESSOR.  Nothing contained herein nor
    any action or inaction by Lessor
    shall be construed as (a)
    constituting the consent or request
    of Lessor, express or implied, to any
    contractor, subcontractor, laborer,
    materialman or vendor to or for the
    performance of any labor or services
    for any construction, alteration,
    addition, repair or demolition of or
    to the Leased Property or (b) except
    as otherwise provided in this Lease,
    giving Lessee any right, power or
    permission to contract for or permit
    the performance of any labor or
    services or the furnishing of any
    materials or other property in such
    fashion as would permit the making of
    any claim against Lessor for the
    payment thereof or to make any
    agreement that may create, or in any
    way be the basis for, any right,
    title or interest in, or Lien or
    claim against, the estate of Lessor
    in the Leased Property.  Without
    limiting the generality of the
    foregoing and except as otherwise
    provided in this Lease, the right
    title and interest of Lessor in and
    to the Leased Property shall not be
    subject to liens or encumbrances for
    the performance of any labor or
    services or the furnishing of any
    materials or other property furnished
    to the Leased Property at or by the
    request of Lessee or any other Person
    other than Lessor.  Lessee shall
    notify any contractor, subcontractor,
    laborer, materialman or vendor
    providing any labor, services or
    materials to the Leased Property of
    this provision.

    8.2  ENCROACHMENTS; TITLE
RESTRICTIONS.  If any of the Leased
Improvements shall, at any time, encroach
upon any property, street or right-of-way
adjacent to the Leased Property, or shall
violate the agreements or conditions
contained in any lawful restrictive
covenant or other Lien now or hereafter
affecting the Leased Property, or shall
impair the rights of others under any
easement, right-of-way or other Lien to
which the Leased Property is now or
hereafter subject, then promptly upon the
request of Lessor, Lessee shall, at its
sole cost and expense, subject to Lessee's
right to contest the existence of any
encroachment, violation or impairment as
set forth in Article 15, (a) obtain valid
and effective waivers or settlements of
all claims, liabilities and damages
resulting from each such


41


encroachment, violation or impairment or
(b) make such alterations to the Leased
Improvements, and take such other actions,
as Lessee in the good faith exercise of
its judgment deems reasonably practicable,
to remove such encroachment, or to end
such violation or impairment, including,
if necessary, the alteration of any of the
Leased Improvements.  Notwithstanding the
foregoing, Lessee shall, in any event,
take all such actions as may be reasonably
necessary in order to be able to continue
the operation of the Leased Improvements
for the Primary Intended Use and, if
applicable, the Other Permitted Uses
substantially in the manner and to the
extent that the Leased Improvements were
operated prior to the assertion of such
encroachment, violation or impairment and
nothing contained herein shall limit
Lessee's obligations to operate the Leased
Property in accordance with its Primary
Intended Use.  Any such alteration made
pursuant to the terms of this Section 8.2
shall be completed in conformity with the
applicable requirements of Section 8.1 and
Article 9.  Lessee's obligations under
this Section 8.2 shall be in addition to
and shall in no way discharge or diminish
any obligation of any insurer under any
policy of title or other insurance.  If
and to the extent any obligation of an
insurer under any policy of title or other
insurance exists and Lessee has incurred
costs and expenses with respect to the
subject matter of such obligation and
provided Lessor is reasonably satisfied
with the resolution of such subject
matter, at the request of Lessee, Lessor,
at Lessor's option, shall either assign to
Lessee any right it may have to proceed
against such insurer or remit to Lessee
any amount which Lessor recovers from such
insurer, minus any amounts needed to
reimburse Lessor for its reasonable costs
and expenses, for the costs and expenses
incurred by Lessee in reconstructing the
Facility or taking such other action
reasonably required in order to create a
viable and functional Facility under all
of the circumstances.


ARTICLE 9

MATERIAL STRUCTURAL WORK AND
CAPITAL ADDITIONS

    9.1  LESSOR'S APPROVAL.  Without the
prior written consent of Lessor, which
consent may be withheld by Lessor, in its
sole and absolute discretion, Lessee shall
make no Capital Addition or Material
Structural Work to the Leased Property
(including, without limitation, any change
in the size or unit capacity of the
Facility), except as may be otherwise
expressly required pursuant to Article 8.

    9.2  GENERAL PROVISIONS AS TO CAPITAL
ADDITIONS AND CERTAIN MATERIAL STRUCTURAL
WORK.  As to any Capital Addition or
Material Structural Work (other than such
Material Structural Work that is required
to be performed pursuant to the terms of
Section 8.1) for which Lessor has granted
its prior written approval, the following
terms and conditions shall apply unless
otherwise expressly set forth in Lessor's
written approval.


42


        9.2.1 NO LIENS.  Lessee shall not
    be permitted to create any Lien on
    the Leased Property in connection
    with any Capital Addition or Material
    Structural Work (including, without
    limitation, Liens relating to the
    provision of financing for a Capital
    Addition) other than Liens expressly
    permitted by the terms and provisions
    of this Lease Agreement.

        9.2.2 LESSEE'S PROPOSAL REGARDING
    CAPITAL ADDITIONS AND MATERIAL
    STRUCTURAL WORK.  If Lessee desires
    to undertake any Capital Addition or
    Material Structural Work, Lessee
    shall submit to Lessor in writing a
    proposal setting forth in reasonable
    detail any proposed Capital Addition
    or Material Structural Work and shall
    provide to Lessor copies of, or
    information regarding, the applicable
    plans and specifications, Permits,
    Contracts and any other materials
    concerning the proposed Capital
    Addition or Material Structural Work,
    as the case may be, as Lessor may
    reasonably request.  Without limiting
    the generality of the foregoing, each
    such proposal pertaining to any
    Capital Addition shall indicate the
    approximate projected cost of
    constructing such Capital Addition,
    the use or uses to which it will be
    put and a good faith estimate of the
    change, if any, in the Gross Revenues
    that Lessee anticipates will result
    from the construction of such Capital
    Addition.

        9.2.3 LESSOR'S OPTIONS REGARDING
    CAPITAL ADDITIONS AND MATERIAL
    STRUCTURAL WORK.  Lessor shall have
    the options of:  (a) denying
    permission for the construction of
    the applicable Capital Addition or
    Material Structural Work, (b)
    offering to finance the construction
    of the Capital Addition pursuant to
    Section 9.3 on such terms as may be
    specified by Lessor, including the
    terms of any amendment to this Lease,
    including, without limitation, an
    increase in Base Rent based on
    Lessor's then existing terms and
    prevailing conditions to compensate
    Lessor for the additional funds
    advanced by it, (c) allowing Lessee
    to separately pay for or finance the
    construction of the Capital Addition,
    subject to compliance with the terms
    and conditions of Section 9.2.1,
    Section 9.4, Section 13.1.3, all
    applicable Legal Requirements, all
    other requirements of this Lease and
    to such other terms and conditions as
    Lessor may in its discretion
    reasonably impose or (d) any
    combination of the foregoing.  Unless
    Lessor notifies Lessee in writing of
    a contrary election within thirty
    (30) days of Lessee's request or
    unless Lessor is required to consent
    thereto pursuant to this Section
    9.2.3, Lessor shall be deemed to have
    denied the request for the Capital
    Addition or Material Structural Work.
    In the event and to the extent Lessor
    has granted permission for the
    construction of the applicable
    Capital Addition or Material
    Structural Work and (x) Lessor has
    not offered to finance the
    construction of the same or (y)
    Lessee declines to accept the
    financing offered by Lessor, Lessee
    may


43


              separately finance such
    construction, subject to the
    limitation on Liens set forth in
    Section 9.2.1, or pay for such
    construction itself.  In the event
    Lessee declines to accept the
    financing offered by Lessor or if
    Lessor has not offered such financing
    to Lessee and proposes to obtaining
    financing from another Person, Lessee
    shall inform Lessor in writing of the
    terms and conditions of such
    financing and shall provide Lessor
    with a copy of a commitment letter
    evidencing the same and Lessor may,
    by giving notice thereof to Lessee
    within twenty (20) days following
    being so informed, elect to provide
    financing to Lessee at the effective
    rate of interest as such financing.
    Lessor shall not unreasonably
    withhold its permission for the
    construction of Material Structural
    Work which is necessary to protect
    the safety or welfare of residents of
    the Facility.

        9.2.4 LESSOR MAY ELECT TO FINANCE
    CAPITAL ADDITIONS.  If Lessor elects
    to offer financing for the proposed
    Capital Addition and Lessee accepts
    Lessor's financing proposal, the
    provisions of Section 9.3 shall
    apply.

    9.3  CAPITAL ADDITIONS FINANCED BY
LESSOR.

        9.3.1 ADVANCES.  All advances of
    funds for any such financing shall be
    made in accordance with Lessor's then
    standard construction loan
    requirements and procedures, which
    may include, without limitation, the
    requirements and procedures
    applicable to Work under Sections
    13.1.3 and 13.1.4.

        9.3.2 LESSOR'S GENERAL
    REQUIREMENTS.  If Lessor agrees to
    finance the proposed Capital Addition
    and Lessee accepts Lessor's proposal
    therefor, in addition to all other
    items which Lessor or any applicable
    Financing Party may reasonably
    require, Lessee shall provide to
    Lessor the following:

                   (a)  prior to any
         advance of funds, (i) any
         information, opinions,
         certificates, Permits or
         documents reasonably requested
         by Lessor or any applicable
         Financing Party which are
         necessary to confirm that Lessee
         is reasonably expected to be
         able to use the Capital Addition
         upon completion thereof in
         accordance with the Primary
         Intended Use and/or, if
         applicable, the Other Permitted
         Uses and (ii) evidence
         satisfactory to Lessor and any
         applicable Financing Party that
         all Permits required for the
         construction and use of the
         Capital Addition have been
         received, are in full force and
         effect and are not subject to
         appeal, except only for those
         Permits which cannot in the
         normal course be obtained prior
         to commencement or completion of
         the construction;



44


                           provided, that
         Lessor and any applicable
         Financing Party are furnished
         with reasonable evidence that
         the same is reasonably expected
         to be available in the normal
         course of business without
         unusual condition;

                   (b)  prior to any
         advance of funds, an Officer's
         Certificate and, if requested, a
         certificate from Lessee's
         architect, setting forth in
         reasonable detail the projected
         (or actual, if available)
         Capital Addition Cost;

                   (c)  bills of sale,
         instruments of transfer and
         other documents required by
         Lessor so as to vest title to
         the Capital Addition in Lessor
         free and clear of all Liens
         (except to the extent a Lien is
         being duly contested in
         accordance with the terms and
         provisions of this Lease), and
         amendments to this Lease and any
         recorded notice or memorandum
         thereof, duly executed and
         acknowledged, in form and
         substance reasonably
         satisfactory to Lessor,
         providing for any changes
         required by Lessor including,
         without limitation, changes in
         the Base Rent and the legal
         description of the Land;

                   (d)  upon payment
         therefor, a deed conveying to
         Lessor title to any land
         acquired for the purpose of
         constructing the Capital
         Addition ("Additional Land")
         free and clear of any Liens
         except those approved by Lessor;

                   (e)  upon completion
         of the Capital Addition, a final
         as-built survey thereof reason
         ably satisfactory to Lessor, if
         required by Lessor;

                   (f)  during and
         following the advance of funds
         and the completion of the
         Capital Addition, endorsements
         to any outstanding policy of
         title insurance covering the
         Leased Property satisfactory in
         form and substance to Lessor (i)
         updating the same without any
         additional exception except as
         may be reasonably permitted by
         Lessor and (ii) increasing the
         coverage thereof by an amount
         equal to the Fair Market Value
         of the Capital Addition and/or
         increasing the coverage thereof
         by an amount equal to the Fair
         Market Value of the Additional
         Land and including the
         Additional Land in the premises
         covered by such title insurance
         policy;

                   (g)  simultaneous with
         the initial advance of funds, if
         appropriate, (i) an owner's
         policy of title insurance
         insuring fee simple title to any
         Additional Land conveyed to
         Lessor pursuant to subparagraph
         (d) free and


45


                           clear of all
         Liens except those approved by
         Lessor and (ii) an owner's
         policy of title insurance
         reasonably satisfactory in form
         and substance to Lessor and a
         lender's policy of title
         insurance reasonably
         satisfactory in form and
         substance to any applicable
         Financing Party;

                   (h)  following the
         completion of the Capital
         Addition, if reasonably deemed
         necessary by Lessor, an
         appraisal of the Leased Property
         by an M.A.I. appraiser
         acceptable to Lessor, which
         states that the Fair Market
         Value of the Leased Property
         upon completion of the Capital
         Addition exceeds the Fair Market
         Value of the Leased Property
         prior to the commencement of
         such Capital Addition by an
         amount not less than one hundred
         twenty-five percent (125%) of
         the Capital Addition Cost; and

                   (i)  during or
         following the advancement of
         funds, prints of architectural
         and engineering drawings
         relating to the Capital Addition
         and such other materials,
         including, without limitation,
         the modifications to outstanding
         policies of title insurance
         contemplated by subsection (f)
         above, opinions of counsel,
         appraisals, surveys, certified
         copies of duly adopted resolu
         tions of the board of directors
         of Lessee authorizing the
         execution and delivery of the
         lease amendment and any other
         documents and instruments as may
         be reasonably required by Lessor
         and any applicable Financing
         Party.

        9.3.3 PAYMENT OF COSTS.  By
    virtue of making a request to finance
    a Capital Addition, whether or not
    such financing is actually
    consummated, Lessee shall be deemed
    to have agreed to pay, upon demand,
    all costs and expenses reasonably
    incurred by Lessor and any Person
    participating with Lessor in any way
    in the financing of the Capital
    Addition Cost, including, but not
    limited to (a) fees and expenses of
    their respective attorneys, (b) all
    photocopying expenses, if any, (c)
    the amount of any filing,
    registration and recording taxes and
    fees, (d) documentary stamp taxes and
    intangible taxes (e) title insurance
    charges and appraisal fees.

    9.4  GENERAL LIMITATIONS.  Without in
any way limiting Lessor's options with
respect to proposed Capital Additions or
Material Structural Work:  (a) no Capital
Addition or Material Structural Work shall
be completed that could, upon completion,
significantly alter the character or
purpose or detract from the value or
operating efficiency of the Leased
Property, or significantly impair the
revenue-producing capability of the Leased
Property, or adversely affect the ability
of Lessee to comply with the terms of this
Lease; (b) no Capital Addition or Material
Structural Work


46


shall be completed which would tie in or
connect any Leased Improvements on the
Leased Property with any other
improvements on property adjacent to the
Leased Property (and not part of the Land
covered by this Lease) including, without
limitation, tie-ins of buildings or other
structures or utilities, unless Lessee
shall have obtained the prior written
approval of Lessor, which approval may be
withheld in Lessor's sole and absolute
discretion and (c) all proposed Capital
Additions and Material Structural Work
shall be architecturally integrated and
consistent with the Leased Property.

    9.5  NON-CAPITAL ADDITIONS.  Lessee
shall have the obligation and right to
make repairs, replacements and alterations
which are not Capital Additions as
required by the other Sections of this
Lease, but in so doing, Lessee shall
always comply with and satisfy the
conditions of Section 9.4.  Lessee shall
have the right, from time to time, to make
additions, modifications or improvements
to the Leased Property which do not
constitute Capital Additions or Material
Structural Work as it may deem to be
desirable or necessary for its uses and
purposes, subject to the same limits and
conditions imposed under Section 9.4.  The
cost of any such repair, replacement,
alteration, addition, modification or
improvement shall be paid by Lessee and
the results thereof shall be included
under the terms of this Lease and become a
part of the Leased Property, without
payment therefor by Lessor at any time.
Notwithstanding the foregoing, all such
additions, modifications and improvements
which affect the structure of any of the
Leased Improvements, or which involve the
expenditure of more than FIFTY THOUSAND
DOLLARS ($50,000.00), shall be undertaken
only upon compliance with the provisions
of Section 13.1.3, all applicable Legal
Requirements and all other applicable
requirements of this Lease; provided,
however, that in the event of a bona fide
emergency during which Lessee is unable to
contact the appropriate representatives of
Lessor, Lessee may commence such
additions, modifications and improvements
as may be necessary in order to address
such emergency without Lessor's prior
approval, as long as Lessee immediately
thereafter advises Lessor of such
emergency and the nature and scope of the
additions, modifications and improvements
performed and obtains Lessor's approval of
the remaining work to be completed.  Any
such addition, modification and
improvement which affects the structure of
any of the Leased Improvements which is
not a Capital Addition or Material
Structural Work shall be exempt from the
requirements of Section 9.2 hereof.

    9.6  COMPENSATION TO LESSEE FOR
CAPITAL ADDITIONS PAID FOR OR FINANCED BY
LESSEE.  Upon the expiration or earlier
termination of this Lease, except by
reason of the default by Lessee hereunder,
Lessor shall compensate Lessee for all
Capital Additions paid for or financed by
Lessee in any of the following ways,
determined in the sole discretion of
Lessor:





47


    (a)  By purchasing all Capital
Additions paid for or financed by Lessee
from Lessee for cash in the amount of the
Fair Market Added Value (determined as of
the date of such purchase) of all such
Capital Additions  paid for or financed by
Lessee; or

    (b)  By purchasing such Capital
Addition from Lessee by delivering to
Lessee Lessor's purchase money promissory
note in the amount of said Fair Market
Added Value, due and payable no later than
eighteen (18) months after the date of
expiration or other termination of this
Lease, bearing interest at a rate equal to
one hundred ten percent (110%) of the
applicable federal rate (determined at the
time of execution of such note pursuant to
Section 1274 of the Code or any successor
section thereto), compounded semiannually,
or, if no such rate exists, or such rate
is in excess of that permitted under
applicable law, at the Prime Rate, which
interest shall be payable monthly, and
which note shall be secured by a mortgage
on the Leased Property, subject to all
Liens on the Leased Property at the time
of such purchase; or

    (c)  By Lessor assigning to Lessee
under appropriate written instruments the
right to receive an amount equal to the
Added Value Percentage (determined as of
the expiration of earlier termination of
this Lease) from all rent and other
consideration receivable by Lessor under
any re-letting or other disposition of the
Leased Property, after deducting all costs
and expenses incurred by Lessor in
connection with such re-letting or other
disposition of the leased Property and all
costs and expenses of operating and
maintaining the Leased Property during any
such new lease which are not borne by the
tenant thereunder.  The provisions of this
Subparagraph (c) shall remain in effect
until the sale or other final disposition
of the Leased Property in which event
Lessor shall pay to Lessee the outstanding
balance of the Fair Market Added Value in
accordance with Subparagraph (a), (b), or
(d) of this Section 9.6, after deducting
any amounts received by Lessee under this
Subparagraph (c); or

    (d)  Such other arrangement regarding
such compensation as shall be mutually
acceptable to Lessor and Lessee.


ARTICLE 10

WARRANTIES AND REPRESENTATIONS

    10.1 REPRESENTATIONS AND WARRANTIES.
Lessee hereby represents and warrants to,
and covenants and agrees with, Lessor
that:







48


        10.1.1     EXISTENCE; POWER;
    QUALIFICATION.

        Lessee is a corporation duly
    organized, validly existing and in
    good standing under the laws of the
    State of Washington.  Lessee has all
    requisite corporate power to own and
    operate its properties and to carry
    on its business as now conducted and
    is duly qualified to transact
    business and is in good standing in
    each jurisdiction where such
    qualification is necessary or
    desirable in order to carry out its
    business as presently conducted.  As
    of the date of this Agreement, Lessee
    does not have any Subsidiaries and
    Lessee is not a member of any
    partnership or joint venture.
    Attached hereto as EXHIBIT C is a
    true and correct list of all of the
    shareholders of Lessee and their
    respective ownership interests in
    Lessee;

        10.1.2     VALID AND BINDING.
    Lessee is duly authorized to make and
    enter into all of the Lease Documents
    to which Lessee is a party and to
    carry out the transactions
    contemplated therein.  All of the
    Lease Documents to which Lessee is a
    party have been duly executed and
    delivered by Lessee, and each is a
    legal, valid and binding obligation
    of Lessee, enforceable in accordance
    with its terms.

        10.1.3     SINGLE PURPOSE.
    Lessee is, and during the entire time
    that this Lease remains in force and
    effect shall be, engaged in no
    business, trade or activity other
    than the operation and development of
    the Leased Property for the Primary
    Intended Use and such other
    activities in which Lessee may be
    permitted to engage by the provisions
    of Meditrust/Emeritus Transaction
    Documents.  The fiscal year of
    Lessee, and the Guarantor is the
    Fiscal Year.

        10.1.4     NO VIOLATION.  The
    execution, delivery and performance
    of the Lease Documents by the members
    of the Leasing Group and the
    consummation by the members of the
    Leasing Group of the transactions
    thereby contemplated shall not result
    in any breach of, or constitute a
    default under, or result in the
    acceleration of, or constitute an
    event which, with the giving of
    notice or the passage of time, or
    both, could result in default or
    acceleration of any obligation of any
    such member of the Leasing Group
    under any of the Permits or Contracts
    or any other contract, mortgage,
    lien, lease, agreement, instrument,
    franchise, arbitration award,
    judgment, decree, bank loan or credit
    agreement, trust indenture or other
    instrument to which any member of the
    Leasing Group is a party or by which
    any member of the Leasing Group may
    be bound or affected and do not
    violate or contravene any Legal
    Requirement.




49

        10.1.5     CONSENTS AND
    APPROVALS.  Except as already
    obtained or filed or, with respect to
    the Project, reasonably expected to
    be obtained in the ordinary course of
    business prior to or upon the
    Completion of the Project, as the
    case may be, no consent or approval
    or other authorization of, or
    exemption by, or declaration or
    filing with, any Person and no waiver
    of any right by any Person is
    required to authorize or permit, or
    is otherwise required as a condition
    of the execution, delivery and
    performance of its obligations under
    the Lease Documents by any member of
    the Leasing Group or as a condition
    to the validity (assuming the due
    authorization, execution and delivery
    by Lessor of the Lease Documents to
    which it is a party) and the first
    priority of any Liens granted under
    the Lease Documents, except the
    filing of the Financing Statements.

        10.1.6     NO LIENS OR INSOLVENCY
    PROCEEDINGS.  Each member of the
    Leasing Group in existence as of the
    date hereof is financially solvent
    and there are no actions, suits,
    investigations or proceedings
    including, without limitation,
    outstanding federal or state tax
    liens, garnishments or insolvency or
    bankruptcy proceedings, pending or,
    to the best of Lessee's knowledge and
    belief, threatened:

                   (a)  against or
         affecting any member of the
         Leasing Group, which if
         adversely resolved to such
         member of the Leasing Group,
         would materially adversely
         affect the ability of any of the
         foregoing to perform their
         respective obligations under the
         Lease Documents;

                   (b)  against or
         affecting the Leased Property or
         the ownership, construction,
         development, maintenance,
         management, repair, use,
         occupancy, possession or
         operation thereof; or

                   (c)  which may involve
         or affect the validity, priority
         or enforceability of any of the
         Lease Documents, at law or in
         equity, or before or by any
         arbitrator or Governmental
         Authority.

        10.1.7     INTENTIONALLY DELETED.

        10.1.8     COMMERCIAL ACTS.
    Lessee's performance of and
    compliance with the obligations and
    conditions set forth herein and in
    the other Lease Documents will
    constitute commercial acts done and
    performed for commercial purposes.







50


        10.1.9     ADEQUATE CAPITAL, NOT
    INSOLVENT.  After giving effect to
    the consummation of the transactions
    contemplated by the Lease Documents,
    each member of the Leasing Group:

                   (a)  will be able to
         pay its debts as they become
         due;

                   (b)  will have
         sufficient funds or available
         capital to carry on its business
         as now conducted or as
         contemplated to be conducted (in
         accordance with the terms of the
         Lease Documents); and

                   (c)  will not be
         rendered insolvent as determined
         by applicable law.

          10.1.10        NOT DELINQUENT.
     Except as permitted under Section
     11.3.8, no member of the Leasing
     Group which exists as of the date
     hereof is delinquent or claimed to be
     delinquent under any obligation for
     the payment of borrowed money.

          10.1.11        NO AFFILIATE
     DEBT.  Lessee has not created,
     incurred, guaranteed, endorsed,
     assumed or suffered to exist any
     liability (whether direct or
     contingent) for borrowed money from
     the Guarantor (or any of its
     Affiliates) or any Affiliate of
     Lessee which has not been fully
     subordinated to the Lease
     Obligations.

          10.1.12        TAXES CURRENT.
     Each member of the Leasing Group
     which exists as of the date hereof
     has filed all federal, state and
     local tax returns which are required
     to be filed as to which extensions
     are not currently in effect and has
     paid all taxes, assessments,
     impositions, fees and other
     governmental charges (including
     interest and penalties) which have
     become due pursuant to such returns
     or pursuant to any assessment or
     notice of tax claim or deficiency
     received by each such member of the
     Leasing Group.  No tax liability has
     been asserted by the Internal Revenue
     Service against any member of the
     Leasing Group or any other federal,
     state or local taxing authority for
     taxes, assessments, impositions, fees
     or other governmental charges
     (including interest or penalties
     thereon) in excess of those already
     paid.










51


          10.1.13        FINANCIALS
COMPLETE AND ACCURATE.  The financial
statements of each member of the Leasing
Group given to Lessor in connection with
the execution and delivery of the Lease
Documents were true, complete and
accurate, in all material respects, and
fairly presented the financial condition
of each such member of the Leasing Group
as of the date thereof and for the periods
covered thereby, having been prepared in
accordance with GAAP and such financial
statements disclosed all liabilities,
including, without limitation, contingent
liabilities, of each such member of the
Leasing Group as of the date thereof.
There has been no material adverse change
since such date with respect to the Net
Worth of any such member of the Leasing
Group or with respect to any other matters
contained in such financial statements,
nor have any additional material
liabilities, including, without
limitation, contingent liabilities, of any
such member of the Leasing Group arisen or
been incurred or asserted since such date
except as otherwise disclosed to Lessor.
The projections heretofore delivered to
Lessor continue to be reasonable (with
respect to the material assumptions upon
which such projections are based) and
Lessee reasonably anticipates based on
information currently available to it
after due inquiry the results projected
therein will be achieved, there having
been (a) no material adverse change in the
business, assets or condition, financial
or otherwise of any such member of the
Leasing Group  or the Leased Property and
(b) no material depletion of the cash or
decrease in working capital of any such
member of the Leasing Group.

          10.1.14        PENDING ACTIONS,
     NOTICES AND REPORTS.

          (a)  There is no action or
     investigation pending or, to the best
     knowledge and belief of Lessee,
     threatened, anticipated or
     contemplated (nor, to the knowledge
     of Lessee, is there any reasonable
     basis therefor) against or affecting
     the Leased Property or any member of
     the Leasing Group (or any Affiliate
     thereof) before any Governmental
     Authority which could prevent or
     hinder the consummation of the
     transactions contemplated hereby or
     call into question the validity of
     any of the Lease Documents or any
     action taken or to be taken in
     connection with the transactions
     contemplated thereunder or which in
     any single case or in the aggregate
     might result in any material adverse
     change in the business, prospects,
     condition, affairs of any member of
     the Leasing Group or the Leased
     Property (including, without
     limitation, any action to revoke,
     withdraw or suspend any Permit
     necessary or desirable for the
     operation of the Leased Property in
     accordance with its Primary Intended
     Use and any action to transfer or
     relocate any such Permit to a
     location other than the Leased
     Property) or any material impairment
     of the right or ability of any member
     of the Leasing Group to carry on its
     operations as presently conducted or,
     with respect to the Project, proposed
     upon



52


              Completion of the Project to
     be conducted with respect to the
     Leased Property or with respect to
     its obligations under the Lease
     Documents.

          (b)  Neither the Facility nor
     any member of the Leasing Group has
     received any notice of any claim,
     requirement or demand of any
     Governmental Authority, Accreditation
     Body, if any, Third Party Payor or
     any insurance body having or claiming
     any licensing, certifying,
     supervising, evaluating or
     accrediting authority over the Leased
     Property to rework or redesign the
     Leased Property, its professional
     staff or its professional services,
     procedures or practices in any
     material respect or to provide
     additional furniture, fixtures,
     equipment or inventory or to
     otherwise take action so as to make
     the Leased Property conform to or
     comply with any Legal Requirement;

          (c)    The most recent
     utilization reviews, if any, relating
     to the Leased Property by all
     applicable Third Party Payors,
     Accreditation Bodies and Governmental
     Authorities and all applicable
     reviews or scrutiny by any managed
     care or utilization review companies,
     if any, have not had a material
     adverse impact on the utilization of
     units or programs at any of the
     Leased Property.  No claims or
     assertions have been made in any
     utilization review that any of the
     practices or procedures used at the
     Leased Property are improper or
     inappropriate other than such claims
     or assertions which singly and in the
     aggregate will not have a material
     adverse impact on the Leased
     Property; and

          (d)   Lessee has delivered or
     caused to be delivered to Lessor true
     and correct copies of all licenses,
     inspection surveys and accreditation
     reviews, if any, relating to the
     Leased Property, issued by any
     Governmental Authority during the
     most recent licensing period,
     together with all plans of correction
     relating thereto.

          10.1.15        COMPLIANCE WITH
     LEGAL AND OTHER REQUIREMENTS.

          (a)  Lessee and the Leased
     Property (with respect to the
     Project, to the extent consistent
     with the stage of construction of the
     Project) and the ownership,
     construction, development,
     maintenance, management, repair, use,
     occupancy, possession and operation
     thereof comply with all applicable
     Legal Requirements and there is no
     claim of any violation thereof known
     to Lessee.  Without limiting the
     foregoing, Lessee has obtained all
     Permits that are necessary or
     desirable to operate the Leased
     Property in accordance with its
     Primary Intended Use or, with respect
     to the Project, reasonably expects to
     obtain such Permits prior to, or
     upon, the Completion of the Project.


53


          (b)  Except as previously
     delivered to Lessor pursuant to
     Section 10.1.14(d) hereof, there are
     no outstanding notices of
     deficiencies, notices of proposed
     action or orders of any kind relating
     to the Leased Property, if any,
     issued by any Governmental Authority
     requiring conformity to any of the
     applicable Legal Requirements.

          10.1.16        NO ACTION BY
     GOVERNMENTAL AUTHORITY OR
     ACCREDITATION BODY.  There is no
     action pending or, to the best
     knowledge and belief of Lessee,
     recommended, by any Governmental
     Authority to revoke, repeal, cancel,
     modify, withdraw or suspend any
     Permit or Contract or to take any
     other action of any other type which
     could have a material adverse effect
     on the Leased Property.

          10.1.17        PROPERTY MATTERS.

          (a)  The Leased Property is free
     and clear of agreements, covenants
     and Liens, except those agreements,
     covenants and Liens to which this
     Lease is expressly subject, whether
     presently existing, as are listed on
     EXHIBIT B or were listed on the UCC
     lien search results delivered to
     Lessor at or prior to the execution
     and delivery of this Lease (and were
     not required to be terminated as a
     condition of the execution and
     delivery of this Lease), or which may
     hereafter be created in accordance
     with the terms hereof (collectively
     referred to herein as the "Permitted
     Encumbrances"); and Lessee shall
     warrant and defend Lessor's title to
     the Leased Property against any and
     all claims and demands of every kind
     and nature whatsoever;

          (b)  There is no Condemnation or
     similar proceeding pending with
     respect to or affecting the Leased
     Property, and Lessee is not aware, to
     the best of Lessee's knowledge and
     belief, that any such proceeding is
     contemplated;

          (c)  No part of the Collateral
     or the Leased Property has been
     damaged by any fire or other
     casualty.  The Leased Improvements
     (except the Project prior to
     completion of the Project) are in
     good operating condition and repair,
     ordinary wear and tear excepted, free
     from known defects in construction or
     design;

          (d)  None of the Permitted
     Encumbrances has or is likely to have
     a material adverse impact upon, nor
     interfere with or impede, in any
     material respect, the operation of
     the Leased Property in accordance
     with the Primary Intended Use;





54


          (e)  All buildings, facilities
     and other improvements necessary,
     both legally and practically, for the
     proper and efficient operation of the
     Facility are (or in the case of the
     Project, will be) located upon the
     Leased Property and all real property
     and personal property currently
     utilized by Lessee is (or in the case
     of the Project, will be) included
     within the definition of the Leased
     Property or the Collateral;

          (f)  The Leased Property abuts
     on and has direct vehicular access to
     a public road or access to a public
     road via permanent, irrevocable,
     appurtenant easements;

          (g)  The Leased Property
     constitutes a parcel(s) for real
     estate tax purposes separate from any
     real property that does not
     constitute a portion of the Leased
     Property and no portion of any real
     property that does not constitute a
     portion of the Leased Property is
     part of the same tax parcel as any
     part of the Leased Property;

          (h)  All utilities necessary for
     the use and operation of the Facility
     are available to the lot lines of the
     Leased Property:

                     (i) in sufficient
          supply and capacity;

                     (ii)     through
          validly created and existing
          easements of record appurtenant
          to or encumbering the Leased
          Property (which easements shall
          not impede or restrict the
          operation of the Facility);

                     (iii)    without need
          for any Permits and/or Contracts
          to be issued by or entered into
          with any Governmental Authority,
          except as already obtained or
          executed, as the case may be, or
          as otherwise shown to the
          satisfaction of Lessor to be
          readily obtainable; and

                     (iv)     Lessee has
          made no structural alterations
          or improvements to any of the
          Leased Improvements that changed
          the foot-print of any of the
          Leased Improvements, added an
          additional story to any of the
          Leased Improvements, decreased
          the amount of parking available
          on the Leased Property or
          otherwise involved any
          alteration which would be
          regulated by applicable zoning
          requirements, in each case
          without the express written
          consent of Lessor.  Except for
          matters which have been
          disclosed to Lessor or
          concerning which Lessor has
          independent actual knowledge,
          Lessee has no actual knowledge
          of any such structural
          alteration or




55


                             improvement
          made to any of the Leased
          Improvements during the last ten
          (10) years and has no knowledge
          of any such structural
          alteration or renovation made to
          any of the Leased Improvements
          or any such decrease in parking
          during such period.

          10.1.18        THIRD PARTY PAYOR
     AGREEMENTS.

          Neither Lessee nor the Facility
     is qualified as a provider of
     services under or participates in any
     Third Party Payor Programs and
     neither Lessor nor the Facility is
     accredited by any Accreditation Body.

          10.1.19        RATE LIMITATIONS.
     The State currently imposes no
     restrictions or limitations on rates
     which may be charged to private pay
     residents receiving services at the
     Facility.

          10.1.20        FREE CARE.  There
     are no Contracts, Permits or
     applicable Legal Requirements which
     require that, a percentage of units
     in any program at the Facility be
     reserved for Medicaid or Medicare
     eligible residents or that the
     Facility provide a certain amount of
     welfare, free or charity care or
     discounted or government assisted
     resident care.

          10.1.21        NO PROPOSED
     CHANGES.  Lessee has no actual
     knowledge of any applicable Legal
     Requirements which have been enacted,
     promulgated or issued within the
     eighteen (18) months preceding the
     date of this Lease or any proposed
     applicable Legal Requirements
     currently pending in the State which
     may materially adversely affect rates
     at the Facility (or any program
     operated by a member of the Leasing
     Group in conjunction with the
     Facility) or may result in the
     likelihood of increased competition
     at the Facility or the imposition of
     Medicaid, Medicare, charity, free
     care, welfare or other discounted or
     government assisted residents at the
     Facility or require that Lessee or
     the Facility obtain a certificate of
     need, Section 1122 approval or the
     equivalent, which Lessee or the
     Facility does not currently possess.

          10.1.22        ERISA.  No
     employee pension benefit plan
     maintained by any member of the
     Leasing Group has any accumulated
     funding deficiency within the meaning
     of the ERISA, nor does any member of
     the Leasing Group have any material
     liability to the PBGC established
     under ERISA (or any successor
     thereto) in connection with any
     employee pension benefit plan (or
     other class of benefit which the PBGC
     has elected to insure), and there
     have been no "reportable events" (not
     waived) or "prohibited transactions"
     with respect to any such plan, as
     those terms are



56


              defined in Section 4043 of
     ERISA and Section 4975 of the
     Internal Revenue Code of 1986, as now
     or hereafter amended, respectively.

          10.1.23        NO BROKER.  No
     member of the Leasing Group nor any
     of their respective Affiliates has
     dealt with any broker or agent in
     connection with the transactions
     contemplated by the Lease Documents.

          10.1.24        NO IMPROPER
     PAYMENTS.  No member of the Leasing
     Group nor any of their respective
     Affiliates has:

                   (a)  made any
         contributions, payments or gifts
         of its funds or property to or
         for the private use of any
         government official, employee,
         agent or other Person where
         either the payment or the
         purpose of such contribution,
         payment or gifts is illegal
         under the laws of the United
         States, any state thereof or any
         other jurisdiction (foreign or
         domestic);

                   (b)  knowingly
         established or maintained any
         unrecorded fund or asset for any
         purpose or knowingly made any
         false or artificial entries on
         any of its books or records for
         any reason;

                   (c)  made any payments
         to any Person with the intention
         or understanding that any part
         of such payment was to be used
         for any other purpose other than
         that described in the documents
         supporting the payment; or

                   (d)  made any
         contribution, or reimbursed any
         political gift or contribution
         made by any other Person, to
         candidates for public office,
         whether federal, state or local,
         where such contribution would be
         in violation of applicable law.

          10.1.25        NOTHING OMITTED.
     Neither this Lease, nor any of the
     other Lease Documents, nor any
     certificate, agreement, statement or
     other document, including, without
     limitation, any financial statements
     concerning the financial condition of
     any member of the Leasing Group,
     furnished to or to be furnished to
     Lessor or its attorneys in connection
     with the transactions contemplated by
     the Lease Documents, contains or will
     contain any untrue statement of a
     material fact or omits or will omit
     to state a material fact necessary in
     order to prevent all statements
     contained herein and therein from
     being misleading.  There is no fact
     within the special knowledge of
     Lessee which has not been disclosed
     herein or in writing to Lessor that
     materially adversely affects, or in
     the future, insofar as Lessee can
     reasonably foresee


57


               based on the information
     currently available to it after due
     inquiry, may materially adversely
     affect the business, properties,
     assets or condition, financial or
     otherwise, of any member of the
     Leasing Group or the Leased Property.

          10.1.26        NO MARGIN
     SECURITY.  Lessee is not engaged in
     the business of extending credit for
     the purpose of purchasing or carrying
     margin stock (within the meaning of
     Regulation U of the Board of
     Governors of the Federal Reserve
     System), and no part of the proceeds
     of the Meditrust Investment will be
     used to purchase or carry any margin
     security or to extend credit to
     others for the purpose of purchasing
     or carrying any margin security or in
     any other manner which would involve
     a violation of any of the regulations
     of the Board of Governors of the
     Federal Reserve System.  Lessee is
     not an "investment company" within
     the meaning of the Investment Company
     Act of 1940, as amended.

          10.1.27        NO DEFAULT.  No
     event or state of facts which
     constitutes, or which, with notice or
     lapse of time, or both, could
     constitute, a Lease Default has
     occurred and is continuing.

          10.1.28        PRINCIPAL PLACE
     OF BUSINESS.  The principal place of
     business and chief executive office
     of Lessee is located at 3131 Elliott
     Avenue, Suite 500, Seattle,
     Washington 98121-2162 (the "Principal
     Place of Business").

          10.1.29        LABOR MATTERS.
     There are no proceedings now pending,
     nor, to the best of Lessee's
     knowledge, threatened with respect to
     the operation of the Facility before
     the National Labor Relations Board,
     State Commission on Human Rights and
     Opportunities, State Department of
     Labor, U.S. Department of Labor or
     any other Governmental Authority
     having jurisdiction of employee
     rights with respect to hiring, tenure
     and conditions of employment, and no
     member of the Leasing Group has
     experienced any material controversy
     with any Facility administrator or
     other employee of similar stature or
     with any labor organization which
     has, or is likely, to have a
     materially adverse effect upon the
     financial condition and/or operations
     of the Facility.

          10.1.30        INTELLECTUAL
     PROPERTY.  Lessee is duly licensed or
     authorized to use all (if any)
     copyrights, rights of reproduction,
     trademarks, trade-names, trademark
     applications, service marks, patent
     applications, patents and patent
     license rights, (all whether
     registered or unregistered, U.S. or
     foreign), inventions, franchises,
     discoveries, ideas, research,
     engineering, methods, practices,
     processes, systems, formulae,
     designs, drawings, products,
     projects, improvements, developments,


58


              know-how and trade secrets
     which are used in or necessary for
     the development and/or operation of
     the Facility in accordance with its
     Primary Intended Use, without
     conflict with or infringement of any,
     and subject to no restriction, lien,
     encumbrance, right, title or interest
     in others.

          10.1.31        MANAGEMENT
     AGREEMENTS.  There is no Management
     Agreement in force and effect as of
     the date hereof.

     10.2 CONTINUING EFFECT OF
REPRESENTATIONS AND WARRANTIES.  All
representations and warranties contained
in this Lease and the other Lease
Documents shall constitute continuing
representations and warranties which shall
remain true, correct and complete
throughout the Term.  Notwithstanding the
provisions of the foregoing sentence but
without derogation from any other terms
and provisions of this Lease, including,
without limitation, those terms and
provisions containing covenants to be
performed or conditions to be satisfied on
the part of Lessee, the representations
and warranties contained in Sections
10.1.6, 10.1.7, 10.1.10, 10.1.14, 10.1.15,
10.1.17(b), 10.1.17(c), 10.1.17(i),
10.1.18, 10.1.19, 10.1.20, 10.1.21,
10.1.22, 10.1.27, 10.1.29, in the second
sentence of Section 10.1.12, in the second
and third sentences of Section 10.1.13 and
in the second sentence of Section 10.1.25
shall not constitute continuing
representations and warranties throughout
the Term provided, however, that nothing
contained in the first sentence of Section
10.1.25 shall be construed as imposing any
obligation on Lessee to update after the
Commencement Date the information
furnished to Lessor prior to the execution
and delivery of this Lease but without
derogation of any other obligation Lessee
has under this Lease to provide
information to Lessor.


ARTICLE 11

FINANCIAL AND OTHER COVENANTS

     11.1 STATUS CERTIFICATES.  At any
time, and from time to time, upon request
from the other, Lessee and Lessor shall
furnish to the other, within ten (10)
Business Days' after receipt of such
request, an Officer's Certificate
certifying that this Lease is unmodified
and in full force and effect (or that this
Lease is in full force and effect as
modified and setting forth the
modifications) and the dates to which the
Rent has been paid.  Any Officer's
Certificate furnished pursuant to this
Section at the request of Lessor shall be
addressed to any prospective purchaser or
mortgagee of the Leased Property as Lessor
may request and may be relied upon by
Lessor and any such prospective purchaser
or mortgagee of the Leased Property.






59


     11.2 FINANCIAL STATEMENTS; REPORTS;
NOTICE AND INFORMATION.

          11.2.1 OBLIGATION TO FURNISH.
     Lessee will furnish and shall cause
     to be furnished to Lessor the
     following statements, information and
     other materials:

                   (a)  ANNUAL
         STATEMENTS.  Within ninety (90)
         days after the end of each of
         their respective fiscal years,
         (i) a copy of the Consolidated
         Financials for each of (x)
         Lessee, (y) the Guarantor and
         (z) any Sublessee which is an
         Affiliate of Lessee for the
         preceding fiscal year, certified
         and, in the case of Guarantor,
         audited by, and with the
         unqualified opinion of,
         independent certified public
         accountants acceptable to Lessor
         and certified as true and
         correct by Lessee, the Guarantor
         or the applicable Sublessee, as
         the case may be (and, without
         limiting anything else contained
         herein, the Consolidated
         Financials for Lessee and for
         each such Sublessee shall
         include a detailed balance sheet
         for Leased Property as of the
         last day of such fiscal year and
         a statement of earnings from the
         Leased Property for such fiscal
         year showing, among other
         things, all rents and other
         income therefrom and all
         expenses paid or incurred in
         connection with the operation of
         the Leased Property);
         (ii) separate statements,
         certified as true and correct by
         Lessee, the Guarantor, any
         Manager which is an Affiliate of
         Lessee and each such Sublessee
         which is an Affiliate of Lessee,
         stating whether, to the best of
         the signer's knowledge and
         belief after making due inquiry,
         Lessee, the Guarantor, such
         Manager or any such Sublessee,
         as the case may be, is in
         default in the performance or
         observance of any of the terms
         of this Lease or any of the
         other Lease Documents and, if
         so, specifying all such
         defaults, the nature thereof and
         the steps being taken to
         immediately remedy the same;
         (iii) a copy of all letters from
         the independent certified
         accountants engaged to perform
         the annual audits referred to
         above, directed to the
         management of the Guarantor
         regarding the existence of any
         reportable conditions or
         material weaknesses; (iv) a
         statement certified as true and
         correct by Lessee setting forth
         all Subleases as of the last day
         of such fiscal year, the
         respective areas demised
         thereunder, the names of the
         Sublessees thereunder, the
         respective expiration dates of
         the Subleases, the respective
         rentals provided for therein,
         and such other information
         pertaining to the Subleases as
         may be reasonably requested by
         Lessor; and (v) evidence
         satisfactory to Lessor that
         Lessee has fulfilled its
         obligation to make the



60


                           Annual Facility
         Upgrade Expenditure, provided,
         however, that no such evidence
         shall be required to be
         submitted until the fourth Lease
         Year with respect to that
         portion of the Leased Property
         comprised only of the Project.

                   (b)  MONTHLY
         STATEMENTS OF LESSEE.  Within
         thirty (30) days after the end
         of each calendar month during
         the pendency of this Lease,
         (i) a statement certified as
         true and correct by Lessee
         setting forth the Gross Revenues
         of the Leased Property for the
         immediately preceding month,
         (ii) an unaudited, detailed
         month and year to date income
         and expense statement for the
         Leased Property which shall
         include a comparison to
         corresponding budget figures,
         occupancy statistics (including
         the actual number of residents,
         the number of units available
         and total resident days for such
         month) and resident mix
         breakdowns (for each resident
         day during such month
         classifying residents by the
         type of care required and source
         of payment) and (iii) an express
         written calculation showing the
         compliance or non-compliance, as
         the case may be, with the
         specific financial covenants set
         forth in Section 11.3 for the
         applicable period, including,
         with respect to the calculation
         of Lessee's Debt Coverage Ratio,
         a schedule substantially in the
         form attached hereto as
         EXHIBIT E.

                   (c)  QUARTERLY
         STATEMENTS.  Within thirty (30)
         days after the end of each
         respective fiscal quarter,
         unaudited Consolidated
         Financials for each of (i)
         Lessee and (ii) each Sublessee
         which is an Affiliate of Lessee
         certified as true and correct by
         Lessee or such applicable
         Sublessee, as the case may be
         and within thirty (30) days
         after each calendar quarter,
         Lessee shall also provide Lessor
         with a calculation of the
         Additional Rent payable for such
         quarter.

                   (d)  QUARTERLY
         STATEMENTS OF THE GUARANTOR.
         Within forty-five (45) days
         after the end of each fiscal
         quarter, unaudited Consolidated
         Financials for the Guarantor
         certified as true and correct by
         the Guarantor.

                   (e)  PERMITS AND
         CONTRACTS.  Within ten (10) days
         after the issuance or the
         execution thereof, as the case
         may be, true and complete copies
         of (i) all Permits which
         constitute operating licenses
         for the Facility issued by any
         Governmental Authority having
         jurisdiction over assisted
         living matters and (ii)
         Contracts (involving payments in
         the aggregate in excess of


61


                           $100,000 per
         annum), including, without
         limitation, all Provider
         Agreements.

                   (f)  CONTRACT NOTICES.
         Promptly but in no event more
         than ten (10) days after the
         receipt thereof, true and
         complete copies of any notices,
         consents, terminations or
         statements of any kind or nature
         relating to any of the Contracts
         (involving payments in the
         aggregate in excess of ONE
         HUNDRED THOUSAND DOLLARS
         ($100,000) per annum) other than
         those issued in the ordinary
         course of business.

                   (g)  PERMIT OR
         CONTRACT DEFAULTS.  Promptly but
         in no event more than ten (10)
         days after the receipt thereof,
         true and complete copies of all
         surveys, follow-up surveys,
         licensing surveys, complaint
         surveys, examinations,
         compliance certificates,
         inspection reports, statements
         (other than those statements
         that are issued in the ordinary
         course of business), if any,
         terminations and notices of any
         kind (other than those notices
         that are furnished in the
         ordinary course of business)
         issued or provided to Lessee,
         the Manager or any Sublessee by
         any Governmental Authority,
         Accreditation Body, or any Third
         Party Payor, including, without
         limitation, any notices
         pertaining to any delinquency
         in, or proposed revision of,
         Lessee's, the Manager's or any
         Sublessee's obligations under
         the terms and conditions of any
         Permits or Contracts now or
         hereafter issued by or entered
         into with any Governmental
         Authority, Accreditation Body,
         or Third Party Payor and the
         response(s) thereto made by or
         on behalf of Lessee, the Manager
         or any Sublessee.

                   (h)  OFFICIAL REPORTS.
         Upon completion or filing
         thereof, complete copies of all
         applications (other than those
         that are furnished in the
         ordinary course of business),
         notices (other than those that
         are furnished in the ordinary
         course of business), statements,
         annual reports, cost reports and
         other reports or filings of any
         kind (other than those that are
         furnished in the ordinary course
         of business) provided by Lessee,
         the Manager or any Sublessee to
         any Governmental Authority,
         Accreditation Body, or any Third
         Party Payor with respect to the
         Leased Property.







62


                   (i)  OTHER
         INFORMATION.  With reasonable
         promptness, such other
         information as Lessor may from
         time to time reasonably request
         respecting (i) the financial
         condition and affairs of each
         member of the Leasing Group and
         the Leased Property and (ii) the
         licensing and operation of the
         Leased Property; including,
         without limitation, financial
         statements, certificates and
         consents from accountants and
         all other financial and
         licensing/operational
         information as may be required
         or requested by any Governmental
         Authority.

                   (j)  DEFAULT
         CONDITIONS.  As soon as
         possible, and in any event
         within five (5) days after the
         occurrence of any Lease Default,
         or any event or circumstance
         which, with the giving of notice
         or the passage of time, or both,
         would constitute a Lease
         Default, a written statement of
         Lessee setting forth the details
         of such Lease Default, event or
         circumstance and the action
         which Lessee proposes to take
         with respect thereto.

                   (k)  OFFICIAL ACTIONS.
         Promptly but in no event more
         than ten (10) days after the
         commencement thereof, notice of
         all actions, suits and
         proceedings before any
         Governmental Authority or
         Accreditation Body, which could
         have a material adverse effect
         on any member of the Leasing
         Group or the Leased Property.

                   (l)  AUDIT REPORTS.
         Promptly but in no event more
         than ten (10) days after
         receipt, a copy of all audits or
         reports submitted to Lessee by
         any independent public
         accountant in connection with
         any annual, special or interim
         audits of the books of Lessee
         and, if requested by Lessor, any
         letter of comments directed by
         such accountant to the
         management of Lessee.

                   (m)  ADVERSE
         DEVELOPMENTS.  Promptly but in
         no event more than ten (10) days
         after Lessee acquires knowledge
         thereof, written notice of:

                                     (i)
                       the potential
                       termination of any
                       Permit or Provider
                       Agreement
                       necessary for the
                       operation of the
                       Leased Property;








63



(ii)  any loss,
                       damage or
                       destruction to or
                       of the Leased
                       Property in excess
                       of TWENTY-FIVE
                       THOUSAND DOLLARS
                       ($25,000)
                       (regardless of
                       whether the same
                       is covered by
                       insurance);


(iii) any material
                       controversy
                       involving Lessee
                       or any Sublessee
                       which is an
                       Affiliate of
                       Lessee and (x)
                       Facility
                       administrator or
                       Facility employee
                       of similar stature
                       or (y) any labor
                       organization or
                       (z) the Manager or
                       any employee of
                       the Manager which
                       has, or is
                       reasonably likely
                       to have, a
                       materially adverse
                       effect on the
                       financial
                       condition and/or
                       operations of the
                       Facility;


(iv)  any
                       controversy that
                       calls into
                       question the
                       eligibility of the
                       Facility for the
                       participation in
                       any Medicaid,
                       Medicare or other
                       Third Party Payor
                       Program in which
                       the Facility is
                       participating;

                                     (v)
                       any refusal of
                       reimbursement by
                       any Third Party
                       Payor which,
                       singularly or
                       together with all
                       other such
                       refusals by any
                       Third Party
                       Payors, could
                       reasonably be
                       expected to have a
                       material adverse
                       effect on the
                       financial
                       condition of
                       Lessee or any
                       Sublessee which is
                       an Affiliate of
                       Lessee; and


(vi)  any fact
                       within the special
                       knowledge of any
                       member of the
                       Leasing Group, or
                       any other
                       development in the
                       business or
                       affairs of any
                       member of the
                       Leasing Group,
                       which could
                       reasonably be
                       expected to be
                       materially adverse
                       to the


64



business,
                       properties, assets
                       or condition,
                       financial or
                       otherwise, of any
                       member of the
                       Leasing Group or
                       the Leased
                       Property.

                    (n)  RESPONSES TO
          INSPECTION REPORTS.  Within
          thirty (30) days after receipt
          of an inspection report relating
          to the Leased Property from
          Lessor, a written response
          describing in detail prepared
          plans to address concerns raised
          by the inspection report.

                    (o)  PUBLIC
          INFORMATION.  Upon the
          completion or filing, mailing or
          other delivery thereof, complete
          copies of all financial
          statements, reports, notices and
          proxy statements, if any, sent
          by any member of the Leasing
          Group (which is a publicly held
          corporation) to its shareholders
          and of all reports, if any,
          filed by any member of the
          Leasing Group (which is a
          publicly held corporation) with
          any securities exchange or with
          the Securities Exchange
          Commission.

                    (p)  ANNUAL BUDGETS.
          Prior to the end of each Fiscal
          Year, Lessee, any Sublessee
          which is an Affiliate of Lessee
          and/or any Manager which is an
          Affiliate of Lessee shall submit
          to Lessor a preliminary annual
          financial budget for the
          Facility for the next Fiscal
          Year, a preliminary capital
          expenditures budget for the
          Facility for the next Fiscal
          Year and a report detailing the
          capital expenditures made in the
          then current Fiscal Year and on
          or before the end of the first
          month of each Fiscal Year,
          Lessee, any such Sublessee
          and/or any such Manager shall
          submit to Lessor revised
          finalized versions of such
          budgets and report.

                    (q)  WORKING CAPITAL
          LOAN.  Promptly after receipt
          thereof, copies of any notices
          with respect to default from a
          lender of a Working Capital
          Loan.

          11.2.2 RESPONSIBLE OFFICER.  Any
     certificate, instrument, notice, or
     other document to be provided to
     Lessor hereunder by any member of the
     Leasing Group shall be signed by an
     executive officer of such member (in
     the event that any of the foregoing
     is not an individual), having a
     position of Vice President or higher
     and with respect to financial
     matters, any such certificate,
     instrument, notice or other document
     shall be signed by the chief
     financial officer of such member.




65


          11.2.3 NO MATERIAL OMISSION.  No
     certificate, instrument, notice or
     other document, including without
     limitation, any financial statements
     furnished or to be furnished to
     Lessor pursuant to the terms hereof
     or of any of the other Lease
     Documents shall contain any untrue
     statement of a material fact or shall
     omit to state any material fact
     necessary in order to prevent all
     statements contained therein from
     being misleading.

          11.2.4 CONFIDENTIALITY.  Lessor
     shall afford any information received
     pursuant to the provisions of the
     Lease Documents the same degree of
     confidentiality that Lessor affords
     similar information proprietary to
     Lessor; provided, however,  that
     Lessor shall have the unconditional
     right to (a) disclose any such
     information as Lessor deems necessary
     or appropriate in connection with any
     sale, transfer, conveyance,
     participation or assignment of the
     Leased Property or any of the Lease
     Documents or any interest therein and
     (b) use such information in any
     litigation or arbitration proceeding
     between Lessor and any member of the
     Leasing Group.  Without limiting the
     foregoing, Lessor may also utilize
     any information furnished to it
     hereunder as and to the extent (i)
     counsel to Lessor determines that
     such utilization is necessary
     pursuant to 15 U.S.C. 77a-77aa or 15
     U.S.C. 78a-78jj and the rules and
     regulations promulgated thereunder,
     (ii) Lessor is required or requested
     by any Governmental Authority to
     disclose any such information and/or
     (iii) Lessor is requested to disclose
     any such information by any of the
     Meditrust Entities' lenders or
     potential lenders.  Lessor shall not
     be liable in any way for any
     subsequent disclosure of such
     information by any Person to which
     Lessor has provided such information
     in accordance with the terms hereof.
     Nevertheless, in connection with any
     such disclosure, Lessor shall inform
     the recipient of any such information
     of the confidential nature thereof.
     Lessor shall observe any prohibitions
     or limitations on the disclosure of
     any such information under applicable
     confidentiality law or regulations,
     to the extent that the same are
     applicable to such information.

     11.3 FINANCIAL COVENANTS.  Lessee
covenants and agrees that, throughout the
Term and as long as Lessee is in
possession of the Leased Property:











66


          11.3.1    DEBT COVERAGE RATIO OF
     LESSEE.  From and after the second
     anniversary of the date hereof until
     the fourth anniversary hereof, Lessee
     shall maintain with respect to the
     Facility and all other Group Two
     Acquisition Facilities for each
     Fiscal Quarter an aggregate Debt
     Coverage Ratio equal to or greater
     than 1.1 to 1 and from and after the
     fourth anniversary thereof and for
     the remainder of the Term, Lessee
     shall maintain with respect to the
     Facility and all other Group Two
     Acquisition Facilities each Fiscal
     Quarter an aggregate Debt Coverage
     Ratio equal to or greater than 1.2 to
     1.

          11.3.2    INTENTIONALLY DELETED.

          11.3.3    INTENTIONALLY DELETED.

          11.3.4    INTENTIONALLY DELETED.

          11.3.5    CURRENT RATIO -
     GUARANTOR.  From and after December
     31, 1999 and for the remainder of the
     Term, the Guarantor shall maintain a
     ratio of Consolidated Current Assets
     to Consolidated Current Liabilities
     equal to or greater than 1 to 1 as of
     the end of each fiscal year.

          11.3.6    INTENTIONALLY DELETED.

          11.3.7    NET WORTH - GUARANTOR.
     The Guarantor shall maintain, at all
     times, a Net Worth of not less than
     TWENTY MILLION DOLLARS ($20,000,000).

          11.3.8    NO INDEBTEDNESS.
     Lessee shall not create, incur,
     assume or suffer to exist any
     liability for borrowed money except
     (i) Indebtedness to Lessor under the
     Lease Documents and, (ii) Impositions
     allowed pursuant to the provisions of
     the Lease, (iii) unsecured normal
     trade debt incurred upon customary
     terms in the ordinary course of
     business, (iv) Indebtedness created
     in connection with any financing of
     any Capital Addition, provided, that
     each such financing has been approved
     by Lessor in accordance with the
     terms of Article 9 hereof, (v)
     Indebtedness to any Affiliate,
     provided, that, such Indebtedness is
     fully subordinated to this Lease
     pursuant to the Affiliated Party
     Subordination Agreement, (vi) other
     Indebtedness of Lessee in the
     aggregate amount not to exceed TWO
     HUNDRED THOUSAND DOLLARS ($200,000)
     incurred, for the exclusive use of
     the Leased Property, on account of
     purchase money indebtedness or
     finance lease arrangements, each of
     which shall not exceed the fair
     market value of the assets or
     property acquired or leased and shall
     not extend to any assets or property
     other than those purchased or leased
     and purchase money security interests
     in equipment and equipment leases
     which comply with the provisions


67


               of Section 6.1.2 and (vii)
     Indebtedness specifically permitted
     by the Meditrust/Emeritus Transaction
     Documents.

          11.3.9    NO GUARANTIES.  Lessee
     shall not assume, guarantee, endorse,
     contingently agree to purchase or
     otherwise become directly or
     contingently liable (including,
     without limitation, liable by way of
     agreement, contingent or otherwise,
     to purchase, to provide funds for
     payment, to supply funds to or
     otherwise to invest in any debtor or
     otherwise to assure any creditor
     against loss) in connection with any
     Indebtedness of any other Person,
     except by the endorsement of
     negotiable instruments for deposit or
     collection or similar transactions in
     the ordinary course of business and
     except for a guaranty of the
     Indebtedness of the Guarantor in
     connection with a Working Capital
     Loan which expressly limits recourse
     under such guaranty to the
     Receivables.

     11.4 AFFIRMATIVE COVENANTS.  Lessee
covenants and agrees that throughout the
Term and any periods thereafter that
Lessee remains in possession of the Leased
Property:

          11.4.1    MAINTENANCE OF
     EXISTENCE.  If Lessee is a
     corporation, trust or partnership,
     during the entire time that this
     Lease remains in full force and
     effect, Lessee shall keep in effect
     its existence and rights as a
     corporation, trust or partnership
     under the laws of the state of its
     incorporation or formation and its
     right to own property and transact
     business in the State.

          11.4.2    MATERIALS.  Except as
     provided in Section 6.1.2, Lessee
     shall not suffer the use in
     connection with any renovations or
     other construction relating to the
     Leased Property of any materials,
     fixtures or equipment intended to
     become part of the Leased Property
     which are purchased upon lease or
     conditional bill of sale or to which
     Lessee does not have absolute and
     unencumbered title, and Lessee
     covenants to cause to be paid
     punctually all sums becoming due for
     labor, materials, fixtures or
     equipment used or purchased in
     connection with any such renovations
     or construction, subject to Lessee's
     right to contest to the extent
     provided for in Article 15.

          11.4.3    COMPLIANCE WITH LEGAL
     REQUIREMENTS AND APPLICABLE
     AGREEMENTS.  Lessee and the Leased
     Property and all uses thereof shall
     comply with (i) all applicable Legal
     Requirements (except to the extent
     being duly contested in accordance
     with the terms hereof), (ii) all
     Permits and Contracts, (iii) all
     Insurance Requirements, (iv) the
     Lease Documents, (v) the Permitted
     Encumbrances and (vi) the Appurtenant
     Agreement.



68


          11.4.4    BOOKS AND RECORDS.
     Lessee shall cause to be kept and
     maintained, and shall permit Lessor
     and its representatives to inspect at
     all reasonable times and upon
     reasonable notice, accurate books of
     accounts in which complete entries
     will be made in accordance with GAAP
     reflecting all financial transactions
     of Lessee (showing, without
     limitation, all materials ordered and
     received and all disbursements,
     accounts payable and accounts
     receivable in connection with the
     operation of the Leased Property).

          11.4.5    PARTICIPATION IN THIRD
     PARTY PAYOR PROGRAMS.  If Lessee or a
     Sublessee which is an Affiliate of
     Lessee elects to participate in Third
     Party Payor Programs, Lessee or such
     Sublessee shall remain eligible to
     participate in such Third Party Payor
     Programs in accordance with all
     requirements thereof (including,
     without limitation, all applicable
     Provider Agreements), if and to the
     extent remaining eligible shall be
     necessary for the prudent operation
     of the Facility in the good faith
     exercise of commercially reasonable
     business judgment.

          11.4.6    CONDUCT OF ITS
     BUSINESS.  Lessee will maintain, and
     cause any Sublessee and any Manager
     to maintain, experienced and
     competent professional management
     with respect to its business and with
     respect to the Leased Property.
     Lessee, any Sublessee and any Manager
     shall conduct, in the ordinary
     course, the operation of the
     Facility, and Lessee and any
     Sublessee which is an Affiliate of
     Lessee shall not enter into any other
     business or venture during the Term
     or such time as Lessee or any such
     Sublessee is in possession of the
     Leased Property other than activities
     in which Lessee or such Sublessee are
     permitted to engage by the provisions
     of the Meditrust/Emeritus Transaction
     Documents.

          11.4.7    ADDRESS.  Lessee shall
provide Lessor
thirty (30) days' prior written notice of
any change of its Principal
Place of Business from its current
Principal Place of Business.
Lessee shall maintain the Collateral,
including without limitation,
all books and records relating to its
business, solely at its Principal
Place of Business and at the Leased
Property.  Lessee shall not (a)
remove the Collateral, including, without
limitation, any books or
records relating to Lessee's business from
either the Leased
Property or Lessee's Principal Place of
Business or (b) relocate its
Principal Place of Business until after
receipt of a certificate from
Lessor, signed by an officer thereof,
stating that Lessor has, to its
satisfaction, obtained all documentation
that it deems necessary or
desirable to obtain, maintain, perfect and
confirm the first priority
security interests granted in the Lease
Documents.



69


          11.4.8    SUBORDINATION OF
     AFFILIATE TRANSACTIONS.  Without
     limiting the provisions of any other
     Section of this Lease or the
     Affiliated Party Subordination
     Agreement, any payments to be made by
     Lessee to (a) any member of the
     Leasing Group (or any of its
     Affiliates) or (b) any Affiliate of
     Lessee, in connection with any
     transaction between Lessee and such
     Person, including, without
     limitation, the purchase, sale or
     exchange of any property, the
     rendering of any service to or with
     any such Person (including, without
     limitation, all allocations of any so-
     called corporate or central office
     costs, expenses and charges of any
     kind or nature) or the making of any
     loan or other extension of credit or
     the making of any equity investment,
     shall be subordinate to the complete
     payment and performance of the Lease
     Obligations; provided, however, that
     all such subordinated payments may be
     paid at any time unless:  (x) after
     giving effect to such payment, Lessee
     shall be unable to comply with any of
     its obligations under any of the
     Lease Documents or (y) a Lease
     Default has occurred and is
     continuing and has not been expressly
     waived in writing by Lessor or an
     event or state of facts exists,
     which, with the giving of notice or
     the passage of time, or both, would
     constitute a Lease Default.

          11.4.9    INSPECTION.  At
     reasonable times and upon reasonable
     notice, Lessee shall permit Lessor
     and its authorized representatives
     (including, without limitation, the
     Consultants) to inspect the Leased
     Property as provided in Section 7.1
     above, provided, however, that, in
     the event results of any such testing
     or inspection reflect the same
     satisfactory results as the results
     of a similar testing or inspection
     initiated by Lessor within the prior
     twelve (12) months period, the costs
     and expense of such testing or
     inspection shall be the
     responsibility of Lessor.

          11.4.10   ANNUAL FACILITY
     UPGRADE EXPENDITURE.  Lessee shall
     spend an amount equal to the Annual
     Facility Upgrade Expenditure on
     Upgrade Renovations to the Facility
     each Lease Year provided, however,
     that such expenditures shall not be
     required until the fourth Lease Year
     with respect to that portion of the
     Leased Property consisting of units
     added to the Leased Property through
     construction of the Project.  Lessee
     will furnish and shall cause to be
     furnished to Lessor evidence
     satisfactory to Lessor that Lessee
     has fulfilled its obligation to make
     the Annual Facility Upgrade
     Expenditure within ninety (90) days
     after the end of Lessee's Fiscal
     year, provided, however, that no such
     evidence shall be required to be
     submitted until the fourth Lease Year
     with respect to that portion of the
     Leased Property comprised only of the
     Project.





70


     11.5 ADDITIONAL NEGATIVE COVENANTS.
Lessee covenants and agrees that,
throughout the Term and such time as
Lessee remains in possession of the Leased
Property:

          11.5.1    RESTRICTIONS RELATING
     TO LESSEE.  Except as may otherwise
     be expressly provided in Section 19.4
     or in any of the other Lease
     Documents, Lessee shall not, without
     the prior written consent of Lessor,
     in each instance, which consent may
     be withheld in the sole and absolute
     discretion of Lessor:

                   (a)  convey, assign,
         hypothecate, transfer, dispose
         of or encumber, or permit the
         conveyance, assignment,
         transfer, hypothecation,
         disposal or encumbrance of all
         or any part of any legal or
         beneficial interest in this
         Lease, its other assets or the
         Leased Property except as
         expressly permitted by the terms
         of this Lease Agreement;
         provided, however, that this
         restriction shall not apply to
         (i) the Permitted Encumbrances
         that may be created after the
         date hereof pursuant to the
         Lease Documents; (ii) Liens
         created in accordance with
         Section 6.1.2 against Tangible
         Personal Property securing
         Indebtedness permitted under
         Section 11.3.8(v); (iii) the
         sale, conveyance, assignment,
         hypothecation, lease or other
         transfer of any material asset
         or assets (whether now owned or
         hereafter acquired), the fair
         market value of which equals or
         is less than TWENTY-FIVE
         THOUSAND DOLLARS ($25,000),
         individually, or ONE HUNDRED
         THOUSAND DOLLARS ($100,000)
         collectively; (iv) without
         limitation as to amount, the
         disposition in the ordinary
         course of business of any
         obsolete, worn out or defective
         fixtures, furnishings or
         equipment used in the operation
         of the Leased Property provided
         that the same are replaced with
         fixtures, furnishings or
         equipment of equal or greater
         utility or value or Lessee
         provides Lessor with an
         explanation (reasonably
         satisfactory to Lessor) as to
         why such fixtures, furnishings
         or equipment is no longer
         required in connection with the
         operation of the Leased
         Property; (v) without limitation
         as to amount, any sale of
         inventory by Lessee in the
         ordinary course of business; and
         (vi) subject to the terms of the
         Negative Pledge Agreement and
         the Affiliated Party
         Subordination Agreement,
         distributions to the
         shareholders of Lessee;

                   (b)  permit the use of
         the Facility for any purpose
         other than the Primary Intended
         Use and the Other Permitted
         Uses; or




71


                   (c)  liquidate,
         dissolve or merge or consolidate
         with any other Person except,
         subject to Lessor's prior
         written consent, which consent
         shall not be unreasonably
         withheld, a Meditrust/Emeritus
         Transaction Affiliate.

          11.5.2 NO LIENS.  Lessee will
     not directly or indirectly create or
     allow to remain and will promptly
     discharge at its expense any Lien,
     title retention agreement or claim
     upon or against the Leased Property
     (including Lessee's interest therein)
     or Lessee's interest in this Lease or
     any of the other Lease Documents, or
     in respect of the Rent, excluding (a)
     this Lease and any permitted
     Subleases, (b) the Permitted
     Encumbrances, (c) Liens which are
     consented to in writing by Lessor,
     (d) Liens for those taxes of Lessor
     which Lessee is not required to pay
     hereunder, (e) Liens of mechanics,
     laborers, materialmen, suppliers or
     vendors for sums either not yet due
     or being contested in strict
     compliance with the terms and
     conditions of Article 15, (f) any
     Liens which are the responsibility of
     Lessor pursuant to the provisions of
     Article 20, (g) Liens for Impositions
     which are either not yet due and
     payable or which are in the process
     of being contested in strict
     compliance with the terms and
     conditions of Article 15 (h) the
     Liens incurred pursuant to the
     provisions of Section 6.1.2 and (i)
     involuntary Liens caused by the
     actions or omissions of Lessor.

          11.5.3 LIMITS ON AFFILIATE
     TRANSACTIONS.  Lessee shall not enter
     into any transaction with any
     Affiliate, including, without
     limitation, the purchase, sale or
     exchange of any property, the
     rendering of any service to or with
     any Affiliate and the making of any
     loan or other extension of credit,
     except in the ordinary course of, and
     pursuant to the reasonable
     requirements of, Lessee's business
     and upon fair and reasonable terms no
     less favorable to the Lessee than
     would be obtained in a comparable
     arms'-length transaction with any
     Person that is not an Affiliate.

          11.5.4 NON-COMPETITION.  Lessee
     acknowledges that upon and after any
     termination of this Lease, any
     competition by any member of the
     Leasing Group with any subsequent
     owner or subsequent lessee of the
     Leased Property (the "Purchaser")
     would cause irreparable harm to
     Lessor and any such Purchaser.  To
     induce Lessor to enter into this
     Lease, Lessee agrees that, from and
     after the date hereof and thereafter
     until (a) in the case of the
     expiration of the Initial Term or a
     termination of this Lease, the fifth
     (5th) anniversary of the termination
     hereof or of the expiration of the
     Initial Term, as applicable, and (b)
     in the case of an expiration of any
     of the Extended Terms, the second
     (2nd)



72


              anniversary of the
     expiration of the applicable Extended
     Term, no member of the Leasing Group
     nor any Person holding or
     controlling, directly or indirectly,
     any interest in any member of the
     Leasing Group (collectively, the
     "Limited Parties") shall be involved
     in any capacity in or lend any of
     their names to or engage in any
     capacity in any assisted living
     facility, center, unit or program (or
     in any Person engaged in any such
     activity or any related activity
     competitive therewith) other than (a)
     those set forth on Schedule 11.5.4
     annexed hereto, (b) those activities
     in which a Meditrust/Emeritus
     Transaction Affiliate is permitted to
     engage by the provisions of the
     Meditrust/Emeritus Transaction
     Documents which relate to any such
     facility, center, unit or program and
     (c) the acquisition of an ownership
     interest in any such facility,
     center, unit or program which is part
     of a single transaction in which an
     ownership interest in at least four
     (4) other facilities, centers, units
     or programs (provided, however, that
     if such acquisition occurs within the
     last twelve month period of the
     Initial Term or any of the Extended
     Terms, Lessee shall have the benefit
     of this clause (c) only if at the
     time such acquisition occurs Lessee
     has already (x) exercised in that
     twelve month period its right under
     Section 1.3 hereof to extend the Term
     for another Extended Term or (y)
     given a Purchase Option Notice and
     has waived any right to rescind the
     same based upon the determination of
     the Fair Market Value of the Leased
     Property), whether such competitive
     activity shall be as an officer,
     director, owner, employee, agent,
     advisor, independent contractor,
     developer, lender, sponsor, venture
     capitalist, administrator, manager,
     investor, partner, joint venturer,
     consultant or other participant in
     any capacity whatsoever with respect
     to an assisted living facility,
     center, unit or program located
     within a five (5) mile radius of the
     Leased Property.

          Lessee hereby acknowledges and
     agrees that none of the time span,
     scope or area covered by the
     foregoing restrictive covenants is or
     are unreasonable and that it is the
     specific intent of Lessee that each
     and all of the restrictive covenants
     set forth hereinabove shall be valid
     and enforceable as specifically set
     forth herein.  Lessee further agrees
     that these restrictions are special,
     unique, extraordinary and reasonably
     necessary for the protection of
     Lessor and any Purchaser and that the
     violation of any such covenant by any
     of the Limited Parties would cause
     irreparable damage to Lessor and any
     Purchaser for which a legal remedy
     alone would not be sufficient to
     fully protect such parties.

          Therefore, in addition to and
     without limiting any other remedies
     available at law or hereunder, in the
     event that any of the Limited Parties
     breaches any of the restrictive
     covenants hereunder or shall threaten
     breach of any of such covenants, then
     Lessor and any Purchaser shall be
     entitled to obtain equitable
     remedies, including specific
     performance and injunctive relief, to
     prevent or


73


              otherwise restrain a breach
     of this Section 11.5.4 (without the
     necessity of posting a bond) and to
     recover any and all costs and
     expenses (including, without
     limitation, reasonable attorneys'
     fees and expenses and court costs)
     incurred in enforcing the provisions
     of this Section 11.5.4.  The
     existence of any claim or cause of
     action of any of the Limited Parties
     or any member of the Leasing Group
     against Lessor or any Purchaser,
     whether predicated on this Lease or
     otherwise, shall not constitute a
     defense to the enforcement by Lessor
     or any Purchaser of the foregoing
     restrictive covenants and the Limited
     Parties shall not defend on the basis
     that there is an adequate remedy at
     law.

          Without limiting any other
     provision of this Lease, the parties
     hereto acknowledge that the foregoing
     restrictive covenants are severable
     and separate.  If at any time any of
     the foregoing restrictive covenants
     shall be deemed invalid or
     unenforceable by a court having
     jurisdiction over this Lease, by
     reason of being vague or unreasonable
     as to duration, or geographic scope
     or scope of activities restricted, or
     for any other reason, such covenants
     shall be considered divisible as to
     such portion and such covenants shall
     be immediately amended and reformed
     to include only such covenants as are
     deemed reasonable and enforceable by
     the court having jurisdiction over
     this Lease to the full duration,
     geographic scope and scope of
     restrictive activities deemed
     reasonable and thus enforceable by
     said court; and the parties agree
     that such covenants as so amended and
     reformed, shall be valid and binding
     as through the invalid or
     unenforceable portion has not been
     included therein.

          The provisions of this Section
     11.5.4 shall survive the termination
     of the Lease and any satisfaction of
     the Lease Obligations in connection
     therewith or subsequent thereto.  The
     parties hereto acknowledge and agree
     that any Purchaser may enforce the
     provisions of this Section 11.5.4 as
     a third party beneficiary.

          11.5.5 INTENTIONALLY DELETED.

          11.5.6 INTENTIONALLY DELETED.

          11.5.7 INTENTIONALLY DELETED.

          11.5.8 ERISA.  Lessee shall not
     establish or permit any Sublessee to
     establish any new pension or defined
     benefit plan or modify any such
     existing plan for employees subject
     to ERISA, which plan provides any
     benefits based on past service
     without the advance consent of Lessor
     (which consent shall not be
     unreasonably withheld) to the amount
     of the aggregate past service
     liability thereby created.


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          11.5.9 FORGIVENESS OF
     INDEBTEDNESS.  Lessee will not waive,
     or permit any Sublessee or Manager
     which is an Affiliate to waive any
     debt or claim, except in the ordinary
     course of its business.

          11.5.10        VALUE OF ASSETS.
     Except as disclosed in the financial
     statements provided to Lessor as of
     the date hereof, Lessee will not
     write up (by creating an appraisal
     surplus or otherwise) the value of
     any assets of Lessee above their cost
     to Lessee, less the depreciation
     regularly allowable thereon.

          11.5.11        CHANGES IN FISCAL
     YEAR AND ACCOUNTING PROCEDURES.  Upon
     notice to Lessor, Lessee may (a)
     change its fiscal year or capital
     structure or (b) change, alter, amend
     or in any manner modify in accordance
     with GAAP any of its current
     accounting procedures related to the
     method of revenue recognition,
     billing procedures or determinations
     of doubtful accounts or bad debt
     expenses or  permit any of its
     Subsidiaries to so change its fiscal
     year, provided that, in the event of
     such change, modification or
     alteration, Lessee and Lessor shall
     make such adjustments to the
     calculation of Additional Rent and
     the financial covenants contained
     herein as Lessor shall reasonably
     require to make the same consistent
     in result with the calculation
     thereof immediately prior to such
     change, modification or alteration.


ARTICLE 12

INSURANCE AND INDEMNITY

     12.1 GENERAL INSURANCE REQUIREMENTS.
During the Term of this Lease and
thereafter until Lessee surrenders the
Leased Property in the manner required by
this Lease, Lessee shall at its sole cost
and expense keep the Leased Property, the
Tangible Personal Property located thereon
and the business operations conducted on
the Leased Property insured as set forth
below.

          12.1.1 TYPES AND AMOUNTS OF
     INSURANCE.  Lessee's insurance shall
     include the following:

                   (a)  property loss and
         physical damage insurance on an
         all-risk basis (with only such
         exceptions as Lessor may in its
         reasonable discretion approve)
         covering the Leased Property
         (exclusive of Land) for its full
         replacement cost, which cost
         shall be reset once a year at
         Lessor's option, with an agreed-
         amount endorsement and a
         deductible not in excess of
         TWENTY FIVE THOUSAND DOLLARS
         ($25,000).  Such insurance shall


75


                           include,
         without limitation, the
         following coverages: (i)
         increased cost of construction,
         (ii) cost of demolition, (iii)
         the value of the undamaged
         portion of the Facility and (iv)
         contingent liability from the
         operation of building laws, less
         exclusions provided in the
         normal "All Risk" insurance
         policy.  During any period of
         construction, such insurance
         shall be on a builder's-risk,
         completed value, non-reporting
         form (including all risk and
         extended coverage, collapse,
         cost of demolition, increased
         cost of construction and value
         of undamaged portion of the
         improvements protection) with
         permission to occupy;

                   (b)  flood insurance
         (if the Leased Property or any
         portion thereof is situated in
         an area which is considered a
         flood risk area by the U.S.
         Department of Housing and Urban
         Development or any future
         governmental authority charged
         with such flood risk analysis in
         the future) in limits reasonably
         acceptable to Lessor and subject
         to the availability of such
         flood insurance;

                   (c)  boiler and
         machinery insurance (including
         related electrical apparatus and
         components) under a standard
         comprehensive form, providing
         coverage against loss or damage
         caused by explosion of steam
         boilers, pressure vessels or
         similar vessels, now or
         hereafter installed on the
         Leased Property, in limits
         acceptable to Lessor;

                   (d)  earthquake
         insurance (if reasonably deemed
         necessary by Lessor) in limits
         and with deductibles acceptable
         to Lessor;

                   (e)  environmental
         impairment liability insurance
         (if available on commercially
         reasonable terms and deemed
         reasonably necessary by Lessor)
         in limits and with deductibles
         acceptable to Lessor;

                   (f)  business
         interruption insurance in an
         amount equal to the annual Base
         Rent due hereunder plus the
         aggregate sum of the Impositions
         relating to the Leased Property
         due and payable during one year;

                   (g)  comprehensive
         general public liability
         insurance including coverages
         commonly found in the Broad Form
         Commercial Liability
         Endorsements with amounts not
         less than FIVE MILLION DOLLARS
         ($5,000,000) per occurrence with
         respect to bodily injury



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                           and death and
         THREE MILLION DOLLARS
         ($3,000,000) for property damage
         and with all limits based solely
         upon occurrences at the Leased
         Property without any other
         impairment;

                   (h)  professional
         liability insurance in an amount
         not less than TEN MILLION
         DOLLARS ($10,000,000) for each
         medical incident;

                   (i)  physical damage
         insurance on an all-risk basis
         (with only such exceptions as
         Lessor in its reasonable
         discretion shall approve)
         covering the Tangible Personal
         Property for the full
         replacement cost thereof and
         with a deductible not in excess
         of one percent (1%) of the full
         replacement cost thereof;

                   (j)  "Workers'
         Compensation and Employers'
         Liability Insurance providing
         protection against all claims
         arising out of injuries to all
         employees of Lessee or of any
         Sublessee (employed on the
         Leased Property or any portion
         thereof) in amounts equal for
         Workers' Compensation, to the
         statutory benefits payable to
         employees in the State and for
         Employers' Liability, to limits
         of not less than ONE HUNDRED
         THOUSAND DOLLARS ($100,000) for
         injury by accident, ONE HUNDRED
         THOUSAND DOLLARS ($100,000) per
         employee for disease and FIVE
         HUNDRED THOUSAND DOLLARS
         ($500,000) disease policy limit;

                   (k)  subsidence
         insurance (if deemed necessary
         by Lessor) in limits acceptable
         to Lessor; and

                   (l)  such other
         insurance as Lessor from time to
         time may reasonably require and
         also, as may from time to time
         be required by applicable Legal
         Requirements and/or by any Fee
         Mortgagee.

        12.1.2  INSURANCE COMPANY
    REQUIREMENTS.  All such insurance
    required by this Lease or the other
    Lease Documents shall be issued and
    underwritten by insurance companies
    licensed to do insurance business by,
    and in good standing under the laws
    of, the State and which companies
    have and maintain a rating of A:X or
    better by A.M. Best Co.








77


        12.1.3  POLICY REQUIREMENTS.
    Every policy of insurance from time
    to time required under this Lease or
    any of the other Lease Documents
    (other than worker's compensation)
    shall name Lessor as owner, loss
    payee, secured party (to the extent
    applicable) and additional named
    insured as its interests may appear.
    If an insurance policy covers
    properties other than the Leased
    Property, then Lessor shall be so
    named with respect only to the Leased
    Property.  Each such policy, where
    applicable or appropriate, shall:

                   (a)  include an agreed
         amount endorsement and loss
         payee, additional named insured
         and secured party endorsements,
         in forms acceptable to Lessor in
         its reasonable discretion;

                   (b)  include
         mortgagee, secured party, loss
         payable and additional named
         insured endorsements reasonably
         acceptable to each Fee
         Mortgagee;

                   (c)  provide that the
         coverages may not be cancelled
         or materially modified except
         upon thirty (30) days' prior
         written notice to Lessor and any
         Fee Mortgagee;

                   (d)  be payable to
         Lessor and any Fee Mortgagee
         notwithstanding any defense or
         claim that the insurer may have
         to the payment of the same
         against any other Person holding
         any other interest in the Leased
         Property;

                   (e)  be endorsed with
         standard noncontributory clauses
         in favor of and in form
         reasonably acceptable to Lessor
         and any Fee Mortgagee;

                   (f)  expressly waive
         any right of subrogation on the
         part of the insurer against
         Lessor, any Fee Mortgagee or the
         Leasing Group; and

                   (g)  otherwise be in
         such forms as shall be
         reasonably acceptable to Lessor.











78


        12.1.4  NOTICES; CERTIFICATES AND
    POLICIES.  Lessee shall promptly
    provide to Lessor copies of any and
    all notices (including notice of non-
    renewal), claims and demands which
    Lessee receives from insurers of the
    Leased Property.  At least ten (10)
    days prior to the expiration of any
    insurance policy required hereunder,
    Lessee shall deliver to Lessor
    certificates and evidence of
    insurance relating to all renewals
    and replacements thereof, together
    with evidence, satisfactory to
    Lessor, of payment of the premiums
    thereon.  Lessee shall deliver to
    Lessor original counterparts or
    copies certified by the insurance
    company to be true and complete
    copies, of all insurance policies
    required hereunder not later than ten
    (10) days after receipt thereof by
    Lessee.  Lessee shall use its best
    efforts to obtain such counterparts
    or copies within ninety (90) days
    after the effective date of each such
    policy.

        12.1.5  LESSOR'S RIGHT TO PLACE
    INSURANCE.  If Lessee shall fail to
    obtain any insurance policy required
    hereunder by Lessor, or shall fail to
    deliver the certificate and evidence
    of insurance relating to any such
    policy to Lessor, or if any insurance
    policy required hereunder (or any
    part thereof) shall expire or be
    cancelled or become void or voidable
    by reason of any breach of any
    condition thereof, or if Lessor
    reasonably determines that such
    insurance coverage is unsatisfactory
    by reason of the failure or
    impairment of the capital of any
    insurance company which wrote any
    such policy, upon demand by Lessor,
    Lessee shall promptly but in any
    event in not more than ten (10) days
    thereafter obtain new or additional
    insurance coverage on the Leased
    Property, or for those risks required
    to be insured by the provisions
    hereof, satisfactory to Lessor, and,
    in the event Lessee fails to perform
    its obligations under this Section
    and at its option, Lessor may obtain
    such insurance and pay the premium or
    premiums therefor; in which event,
    any amount so paid or advanced by
    Lessor and all costs and expenses
    incurred in connection therewith
    (including, without limitation,
    reasonable attorneys' fees and
    expenses and court costs), shall be a
    demand obligation of Lessee to
    Lessor, payable as an Additional
    Charge.

        12.1.6  PAYMENT OF PROCEEDS.  All
    insurance policies required hereunder
    (except for general public liability,
    professional liability and workers'
    compensation and employers liability
    insurance) shall provide that in the
    event of loss, injury or damage,
    subject to the rights of any Fee
    Mortgagee, all proceeds shall be paid
    to Lessor alone (rather than jointly
    to Lessee and Lessor).  Lessor is
    hereby authorized to adjust and
    compromise any such loss with the
    consent of Lessee or, following any
    Lease Default, whether or not cured,
    without the consent of Lessee, and to
    collect and receive such proceeds in
    the name of Lessor and Lessee, and
    Lessee appoints Lessor (or any agent
    designated by


79


              Lessor) as Lessee's attorney-
    in-fact with full power of
    substitution, to endorse Lessee's
    name upon any check in payment
    thereof.  Subject to the provisions
    of Article 13, such insurance
    proceeds shall be applied first
    toward reimbursement of all costs and
    expenses reasonably incurred by
    Lessor in collecting said insurance
    proceeds, then toward payment of the
    Lease Obligations or any portion
    thereof, which have not been paid
    when due and payable or within any
    applicable cure period, in such order
    as Lessor determines, and then in
    whole or in part toward restoration,
    repair or reconstruction of the
    Leased Property for which such
    insurance proceeds shall have been
    paid.

        12.1.7  IRREVOCABLE POWER OF
    ATTORNEY.  The power of attorney
    conferred on Lessor pursuant to the
    provisions of Section 12.1, being
    coupled with an interest, shall be
    irrevocable for as long as this Lease
    is in effect or any Lease Obligations
    are outstanding, shall not be
    affected by any disability or
    incapacity which Lessee may suffer
    and shall survive the same.  Such
    power of attorney, is provided solely
    to protect the interests of Lessor
    and shall not impose any duty on
    Lessor to exercise any such power,
    and neither Lessor nor such attorney-
    in-fact shall be liable for any act,
    omission, error in judgment or
    mistake of law, except as the same
    may result from its gross negligence
    or wilful misconduct.

        12.1.8  BLANKET POLICIES.
    Notwithstanding anything to the
    contrary contained herein, Lessee's
    obligations to carry the insurance
    provided for herein may be brought
    within the coverage of a so-called
    blanket policy or policies of
    insurance carried and maintained by
    Lessee and its Affiliates; provided,
    however, that the coverage afforded
    to Lessor shall not be reduced or
    diminished or otherwise be different
    from that which would exist under a
    separate policy meeting all other
    requirements of this Lease by reason
    of the use of such blanket policy of
    insurance, and provided, further that
    the requirements of Section 12.1 are
    otherwise satisfied.

        12.1.9  NO SEPARATE INSURANCE.
    Lessee shall not, on Lessee's own
    initiative or pursuant to the request
    or requirement of any other Person,
    take out separate insurance
    concurrent in form or contributing in
    the event of loss with the insurance
    required hereunder to be furnished by
    Lessee, or increase the amounts of
    any then existing insurance by
    securing an additional policy or
    additional policies, unless (a) all
    parties having an insurable interest
    in the subject matter of the
    insurance, including Lessor, are
    included therein as additional
    insureds and (b) losses are payable
    under said insurance in the same
    manner as losses are required to be
    payable under this Lease.  Lessee
    shall



80


              immediately notify Lessor of
the taking out of any such separate
insurance or of the increasing of any of
the amounts of the then existing insurance
by securing an additional insurance policy
or policies.

    12.1.10      ASSIGNMENT OF UNEARNED
PREMIUMS.  Lessee hereby assigns to Lessor
all rights of Lessee in and to any
unearned premiums on any insurance policy
required hereunder to be furnished by
Lessee which may become payable or are
refundable after the occurrence of an
Event of Default hereunder, which premium,
upon receipt thereof, Lessor shall at
Lessor's option apply toward the Lease
Obligations or hold as security therefor.
In the event that this Lease is terminated
for any reason (other than the purchase of
the Leased Property by Lessee), the
insurance policies required to be
maintained hereunder, including all right,
title and interest of Lessee thereunder,
shall become the absolute property of
Lessor subject to any limitation on
assignment provided for therein.

    12.2 INDEMNITY.


































81


        12.2.1  INDEMNIFICATION.  Except
    with respect to the gross negligence
    or wilful misconduct of Lessor or any
    of the other Indemnified Parties, as
    to which no indemnity is provided,
    Lessee hereby agrees to defend with
    counsel reasonably acceptable to
    Lessor, against all claims and causes
    of action and to indemnify and hold
    harmless Lessor and each of the other
    Indemnified Parties from and against
    all damages, losses, liabilities,
    obligations, penalties, costs and
    expenses (including, without
    limitation, reasonable attorneys'
    fees, court costs and other expenses
    of litigation) suffered by, or
    claimed or asserted against, Lessor
    or any of the other Indemnified
    Parties, directly or indirectly, by
    any Person other than a member of the
    Leasing Group who prevails in such
    claim or action based on, arising out
    of or resulting from (a) the use and
    occupancy of the Leased Property or
    any business conducted therein, (b)
    any act, fault, omission to act or
    misconduct by (i) any member of the
    Leasing Group, (ii) any Affiliate of
    Lessee or (iii) any employee, agent,
    licensee, business invitee, guest,
    customer, contractor or sublessee of
    any of the foregoing parties,
    relating to, directly or indirectly,
    the Leased Property, (c) any
    accident, injury or damage whatsoever
    caused to any Person, including,
    without limitation, any claim of
    malpractice, or to the property of
    any Person in or about the Leased
    Property or outside of the Leased
    Property where such accident, injury
    or damage results or is claimed to
    have resulted from any act, fault,
    omission to act or misconduct by any
    member of the Leasing Group or any
    Affiliate of Lessee or any employee,
    agent, licensee, contractor or
    sublessee of any of the foregoing
    parties, (d) any Lease Default, (e)
    any claim brought or threatened
    against Lessor by any member of the
    Leasing Group or by any other Person
    on account of (i) Lessor's
    relationship with any member of the
    Leasing Group pertaining in any way
    to the Leased Property and/or the
    transaction evidenced by the Lease
    Documents and/or (ii) Lessor's
    negotiation of, entering into and/or
    performing any of its obligations
    and/or exercising any of its right
    and remedies under any of the Lease
    Documents, (f) any attempt by any
    member of the Leasing Group or any
    Affiliate of Lessee to transfer or
    relocate any of the Permits to any
    location other than the Leased
    Property and/or (g) the enforcement
    of this indemnity.  Any amounts which
    become payable by Lessee under this
    Section 12.2.1 shall be a demand
    obligation of Lessee to Lessor,
    payable as an Additional Charge.  The
    indemnity provided for in this
    Section 12.2.1 shall survive any
    termination of this Lease.

        12.2.2  INDEMNIFIED PARTIES.  As
    used in this Lease the term
    "Indemnified Parties" shall mean the
    Meditrust Entities, any Fee Mortgagee
    and their respective successors,
    assigns, employees, servants, agents,
    attorneys, officers, directors,
    shareholders, partners and owners.



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        12.2.3  LIMITATION ON LESSOR
    LIABILITY.  Neither Lessor nor any
    Affiliate of Lessor shall be liable
    to any member of the Leasing Group or
    any Affiliate of any member of the
    Leasing Group, or to any other Person
    whatsoever for any damage, injury,
    loss, compensation, or claim
    (including, but not limited to, any
    claim for the interruption of or loss
    to any business conducted on the
    Leased Property) based on, arising
    out of or resulting from any cause
    whatsoever, including, but not
    limited to, the following:
    (a) repairs to the Leased Property,
    (b) interruption in use of the Leased
    Property; (c) any accident or damage
    resulting from the use or operation
    of the Leased Property or any
    business conducted thereon; (d) the
    termination of this Lease by reason
    of Casualty or Condemnation, (e) any
    fire, theft or other casualty or
    crime, (f) the actions, omissions or
    misconduct of any other Person, (g)
    damage to any property, or (h) any
    damage from the flow or leaking of
    water, rain or snow.  All Tangible
    Personal Property and the personal
    property of any other Person on the
    Leased Property shall be at the sole
    risk of Lessee and Lessor shall not
    in any manner be held responsible
    therefor (except in the event of loss
    caused by the gross negligence or
    willful misconduct of Lessor).
    Notwithstanding the foregoing, Lessor
    shall not be released from liability
    for any injury, loss, damage or
    liability suffered by Lessee to the
    extent caused directly by the gross
    negligence or willful misconduct of
    Lessor, its servants, employees or
    agents acting within the scope of
    their authority on or about the
    Leased Property or in regards to the
    Lease; provided, however, that in no
    event shall Lessor, its servants,
    employees or agents have any
    liability based on any loss for any
    indirect or consequential damages. or

        12.2.4  RISK OF LOSS.  During the
    Term of this Lease, the risk of loss
    or of decrease in the enjoyment and
    beneficial use of the Leased Property
    in consequence of any damage or
    destruction thereof by fire, the
    elements, casualties, thefts, riots,
    wars or otherwise, or in consequence
    of foreclosures, levies or executions
    of Liens (other than those created by
    Lessor in accordance with the
    provisions of Article 20) is assumed
    by Lessee and, in the absence of the
    gross negligence or willful
    misconduct as set forth in Section
    12.2.3, Lessor shall in no event be
    answerable or accountable therefor
    (except for the obligation to account
    for insurance proceeds and Awards to
    the extent provided for in Articles
    13 and 14) nor shall any of the
    events mentioned in this Section
    entitle Lessee to any abatement of
    Rent (except for an abatement, if
    any, as specifically provided for in
    Section 3.7).







83


ARTICLE 13

FIRE AND CASUALTY

                 13.1   RESTORATION
                 FOLLOWING FIRE OR OTHER
                 CASUALTY.

        13.1.1  FOLLOWING FIRE OR
    CASUALTY.  In the event of any damage
    or destruction to the Leased Property
    by reason of fire or other hazard or
    casualty (a "Casualty"), Lessee shall
    give immediate written notice thereof
    to Lessor and, subject to the terms
    of this Article 13 and any applicable
    Legal Requirements, Lessee shall
    proceed with reasonable diligence, in
    full compliance with all applicable
    Legal Requirements, to perform such
    repairs, replacement and
    reconstruction work (referred to
    herein as the "Work") to restore the
    Leased Property to the condition it
    was in immediately prior to such
    damage or destruction and to a
    condition adequate to operate the
    Facility for the Primary Intended Use
    and, if applicable, the Other
    Permitted Uses and in compliance with
    applicable Legal Requirements.  All
    Work shall be performed and completed
    in accordance with all applicable
    Legal Requirements and the other
    requirements of this Lease within one
    hundred and twenty (120) days
    following the occurrence of the
    damage or destruction plus a
    reasonable time to compensate for
    Unavoidable Delays (including for the
    purposes of this Section, delays in
    obtaining Permits and in adjusting
    insurance losses), but in no event
    beyond two-hundred and seventy (270)
    days following the occurrence of the
    Casualty.

        13.1.2  PROCEDURES.  In the event
    that any Casualty results in
    non-structural damage to the Leased
    Property in excess of FIFTY THOUSAND
    DOLLARS ($50,000) or in any
    structural damage to the Leased
    Property, regardless of the extent of
    such structural damage, prior to
    commencing the Work, Lessee shall
    comply with the following
    requirements:

                   (a)  Lessee shall
         furnish to Lessor complete plans
         and specifications for the Work
         (collectively and as the same
         may be modified and amended from
         time to time pursuant to the
         terms hereof, the "Plans and
         Specifications"), for Lessor's
         approval, in each instance,
         which approval shall not be
         unreasonably withheld.  The
         Plans and Specifications shall
         bear the signed approval thereof
         by an architect, licensed to do
         business in the State,
         reasonably satisfactory to
         Lessor (in the event Lessor
         reasonably determines that the
         Work is of a nature for which
         the involvement of an architect
         is appropriate) and shall be
         accompanied by a written
         estimate from the architect,
         bearing the architect's seal, of
         the entire cost of


84


                            completing the
         Work, and to the extent
         feasible, the Plans and
         Specifications shall provide for
         Work of such nature, quality and
         extent, that, upon the
         completion thereof, the Leased
         Property shall be at least equal
         in value and general utility to
         its value and general utility
         prior to the Casualty and shall
         be adequate to operate the
         Leased Property for the Primary
         Intended Use and, if applicable,
         the Other Permitted Uses;

                   (b)  Lessee shall
         furnish to Lessor certified or
         photostatic copies of all
         Permits and Contracts required
         by all applicable Legal
         Requirements in connection with
         the commencement and conduct of
         the Work to the extent the same
         can be secured in the ordinary
         course prior to the commencement
         of construction;

                   (c)  Lessee shall
         furnish to Lessor a cash deposit
         or a payment and performance
         bond sufficient to pay for
         completion of and payment for
         the Work in an amount not less
         than the architect's estimate of
         the entire cost of completing
         the Work, less the amount of
         property insurance proceeds (net
         of costs and expenses incurred
         by Lessor in collecting the
         same), if any, then held by
         Lessor and which Lessor shall be
         required to apply toward
         restoration of the Leased
         Property as provided in Section
         13.2;

                   (d)  Lessee shall
         furnish to Lessor such insurance
         with respect to the Work (in
         addition to the insurance
         required under Section 12.1
         hereof) in such amounts and in
         such forms as is reasonably
         required by Lessee; and

                   (e)  Lessee shall not
         commence any of the Work until
         Lessee shall have complied with
         the requirements set forth in
         clauses (a) through (d)
         immediately above, as
         applicable, and, thereafter,
         Lessee shall perform the Work
         diligently, in a good and
         workmanlike fashion and in good
         faith in accordance with (i) the
         Plans and Specifications
         referred to in clause (a)
         immediately above, (ii) the
         Permits and Contracts referred
         to in clause (b) immediately
         above and (iii) all applicable
         Legal Requirements and other
         requirements of this Lease;
         provided, however, that in the
         event of a bona fide emergency
         during which Lessee is unable to
         contact the appropriate
         representatives of Lessor,
         Lessee may commence such Work as
         may be necessary in order to
         address such emergency without
         Lessor's prior approval,



85


                           as long as
         Lessee immediately thereafter
         advises Lessor of such emergency
         and the nature and scope of the
         Work performed and obtains
         Lessor's approval of the
         remaining Work to be completed.

        13.1.3  DISBURSEMENT OF INSURANCE
    PROCEEDS.  If, as provided in Section
    13.2, Lessor is required to apply any
    property insurance proceeds toward
    repair or restoration of the Leased
    Property, then as long as the Work is
    being diligently performed by Lessee
    in accordance with the terms and
    conditions of this Lease, Lessor
    shall disburse such insurance
    proceeds from time to time during the
    course of the Work in accordance with
    and subject to satisfaction of the
    following provisions and conditions.
    Lessor shall not be required to make
    disbursements more often than at
    thirty (30) day intervals.  Lessee
    shall submit a written request for
    each disbursement at least ten (10)
    Business Days in advance and shall
    comply with the following
    requirements in connection with each
    disbursement:

                   (a)  Prior to the
         commencement of any Work, Lessee
         shall have received Lessor's
         written approval of the Plans
         and Specifications (which
         approval shall not be
         unreasonably withheld) and the
         Work shall be supervised by an
         experienced construction manager
         with the consultation of an
         architect or engineer qualified
         and licensed to do business in
         the State (in the event Lessor
         reasonably determines that the
         Work is of a nature for which
         the involvement of such
         architect or engineer is
         appropriate).  Lessee shall not
         make any changes in, and shall
         not permit any changes in, the
         quality of the materials to be
         used in the Work, the Plans and
         Specifications or the Work,
         whether by change order or
         otherwise, without the prior
         written consent of Lessor, in
         each instance (which consent may
         be withheld in Lessor's sole and
         absolute discretion); provided,
         however, that such consent shall
         not be required for any
         individual change which has been
         approved by the architect, which
         does not materially affect the
         structure or exterior of the
         Facility, and the cost of which
         does not exceed TEN THOUSAND
         DOLLARS ($10,000) or which
         changes, in the aggregate, do
         not exceed ONE HUNDRED THOUSAND
         DOLLARS ($100,000) in cost.
         Notwithstanding the foregoing,
         prior to making any change in
         Plans and Specifications, copies
         of all change orders shall be
         submitted by Lessee to Lessor
         and Lessee shall also deliver to
         Lessor evidence satisfactory to
         Lessor, in its reasonable
         discretion, that all necessary
         Permits and/or Contracts
         required by any Governmental
         Authority in connection
         therewith have been obtained or
         entered into, as the case may
         be.


86


                   (b)  Each request for
         payment shall be accompanied by
         (x) a certificate of the
         architect or engineer, bearing
         the architect's or engineer's
         seal, and (y) a certificate of
         the general contractor,
         qualified and licensed to do
         business in the State, that is
         performing the Work
         (collectively, the "Work
         Certificates"), each dated not
         more than ten (10) days prior to
         the application for withdrawal
         of funds, and each stating:

                              (i)  that
                    all of the Work
                    performed as of the
                    date of the
                    certificates has been
                    completed in
                    compliance with the
                    approved Plans and
                    Specifications,
                    applicable Contracts
                    and all applicable
                    Legal Requirements;

                              (ii) that
                    the sum then requested
                    to be withdrawn has
                    been paid by Lessee or
                    is justly due to
                    contractors,
                    subcontractors,
                    materialmen,
                    engineers, architects
                    or other Persons,
                    whose names and
                    addresses shall be
                    stated therein, who
                    have rendered or
                    furnished certain
                    services or materials
                    for the Work, and the
                    certificate shall also
                    include a brief
                    description of such
                    services and materials
                    and the principal
                    subdivisions or
                    categories thereof and
                    the respective amounts
                    so paid or due to each
                    of said Persons in
                    respect thereof and
                    stating the progress
                    of the Work up to the
                    date of said
                    certificate;

                              (iii)
                    that the sum then
                    requested to be
                    withdrawn, plus all
                    sums previously
                    withdrawn, does not
                    exceed the cost of the
                    Work insofar as
                    actually accomplished
                    up to the date of such
                    certificate;

                              (iv) that
                    the remainder of the
                    funds held by Lessor
                    will be sufficient to
                    pay for the full
                    completion of the Work
                    in accordance with the
                    Plans and
                    Specifications;






87


                              (v)  that no
                    part of the cost of
                    the services and
                    materials described in
                    the applicable Work
                    Certificate has been
                    or is being made the
                    basis of the
                    withdrawal of any
                    funds in any previous
                    or then pending
                    application; and

                              (vi) that,
                    except for the
                    amounts, if any,
                    specified in the
                    applicable Work
                    Certificate  to be due
                    for services and
                    materials, there is no
                    outstanding
                    indebtedness known,
                    after due inquiry,
                    which is then due and
                    payable for work,
                    labor, services or
                    materials in
                    connection with the
                    Work which, if unpaid,
                    might become the basis
                    of a vendor's,
                    mechanic's, laborer's
                    or materialman's
                    statutory or other
                    similar Lien upon the
                    Leased Property.

                   (c)  Lessee shall
         deliver to Lessor satisfactory
         evidence that the Leased
         Property and all materials and
         all property described in the
         Work Certificates are free and
         clear of Liens, except (i)
         Liens, if any, securing
         indebtedness due to Persons
         (whose names and addresses and
         the several amounts due them
         shall be stated therein)
         specified in an applicable Work
         Certificate, which Liens shall
         be discharged upon disbursement
         of the funds then being
         requested or duly contested in
         accordance with the terms of
         this Lease Agreement, (ii) any
         Fee Mortgage and (iii) the
         Permitted Encumbrances.  Lessor
         shall accept as satisfactory
         evidence of the foregoing lien
         waivers in customary form from
         the general contractor and all
         subcontractors performing the
         Work, together with an
         endorsement of its title
         insurance policy (relating to
         the Leased Property) in form
         acceptable to Lessor, dated as
         of the date of the making of the
         then current disbursement,
         confirming the foregoing.

                   (d)  If the Work
         involves alteration or
         restoration of the exterior of
         any Leased Improvement that
         changes the footprint of any
         Leased Improvement, Lessee shall
         deliver to Lessor, upon the
         request of Lessor, an "as-built"
         survey of the Leased Property
         dated as of a date within ten
         (10) days prior to the making of
         the first and final advances (or
         revised to a date within ten
         (10) days prior to each such
         advance) showing no
         encroachments other than such
         encroachments, if any, by the
         Leased


88


                            Improvements
         upon or over the Permitted
         Encumbrances as are in existence
         as of the date hereof.

                   (e)  Lessee shall
         deliver to Lessor (i) an opinion
         of counsel (satisfactory to
         Lessor both as to counsel and as
         to the form of opinion) prior to
         the first advance opining that
         all necessary Permits for the
         repair, replacement and/or
         restoration of the Leased
         Property which can be obtained
         in the ordinary course as of
         said date have been obtained and
         that the Leased Property, if
         repaired, replaced or rebuilt in
         accordance, in all material
         respects, with the approved
         Plans and Specifications and
         such Permits, shall comply with
         all applicable Legal
         Requirements subject to such
         limitations as may be imposed on
         such opinion under local law and
         (ii) if applicable, an
         architect's certificate
         (satisfactory to Lessor both as
         to the architect and as to the
         form of the certificate) prior
         to the final advance, certifying
         that the Leased Property was
         repaired, replaced or rebuilt in
         accordance, in all material
         respects, with the approved
         Plans and Specifications and
         complies with all applicable
         Legal Requirements, including,
         without limitation, all Permits
         referenced in the foregoing
         clause (i).

                   (f)  There shall be no
         Lease Default or any state of
         facts or circumstance existing
         which, with the giving of notice
         and/or the passage of time,
         would constitute any Lease
         Default.

    Lessor, at its option, may waive any
    of the foregoing requirements in
    whole or in part in any instance.
    Upon compliance by Lessee with the
    foregoing requirements (except for
    such requirements, if any, as Lessor
    may have expressly elected to waive),
    and to the extent of (x) the
    insurance proceeds, if any, which
    Lessor may be required to apply to
    restoration of the Leased Property
    pursuant to the provisions of this
    Lease and (y) all other cash deposits
    made by Lessee, Lessor shall make
    available for payment to the Persons
    named in the Work Certificate the
    respective amounts stated in said
    certificate(s) to be due, subject to
    a retention of ten percent (10%) as
    to all hard costs of the Work (the
    "Retainage").  It is understood that
    the Retainage is intended to provide
    a contingency fund to assure Lessor
    that the Work shall be fully
    completed in accordance with the
    Plans and Specifications and the
    requirements of Lessor.  Upon the
    full and final completion of all of
    the Work in accordance with the
    provisions hereof, the Retainage
    shall be made available for payment
    to  those Persons entitled thereto.





89


    Upon completion of the Work, and as a
    condition precedent to making any
    further advance, in addition to the
    requirements set forth above, Lessee
    shall promptly deliver to Lessor:

                    (i)  if applicable,
               written certificates of the
               architect or engineer,
               bearing the architect's or
               engineer's seal, and the
               general contractor,
               certifying that the Work
               has been fully completed in
               a good and workmanlike
               manner in material
               compliance with the Plans
               and Specifications and all
               applicable Legal
               Requirements;

                    (ii) an endorsement of
               its title insurance policy
               (relating to the Leased
               Property) in form
               reasonably acceptable to
               Lessor insuring the Leased
               Property against all
               mechanic's and
               materialman's liens
               accompanied by the final
               lien waivers from the
               general contractor and all
               subcontractors;

                    (iii)     a
               certificate by Lessee in
               form and substance
               reasonably satisfactory to
               Lessor, listing all costs
               and expenses in connection
               with the completion of the
               Work and the amount paid by
               Lessee with respect to the
               Work; and

                    (iv) a temporary
               certificate of occupancy
               (if obtainable) and all
               other applicable Permits
               and Contracts issued by or
               entered into with any
               Governmental Authority with
               respect to the Primary
               Intended Use not already
               delivered to Lessor and, to
               the extent applicable, the
               Other Permitted Uses and by
               the appropriate Board of
               Fire Underwriters or other
               similar bodies acting in
               and for the locality in
               which the Leased Property
               is situated with respect to
               the Facility; provided,
               that within thirty (30)
               days after completion of
               the Work, Lessee shall
               obtain and deliver to
               Lessor a permanent
               certificate of occupancy
               for the Leased Property,
               subject to seasonal delays.










90


        Upon completion of the Work and
    delivery of the documents required
    pursuant to the provisions of this
    Section 13.1, Lessor shall pay the
    Retainage to Lessee or to those
    Persons entitled thereto and if there
    shall be insurance proceeds or cash
    deposits, other than the Retainage,
    held by Lessor in excess of the
    amounts disbursed pursuant to the
    foregoing provisions, then provided
    that no Lease Default has occurred
    and is continuing, nor any state of
    facts or circumstances which, with
    the giving of notice and/or the
    passage of time would constitute a
    Lease Default, Lessor shall pay over
    such proceeds or cash deposits to
    Lessee.

        No inspections or any approvals
    of the Work during or after
    construction shall constitute a
    warranty or representation by Lessor,
    or any of its agents or Consultants,
    as to the technical sufficiency,
    adequacy or safety of any structure
    or any of its component parts,
    including, without limitation, any
    fixtures, equipment or furnishings,
    or as to the subsoil conditions or
    any other physical condition or
    feature pertaining to the Leased
    Property.  All acts, including any
    failure to act, relating to Lessor
    are performed solely for the benefit
    of Lessor to assure the payment and
    performance of the Lease Obligations
    and are not for the benefit of Lessee
    or the benefit of any other Person.

    13.2 DISPOSITION OF INSURANCE
PROCEEDS.

        13.2.1  PROCEEDS TO BE RELEASED
    TO PAY FOR WORK.  In the event of any
    Casualty, except as provided for in
    Section 13.2.2, Lessor shall release
    proceeds of property insurance held
    by it to pay for the Work in
    accordance with the provisions and
    procedures set forth in this Article
    13, only if:

                   (a)  all of the terms,
         conditions and provisions of
         Sections 13.1 and 13.2.1 are
         satisfied;

                   (b)  Lessee
         demonstrates to Lessor's
         satisfaction that Lessee has the
         financial ability to satisfy the
         Lease Obligations during such
         repair or restoration; and

                   (c)  no Sublease
         material to the operation of the
         Facility immediately prior to
         such damage or taking shall have
         been cancelled or terminated,
         nor contain any still
         exercisable right to cancel or
         terminate, due to such Casualty
         if and to the extent that the
         income from such Sublease is
         necessary in order to avoid the
         violation of any of the
         financial covenants set forth in
         this Lease or otherwise to avoid
         the creation of an Event of
         Default.




91


    If a Fee Mortgagee prevents Lessor
    from releasing proceeds of property
    insurance notwithstanding the
    satisfaction of the foregoing
    requirements, Lessee shall have no
    obligation to restore the Casualty to
    which such proceeds pertain.

        13.2.2  PROCEEDS NOT TO BE
    RELEASED.  If, as the result of any
    Casualty,  the Leased Property is
    damaged to the extent it is rendered
    Unsuitable For Its Primary Intended
    Use and if either:  (a) Lessee, after
    exercise of diligent efforts, cannot
    within a reasonable time (not in
    excess of ninety (90) days) obtain
    all necessary Permits in order to be
    able to perform all required Work and
    to again operate the Facility for its
    Primary Intended Use and, if
    applicable, the Other Permitted Uses
    within two hundred and seventy (270)
    days from the occurrence of the
    damage or destruction in
    substantially the manner as
    immediately prior to such damage or
    destruction or (b) such Casualty
    occurs during the last twenty-four
    (24) months of the Term and would
    reasonably require more than nine (9)
    months to obtain all Permits and
    complete the Work, then Lessee may
    either (i) acquire the Leased
    Property from Lessor for a purchase
    price equal to the greater of (x) the
    Meditrust Investment or (y) the Fair
    Market Value of the Leased Property
    minus the Fair Market Added Value,
    with the Fair Market Value and the
    Fair Market Added Value to be
    determined as of the day immediately
    prior to such Casualty and prior to
    any other Casualty which has not been
    fully repaired, restored or replaced,
    in which event, Lessee shall be
    entitled upon payment of the full
    purchase price to receive all
    property insurance proceeds (less any
    costs and expenses incurred by Lessor
    in collecting the same), or (ii)
    terminate this Lease, in which event
    (subject to the provisions of the
    last sentence of this Section 13.2.2)
    Lessor shall be entitled to receive
    and retain the insurance proceeds;
    provided, however, that Lessee shall
    only have such right of termination
    effective upon payment to Lessor of
    all Rent and other sums due under
    this Lease and the other Lease
    Documents through the date of
    termination plus an amount, which
    when added to the sum of (1) the Fair
    Market Value of the Leased Property
    as affected by all unrepaired or
    unrestored damage due to any Casualty
    (and giving due regard for delays,
    costs and expenses incident to
    completing all repair or restoration
    required to fully repair or restore
    the same) plus (2) the amount of
    insurance proceeds actually received
    by Lessor (net of costs and expenses
    incurred by Lessor in collecting the
    same) equals (3) the greater of the
    Meditrust Investment or the Fair
    Market Value of the Leased Property
    minus the Fair Market Added Value,
    with the Fair Market Value and the
    Fair Market Added Value to be
    determined as of the day immediately
    prior to such Casualty and prior to
    any other Casualty which has not been
    fully repaired.  Any acquisition of
    the Leased Property pursuant to the
    terms of this Section 13.2.2 shall be
    consummated in accordance with the
    provisions of Article 18, mutatis,
    mutandis.  If


92


              such termination becomes
    effective, Lessor shall assign to
    Lessee any outstanding insurance
    claims and, at Lessee's expense,
    shall cooperate in Lessee's efforts
    to secure the same.  In the event
    this Lease is terminated pursuant to
    the provisions of this Section 13.2.2
    and the insurance proceeds received
    by Lessor in connection therewith
    (net of costs and expenses incurred
    in obtaining such proceeds) exceeds
    one hundred fifteen percent (115%) of
    the Fair Market Value of the Leased
    Premises at the time of such
    termination, Lessor shall pay to
    Lessee fifty percent (50%) of the
    amount of such excess.

    13.3 TANGIBLE PERSONAL PROPERTY.  All
insurance proceeds payable by reason of
any loss of or damage to any of the
Tangible Personal Property shall be paid
to Lessor as secured party, subject to the
rights of the holders of any Permitted
Prior Security Interests, and, thereafter,
provided that no Lease Default, nor any
fact or circumstance which with the giving
of notice and/or the passage of time could
constitute a Lease Default, has occurred
and is continuing, Lessor shall pay such
insurance proceeds to Lessee to reimburse
Lessee for the cost of repairing or
replacing the damaged Tangible Personal
Property, subject to the terms and
conditions set forth in the other
provisions of this Article 13, mutatis
mutandis.

    13.4 RESTORATION OF CERTAIN
IMPROVEMENTS AND THE TANGIBLE PERSONAL
PROPERTY.  If Lessee is required or elects
to restore the Facility, Lessee shall
either (a) restore (i) all alterations and
improvements to the Leased Property made
by Lessee and (ii) the Tangible Personal
Property or (b) replace such alterations
and improvements and the Tangible Personal
Property with improvements or items of the
same or better quality and utility in the
operation of the Leased Property provided,
however, that Lessee shall be obligated to
so restore or replace the Tangible
Personal Property only to the extent
desirable for the prudent operation of the
Facility in the good faith exercise of
commercially reasonable business judgment.

    13.5 NO ABATEMENT OF RENT.  In no
event shall any Rent abate as a result of
any Casualty except as expressly provided
in Section 3.7.

    13.6 TERMINATION OF CERTAIN RIGHTS.
Any termination of this Lease pursuant to
this Article 13 shall cause any right of
Lessee to extend the Term of this Lease
granted to Lessee herein and any right of
Lessee to purchase the Leased Property
contained in this Lease to be terminated
and to be without further force or effect.

    13.7 WAIVER.  Lessee hereby waives any
statutory rights of termination which may
arise by reason of any damage or
destruction to the Leased Property due to
any Casualty which Lessee is obligated to
restore or may restore under any of the
provisions of this Lease.


93


    13.8 APPLICATION OF RENT LOSS AND/OR
BUSINESS INTERRUPTION INSURANCE.  Lessor
shall direct all proceeds of rent loss
and/or business interruption insurance
(collectively, "Rent Insurance Proceeds")
to be paid to Lessee, provided no fact or
circumstance exists which constitutes, or
with notice, or passage of time, or both,
would constitute, a Lease Default
pertaining to the Facility or the Leased
Property.  If a Lease Default or such fact
or circumstance exists, Lessor may rescind
such direction and apply all such
insurance proceeds towards the Lease
Obligations pertaining to the Facility or
the Leased Property or hold such proceeds
as security therefor.

    13.9 OBLIGATION TO ACCOUNT.  Upon
Lessee's written request, which may not be
made not more than once in any three (3)
month period, Lessor shall provide Lessee
with a  written accounting of the
application of all insurance proceeds
received by Lessor.


ARTICLE 14

CONDEMNATION

    14.1 PARTIES' RIGHTS AND OBLIGATIONS.
If during the Term there is any Taking of
all or any part of the Leased Property or
any interest in this Lease, the rights and
obligations of the parties shall be
determined by this Article 14.

    14.2 TOTAL TAKING.  If there is a
permanent Taking of all or substantially
all of the Leased Property, this Lease
shall terminate on the Date of Taking.  In
the event this Lease is terminated
pursuant to the provisions of this Section
14.2 and the Award received by Lessor in
connection therewith (net of costs and
expenses incurred in obtaining such Award)
exceeds one hundred fifteen percent (115%)
of the Fair Market Value of the Leased
Premises at the time of such termination,
Lessor shall pay to Lessee fifty percent
(50%) of the amount of such excess.

    14.3 PARTIAL OR TEMPORARY TAKING.  If
there is a Permanent Taking of a portion
of the Leased Property, or if there is a
temporary Taking of all or a portion of
the Leased Property, this Lease shall
remain in effect so long as the Leased
Property is not thereby rendered
permanently Unsuitable For Its Primary
Intended Use or temporarily Unsuitable For
Its Primary Intended Use for a period not
likely to, or which does not, exceed two
hundred and seventy (270) days.  If,
however, the Leased Property is thereby so
rendered permanently or temporarily
Unsuitable For Its Primary Intended Use:
(a) if only rendered temporarily
Unsuitable For Its Primary Intended Use,
Lessee shall have the right to restore the
Leased Property, at its own expense
(subject to the right under certain
circumstances as provided for in Section
14.5 to receive the net proceeds of an
Award for reimbursement), to the extent
possible, to substantially the same
condition as existed immediately before
the partial or


94


temporary Taking or (b) Lessee shall have
the right to acquire the Leased Property
from Lessor (i) upon payment of all Rent
due through the date that the purchase
price is paid, for a purchase price equal
to the greater of (x) the Meditrust
Investment or (y) the Fair Market Value of
the Leased Property minus the Fair Market
Added Value, with the Fair Market Value of
the Leased Property and the Fair Market
Added Value to be determined as of the day
immediately prior to such partial or
temporary Taking and (ii) in accordance
with the terms and conditions set forth in
Article 18; in which event, this Lease
shall terminate upon payment of such
purchase price and the consummation of
such acquisition.  Notwithstanding the
foregoing, Lessor may overrule Lessee's
election under clause (a) or (b) and
instead either (1) terminate this Lease
(with no obligation on the part of Lessee
to acquire the Leased Property as a result
thereof) as of the date when Lessee is
required to surrender possession of the
portion of the Leased Property so taken if
(X) such portion comprises more than
thirty percent (30%) of the Leased
Property or of the residential building(s)
located thereon or (Y) possession thereof
is to be surrendered within two years of
the expiration of the Term or (2) compel
Lessee to keep the Lease in full force and
effect and to restore the Leased Property
as provided in clause (a) above, but only
if the Leased Property may be operated for
at least eighty percent (80%) of the
licensed unit capacity of the Facility in
effect prior to the Taking.  Lessee shall
exercise its election under this Section
14.3 by giving Lessor notice thereof
("Lessee's Election Notice") within sixty
(60) days after Lessee receives notice of
the Taking.  Lessor shall exercise its
option to overrule Lessee's election under
this Section 14.3 by giving Lessee notice
of Lessor's exercise of its rights under
Section 14.3 within thirty (30) days after
Lessor receives Lessee's Election Notice.
If, as the result of any such partial or
temporary Taking, this Lease is not
terminated as provided above, Lessee shall
be entitled to an abatement of Rent, but
only to the extent, if any, provided for
in Section 3.7, effective as of the date
upon which the Leased Property is rendered
Unsuitable For Its Primary Intended Use.

    14.4 RESTORATION.  If there is a
partial or temporary Taking of the Leased
Property and this Lease remains in full
force and effect pursuant to Section 14.3,
Lessee shall accomplish all necessary
restoration and Lessor shall release the
net proceeds of such Award to reimburse
Lessee for the actual reasonable costs and
expenses thereof, subject to all of the
conditions and provisions set forth in
Article 13 as though the Taking was a
Casualty and the Award was insurance
proceeds.  If the cost of the restoration
exceeds the amount of the Award (net of
costs and expenses incurred in obtaining
the Award), Lessee shall be obligated to
contribute any excess amount needed to
restore the Facility or pay for such costs
and expenses.  To the extent that the cost
of restoration is less than the amount of
the Award (net of cost and expenses
incurred in obtaining the Award), the
remainder of the Award shall be retained
by Lessor and Rent shall be abated as set
forth in Section 3.7.





95


    14.5 AWARD DISTRIBUTION.  In the event
Lessee completes the purchase of the
Leased Property, as described in Section
14.3, the entire Award shall, upon payment
of the purchase price and all Rent and
other sums due under this Lease and the
other Lease Documents, belong to Lessee
and Lessor agrees to assign to Lessee all
of Lessor's rights thereto or, to the
extent Lessor has received payment of the
Award, the amount of such payment shall be
credited against the purchase price.  In
any other event, the entire Award (except
for such portion thereof which the
Condemner designates as allocable to
Lessee's loss of business or Tangible
Personal Property) shall belong to and be
paid to Lessor.

    14.6 CONTROL OF PROCEEDINGS.  Subject
to the rights of any Fee Mortgagee, unless
and until Lessee completes the purchase of
the Leased Property as provided in Section
14.3, all proceedings involving any Taking
and the prosecution of claims arising out
of any Taking against the Condemnor shall
be conducted, prosecuted and settled by
Lessor; provided, however, that Lessor
shall keep Lessee apprised of the progress
of all such proceedings and shall solicit
Lessee's advice with respect thereto and
shall give due consideration to any such
advice.  In addition, Lessee shall
reimburse Lessor (as an Additional Charge)
for all costs and expenses, including
reasonable attorneys' fees, appraisal
fees, fees of expert witnesses and costs
of litigation or dispute resolution, in
relation to any Taking, whether or not
this Lease is terminated; provided,
however, if this Lease is terminated as a
result of a Taking, Lessee's obligation to
so reimburse Lessor shall be diminished by
the amount of the Award, if any, received
by Lessor which is in excess of the
Meditrust Investment.

























96


ARTICLE 15

PERMITTED CONTESTS

    15.1 LESSEE'S RIGHT TO CONTEST.  To
the extent of the express references made
to this Article 15 in other Sections of
this Lease, Lessee, any Sublessee or any
Manager on their own or on Lessor's behalf
(or in Lessor's name), but at their sole
cost and expense, may contest, by
appropriate legal proceedings conducted in
good faith and with due diligence (until
the resolution thereof), the amount,
validity or application, in whole or in
part, of any Imposition, Legal
Requirement, the decision of any
Governmental Authority related to the
operation of the Leased Property for its
Primary Intended Use and/or, if
applicable, any of the Other Permitted
Uses or any Lien or claim relating to the
Leased Property not otherwise permitted by
this Agreement; provided, that (a) prior
written notice of such contest is given to
Lessor, (b) in the case of an unpaid
Imposition, Lien or claim, the
commencement and continuation of such
proceedings shall suspend the collection
thereof from Lessor and/or compliance by
any applicable member of the Leasing Group
with the contested Legal Requirement or
other matter may be legally delayed
pending the prosecution of any such
proceeding without the occurrence or
creation of any Lien, charge or liability
of any kind against the Leased Property,
(c) neither the Leased Property nor any
rent therefrom would be in any immediate
danger of being sold, forfeited, attached
or lost as a result of such proceeding,
(d) in the case of a Legal Requirement,
neither Lessor nor any member of the
Leasing Group would be in any immediate
danger of civil or criminal liability for
failure to comply therewith pending the
outcome of such proceedings, (e) in the
event that any such contest shall involve
a sum of money or potential loss in excess
of TWENTY FIVE THOUSAND DOLLARS ($25,000),
Lessee shall deliver to Lessor an
Officer's Certificate and opinion of
counsel, if Lessor deems the delivery of
an opinion to be appropriate, certifying
or opining, as the case may be, as to the
validity of the statements set forth to
the effect set forth in clauses (b), (c)
and (d), to the extent applicable, (f)
Lessee shall give such cash security as
may be demanded in good faith by Lessor to
insure ultimate payment of any fine,
penalty, interest or cost and to prevent
any sale or forfeiture of the affected
portion of the Leased Property by reason
of such non-payment or non-compliance, (g)
if such contest is finally resolved
against Lessor or any member of the
Leasing Group, Lessee shall promptly pay,
as Additional Charges due hereunder, the
amount required to be paid, together with
all interest and penalties accrued thereon
and/or comply (and cause any Sublessee and
any Manager to comply) with the applicable
Legal Requirement, and (h) no state of
facts or circumstance exists which
constitutes, or with the passage of time
and/or the giving of notice, could
constitute a Lease Default; provided,
however, but without limiting any other
right Lessee may have under the Lease
Documents to contest the payment of Rent,
the provisions of this Article 15 shall
not be construed to permit Lessee to
contest the payment of Rent or any other
sums payable by



97


Lessee to Lessor under any of the Lease
Documents.  If such contest is finally
resolved in favor of Lessee, Lessee shall
be entitled to any refund resulting
therefrom.

    15.2 LESSOR'S COOPERATION.  Lessor, at
Lessee's sole cost and expense, shall
execute and deliver to Lessee such
authorizations and other documents as may
reasonably be required in any such
contest, so long as the same does not
expose Lessor to any civil or criminal
liability, and, if reasonably requested by
Lessee or if Lessor so desires, Lessor
shall join as a party therein.

    15.3 LESSEE'S INDEMNITY.  Lessee, as
more particularly provided for in Section
12.2, shall indemnify, defend (with
counsel acceptable to Lessor) and save
Lessor harmless against any liability,
cost or expense of any kind, including,
without limitation, attorneys' fees and
expenses that may be imposed upon Lessor
in connection with any such contest and
any loss resulting therefrom and in the
enforcement of this indemnification.


ARTICLE 16

DEFAULT

    16.1 EVENTS OF DEFAULT.  Each of the
following shall constitute an "Event of
Default" hereunder and shall entitle
Lessor to exercise its remedies hereunder
and under any of the other Lease
Documents:

        (a)     any failure of Lessee to
    pay any amount due hereunder or under
    any of the other Lease Documents
    within ten (10) days following the
    date when such payment was due;

        (b)     any failure in the
    observance or performance of any
    other covenant, term, condition or
    warranty provided in this Lease or
    any of the other Lease Documents,
    other than the payment of any
    monetary obligation and other than as
    specified in subsections (c) through
    (v) below (a "Failure to Perform"),
    continuing for thirty (30) days after
    the giving of notice by Lessor to
    Lessee specifying the nature of the
    Failure to Perform; except as to
    matters not susceptible to cure
    within thirty (30) days, provided
    that with respect to such matters,
    (i) Lessee commences the cure thereof
    within thirty (30) days after the
    giving of such notice by Lessor to
    Lessee,  (ii) Lessee continuously
    prosecutes such cure to completion,
    (iii) such cure is completed within
    one hundred twenty (120) days after
    the giving of such notice by Lessor
    to Lessee and (iv) such Failure to
    Perform does not impair the value of,
    or Lessor's rights with respect to,
    the Leased Property or otherwise
    impair the Collateral or Lessor's
    security interest therein;

98


        (c)     the occurrence of any
    default or breach of condition
    continuing beyond the expiration of
    the applicable notice and grace
    periods, if any, under any of the
    other Lease Documents, including,
    without limitation, the Agreement
    Regarding Related Transactions;

        (d)     if any representation,
    warranty or statement contained
    herein or in any of the other Lease
    Documents proves to be untrue in any
    material respect as of the date when
    made or at any time during the Term
    if such representation or warranty is
    a continuing representation or
    warranty pursuant to Section 10.2;

        (e)     if any member of the
    Leasing Group shall (i) voluntarily
    be adjudicated a bankrupt or
    insolvent, (ii) seek or consent to
    the appointment of a receiver or
    trustee for itself or for the Leased
    Property, (iii) file a petition
    seeking relief under the bankruptcy
    or other similar laws of the United
    States, any state or any
    jurisdiction, (iv) make a general
    assignment for the benefit of
    creditors, (v) make or offer a
    composition of its debts with its
    creditors or (vi) be unable to pay
    its debts as such debts mature;

        (f)     if any court shall enter
    an order, judgment or decree
    appointing, without the consent of
    any member of the Leasing Group, a
    receiver or trustee for such member
    or for any of its property and such
    order, judgment or decree shall
    remain in force, undischarged or
    unstayed, ninety (90) days after it
    is entered;

        (g)     if a petition is filed
    against any member of the Leasing
    Group which seeks relief under the
    bankruptcy or other similar laws of
    the United States, any state or any
    other jurisdiction, and such petition
    is not dismissed within ninety (90)
    days after it is filed;

        (h)     in the event that:

                   i.   all or any
                 portion of the interest
                 of any partner,
                 shareholder, member in
                 any member of the Leasing
                 Group (other than
                 Guarantor) shall be, on
                 any one or more
                 occasions, directly or
                 indirectly, sold,
                 assigned, hypothecated or
                 otherwise transferred
                 (whether by operation of
                 law or otherwise), if
                 such member of the
                 Leasing Group shall be a
                 partnership, joint
                 venture, syndicate or
                 other group, without the
                 prior written consent of
                 Lessor, in each instance,
                 which consent may be
                 withheld by Lessor in its
                 reasonable discretion
                 with respect to a



99



sale, assignment,
                 hypothecation or other
                 transfer to a
                 Meditrust/Emeritus
                 Transaction Affiliate and
                 in all other cases, in
                 its sole and absolute
                 discretion;

                   ii.  the shares of the
                 issued and outstanding
                 capital stock of any
                 member of the Leasing
                 Group (other than
                 Guarantor) shall be, on
                 any one or more
                 occasions, directly or
                 indirectly, sold,
                 assigned, hypothecated or
                 otherwise transferred
                 (whether by operation of
                 law or otherwise), if
                 such member of the
                 Leasing Group shall be a
                 corporation, without the
                 prior written consent of
                 Lessor, in each instance,
                 which consent may be
                 withheld by Lessor in its
                 reasonable discretion
                 with respect to a sale,
                 assignment, hypothecation
                 or other transfer to a
                 Meditrust/Emeritus
                 Transaction Affiliate and
                 in all other cases, in
                 its sole and absolute
                 discretion; or

                   iii. all or any
                 portion of the beneficial
                 interest in any member of
                 the Leasing Group (other
                 than Guarantor) shall be,
                 directly or indirectly,
                 sold or otherwise
                 transferred (whether by
                 operation of law or
                 otherwise), if such
                 member of the Leasing
                 Group shall be a trust,
                 without the prior written
                 consent of Lessor, in
                 each instance, which
                 consent may be withheld
                 by Lessor in its
                 reasonable discretion
                 with respect to a sale,
                 assignment, hypothecation
                 or other transfer to a
                 Meditrust/Emeritus
                 Transaction Affiliate and
                 in all other cases, in
                 its sole and absolute
                 discretion;

    Notwithstanding the foregoing, no
    consent of Lessor to a pledge by
    Lessee of its stock to the lender of
    a Working Capital Loan satisfying the
    requirements of Section 6.1.3 shall
    be required (a "Working Capital Stock
    Pledge").

        (i)     the death, incapacity,
    liquidation, dissolution or
    termination of existence of any
    member of the Leasing Group or the
    merger or consolidation of any member
    of the Leasing Group with any other
    Person except as expressly permitted
    by the terms of this Lease Agreement;




100


        (j)     except as provided in
    Section 19.1 hereof, if, without the
    prior written consent of Lessor, in
    each instance, which consent may be
    withheld by Lessor in its sole and
    absolute discretion, Lessee's or any
    interest of a Sublessee which is an
    Affiliate of Lessee in the Leased
    Property shall be, directly or
    indirectly, mortgaged, encumbered (by
    any voluntary or involuntary Lien
    other than the Permitted
    Encumbrances), subleased, sold,
    assigned, hypothecated or otherwise
    transferred (whether by operation of
    law or otherwise);

        (k)     the occurrence of a
    default or breach of condition
    continuing beyond the expiration of
    the applicable notice and grace
    periods, if any, in connection with
    the payment or performance of any
    other material obligation of Lessee
    or any Sublessee which is an
    Affiliate of Lessee, if the
    applicable creditor or obligee elects
    to declare the obligations of Lessee
    or the applicable Sublessee under the
    applicable agreement due and payable
    or to exercise any other right or
    remedy available to such creditor or
    obligee, or, whether or not such
    creditor or obligee has so elected or
    exercised, such creditor's or
    obligee's rights and remedies, if
    exercised, may involve or result in
    the taking of possession of, or the
    creation of a Lien on, the Leased
    Property; provided, however, that in
    any event, the election by the
    applicable creditor or obligee to
    declare the obligations of Lessee
    under the applicable agreement due
    and payable or to exercise any other
    right or remedy available to such
    creditor or obligee shall be an Event
    of Default hereunder only if such
    obligations, individually or in the
    aggregate, are in excess of TWO
    HUNDRED FIFTY THOUSAND DOLLARS
    ($250,000);

        (l)     the occurrence of a
    Related Party Default;

        (m)     the occurrence of any
    default or breach of condition which
    is not cured within any applicable
    cure period under a Working Capital
    Loan secured by a Working Capital
    Stock Pledge (or any documents
    executed in connection therewith) or
    the exercise of any ownership rights
    by the lender of a Working Capital
    Loan secured by a Working Capital
    Stock Pledge;

        (n)     except as a result of
    Casualty or a partial or complete
    Condemnation (including a temporary
    taking), if Lessee or any Sublessee
    ceases operation of the Facility for
    a period in excess of thirty (30)
    days (a "Failure to Operate");

        (o)     if one or more judgments
    against Lessee or any Sublessee which
    is an Affiliate of Lessee or
    attachments against Lessee's interest
    or any such Sublessee's interest in
    the




101


              Leased Property, which in
    the aggregate exceed TWO HUNDRED
    FIFTY THOUSAND DOLLARS ($250,000) or
    which may materially and adversely
    interfere with the operation of the
              Facility, remain unpaid,
    unstayed on appeal, undischarged,
    unbonded or undismissed for a period
    of thirty (30) days;

        (p)     if any malpractice award
    or judgment exceeding any applicable
    professional liability insurance
    coverage by more than FIVE HUNDRED
    THOUSAND DOLLARS ($500,000) shall be
    rendered against any member of the
    Leasing Group and either
    (i) enforcement proceedings shall
    have been commenced by any creditor
    upon such award or judgment or
    (ii) such award or judgment shall
    continue unsatisfied and in effect
    for a period of ten (10) consecutive
    days without an insurance company
    satisfactory to Lessor (in its sole
    and absolute discretion) having
    agreed to fund such award or judgment
    in a manner satisfactory to Lessor
    (in its sole and absolute discretion)
    and in either case such award or
    judgment shall, in the reasonable
    opinion of Lessor, have a material
    adverse affect on the ability of
    Lessee or any Sublessee to operate
    the Facility;

        (q)     if any Provider Agreement
    material to the operation or
    financial condition of the Leased
    Property shall be terminated prior to
    the expiration of the term thereof
    or, without the prior written consent
    of Lessor, in each instance, which
    consent may be withheld in Lessor's
    reasonable discretion, shall not be
    renewed or extended upon the
    expiration of the stated term
    thereof;

        (r)     if, after Lessee or any
    Sublessee has obtained approval for
    Medicare and/or Medicaid funding, a
    final unappealable determination is
    made by the applicable Governmental
    Authority that Lessee or any
    Sublessee shall have failed to comply
    with applicable Medicare and/or
    Medicaid regulations in the operation
    of the Facility, as a result of which
    failure Lessee or such Sublessee is
    declared ineligible to continue its
    participation in the Medicare and/or
    Medicaid programs and such
    determination could reasonably be
    expected to have a material adverse
    effect on the operation or financial
    condition of the Leased Property;

        (s)     if any member of the
    Leasing Group receives notice of a
    final unappealable determination by
    applicable Governmental Authorities
    of the revocation of any Permit
    required for the lawful construction
    or operation of the Facility in
    accordance with the Primary Intended
    Use and, if applicable, the Other
    Permitted Uses or the loss of any
    Permit under any other circumstances
    under which any member of the Leasing
    Group is required to permanently
    cease the construction or operation
    of the Facility in accordance with
    the Primary Intended Use and the
    Other Permitted Uses; and

102


        (t)     any failure to maintain
    the insurance required pursuant to
    Section 13 of this Lease in force and
    effect at all times until the Lease
    Obligations are fully paid and
    performed;

        (u)     the appointment of a
    temporary manager (or operator) for
    the Leased Property by any
    Governmental Authority;

        (v)     the entry of an order by
    a court with jurisdiction over the
    Leased Property to close the
    Facility, to transfer one or more
    residents the Facility as a result of
    an allegation of abuse or neglect or
    to take any action to eliminate an
    emergency situation then existing at
    the Facility, if such order has not
    been stayed pending appeal within ten
    (10) following such entry; or

        (w)     the occurrence of any
    default or breach of condition
    continuing for more than thirty (30)
    days under any credit agreement, loan
    agreement or other agreement
    establishing a major line of credit
    (including, without limitation, a
    major line of credit or a Working
    Capital Loan which is not secured by
    a Working Capital Stock Pledge)(or
    any documents executed in connection
    with such lines of credit) on behalf
    of Guarantor without regard to
    whether the applicable creditor has
    elected to declare the indebtedness
    due and payable under such line of
    credit or to exercise any other right
    or remedy available to it or the
    occurrence of any such default or
    breach of condition if the applicable
    creditor has elected to declare the
    indebtedness due and payable under
    such line of credit or to exercise
    any other right or remedy available
    to it.  For the purpose of this
    provision, a major line of credit
    shall mean and include any line of
    credit established in an amount equal
    to or greater than ONE MILLION
    DOLLARS ($1,000,000) with respect to
    a line of credit for which Guarantor
    is an obligor, endorser, surety or
    guarantor.


















103


    16.2 REMEDIES.

    (a)  If any Lease Default shall have
occurred, Lessor may at its option
terminate this Lease by giving Lessee not
less than ten (10) days' notice of such
termination, or exercise any one or more
of its rights and remedies under this
Lease or any of the other Lease Documents,
or as available at law or in equity and
upon the expiration of the time fixed in
such notice, the Term shall terminate (but
only if Lessor shall have specifically
elected by a written notice to so
terminate the Lease) and all rights of
Lessee under this Lease shall cease.
Notwithstanding the foregoing, in the
event of Lessee's failure to pay Rent, if
such Rent remains unpaid beyond ten (10)
days from the due date thereof, Lessor
shall not be obligated to give ten (10)
days notice of such termination or
exercise of any of its other rights and
remedies under this Lease, or the other
Lease Documents, or otherwise available at
law or in equity, and Lessor shall be at
liberty to pursue any one or more of such
rights or remedies without further notice.
No taking of possession of the Leased
Property by or on behalf of  Lessor, and
no other act done by or on behalf of
Lessor, shall constitute an acceptance of
surrender of the Leased Property by Lessee
or reduce Lessee's obligations under this
Lease or the other Lease Documents, unless
otherwise expressly agreed to in a written
document signed by an authorized officer
or agent of Lessor.

    (b)  To the extent permitted under
applicable law, Lessee shall pay as
Additional Charges all costs and expenses
(including, without limitation, attorneys'
fee and expenses) reasonably incurred by
or on behalf of Lessor as a result of any
Lease Default.

    (c)  If any Lease Default shall have
occurred, whether or not this Lease has
been terminated pursuant to Paragraph (a)
of this Section, Lessee shall, to the
extent permitted under applicable law, if
required by Lessor so to do, upon not less
than ten (10) days' prior notice from
Lessor, immediately surrender to Lessor
the Leased Property pursuant to the
provisions of Paragraph (a) of this
Section and quit the same, and Lessor may
enter upon and repossess the Leased
Property by reasonable force, summary
proceedings, ejectment or otherwise, and
may remove Lessee and all other Persons
and any and all of the Tangible Personal
Property from the Leased Property, subject
to the rights of any residents of the
Facility and any Sublessees who are not
Affiliates of any member of the Leasing
Group and to any requirements of
applicable law, or Lessor may claim
ownership of the Tangible Personal
Property as set forth in Section 5.2.3
hereof or Lessor may exercise its rights
as secured party under the Security
Agreement.  Lessor shall use reasonable,
good faith efforts to relet the Leased
Property or otherwise mitigate damages
suffered by Lessor as a result of Lessee's
breach of this Lease.






104


    (d)  In addition to all of the rights
and remedies of Lessor set forth in this
Lease and the other Lease Documents, if
Lessee shall fail to pay any rental or
other charge due hereunder (whether
denominated as Base Rent, Additional Rent,
Additional Charges or otherwise) within
ten (10) days after same shall have become
due and payable, then and in such event
Lessee shall also pay to Lessor (i) a late
payment service charge (in order to
partially defray Lessor's administrative
and other overhead expenses) equal to TWO
HUNDRED FIFTY DOLLARS ($250) and (ii) to
the extent permitted by applicable law,
interest on such unpaid sum at the Overdue
Rate; it being understood, however, that
nothing herein shall be deemed to extend
the due date for payment of any sums
required to be paid by Lessee hereunder or
to relieve Lessee of its obligation to pay
such sums at the time or times required by
this Lease.

    16.3 DAMAGES.  None of (a) the
termination of this Lease pursuant to
Section 16.2, (b) the eviction of Lessee
or the repossession of the Leased
Property, (c) the inability after
reasonable diligence of Lessor,
notwithstanding reasonable good faith
efforts, to relet the Leased Property, (d)
the reletting of the Leased Property or
(e) the failure of Lessor to collect or
receive any rentals due upon any such
reletting, shall relieve Lessee of its
liability and obligations hereunder, all
of which shall survive any such
termination, repossession or reletting.
In any such event, Lessee shall forthwith
pay to Lessor all Rent due and payable
with respect to the Leased Property to and
including the date of such termination,
repossession or eviction.  Thereafter,
Lessee shall forthwith pay to Lessor, at
Lessor's option, either:

         (i)    the sum of: (x) all Rent
         that is due and unpaid at later
         to occur of termination,
         repossession or eviction,
         together with interest thereon
         at the Overdue Rate to the date
         of payment, plus (y) the worth
         (calculated in the manner stated
         below) of the amount by which
         the unpaid Rent for the balance
         of the Term after the later to
         occur of the termination,
         repossession or eviction exceeds
         the fair market rental value of
         the Leased Property for the
         balance of the Term, plus (z)
         any other amount necessary to
         compensate Lessor for all damage
         proximately caused by Lessee's
         failure to perform the Lease
         Obligations or which in the
         ordinary course would be likely
         to result therefrom and less the
         amount of rent that has actually
         been received by Lessor
         following the termination of
         this Lease from a Person other
         than an Affiliate of Lessor
         (which for purposes hereof shall
         include the net income received
         by Lessor or an Affiliate of
         Lessor from its own operation of
         the Leased Property in the event
         it elects to resume operation
         thereof in lieu of hiring a
         third party manager or re-
         letting the Leased Property); or




105


         (ii)   each payment of Rent as
         the same would have become due
         and payable if Lessee's right of
         possession or other rights under
         this Lease had not been
         terminated, or if Lessee had not
         been evicted, or if the Leased
         Property had not been
         repossessed which Rent, to the
         extent permitted by law, shall
         bear interest at the Overdue
         Rate from the date when due
         until the date paid, and Lessor
         may enforce, by action or
         otherwise, any other term or
         covenant of this Lease.  There
         shall be credited against
         Lessee's obligation under this
         Clause (ii) amounts actually
         collected by Lessor from another
         tenant to whom the Leased
         Property may have actually been
         leased or, if Lessor is
         operating the Leased Property
         for its own account, the actual
         Cash Flow of the Leased
         Property.

    In making the determinations described
in subparagraph (i) above, the "worth" of
unpaid Rent shall be determined by a court
having jurisdiction thereof using the
lowest rate of capitalization (highest
present worth) reasonably applicable at
the time of such determination and allowed
by applicable law and the Additional Rent
shall be deemed to be the same as the
average Additional Rent of the preceding
five (5) full calendar years, or if
shorter, the average Additional Rent for
the calendar years or portions thereof
since the date that Additional Rent
commenced to accrue or such other amount
as either party shall prove reasonably
could have been earned during the
remainder of the Term or any portion
thereof.

    16.4 LESSEE WAIVERS.  If this Lease is
terminated pursuant to Section 16.2,
Lessee waives, to the extent not
prohibited by applicable law, (a) any
right of redemption, re-entry or
repossession, (b) any right to a trial by
jury in the event of summary proceedings
to enforce the remedies set forth in this
Article 16, and (c) the benefit of any
laws now or hereafter in force exempting
property from liability for rent or for
debt.

    16.5 APPLICATION OF FUNDS.  Any
payments otherwise payable to Lessee which
are received by Lessor under any of the
provisions of this Lease during the
existence or continuance of any Lease
Default shall be applied to the Lease
Obligations in the order which Lessor may
reasonably determine or as may be required
by the laws of the State.

    16.6 FAILURE TO CONDUCT BUSINESS.  For
the purpose of determining rental loss
damages or Additional Rent, in the event
Lessee fails to conduct business upon the
Leased Property, exact damages or the
amount of Additional Rent being
unascertainable, it shall be deemed that
the Additional Rent for such period would
be equal to the average annual Additional
Rent during the five (5) preceding
calendar years or such shorter period of
time as may have existed between the date
Additional Rent commenced to accrue and
the date of computation.




106


    16.7 LESSOR'S RIGHT TO CURE.  If
Lessee shall fail to make any payment, or
to perform any act required to be made or
performed under this Lease and to cure the
same within the relevant time periods
provided in Section 16.1, Lessor, after
five (5) Business Days' prior notice to
Lessee (except in an emergency when such
shorter notice shall be given as is
reasonable under the circumstances), and
without waiving or releasing any
obligation or Event of Default, may (but
shall be under no obligation to) at any
time thereafter make such payment or
perform such act for the account and at
the expense of Lessee, and may, to the
extent permitted by law, enter upon the
Leased Property for such purpose and take
all such action thereon as, in Lessor's
opinion, may be necessary or appropriate
therefor.  No such entry shall be deemed
an eviction of Lessee.  All sums so paid
by Lessor and all costs and expenses
(including, without limitation, reasonable
attorneys' fees and expenses, in each
case, to the extent permitted by law) so
incurred shall be paid by Lessee to Lessor
on demand as an Additional Charge.  The
obligations of Lessee and rights of Lessor
contained in this Article shall survive
the expiration or earlier termination of
this Lease.

    16.8 NO WAIVER BY LESSOR.  Lessor
shall not by any act, delay, omission or
otherwise (including, without limitation,
the exercise of any right or remedy
hereunder) be deemed to have waived any of
its rights or remedies hereunder or under
any of the other Lease Documents unless
such waiver is in writing and signed by
Lessor, and then, only to the extent
specifically set forth therein.  No waiver
at any time of any of the terms,
conditions, covenants, representations or
warranties set forth in any of the Lease
Documents (including, without limitation,
any of the time periods set forth therein
for the performance of the Lease
Obligations) shall be construed as a
waiver of any other term, condition,
covenant, representation or warranty of
any of the Lease Documents, nor shall such
a waiver in any one instance or
circumstances be construed as a waiver of
the same term, condition, covenant,
representation or warranty in any
subsequent instance or circumstance.  No
such failure, delay or waiver shall be
construed as creating a requirement that
Lessor must thereafter, as a result of
such failure, delay or waiver, give notice
to Lessee or any Guarantor, or any other
Person that Lessor does not intend to, or
may not, give a further waiver or to
refrain from insisting upon the strict
performance of the terms, conditions,
covenants, representations and warranties
set forth in the Lease Documents before
Lessor can exercise any of its rights or
remedies under any of the Lease Documents
or before any Lease Default can occur, or
as establishing a course of dealing for
interpreting the conduct of and agreements
between Lessor and Lessee, the Guarantor
or any other Person.

    The acceptance by Lessor of any
payment that is less than payment in full
of all amounts then due under any of the
Lease Documents at the time of the making
of such payment shall not: (a) constitute
a waiver of the right to exercise any of
Lessor's remedies at that time or at any
subsequent time, (b) constitute an accord
and satisfaction or (c) nullify any prior



107


exercise of any remedy, without the
express written consent of Lessor.  Any
failure by Lessor to take any action under
this Lease or any of the other Lease
Documents by reason of a default hereunder
or thereunder, acceptance of a past due
installment, or indulgences granted from
time to time shall not be construed as a
novation of this Lease or any of the other
Lease Documents or as a waiver of such
right or of the right of Lessor thereafter
to insist upon strict compliance with the
terms of this Lease or any of the other
Lease Documents, or (d) prevent the
exercise of such right of acceleration or
any other right granted hereunder or under
applicable law for purposes of obtaining
the damages set forth in Section 16.3,
specific performance or equitable
remedies; and to the maximum extent not
prohibited by applicable law, Lessee
hereby expressly waives the benefit of any
statute or rule of law or equity now
provided, or which may hereafter be
provided, which would produce a result
contrary to or in conflict with the
foregoing.

    16.9 RIGHT OF FORBEARANCE.  Whether or
not for consideration paid or payable to
Lessor and, except as may be otherwise
specifically agreed to by Lessor in
writing, no forbearance on the part of
Lessor, no extension of the time for the
payment of the whole or any part of the
Obligations, and no other indulgence given
by Lessor to Lessee or any other Person,
shall operate to release or in any manner
affect the original liability of Lessee or
such other Persons, or to limit, prejudice
or impair any right of Lessor, including,
without limitation, the right to realize
upon any collateral, or any part thereof,
for any of the Obligations evidenced or
secured by the Lease Documents; notice of
any such extension, forbearance or
indulgence being hereby waived by Lessee
and all those claiming by, through or
under Lessee.

    16.10        CUMULATIVE REMEDIES.  The
rights and remedies set forth under this
Lease are in addition to all other rights
and remedies afforded to Lessor under any
of the other Lease Documents or at law or
in equity, all of which are hereby
reserved by Lessor, and this Lease is made
and accepted without prejudice to any such
rights and remedies.  All of the rights
and remedies of Lessor under each of the
Lease Documents shall be separate and
cumulative and may be exercised
concurrently or successively in Lessor's
sole and absolute discretion.














109


ARTICLE 17

SURRENDER OF LEASED PROPERTY OR LEASE;
HOLDING OVER

    17.1 SURRENDER.  Lessee shall, upon
the expiration or prior termination of the
Term (unless occasioned by Lessee's
purchase of the Leased Property pursuant
to the terms of this Lease Agreement),
vacate and surrender the Leased Property
to Lessor in good repair and condition, in
compliance with all applicable Legal
Requirements, all Insurance Requirements,
and in compliance with the provisions of
Article 8, except for: (a) ordinary wear
and tear (subject to the obligation of
Lessee to maintain the Leased Property in
good order and repair during the entire
Term of the Lease), (b) damage caused by
the gross negligence or willful acts of
Lessor, and (c) any damage or destruction
resulting from a Casualty or Taking that
Lessee is not required by the terms of
this Lease to repair or restore.

    17.2 TRANSFER OF CONTRACTS AND
PERMITS.  In connection with the
expiration or any earlier termination of
this Lease (unless occasioned by Lessee's
purchase of the Leased Property pursuant
to the terms of this Lease Agreement),
upon any request made from time to time by
Lessor, Lessee shall (a) promptly and
diligently use its best efforts to (i)
transfer and assign all Permits and
Contracts necessary or desirable for the
operation of the Leased Property in
accordance with its Primary Intended Use
to Lessor or its designee to the extent
the same are assignable under applicable
Legal Requirements and/or (ii) arrange for
the transfer or assignment of such Permits
and Contracts to Lessor or its designee
and (b) cooperate in every respect (and to
the fullest extent possible) and assist
Lessor or its designee in obtaining such
Permits and Contracts (whether by
transfer, assignment or otherwise)
provided, however, that unless a
termination is the result of a Lease
Default, Casualty or Condemnation,
Lessee's efforts and cooperation shall not
require Lessee to pay the costs and
expenses incurred by Lessor or Lessor's
designated transferee of the Contracts and
Permits.  Such efforts and cooperation on
the part of Lessee shall include, without
limitation, the execution, delivery and
filing with appropriate Governmental
Authorities and Third Party Payors of any
applications, petitions, statements,
notices, requests, assignments and other
documents or instruments requested by
Lessor.  Furthermore, Lessee shall not
take any action or refrain from taking any
action which would defer, delay or
jeopardize the process of Lessor or its
designee obtaining said Permits and
Contracts (whether by transfer, assignment
or otherwise).  Without limiting the
foregoing, Lessee shall not seek to
transfer or relocate any of said Permits
or Contracts to any location other than
the Leased Property.  The provisions of
this Section 17.2 shall survive the
expiration or earlier termination of this
Lease.






110


    Lessee hereby appoints Lessor as its
attorney-in-fact, with full power of
substitution to take such actions, in the
event that Lessee fails to comply with any
request made by Lessor hereunder, as
Lessor (in its sole absolute discretion)
may deem necessary or desirable to
effectuate the intent of this Section
17.2.  The power of attorney conferred on
Lessor by the provisions of this Section
17.2, being coupled with an interest,
shall be irrevocable until the Obligations
are fully paid and performed and shall not
be affected by any disability or
incapacity which Lessee may suffer and
shall survive the same.  Such power of
attorney is provided solely to protect the
interests of Lessor and shall not impose
any duty on the Lender to exercise any
such power and neither Lessor nor such
attorney-in-fact shall be liable for any
act, omission, error in judgment or
mistake of law, except as the same may
result from its gross negligence or
willful misconduct.

    17.3 NO ACCEPTANCE OF SURRENDER.
Except at the expiration of the Term in
the ordinary course, no surrender to
Lessor of this Lease or of the Leased
Property or any interest therein shall be
valid or effective unless agreed to and
accepted in writing by Lessor and no act
by Lessor or any representative or agent
of Lessor, other than such a written
acceptance by Lessor, shall constitute an
acceptance of any such surrender.

    17.4 HOLDING OVER.  If, for any
reason, Lessee shall remain in possession
of the Leased Property after the
expiration or any earlier termination of
the Term, such possession shall be as a
tenant at sufferance during which time
Lessee shall pay as rental each month, one
and one-half times the aggregate of (i)
one-twelfth of the aggregate Base Rent,
and Additional Rent payable at the time of
such expiration or earlier termination of
the Term; (ii) all Additional Charges
accruing during the month and (iii) all
other sums, if any, payable by Lessee
pursuant to the provisions of this Lease
with respect to the Leased Property.
During such period of tenancy, Lessee
shall be obligated to perform and observe
all of the terms, covenants and conditions
of this Lease, but shall have no rights
hereunder other than the right, to the
extent given by law to tenants at
sufferance, to continue its occupancy and
use of the Leased Property.  Nothing
contained herein shall constitute the
consent, express or implied, of Lessor to
the holding over of Lessee after the
expiration or earlier termination of this
Lease.














111



ARTICLE 18

PURCHASE OF THE LEASED PROPERTY

    18.1 PURCHASE OF THE LEASED PROPERTY.
In the event Lessee purchases the Leased
Property from Lessor pursuant to any of
the terms of this Lease, Lessor shall,
upon receipt from Lessee of the applicable
purchase price, together with full payment
of any unpaid Rent due and payable with
respect to any period ending on or before
the date of the purchase, deliver to
Lessee a deed with covenants only against
acts of Lessor conveying the entire
interest of Lessor in and to the Leased
Property to Lessee subject to all
applicable Legal Requirements, all of the
matters described in clauses (a), (b), (e)
and (g) of Section 11.5.2, Impositions,
any Liens created by Lessee, any Liens
created in accordance with the terms of
this Lease (except to the extent
specifically excluded by the terms hereof)
or consented to by Lessee, the claims of
all Persons claiming by, through or under
Lessee, any other matters assented to by
Lessee and all matters for which Lessee
has responsibility under any of the Lease
Documents, but otherwise not subject to
any other Lien created by Lessor from and
after the Commencement Date (other than an
Encumbrance permitted under Article 20
which Lessee elects to assume).  The
applicable purchase price shall be paid in
cash to Lessor, or as Lessor may direct,
in federal or other immediately available
funds except as otherwise mutually agreed
by Lessor and Lessee.  All expenses of
such conveyance, including, without
limitation, the cost of title examination
or standard or extended coverage title
insurance, attorneys' fees incurred by
Lessor in connection with such conveyance,
recording and transfer taxes and recording
fees and similar charges and specifically
excluding any prepayment penalties, if
any, due Lessor's mortgagee, shall be paid
by Lessee.

    18.2 APPRAISAL.

        18.2.1 DESIGNATION OF APPRAISERS.
    In the event that it becomes
    necessary to determine the Fair
    Market Value of the Leased Property
    for any purpose of this Lease, the
    party required or permitted to give
    notice of such required determination
    shall include in the notice the name
    of a Person selected to act as
    appraiser on its behalf.  Within ten
    (10) days after receipt of any such
    notice, Lessor (or Lessee, as the
    case may be) shall by notice to
    Lessee (or Lessor, as the case may
    be) either accept such Person to be
    the sole appraiser to determine the
    Fair Market Value  of the Leased
    Property or appoint a second Person
    as appraiser on its behalf.

        18.2.2 APPRAISAL PROCESS.  The
    appraisers thus appointed, each of
    whom must be a member of the American
    Institute of Real Estate Appraisers
    (or any successor organization
    thereto), shall, within forty-five
    (45) days after the date of the



112


             notice appointing the first
    appraiser, proceed to appraise the
    Leased Property to determine the Fair
    Market Value of the Leased Property
    as of the relevant date (giving
    effect to the impact, if any, of
    inflation from the date of their
    decision to the relevant date);
    provided, however, that if only one
    appraiser shall have been so
    appointed, or if two appraisers shall
    have been so appointed but only one
    such appraiser shall have made such
    determination within fifty (50) days
    after the making of Lessee's or
    Lessor's request, then the
    determination of such appraiser shall
    be final and binding upon the
    parties.  If two appraisers shall
    have been appointed and shall have
    made their determinations within the
    respective requisite periods set
    forth above and if the difference
    between the amounts so determined
    shall not exceed ten per cent (10%)
    of the lesser of such amounts, then
    the Fair Market Value of the Leased
    Property shall be an amount equal to
    fifty percent (50%) of the sum of the
    amounts so determined.  If the
    difference between the amounts so
    determined shall exceed ten percent
    (10%) of the lesser of such amounts,
    then such two appraisers shall have
    twenty (20) days to appoint a third
    appraiser, but if such appraisers
    fail to do so, then either party may
    request the American Arbitration
    Association or any successor
    organization thereto to appoint an
    appraiser within twenty (20) days of
    such request, and both parties shall
    be bound by any appointment so made
    within such twenty (20) day period.
    If no such appraiser shall have been
    appointed within such twenty (20)
    days or within ninety (90) days of
    the original request for a
    determination of Fair Market Value of
    the Leased Property, whichever is
    earlier, either Lessor or Lessee may
    apply to any court having
    jurisdiction to have such appointment
    made by such court.  Any appraiser
    appointed by the original appraisers,
    by the American Arbitration
    Association or by such court shall be
    instructed to determine the Fair
    Market Value of the Leased Property
    within thirty (30) days after
    appointment of such Appraiser.  The
    determination of the appraiser which
    differs most in terms of dollar
    amount from the determinations of the
    other two appraisers shall be
    excluded, and fifty percent (50%) of
    the sum of the remaining two
    determinations shall be final and
    binding upon Lessor and Lessee as the
    Fair Market Value of the Leased
    Property.

        18.2.3 SPECIFIC ENFORCEMENT AND
    COSTS.  This provision for
    determination by appraisal shall be
    specifically enforceable to the
    extent such remedy is available under
    applicable law, and any determination
    hereunder shall be final and binding
    upon the parties except as otherwise
    provided by applicable law.  Lessor
    and Lessee shall each pay the fees
    and expenses of the appraiser
    appointed by it and each shall pay
    one-half of the fees and expenses of
    the third appraiser and one-half of
    all other cost and expenses incurred
    in connection with each appraisal.




113


         18.3   LESSEE'S OPTION TO
PURCHASE.

        18.3.1 CONDITIONS TO OPTION.  On
    the conditions (which conditions
    Lessor may waive, at its sole option,
    by notice to Lessee at any time) that
    (a) at the time of exercise of the
    Purchase Option and on the applicable
    Purchase Option Date, there then
    exists no Lease Default, nor any
    state of facts or circumstance which
    constitutes, or with the passage of
    time and/or the giving of notice,
    would constitute a Lease Default and
    (b) Lessee strictly complies with the
    provisions of this Section 18.3, then
    Lessee shall have the option to
    purchase the Leased Property, at the
    price and upon the terms hereinafter
    set forth (the "Purchase Option").

        18.3.2 EXERCISE OF OPTION;
    DEPOSIT.  Such Purchase Option shall
    permit Lessee to purchase the Leased
    Property (a) on the last day of the
    Initial Term or (b) on the last day
    of any Extended Term effectively
    exercised by Lessee (each of such
    dates are referred to herein as a
    "Purchase Option Date") and shall be
    exercised by notice given by Lessee
    to Lessor (the "Lessee's Purchase
    Option Notice") at least one hundred
    eighty (180) days (but not more than
    three hundred sixty (360) days) prior
    to the relevant Purchase Option Date.
    Notwithstanding anything to the
    contrary set forth in this Lease,
    Lessee's right to purchase the Leased
    Property is subject to the further
    conditions that (i) concurrently with
    the exercise of the option set forth
    under this Section 18.3, the Lessee
    shall have exercised its right to
    purchase the premises demised under
    each of the Related Leases in
    accordance with the provisions of
    Section 18.3 of each of the Related
    Leases, (ii) the conveyance of the
    Leased Property pursuant to the
    provisions of this Section 18.3 shall
    occur simultaneously with the
    conveyance of the premises demised
    under each of the Related Leases
    pursuant to Section 18.3 of each of
    the Related Leases and (iii) all
    conditions contained in the Agreement
    Regarding Related Transactions
    pertaining to the Purchase Option are
    satisfied.  Lessee shall have no
    right to rescind Lessee's Purchase
    Option Notice once given unless (a) a
    notice of such rescission is given
    (i) within ten (10) days following
    receipt of the final determination of
    the Fair Market Value of the Leased
    Property or (ii) within thirty (30)
    days following an event of Casualty
    or Condemnation as to which Lessee
    has waived any right of termination
    set forth in Section 13.2.2 hereof
    and (b) simultaneously with such
    notice of rescission, Lessee, by
    notice given pursuant to Section 1.3
    hereof extends the Term.

        18.3.3 CONVEYANCE.  If the
    Purchase Option is exercised by
    Lessee in accordance with the terms
    hereof, the Leased Property shall be
    conveyed by a good and sufficient
    deed with covenants only against acts
    of Lessor (the "Deed") running to


114


              Lessee or to such grantee as
    Lessee may designate by notice to
    Lessor at least seven (7) days before
    the Time of Closing.

        18.3.4 CALCULATION OF PURCHASE
    PRICE.  The price to be paid by
    Lessee for the acquisition of the
    Leased Property pursuant to this
    Purchase Option (the "Purchase
    Price") shall be equal to the greater
    of (a) the Meditrust Investment or
    (b) an amount equal to the then Fair
    Market Value of the Leased Property
    minus the Fair Market Added Value,
    subject to the terms of the Agreement
    Regarding Related Transactions.

        18.3.5 PAYMENT OF PURCHASE PRICE.
    The Purchase Price shall be paid by
    Lessee at the Time of Closing by
    certified, cashier's, treasurer's or
    bank check(s) or wire transfer
    pursuant to instructions received
    from Lessor in accordance with the
    terms of the Agreement Regarding
    Related Transactions as reduced by
    the principal balance of any Fee
    Mortgage which Lessee has elected to,
    and has the right to, assume in
    accordance with the terms hereof.

        18.3.6 PLACE AND TIME OF CLOSING.
    If this Purchase Option is exercised,
    the closing shall occur and the Deed
    shall be delivered (the "Closing") at
    the office of Lessor at 12:00 o'clock
    noon (E.S.T.) on the applicable
    Purchase Option Date (such time, as
    the same may be extended by mutual
    written agreement of Lessor and
    Lessee, being hereinafter referred to
    as the "Time of Closing") in
    accordance with the terms of the
    Agreement Regarding Related
    Transactions.  It is agreed that time
    is of the essence of this Purchase
    Option.

        18.3.7 CONDITION OF LEASED
    PROPERTY.  The Leased Property is to
    be purchased "AS IS" and "WHERE IS"
    as of the Time of Closing.

        18.3.8 QUALITY OF TITLE.  If
    Lessor shall be unable to give title
    or to make conveyance, as stipulated
    in this Section 18.3, then, at
    Lessor's option, Lessor shall use
    reasonable efforts to remove all
    defects in title and the applicable
    Purchase Option Date and Time of
    Closing shall be extended for period
    of thirty (30) days other than with
    respect to any Encumbrances which
    Lessor has caused to exist.  Lessor
    shall not be required to expend more
    than FIFTY THOUSAND DOLLARS ($50,000)
    (inclusive of attorney's fees) in
    order to have used "reasonable
    efforts."







115


        18.3.9 LESSOR'S INABILITY TO
    PERFORM.  If at the expiration of the
    extended time Lessor shall have
    failed so to remove any such defects
    in title, then all other obligations
    of all parties hereto under Section
    18.3 shall cease and Section 18.3
    shall be void and without recourse to
    the parties hereto.  Notwithstanding
    the foregoing, Lessee shall have the
    election, at either the original or
    extended Purchase Option Date and
    Time of Closing, to accept such title
    as Lessor can deliver to the Leased
    Property in its then condition and to
    pay therefor the Purchase Price
    without reduction, in which case
    Lessor shall convey such title;
    provided, that, in the event of such
    conveyance, if any portion of the
    Leased Property shall have been taken
    by Condemnation prior to the
    applicable Purchase Option Date and
    Time of Closing, Lessor shall pay
    over or assign to Lessee at the Time
    of Closing, all Awards recovered on
    account of such Taking, less any
    amounts reasonably expended by Lessor
    in obtaining such Award and less any
    amounts expended for restoration
    pursuant to the provisions of Article
    14 hereof, or, to the extent such
    Awards have not been recovered as of
    the applicable Purchase Option Date
    and Time of Closing, Lessor shall
    assign to Lessee all its rights with
    respect to any claim therefor and
    further  provided, that, in the event
    of such conveyance, if any portion of
    the Leased Property shall have
    suffered a Casualty prior to the
    applicable Purchase Option Date and
    Time of Closing, Lessor shall pay
    over or assign to Lessee at the Time
    of Closing, all insurance proceeds
    recovered on account of such
    Casualty, less any amounts reasonably
    expended by Lessor in obtaining such
    proceeds and less any amounts
    expended for restoration pursuant to
    the provisions of Article 13 hereof,
    or, to the extent such proceeds have
    not been recovered as of the
    applicable Purchase Option Date and
    Time of Closing, Lessor shall assign
    to Lessee all its rights with respect
    to any claim therefor.

        18.3.10    MERGER BY DEED.  The
    acceptance of the Deed by Lessee or
    the grantee designated by Lessee, as
    the case may be, shall be deemed to
    be a full performance and discharge
    of every agreement and obligation to
    be performed by Lessor contained or
    expressed in this Lease.

        18.3.11    USE OF PURCHASE PRICE
    TO CLEAR TITLE.  To enable Lessor to
    make conveyance as provided in this
    Section, Lessor may, at the Time of
    Closing, use the Purchase Price or
    any portion thereof to clear the
    title of any Lien, provided that all
    instruments so procured are recorded
    contemporaneously with the Closing or
    reasonable arrangements are made for
    a recording subsequent to the Time of
    Closing in accordance with customary
    conveyancing practices.





116


        18.3.12    LESSEE'S DEFAULT.  If
    Lessee delivers Lessee's Purchase
    Option Notice and fails to consummate
    the purchase of the Leased Property
    in accordance with the terms hereof
    for any reason other than Lessor's
    willful and unexcused refusal to
    deliver the Deed or exercise of the
    right of rescission in Section 18.3.2
    hereof, (a) Lessee shall thereafter
    have no further right to purchase the
    Leased Property pursuant to this
    Section, although this Lease shall
    otherwise continue in full force and
    effect and (b) Lessor shall have the
    right to sue for specific performance
    of Lessee's obligations to purchase
    the Leased Property provided such
    suit for specific performance is
    commenced within one (1) year after
    the applicable Purchase Option Date
    on which such sale was supposed to
    occur.


ARTICLE 19

SUBLETTING AND ASSIGNMENT

    19.1 SUBLETTING AND ASSIGNMENT.
Lessee may not, without the prior written
consent of Lessor, which consent may be
withheld in Lessor's sole and absolute
discretion, assign or pledge all or any
portion of its interest in this Lease or
any of the other Lease Documents (whether
by operation of law or otherwise) or
sublet all or any part of the Leased
Property.  For purposes of this
Section 19.1, the term "assign" shall be
deemed to include, but not be limited to,
any one or more sales, pledges,
hypothecations or other transfers
(including, without limitation, any
transfer by operation of law) of any of
the capital stock of or partnership
interest in Lessee or sales, pledges,
hypothecations or other transfers
(including, without limitation, any
transfer by operation of law) of the
capital or the assets of Lessee.  Any such
assignment, pledge, sale, hypothecation or
other transfer made without Lessor's
consent shall be void and of no force and
effect.  Notwithstanding the foregoing,
Lessors consent shall not be unreasonably
withheld with respect to an assignment or
pledge of an interest of Lessee in this
Lease or a sublet of all or a part of the
Leased Property to a  Meditrust/Emeritus
Transaction Affiliate.

    19.2 ATTORNMENT.  Lessee shall insert
in each Sublease approved by Lessor,
provisions to the effect that (a) such
Sublease is subject and subordinate to all
of the terms and provisions of this Lease
and to the rights of Lessor hereunder, (b)
in the event this Lease shall terminate
before the expiration of such Sublease,
the Sublessee thereunder will, at Lessor's
option, attorn to Lessor and waive any
right the Sublessee may have to terminate
the Sublease or to surrender possession
thereunder, as a result of the termination
of this Lease and (c) in the event the
Sublessee receives a written notice from
Lessor stating that Lessee is in default
under this Lease, the Sublessee shall
thereafter be obligated to pay all rentals




117


accruing under said Sublease directly to
Lessor or as Lessor may direct.  All
rentals received from the Sublessee by
Lessor shall be credited against the
amounts owing by Lessee under this Lease.


ARTICLE 20

TITLE TRANSFERS AND LIENS GRANTED BY
LESSOR

    20.1 NO MERGER OF TITLE.  Except as
otherwise provided in Section 18.3.10,
there shall be no merger of this Lease or
of the leasehold estate created hereby
with the fee estate in the Leased Property
by reason of the fact that the same Person
may acquire, own or hold, directly or
indirectly (a) this Lease or the leasehold
estate created hereby or any interest in
this Lease or such leasehold estate and
(b) the fee estate in the Leased Property.

    20.2 TRANSFERS BY LESSOR.  If the
original Lessor named herein or any
successor in interest shall convey the
Leased Property in accordance with the
terms hereof, other than as security for a
debt, and the grantee or transferee of the
Leased Property shall expressly assume all
obligations of Lessor hereunder arising or
accruing from and after the date of such
conveyance or transfer, the original
Lessor named herein or the applicable
successor in interest so conveying the
Leased Property shall thereupon be
released from all future liabilities and
obligations of Lessor under this Lease
arising or accruing from and after the
date of such conveyance or other transfer
as to the Leased Property and all such
future liabilities and obligations shall
thereupon be binding upon the new owner.

    20.3 LESSOR MAY GRANT LIENS.  Without
the consent of Lessee, but subject to the
terms and conditions set forth below in
this Section 20.3, Lessor may, from time
to time, directly or indirectly, create or
otherwise cause to exist any lien,
encumbrance or title retention agreement
upon the Leased Property or any interest
therein ("Encumbrance"), whether to secure
any borrowing or other means of financing
or refinancing, provided that Lessee shall
have no obligation to make payments under
such Encumbrances.  Lessee shall
subordinate this Lease to the lien of any
such Encumbrance, on the condition that
the beneficiary or holder of such
Encumbrance executes a non-disturbance
agreement in conformity with the
provisions of Section 20.4.  To the extent
that any such Encumbrance consists of a
mortgage or deed of trust on Lessor's
interest in the Leased Property the same
shall be referred to herein as a "Fee
Mortgage" and the holder thereof shall be
referred to herein as a "Fee Mortgagee".








118


    20.4 SUBORDINATION AND NON-
DISTURBANCE.  Concurrently with the
execution and delivery of any Fee Mortgage
entered into after the date hereof,
provided that the Lessee executes and
delivers an agreement of the type
described in the following paragraph,
Lessor shall obtain and deliver to Lessee
an agreement by the holder of such Fee
Mortgage, pursuant to which, (a) the
applicable Fee Mortgagee consents to this
Lease and (b) agrees that, notwithstanding
the terms of the applicable Fee Mortgage
held by such Fee Mortgagee, or any
default, expiration, termination,
foreclosure, sale, entry or other act or
omission under or pursuant to such Fee
Mortgage or a transfer in lieu of
foreclosure, (i) Lessee shall not be
disturbed in peaceful enjoyment of the
Leased Property nor shall this Lease be
terminated or cancelled at any time,
except in the event that Lessor shall have
the right to terminate this Lease under
the terms and provisions expressly set
forth herein, (ii) Lessee's option to
purchase the Leased Property shall remain
in force and effect pursuant to the terms
hereof and (iii) in the event that Lessee
elects its option to purchase the Leased
Property and performs all of its
obligations hereunder in connection with
any such election, the holder of the Fee
Mortgage shall release its Fee Mortgage
upon payment by Lessee of the purchase
price required hereunder, provided, that
(1) such purchase price is paid to the
holder of the Fee Mortgage, in the event
that the Indebtedness secured by the
applicable Fee Mortgage is equal to or
greater than the purchase price or (2) in
the event that the purchase price is
greater than the Indebtedness secured by
the Fee Mortgage, a portion of the
purchase price equal to the Indebtedness
secured by the Fee Mortgage is paid to the
Fee Mortgagee and the remainder of the
purchase price is paid to Lessor.

    At the request from time to time by
any Fee Mortgagee, Lessee shall (a)
subordinate this Lease and all of Lessee's
rights and estate hereunder to the Fee
Mortgage held by such Fee Mortgagee and
(b) agree that Lessee will attorn to and
recognize such Fee Mortgagee or the
purchaser at any foreclosure sale or any
sale under a power of sale contained in
any such Fee Mortgage as Lessor under this
Lease for the balance of the Term then
remaining.  To effect the intent and
purpose of the immediately preceding
sentence, Lessee agrees to execute and
deliver such instruments in recordable
from as are reasonably requested by Lessor
or the applicable Fee Mortgagee; provided,
however, that such Fee Mortgagee
simultaneously executes, delivers and
records a written agreement of the type
described in the preceding paragraph.












119


ARTICLE 21

LESSOR OBLIGATIONS

    21.1 QUIET ENJOYMENT.  As long as
Lessee shall pay all Rent and all other
sums due under any of the Lease Documents
as the same become due and shall fully
comply with all of the terms of this Lease
and the other Lease Documents and fully
perform its obligations thereunder, Lessee
shall peaceably and quietly have, hold and
enjoy the Leased Property throughout the
Term, free of any claim or other action by
Lessor or anyone claiming by, through or
under Lessor, but subject to all the
Permitted Encumbrances and such Liens as
may hereafter be consented to by Lessee.
No failure by Lessor to comply with the
foregoing covenant shall give Lessee any
right to cancel or terminate this Lease,
or to fail to perform any other sum
payable under this Lease, or to fail to
perform any other obligation of Lessee
hereunder.  Notwithstanding the foregoing,
Lessee shall have the right by separate
and independent action to pursue any claim
it may have against Lessor as a result of
a breach by Lessor of the covenant of
quiet enjoyment contained in this Article
21.

    21.2 MEMORANDUM OF LEASE.  Lessor and
Lessee shall, promptly upon the request of
either, enter into a short form memorandum
of this Lease, in form suitable for
recording under the laws of the State, in
which reference to this Lease and all
options contained herein shall be made.
Lessee shall pay all recording costs and
taxes associated therewith.

    21.3 DEFAULT BY LESSOR.  Lessor shall
be in default of its obligations under
this Lease only if Lessor shall fail to
observe or perform any term, covenant or
condition of this Lease on its part to be
performed and such failure shall continue
for a period of thirty (30) days after
notice thereof from Lessee (or such
shorter time as may be necessary in order
to protect the health or welfare of any
residents of the Facility or to ensure the
continuing compliance of the Facility with
applicable Legal Requirements), unless
such failure cannot with due diligence be
cured within a period of thirty (30) days,
in which case such failure shall not be
deemed to continue if Lessor, within said
thirty (30) day period, proceeds promptly
and with due diligence to cure the failure
and diligently completes the curing
thereof within one hundred twenty (120)
days after notice thereof.












120



ARTICLE 22

NOTICES

    Any notice, request, demand, statement
or consent made hereunder or under any of
the other Lease Documents shall be in
writing and shall be deemed duly given if
personally delivered, sent by certified
mail, return receipt requested, or sent by
a nationally recognized commercial
overnight delivery service with provision
for a receipt, postage or delivery charges
prepaid, and shall be deemed given when so
personally delivered, three (3) business
days following the date postmarked or the
next business day when placed in the
possession of such mail delivery service
and addressed as follows:

If to Lessee:            c/o Emeritus
Corporation
                           3131 Elliott
Avenue, Suite 500
                    Seattle, WA  98121-
2162
                                                       Attention:
                                      Daniel R. Baty, Chief

Exec
                                      utiv
                                      e
                                      Offi
                                      cer

With a copy to:          The Nathanson
Group
                    1411 Fourth Avenue,
Suite 905
                    Seattle, WA  98101
                    Attn:  Randi S.
Nathanson, Esquire

If to the Guarantor:
Emeritus Corporation
                    Market Place One
                    3131 Elliott Avenue,
Suite 500
                    Seattle, WA  98121-
2162
                                                       Attention:
                                      Daniel R. Baty, Chief

Exec
                                      utiv
                                      e
                                      Offi
                                      cer

With a copy to:          The Nathanson
Group
                    1411 Fourth Avenue,
Suite 905
                    Seattle, WA  98101
                    Attn:  Randi S.
Nathanson, Esquire


If to Lessor:            Meditrust
Acquisition Corporation I
                    197 First Avenue
                    Needham Heights,
Massachusetts

02194
                    Attn:  President

With copies to:          Meditrust
Acquisition Corporation I
                    197 First Avenue
                    Needham Heights,
Massachusetts
02194
                    Attn:  General Counsel


121


                         and
                         Mintz, Levin,
                         Cohn, Ferris,
                         Glovsky

and Popeo, P.C.
                    One Financial Center
                    Boston, MA  02111
                    Attn:  Joshua Davis,
Esquire


or such other address as Lessor, Lessee or
the Guarantor shall hereinafter from time
to time designate by a written notice to
the others given in such manner.  Any
notice given to Lessee or the Guarantor by
Lessor at any time shall not imply that
such notice or any further or similar
notice was or is required.


ARTICLE 23

LIMITATION OF MEDITRUST LIABILITY

    The Declaration of Trust establishing
the sole shareholder of Lessor, Meditrust,
a Massachusetts business trust
("Meditrust"), dated August 6, 1985 (the
"Declaration"), as amended, a copy of
which is duly filed in the office of the
Secretary of State of the Commonwealth of
Massachusetts, provides that the name
"Meditrust" refers to the trustees under
the Declaration collectively as trustees,
but not individually or personally; and
that no trustee, officer, shareholder,
employee or agent of Meditrust or any of
its Subsidiaries shall be held to any
personal liability, jointly, or severally,
for any obligation of, or claim against
Meditrust or any of its Subsidiaries.  All
Persons dealing with Meditrust or Lessor,
in any way, shall look only to the assets
of Meditrust or Lessor, as applicable, for
the payment of any sum or the performance
of any obligation.  Furthermore, in no
event shall Meditrust or Lessor ever be
liable to Lessee or any other Person for
any indirect or consequential damages
incurred by Lessee or such other Person
resulting from any cause whatsoever.
Notwithstanding the foregoing, Lessee
hereby acknowledges and agrees that
Meditrust is not a party to this Lease and
that Lessee shall look only to the assets
of Lessor for the payment of any sum or
performance of any obligation due by or
from Lessor pursuant to the terms and
provisions of the Lease Documents.











                                      122



ARTICLE 24

MISCELLANEOUS PROVISIONS

    24.1 BROKER'S FEE INDEMNIFICATION.
Lessee and Lessor each shall and hereby
agrees to indemnify, defend (with counsel
acceptable to the other) and hold the
other harmless from and against any and
all claims for premiums or other charges,
finder's fees, taxes, brokerage fees or
commissions and other similar compensation
due to a broker or finder allegedly
employed or retained by it in connection
with any of the transactions contemplated
by the Lease Documents.  Notwithstanding
the foregoing, the indemnified party shall
have the option of conducting its own
defense against any such claims with
counsel of such party's choice, but at the
expense of the indemnifying party, as
aforesaid.  This indemnification shall
include all reasonable attorneys' fees and
expenses and court costs reasonably
incurred by the indemnified party in
connection with the defense against any
such claims and the enforcement of this
indemnification agreement and shall
survive the termination of this Lease.

    24.2 NO JOINT VENTURE OR PARTNERSHIP.
Neither anything contained in any of the
Lease Documents, nor the acts of the
parties hereto, shall create, or be
construed to create, a partnership or
joint venture between Lessor and Lessee.
Lessee is not the agent or representative
of Lessor and nothing contained herein or
in any of the other Lease Documents shall
make, or be construed to make, Lessor
liable to any Person for goods delivered
to Lessee, services performed with respect
to the Leased Property at the direction of
Lessee or for debts or claims accruing
against Lessee.

    24.3 AMENDMENTS, WAIVERS AND
MODIFICATIONS.  None of the terms,
covenants, conditions, warranties or
representations contained in this Lease or
in any of the other Lease Documents may be
renewed, replaced, amended, modified,
extended, substituted, revised, waived,
consolidated or terminated except by an
agreement in writing signed by all parties
to this Lease or the other Lease
Documents, as the case may be, in the case
of any renewal, replacement, amendment,
modification, extension, substitution,
revisions, consolidation or termination
and by the Person against whom enforcement
is sought in the case of a waiver or
except as otherwise expressly provided for
herein or in any other Lease Document.
The provisions of this Lease and the other
Lease Documents shall extend and be
applicable to all renewals, replacements,
amendments, extensions, substitutions,
revisions, consolidations and
modifications of any of the Lease
Documents, the Management Agreements, the
Related Party Agreements, the Permits
and/or the Contracts.  References herein
and in the other Lease Documents to any of
the Lease Documents, the Management
Agreements, the Related Party Agreements,
the Permits and/or the Contracts shall be
deemed to include any renewals,
replacements, amendments, extensions,
substitutions, revisions, consolidations
or modifications thereof.


123


    Notwithstanding the foregoing, any
reference contained in any of the Lease
Documents, whether express or implied, to
any renewal, replacement, amendment,
extension, substitution, revisions,
consolidation or modification of any of
the Lease Documents or any Management
Agreement, Related Party Agreement, Permit
and/or the Contract is not intended to
constitute an agreement or consent by
Lessor to any such renewal, replacement,
amendment, substitution, revision,
consolidation or modification; but, rather
as a reference only to those instances
where Lessor may give, agree or consent to
any such renewal, replacement, amendment,
extension, substitution, revision,
consolidation or modification as the same
may be required pursuant to the terms,
covenants and conditions of any of the
Lease Documents.

    24.4 CAPTIONS AND HEADINGS.  The
captions and headings set forth in this
Lease and each of the other Lease
Documents are included for convenience and
reference only, and the words contained
therein shall in no way be held or deemed
to define, limit, describe, explain,
modify, amplify or add to the
interpretation, construction or meaning
of, or the scope or intent of, this Lease,
any of the other Lease Documents or any
parts hereof or thereof.

    24.5 TIME IS OF THE ESSENCE.  Time is
of essence of each and every term,
condition, covenant and warranty set forth
herein and in the other Lease Documents.

    24.6 COUNTERPARTS.  This Lease and the
other Lease Documents may be executed in
one or more counterparts, each of which
taken together shall constitute an
original and all of which shall constitute
one in the same instrument.

    24.7 ENTIRE AGREEMENT.  This Lease and
the other Lease Documents set forth the
entire agreement of the parties with
respect to the subject matter and shall
supersede in all respect the letter of
intent, dated January 31, 1996 (and all
prior iterations thereof), from Meditrust
to Lessee.

    24.8 WAIVER OF JURY TRIAL.  TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, LESSOR AND LESSEE HEREBY MUTUALLY,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT WHICH ANY PARTY HERETO MAY
NOW OR HEREAFTER HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO
THE LEASE OR ANY OF THE LEASE DOCUMENTS.
Lessee hereby certifies that neither
Lessor nor any of Lessor's
representatives, agents or counsel has
represented expressly or otherwise that
Lessor would not, in the event of any such
suit, action or proceeding seek to enforce
this waiver to the right of trial by jury
and acknowledges that Lessor has been
induced by this waiver (among other
things) to enter into the transactions
evidenced by this Lease and the other


124


Lease Documents and further acknowledges
that Lessee (a) has read the provisions of
this Lease, and in particular, the
paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands
the rights that it is granting in this
Lease and the rights that it waiving in
this paragraph in particular and (d) makes
the waivers set forth herein knowingly,
voluntarily and intentionally.

    24.9 SUCCESSORS AND ASSIGNS.  This
Lease and the other Lease Documents shall
be binding upon and inure to the benefit
of (a) Lessee and Lessee's legal
representatives and permitted successors
and assigns and (b) Lessor and any other
Person who may now or hereafter hold the
interest of Lessor under this Lease and
their respective successors and assigns.

    24.10       NO THIRD PARTY
BENEFICIARIES.  This Lease and the other
Lease Documents are solely for the benefit
of Lessor, its successors, assigns and
participants (if any), the Meditrust
Entities, Lessee, the Guarantor, the other
members of the Leasing Group and their
respective permitted successors and
assigns, and, except as otherwise
expressly set forth in any of the Lease
Documents, nothing contained therein shall
confer upon any Person other than such
parties any right to insist upon or to
enforce the performance or observance of
any of the obligations contained therein.
All conditions to the obligations of
Lessor to advance or make available
proceeds of insurance or Awards, or to
release any deposits held for Impositions
or insurance premiums are imposed solely
and exclusively for the benefit of Lessor,
its successors and assigns.  No other
Person shall have standing to require
satisfaction of such conditions in
accordance with their terms, and no other
Person shall, under any circumstances, be
a beneficiary of such conditions, any or
all of which may be freely waived in whole
or in part by Lessor at any time, if, in
Lessor's sole and absolute discretion,
Lessor deems it advisable or desirable to
do so.

    24.11       GOVERNING LAW.  This Lease
shall be construed and the rights and
obligations of Lessor and Lessee shall be
determined in accordance with the laws of
the State.

    Lessee hereby consents to personal
jurisdiction in the courts of the State
and the United States District Court for
the District in which the Leased Property
is situated as well as to the jurisdiction
of all courts from which an appeal may be
taken from the aforesaid courts, for the
purpose of any suit, action or other
proceeding arising out of or with respect
to any of the Lease Documents, the
negotiation and/or consummation of the
transactions evidenced by the Lease
Documents, the Lessor's relationship of
any member of the Leasing Group in
connection with the transactions evidenced
by the Lease Documents and/or the
performance of any obligation or the
exercise of any remedy under any of the
Lease Documents and expressly waives any
and all objections Lessee may have as to
venue in any of such courts.



125


    24.12       GENERAL.  Anything
contained in this Lease to the contrary
notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising
prior to any date of termination of this
Lease or any of the other Lease Documents
shall survive such termination.

    If any provision of this Lease or any
of the other Lease Documents or any
application thereof shall be invalid or
unenforceable, the remainder of this Lease
or the other applicable Lease Document, as
the case may be, and any other application
of such term or provision shall not be
affected thereby.  Notwithstanding the
foregoing, it is the intention of the
parties hereto that if any provision of
any of this Lease is capable of two (2)
constructions, one of which would render
the provision void and the other of which
would render the provision valid, then
such provision shall be construed in
accordance with the construction which
renders such provision valid.

    If any late charges provided for in
any provision of this Lease or any of the
other Lease Documents are based upon a
rate in excess of the maximum rate
permitted by applicable law, the parties
agree that such charges shall be fixed at
the maximum permissible rate.

    Lessee waives all presentments,
demands for performance, notices of
nonperformance, protests, notices of
protest, notices of dishonor, and notices
of acceptance and waives all notices of
the existence, creation, or incurring of
new or additional obligations, except as
to all of the foregoing as expressly
provided for herein.

























126



ARTICLE 25

SUBSTITUTION OF PROPERTY

    25.1 SUBSTITUTION OF PROPERTY FOR THE
LEASED PROPERTY. Provided that no Event of
Default has occurred under this Lease
(excluding any Event of Default which has
been waived, in writing, by the Lessor),
nor any event which, with the giving of
notice or the passage of time or both,
would constitute such an Event of Default,
Lessee shall have the right from time to
time (referred to herein as the
"Substitution Right"), exercisable upon
not less than ninety (90) days' prior
written notice to Lessor (referred to
herein as a "Substitution Notice") to
substitute, on a date specified in such
Substitution Notice (such date, as the
same may be extended by express written
agreement of lessor, shall be referred to
herein as a "Substitution Date"), the
Leased Property with a Comparable
Facility.  As used herein, the term
"Comparable Facility" shall be defined as
a health care facility or facilities which
Lessor determines (a) has an appraised
Fair Market Value greater than or equal to
the greater of (i) the appraised Fair
Market Value of the Leased Property as of
the Completion Date or (ii) the appraised
Fair Market Value of the Leased Property
at the time that the applicable
Substitution Notice is furnished to Lessor
(based on appraisal criteria then in
effect), (b) has a Facility Debt Coverage
Ratio greater than or equal to the greater
of (i) the Facility Debt Coverage Ratio of
the Leased Property as of the Commencement
Date, (ii) the Facility Debt Coverage
Ratio of the Leased Property at the time
that the applicable Substitution Notice is
furnished to Lessor, (c) provides a mix of
services similar to the Leased Property
and (d) is otherwise reasonably
acceptable, in all respects, to Lessor
(based on Lessor's usual and customary
property evaluation criteria then in
effect). Lessee may not exercise its
Substitution Right more than once in any
calendar year.

    25.2 CONDITIONS TO SUBSTITUTION.
Without limiting the foregoing, as
conditions precedent to the consummation
of any proposed substitution:

    (a)  as of the applicable Substitution
Date, no Event of Default shall have
occurred under the Lease (excluding any
Event of Default which has been waived, in
writing, by Lessor), nor any event which
with the giving of notice or the passage
of time or both would constitute such an
Event of Default;

    (b)  Lessor shall have received
engineering and inspection reports
relating to the assisted living facility
identified by Lessee in the applicable
Substitution Notice (referred to herein as
a "Proposed Facility"), reasonably
satisfactory in all respects to Lessor;





127


    (c)  Lessee shall have delivered to
Lessor (i) an MAI appraisal of the
Proposed Facility (prepared by an
appraiser selected by Lessee and approved
by Lessor), in form and substance
reasonably satisfactory to Lessor and (ii)
an instrument survey of the premises upon
which the Proposed Facility is located
acceptable to Lessor and the title
insurance company providing insurance with
respect to the Proposed Facility;

    (d)  Lessor shall be satisfied as to
compliance of Lessee, the Proposed
Facility, the owner of the Proposed
Facility (to the extent such owner is not
Lessee as provided in subsection (l)
below) and/or the proposed substitution,
as the case may be, with (i) all
applicable land use, zoning, subdivision
and environmental laws and regulations,
(ii) all applicable assisted living
licensure laws and regulations and (iii)
such other matters as Lessor reasonably
deems relevant (including, without
limitation, whether the conveyance of the
property to Lessor in connection with the
proposed substitution may be avoided under
the Bankruptcy Code);

    (e)  Lessee shall have delivered to
Lessor a valid and binding owner's or
lessee's (as applicable) title insurance
commitment issued by a title insurer
reasonably acceptable to Lessor (the
"Title Company"), in an amount equal to
the Fair Market Value of the Proposed
Facility, with such endorsements and
affirmative coverages, and in such form,
as Lessor may reasonably require insuring
Lessor's fee title or leasehold title to
the Proposed Facility, subject to no Liens
except those approved or assumed by Lessor
and arrangements satisfactory to Lessor
shall have been made for the issuance of a
title insurance policy on the Substitution
Date in accordance with such title
insurance commitment;

    (f)  Lessee shall have delivered an
environmental site assessment report
relating to the Proposed Facility, in form
and substance reasonably acceptable to
Lessor and prepared by an environmental
consultant reasonably acceptable to
Lessor;

    (g)  Lessor shall have obtained, at
Lessee's cost, an opinion of Lessor's
counsel, in form and substance acceptable
to Lessor, confirming that (i) the
substitution of the Proposed Facility for
the Leased Property will qualify as an
exchange solely of property of a like-kind
under Section 1031 of the Code, in which,
generally, except for "boot" such as cash
needed to equalize exchange values or
discharge indebtedness, no gain or loss is
recognized to Lessor, (ii) the
substitution or sale will not result in
ordinary recapture income to Lessor
pursuant to Code Section 1250(d)(4) or any
other Code provision, (iii) the
substitution or sale will result in
income, if any, to Lessor of a type
described in Code Section 856(c)(2) or (3)
and will not result in income of the types
described in Code Section 856(c)(4) or
result in the tax imposed under Code
Section 857(b)(6) and (iv) the
substitution or sale, together with all
other substitutions and sales made or
requested by Lessee or any Affiliate of
Lessee or of any Guarantor pursuant to any
other leases with Lessor (or any of its
Affiliates) or any other



128


transfers of the Leased Property or the
properties leased under other such leases,
during the relevant time period, will not
jeopardize the qualification of Lessor as
a real estate investment trust under Code
Sections 856-860;

    (h)  Lessor shall have received
opinions of Lessee's counsel as to (i) the
compliance of the Proposed Facility with
land use, zoning, subdivision and
environmental laws and regulations, (ii)
the compliance of Lessee, the owner of the
Proposed Facility (to the extent such
owner is not Lessee as provided in
subsection (l) below), the proposed
substitution and the Proposed Facility
with applicable assisted living laws and
regulations, (iii) the due authorization,
execution and enforceability of the
Substitution Documents and (iv) such other
matters as are reasonably requested; in
form and substance reasonably acceptable
to Lessor;

    (i)  Lessee and each Guarantor shall
have executed and delivered, or caused to
be executed and delivered, such documents
as are reasonably required by Lessor to
effectuate the substitution (collectively,
the "Substitution Documents"), including,
without limitation, (i) a deed with full
warranties or assignment of a leasehold
estate with full warranties (as
applicable) conveying to Lessor title to
the Proposed Facility free and clear of
all Liens, except those approved or
assumed by Lessor, (ii) a facility lease
(the "Substitution Lease") duly executed,
acknowledged and delivered by Lessee,
containing the same terms and conditions
as are contained herein except that (1)
the legal description of the land shall
refer to the Proposed Facility, (2) the
Minimum Repurchase Price of the Proposed
Facility shall be an amount equal to the
Minimum Repurchase Price of the Leased
Property increased by any Cash Adjustment
paid by Lessor, (3) the Rent under the
Substitution Lease in all respects shall
provide Lessor with a substantially
equivalent yield at the time of the
substitution (i.e., annual return on its
equity in such Proposed Facility) to that
received (and reasonably expected to be
received thereafter) from the Leased
Property, taking into account the Cash
Adjustment, if any, paid by Lessor and any
other relevant factors and (4) such other
changes therein as may be necessary or
appropriate under the circumstances shall
be made; (iii) a collateral assignment of
permits, licenses, approvals and contracts
relating to the Proposed Facility,
substantially in the form of the Permits
Assignment; (iv) UCC financing statements;
(v) a guaranty substantially in the form
of the Guaranty of Lease Obligations shall
be executed by Guarantor, (vi) an
affiliated party subordination agreement,
substantially in the form of the
Affiliated Party Subordination Agreement,
shall be executed by the Lessee, and such
other Affiliates of the Lessee as are
deemed necessary or appropriate by the
Lessor and (vii) the Agreement Regarding
Related Transactions shall be amended to
reflect the substitution of the Proposed
Facility.  The Substitution Documents
shall be based upon and contain the same
terms and conditions as are set forth in
Lessee Documents in effect prior to the
substitution, except that such changes
shall be made as may be necessary or
reasonably appropriate under the
circumstances to effectuate the
substitution and secure the protection and
priority of the property and security
interests conveyed and/or granted to
Lessor;

                                      129


    (j)  without limiting any other
provision contained herein, Lessee shall
have delivered to Lessor such other
information and materials relating to
Lessee, the owner of the Proposed Facility
(to the extent that such owner is not
Lessee as provided in subsection (l)
below) and the Proposed Facility as Lessor
may reasonably request, including, without
limitation, leases, receipted bills,
management agreements and other Contracts,
Provider Agreements, cost reports,
Permits, evidence of legal and actual
access to the Proposed Facility, evidence
of the availability and sufficiency of
utilities servicing the Proposed Facility,
historical and current operating
statements, detailed budgets and financial
statements and Lessor shall have found the
same to be satisfactory in all respects;

    (k)  Lessee or an Affiliate of Lessee
shall be the licensed operator of the
Proposed Facility as of the date of the
consummation of the substitution;

    (l)  the Proposed Facility shall be
owned or leased by Lessee or an Affiliate
of Lessee; provided, however that in the
event that the Proposed Facility is owned
by any such Affiliate, (i) said Affiliate
shall execute and deliver to Lessor such
Substitution Documents as may be
reasonably required by Lessor and (ii)
Lessor shall be provided with such
evidence as it may require to determine
that the conveyance of the Proposed
Facility (or a leasehold interest therein)
to Lessor does not constitute a fraudulent
conveyance (under applicable federal or
state law);

    (m)  Lessee shall have delivered to
Lessor an insurance certificate evidencing
compliance with all of the insurance
requirements set forth in the Substitution
Documents;

    (n)  Lessee shall have delivered to
Lessor an Officer's Certificate certifying
as of the Substitution Date that (i) the
Proposed Facility has been accepted by
Lessee for all purposes of the
Substitution Lease and there has been no
material damage to the improvements
located on the Proposed Facility, nor is
any condemnation or eminent domain
proceeding pending with respect thereto;
(ii) all Permits (including, but not
limited to, a permanent, unconditional
certificate of occupancy and all
certificates of need, licenses and
Provider Agreements) which are necessary
to permit the use of the Proposed Facility
in accordance with the provisions of the
Substitution Lease have been obtained and
are in full force and effect; (iii) under
applicable zoning and use laws,
ordinances, rules and regulations, the
Proposed Facility may be used for the
purposes contemplated by Substitution
Documents and all necessary subdivision
approvals have been obtained; (iv) to the
best knowledge of Lessee, there exists no
Event of Default under this Lease, and no
defense, offset or claim exists with
respect to any sums to be paid by Lessee
hereunder, and (v) any exceptions to
Lessor's title to the Proposed Facility do
not materially interfere with the intended
use of the Proposed Facility by Lessee;




130


    (o)  Lessor shall have determined that
the Proposed Facility constitutes a
Comparable Facility, and

    (p)  Lessor shall have received all
Rent due and payable hereunder through the
Substitution Date.

    In the event that the equity value of
the Proposed Facility (i.e., the Fair
Market Value of the Proposed Facility
minus the Liens to which Lessor will take
the Proposed Facility subject) as of the
Substitution Date is greater than the
equity value of the Leased Property (i.e.,
the Fair Market Value of the Leased
Property minus the Liens to which Lessee
will take the Leased Property subject
other than those Liens which Lessee is
obligated to pay or discharge pursuant to
the terms of this Lease) as of the
Substitution Date, subject to the
limitation set forth below, Lessor shall
pay an amount equal to the difference to
Lessee; provided, however, that Lessor
shall not be obligated to consummate such
substitution if Lessor would be required
to make a payment to Lessee of an amount
equal to or in excess of fifteen percent
(15%) of said Fair Market Value of the
Leased Property (the amount of cash paid
by Lessor to Lessee being referred to
herein as the "Cash Adjustment"). Without
limiting the generality or effect of the
preceding sentence, in the event that, on
the Substitution Date, Lessor is obligated
to pay a Cash Adjustment to Lessee and
Lessor does not have sufficient funds
available, or elects not to make such
payment in cash, Lessor shall provide
Lessee with (and Lessee shall accept) a
purchase money note and mortgage for a
term not to exceed eighteen (18) months
from the Substitution Date and bearing
interest, payable monthly, at the rate
described in Section 10.2.

    25.3 CONVEYANCE TO LESSEE. If the
Lessor shall have determined that the
Proposed Facility constitutes a Comparable
Facility, on the Substitution Date, after
the consummation of a substitution in
accordance with the terms hereof, Lessor
will convey the Leased Property to Lessee
in accordance with the provisions of
Article 18 (except as to payment of any
expenses in connection therewith which
shall be governed by Section 22.4 below)
and this Lease shall thereupon terminate
as to the Leased Property. Upon completion
of the purchase of the Leased Property, no
Rent shall thereafter accrue with respect
thereto.

    25.4 EXPENSES. Whether or not any
proposed substitution is consummated,
Lessee shall pay all of the out-of-pocket
expenses and other costs incurred or
expended by Lessor in connection with any
proposed substitution (collectively
referred to herein as "Substitution
Closing Costs"), including, without
limitation, reasonable attorneys' fees and
expenses, engineering costs, consultants'
fees, appraisal costs, audit and tax
review costs, out-of-pocket travel
expenses, inspection fees, title insurance
premiums and other title fees, survey
expenses, mortgage taxes, transfer,
documentary stamp and other taxes, search
charges of any nature, recording,
registration and filing costs, broker's
fees and commissions, if



131


any, escrow fees, fees and expenses, if
any, incurred in qualifying Lessor and
maintaining its right to do business in
the state where the Proposed Facility is
located, the cost of obtaining, preparing
and recording a release of the Leased
Property from the lien of any Fee Mortgage
on the Facility (other than the amount
necessary to payoff such Fee Mortgage) and
any other costs expended or incurred by
Lessor in connection with the preparation
for and the documentation and/or the
closing of the proposed substitution. The
Substitution Closing Costs shall be a
demand obligation of Lessee to Lessor and,
if not paid within ten (10) days after
demand, shall thereafter (to the extent
permitted by applicable law) bear interest
at the Overdue Rate until the date of
payment.

    25.5  LIMITATION.  In the event that
Lessee exercises its right to construct
the Project pursuant to the Leasehold
Improvement Agreement, no Substitution
Right may be exercised earlier than the
fifth anniversary of the Completion Date.








                   [INTENTIONALLY LEFT BLANK]


























132


    IN WITNESS WHEREOF, the parties have
caused this Lease to be executed and
attested by their respective officers
thereunto duly authorized.


WITNESS:                                          LESSEE:
                                      EMERITUS PROPERTIES I,

INC.
                                      , a
                                      Wash
                                      ingt
                                      on

corp
                                      orat
                                      ion



/s/ Melissa L. Day            By: /s/
Raymond R. Brandstom
- -----------------------------      -------
- -----------------
Name: Melissa L. Day
Name: Raymond R. Brandstom
                    Title:  President



WITNESS:                                          LESSOR:
                                      MEDITRUST

ACQU
                                      ISIT
                                      ION

CORP
                                      ORAT
                                      ION
                                      I, a

Mass
                                      achu
                                      sett
                                      s
                                      corp
                                      orat
                                      ion

/s/ Jane F. Luther                 By: /s/
Michael S. Benjamin
- -------------------------
- ---------------------------------
Name: Jane F. Luther          Name:
Michael S. Benjamin, ESQ.
                    Title:   Senior Vice
President

























133

EX-10.57.2

THE FOLLOWING DOCUMENT IS SUBSTANTIALLY
THE SAME FOR THE HUTCHINSON PROPERTY AND
THE RIDGELAND PROPERTY WITH THE EXEPTION
OF THE LESSOR'S AGREEMENT TO FUND THE
PROJECT IS NOT TO EXCEED $9,600,000 IN
RELATION TO THE HUTCHINSON PROPERTY AND
$6,520,000 IN RELATION TO THE RIDGELAND
PROPERTY.



















































                      LEASEHOLD
IMPROVEMENT AGREEMENT


AMONG

                   MEDITRUST ACQUISITION
CORPORATION I


AND

                           EMERITUS
PROPERTIES I, INC.


AND

                               EMERITUS
CORPORATION






































                        LEASEHOLD
IMPROVEMENT AGREEMENT

     THIS LEASEHOLD IMPROVEMENT AGREEMENT
is made as of March 15, 1996 by and among
EMERITUS PROPERTIES I, INC., a Washington
corporation (the "Lessee"), and MEDITRUST
ACQUISITION CORPORATION I, a Massachusetts
corporation (the "Lessor").

     1.  BACKGROUND

     1.1  Lessee.

     Lessee is a corporation which is a
wholly-owned Subsidiary the Guarantor (as
hereinafter defined). The Guarantor is a
corporation the stock of which is publicly
traded on the American Stock Exchange.

     1.2  The Land and Existing
Improvements.

     Lessor is the owner of a certain
parcel of land located in Sarasota,
Sarasota County, Florida and more
particularly described on EXHIBIT A (the
"Land").

     1.3  The Facility Lease.

     Lessor and Lessee have entered into
that certain Facility Lease Agreement of
even date herewith, relating to the Land
(the "Facility Lease"), a Memorandum of
which is to be recorded with the Sarasota
County, Florida real estate records.

     1.4  Project.

     Lessee is currently contemplating a
proposal to construct an addition of [ ]
units and [ ] beds to the existing
assisted living facility and other
improvements, including, without
limitation, accessory parking and
landscaping on the Land (collectively, the
"Improvements"). The Land and the
Improvements are collectively referred to
herein as the "Project". Lessee shall have
until December 15, 1996 to notify Lessor
in writing of its decision to construct
the Project, and Lessor shall have no
obligation to fund or permit the
construction of the Project contemplated
hereunder until such time as Lessee has so
elected in writing to proceed with the
construction of the Project. The
obligations contained in this Leasehold
Improvement Agreement shall not take
effect until Lessor receives such notice
from Lessee of its election to proceed
with the construction of the Project.
Notwithstanding any other provision
contained herein, this Leasehold
Improvement Agreement shall become null
and void if such notice is not received by
Lessor by December 15, 1996.









     1.5  Lessor's Agreement to Fund the
Project and Lessee's
           Agreement to Supervise the
Project.

     Lessee and Lessor have agreed that
the Project will be a benefit to the
premises demised under the Facility Lease
and to Lessee's and Lessor's respective
interests therein. Lessor and Lessee have
further agreed that, pursuant to, and in
accordance with, the terms and conditions
of this Agreement, Lessor shall fund an
amount not to exceed NINE MILLION SIX
HUNDRED THOUSAND DOLLARS ($9,600,000) of
the cost of the Project (the "Project
Funds"). Lessee has agreed to supervise
and manage the construction of the Project
and Lessor has agreed to advance the
Project Funds to pay for the cost of the
construction of the Project; all pursuant
to the terms and conditions of this
Agreement.

     1.6  Plans; the Architect and
Architect's Contract.

     The Improvements are to be
constructed and equipped in accordance
with the plans and specifications to be
delivered as provided herein
(collectively, the "Project Plans"),
prepared or be prepared by an architect to
be approved by Lessor, which approval
shall not be unreasonably withheld (the
"Architect") pursuant to the contract to
be entered into by and between Lessee and
the Architect and approved by Lessor (the
"Architect's Contract").

     1.7  Construction Contracts.

     All of the Improvements are to be
constructed pursuant to a guaranteed
maximum contract (the "Construction
Contract") to be delivered as provided
herein by and between Lessee and a
contractor to be approved by Lessor, which
approval shall not be unreasonably
withheld, and approved by Lessor (the
"General Contractor").

     1.8  Schedule of Work and Completion
Date; Schedule of Draws.

     The work necessary to complete and
fully equip the Project is to be (a)
undertaken and completed in accordance
with the schedule of work and schedule of
values ("Schedules") to be delivered as
provided herein and approved by Lessor;
and (b) substantially completed by the
first anniversary of the date hereof (the
"Completion Date") in accordance with the
terms hereof.

     1. 9  Project Budget.

     Lessee shall submit in accordance
with the terms hereof prior to the making
of the first advance which includes
amounts to be expended on the construction
or equipping of the Improvements, to
Lessor a line item budget (the "Project
Budget"), for the design and construction
of the Project, including (a) a breakdown
of construction costs (itemized as to
trade category, subdivision of the work to
be performed and the


2



names of each contractor), (b) a breakdown
of all soft costs in connection with the
construction of the Project, including,
without limitation, costs for such items
as real estate taxes, legal and accounting
fees, survey costs, permits and inspection
fees, insurance premiums, architect's and
engineer's fees, marketing, management,
leasing and advertising expenses, and all
amounts due in connection with the Advance
of Project Funds pursuant to this
Agreement, (c) a projected draw schedule
and (d) a projected progress schedule for
the construction of the Project.

1.10  Use of Project Funds.

     The Project Funds are to be used, to
the extent sufficient therefore, solely
for the payment of Project costs set forth
in the Project Budget.

     1.11  Project Funds.

     Subject to all of the terms,
conditions and provisions of
this Agreement, and of the agreements and
instruments referred to herein, Lessor
agrees to advance the Project Funds and
Lessee agrees to supervise and manage the
construction of the Project and to pay the
Rent (as hereinafter defined) due under
the Facility Lease (as the same may from
time to time be adjusted pursuant to the
terms and conditions set forth therein);
it being understood that Lessee shall be
liable for the payment of Rent regarding
such sums as shall have been advanced from
time to time under this Agreement to
Lessee.

     1.12  Guaranties and Indemnities.

     As an inducement to Lessor to enter
into this Agreement, advance the Project
Funds and enter into the Facility Lease,
the Guarantor has agreed to furnish
certain guaranties as hereinafter
described.

     2.  DEFINITIONS

     In this Agreement, except as
otherwise expressly provided in the text
of this Agreement or unless the context
otherwise requires, all capitalized terms
shall have the meaning ascribed to them in
EXHIBIT  E.

     3.  LEASEHOLD IMPROVEMENT FEE.

     Lessee shall pay the Leasehold
Improvement Fee to Lessor simultaneously
with the execution of this Agreement;
provided, however, that, at Lessor's
option, the Leasehold Improvement Fee
shall be held in an escrow account
established with a Person designated by
Lessor pursuant to an escrow arrangement
satisfactory to Lessor, with interest
thereon benefiting Lessor. If Lessor
exercises its option to require that the
Leasehold Improvement Fee be held in such
an escrow




3



account (a) the Leasehold Improvement Fee
shall be disbursed from
said escrow account only upon the joint
instructions of Lessee and Lessor which
instructions from Lessee shall be
immediately given upon he request of
Lessor) and in no event shall the
Leasehold Improvement Fee be disbursed
therefrom, in whole or in part, unless and
until so requested by Lessor and (b)
Lessor shall bear he risk of loss of or
misappropriation of the Leasehold
Improvement Fee by such escrow agent.

4.  LEASE DOCUMENTS; COLLATERAL SECURITY

     4.1  Lease Documents.

     The Project Funds shall be advanced,
evidenced, administered and governed by
all of the terms, conditions and
provisions of each of the following:

     A.   an Agreement Regarding Related
Transactions of even date
            herewith by and among Lessee,
Lessor and ESC G.P. I Inc., as
            the same may be amended from
time to time;

     B.   this Agreement;

     C.   the Facility Lease;

     D.   a Collateral Assignment of
Permits, Approvals, Licenses, and
            Contracts of even date granted
by Lessee to Lessor (the
            "Permits Assignment") and
related UCC Financing Statements;.

     E.   a Security Agreement of even
date by and between Lessee and
           Lessor (the "Security
Agreement")

     F.   a Completion Guaranty of even
date executed by the Guarantor
           for the benefit of Lessor
guarantying the completion of the
           Project and the satisfaction of
the other Guarantied Obligations
          (the "Completion Guaranty");

    G.   by the Guarantor for the benefit
of Lessor guarantying the
           payment and performance of the
Lease Obligations (the
           "Guaranty of Lease
Obligations");

     H.   an Environmental Indemnity
Agreement of even date by and
            among Lessee, the Guarantor
and Lessor (the "Environmental
            Indemnity Agreement");

     I.    a Deposit Pledge Agreement of
even date by and between
           Lessee and Lessor (the "Deposit
Pledge Agreement");





4



     J.    a Group Two Negative Pledge
(Acquisition) Agreement dated
            May l, 1996 by and among
Lessee, Lessor and Guarantor (the
            "Negative Pledge Agreement");

     K.   an Assignment of Construction
Contract granted by Lessee to
            Lessor and containing the
consent of the General Contractor
            (the "Construction
Assignment");

     L.  an Assignment of Architect's
Contract of even date granted by
          Lessee to Lessor and containing
the consent of the Architect (the
          "Architect's Assignment");

    M.  an Affiliated Party Subordination
Agreement of even date by
          and among Lessee, the Guarantor,
various Affiliates of Lessee
          and Lessor (the "Affiliated
Party Subordination Agreement");
          and

   N.  all other documents, instruments,
or agreements now or hereafter
         evidencing or securing the
obligations under this Agreement and
         the Facility Lease.

Items (A) through (N) above, as the same
from time to time may be hereinafter
amended, modified or supplemented, are
referred to herein as the "Lease
Documents".

     4.2  Lease Obligations.

     Lessee agrees to pay and perform all
indebtedness, covenants, liabilities,
obligations, agreements and undertakings
(other than Lessor's obligations) under
this Agreement and all of the other Lease
Documents (collectively, the "Lease
Obligations").

     4.3  Collateral Security.

     The Lease Obligations shall be
secured by the following:

     A.   a perfected first priority
security interest in all Permits and
           Contracts pursuant to the
Permits Assignment;

     B.   a security interest in Tangible
Personal Property, and certain
           other Collateral and a security
interest in Receivables, all
           pursuant to the Security
Agreement;

     C.   the Completion Guaranty;

     D.   the Guaranty of Lease
Obligations;

     E.   the Environmental Indemnity;



5



     F.   a perfected first priority
interest in the Cash Collateral pursuant
           to the Deposit Pledge
Agreement;

     G.  all other security interests in
such other property for  which
           provision is made in the Lease
Documents or at law or in equity;
           and

     H.   certain other Related Party
Agreements.

All of the property in which security
interests are granted as described in
items (A) through (H) above are referred
to herein as the "Collateral".

     5.  REPRESENTATIONS AND WARRANTIES

     In order to induce Lessor to advance
the Project Funds pursuant to the terms
and conditions of this Agreement, Lessee
represents and warrants to Lessor that:

     5.1  Architect's Contract and
Construction Contract.

     The Architect's Contract and the
Construction Contract, at the time of the
execution thereof will be, validly
executed by, and will upon execution be
binding upon Lessee. Lessee has no reason
to believe that such agreements will not
be validly executed by and binding upon
the other parties thereto;

     5.2  Project Plans.

     The Project Plans which will be
delivered to Lessor by Lessee in
accordance with Section 7.1 will be filed
with and approved by all appropriate
Governmental Authorities. All necessary
Permits relating to the Project Plans to
be issued or granted by any applicable
Governmental Authority having or claiming
jurisdiction over the Leased Property
which can be obtained in the ordinary
course as of the date hereof have been
obtained and all such Permits are in full
force and effect, are not subject to any
unexpired appeal periods or any appeals or
challenges which have not been fully
resolved in favor of Lessee, and do not
contain any conditions or terms relating
to the Leased Property which have not been
fully satisfied or which will not be fully
satisfied by the completion of the
construction of the Project (in accordance
with the Project Plans and the terms and
provisions of this Agreement).
Furthermore, the Project Plans will be the
plans and specifications which shall be
approved in writing by Lessor and all
future construction on the Project shall
be performed in accordance with the
Project Plans, as the same may be amended
or modified from time in accordance with
section 6.3.2 hereof, and the terms and
conditions of this Agreement. There are no
structural defects in the




6




Project of which Lessee has been advised
or of which Lessee has notice or knowledge
except as otherwise described in writing
to Lessor or actually known by Lessor.
Lessee has not received any notice
claiming that, and Lessee has no knowledge
that, the Project Plans violate any Legal
Requirement;

     5.3  Prior Construction Work.

     No Person has performed any
construction work or furnished any
services in connection with any
construction carried on or to be carried
on at the Leased Property who or which
remains unpaid at the time of execution of
this Agreement, except as indicated in the
requisition submitted simultaneously
herewith or otherwise expressly approved
by Lessor and, if applicable, the Other
Permitted Uses;

     5.4  Suitability of Project Plans.

     The Project Plans shall provide for
the construction and renovation of all
buildings and related improvements
necessary, both legally and practically,
for the construction of the Project in
accordance with
the terms of this Agreement and, after the
completion of the construction thereof,
for the operation of the project for its
Primary Intended Use;

     5.5  Compliance with Legal
Requirements and Applicable Agreements.

     Upon the completion of construction
of the Project, which
shall be constructed in accordance with
the Project Plans and the terms and
provisions of this Agreement, the Project
shall be in compliance with (a) all Legal
Requirements; (b) all Permits and
Contracts and (c) all applicable by-laws,
codes, rules, regulations and restrictions
of the Board of Fire Underwriters or other
insurance underwriters or similar bodies.

     5. 6  Permits and Contracts.

     All Permits and Contracts required by
or entered into with any Governmental
Authority or quasi-governmental authority
or agency for, or in connection with, the
construction of the Project which can be
obtained in the ordinary course as of the
date hereof have been obtained or
executed, as the case may be. All such
Permits and Contracts are in full force
and effect, are not subject to any
unexpired appeal periods or any appeals or
challenges which have not been
conclusively resolved in favor of any
member of the Leasing Group, and do not
contain any conditions or terms which have
not been fully satisfied or which will not
be fully satisfied by the completion of
the construction of the Project (if
constructed in accordance with the Project
Plans and the terms and provisions of this
Agreement). There is







7


no action pending, or, to the best
knowledge and belief of Lessee,
recommended by the applicable Governmental
Authority having jurisdiction thereof,
either to revoke, repeal, cancel, modify,
withdraw or suspend any such Permit or
Contract relating o the construction of
the Project, or any other action of any
other type which would have a material
adverse effect on the Project. All other
Permits and Contracts required for the
completion of the construction of the
Project and the operation of the Facility
are described on SCHEDULE 5.6 annexed
hereto and Lessee has no reason to believe
such Permits and Contracts shall not be
obtainable as and when needed.

     5.7  First Advance.

     As of the date of the first advance
of Project Funds to
Lessee pursuant to this Agreement, the
amount of the money expended by Lessee on
account of the construction of the Project
in accordance with the Project Plans and
the items listed on Project Budget will
not be less than the amount of such first
advance.

     5.8  Valid and Binding.

     Lessee is duly authorized to make and
enter into all of the Lease Documents to
which Lessee is a party and to carry out
the transactions contemplated therein. All
of the Lease Documents to which Lessee is
a party have been duly executed and
delivered by Lessee, and each is a legal,
valid and binding obligation of Lessee,
enforceable in accordance with its terms.

     5.9  No Violation.

     The execution, delivery and
performance of the Lease Documents and the
consummation of the transactions thereby
contemplated shall not result in any
breach of, or constitute a default under,
or result in
the acceleration of, or constitute an
event which, with the giving of notice or
the passage of time, or both, would result
in default or acceleration of any
obligation of any member of the Leasing
Group under any of the Permits or
Contracts or any other contract, mortgage,
lien, lease, agreement, instrument,
franchise, arbitration award, judgment,
decree, bank loan or credit agreement,
trust indenture or other instrument to
which any member of the Leasing Group is a
party or by which any member of the
Leasing Group may be bound or affected and
do not violate or contravene any Legal
Requirement.

     5.10  Consents and Approvals.

     Except as already obtained or filed
or as reasonably expected to be obtained
in the ordinary course of business prior
to or upon the Completion of the Project,
as the case may be, no consent or approval
or other authorization of, or exemption
by, declaration or filing with,



8


any Person and no waiver of any right by
any Person is required to authorize or
permit, or is otherwise required as a
condition of the execution, delivery and
performance of its obligations under the
Lease Documents, the Construction Contract
if and when the same is duly executed by
the parties thereto or the Architect's
Agreement by any member of the Leasing
Group or as a condition to the validity
(assuming the due authorization; execution
and delivery by Lessor of the Lease
Documents to which it is a party) and the
priority of any Liens granted to Lessor
under the Lease Documents, except the
filing of the Financing Statements.

     5.11  Pending Actions, Notices and
Reports.

     (a) There is no action or
investigation pending or, to the best
knowledge and belief of Lessee,
threatened, anticipated or contemplated
(nor, to the knowledge of Lessee, is there
any reasonable basis therefor) against or
affecting the Leased Property or any
member of the Leasing Group (or any
Affiliate thereof) before any Governmental
Authority, which could prevent or hinder
the consummation of the transactions
contemplated hereby or call into question
the validity of any of the Lease Documents
or any action taken or to be taken in
connection with the transactions
contemplated thereunder or which in any
single case or in the aggregate might
result in any material adverse change in
the business, prospects, condition,
affairs or operations of any member of the
Leasing Group or the Leased Property
(including, without limitation, any action
to revoke, withdraw or suspend any Permit
necessary or desirable for the
construction of the Project for its
Primary Intended Use. (b) No member of the
Leasing Group has received any notice of
any claim, requirement or demand of any
Governmental Authority, to take action so
as to make the Project or the Leased
Property conform to or comply with any
applicable Legal
Requirement.

     6.  COVENANTS

     6.1  Collection and Enforcement
Costs.

     Upon demand, Lessee shall reimburse
Lessor for all costs and expenses,
including, without limitation, attorneys'
fees and expenses and court costs, paid or
reasonably incurred by Lessor in
connection with the collection of any sum
due hereunder, or in connection with the
enforcement of any of Lessor's rights or
any member of the Leasing Group's
obligations under this Agreement or any of
the other Lease Documents. Any amount due
and payable to Lessor pursuant to the
provisions of this Section shall be a
demand obligation and, to the extent
permitted by law, shall be added to the
Lease Obligations and shall be secured by
the Liens created by the Lease Documents
as fully and effectively and with the same
priority as every other obligation of



9





Lessee secured thereby and, if not paid
within ten (10) days after demand, shall
thereafter, to the extent permitted by
applicable law, bear interest at the
Overdue Rate until the date of payment.
The obligation of Lessee to pay all costs,
charges and sums due hereunder or under
any of the other Lease Documents shall
continue in full force and effect and in
no way shall be impaired, until the actual
payment thereof to Lessor. In the rent of
(a) a sale, conveyance, transfer or other
disposition of the Leased Property, (b)
any further agreement given to secure the
payment of the obligations set forth
herein or (c) any agreement or stipulation
extending the time or modifying the terms
of payment set forth herein, Lessee shall
nevertheless remain obligated to pay the
indebtedness evidenced by this Agreement,
as extended or modified by any such
agreement or stipulation, unless Lessee is
released and discharged from such
obligation by a written agreement executed
by Lessor.

     6.2  Continuing Effect of
Representation and Warranties.

     All representations and warranties
contained in this Leasehold Improvement
Agreement shall constitute continuing
representations and warranties which shall
remain true, correct and complete
throughout the Term.

     6.3  Construction Covenants.

     6.3.1  Commencement of Construction.

     If construction of the Project has
not already begun, Lessee shall commence
construction of the Project within thirty
(30) days from the later of the date
hereof or of issuance of a building permit
for the Project. Lessee shall diligently
and continuously cause the Project to be
constructed and completed and made ready
for occupancy and use in accordance with
the Project Plans all in a manner
satisfactory to Lessor on or before the
Completion Date. Notwithstanding anything
to the contrary contained herein, Lessee
shall be and shall remain unconditionally
liable to Lessor for (a) the complete
construction of the Project in accordance
with the Project Plans on or before the
Completion Date and whether or not
proceeds of the Project Funds remaining to
be disbursed hereunder, if any, are
sufficient to cover all costs of
construction and  (b) the complete
performance of all other obligations,
covenants, agreements and liabilities of
Lessee hereunder.

     6.3.2  Quality of Materials and
Workmanship.

     The materials used in the Project
shall be of the quality called for by the
Project Plans, and the workmanship shall
be in conformity with the Construction
Contract and this Agreement, and both the
quality of such materials and such
workmanship shall be satisfactory to
Lessor. Lessee shall not make any changes
in, and shall not permit the General



10




Contractor or the Architect to make any
changes in, the quality of such materials,
the Project Plans or the Project Budget,
whether by change order or otherwise,
without the prior written consent of
Lessor, in each instance (which consent
may be withheld in Lessor's reasonable
discretion); provided, however, that such
consent shall not be required for any
individual change which has been approved
by the Architect, which does not
materially affect the structure or
exterior of the Project, and the cost of
which does not exceed TEN THOUSAND DOLLARS
($10,000) or which changes, in the
aggregate, do not exceed ONE HUNDRED
THOUSAND DOLLARS ($100,000) in cost.
Notwithstanding the foregoing, prior to
making any change in Project Plans, copies
of all change orders shall be submitted by
Lessee to Lessor and Lessee shall also
deliver to Lessor evidence satisfactory to
Lessor, in its reasonable discretion, that
all necessary Permits and/or Contracts
required by any Governmental Authority in
connection therewith have been obtained or
entered into, as the case may be.

     6.3.3  Project Budget.

     Upon the request of Lessor, Lessee
shall furnish Lessor with revisions for
the Project Budget to reflect (a) any
changes approved by Lessor to the Project
Budget, (b) the total cost of the
construction of the Project completed
through any specific date and (c) the
remaining cost to complete the
construction of the Project in accordance
with the Project Plans and the terms and
provisions of this Agreement.

     6.3.4      Architect Certificates.

     Lessee agrees to cause the Architect
to furnish such statements as to progress
and certificates of completion as Lessor
may reasonably require from time to time
during such period as this Agreement may
be in effect, all without expense to
Lessor; provided, however, that to the
extent the delivery of such certificates
will require a visit to the Project,
Lessee shall have no obligation to deliver
the same more frequently than with every
other advance request hereunder. Lessee
agrees to cause the Architect to make the
Project Plans available to Lessor without
expense to Lessor, and to agree that, in
the event that Lessor shall take over the
Project by reason of an occurrence of a
Lease Default, Lessor shall be entitled to
use said Project Plans without any
additional compensation to the Architect
above what is required (and was not
previously paid) under the Architect's.
Contract.

     6.3.5      Intentionally Deleted.

     6.3.6      Lessor's Consultants.

     Lessee agrees to pay the costs and
expenses reasonably incurred by Lessor
to retain the Consultants to perform
various services to Lessor in



11


connection with the construction of the
Project and the advances of Project Funds
contemplated hereunder, including, without
limitation, the following:

     A.   to review and analyze the
Project Plans and advise Lessor
           whether the same are
satisfactory for the intended purposes
            thereof;

     B.   to make periodic inspections of
the Leased Property for the
            purpose of assuring that
construction performed in connection
           with the Project prior to the
date of such inspection has been
           completed in accordance with
the Project Plans and Agreement;

    C.   to review Lessee's then current
requisition to determine whether
           it is consistent with the
obligations of Lessee under this
           Agreement, and to advise Lessor
of the anticipated costs of, and
           the time for, the completion of
the Project in accordance with
           the Project Plans, and the
adequacy of reserves and
           contingencies related thereto;

    D.   to review and analyze any
proposed changes to the Project Plans
           and advise Lessor regarding the
same;

    E.   to review and analyze the Project
Budget and advise Lessor as to
          the sufficiency thereof; and

    F.   to review and analyze the
Architect's Contract and the
          Construction Contract entered
into by Lessee in connection with
          the construction of the Project
and advise Lessor regarding the
          same.  Except as otherwise
expressly provided herein, Lessee
          agrees promptly to make such
changes or corrections in the
          construction of the Project as
may be required by Lessor, based
          on the recommendation of any of
the Consultants, unless Lessee
          demonstrates to Lessor's
satisfaction that such corrective work is
          inconsistent with the Project
Plans

     6.3.7  Title To Materials and
Security Interest Granted to
               Lessor

     Except as otherwise expressly
provided herein, Lessee shall not suffer
the use in connection with any
construction relating to the Project of
any materials, fixtures or equipment
intended to become part of the Project
which are purchased upon lease or
conditional bill of sale or to which
Lessee does not have absolute and
unencumbered title. Lessee covenants to
cause to be paid punctually all sums
becoming due for labor, materials,
fixtures or equipment used or purchased in
connection with any such construction and,
in recognition of the fact that it is
intended that the Project Funds be used to
pay for the costs of




12



the construction of the Project on behalf
of the Lessor, Lessee agrees that title to
all materials, fixtures and equipment that
are incorporated into the Project shall
automatically pass to Lessor upon such
incorporation without the need for the
execution or delivery of any further
instrument of conveyance.  Notwithstanding
the foregoing, in order to more fully
secure Lessor with reference to all
advances of Project Funds made hereunder,
Lessee hereby conveys to Lessor a security
interest in all of Lessee's right, title
and interest in materials on the Leased
Property which are not at any relevant
time incorporated into the Project and
materials, wherever located, intended for
incorporation into the Project. Lessee
agrees:

     A.  that Lessor shall have all the
rights, with reference to such
                    security, as a secured
party is entitled to hold with
                    reference to any
security interest under the UCC;

     B.  that such security interest shall
cover cash and
           non-cash proceeds of such
materials;

              C.  that such materials will
not be held for sale to
                   others or disposed of
by Lessee without the prior
          written consent of Lessor and,
if at any time
          located on the Leased Property
shall be suitably
          stored, secured and insured and
furthermore, shall
                   not be removed from the
Leased Property; and

             D.  that such security
interest shall be prior to the
         rights of any other Person other
than the
         Permitted Prior Security
Interests.

     The undertakings of Lessee in this
Section shall also be applicable to any
personal property that is owned by Lessee
and that is used (or to be used) in
connection with the Project, whether or
not the purchase thereof was financed by
advances of Project Funds made by Lessor.
Lessee agrees to execute such instruments
as Lessor may from time to time request to
perfect the security interest of Lessor in
any and all rights under this Agreement
and the other Lease Documents, and any and
all property of Lessee which, under
applicable provisions of this Agreement
and/or any of the other Lease Documents,
may or shall stand as security for
advances of Project Funds under this
Agreement and for the complete performance
of the Lease Obligations.

     6.3.8      Compliance With Legal
Requirements And
Applicable Agreements.

     Lessee, the Project Plans and the
Leased Property and all uses thereof
(including, without limitation, the
construction of the Project) shall comply
with (a) all Legal Requirements, (b) all
Permits and Contracts, (c) all




13



applicable by-laws, codes, rules,
regulations and restrictions of the Board
of Fire Underwriters or other insurance
underwriters or similar body and (d) the
Lease Documents, except to the extent any
of the matters represented in clause (a)
or (c) are being duly contested in
accordance with the terms of the Lease.

     6.3.9      Liens.

     The Leased Property shall at all
times be free from any attachment,
encumbrance, lis pendens, mechanic's or
materialmen's lien or notice arising from
the furnishing of materials or labor and,
with the exception of the Permitted
Encumbrances, all other Liens of any kind
except to the extent the same is being
duly contested in accordance with the
terms of the Lease or the terms hereof.
Lessee shall not permit the recording of
any notice of contract or mechanic's or
materialmen's lien relating to
construction of the Project or otherwise
affecting the Leased Property except to
the extent the same is being duly
contested in accordance with the terms of
the Lease or the terms hereof.
Notwithstanding the foregoing provisions
of this. Section 6.3.09, the existence of
an attachment or lis pendens for a period
not in excess of thirty (30) days shall
not be deemed to be a default hereunder
provided that (a) there shall be no
cessation of construction of the Project,
(b) a Lease Default has not occurred and
(c) Lessee shall proceed promptly to cause
such attachment or lis pendens to be
removed, but Lessor shall not be obliged
to make any further advance under this
Agreement while such attachment or lis
pendens remains outstanding, unless a
bond, satisfactory to Lessor, has been
posted as security for such attachment or
lis pendens.

     6.3.10  Books And Records.

     Lessee shall cause to be kept and
maintained, and shall permit Lessor and
its representatives to inspect at all
reasonable times, accurate books of
accounts in which complete entries will be
made in accordance with GAAP, if
applicable, reflecting all financial
transactions of Lessee relating to the
Project (showing, without limitation, all
materials ordered and received and all
disbursements, accounts payable and
accounts receivable in connection with the
construction of the Project and the
operation of the Leased Property). Such
books and records must accurately reflect
that all funds advanced hereunder for
construction of the Project have been used
solely for the payment of obligations and
expenses properly incurred in accordance
with the Project Budget.

     6.3.11  Inspection Of Construction.

     Lessor and its representatives
including, without limitation, the
Consultants, shall, at all times as long
as this Agreement remains in effect, have
the right to enter the Leased Property,
upon reasonable




14



notice to Lessee and at reasonable times
(except in the event of an emergency) for
the purpose of inspecting the Project and
the progress of the work and materials
thereon, and if any such inspection
reveals that Lessee is not in compliance
herewith (in its sole and absolute
discretion), then Lessor shall not be
obligated to make any further advances
under this Agreement to Lessee.

     6.3.12  Notice Of Delay.

     Lessee shall give to Lessor prompt
written notice of any fire, explosion,
accident, flood, storm, earthquake or
other casualty or strike, lock out, act of
God or interruption of the construction of
the Project which is reasonably
anticipated to interfere with the ability
of Lessee to complete the Project by the
Completion Date.

      6.3.13  Bonds.

     Performance, payment and lien bonds,
in form and substance and guaranteed by
sureties satisfactory to Lessor (in its
sole and absolute discretion), shall be
furnished to Lessor in connection with the
Construction Contract in amounts at least
equivalent to the amount of such contract,
naming Lessor as a dual obligee and shall
be furnished to Lessor prior to the
commencement of any work pursuant to such
contract.

     6.3.14  Use of Project Funds.

     Lessee shall utilize all advances by
Lessor pursuant to the terms of this
Agreement only for those items for which
requisitions are permitted under this
Agreement or for reimbursement of
expenditures already made for items for
which requisitions are so permitted.
Lessee agrees to hold all advances by
Lessor hereunder as a trust fund for the
purpose of payment of the costs and
expenses permitted under this Agreement.

     6.3.15  Occupancy of the Project.

     Lessee shall not permit any occupancy
of the
Project (other than such occupancy as is
required in connection with the
construction thereto) prior to (a) the
substantial completion of that portion of
the Project being occupied and (b) the
issuance by the appropriate Governmental
Authorities of a Certificate of Occupancy
(or its equivalent) permitting the
occupancy of the Project for its Primary
Intended Use and, if applicable, the Other
Permitted Uses. The Project shall not be
deemed to have been completed unless and
until constructed in accordance with this
Agreement and a Certificate of Occupancy
(or its equivalent) permitting the
occupancy of the Project for its Primary
Intended Use has been issued by the
applicable Governmental Authorities.



15





     7.  CONSTRUCTION ADVANCES

     7.1  Conditions Precedent to First
Advance of Project Funds.

     Prior to the first advance of Project
Funds contemplated by this Agreement, and
as a condition of Lessee's right to
receive any of the proceeds of the Project
Funds, there shall have been furnished to
Lessor:

     A.   An owner's title insurance
policy in form and substance
               satisfactory to Lessor, in
its sole and absolute discretion,
               issued by a title insurance
company or companies satisfactory
               to Lessor (the "Title
Company") with such endorsements,
               reinsurance and/or co-
insurance as Lessor may require,
               insuring Lessor's fee title
to the Leased Property free from all
               Liens and without exception
for (i) filed or unfiled mechanics'
               liens, (ii) survey matters,
(iii) rights of parties in possession,
              (iv) environmental liens and
(v) any other matters of any kind
              or nature whatsoever other
than the Permitted Encumbrances
              (the "Title Policy");

     B.   Such evidence as Lessor may
require that the use
              contemplated for the
Project, and all of the improvements and
              construction contemplated by
the Project Plans, comply with
              all applicable Legal
Requirements, to the extent in force and
              applicable;

     C.   Insurance policies and/or
Certificates of Insurance required
               pursuant to the terms and
provisions of the Facility Lease;

     D.   Such evidence as Lessor may
require to determine that
     the total cost of completion of the
Project in all
     respects, including all related
direct and indirect
     costs as previously approved by
Lessor, will not exceed
     the amount set forth in the Project
Budget;

     E.   Such evidence as Lessor may
require that Lessee's
     representations and warranties
contained herein and in
     all of the other Lease Documents are
true and correct
     in every material respect;

     F.   Such evidence as Lessor may
require as to the
     satisfaction of such of the terms and
conditions of
     this Agreement and of the other Lease
Documents as may
     by their nature be satisfied prior to
the making of
     such advance;






16



     G.   Such evidence as Lessor may
require that all
     outstanding Impositions which are due
and payable as of
     the date of the First Advance
pertaining to the Leased
     Property have been paid in full in
accordance with the
     terms of the Facility Lease;

     H.   A current instrument survey,
satisfactory in form and
     content to Lessor, prepared in
accordance with the
     requirements set forth in EXHIBIT G
(the "Survey") and
     a certificate substantially in the
form of EXHIBIT H
     (the "Surveyor's Certificate"),
prepared and signed by
     a surveyor licensed to do business in
the state where
     the Leased Property is located with
his or her seal
     affixed thereto;

     I.       True and correct copies of
the Construction Contract     and the
              Architect's Contract in
effect with respect to the Project,
              as  well as all receipted
bills paid by Lessee to the General
Contractor and the Architect for goods
and/or         services  rendered with
respect to the Project prior to the date
               hereof;

     J.   A certificate from an engineer
and/or architect, registered as
              such in the state where the
Leased Property is located,
              substantially in the form
attached hereto as EXHIBIT H,
              certifying as to the (i)
compliance of the Leased Property with
              all , applicable Legal
Requirements, (ii) the availability and
              adequacy of access/egress to
and from the Leased Property
              and (iii) the availability
and adequacy of sewer, drainage,
              water, electric and other
utility services to the lot line of the
              Leased Property; together
with such other assurances
              concerning the design of the
Project as Lessor may require;

     K.     Lessor's receipt of opinions,
in forms satisfactory to
              Lessor (in its sole and
absolute discretion), from Lessee's
              counsel and the Guarantor's
counsel, regarding (i) the due
              execution, authority and
enforceability of the Lease
              Documents; (ii) the
compliance of the Leased Property and the
              Project, in all material
respects, with applicable zoning and
              other land-use Legal
Requirements (except in such instances
              in which a satisfactory
title insurance zoning endorsement has
              been issued); (iii) the
valid issuance of the Certificate of Need,
              if applicable, and all other
Permits required for the
              construction of the Project,
the continuing effectiveness of
              said Certificate of Need, if
applicable, and other Permits and
              Lessee's and Project's
compliance therewith and (iv) such
              other matters as Lessor may
reasonably request (collectively,
              the "Opinions");




17


     L.      Payment of the Leasehold
Improvement Fee (subject,
               however, to the provisions
of Section 3 hereof);
               M.  True and correct copies
of all Permits and Contracts
               relating to the
construction and operation of the Project
               (including, without
limitation, an
               unconditional building
permit or a building permit
               which is subject only to
such conditions as will be fully
               satisfied by the completion
of the construction of the Project
               in accordance with the
Project Plans and this Agreement);

     N.   Such evidence as Lessor may
require that there has been
     no material adverse change in the
financial condition
     and strength of Lessee and the
Guarantor, and that the
     Leased Property shall have sustained
no impairment,
     reduction, loss or damage which has
not been fully
     restored and repaired, and that no
Condemnation
     proceedings or other governmental
action is or shall be
     pending against or with respect
thereto;

     O.   Such evidence as Lessor may
require that the General
     Contractor and the Architect maintain
adequate
     insurance, as determined in Lessor's
reasonable.
     discretion;

     P.   True and correct copies of all
payment, performance and
     completion bonds required pursuant to
6.3.13 hereof;

     Q.   A fully executed Construction
Assignment, in form and
     substance satisfactory to Lessor; and

     R.   A fully executed and authorized
Architect's Assignment, in
form and substance satisfactory to Lessor.

     S.   The Project Plans, in form and
substance satisfactory             to
Lessor;

     T.   The Schedules, in form and
substance satisfactory to
Lessor;

     U.   The Project Budget, in form and
substance satisfactory        to Lessor;

     V.   Funding forecasts, in form and
substance satisfactory        to Lessor.

      7.2  Lessor's Right to Advance the
Project Funds.

     Without at any time waiving any of
Lessor's rights hereunder, Lessor shall
have the right to make the first advance
of a portion of the



18


Project Funds hereunder without the
satisfaction of each and every condition
precedent to Lessor's obligation to make
such advance, and Lessee agrees to accept
such advance as Lessor may elect to make.
The making of any advance hereunder shall
not constitute an approval or acceptance
by Lessor of any work on the Project
theretofore completed.

     7.3  Submission of Requests for
Advances of the Project Funds.

     Advances under this Agreement shall
be made not more than once each month and
at least ten (10) days before the date
upon which an advance is requested, Lessee
shall give notice to Lessor, specifying
the total advance which will be desired,
accompanied by :

     A.   Itemized requisitions for
advances or, at Lessee's
option, for reimbursements to Lessee for
prepaid items,           signed by Lessee,
the Architect and the General
Contractor on A.I.A. Forms G702, G702A or
G703 or such        other form(s) as
Lessor may reasonably require
(together with copies of invoices or
receipted bills               relating to
items covered by such requisitions when so
requested by Lessor). All such
requisitions shall            include an
indemnification of Lessor by the
Architect,          the General Contractor
and Lessee, jointly and
severally, to the extent such
indemnification is            available
from the General Contractor and the
Architect           upon Lessee's best
efforts to obtain such
indemnification, against any and all
claims of any            subcontractors,
laborers and suppliers;

     B.   A certificate executed by Lessee
substantially in the               form
attached hereto as EXHIBIT I;

     C.   A certificate executed by the
General Contractor
substantially in the form attached hereto
as EXHIBIT          J;

     D.   With respect to every other
Advance requested, a
certificate executed by the Architect
substantially in the
               form attached hereto as
EXHIBIT K.

     E.   At Lessor's request,
certificates executed by the
Consultants in such form as Lessor may
reasonably               require;

     F.   To the event the Advance is not
clearly subject to            effective
coverage, an endorsement of the Title
Policy         issued by the Title
Company, satisfactory in form and
substance to Lessor, redating the Title
Policy to the


19



              date that the then current
advance will be made,
increasing the coverage afforded by the
Title Policy so          that the same
shall constitute insurance in an amount
at, least equal to the sum of the amount
of the              insurance then
existing under the Title Policy plus the
amount of the then current advance of
Project Funds to         be disbursed to
Lessee under this Agreement and subject
to no additional exceptions other than the
Permitted                Encumbrances;

     G.   If and when reasonably requested
by Lessor,
     satisfactory assurance that the
construction of the                Project
has been performed in accordance with the
requirements of the Construction Contract,
the Project         Plans, this Agreement
and all of the other Lease
Documents and has been inspected and found
satisfactory        by the parties hereto;

    H.    If and when reasonably requested
by Lessor, an updated         Surveyor's
Certificate substantially in the form
attached hereto as EXHIBIT G and/or
updated
     Engineer's/Architect's Certificate
substantially in the          form
attached hereto as EXHIBIT H;

     I.   If and when requested by Lessor,
updated Opinions from         Lessee's
counsel and the Guarantor's counsel (in
form           and substance satisfactory
to Lessor in its sole and
absolute discretion);

     J.   If and when requested by Lessor,
satisfactory evidence         that the
funds remaining unadvanced under this
Agreement are sufficient for the payment
of all related           direct and
indirect costs for the completion of the
Project in accordance with the terms and
provisions               hereof. If the
evidence furnished shall not be
satisfactory to Lessor, in its sole and
absolute            discretion, it shall
be a condition to the making of
any further advance hereunder that Lessee
will provide        Lessor with such
financial guaranties (whether in the
form of a bond, cash deposit, letter of
credit or                otherwise) as are
acceptable to Lessor, in its sole and
absolute discretion, to assure the
completion of the             construction
of the Project in accordance with the
Project Plans and the terms and conditions
of this             Agreement. In the
event that Lessor requires a cash
deposit from Lessee, Lessee shall deposit
with Lessor         such funds, to be held
in an interest bearing account
with the interest accruing thereon to the
benefit of               Lessee, which,
together with such unadvanced funds of

20



               the Loan, shall be
sufficient to pay all of the
aforesaid costs. All funds so deposited
with Lessor              along with the
proceeds thereof, shall be disbursed
prior to any further advance hereunder and
upon                completion of the
Project any remaining funds so
deposited or any unadvanced portion of the
Project             Funds, shall be
remitted to Lessee;

     K.   A certification of work
completed by the General
     Contractor, together with a statement
of the payment
     due therefor;

     L.   Partial lien waivers from the
General Contractor for
     all work theretofore performed, and
from all other
     contractors and all subcontractors
and suppliers for
     all work, the cost of which in each
instance exceeds
     ONE THOUSAND DOLLARS ($1,000.00),
which was the
              subject of a requisition in
the immediately preceding month;

     M.   If and when reasonably
requested, Lessee shall deliver
     to Lessor an updated Survey of the
Leased Property,
     acceptable to Lessor (in its
reasonable discretion);

     N.   Evidence satisfactory to Lessor
(in its reasonable
     discretion) that all materials and
other property
     furnished by any contractors,
subcontractors,
     materialmen or other Persons, the
cost of which will be
     paid with the proceeds of the advance
to be made by
     Lessor, are free and clear of all
Liens, except
     (a) encumbrances, if any, (securing
indebtedness due to
     Persons whose names, addresses and
amounts due to them
     are identified to Lessor) that shall
be discharged upon
     the disbursement of the funds then
being requested, (b)
     the Liens created by the Lease
Documents and (c) the    Permitted
Encumbrances;

     O.   Such evidence as Lessor may
require that there has been no
              material adverse change in
the financial condition and
              strength of Lessee and the
Guarantor, and that the Leased
              Property shall have
sustained no impairment, reduction, loss
or
             damage which has not been
fully restored and repaired and that
             no condemnation is or shall
be pending against or with respect
             thereto; and

     P.   Prior to the first advance which
includes amounts to be   expended on the
construction or equipping of the
Improvements, Lessee shall, to the extent
not previously delivered
               to Lessor, submit to Lessor
true and
              correct copies of (i) the
Project Budget, (ii) the Project Plans,



21


             (iii) the Schedules and (iv)
the Construction Contract, each of
             which shall be in form and
content satisfactory to Lessor (in its
             sole and absolute
discretion);

     Lessee hereby designates George Lenes
as Lessee's construction representative
with authority to approve requisitions and
to execute certificates to be delivered
pursuant to Section 13.3B on behalf of
Lessee.

     7.4  Advances by Wire Transfer.

     All advances hereunder shall be made
by wire transfer of funds into a bank
account maintained by either Lessee or an
authorized agent of Lessee.

     7.5  Conditions Precedent to All
Advances:

              A.   Advances hereunder
shall be made solely for the payment
                     of the costs and
expenses incurred by Lessee directly in
                     connection with the
construction of the Project;
                     consistent with the
Project Budget, which are required to
                     be paid out-of-pocket
to all other Persons or to reimburse
                     Lessee for out-of-
pocket costs incurred by it pursuant to
                     the Project Budget.
No funds advanced by Lessor shall be
                     utilized for any
purpose other than as specified
                     herein and none of
the Project Funds shall be paid over to
                     any officer,
stockholder or employee of any member of
                     the Leasing Group or
to any of the Persons collectively
                     constituting any
member of the Leasing Group or those
                     holding a beneficial
interest in any member of the Leasing
                     Group, or any
employee thereof, except to the extent
                     funds are used to pay
compensation to an employee for
                     and with respect to
activity of such employee
                     in construction of
the Project.

              B.   The amount of each
requisition shall represent (i) the cost
                     of the work completed
on the Project as of the date of
                     such requisition,
which has not been paid for under prior
                     requisitions, (ii)
the cost of all equipment, fixtures and
                     furnishings included
within the Project Budget approved
                     by Lessor, which has
not been paid for under prior
                     requisitions, but not
incorporated into any contract
                     and which have been
delivered to the Leased Property for
                     incorporation into
the Project; provided that, in Lessor's
                     judgment, such
materials are suitably stored, secured and
                     insured and that
Lessee can furnish Lessor with evidence
                     satisfactory to
Lessor of Lessee's unencumbered title
                     thereto and (iii)
approved soft costs, which have not been
                     paid for under prior
requisitions.



22




             C.    All requisitions for
the first fifty percent (50%) of the
                    Project Funds shall be
subject to a ten percent (l0%)
                    retainage for the
completion of the Project, and no
                    retainage shall be
required with respect to all requisitions
                    thereafter. It is
understood that such retainage is intended
                    to provide a
contingency fund to assure that the
                    construction of the
Project shall be fully completed in
                    accordance with the
Project Plans and the terms
                    and provisions of this
Agreement. All amounts so withheld
                    shall be disbursed
after (i) construction of the Project has
                    been fully completed
in accordance with the Project Plans
                    and the terms and
provisions of this Agreement, (ii) all of
                    the items set forth in
Section 7.6 hereof have been
                    delivered to Lessor
and (iii) the expiration of the period
                    during which liens may
be perfected with respect to any
                    work performed or
labor or materials supplied in
                    connection with the
construction of the Project or the
                    receipt of such
evidence as may be required to assure
                    Lessor that no claim
may thereafter arise with respect to
                    any work performed or
labor or materials supplied in
                    connection with the
construction of the Project.

             D.   At the time of each
advance, no event which constitutes, or
                    which, with notice or
lapse of time, or both, would
                    constitute, a Lease
Default shall have occurred and be
                    continuing.

            E.     Without at any time
waiving any of Lessor's rights under
                     this Agreement,
Lessor shall always have the right to
                     make an advance
hereunder without satisfaction of each
                     and every condition
upon Lessor's obligation to make an
                     advance under this
Agreement, and Lessee agrees to
                     accept any advance
which Lessor may elect to make
                     under this Agreement.
Notwithstanding the foregoing,
                     Lessor shall have the
right, notwithstanding a waiver
                     relative to the first
advance or any subsequent advance
                     hereunder, to refuse
to make any and all subsequent
                     advances under this
Agreement until each and every
                     condition set forth
in this Section has been satisfied. The
                     making of any advance
hereunder shall not constitute an
                     approval or
acceptance by Lessor of any work on the
                     Project theretofore
completed.

            F.      If, while this
Agreement is in effect, a claim is made
that
                     the Project does not
comply with any Legal Requirement
                     or an action is
instituted before any Governmental
                     Authority with
jurisdiction over the Leased Property or
                     Lessee in which a
claim is made as to whether the Project




23


                     does so comply,
Lessor shall have the right to defer any
                     advance of Project
Funds which Lessor would otherwise
                     be obligated to make
until such time as any such claim is
                     finally disposed of
favorably to the position of Lessee,
                     without any
obligation on the part of Lessor to make a
                     determination of, or
judgment on, the merits of any such
                     claim. For the
purposes of the foregoing sentence, the
                     term "claim" shall
mean an assertion by any
                     Governmental
Authority or Person as to which, in each
                     case, Lessor has made
a good faith determination that the
                     assertion may
properly be made by the party asserting
the
                     same, that the
assertion, on its face, is not without
                     foundation and that
the interests of Lessor require that the
                     assertion be treated
as presenting a bona fide risk of
                     liability or adverse
effect on the Project.

                    If any such proceeding
is not favorably resolved within
                    thirty (30) days after
the commencement thereof, Lessor
                    shall also have the
right, at its option, to treat the
                    commencement of such
action as a Lease Default, for
                    which Lessor shall
have all rights herein specified for a
                    Lease Default. As
aforesaid, Lessor shall have no
                    obligation to make a
determination with reference to the
                    merits of any such
claim. No waiver of the foregoing right
                    shall be implied from
any forbearance by Lessor in
                    making such election
or any continuation by Lessor in
                    making advances under
this Agreement.
                    In all events, Lessee
agrees to notify Lessor forthwith
                    upon learning of the
assertion of any such claim or the
                    commencement of any
such proceedings.

            G.     It is contemplated that
all advances of the Project Funds
                     made by Lessor to
Lessee will be pursuant to this
                     Agreement.

           H.      No inspections or any
approvals of the Project during or
                     after  construction
shall constitute a warranty or
                     representation by
Lessor or any of the Consultants as to
                     the technical
sufficiency, adequacy or safety of any
                     structure or any of
its component parts, including, without
                     limitation, any
fixtures,
                     equipment or
furnishings, or as to the subsoil
conditions
                     or any other physical
condition or feature pertaining to the
                     Leased Property. All
acts, including any failure to act,
                     relating to the
Leased Property by any agent,
                     representative or
designee of Lessor (including, without
                     limitation, the
Consultants) are performed solely for the
                     benefit of Lessor to
assure the payment and performance
                     of the Obligations
and are not for the benefit of Lessee or
                     the benefit of any
other Person.


24


     7.6  Completion of the Project.

     Upon the completion of the
construction of the Project in accordance
with the Project Plans and the terms and
provisions of this Agreement, Lessee shall
provide Lessor with (A) true, correct and
complete copies of (i) a final
unconditional Certificate of Occupancy (or
its equivalent) issued by the appropriate
governmental authorities, permitting the
occupancy and use of the Project for its
Primary Intended Use and (ii) all Permits
issued by the appropriate Governmental
Authorities which are necessary in order
to operate the Project as a fully-licensed
assisted living facility, (B) a
certification from the Architect or the
Consultants stating that the Project was
completed in accordance with the Project
Plans, (C) an updated Survey of the Leased
Property, acceptable to Lessor (in its
sole and absolute discretion), (D) updated
Opinions and (E) such other items relating
to the operation and/or construction of
the Project as may be reasonably requested
by Lessor.

     8.  LESSOR'S RIGHT TO MAKE PAYMENTS
AND TAKE
          OTHER ACTION

     Lessor may, after ten (10) Business
Days' prior notice to Lessee of its
intention so to do (except in an emergency
when such shorter notice shall be given as
is reasonable under the circumstances),
under Lessee demonstrates the same has
already been paid, pay any sums due or
claimed to be due for labor or materials
furnished in connection with the
ownership, construction, development,
maintenance, management, repair, use or
operation of the Leased Property, and any
other sums which in the reasonable opinion
of Lessor, or its attorneys, it is
expedient to pay, and may take such other
and further action which in the reasonable
opinion of Lessor is reasonably necessary
in order to secure (A) the completion of
the Project in accordance with the Project
Plans and the terms and conditions of this
Agreement, (B) the protection and priority
of the security interests granted to
Lessor pursuant to the Lease Documents and
(C) the performance of all obligations
under the Lease Documents. Lessor, in its
sole and absolute discretion, may charge
any such payments against any advance that
may otherwise be due hereunder to Lessee
or may otherwise collect such amounts from
Lessee, and Lessee agrees to repay
to Lessor all such amounts, which may
exceed the line item amount therefor in
the Project Budget. Any amount which is
not so charged against advances due
hereunder and all costs and expenses
reasonably incurred by Lessor in
connection therewith (including, without
limitation, attorneys' fees and expenses
and court costs) shall be a demand
obligation of Lessee and, to the extent
permitted by applicable law, shall be
added to the Lease Obligations and secured
by the Liens created by the Lease
Documents, as fully and effectively and
with the same priority as every other
obligation of Lessee thereunder and, if
not paid within ten (10) days after
demand, shall thereafter, to the extent




25



permitted under applicable law, bear
interest at the Overdue Rate until the
date of payment.

     If Lessee fails to observe or cause
to be observed any of the provisions of
this Agreement and such failure continues
beyond any applicable notice or cure
period provided for under this Agreement,
Lessor or a lawfully appointed receiver of
the Leased Property, at their respective
options, from time to time may perform, or
cause to be performed, any and all repairs
and such other work as they deem necessary
to bring the Leased Property into
compliance with the provisions of this
Agreement may enter upon the Leased
Property for any of the foregoing
purposes, and Lessee hereby waives any
claim against Lessor or such receiver
arising out of such entry or out of any
other act carried out pursuant to this
Section. All amounts so expended or
incurred by Lessor and by such receiver
and all costs and expenses reasonably
incurred in connection therewith
(including, without limitation, attorneys'
fees and expenses and court costs), shall
be a demand obligation of Lessee to Lessor
or such receiver, and, to the extent
permitted by law, shall be added to the
Obligations and shall be secured by the
Liens created by the Lease Documents as
fully and effectively and with the same
priority as every other obligation of
Lessee secured thereunder and, if not paid
within ten (10) days after demand, shall
hereafter, to the extent permitted by
applicable law, bear interest at the
Overdue Rate until the date of payment.


     9.  INSURANCE; CASUALTY; TAKING

     9.1  General Insurance Requirements.

     Lessee shall at its sole cost and
expense keep the Leased Property and the
business operations conducted thereon
insured as required under the Facility
Lease.

     9.2  Fire or Other Casualty or
Condemnation.

     In the event of any damage or
destruction to the Leased Property by
reason of fire or other hazard or casualty
(a "Casualty") or a taking by power of
eminent domain or conveyance in lieu
thereof of allor any portion of the Leased
Property (a "Condemnation"), Lessee shall
give immediate written notice hereof to
Lessor and comply with the provisions of
the Facility ease governing Casualties and
Condemnations.









26




     10.  EVENTS OF DEFAULT

     Each of the following shall
constitute an "Event of Default" hereunder
and shall entitle Lessor to exercise its
remedies hereunder and under any of the
other Lease Documents:

     A.   any failure of Lessee to pay any
amount due hereunder or under
            any of the other Lease
Documents within ten (10) days
            following the date when such
payment was due;

     B.   any failure in the observance or
performance of any other
            covenant, term, condition or
warranty provided in this
            Agreement or any of the other
Lease Documents, other than the
            payment of any monetary
obligation and other than as
            specified in subsections (C)
through (F) below (referred to
            herein as a "Failure to
Perform"), continuing for thirty (30) days
            after the giving of notice by
Lessor to Lessee specifying the
            nature of the Failure to
Perform; except as to matters not
            susceptible to cure within
thirty (30) days, provided that with
            respect to such matters, (i)
Lessee commences the cure thereof
           within thirty (30) days after
the giving of such notice by Lessor
            to Lessee, (ii) Lessee
continuously prosecutes such cure to
            completion, (iii) such cure is
completed within one hundred
            twenty (120) days after the
giving of such notice by Lessor to
            Lessee and (iv) such Failure
to Perform does not impair
            Lessor's rights with respect
to the Leased Property or otherwise
            impair the Collateral or
Lessor's security interest therein;

     C.   the occurrence of any default or
breach of condition continuing
            beyond the expiration of the
applicable notice and grace
            periods, if any, under any of
the other Lease Documents;

     D.   if any representation, warranty
or statement contained herein or
            in any of the other Lease
Documents proves to be untrue in any
            material respect as of the
date when made or at any time during
            the Term if such
representation or warranty is a continuing
            representation or warranty
pursuant to Section 6.2;

     E.   except as a result of any
Casualty or a partial or complete
           Condemnation, if a suspension
of any work in connection with
           the construction of the Project
occurs for a period in excess
           of ten (10) Business Days,
irrespective of the cause thereof,
           provided that Lessee shall not
be deemed to be in default under
           this Subsection if such
suspension is for circumstances not
           reasonably within its control,
but only if Lessor, in its sole and
           absolute discretion, shall
determine that such suspension shall
           not create any risk that the
construction of the Project will not be





27


           completed (in accordance with
the Project Plans and the terms
           and conditions of this
Agreement) on or before the Completion
           Date; and

    F.   if construction of the Project
shall not be completed in
          accordance with the Project
Plans and this Agreement (including,
          without limitation, satisfaction
of the conditions set forth in
          Section 7.6) on or before the
Completion Date.

     11.  REMEDIES IN EVENT OF DEFAULT

     Upon the occurrence of an Event of
Default, at the option of Lessor, which
may be exercised at any time after an
Event of Default shall have occurred,
Lessor shall have all rights and remedies
available to it, at law or in equity,
including, without limitation, all of the
rights and remedies under the Facility
Lease and the other Lease Documents.
Subject to the requirements f applicable
law, all materials at that time on or near
the Leased Property which are the property
of Lessee and which are to be used in
connection with the completion of the
Project shall be subject to the Liens
created by the Lease Documents.
In addition to, and without limitation of,
the foregoing, Lessor is authorized to
charge all money expended for completion
the Project against sums hereunder which
have not already been advanced (even if
the aggregate amount of such sums expended
and all amounts previously advanced
hereunder exceed the amount of the Project
Funds which Lessor has agreed to advance
hereunder); and Lessee agrees to pay to
Lessor Rent under the Facility Lease
calculated, in part, thereunder based upon
all sums advanced hereunder, including,
without limitation, all sums expended in
good faith by Lessor in connection with
the completion of the project), and, in
addition thereto, Lessee agrees to pay to
Lessor (as Rent under the Facility Lease),
for services in connection with said
completion of the Project, such additional
sums as shall compensate Lessor for the
time and effort Lessor and its employees
shall have expended in connection
therewith. Lessor is authorized, but not
obligated in any event, to do all such
things in connection with the construction
of the Project as Lessor, in its sole and
absolute discretion, may deem advisable,
including, without limitation, the right
to make any payments with respect to any
obligation of Lessee to Lessor or to any
other Person in connection with the
completion of construction of the Project
and to make additions and changes in the
Project Plans, to employ contractors,
subcontractors and agents and to take any
and all such action, either in Lessor's
own name or in the name of Lessee, and
Lessee hereby grants Lessor an irrevocable
power of attorney to act in its name in
connection with the foregoing. This power
of attorney, being coupled with an
interest, shall be irrevocable until all
of the Obligations are fully paid and
performed and shall not be affected by any
disability or incapacity which Lessee may
suffer and shall survive the same. The
power of attorney conferred on Lessor by
the provisions of this Section 11 is



28




provided solely to protect the interests
of Lessor and shall not impose any duty on
Lessor to exercise any such power and
neither Lessor nor such attorney-in-fact
shall be liable for any act, omission,
error in judgment or mistake of law,
except as the same may result from its
gross negligence or wilful misconduct. In
the event that Lessor takes possession of
the Leased Property and   assumes control
of the project as aforesaid, it shall not
be obligated to continue the construction
of the Project and/or the operation of the
Project for any period of time longer than
Lessor shall see fit (in its sole and
absolute discretion), and Lessor may
thereafter, at any time, abandon its
efforts and refuse to make further
payments for the account of Lessee,
whether or not the Project has been
completed.

     In addition, at Lessor's option and
without demand, notice or protest, the
occurrence of any Event of Default shall
also constitute a default under any one or
more of the Related Party Agreements.

     12.  GENERAL

     The provisions set forth in Article
23 and Sections 2.2, 16.8 through 16.10,
24.2 through 24.6, and 24.8 through 24.12
of the Lease are hereby incorporated by
reference, mutatis, mutandis, and shall be
applicable to this Agreement as if set
forth in full herein.
This Agreement, the other Lease Documents
and the other Lease Documents set forth
the entire agreement of the parties with
respect to the subject matter and shall
supersede in all respect the Letter of
Intent.

     13. LEASE PROVISIONS PARAMOUNT.

     In the event of a conflict between
the provisions hereof and the provisions
of the Lease, the provisions of the Lease
are paramount.


           [REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]


















29



IN WITNESS WHEREOF, the parties hereto
have executed this Agreement under seal on
the day and year first above written.

WITNESS:
LESSEE:

EMERITUS PROPERTIES I, INC.

/s/ Melissa L. Day
By:  /s/ Raymond R. Brandstrom
- -----------------------------
- ----------------------
Name: Melissa L. Day                Name:
Raymond R. Brandstrom

Title: President

WITNESS:
LESSOR:

MEDITRUST ACQUISITION

CORPORATION I, a

Massachusetts corporation


/s/ Melissa L. Day
By:  /s/ Michael S. Benjamin,
- ------------------------
- --------------------------
Name: Melissa L. Day               Name:
Michael S. Benjamin, ESQ.

Title: Senior Vice President






























30

EX-10.58.1

                                             LEASE
AGREEMENT

     THIS AGREEMENT (the "Lease") is made and
entered into this 26th day of February, 1996 by
and between EMERITUS CORPORATION, a Washington
corporation ("Tenant"), and LM AUBURN ASSISTED
LIVING LLC, a Massachusetts limited liability
company ( " Landlord" ).

     SECTION 1. THE PREMISES.

     SECTION 1.1. FACILITY. Landlord hereby
demises and leases to Tenant and Tenant hereby
leases and takes from Landlord, the real property
described in Exhibit A hereto (the "Real
Property"), together with those certain
improvements (the "Improvements") to be
constructed by Landlord thereon consisting of a
senior housing facility with assisted living
services (the "Facility") as more particularly
described and provided for in the Construction
Work Letter attached hereto as Exhibit "B" and
incorporated herein by this reference (the "Work
Letter"), subject to those encumbrances and other
matters of record set forth on Exhibit " C "
attached hereto and incorporated herein by this
reference (the " Permitted Encumbrances"). The
Real Property, the Improvements and the Personal
Property (defined below) shall collectively
constitute the "Premises." Included within the
Improvements is that portion of that certain
access road as shown on Exhibit " D " attached
hereto which is located on the Real Property and
which shall provide vehicular access to and from
the Facility and Washington Street (Route 20) (the
"Access Road"). Tenant's right to use the Access
Road shall be shared only with those tenants and
occupants of the "Future Development" on the
" Adjacent Land " as described and defined in
Section 1. 5 below.

     SECTION 1.2. PERSONAL PROPERTY. Landlord
hereby further demises and leases to Tenant, and
Tenant hereby leases and takes from Landlord, all
equipment, furniture, furnishings, and fixtures
which are to be installed as part of the
Improvements pursuant to the "Working Drawings and
Specifications" (as that term is defined in the
Work Letter) approved by Landlord and Tenant, as
provided for in the Work Letter, together with any
additional items added thereto from time to time
by written agreement between Landlord and Tenant
(such equipment, furniture, furnishings and
fixtures, together with all additions thereto or
replacements thereof will hereinafter be referred
to as the "Personal Property"). If any equipment,
in addition to the Personal Property, is necessary
or convenient to operate the Facility, all such
additional equipment shall be acquired by and at
the cost of Tenant and the same shall be and
remain the property of Tenant in accordance with
the terms of Section 1.2.1 below.

     SECTION 1.2.1. Tenant shall keep all of the
Personal Property in good working order and
condition at Tenant's sole cost and expense, and
at the expiration or termination of the Lease Term
(as defined below) shall return and deliver all of
such property to Landlord in good working order
and condition, reasonable wear and tear excepted.
If necessary for the proper operation of the
Facility, Tenant shall, during the Lease Term,
replace part or all of the items of Personal
Property which have been damaged or destroyed or
become worn out or obsolete, and such replacement
shall be at the sole cost of Tenant, but any such
equipment which has been acquired for the purpose
of replacing Personal Property previously provided
by Landlord shall be and remain the






property of Landlord. Tenant may place additional
property on the Premises (not required for
replacement of property covered in this Lease),
and the same shall be and remain the property of
Tenant ("Tenant's Equipment").

     SECTION 1.2.2. Landlord agrees upon request
of Tenant to subordinate any statutory or
Landlord's lien that Landlord may have to any
security interest granted by the Tenant to secure
a purchase money obligation or an acquisition
lease of any of Tenant's Equipment acquired by
Tenant pursuant to Section 1. 2.1.

     SECTION 1.3. ACQUISITION OF PROPERTY. Tenant
hereby acknowledges and understands that Landlord
does not yet own the Real Property but is the
purchaser thereof pursuant to a purchase and sale
agreement (the "Purchase Agreement"). Landlord's
contractual agreement to purchase the Real
Property is subject to the satisfaction of certain
contingencies and conditions precedent, including
the procurement of financing and permits necessary
to construct the Improvements. Landlord covenants
and agrees to use its best efforts to acquire the
Real Property pursuant to the terms of the
Purchase Agreement; provided, however, if, despite
the exercise of Landlord's best efforts, Landlord
has not so acquired fee title interest to the Real
Property by the first anniversary of the date of
this Lease, either Landlord or Tenant shall have
the right to terminate this Lease by written
notice to the other delivered at any time prior to
the date Landlord actually acquires fee title to
the Real Property.

     SECTION 1.4. INTENTIONALLY OMITTED.

     SECTION 1. 5. FUTURE DEVELOPMENT.

     SECTI0N 1.5.1. Tenant hereby acknowledges
that an affiliate of Landlord intends (but shall
not be obligated) to further develop land adjacent
to the Real Property identified on Exhibit "D"
attached hereto as "Phase 2" (the "Adjacent Land")
by constructing thereon one or more buildings
together with associated parking areas, driveways,
utility installations and other related
improvements (the "Future Development"). Tenant
agrees to cooperate with Landlord's affiliate in
connection with any such Future Development by
providing any necessary temporary construction
easements, provided that said easements do not
interfere with the construction of the
Improvements, unreasonably interfere with the use
of the Access Road, or interfere with the
operation of Tenant's business from the Premises,
reduce the available parking for the Facility,
obstruct Tenant's access to the Facility and/or
interfere with the quiet enjoyment of Tenant's
residents. Landlord covenants and agrees that any
such Future Development shall (i) be of the same
or better quality of construction as the
Improvements constructed hereunder, (ii) consist
of an architectural style and appearance which
would be compatible and aesthetically consistent
with the appearance of the Improvements
constructed hereunder, (iii) not result in any
relocation or decrease in the parking facilities
constructed hereunder for the Improvements, all of
which parking hereunder shall remain for the
exclusive use of the Facility, (iv) not result in
any additional cost or expense to Tenant, and (v)
not create or result in, any noncompliance of the
Facility or associated improvements with any
statutes, codes, regulations, ordinances, or
orders of any agencies which regulate or are
responsible for approving or accrediting senior
housing with assisted living services (and
assisted living specifically) or which may be at
any time applicable to any portion of the
Premises, the Access Road or any use thereof.


2



Landlord agrees that its affiliate shall not
deliver a substantially completed Future
Development to the occupant thereof within one
year of the Rent Commencement Date hereunder, nor
permit any marketing of said Future Development
facility within said one year period.

     SECTION 1.5.2. From and after the Rent
Commencement Date, Tenant shall be responsible, at
its sole cost and expense, for maintaining and
repairing the portion of the Access Road located
on the Real Property (including repaving as
necessary) for snow removal and for maintaining
all landscaping for the Real Property, except that
from and after the commencement of construction of
the Future Development, Landlord shall cause its
affiliate to (i) promptly repair, at its sole cost
and expense, any damage caused to the Access Road
by any of Landlord's affiliate's construction
activities with respect to the Future Development,
and (ii) pay for any additional improvements to
the Access Road which may be necessary or required
in connection with the construction of the Future
Development. Tenant shall, at no time, have any
responsibility whatsoever with respect to the
maintenance of the Adjacent Land. Until such time
as the Adjacent Land has been improved with the
Future Development, Landlord covenants and agrees,
at Landlord's sole cost and expense, to perform
routine weed abatement and trash removal as
necessary to keep and maintain the Adjacent Land
in a clean and sightly condition. In connection
with Landlord's design and construction of the
Future Development, Landlord shall cause the
Future Development to be professionally landscaped
consistent with the quality of landscaping
installed for the Improvements hereunder. Upon
completion of the Future Development, Landlord
shall cause its affiliate to keep and maintain or
shall cause the occupant of the Future Development
or any successor to Landlord's affiliate's
interest therein, to keep and maintain, all such
landscaping installed at the Adjacent Land in a
good and sightly condition.

     SECTION 1. 5. 3. In the event of any sale of
the Adjacent Land, Landlord shall cause its
affiliate to record in the county recorder's
office, prior to said sale, restrictive covenants
consistent with the provisions of this Section 1.5
and in form and substance reasonably approved by
Tenant. Any failure by the owner and/or operator
of the Adjacent Land to comply with the provisions
of Section 1.5 (it being the responsibility of the
Landlord to notify any such owner and operator of
the same), or by the ground lessor under the
ground lease to enforce the provisions of Section
1.5 through its ground lease of the Adjacent Land,
shall be deemed a default by Landlord hereunder.

     SECTION 2. TERM.

     SECTION 2.1. INITIAL LEASE TERM. Subject to
the provisions of Section 2.1.1, the term of this
Lease shall commence on the date of execution as
first set forth above (the "Commencement Date")
and shall continue for a period of twenty (20)
years following the "Rent Commencement Date" (as
that term is defined below), subject to (i) the
right of Tenant to extend the term as provided for
in Section 2. 1.1 below and (ii) any earlier
termination by either party, as permitted herein
(the "Initial Lease Term"). Notwithstanding the
foregoing, in the event the Lease Term expires on
any day other than the last day of a calendar
month, the Lease Term shall be automatically
extended by the number of days necessary to cause
the Lease Term to expire on the last day of the
month.



3



     SECTION 2.1.1. Tenant shall have the right to
renew this Lease beyond the Initial Lease Term for
two (2) successive ten (10) year renewal terms
(the "Renewal Terms" and together with the Initial
Lease Term, the "Lease Term") by giving notice of
the exercise of its renewal option at least
fifteen (15) months prior to the expiration of the
Initial Lease Term with respect to the exercise of
the first such renewal option, and prior to the
expiration of the first Renewal Term with respect
to the exercise of the second renewal option. In
the event Tenant is in default on the date of the
giving of notice of its intent to renew the Lease,
the notice shall be ineffective; in the event
Tenant is in default on the date the applicable
Renewal Term is to commence, then the Renewal Term
shall not commence and this Lease shall expire as
of the end of the Initial Lease Term or the
applicable Renewal Term. Tenant shall have no
right to renew this Lease beyond the expiration of
the final Renewal Term. During each Renewal Term
all of the terms and conditions of this Lease
shall continue to apply, except that there shall
be an adjustment to the amount of Basic Rent as
provided for in Section 3.4 below.

     SECTION 2.2. RIGHT TO TERMINATE. Landlord
acknowledges and understands that it is Tenant's
intent that this Lease comply with Rule 13 of the
Financial Accounting Standards Board ("FASB 13")
in order to permit Tenant, for accounting
purposes, to treat this Lease as an operating
lease. For that purpose, Landlord hereby agrees
that, notwithstanding anything to the contrary
contained herein, Tenant may elect to terminate
this Lease effective as of the expiration of the
sixteenth (l6th) Lease Year of the Term by giving
Landlord written notice of its election not later
than the expiration of the ninth (9th) Lease Year
of the Term (the "Termination Notice"). Tenant
shall not, however, have the right to terminate
this Lease if Tenant shall be in default hereunder
either at the time of delivery of the Termination
Notice or as of the effective date of termination.
If Tenant fails for any reason to deliver the
Termination Notice by the expiration of the ninth
(9th) Lease Year, Tenant's right to so terminate
this Lease shall not have expired or be deemed to
have been waived until such time as (i) Landlord
notifies Tenant in writing that the date for the
delivery of the Termination Notice is past due
(the "Reminder Notice") and (ii) Tenant shall have
failed, within thirty (30) days following Tenant's
receipt of the Reminder Notice, to have delivered
to Landlord the Termination Notice. In the event
Tenant exercises its right to terminate this Lease
pursuant to the foregoing, Landlord shall have the
right, exercisable by written notice to Tenant, to
select an effective termination date earlier than
the expiration of the sixteenth (l6th) Lease Year
(the "Early Termination Effective Date"), provided
that the Early Termination Effective Date shall
not be early than the date one hundred twenty
(120) days following the date Tenant receives
Landlord's written notice designating said Early
Termination Effective Date. The parties further
acknowledge that this Lease is being entered into
in conjunction with those certain two (2) other
Lease Agreements, one of which relates to a parcel
of real property located in Rocky Hill,
Connecticut and is by and between Tenant and LM
Rocky Hill Assisted Living Limited Partnership, a
Delaware limited partnership (the "Rocky Hill
Lease") and the other of which relates to a parcel
of real property located in Louisville, Kentucky
and is by and between Tenant and LM Louisville
Assisted Living LLC, a Delaware limited liability
company (the
"Louisville Lease"). The Rocky Hill Lease and the
Louisville Lease each include a provision
comparable to this Section 2. 2 which permits
Tenant to terminate each such lease early. The
exercise by Tenant to terminate either the Rocky
Hill Lease and/or the



4




Louisville Lease pursuant to any such comparable
provision thereof shall also be deemed an election
by Tenant to terminate the Term of this Lease
pursuant to the terms of this Section 2.2
regardless of whether or not Tenant has delivered
the Termination Notice hereunder.

     SECTION 3. RENT.

     SECTION 3.1. BASIC RENT. During the Initial
Lease Term, the annual rent due hereunder (the
"Basic Rent") shall be determined according to the
following formula:

                                     Basic Rent =
TPC x CR x DC

     "TPC" means the "Total Project Cost" as that
term is defined in the Work Letter.

     "CR" means a coverage ratio of 1.20.

     "DC" means a debt constant equal to
Landlord's cost of funds calculated at the time
Landlord secures a commitment for permanent
financing which meets the following criteria: (i)
interest shall be at a fixed rate, (ii) the loan
shall be non-recourse to Landlord, subject to
customary exceptions (e.g. recourse for
environmental liability and violations of the
American Disabilities Act), (iii) the term of the
loan shall be for 10 years, (iv) the loan shall be
amortized over a term of 22 years, (v) the
principal amount of the loan shall be not more
than one hundred percent (100% ) of the Total
Project Cost. Landlord shall keep Tenant apprised
with respect to its efforts to secure permanent
financing and Tenant may participate in the
process of obtaining such financing.

     Pursuant to the above formula, (i) the Total
Project Cost has been determined to be $6,435,944,
based upon the project cost budget set forth on
Exhibit B-2 attached hereto, (ii) the debt
constant ("DC") has been set at ______ and (iii)
the Basic Rent is hereby set at $__________ per
year, subject to the provisions of Sections 3.3,
3.4 and
Section 3.1.2.

     SECTION 3.1.1. The obligation to pay the
Basic Rent and Additional Rent shall
commence on the earlier of (i) the date of
Substantial Completion or (ii) the date upon which
Tenant moves into the Facility and commences to
occupy the Premises (other than for the purpose of
constructing any tenant improvements) (the "Rent
Commencement Date"). Basic Rent shall be paid in
advance in equal monthly installments on the tenth
day of each month; provided, however, that the
first monthly payment shall be due on the tenth
day after the Substantial Completion. For purposes
of this Lease, a Lease Year shall be the twelve
(12) month period commencing on the date of
Substantial Completion. In the event the date of
Substantial Completion shall be other than the
first day of the month, Tenant shall pay to
Landlord a pro rata portion of rent for the month.

     SECTION 3.1.2. Notwithstanding any other
provisions of this Lease Agreement to the
contrary, from and after the Rent Commencement
Date until the Maturity Date of Landlord's
construction loan, to the extent that Tenant's Net
Operating Income from the Facility is less than
the monthly Basic Rent owed to Landlord (the
difference being the "Net Operating Deficiency"),
after Tenant demonstrates in writing to Landlord's
reasonable satisfaction that Tenant has used
$250,000 of Tenant's own funds to make up


5



operating deficits, Tenant shall have the right to
pay to Landlord in full satisfaction of its
monthly Basic Rent obligation (subject to the
provisions of this Section 3. I.2), its monthly
Net Operating Income from the Facility for the
prior month and Landlord may draw down the balance
of its monthly Basic Rent from " Rent-up Reserve
Funds " (as hereinafter defined). The " Rent-up
Reserve Funds " shall mean the amount of Two
Hundred Fifty Thousand Dollars ($250,000), set
aside by Landlord's construction lender for such
purpose and funded on a monthly basis upon
requisitions by Landlord with proceeds from
Landlord's construction loan. Tenant's right
pursuant to this Section 3.1.2 to pay less than
the full monthly Basic Rent then due (a) shall be
contingent upon Landlord's construction lender's
actual funding of the Rent-up Reserve Funds and
the continued availability thereof based on the
construction lender's requirements and conditions
set forth in the pertinent loan documents and (b)
shall automatically terminate upon the depletion
of the Rent-up Reserve Funds or if for any other
reason any or all of such Rentup Reserve Funds
become unavailable to Landlord. If in any month,
Tenant has paid its monthly Net Operating Income
from the previous month but Landlord is unable to
draw the remaining Basic Rent due from the Rent-up
Reserve Funds, then Tenant shall pay to landlord
such remaining Basic Rent due within five (5) days
of written notice from Landlord. If such Rent-up
Reserve Funds become unavailable to Landlord as a
result of a default in its construction loan,
which default is not caused by the default of
Tenant hereunder, then Basic Rent shall be
adjusted prospectively (i.e., from the date such
funds become unavailable due to such Landlord
default) (but not retroactively) by reducing Total
Project Cost by such portion (or all) of the
$250,000 Rent-up Reserve Funds as are not
available to Tenant. If the Rent-up Reserve Funds
are temporarily unavailable due to a Landlord
default, but such funds become available again due
to Landlord's cure, then Basic Rent shall not be
adjusted. In the event that, during the term of
Landlord's construction loan, Net Operating Income
is equal to or greater than the monthly Basic Rent
so that there is no longer a monthly Net Operating
Deficiency, prior to the full disbursement of the
Rent-up Reserve Funds, then Tenant may direct
Landlord to, and upon receipt of said direction
from Tenant Landlord shall draw down any unfunded
amount of the Rent-up Reserve Funds to reimburse
Tenant for amounts expended by it for operating
deficits prior to its exercise of rights under
this Section 3.1.2. In the event that Tenant
elects not to draw down the full $250,000 Rent-up
Reserve Funds, then Tenant shall so notify
Landlord and Total Project Cost shall be reduced
by the amount which Tenant elects not to draw down
and Basic Rent shall be adjusted prospectively
(but not retroactively), provided that once Tenant
has so notified Landlord, it may not thereafter
have the benefit of this Section 3.1.2. In any
month where the Tenant exercises its rights under
this Section 3.1.2, its payment of its monthly Net
Operating Income from the previous month shall be
accompanied by an accounting of income and
expenses for such previous month, certified by the
President of Tenant as true and correct and
calculated in compliance with generally accepted
accounting principles, consistently applied. For
purposes of this Section, "Net Operating Income"
shall mean Tenant's net income from continuing
operations at the Facility before debt service
(which net income shall not include depreciation,
amortization, non cash expenses, or any
extraordinary or non-recurring items of income or
loss).

     SECTION 3.2. PAYMENT OF BASIC RENT. Except as
specifically provided for herein, the Basic Rent
shall be payable without offset, abatement or
other deduction to Landlord at the address set
forth in Section 16, or to such other person, firm
or corporation at such other address as Landlord
may designate by notice in writing to Tenant.
     
                                                 6


     SECTION 3.2.1. This Lease is intended to be
triple net to Landlord, and Tenant shall pay to
Landlord, net throughout the Initial Lease Term
and any Renewal Term, the Basic Rent prescribed by
Section 3.1. , free of any offset, abatement, or
other deduction, except as may be expressly set
forth herein. Except as may otherwise be expressly
set forth herein, Landlord shall not be required
to make any payment of any kind with respect to
the Premises and Tenant agrees to pay as they
become due and payable all costs, expenses, and
obligations of every kind relating to the Premises
whether usual or unusual, ordinary or
extraordinary, foreseen or unforeseen, which may
arise or become due following the Rent
Commencement Date (the "Additional Rent"). (Basic
Rent and Additional Rent are sometimes referred to
collectively herein as "Rent"). Notwithstanding
the foregoing, Landlord shall be responsible for
making all payments due with respect to any
mortgage or deed of trust secured by the Premises
(the
"Facility Mortgage"), Landlord's costs associated
with the Adjacent Land, as provided herein, and
all income taxes assessed against Landlord, and
all estate, succession or inheritance taxes of
Landlord.

     SECTION 3.2.2. This Lease shall continue in
full force and effect, and the obligations of
Tenant hereunder shall not be released, discharged
or otherwise affected except as specifically set
forth in (i) Section 10, regarding damage to or
destruction of the Premises or any part thereof,
(ii) Section 11, regarding the taking of the
Premises or any part thereof by condemnation,
requisition or otherwise for any reason, (iii)
Section 17.2, regarding curing of mortgage
defaults and (iv) such other provisions of this
Lease which expressly provided for any abatement
or termination rights granted in favor of Tenant.

     SECTION 3. 2. 3. If any payment of any sums
required to be paid by Tenant to Landlord under
this Lease and payments made by Landlord under any
provision hereof for which Landlord is entitled to
reimbursement by Tenant is not paid when due or
within ten (10) days after written notice of
nonpayment from Landlord, interest at the "Prime
Rate" plus two percent (2%) per annum, to Landlord
from the original date due until actually paid. No
failure by Landlord to insist upon the strict
performance by Tenant of Tenant's obligation to
pay late charges shall constitute a waiver by
Landlord of its rights to enforce the provisions
of this Section in any instance thereafter
occurring.

     SECTION 3. 3. RENT INCREASES. Effective as of
the expiration of each sixty (60) month period
during the Term commencing from the Rent
Commencement Date, the Basic Rent shall be
adjusted upward by an amount equal to the greater
of (i) one-half of the increase in the Consumer
Price Index (as that term is defined below)
determined in the manner provided for below, and
(ii) ten percent (10%) of the Basic Rent payable
by Tenant hereunder as of the date immediately
preceding the effective date of the rent
adjustment; provided, however, in no event shall
the Basic Rent be increased on any adjustment date
by more than fifteen percent (15% ) of the Basic
Rent in effect as of the date immediately
preceding the effective date of adjustment.

     As used herein the term "Consumer Price
Increase" shall mean the United States Department
of Labor, Bureau of Labor Statistics Consumer
Price Index, All Urban Consumers, All Items, for
Northeast Urban (1982-1984=100). If at any time
there shall not exist the Consumer Price Index in
the same format as recited in this Section 3. 3,
Landlord shall substitute any official index
published by the Bureau of Labor Statistics or



7



successor or similar governmental agency, as may
then be in existence and shall be most equivalent
thereto. The increase in the Consumer Price Index
shall be determined by according to the percentage
increase, if any, between the index published and
in effect ninety (90) days preceding the
adjustment date and the index published and in
effect ninety (90) days preceding the Rent
Commencement Date.

     SECTION 3. 4. RENT DURING THE RENEWAL TERMS.
As of the commencement of each Renewal Term the
Basic Rent shall be adjusted to equal the greater
of (a) the Basic Rent payable during the last
Lease Year prior to the Renewal Term or (b) the
then prevailing Fair Market Rental (as defined
below) for the Premises. As used herein, the term
"Fair Market Rental" for the Premises shall mean
the rental that Landlord could obtain from a third
party desiring to lease the Premises for the
Renewal Term and shall be based on the Premises in
its "as is" condition, provided that the Facility
has been maintained in accordance with the terms
of this Lease. Landlord shall send to Tenant,
within fifteen (15) days following Landlord's
receipt of Tenant's notice exercising the renewal
option, written notice setting forth Landlord's
determination of the Fair Market Rental for the
Renewal Term. If Tenant objects to Landlord's
determination of the Fair Market Rental for the
Premises, Tenant shall notify Lessor within
fifteen (15) days of Tenant's receipt of
Landlord's notice. If Tenant fails to notify
Landlord within said fifteen (15) day period,
Tenant shall be deemed to have approved Landlord'
s determination of the Fair Market Rental.

     If Tenant objects to Landlord's
determination, Landlord and Tenant shall each
appoint its own qualified MAI appraiser, with
nationally recognized credentials in the field of
senior housing with assisted living services, with
substantial experience in senior housing with
assisted living services, to appraise the Premises
within forty-five (45) days of Tenant's objection
(the "Landlord's Appraisal" and "Tenant's
Appraisal") for the purpose of determining the
Fair Market Rental. If either party fails to
employ and pay an MAI appraiser to determine the
Fair Market Rental and/or fails to submit its
appraisal to the other within said forty-five (45)
days together with a written summary of the
methods used and the data collected, the remaining
party's appraisal shall be accepted as the Fair
Market Rental. If Landlord's Appraisal and
Tenant's Appraisal differ by (i) less than ten
percent (10%), the average of the two shall be the
Fair Market Rental for the Premises, or (ii) more
than ten percent ( 10 % ), Landlord and Tenant
shall promptly instruct its respective appraiser
to jointly appoint a third MAI appraiser with
similar credentials and experience, who shall
within fifteen (15) days of his selection select
the one of the two appraisals which most
accurately defines Fair Market Rental. The third
appraiser shall not have the power to amend,
modify, compromise, or average the first two
appraisals. Landlord and Tenant shall each pay the
cost of its own appraiser and one-half (1/2) of
the cost of the third appraiser. In the event the
Basic Rent for the Renewal Term is determined by
the appraisal procedure described above, Tenant
shall have the right to terminate Tenant's
exercise of the renewal option by written notice
delivered to Landlord delivered at any time within
twenty (20) days following Tenant's receipt of
written notice regarding the third appraiser's
Fair Market Rental determination. Time is of the
essence for all of the time periods set forth in
this Section.





8





     SECTION 3. 5. TAXES.

     SECTION 3. 5.1. Tenant shall pay directly to
the applicable taxing authority, by the applicable
due date, all "Taxes" (as that term is defined
below) for each fiscal period wholly included in
the Lease Term (and a prorated amount thereof for
partial years occurring during the first and last
Lease Years of the Lease Term) assessed with
respect to the Premises, which payments shall be
deemed additional rent hereunder, in addition to
the basic rent herein before set forth.

     Any interest or penalties which accrue as a
result of Tenant's failure to make such payment
within the time required by this Article 5 shall
be the sole responsibility and obligation of
Tenant. In the event Landlord receives any bill
for Taxes with respect to the Premises, Landlord
shall promptly deliver to Tenant a copy of the
same. "Taxes" shall mean all real estate taxes,
general and special assessments, personal property
taxes, and other public charges which are
assessed, levied, confirmed, or imposed upon the
Premises during the Lease Term, and all sales
taxes and other taxes that are now or hereafter
may be payable in connection with the Basic Rent
payable hereunder during the Initial Lease Term
and any Renewal Term (other than income taxes
owing by Landlord as a result of Tenant's payment
of Basic Rent hereunder and principal and interest
payments owing to Landlord's Mortgagee).

     SECTION 3. 5. 2. Any taxes and assessments
relating to a fiscal period of any authority, a
part of which is already included within the
Initial Lease Term or any Renewal Term and a part
of which is included in a period of time before or
after the Initial Lease Term or any Renewal Term,
shall be adjusted pro rata between Landlord and
Tenant and each party shall be responsible for its
pro rata share of any such taxes and assessments.

     SECTION 3. 5. 3. Nothing herein shall require
Tenant to pay income taxes assessed against
Landlord, or estate, succession or inheritance
taxes of Landlord.

     SECTION 3.5.4. Tenant may contest, in is own
name or in the name of Landlord, with Landlord's
cooperation, which Landlord agrees to give, the
legality or validity of any such tax or assessment
or of any law under which the same shall be
imposed. This must be done in good faith, with due
diligence, and at Tenant's own expense. If Tenant
does so contest such tax or assessment beyond the
time limit for payment thereof by Tenant, Tenant
shall either pay such amount under protest or
procure and maintain a stay of all proceedings
with adequate bond to enforce collection of such
tax or assessment. Once such action is taken by
Tenant, Tenant shall not be considered to be in
default hereunder with respect thereto.
Notwithstanding anything to the contrary, Tenant
shall not exercise its contest rights in
contravention of any of the terms and conditions
of any Facility Mortgage. Landlord shall also have
the right, at landlord's sole cost and expense, to
contest in good faith and with due diligence any
assessment with respect to the Real Property or
the Future Development.





9





     SECTION 3. 5. 5. Tenant shall have, and
Landlord hereby irrevocably grants to Tenant, the
power and authority, at Tenant's cost to make and
file and prosecute any statement or report or
claim for refund which may be required or
permitted by law, as the basis of or in connection
with the assessment, determination, equalization,
reduction or payment of any and every tax or
assessment or license or charge which Tenant is
required to pay or discharge hereunder.

     SECTION 3. 5. 6. Landlord shall not be
required to join in any proceedings referred to in
this Section, unless the provisions of any law,
rule or regulation at the time in effect shall
require that such proceedings be brought by and/or
in the name of Landlord, in which event Landlord
shall join in such proceedings or permit the same
to be brought in its name. Landlord shall not
ultimately be subjected to any liability for the
payment of any costs or expenses in connection
with any such proceedings, and Tenant will
indemnify, defend and save harmless Landlord from
any such costs and expenses. Tenant shall be
entitled to any refund of any taxes and
assessments and penalties or interest thereon
received by Landlord but previously paid or
reimbursed in full by Tenant.

     SECTION 3. 5. 7. Upon the termination of any
such proceeding, Tenant shall pay the amount of
such taxes and assessments or part thereof as
finally determined in such proceedings, the
payment of which may have been deferred during the
prosecution of such proceedings, together with any
costs, fees, interest, penalties or other
liabilities in connection therewith.

     SECTION 3. 5. 8. Notwithstanding any other
provision of Section 3. 5 to the contrary, in the
event that any Facility Mortgagee requires the
monthly escrow of estimated Taxes, then Tenant
shall cause such monthly payments to be made in to
an impound account as directed by said Facility
Mortgagee, provided that all interest accruing on
funds deposited in to said account shall accrue
for the benefit of Tenant.

     SECTION 4. USE OF THE PREMISES/COMPLIANCE
WITH LAWS.

     SECTION 4.1. PERMITTED USES. The Premises may
be used only for senior housing with assisted
living services and for no other purpose. Tenant
agrees that such use shall not change, for the
term of Landlord's construction loan and for the
term of any permanent loan, unless such change is
approved by the applicable Facility Mortgagee. The
approval of a Facility Mortgagee shall not be
unreasonably withheld, provided that, in
considering a request for a change in use, the
Facility Mortgagee may consider the market
feasibility of any proposed use, the existence of
competing projects, the demand for assisted living
housing, the operating history of the Facility and
similar criteria. Tenant assumes full
responsibility for confirming that such use is
permitted under all laws, statutes, ordinances,
regulations, and orders governing the Real
Property and for obtaining any certificate of
need, license or other authorization required to
operate such use and/or to provide assisted living
services within the Facility (provided that it
shall be Landlord's obligation to obtain the
necessary building permit and certificate of
occupancy for the Improvements and for assuring
that the Improvements constructed by Landlord
comply with all applicable laws, statutes,
ordinances, rules, regulations, orders,
restrictions and other governmental requirements
of any governmental entities and


10



divisions having regulatory authority over Tenant
and the Improvements by virtue of the health care
business conducted by Tenant). Landlord makes no
representation or warranty as to the compliance of
such use under any such laws, statutes,
ordinances, regulations, and orders governing the
Real Property and/or insurance requirements. Any
failure by Tenant to obtain or maintain any
required authorization or approval (other than by
reason of Landlord's failure to cause the
Improvements to be constructed so as to comply
with the licensure/approval requirements as
required of Landlord herein) shall not affect
Tenant's obligation to pay Rent or any other
obligation hereunder.

     SECTION 4.2. OPERATING APPROVALS. Tenant
covenants upon execution of this Lease to proceed
with all due diligence to comply with all
notification and reporting requirements imposed on
an operator or proposed operator of an assisted
living residence and to use its best efforts to
obtain within thirty (30) days after the
Substantial Completion date the necessary
certification for the operation of the Facility as
an assisted living residence under applicable
state and federal law and shall maintain the same
in full force and effect throughout the Lease
Term. Landlord agrees to assist Tenant as
reasonably necessary to obtain said certification
at Tenant's expense. In addition, in the event
that any certification or license held by Tenant
lapses, expires or is canceled, revoked or
suspended, then Tenant shall immediately notify
Landlord. Notwithstanding the foregoing, Landlord
acknowledges and understands that the Executive
Office of Elder Affairs for the Commonwealth of
Massachusetts has only recently enacted
regulations governing the certification of
assisted living residences and that said
regulations have not been in place long enough so
as to permit the Executive Office of Elder Affairs
to establish definitive procedures for the
implementation of said regulations. Accordingly,
in the event Tenant is unable, despite its best
efforts, to obtain said certification within said
thirty (30) day period, Tenant shall not be deemed
in default hereunder, provided that Tenant is
proceeding with all necessary due diligence and is
continuing to exercise its best efforts, to obtain
said certification from the Executive Office of
Elder Affairs as soon as possible.

     SECTION 4. 3. COMPLIANCE WITH INSURANCE.
After the Commencement Date, Tenant shall neither
use nor permit to be used the Premises, or any
part thereof for any purpose which will cause the
cancellation of any insurance policy covering the
Premises or any part thereof, nor shall Tenant
sell or permit to be kept, used or sold in or
about the Premises any article which may be
prohibited by the standard form of fire insurance
policies. Tenant shall, at its sole cost, comply
with all of the requirements pertaining to the
Premises of any insurance organization or company
necessary for the maintenance of insurance, as
herein provided, covering the Premises.

     SECTION 4.4. WASTE/COMPLIANCE WITH LAWS.
Tenant covenants and agrees that the Premises
shall not be used for any unlawful purpose. Tenant
shall not commit or suffer to be committed any
waste on the Premises, nor shall Tenant cause or
permit any nuisance thereon. Tenant further
covenants and agrees that Tenant's use of the
Premises and maintenance, alteration, and
operation thereof shall at all times conform to
all applicable and lawful local, state, and
federal laws, ordinances, and regulations,
including orders of agencies which regulate or are
responsible for accrediting senior housing with
assisted living services. Tenant shall make such
alterations to the Premises (whether capital or
non-capital in nature) as may become necessary
after the Rent Commencement Date to maintain the
Premises in compliance with applicable laws. If a


11



change in law requires alterations of a capital
nature during the last three (3) years of the
Term, then Tenant shall pay the cost thereof but
may amortize same over its useful life under
generally accepted accounting principles and, upon
Lease termination, Landlord shall reimburse Tenant
for that portion of the cost attributable to the
remaining useful life. Tenant may, however,
contest the legality or applicability of any such
legal requirements. This must be done in good
faith, with due diligence, without prejudice to
Landlord's rights hereunder, and at Tenant's own
expense. While such a contest is pending Tenant
shall not be considered in default under this
Section 4.4. Notwithstanding anything to the
contrary, Tenant shall not exercise its rights to
contest under this Section in contravention of the
terms and conditions of any mortgage which may be
secured by the Facility.

     SECTION 4.5. SURVEYRS AND INSPECTIONS. Upon
written request, Tenant shall deliver to Landlord
a copy of the results of all surveys,
investigations and inspections of the Facility and
its operation performed by state or federal
authorities.

     SECTION 4.6. ENVIRONMENTAL COMPLIANCE.

     SECTION 4.6.1. Tenant shall use the Premises
in compliance with all applicable Environmental
Laws (as defined below). Tenant shall not
generate, store or use any Hazardous Materials in
or on the Premises, nor permit any Person to do so
on the Premises, except those customarily
generated, stored and used in the operation of a
senior housing facility with assisted living
services, and then only in compliance with all
Environmental Laws (as defined below), insurance
requirements and applicable industry standards.
Tenant shall not dispose of Hazardous Materials on
the Premises (or permit any person to do so) to
any other location except a properly licensed
disposal facility and then only in compliance with
all applicable Environmental Laws. Tenant shall,
at its sole cost and expense, promptly remove or
clean up any hazardous substances introduced onto
the Premises by Tenant or with its permission or
at its sufferance. Such removal or cleanup shall
be in compliance with all applicable Environmental
Laws. Tenant hereby agrees to indemnify and hold
Landlord and any Facility Mortgagee harmless and
agrees to defend Landlord and any Facility
Mortgagee from all losses, damages, claims and
liabilities and fines, including costs and
reasonable attorneys' fees, of any nature
whatsoever in connection with the actual presence
upon the Premises of any hazardous substance
introduced by Tenant. For purposes hereof, the
term "Environmental Laws" shall mean any and all
applicable governmental laws, regulations and
requirements relating to environmental and
occupational health and safety matters and
hazardous materials, substances or wastes (as
defined from time to time under any applicable
federal, state or local laws, regulations or
ordinances). The provisions of this Section 4.6
shall survive the expiration or earlier
termination of this Lease.

     SECTION 4.6.2. HAZARDOUS MATERIALS. The term
"hazardous materials" shall mean any chemical,
substance, waste, material, gas or emission which
is deemed hazardous, toxic, a pollutant, or a
contaminant under any statute, ordinance, by-law,
rule, regulation, executive order or other
administrative order, judgment, decree, injunction
or other judicial order of or by any governmental
authority, now or hereafter in effect, relating to
pollution or protection of human health or the
environment. By way of illustration and not
limitation, "Hazardous Materials" includes
asbestos, radioactive materials, and "oil",
"hazardous materials", "hazardous waste",
"hazardous substance"


12



and "toxic material" as defined in the
Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq.
, as amended, the Resource Conservation and
Recovery Act of 1976, 42 U. S. C. Section 2601 et
seq. , as amended, the regulations promulgated
thereunder, the Massachusetts Oil and Hazardous
Material Release Prevention and Response Act,
M.G.L. c. 21E; and the Massachusetts Hazardous
Waste Management Act, M.G.L. c. 21C. and the
regulations promulgated thereunder.

     SECTION 5. FACILITY MORTGAGEE REQUIREMENTS.
In order to satisfy the requirements of Landlord's
construction lender and/or permanent lender
holding a Facility Mortgage (collectively,
together with their successors and assigns,
"Facility Mortgagee") Tenant hereby agrees as
follows:

     SECTION 5.1. From and after the Rent
Commencement Date, Tenant shall provide Landlord
with the following financial statements and
information on a continuing basis:

     (a) Within ninety (90) days after the end of
each calendar year, a
statement of income and expenses for the year then
ended, and separate financial statements on the
operations of the Facility certified by the chief
financial officer of the Tenant to be true and
correct.

     (b) Within forty-five (45) days after the end
of each calendar year quarter, and within fifteen
(15) days after the request of a Facility
Mortgagee (but not more often than monthly), in
either case after the Rent Commencement Date, a
certificate from the chief financial officer of
the Tenant, in form acceptable to the Facility
Mortgagee, providing occupancy data (including
unit rents) for the Facility.

     (c) Within forty-five (45) days after the end
of each calendar quarter, following the Rent
Commencement Date, a current year-to-date
operating statement for the Facility as of the end
of such quarter and the quarterly financial
statement for the Facility in the form and detail
set forth in Exhibit H hereto, properly completed
and certified by the Tenant to be true and
correct.

     (d) Within three (3) days of the receipt by
the Tenant or the Facility, any and all notices
(regardless of form) from any licensing and/or
certifying agency that such license or
certification (held by Tenant or other service
provider) is being revoked, downgraded or
suspended or that action is pending or being
considered to revoke or suspend the license,
certification, permits or any rights thereunder
(held by Tenant or other service provider) and any
license and certification survey reports or
statements of deficiencies (with plans of
correction attached thereto).

     The Landlord reserves the right to require
from Tenant supporting or back-up information with
respect to items (a) through (d) above.






13




     SECTION 5.2. CONDUCT OF BUSINESS. Upon the
Rent Commencement Date, Tenant shall cause the
Facility to be properly operated as a senior
housing with assisted living services facility and
for no other uses. Without limiting the foregoing,
Tenant shall:
     
     (a) maintain the standard of care for the
residents of the Facility at all times at a level
necessary to insure quality care for the residents
of the Facility ;

     (b) maintain sufficient inventory and
equipment of types and quantities at the Facility
to enable Tenant adequately to perform all
operations at the Facility.

     SECTION 5. 3. RESIDENCE AGREEMENTS. Tenant
shall establish as policy and will request and use
its best efforts to require that any and all
residents or other persons for which the Tenant
(or an agency retained by Tenant) provides
services execute and deliver to the Tenant a
residency agreement. Tenant has submitted to
Landlord its form of residency agreement;
Landlord's consent shall not be required for
changes to or modifications of such residency
agreement over the term of this Lease.

     SECTION 6. MAINTENANCE, REPAIR, ALTERATIONS
AND UTILITIES.

     SECTION 6.1. TENANT'S MAINTENANCE. Tenant
shall, at its own cost, and without expense to the
Landlord, maintain the Premises, including all
sidewalks, buildings, building systems, water,
sewer and other utility lines on the Real Property
serving the Facility, surface parking lots,
exterior lighting and improvements of any kind
which may be a part thereof in good, sanitary and
neat order, condition and repair, ordinary wear
and tear, casualty, condemnation and acts of God
excepted. Tenant's obligations shall include,
without limitation, replacements of structural
components, roof and building systems, and other
necessary capital expenditures, as required by the
previous sentence. Tenant shall maintain the
Premises in such a manner as may be necessary to
operate the Facility in accordance with applicable
state and/or
federal laws or regulations. Tenant shall perform
all interior and exterior painting, and maintain
the grounds of the Facility in a good and sightly
appearance. Notwithstanding the foregoing, Tenant
shall not be responsible for any repairs or
alterations to the Improvements which are required
as a result of any patent or latent defects in
Landlord's construction of the Improvements, all
of which repairs and alterations shall be the
obligation of Landlord in accordance with and to
the extent set forth in Landlord's warranty as set
forth in the Work Letter.

     SECTION 6.2. ALTERATIONS. Tenant will not
remove or demolish any improvement or building
which is part of the Premises or any portion
thereof or allow it to be removed or demolished,
without the prior written consent of Landlord,
which may be withheld at Landlord's sole
discretion. Notwithstanding the foregoing,
Landlord agrees that Tenant shall be permitted to
make any changes or alterations in or to the
Premises without the requirement of obtaining
Landlord's consent therefor, provided that such
Alterations do not constitute a "Major
Alteration". A "Major Alteration" shall mean an
alteration to the Improvements which is estimated
to cost more than $100,000 and involves: (a)
alteration, removal, cutting, or adding to any
structural component of the building (including,
without limitation, walls, exterior windows,
roofs, or floor slabs or any building system), (b)
an alteration to non-residential areas which has a
significant


14



adverse effect on services which are provided to
residents, or (c) changing any category within the
unit mix by more than twenty percent (20%). Tenant
agrees not to make any Major Alterations to the
Premises without first obtaining the Landlord's
written consent thereto, which consent shall not
be unreasonably withheld, and subject to Tenant's
compliance with all of the remaining
qualifications set forth in this Section 6.2. It
shall be deemed reasonable for Landlord to
withhold its consent to a Major Alteration for the
following reasons, among others: such Major
Alteration would (i) materially and adversely
affect the character, value, usefulness or
rentability of the building or the Premises or any
part thereof or any of the facilities, equipment
or improvements therein, (ii) weaken or impair
(temporarily or permanently) the structure of the
building, (iii) materially lessen the usable area
of the building, or (iv) not be consistent with
the use permitted hereunder by any future
occupant. Landlord shall respond to Tenant's
request for approval within thirty (30) days of
Landlord's receipt of complete plans and
specifications. Landlord's failure to respond
within the applicable time period set forth in the
preceding sentence shall be deemed to be approval
of the proposed Major Alterations. If Landlord
disapproves any proposed Major Alterations,
Landlord shall set forth in writing the reasons
for such disapproval with reasonable specificity.
If Tenant fails to obtain Landlord ' s prior
written consent for any Major Alteration, and such
consent is required under this Lease or Tenant
fails to notify Landlord in writing of any
Alteration, then such alteration must be
removed/restored at the end of the Lease Term.
With respect to any alteration for which Tenant
requests Landlord's consent (as required
hereunder) or of which Landlord is otherwise
notified, said alteration shall not be required to
be removed/restored by Tenant at the end of the
term unless Landlord reasonably specifies the same
for removal in a notice delivered to Tenant either
(i) within ten (10) days after receipt of Tenant's
notice of the alteration, or (ii) within the
applicable 30-day period during which Landlord
shall respond to Tenant's request for approval
of plans and specifications. Without limitation,
Landlord shall be deemed reasonable in requiring
removal/restoration for any of the reasons listed
as (i) through (iv) above. All
alterations, including any Major Alteration
consented to by Landlord, shall be in quality and
class at least equal to the original work and
shall meet all building and fire codes, and all
other applicable codes, rules, regulations, laws
and ordinances. Tenant also agrees to maintain
builder's risk insurance and shall cause its
contractors to carry the types of insurance as a
prudent owner or tenant would require. Landlord
shall have the right to approve the plans and
specifications for any Major Alteration, which
approval shall not be unreasonably withheld or
delayed. Regardless of whether the Landlord's
consent is required hereunder, Tenant agrees to
notify Landlord in writing of the proposed
alteration prior to the commencement of any
construction.

     SECTION 6. 3. CAPITAL RESERVES. In order to
satisfy the requirements of the Facility
Mortgagee, Tenant shall pay, as additional rent
hereunder, from and after the Rent Commencement
Date, into a capital reserve fund, the amount of
$12.50 per unit per month, or $12,000 per year,
which funds shall be deposited into an interest
bearing escrow account to be disbursed from time
to time in accordance with an escrow agreement
approved by Tenant and such Facility Mortgagee to
pay for replacements and correction of deferred
maintenance items. Any funds remaining in the
account at Lease expiration shall be returned to
Tenant.





15



     SECTION 6.4. UTILITIES. Tenant shall pay all
charges for water, electricity, gas, sewage,
waste, trash and garbage disposal, telephone,
cable television, and other services furnished to
the Premises from and after the Rent Commencement
Date. Except as set forth below, Landlord shall
not be responsible in any manner for any
suspension, interruption or curtailment of any
services or utilities to the Premises regardless
of the cause thereof, and no such suspension,
interruption or curtailment shall give rise to any
claim for abatement of Rent or other compensation
to Tenant from Landlord, nor may Tenant claim any
damages on account thereof, nor shall this Lease
or any obligation of Tenant hereunder be affected
thereby, nor shall Tenant claim the same as a
constructive eviction. Notwithstanding the
foregoing, Landlord shall be liable for any direct
damages due to an interruption of any services or
utilities caused by Landlord or its affiliate or
agents, and if such interruption caused by
Landlord or its affiliate or agents causes the
Premises to be untenantable for more than three
(3) days then the Rent shall abate until such
services or utilities are restored. Landlord shall
cause its affiliate to make every reasonable
effort, when constructing the Future Development,
to avoid any interruption of services or utilities
to the Premises.

     SECTION 7. L IENS AGAINST THE PREMISES.

     SECTION 7.1. LIENS. Tenant will not permit
the Premises to become subject to any lien,
charge, or encumbrance. Tenant shall maintain the
Premises free from all orders, notices, and
violations filed or entered by any public or quasi-
public authorities. Notwithstanding the foregoing,
in the event any such lien, charge, or encumbrance
is imposed, Tenant may contest any such lien,
charge, encumbrance, order, notice or violation,
provided that Tenant causes same to be bonded
within forty-five (45) days of the filing of such
lien. This must be done in good faith, with due
diligence and at Tenant's own expense and Tenant
shall not be considered in default of the
provisions of this Section 7.1 as a result of such
contest.

     SECTION 7.2. LANDLORD'S RIGHTS. Should a
judgment on any lien, charge, encumbrance, order,
notice or, violation be rendered against the
Premises for any work performed by or for Tenant
(other than the construction of the Improvements
by Landlord hereunder) or any person claiming
through or under Tenant and should Tenant fail to
discharge such judgment or take action to protest
such judgment, Landlord shall have the right, but
not the obligation, to discharge said judgment. If
Landlord exercises that option, any amounts paid
by Landlord shall be due from Tenant as additional
rent. Such additional rent shall be due and
payable on the next date after the expense is
incurred that Basic Rent is otherwise due.

     SECTION 7.3 MECHANIC'S LIENS. Tenant shall
take all reasonable steps necessary to ensure that
no lien arising under Massachusetts law as a
result of construction done at the Premises at
Tenant's request shall extend to the interest of
Landlord in the Premises. Tenant shall pay all
costs incurred by Tenant in connection with the
construction, alteration, demolition, maintenance
and repair of any and all improvements on the
Premises. Should a lien or claim of lien be filed
against the Landlord's interest in the Premises by
any contractor, subcontractor, mechanic, laborer,
materialman or any other person whomsoever
retained by Tenant, Tenant shall, within sixty
(60) days after the filing thereof, cause the same
to be discharged of record.



16



     SECTION 8. NON-I IABILITY AND
INDEMNIFICATION.

     SECTION 8.1. TENANT'S INDEMNITY. During the
Term, Tenant agrees to defend, protect, indemnify
and save harmless Landlord and any Facility
Mortgagee from and against all claims arising out
of or connected with the use and occupancy of the
Premises by Tenant, any person claiming by,
through or under Tenant, or their respective
officers, directors, servants, agents, customers,
contractors, employees or invitees and shall pay
all costs and expenses incurred by Landlord and
any Facility Mortgagee in connection with such
claims, including without limitation, court costs
and reasonable attorney's fees for trial and
appellate proceedings. Landlord and any Facility
Mortgagee shall be protected hereby from all
claims arising during the Term from loss of or
damage to property, or death or personal or bodily
injury to persons except to the extent such loss,
damage, death or injury is caused by the
negligence or willful actions of Landlord or any
person claiming by, through or under Landlord, or
their respective officers, directors, servants,
agents, customers, contractors, employees or
invitees in which case Landlord shall be fully
responsible therefor and shall indemnify, defend
and hold harmless Tenant with respect thereto in
accordance with the terms of Section 8.2. The
provisions of this Section shall survive the
termination or expiration or earlier termination
of this Lease.

     SECTION 8.2. LANDLORD. Landlord will
indemnify, defend and hold harmless Tenant from
any and all costs, expenses and liability,
including, without limitation, court costs and
reasonable attorney ' s fees for trial and
appellate proceedings, which it may incur in
connection with the performance by Landlord of its
obligations hereunder, including, without
limitation, the construction and completion of the
Improvements. The provisions of this Section shall
survive the expiration or earlier termination or
expiration of this Lease, provided that claims
also covered by Landlord's limited warranty set
forth in the Work Letter shall be subject to the
limitations set forth in such limited warranty.

     SECTION 8. 3 LIMITATION ON LIABILITV. It is
expressly agreed by the parties that in no case
shall Landlord (or its partners any individuals or
entities comprising Landlord) be personally
liable, under any express or implied covenant,
agreement or provision of this Lease, for any
damages whatsoever to Tenant beyond Landlord's
interest in the Premises. Neither party hereto
shall be liable to the other for indirect or
consequential damages.

     SECTION 9. INSURANCE.

     SECTION 9.1. All insurance policies required
by this Section 9 shall be issued by a good and
solvent insurance company or companies licensed to
do business in the Commonwealth of Massachusetts,
with a rating of "A XII" or higher by Bests,
selected by Tenant and reasonably satisfactory to
Landlord, and shall include Landlord and each
mortgagee of which Landlord has notified Tenant as
additional insureds as their interests may appear.
Tenant shall provide a copy of binders for
insurance policies conforming to the requirements
of this Lease for Landlord's review at least
thirty (30) days prior to the estimated completion
date. Tenant agrees to deliver certificates of
such insurance to Landlord as of the Rent
Commencement Date and thereafter not less than
thirty (30) days prior to the expiration of any
such policy. Such insurance shall not be canceled,


17



materially changed, or non-renewed without thirty
(30) days' written notice to Landlord.
Landlord and Tenant shall each give prompt notice
to the other of all losses, damages or injuries to
any person or damage to any property which may in
any way be related to this Lease and for which a
claim might be made against the other party. Each
party shall promptly report to the other party all
such claims, whether related to matters insured or
uninsured. Landlord and Tenant shall assist and
cooperate with any insurance company in the
adjustment or litigation of all claims and losses
arising under this Lease.

     SECTION 9.2. PROPERTY INSURANCE. From and
after the Rent Commencement Date, Tenant shall
obtain and keep in force throughout the Lease
Term, at its expense, "all-risk" property
insurance upon the Improvements against fire and
such other hazards, casualties and contingencies
(including boiler and machinery coverage on a
comprehensive basis) as are from time to time
customarily covered by all-risk policies for
similar buildings used for similar purposes as
Tenant is then making of the Facility with
endorsements insuring against earthquake and
subsidence. The limit of such insurance shall
never be less than 100% of the actual replacement
cost at the time and place of loss, and the policy
shall include an agreed amount endorsement. This
policy shall include coverage for increased cost
of construction, demolition and contingent
liability as a result of compliance with then
existing applicable legal requirements. Such
insurance will be subject only to such deductibles
as are from time to time reasonably approved by
Landlord based on the then current practice for
similar buildings used for senior housing with
assisted living services located within the
vicinity of the Real Property (Tenant agreeing to
pay to Landlord, upon demand as Additional Rent,
the amount of any such deductible following any
casualty loss). The policy shall include rent
continuation coverage payable to Landlord,
notwithstanding abatement of Tenant's Rent, of no
less than eighteen (18) months rent (including
Base Rent and Additional Rent). All such policies
shall name Landlord as the Named Insured and each
Facility Mortgagee as a loss payee as its interest
may appear.

     In the event that Landlord receives a notice
of cancellation of such
insurance policy or policies without a
corresponding notice regarding the issuance of new
insurance prior to the effective date of such
cancellation, Landlord may, in addition to and
without thereby waiving any other remedies, pay
the premiums necessary to prevent such
cancellation and bill Tenant therefor. Tenant
shall reimburse Landlord therefor by paying such
amount, together with interest at the rate set
forth in Section 3.2.3, to Landlord, as Additional
Rent, within five (5) days after demand therefor
by Landlord.

     SECTION 9.3. LIABILIY INSURANCE. Tenant shall
provide or cause to be provided at its expense,
and keep in force during the Lease Term:

     (a) Commercial general liability insurance
(without any so-called employee exclusion or the
like) in an amount reasonably required by Landlord
from time to time based on the then current
practice for similar buildings used for senior
housing with assisted living services located
within the vicinity of the Real Property, but in
any event not less than the greater of (i) One
Million Dollars ($1,000,000.00) per occurrence,
$2,000,000 aggregate, or (ii) the liability
coverage typically carried by Tenant in similar
facilities, including contractual liability
coverage. Such policy shall name Tenant as a named
insured and Landlord and each Facility Mortgagee
of which Landlord has notified Tenant, as
additional insureds with respect to any claim
arising from Tenant's use, occupancy, repair or
operation of the Premises,


18


     (b) Comprehensive automobile liability
insurance including personal injury and property
damage in the amount of a combined single limit of
$1,000,000 each occurrence. Coverage must include
owned, leased, hired and non-owned vehicles;

     (c) Worker's compensation and occupational
disease insurance with statutory limits ;

     (d) Employer's liability insurance with a
limit not less than $500,000; and

     (e) Excess liability policy in umbrella form
with a minimum limit of liability of $15,000,000,
applying in excess of the coverages listed in (a),
(b) and (d) above.
Professional liability insurance in the amount of
One Million Dollars ($1,000,000) per occurrence,
which shall be written on an occurrence basis.
All liability insurance shall be on an occurrence
basis. Tenant may not elect to carry claims made
commercial general liability insurance unless
occurrence coverage is generally unavailable at
commercially reasonable rates in the marketplace.
Tenant's insurance shall state that it is primary
and not contributing with any insurance purchased
by Landlord. Tenant's insurance shall also state
that it is severable with respect to all insureds
under the policy and that acts of one insured will
not abrogate coverage for other insureds.

     SECTION 9.4 PERSONAL PROPERTY INSURANCE.
Tenant shall obtain and keep in force throughout
the Lease Term, at its expense, "all-risk"
property insurance on its personal property,
including but not limited to furniture, fixtures,
machinery and equipment, for the full replacement
cost.

     SECTION 9.5. MORTGAGEE'S OTHER REQUIREMENTS.
Tenant shall maintain any other insurance
reasonably required by the holder of a Facility
Mortgagee, which reasonableness standard shall be
based on industry standards of lenders whose loans
are secured by senior housing with assisted living
services properties similar in nature to the
Premises, and on any such other insurance be
generally available at commercially reasonable
rates.

     SECTION 9.6. BLANKET INSURANCE. Nothing
contained in this Section 9 shall prohibit
Landlord or Tenant from obtaining a policy or
policies of blanket insurance which may cover
other properties of Landlord or Tenant provided
that (a) any such blanket policy expressly
allocates to the Premises not less than the amount
of insurance required hereunder to be maintained
and (b) such blanket policy shall not diminish the
obligations to insure hereunder, so that proceeds
from such policies shall be an amount no less than
the proceeds that would be available under a
separate policy.

     SECTION 9.7. WAIVER OF SUBROGATION. Landlord
and Tenant, each for itself and its insurer,
hereby waive all claims and rights against the
other and their respective officers, directors,
employees, contractors, servants, and agents, for
any damage to or destruction of real or personal
property of Landlord or Tenant to the extent
covered by the insurance required to be maintained
hereunder. All property insurance policies carried
at any time during the Lease Term by either party
covering the Premises shall include a clause to
the effect that such waiver of subrogation shall
not adversely



19



affect or impair such policies or prejudice the
rights of the insureds to recover thereunder. The
provisions of this Section 9.7 shall survive the
expiration or earlier termination of this Lease.

     SECTION 10. DAMAGE AND DESTRUCTION.

     SECTION 10.1. REPAIR OR RESTORATION AFTER
MAJOR CASUALTY. In the event that any part of the
Improvements or the Personal Property shall be
damaged or destroyed by fire or other casualty for
which Tenant is required to maintain insurance
hereunder and the cost to repair such casualty is
greater than $200,000, (any such event being
called a "Major Casualty"), Landlord shall
promptly replace, repair and restore the same as
nearly as possible to its condition immediately
prior to such Major Casualty, in accordance with
all of the terms, covenants and conditions and
other requirements of this Lease and any mortgage
applicable in the event of such Major Casualty.
If, pursuant to this Section 10, Landlord shall be
obligated to make repairs, the Premises shall be
so replaced, repaired and restored as to be
substantially the same character as prior to such
Major Casualty. The Plans and Specifications for
such restoration shall be first submitted to and
approved in writing by Tenant, which approval
shall
not be unreasonably withheld. Tenant may elect to
retain, at its expense, an independent architect,
reasonably approved by Landlord, who shall oversee
such repairing, restoring or replacing. Tenant
covenants that it will give to Landlord prompt
written notice of any casualty affecting the
Premises or any portion thereof.

     SECTION 10.2. EXCEPTION FOR MAJOR CASUALTY
DURING LAST TWO LEASE YEARS AND UNINSURED
CASUALTTY.      Lease Years and Uninsured
Casualty. Notwithstanding the foregoing, in the
event of (a) a Major Casualty occurring during the
last two Lease Years of the Initial Term or any
Renewal Term or (b) resulting from a flood,
nuclear accident, war or other event for which
Tenant is not obligated to maintain insurance
hereunder and which, in the reasonable opinion of
Landlord, Tenant and Facility Mortgagee, renders
the Premises unsuitable for Tenant's use as a
senior housing with assisted living services
facility as operated by Tenant prior to the
Casualty, then Landlord or Tenant shall have the
right to terminate this Lease upon written notice
to the other and, in such event, all insurance
proceeds attributable to the Real Property,
Improvements and Personal Property shall be
payable to the Facility Mortgagee or, if none, to
Landlord and all insurance proceeds attributable
to Tenant's Equipment shall be payable to Tenant.
Each party's termination rights under this Section
shall be exercised by written notice to the other
party sent within thirty (30) days after the
occurrence of the destruction or damage. Any
termination notice sent by Landlord or Tenant
shall take effect thirty (30) days after mailing
thereof. If, however, Landlord sends such
termination notice to Tenant during the last two
Lease years (other than for an uninsured
casualty), and within such 30-day period Tenant
sends Landlord written notice exercising Tenant's
next upcoming extension option, then (i)
Landlord's termination notice shall be void, (ii)
Tenant shall be deemed to have irrevocably
exercised its renewal option and waived any right
to terminate its renewal notice in connection
therewith, (iii) the next upcoming Renewal Term
shall automatically be added to the then current
portion of the Lease Term, and (iv) Landlord shall
make the repairs and restorations required by this
Section.



20




     SECTION 10. 3. FAILURE BY LANDLORD TO
COMPLETE REPAIRS. In the event that (a) Landlord
as not procured the necessary permits and
approvals for the restoration and/or has not
commenced repair and restoration of the Premises
within 180 days of the date of the Major Casualty,
or (b) Landlord's work is not thereafter
substantially completed within twelve (12) months
following commencement of repair and restoration,
then, in either event, Tenant may give written
notice to Landlord and any Facility Mortgagee of
Tenant's intention to terminate this Lease or
assume responsibility for completion of such
repair and restoration of the Premises unless the
same is commenced or substantially completed (as
the case may be) within thirty (30) days of the
date on which such notice is given. If Landlord or
any Facility Mortgagee fails to so commence or to
substantially complete (as the case may be) such
repair and restoration within such 30-day period,
then immediately upon the expiration of such 30-
day period, Tenant shall have the right to either
terminate this Lease by written notice to Landlord
or the right, but not the obligation, to assume
responsibility for such repair and restoration and
Landlord shall make available to Tenant use of all
insurance proceeds available therefor, subject to
the terms of Section 6 hereof and the terms of any
Facility Mortgage
governing insurance proceeds. Landlord agrees to
use its best efforts to negotiate as part of the
loan documents with any mortgagee, the right to
apply insurance proceeds to the repair and
restoration of the Improvements. If, despite such
best efforts, the prior approval of any Facility
Mortgagee or other Mortgagee is required for
conducting any repair or restoration hereunder
(whether by Landlord or by Tenant), Landlord
agrees to use its best efforts to secure such
approval and the right to apply the insurance
proceeds thereto.

     SECTION 10.4. TERMINATION. Notwithstanding
anything to the contrary contained in this Section
10, Landlord shall not be obligated to rebuild
following a Major Casualty if the repairs or
reconstruction of the damage cannot be made under
existing laws, ordinances, statutes or regulations
of any governmental authority applicable thereto.
In the event Landlord is unable to rebuild in
accordance with the provisions hereof, and such
casualty causes the premises to be rendered
unsuitable for use as a senior housing with
assisted living services facility, then this Lease
shall terminate effective thirty (30) days after
the damage occurs and Tenant shall remit insurance
proceeds in its possession to any Facility
Mortgagee or, if none, to Landlord within ten (10)
days of said Lease termination date free and clear
of all liens or claims and shall promptly, at its
own expense, remove from the Premises any of
Tenant's Equipment not so damaged or destroyed.

     SECTION 10.5. RENDERED UNSUITABLE. For the
purposes of this Section 10, the Facility shall be
deemed to have been rendered unsuitable for use as
a senior housing with assisted living services
facility if, in the good faith judgment of
Landlord, Tenant and any Facility Mortgagee,
reasonably exercised, the Facility cannot after
any such loss be operated on a commercially
practicable basis as a senior housing with
assisted living services facility of the type and
quality existing and licensed immediately prior to
such loss, taking into account, among other
relevant factors, the number of licensed and
operational beds, dining and kitchen facilities,
parking lots, driveways, or walkways affected by
such loss.




                                                21



SECTION 10.6. REPAIR OR RESTORATION AFTER MINOR
CASUALTY. In the event that any part of the
Improvements or Personal Property shall be damaged
or destroyed by fire or other casualty and the
cost to repair such casualty is $200,000 or less
(a "Minor Casualty"), then Tenant shall promptly
repair and restore the same as nearly as possible
to its condition immediately prior to such Minor
Casualty, in accordance with all of the applicable
terms, covenants and conditions and other
requirements of this Lease and the requirements of
any Facility Mortgagee in the event of such Minor
Casualty, and Tenant shall be entitled to the use
of all insurance proceeds available therefor,
subject to the terms of such Facility Mortgage.

     SECTION 10.7. ABATEMENT OF RENT. This Lease
shall remain in full force and effect during the
period of any repair and restoration; provided,
however, Tenant's obligation to pay Rent shall be
equitably abated to reflect the nature and extent
to which such casualty event has rendered the
Premises unusable by Tenant. For purposes of
applying the foregoing abatement provision, the
parties shall take into account the impact of the
casualty (and subsequent repairs) on Tenant's
ability to provide to its residents any services
which are significant to Tenant's operations of a
senior housing facility with assisted living
services of the type and quality which was
operated prior to the Casualty.

     SECTION 10.8. Tenant hereby acknowledges
that, notwithstanding any provision in this
Section 10, the terms and provisions of any
Facility Mortgagee shall govern with respect to
the settlement of insurance claims and
availability of insurance proceeds for
restoration.

     SECTION 11. CONDEMNATION.

     SECTION 11.1. TAKING OF WHOLE.

     SECTION 11.1.1. If, during the Lease Term, so
much of the Premises are taken or condemned in fee
for a public or quasi-public use that in the
reasonable judgment of Landlord, Tenant and
Facility Mortgagee the Premises are rendered
unsuitable for use as senior housing with assisted
living services, this Lease shall terminate.
Termination will be effective without entry or
notice. Termination shall occur as of the day when
possession is required to be surrendered to the
taking or condemning authority.

     SECTION 11.1.2. For purposes of this Section
11, the Premises shall be deemed to have been
rendered unsuitable for use as a senior housing
with assisted living services facility if, in the
good faith judgment of Landlord, Tenant and any
Facility Mortgagee reasonably exercised, the
Premises after such loss cannot be operated on a
commercially practicable basis as a senior housing
with assisted living services facility of the type
and quality existing and licensed immediately
prior to such loss taking into account, among
other relevant factors, the number of licensed
beds and/or parking lots, driveways, dining and
kitchen facilities, or walkways affected by such
loss.

     SECTION 11.2. TAKING OF A PORTION. If during
the Lease Term, a portion of the Premises and/or
the Facility is taken or condemned in fee for a
public or quasi-public use such that the Facility
is not rendered unsuitable for use as a senior
housing with assisted living services facility,
this Lease shall not terminate. If, however, as a
result of the taking, the number of beds available
for operation of the Facility as a senior


22



housing with assisted living services facility of
the type and quality existing and licensed prior
to the taking has been or must be reduced, Tenant
shall be entitled to an abatement of rent. The
rent abatement shall be to the extent that is
fair, just and equitable to both Tenant and
Landlord, taking into consideration, among other
relevant factors, the number of licensed beds
and/or parking lots, driveways, dining and kitchen
facilities or walkways affected by such loss.

     SECTION 11. 3. DAMAGES FOR TAKING. All
damages awarded in connection with the taking of
the Premises shall vest in Landlord but the
immediate payment and use of such damage award
shall be governed by the provisions of any
Facility Mortgage. In the event of a partial
taking where the Lease is not terminated, subject
to the provisions of any Leasehold Mortgage,
Landlord shall apply or make available to Tenant
that portion of the proceeds reasonably necessary
for the repair or reconstruction of the Premises.
Notwithstanding anything to the contrary contained
in any Facility Mortgage or related document, all
damages awarded (or otherwise sought by Tenant) in
connection with the taking of Tenant's Equipment,
and all moving and relocation costs, shall vest in
Tenant.

     SECTION 12. DEFAULT. The occurrence of any of
the events, acts or circumstances described in
this Section 12.1 shall constitute an Event of
Default under this Lease.

     SECTION 12.1.1. EVENTS OF DEFAULT. Failure by
Tenant to pay in full any rent payable under this
Lease when due and the continuance of such failure
for ten (10) days after Landlord has given Tenant
written notice of such failure.

     SECTION 12.1.2. Failure by Tenant to observe,
perform or comply with any of the terms, covenant,
agreements or conditions contained in this Lease
(other than as specified in Section 12.1.1.12.1.4
and 12.1.6), and the continuance of such failure
for thirty (30) days after Landlord has given
Tenant written notice of such failure. If Tenant
has promptly commenced and diligently pursued
remedial action within said thirty (30) day period
but has been unable to cure its default (except
for any default that can be reasonably cured by
the payment of money) prior to the expiration
thereof, said thirty (30) day period shall be
extended for the minimum time reasonably required
for the completion of Tenant's remedial action.

     SECTION 12.1.3. The making by Tenant of an
assignment for the benefit of its creditors or the
commencement of proceedings in a court of
competent jurisdiction for the reorganization,
liquidation or involuntary dissolution of Tenant
or for the adjudication of Tenant as a bankrupt or
insolvent or for the appointment of a receiver of
the property of Tenant which, with respect to any
involuntary proceedings, are not dismissed and any
receiver, trustee or liquidator appointed therein
is not discharged, within ninety (90) days after
the institution thereof.

     SECTION 12.1.4. The abandonment of the
Premises by Tenant other than as a result of the
damage, destruction or taking thereof.




23





     SECTION 12.1.5. The involuntary, imposed or
required revocation, suspension, termination,
probation, restriction, limitation or refusal to
renew, or pending revocation, suspension,
termination, probation, restriction, limitation
of, or refusal to renew, any certification which
materially affects the ability of the Tenant to
operate the Facility in the absence of the
submittal by Tenant of any corrective or remedial
plan the effect of which is to stay any such
revocation, suspension, termination, probation,
restriction, time limitation or refusal to renew
any certification within ten (10) days of
revocation or other such action on such
certification.

     SECTION 12.1.6. The failure to obtain the
necessary certification to operate and actually
open the Facility for business within thirty (30)
days after the Substantial Completion date.

     SECTION 13. LANDLORD'S REMEDIES. DAMAGES ON
DEFAULT.
     
     SECTION 13. 1. LANDLORD'S REMEDIES. If an
Event of Default shall occur, Landlord may, at its
option, give to Tenant a written notice
terminating this Lease upon a date specified in
such notice, which date shall be not less than ten
(10) business days after the date of receipt by
Tenant of such notice from Landlord, and upon the
date specified in said notice, the term and estate
hereby vested in Tenant shall cease and any and
all other right, title and interest of Tenant
hereunder shall likewise cease without further
notice or lapse of time, as fully and with like
effect as if the entire Lease Term had elapsed,
but Tenant shall continue to be liable to Landlord
as hereinafter provided.

     SECTION 13. 2. SURRENDER. Upon any
termination of this Lease as the result of an
Event of Default, Tenant shall quit and peacefully
surrender the Premises to Landlord, and Landlord,
upon or at any time after any such termination,
may without further notice, enter the Premises and
possess itself thereof by summary proceedings or
otherwise, and may dispossess Tenant and remove
Tenant and all other personal property from the
premises and may have, hold and enjoy the Premises
and the right to receive all rental income of and
from the same.

     SECTION 13. 3. RIGHT TO RELET. At any time or
from time to time after any such termination,
Landlord may relet the premises or any part
thereof, in the name of Landlord or otherwise, for
such term or terms (which may be greater or less
than the period which would otherwise have
constituted the balance of the Lease Term) and on
such conditions (which may include concessions or
free rent) as Landlord, in its reasonable
discretion, may determine and may collect and
receive the rents therefor. Landlord shall in no
way be responsible or liable for any failure to
relet the Premises or any part thereof, or for any
failure to collect any rent due upon any such
reletting.

     SECTION 13. 4. . SURVIVAL OF FCOVENANTS.
DAMAGES. In the event of any such termination
Tenant shall pay to Landlord the Rent up to the
date of such termination. No such termination of
this Lease shall relieve Tenant of its liability
and obligations under this Lease and such
liability and obligations shall survive any such
termination. Tenant shall indemnify and hold
Landlord harmless from all loss, cost, expense,
damage or liability arising out of or in
connection with such termination, including
reasonable attorney's fees.


24



     If this Lease is terminated for Tenant's
Event of Default, then unless and until Landlord
elects lump sum damages described in the
succeeding paragraphs of this Section, Tenant
shall pay on the last day of each calendar month
until the stated expiration date all Basic Rent
and Additional Rent which would have been due for
such month if this Lease had not been terminated.
If, however, Landlord re-lets the Premises, there
shall be credited against such obligation each
month the amount actually received by Landlord
from such reletting during such month on account
of such month, after first deducting all expenses
incurred in connection with such reletting,
including, without limitation, all repossession
costs, brokerage commissions, legal expenses,
reasonable attorneys' fees, alteration costs, and
expenses of preparation for such reletting.
At any time after such termination, and regardless
of whether Tenant has made any payments to
Landlord pursuant to the preceding provisions of
this Section, Tenant shall pay to Landlord, on
demand, as damages for Tenant's Event of Default,
the difference between

     (1) the aggregate Rent which would have been
payable under this
Lease by Tenant from the date Landlord last
received full Rent payments from Tenant (whether
pursuant to the preceding paragraph or earlier)
until the stated expiration date, minus

     (2) the fair and reasonable rental value of
the Premises for the same period determined as of
the date Landlord elects such damages, taking into
account market conditions and the likelihood of
reletting the premises, less Landlord's reasonable
estimate of expenses to be incurred in connection
with reletting the Premises, including, without
limitation, all repossession costs, brokerage
commissions, legal expenses, reasonable attorneys'
fees, alternation costs, and expenses of
preparation for such reletting with the amounts in
the preceding clauses (1) and (2) discounted to
present value using the Federal Reserve discount
rate as in effect on the date on which Landlord
makes such demand.

     If the Premises or any part thereof are relet
by Landlord for the period prior to the stated
expiration date, or any part thereof, before
presentation of proof of such damage any court,
commission or tribunal, the amount of rent
reserved upon such reletting shall be, prima
facie, the fair and reasonable rental value for
the part or the whole of the Premises so relet
during the term of the reletting.

     SECTION 13. 5. 1 LIQUIDATED DAMAGES. In lieu
of recovery by Landlord of sums payable under the
foregoing provisions of Section 13.4 or any other
damages resulting from Tenant's Event of Default,
Landlord may by written notice to Tenant, at any
time after this Lease is terminated, elect to
recover, and Tenant shall thereupon pay, as
liquidated damages, an amount equal to the
aggregate of the Rent accrued during the twenty-
four (24) months prior to such termination plus
the amount of Rent accrued and unpaid at the time
of termination and less the amount of any recovery
by Landlord under the foregoing provisions of this
Section up to the date of payment of such
liquidated damages; provided, however, if such
notice is given less than twenty-four (24) months
before the stated expiration date, then liquidated
damages shall be measured by the number of months
remaining until the stated expiration date.




25



     Except as to the terms of the liquidated
damages provision set forth above, nothing herein
shall limit or prejudice the right of Landlord to
prove and obtain an amount equal to the maximum
allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in
which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than
the amount of the difference referred to above.

     SECTION 13. 6. RIGHT TO EQUITABLE RELIEF. In
the event there shall occur an Event of Default or
threatened Event of Default Landlord shall be
entitled to enjoin such Event of Default or
threatened Event of Default.

     SECTION 13. 7. RIGHT TO SELF HELP. If an
Event of Default shall occur and be continuing,
Landlord shall have the right, but shall not be
obligated, to enter upon the Premises and to
perform such obligation notwithstanding the fact
that no specific provision for such substituted
performance by Landlord is made in this Lease with
respect to such Event of Default. In the event
Tenant fails to comply with Section 4.2, or there
occurs an Event of Default under Section 12.1. 5
hereof, then Landlord shall have the right to
submit on behalf of Tenant to any licensing
authority a corrective or remedial plan in order
to stay a license revocation or similar
proceeding. In performing such obligation,
Landlord may make any payment of money or perform
any other act. The aggregate of (i) all sums so
paid by Landlord, (ii) interest on such sums at
the "Prime Rate" as published in The Wall Street
Journal on the day on which demand for payment is
made by Landlord as hereinafter provided plus two
percent (2%) per annum, and (iii) all necessary
incidental costs and expenses in connection with
the performance of any such act by Landlord, shall
be deemed to be Rent under this Lease and shall be
payable to Landlord immediately upon demand.
Landlord may exercise the foregoing rights without
waiving any other of its rights or releasing
Tenant from any of its obligations under this
Lease.

     SECTION 13. 8. FURTHER REMEDIES. Except as
otherwise provided in this Lease, Landlord shall
have the right to invoke any right and remedy
allowed at law or in equity or by statute or
otherwise, and nothing in this Lease shall require
Landlord to elect any remedy for an Event of
Default by Tenant hereunder, and all rights herein
provided shall be cumulative with one another and
with any other rights and remedies which Landlord
may have at law or in equity in the case of such
an Event of Default. Landlord's remedies under
this Section 13 shall survive
the early termination of this Lease.

     SECTION 14. QUIET ENJOYMENT.
Landlord covenants and agrees that, so long as
Tenant observes and performs all of the covenants,
conditions, and stipulations of this Lease, Tenant
may lawfully and quietly hold, occupy and enjoy
the Premises during the Lease Term.
Notwithstanding the foregoing, Landlord and Tenant
hereby acknowledge that the kinds of
inconveniences or disruptions to Tenant which
would normally be associated with a nearby
construction project, if caused by the
construction of the Future Development, shall not
constitute a breach of the covenant of quiet
enjoyment, provided that Landlord shall take all
reasonable measures to minimize disruptions to
Tenant and to Tenant's residents, taking into
account the nature of Tenant's use of the
Premises.



26




     Section 15.  ASSIGNMENT AND SUBLETTING

     SECTION 15.1. AFFILIATES. Tenant may, without
prior approval from Landlord, assign its rights
and obligations under this Lease to any parent
corporation or any sister or subsidiary
corporation whose ownership is at least 51 % in
common with Tenant and of which Tenant has control
(an "Affiliate"). Tenant shall give Landlord
notice of any such assignment or subletting, and
shall give to Landlord, concurrently with such
assignment, an executed original assignment and
assumption agreement wherein such assignee agrees
to be bound by the terms and conditions of this
Lease. The initial public offering of stock by
Tenant and any subsequent sale or transfer of any
stock of Tenant shall not be deemed to be an
assignment hereunder requiring Landlord ' s
consent pursuant to this Section 15. Tenant shall
not be required to
obtain the consent of Landlord with respect to a
merger, consolidation or other reorganization
provided that, in any of such events (i) the
successor to Tenant has a net worth computed in
accordance with GAAP at least equal to the net
worth of the Tenant named herein and (ii) the
successor to Tenant has experience in the assisted
living housing industry at least comparable to
that of the named Tenant.

     SECTION 15.2. LANDLORD'S CONSENT. Provided
that there is then no outstanding Event of
Default, Tenant may sublease the Premises or
assign its rights and obligations under this Lease
to a person or entity that is not an Affiliate
with the prior written consent of Landlord; such
consent shall not be unreasonably withheld, unless
a Facility Mortgagee has approval rights in its
loan documents over such assignment rights and the
Facility Mortgagee retains the right to exercise
its sole discretion, in which case the standard
for Landlord shall also be "at its sole
discretion". If Tenant wishes to assign this Lease
and Landlord's consent is required hereunder,
Tenant shall deliver to Landlord (i) a true and
complete copy of the proposed instrument of
assignment containing all of the terms and
conditions of such proposed assortment, (ii)
information as to the identity and experience of
the assignee as Landlord may reasonably require,
(iii) such financial information concerning the
proposed assignee as Landlord may reasonably
require, and (iv) a written agreement, in form
reasonably approved by Landlord, between such
proposed assignee and Landlord in which such
proposed assignee agrees with Landlord to perform
and observe all of the terms, covenants and
conditions of this Lease from and after the date
of such assignment, all of which Landlord may
consider in determining whether to grant its
consent. Landlord agrees to notify Tenant within
fifteen (15)
days following delivery of the foregoing
information, as to whether or not Landlord shall
grant its consent. If Landlord fails to notify
Tenant in writing within said 15 day period,
Landlord shall be deemed to have consented to said
assignment or sublease.
If Landlord consents to an assignment, then prior
to such assignee taking occupancy of the Premises,
Tenant shall deliver to Landlord an original of
the fully-executed instrument of assignment and of
the agreement described in clause (iv) of the
preceding paragraph of this Section.

     SECTION 15.3. I ANDLORD'S ASSIGNMENT RIGHTS.
Landlord may at any time assign its rights and
obligations under this Lease, provided, however,
that Landlord shall furnish to Tenant a written
statement from Landlord's assignee that such
assignee recognizes all of Tenant's rights under
this Lease. Notwithstanding the failure of
Landlord to obtain said recognition from
Landlord's assignee, any assignment of Landlord's
rights and obligations shall be subject to
Tenant's rights under this Lease.


27


SECTION 15.4. SUBSEQUENT ASSIGNMENT OF SUBLEASES.
No assignment or subletting that is approved
pursuant to this Section 15 shall be deemed to
remove any subsequent assignment or subletting
from the provisions of this Section 15, it being
the intent hereof that every assignment and
subletting, whenever occurring, shall require the
same approval as is set forth herein for an
original assignment or subletting.

     SECTION 15. 5. RESIDENTIAL LEASES.
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted, without
obtaining Landlord's consent, to sublease
individual assisted living units. Tenant shall
provide to Landlord a copy of Tenant's standard
form residential lease and any subsequent changes
which may be made to the standard form.

     SECTION 15. 6. COMMERCIAL LEASES. Landlord
acknowledges and understands that Tenant may enter
into one or more commercial subleases covering
portions of the Premises with subtenants who shall
provide certain specialized services and amenities
to the residents of the Facility (e.g. beauty
parlor, convenience store, bank outlet).
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted to enter
subleases for such purposes without obtaining
Landlord's consent, provided that (i) the term of
such sublease is not greater than five (5) years,
(ii) the square footage to be subleased does not
exceed three thousand (3,000) square feet (iii)
such sublease shall be terminated by the
termination or expiration of this Lease and (iv)
such Sublessees shall carry appropriate liability,
including malpractice insurance, if applicable,
naming Landlord, Tenant and any mortgagee as
additional insureds. Any such commercial sublease
which does not meet the foregoing qualifications
shall require Landlord's prior consent, which
shall not be unreasonably withheld or delayed.
Upon the request of Landlord, Tenant shall provide
copies of any such executed subleases to Landlord.

     SECTION 15.7. EFFECT OF ASSIGNMENT OR
SUBLETTING. In all events, notwithstanding any
assignment or subletting permitted hereunder,
Tenant's liability to Landlord shall remain direct
and primary. Any assignee of Tenant's interest in
the Premises shall be deemed to have agreed
directly with Landlord to be jointly and severally
liable with Tenant for the performance of Tenant's
obligations hereunder and such assignee shall upon
request execute and deliver such instruments as
Landlord reasonably requests in confirmation
thereof (and agrees that its failure to do so
shall be subject to the default provisions of this
Lease). At any time after the occurrence of an
Event of Default hereunder, Landlord may collect
rent and other charges from any assignee or
sublessee (and upon notice any assignee or
sublessee shall pay such sums directly to
Landlord) and apply the amount collected to the
rent and other charges herein reserved. No consent
to assignment or collection of rent by Landlord
directly from any assignee or sublessee or failure
so to collect such rent shall be deemed a waiver
of the provisions of this Section 15, an
acceptance of such assignee or sublessee as a
tenant hereunder, or a release of Tenant from
direct and primary liability for the performance
of all of the covenants of this Lease.

     SECTION 16. NOTICES. All notices provided for
in this Lease or related to this Lease shall be in
writing and shall be delivered to the parties at
the addresses set forth below. All such notices or
other papers or instruments related to this Lease
shall be deemed sufficiently served or delivered
on the date of receipt or refusal of delivery,


28



provided that they are sent by United States
Registered or Certified Mail, postage prepaid
return receipt requested, by hand delivery, by
overnight courier or by facsimile transmission:

To Landlord:                               LM
Auburn Assisted Living LLC

c/o LMP Retirement Properties, Inc.

10 Post Office Square

Boston, Massachusetts 02109

Telephone No.: (617) 422-7000

Facsimile No.: (617) 422-7099

Attn. : Mr. John P. Sawyer, Jr. , President

with a copy to:
Goodwin, Procter & Hoar Exchange Place

Boston, MA 02109

Facsimile No.: (617) 227-8591

Telephone No. : (617) 570-1000

Attn: Elizabeth McDermott, Esq.

with a copy to:
Fleet National Bank

111 Westminster Street

Providence, RI 02903-2305

Attn: Mr. Casey N. Moore

To Tenant:
Emeritus Corporation

Market Place One

2003 Western Avenue, Suite 660

Seattle, WA 98121

Telephone No. : 206-443-4313

Facsimile No. : 206-443-5432

Attn: Mr. Ray Brandstrom, President

     Both Landlord and Tenant may change the
address or the name of the addressee
applicable to subsequent notices by giving notice
as provided above.

     SECTION 17. MORTGAGEE PROTECTIONS.

     SECTION 17.1. ATTORNMENT. Tenant covenants
and agrees that, if by reason of a default upon
the part of the Landlord in the performance of any
of the terms and conditions of any mortgage, the
estate of Landlord thereunder is terminated by
summary disposition proceedings or otherwise,
Tenant will attorn to the then Facility Mortgagee
or the purchaser in such foreclosure proceedings,
as the case may be, and will recognize such
Facility Mortgagee or such purchaser as the
Landlord under this Lease; provided, however, that
the holder of such mortgage or the purchaser in
foreclosure proceedings agrees in writing not to
disturb Tenant's quiet enjoyment of the Premises
so long as Tenant is not in default hereunder
beyond applicable notice and cure periods. Tenant
covenants and agrees to execute and deliver, at
any time and from time to time, upon reasonable
request of Landlord or the holder of such mortgage
or the purchaser in foreclosure, any instrument
which may be necessary to evidence such
attornment.
     
     
     
                                               29

     
     SECTION 17. 2. CURE RIGHTS. Tenant shall have
the right to cure any default by Landlord in the
payment of any amounts due under any mortgage
secured by the Premises, provided that Tenant
shall not have the right to offset any such sums
against rent due later under the terms of this
Lease.

     SECTION 17. 3. ESTOPPEL STATEMENTS. The
parties hereto shall, at any time and from time to
time upon not less than ten (10) days prior
written notice from the other party, execute,
acknowledge and deliver to such other party, in
form reasonably satisfactory to such other party
or to such other party's mortgagee, a written
statement certifying (if true) that this Lease is
unmodified and in fall force and effect (or if
there have been modifications stating the nature
thereof, that such other party is not in default
hereunder (or specifying the nature of any
default), the date to which rental and other
charges have been paid and such other information
as may be reasonably required by such other party.
It is intended that any such statement delivered
pursuant to this subsection may be relied upon by
any prospective purchaser or mortgagee of the
Premises and their respective successors and
assigns.

     SECTION 17.4. SUBORDINATION. This Lease
shall, at the request and option of the holder of
any Facility Mortgage, be subordinated to the lien
of any Facility Mortgage, so long as Landlord
shall provide Tenant at Landlord's expense with a
Non-Disturbance Agreement from Landlord's
mortgagee providing that Tenant's tenancy under
this Lease Agreement will not be disturbed so long
as Tenant is not in default under this Lease and
in the event of a default by Landlord and
foreclosure under the Facility Mortgage,
Landlord's mortgagee or any purchaser at a
foreclosure sale will take title to the Premises
subject to Tenant's rights under this Lease and
will not disturb Tenant's possession of the
Premises as long as Tenant is not then or
thereafter in default hereunder

     SECTION 17.5. RENT ASSIGNMENT. If from time
to time Landlord assigns this Lease or the rents
payable hereunder to any person or entity, whether
such assignment is conditional in nature or
otherwise, such assignment shall not be deemed an
assumption by the assignee of any obligations of
Landlord; but the assignee shall be responsible
only for non-performance of Landlord's obligations
which occur after it succeeds to and only while it
holds Landlord's interest in the Premises or is a
mortgagee in possession of the Premises.

     SECTION 17. 6. NOTICE TO MORTGAGEE. No act or
failure to act on the part of Landlord which would
entitle Tenant under the terms of this Lease, or
by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result
in a release or termination of such obligations or
a termination of this Lease unless (i) Tenant
shall have first given written notice of
Landlord's act or failure to act to each of the
holders under any Facility Mortgage specifying the
act or failure to act on the part of Landlord
which could or would give basis to Tenant's
rights; and (ii) such mortgage holder, after
receipt of such notice, has failed or refused to
correct or cure the condition complained of within
a reasonable time thereafter; but nothing
contained in this Section shall be deemed to
impose any obligation on any such mortgage holder
to correct or cure any such condition. Tenant's
obligation to send a notice to _   Landlord' s
mortgagee in the preceding sentence shall be
limited to mortgagees of which
Landlord has supplied Tenant with names and
addresses. "Reasonable time" as used


30



above shall mean a period of not less than thirty
(30) days and shall include (but not be limited To
reasonable time to obtain possession of the
Premises if the mortgagee elects to do so and a
reasonable time to correct or cure the condition
if such condition is determined to exist. The
agreements in this Lease with respect to the
rights and powers of a mortgagee constitute a
continuing offer to any such third party
beneficiary which may be accepted by taking a
mortgage of the Premises.

     SECTION 18. LANDLORD INSPECTION. Landlord
may, enter upon the Premises during normal
business hours and upon prior reasonable notice
for the purpose of inspecting the same.

     SECTION 19. REPRESENTATIONS AND WARRANTIES.

     SECTION 19.1 TENANT'S REPRESENTATIONS AND
WARRANTIES. Tenant represents, warrants and
covenants to Landlord as follows:

     (a) Tenant is a corporation duly organized
and validly existing under the laws of the State
of Washington, is duly authorized to transact
business in the Commonwealth of Massachusetts and
is in good standing under the laws of the State of
Washington.

     (b) Tenant has full right and power to enter
into, or perform its obligations under this Lease
and has taken all requisite action to authorize
the execution, delivery and performance of this
Lease.

     SECTION 19.2. LANDLORD'S REPRESENTATION AND
WARRANTIES. Landlord represents, warrants and
covenants to Tenant as follows:

     (a) Landlord is a limited liability company
duly organized and validly existing under the laws
of the Commonwealth of Massachusetts.

     (b) Landlord has full right and power to
enter into this Lease and has taken all requisite
action to authorize the execution, delivery and
performance of this Lease and to carry out the
transactions contemplated herein.

     SECTION 20. FINANCIAL STATEMENTS. Tenant
shall furnish to Landlord, from time to time,
within a reasonable time after its demand, (a)
current financial statements of Tenant and (b)
current financial statements for the operations of
the Facility.

     SECTION 21. SURRENDER. Upon Lease
termination, Tenant shall quit and surrender the
Premises free and clear of all tenants, occupants,
liens, and encumbrances whatsoever except (i)
Permitted Exceptions and (ii) encumbrances
restrictions or reservations caused by or
consented to in writing by Landlord. Tenant shall,
subject to the provisions of Sections 10 and 11
hereof, surrender the Premises to Landlord broom
clean and in good order, condition and repair
reasonable wear and tear excepted with all Tenant
s signs, furniture, trade fixtures, equipment and
other personal property removed. Any of Tenant's
furniture, trade fixtures, equipment or other
personal property which is not removed from the
Premises by the termination date shall be deemed
abandoned to Landlord and landlord may dispose of
the same as it sees fit, at Tenant's expense. All


31



alterations which Landlord has designated in
writing for removal by Tenant pursuant to Section
6.2 shall be removed by Tenant except that if
having so designated an alteration for removal,
Landlord thereafter gives notice to Tenant at
least six (6) months before the expiration of the
Lease Term that Landlord would be willing to let
such alteration remain after the expiration of the
Lease Term, then Tenant may elect whether to
remove such alteration or leave it as part of the
Premises upon the expiration of the Lease Term.
Tenant shall repair any damage caused by the
removal of any alterations or any of Tenant's
furniture, trade fixtures, equipment or other
personal property and restore the building or the
surface of the Real Property, as the case may be,
to substantially the condition in which it was
prior to such removal.

     SECTION 22 MISCELLANEOUS.

     SECTION 22.1. CAPTIONS. The captions in this
Lease are for convenience of reference only. In no
way do those captions define, limit or describe
the scope or intent of this Lease.

     SECTION 22.2. INTERPRETATION. Words showing
number shall be taken to include both the singular
and the plural forms. Words showing gender shall
be taken to include masculine, feminine and
neuter.

     SECTION 22.3. SUCCESSORS AND ASSIGNS. Subject
to the restrictions on transfers set forth herein,
this Lease shall inure to the benefit of and be
binding upon Landlord and Tenant and their
respective successors and assigns. The definition
of "Landlord" and "Tenant" herein refer to the
Landlord and Tenant at the time in question.

     SECTION 22.4. GOVERNING LAW. This Lease shall
be governed, construed, and enforced in accordance
with the laws of the Commonwealth of
Massachusetts.

     SECTION 22. 5. ENTIRE AGREEMENT. This Lease
represents the entirety of the agreement among the
parties hereto and shall be deemed to supersede
any prior discussions or agreements among the
parties hereto. This Lease may not be amended or
modified except by written instrument signed by
the parties hereto.

     SECTION 22. 6. WAIVER. The failure of either
party to insist upon strict performance of any of
the covenants, agreements, terms and conditions of
this Lease in any one or snore instances shall not
be construed as a waiver or relinquishment of any
such covenant, agreement, terms, or condition and
the same shall remain in full force and effect.

     SECTION 22.7. ATTORNEY'S FEES. In the event
either party brings an action to enforce any of
the terms hereof or in connection herewith, the
prevailing party in such action shall be entitled
to and the losing party agrees to pay the
reasonable attorneys' fees and expenses, including
attorneys' fees and expenses of appellate
proceedings, of the prevailing party.

SECTION 22. 8. MEMORANDUM. Landlord and Tenant
shall execute a Memorandum of this Lease in a form
acceptable to Landlord and Tenant. The Memorandum
shall be recorded in the public records of
Worcester County, Massachusetts. Landlord and
Tenant shall share the cost of recording.


32


     SECTION 22.9. UNENFORCEABLE PROVISION. Each
term and provision of this Lease shall be enforced
to the fullest extent permitted by law. Should any
term or provision of this Lease, or the
application thereof, prove illegal or
unenforceable, the remainder of this Lease shall
still be valid and enforced.

     SECTION 22.10. BROKER. Landlord and Tenant
each represent to the other that there are no
claims for brokerage or other commissions or
finder's or other similar fees in connection with
the transactions contemplated by this Lease
insofar as such claims shall be based on
arrangements or agreements made by or on behalf of
the party so representing.

     SECTION 22.11. AMENDMENT. Neither this Lease
nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an
instrument in writing signed by the parties hereto
and approved in writing by Landlord's Mortgagee if
required under the terms of the Facility Mortgage.

     SECTION 22.12. COUNTERPARTS. This Lease may
be executed in any number of counterparts, each of
which shall be deemed to be an original and all of
which together shall comprise but a single
instrument.

     SECTION 22.13. APPLYING PROVISIONS. No
provision of this Lease shall be construed against
or interpreted to the disadvantage of either
Landlord or Tenant by any court or other
governmental or judicial authority by reason of
such party's having or being deemed to have
structured, written, drafted or dictated such
provisions.

     SECTION 22.14. TIME OF ESSENCE. Time is of
the essence of this Lease.

     SECTION 2215. RELATIONSHIP OF PARTIES.
Nothing in this Lease shall be construed to render
or constitute Landlord in any way or for any
purpose a partner, joint venturer or associate in
any relationship with Tenant other than that as
Landlord and Tenant, nor shall this Lease be
construed to authorize either party to act as
agent for the other party except as expressly
provided to the contrary in this Lease.

     SECTION 22.16. HOLDING OVER. If Tenant
occupies the Premises after the Lease expiration
date without having entered into a new Lease of
the Premises with Landlord, Tenant shall be a
tenant-at-sufferance only subject to all of the
terms and provisions of this Lease except that,
after a holdover of sixty (60) days after Lease
expiration, the Basic Rent shall be one hundred
fifty percent (150% ) of the Basic Rent during the
last Lease Year. Such a holding over, even if with
the consent of Landlord, shall not constitute an
extension or renewal of this Lease.











33



     IN WITNESS WHEREOF, the parties hereby
execute this Lease Agreement on the day and year
first written above.

                      LANDLORD:
LM AUBURN ASSISTED LIVING LLC


By: /s/ John P. Sawyer, Jr.

Its: Managing Member


                     TENANT:
EMERITUS CORPORATION,

a Washington corporation,

f.k.a Assisted Living of America, Inc.


By: /s/ Raymond R. Brandstrom

Its: President




































34

EX-10.58.2

            AMENDED AND RESTATED LEASE AGREEMENT

     THIS AMENDED AND RESTATED LEASE AGREEMENT
(the "Lease") is made and entered into this 26th
day of February, 1996 by and between EMERITUS
CORPORATION, a Washington corporation ("Tenant"),
and LM ROCKY HILL ASSISTED LIVING LIMITED
PARTNERSHIP, formerly known as LM ROCKY HILL I
LIMITED PARTNERSHIP, a Delaware limited
partnership ("Landlord").

     Reference is made to a certain Lease
Agreement dated the 4th day of October, 1995
between Tenant and Landlord (the "Original
Lease").

     WHEREAS, Landlord and Tenant wish to amend
and restate in full the terms and conditions of
the Original Lease;

     NOW, THEREFORE, in consideration of the
mutual undertakings and covenants hereinafter
contained and the acts to be performed hereunder,
Landlord and Tenant hereby agree to restate in
full the Original Lease as set forth below:

     Section 1. THE PREMISES.

     Section 1.1. FACILITY. Landlord hereby
demises and leases to Tenant and Tenant hereby
leases and takes from Landlord, the real property
described in Exhibit A hereto (the "Real
Property"), together with those certain
improvements (the "Improvements") to be
constructed by Landlord thereon consisting of a
senior housing facility with assisted living
services (the "Facility") as more particularly
described and provided for in the Construction
Work LeKer aaached hereto as Exhibit "B" and
incorporated herein by this reference (the "Work
Leuer"), subject to those encumbrances and other
mauers of record set forth on Exhibit ``C" aKached
hereto and incorporated herein by this reference
(the "Permiaed Encumbrances"). The Real Property,
the Improvements and the Personal Property
(defined below) shall collectively constitute the
"'Premises." Included within the Improvements is
that certain access road as shown on Exhibit "D"
aaached hereto_which shall provide vehicular_
access to and from the Facility and Cold Spring
Road (the "Access Road"). Tenant's right to use
the Access Road shall be shared only with those
tenants and occupants of the "Future Development"
on the "Adjacent Land" as described and defined in
Section 1.5 below.

     Section 1.2. PERSONAL PROPERTY. Landlord
hereby further demises and leases to Tenant, and
Tenant hereby leases and takes from Landlord, all
equipment, furniture, furnishings, and fixtures
which are to be installed as part of the
Improvements pursuant to the "Working Drawings and
Specifications" (as that term is defined in the
Work Letter) approved by Landlord and Tenant, as
provided for in the Work Leaer, together with any
additional items added thereto from time to time
by written agreement between Landlord and Tenant
(such equipment, furniture, furnishings and
fixtures, together with all additions thereto or
replacements thereof will hereinafter be referred
to as the "Personal Property"). If any equipment,
in addition to the Personal Property, is necessary
or convenient to operate the Facility, all such
additional equipment shall be acquired by and at
the cost of Tenant and the same shall be and
remain the property of Tenant in accordance with
the terms of Section 1.2.1 below.

     Section 1.2.1. Tenant shall keep all of the
Personal Property in good working order and
condition at Tenant's sole cost and expense, and
at the expiration or termination of the Lease Term
(as defined below) shall return and deliver all of
such property to Landlord in good working order
and condition, reasonable wear and tear excepted.
If necessary for the proper operation of the
Facility, Tenant shall, during the Lease Term,
replace part or all of the items of Personal
Property which have been damaged or destroyed or
become worn out or obsolete, and such replacement
shall be at





the sole cost of Tenant, but any such equipment
which has been acquired for the purpose of
replacing Personal Property previously provided by
Landlord shall be and remain the property of
Landlord. Tenant may place additional property on
the Premises (not required for replacement of
property covered in this Lease), and the same
shall be and remain the property of Tenant
("Tenant's Equipment").

     Section 1.2.2. Landlord agrees upon request
of Tenant to subordinate any statutory or
Landlord's lien that Landlord may have to any
security interest granted by the Tenant to secure
a purchase money obligation or an acquisition
lease of any of Tenant's Equipment acquired by
Tenant pursuant to Section 1.2.1.

     Section 1.3. ACQUISITION OF PROPERTY/GROUND
LEASE. Tenant hereby acknowledges and understands
that Landlord does not own the Real Property but
is the tenant pursuant to a ground lease of the
Real Property from LM Rocky Hill Land Holding
Limited Partnership dated of even date herewith
(the "Ground Lease"). Tenant hereby agrees that,
despite the fact that the Original Lease is dated
prior to the Ground Lease, this Lease shall be
deemed a sublease between Landlord and Tenant,
subject to the terms of the Ground Lease. The
Ground Lease has been reviewed by Tenant.

     Section 1.4. INTENTIONALLY OMITTED.

     Section 1.5. FUTURE DEVELOPMENT.

     Section 1.5.1. Tenant hereby acknowledges
that an affiliate of Landlord intends (but shall
not be obligated) to further develop land adjacent
to the Real Property identified on Exhibit "D"
attached hereto as "Phase 2" (the "Adjacent Land")
by constructing thereon one or more buildings
together with associated parking areas, driveways,
utility installations and other related
improvements (the "Future Development"). Tenant
agrees to cooperate with Landlord's affiliate in
connection with any such Future Development by
providing any necessary temporary construction
easements, provided that said easements do not
interfere with the construction of the
Improvements, unreasonably interfere with the use
of the Access Road, or interfere with the
operation of Tenant's business from the Premises,
reduce the available parking for the Facility,
obstruct Tenant's access to the Facility and/or
interfere with the quiet
enjoyment of Tenant's residents. Landlord
covenants and agrees that any such Future
Development shall (i) be of the same or better
quality of construction as the Improvements
constructed hereunder, (ii) consist of an
architectural style and appearance which would be
compatible and aesthetically consistent with the
appearance of the Improvements constructed
hereunder, (iii) not result in any relocation or
decrease in the parking facilities constructed
hereunder for the Improvements, all of which
parking hereunder shall remain for the exclusive
use of the Facility, (iv) not result in any
additional cost or expense to Tenant, and (v) not
create or result in, any noncompliance of the
Facility or associated improvements with any
statutes, codes, regulations, ordinances, or
orders of any agencies which regulate or are
responsible for approving or accrediting senior
housing with assisted living services (and
assisted living specifically) or which may be at
any time applicable to any portion of the
Premises, the Access Road or any use thereof.
Landlord agrees that its affiliate shall not
deliver a substantially completed Future
Development to the occupant thereof within one
year of the Rent Commencement Date hereunder, nor
permit any marketing of said Future Development
facility within said one year period.

     Section 1.5.2. The Real Property and the
Adjacent Land currently comprise (collectively)
one legal lot; Landlord reserves the right, in its
discretion, but shall not be obligated in any way,
to subdivide such lot to create two or more
separate legal lots, with the Real Property to be
a stand alone legal lot, in connection with its
plan for the Future


2



Development, provided that any such subdivision
does not (i) diminish in size or use the Real
Property and/or (ii) impose upon Tenant and/or the
Facility any conditions relating to Tenant's use
of and operations on the Real Property. In the
event of any such subdivision, all references
herein to the "Real Property" shall continue to
mean the Real Property described on Exhibit A and
the parties agree, if necessary, at the request of
either, to execute an amendment to this Lease
which clarifies the description of the Real
Property hereunder. Landlord shall deliver a copy
of any proposed subdivision plan to Tenant not
less than ten (10) days prior to any submission by
Landlord of the proposed subdivision to any
governmental authority. In connection with any
such subdivision, Landlord agrees to grant or
reserve for the benefit of the Real Property such
easements and rights of way as shall be necessary
or as Tenant may reasonably require. Landlord and
Tenant agree to mutually cooperate in connection
with the preparation and execution of easement
agreements and any further documents necessary
for_ establishing rights to use the Access Road
and common utilities and for the sharing of any
costs associated therewith and with any common
landscaping, all consistent with the provisions of
this Lease.

     Section 1.5.3. From and after the Rent
Commencement Date, Tenant shall be responsible, at
its sole cost and expense, for maintaining and
repairing the Access Road (including repaving as
necessary) for snow removal and for maintaining
all landscaping for the Real Property, except that
from and after the commencement of construction of
the Future Development, Landlord shall cause its
affiliate to (i) reimburse Tenant, on a monthly
basis, for fifty-eight percent (58%) ("Landlord's
Proportionate Share") of all costs and expenses
attributable to the use, maintenance and repair of
the Access Road, (ii) promptly repair, at its sole
cost and expense, any damage caused to the Access
Road by any of Landlord's affiliate's construction
activities with respect to the Future Development,
and (iii) pay for any additional improvements to
the Access Road which may be necessary or required
in connection with any subdivision of the Real
Property and Adjacent Land or the construction of
the Future Development. Tenant shall, at no time,
have any responsibility whatsoever with respect to
the maintenance of the Adjacent Land. Until such
time as the Adjacent Land has been improved with
the Future Development, Landlord covenants and
agrees, at Landlord's sole cost and expense, to
perform routine weed abatement and trash removal
as necessary to keep and maintain the Adjacent
Land in a clean and sightly condition. In
connection with Landlord's design and construction
of the Future Development, Landlord shall cause
the Future Development to be professionally
landscaped consistent with the quality of
landscaping installed for the Improvements
hereunder. Upon completion of the Future
Development, Landlord shall cause its affiliate to
keep and maintain or shall cause the occupant of
the Future Development or any successor to
Landlord's affiliate's interest therein, to keep
and maintain, all such landscaping installed at
the Adjacent Land in a good and sightly condition.

     Section 1.5.4. In the event of any sale of
the Adjacent Land, Landlord shall cause its
affiliate to record in the county recorder's
office, prior to said sale, restrictive covenants
consistent with the provisions of this Section 1.5
and in form and substance reasonably approved by
Tenant. Any failure by the owner and/or operator
of the Adjacent Land to comply with the provisions
of Section 1.5 (it being the responsibility of the
Landlord to notify any such owner and operator of
the same), or by the ground lessor under the
ground lease to enforce the provisions of Section
1.5 through its ground lease of the Adjacent Land,
shall be deemed a default by Landlord hereunder.

     
     
     
     
     
                                            3
     

     
     Section 2. Term.

     Section 2.1. INITIAL LEASE TERM. Subject to
the provisions of Section 2.1.1, the term of this
Lease shall commence on the date of execution as
first set forth above (the "Commencement Date")
and shall continue for a period of twenty (20)
years following the "Rent Commencement Date" (as
that term is defined below), subject to (i) the
right of Tenant to extend the term as provided for
in Section 2. 1.1 below and (ii) any earlier
termination by either party, as permitted herein
(the "Initial Lease Term"). Notwithstanding the
foregoing in the event the Lease Term expires on
any day other than the last day of a calendar
month, the Lease Term shall be automatically
extended by the number of days necessary to cause
the Lease Term to expire on the last day of the
month.

     Section 2.1.1. Tenant shall have the right to
renew this Lease beyond the Initial Lease Term for
two (2) successive ten (10) year renewal terms
(the "Renewal Terms" and together with the Initial
Lease Term, the "Lease Term") by giving notice of
the exercise of its renewal option at least
fifteen (15) months prior to the expiration of the
Initial Lease Term with respect to the exercise of
the first such renewal option, and prior to the
expiration of the first Renewal Term with respect
to the exercise of the second renewal option. In
the event Tenant is in default on the date of the
giving of notice of its intent to renew the Lease,
the notice shall be ineffective; in the event
Tenant is in default on the date the applicable
Renewal Term is to commence, then the Renewal Term
shall not commence and this Lease shall expire as
of the end of the Initial Lease Term or the
applicable Renewal Term. Tenant shall have no
right to renew this Lease beyond the expiration of
the final Renewal Term. During each Renewal Term
all of the terms and conditions of this Lease
shall continue to apply, except that there shall
be an adjustment to the amount of Basic Rent as
provided for in Section 3.4 below.

     Section 2.2. RIGHT TO TERMINATE. Landlord
acknowledges and understands that it is Tenant's
intent that this Lease comply with Rule 13 of the
Financial Accounting Standards Board ("FASB 13")
in order to permit Tenant, for accounting
purposes, to treat this Lease as an operating
lease. For that purpose, Landlord hereby agrees
that, notwithstanding anything to the contrary
contained herein, Tenant may elect to terminate
this Lease effective as of the expiration of the
sixteenth (16th) Lease Year of the Term by giving
Landlord written notice of its election not later
than the expiration of the ninth (9th) Lease Year
of the Term (the "Termination Notice"). Tenant
shall not, however, have the right to terminate
this Lease if Tenant shall be in default hereunder
either at the time of delivery of the Termination
Notice or as of the effective date of termination.
If Tenant fails for any reason to deliver the
Termination Notice by the expiration of the ninth
(9th) Lease Year, Tenant's right to so terminate
this Lease shall not have expired or be deemed to
have been waived until such time as (i) Landlord
not)fies Tenant in writing that the date for the
delivery of the Termination Notice is past due
(the "Reminder Notice") and (ii) Tenant shall have
failed, within thirty (30) days following Tenant's
receipt of the Reminder Notice, to have delivered
to Landlord the Termination Notice. In the event
Tenant exercises its right to terminate this Lease
pursuant to the foregoing, Landlord shall have the
right, exercisable by written notice to Tenant, to
select an effective termination date earlier than
the expiration of the sixteenth (16th) Lease Year
(the "Early Termination Effective Date"), provided
that the Early Termination Effective Date shall
not be early than the date one hundred twenty
(120) days following the date Tenant receives
Landlord's written notice designating said Early
Termination Effective Date. The parties further
acknowledge that this Lease is being entered into
in conjunction with those certain two (2) other
Lease Agreements, one of which relates to a parcel
of real property located in Auburn, Massachusetts
and is by and between Tenant and LM Auburn
Assisted Living LLC, a Massachusetts limited
liability company (the "Auburn Lease") and the
other of which relates to a parcel of real
property



4



located in Louisville, Kentucky and is by and
between Ten_nt and LM Louisville Assisted Living
LLC, a Delaware limited liability company (the
"Louisville Lease"). The Auburn Lease and the
Louisville Lease each include a provision
comparable to this Section 2.2 which permits
Tenant to terminate each such lease early. The
exercise by Tenant to terminate either the Auburn
Lease and/or the Louisville Lease pursuant to any
such comparable provision thereof shall also be
deemed an election by Tenant to terminate the Term
of this Lease pursuant to the terms of this
Section 2.2 regardless of whether or not Tenant
has delivered the Termination Notice hereunder.

     Section 3. RENT.

     Section 3.1. BASIC RENT. During the Initial
Lease Term, the annual rent due hereunder (the
"Basic Rent") shall be determined according to the
following formula:

                                       Basic Rent
= TPC x CR x DC

     "TPC" means the "Total Project Cost" as that
term is defined in the Work Letter.

     "CR" means a coverage ratio of 1.20.

     "DC" means a debt constant equal to
Landlord's cost of funds calculated at the time
Landlord secures a commitment for permanent
financing which meets the following criteria: (i)
interest shall be at a fixed rate, (ii) the loan
shall be non-recourse to Landlord, subject to
customary exceptions (e.g. recourse for
environmental liability and violations of the
American Disabilities Act), (iii) the term of the
loan shall be for 10 years, (iv) the loan shall be
amortized over a term of 22 years, (v) the
principal amount of the loan shall be not more
than one hundred percent (100%) of the Total
Project Cost. Landlord shall keep Tenant apprised
with respect to its efforts to secure permanent
financing and Tenant may participate in the
process of obtaining such financing.

     Pursuant to the above formula, (i) the Total
Project Cost has been determined to be $6,549,485,
based upon the project cost budget set forth on
Exhibit B-2 attached hereto, (ii) the debt
constant ("DC'') has been set at ______ and (iii)
the Basic Rent is hereby set at $_______ per year,
subject to the provisions of Sections 3.3, 3.4 and
Section 3. 1.2.

     Section 3.1.1. The obligation to pay the
Basic Rent and Additional Rent shall commence on
the earlier of (i) the date of Substantial
Completion or (ii) the date upon which Tenant
moves into the Facility and commences to occupy
the Premises (other than for the purpose of
constructing any tenant improvements) (the "Rent
Commencement Date"). Basic Rent shall be paid in
advance in equal monthly installments on the tenth
day of each month; provided, however, that the
first monthly payment shall be due on the tenth
day after the Substantial Completion. For purposes
of this Lease, a Lease Year shall be the twelve
(12) month period commencing on the date of
Substantial Completion. In the event the date of
Substantial Completion shall be other than the
first day of the month, Tenant shall pay to
Landlord a pro rata portion of rent for the month.

     Section 3. 1.2. Notwithstanding any other
provisions of this Lease Agreement to the
contrary, from and after the Rent Commencement
Date until the Maturity Date of Landlord's
construction loan, to the extent that Tenant's Net
Operating Income from the Facility is less than
the monthly Basic Rent owed to Landlord (the
difference being the "Net Operating Deficiency"),
after Tenant demonstrates in writing to Landlord's
reasonable satisfaction that Tenant has used
$250,000 of Tenant's own funds to make up
operating deficits, Tenant shall have the right to
pay to Landlord in full satisfaction of its



5



monthly Basic Rent obligation (subject to the
provisions of this Section 3.1.2), its monthly Net
Operating Income from the Facility for the prior
month and Landlord may draw down the balance of
its monthly Basic Rent from "Rent-up Reserve
Funds" (as hereinafter defined). The "Rent-up
Reserve Funds" shall mean the amount of Two
Hundred Fifty Thousand Dollars ($250,000), set
aside by Landlord's construction lender for such
purpose and funded on a monthly basis upon
requisitions by Landlord with proceeds from
Landlord's construction loan. Tenant's right
pursuant to this Section 3.1.2 to pay less than
the full monthly Basic Rent then due (a) shall be
contingent upon Landlord's construction lender's
actual funding of the Rent-up Reserve Funds and
the continued availability thereof based on the
construction lender's requirements and conditions
set forth in the pertinent loan documents and (b)
shall automatically terminate upon the depletion
of the Rent-up Reserve Funds or if for any other
reason any or all of such Rentup Reserve Funds
become unavailable to Landlord. If in any month,
Tenant has paid its monthly Net Operating Income
from the previous month but Landlord is unable to
draw the remaining Basic Rent due from the Rent-up
Reserve Funds, then Tenant shall pay to Landlord
such remaining Basic Rent due within five (5) days
of written notice from Landlord. If such Rent-up
Reserve Funds become unavailable to Landlord as a
result of a default in its construction loan,
which default is not caused by the default of
Tenant hereunder, then Basic Rent shall be
adjusted prospectively (i.e., from the date such
funds become unavailable due to such Landlord
default) (but not retroactively) by reducing Total
Project Cost by such portion (or all) of the
$250,000 Rent-up Reserve Funds as are not
available to Tenant. If the Rent-up Reserve Funds
are temporarily unavailable due to a Landlord
default, but such funds become available again due
to Landlord's cure, then Basic Rent shall not be
adjusted. In the event that, during the term of
Landlord's construction loan, Net Operating Income
is equal to or greater than the monthly Basic Rent
so that there is no longer a monthly Net Operating
Deficiency, prior to the full disbursement of the
Rent-up Reserve Funds, then Tenant may direct
Landlord to, and upon receipt of said direction
from Tenant Landlord shall draw down any unfunded
amount of the Rent-up Reserve Funds to reimburse
Tenant for amounts expended by it for operating
deficits prior to its exercise of rights under
this Section 3.1.2. In the event that Tenant
elects not to draw down the full $250,000 Rent-up
Reserve Funds, then Tenant shall so notify
Landlord and Total Project Cost shall be reduced
by the amount which Tenant elects not to draw down
and Basic Rent shall be adjusted prospectively
(but not retroactively), provided that once Tenant
has so not)fied Landlord, it may not thereafter
have the benefit of this Section 3.1.2. In any
month where the Tenant exercises its rights under
this Section 3.1.2, its payment of its monthly Net
Operating Income from the previous month shall be
accompanied by an accounting of income and
expenses for such previous month, certified by the
President of Tenant as true and correct and
calculated in compliance with generally accepted
accounting principles, consistently applied. For
purposes of this Section, "Net Operating Income"
shall mean Tenant's net income from continuing
operations at the Facility before debt service
(which net income shall not include depreciation,
amortization, non cash expenses, or any
extraordinary or non-recurring items of income or
loss).

     Section 3.2. PAYMENT OF BASIC RENT. Except as
specifically provided for herein, the Basic Rent
shall be payable without offset, abatement or
other deduction to Landlord at the address set
forth in Section 16, or to such other person, firm
or corporation at such other address as Landlord
may designate by notice in writing to Tenant.

     Section 3.2.1. This Lease is intended to be
triple net to Landlord, and Tenant shall pay to
Landlord, net throughout the Initial Lease Term
and any Renewal Term, the Basic Rent prescribed by
Section 3.1., free of any offset, abatement, or
other deduction, except as may be expressly set
forth herein. Except as may otherwise be expressly
set forth herein, Landlord shall not be required
to make any payment of any kind with


6



respect to the Premises and Tenant agrees to pay
as they become due and payable all costs,
expenses, and obligations of every kind relating
to the Premises whether usual or unusual, ordinary
or extraordinary, foreseen or unforeseen, which
may arise or become due following the Rent
Commencement Date (the "Additional Rent"). (Basic
Rent and Additional Rent are sometimes referred to
collectively herein as "Rent"). Notwithstanding
the foregoing, Landlord shall be responsible for
making all payments due with respect to any
mortgage or deed of trust secured by the Premises
(the "Facility Mortgage") or any ground leasehold
interest of Landlord under the Ground Lease,
Landlord's costs associated with the Adjacent
Land, as provided herein, and all income taxes
assessed against Landlord, and all estate,
succession or inheritance taxes of Landlord.

     Section 3.2.2. This Lease shall continue in
full force and effect, and the obligations of
Tenant hereunder shall not be released, discharged
or otherwise affected except as specifically set
forth in (i) Section 10, regarding damage to or
destruction of the Premises or any part thereof,
(ii) Section 11, regarding the taking of the
Premises or any part thereof by condemnation,
requisition or otherwise for any reason, (iii)
Section 17.2, regarding curing of mortgage
defaults and (iv) such other provisions of this
Lease which expressly provided for any abatement
or termination rights granted in favor of Tenant.

     Section 3.2.3. If any payment of any sums
required to be paid by Tenant to Landlord under
this Lease and payments made by Landlord under any
provision hereof for which Landlord is entitled to
reimbursement by Tenant is not paid when due or
within ten (10) days after written notice of
nonpayment from Landlord, interest at the "Prime
Rate" plus two percent (2 %) per annum, to
Landlord from the original date due until actually
paid. No failure by Landlord to insist upon the
strict performance by Tenant of Tenant's
obligation to pay late charges shall constitute a
waiver by Landlord of its rights to enforce the
provisions of this Section in any instance
thereafter occurring.

     Section 3.3. RENT INCREASES. Effective as of
the expiration of each sixty (60) month period
during the Term commencing from the Rent
Commencement Date, the Basic Rent shall be
adjusted upward by an amount equal to the greater
of (i) one-half of the increase in the Consumer
Price Index (as that term is defined below)
determined in the manner provided for below, and
(ii) ten percent (10%) of the Basic Rent payable
by Tenant hereunder as of the date immediately
preceding the effective date of the rent
adjustment; provided, however, in no event shall
the Basic Rent be increased on any adjustment date
by more than fifteen percent (15%) of the Basic
Rent in effect as of the date immediately
preceding the effective date of adjustment.

     As used herein the term "Consumer Price
Increase" shall mean the United States Department
of Labor, Bureau of Labor Statistics Consumer
Price Index, All Urban Consumers, All Items, for
Northeast Urban (1982-1984 = 100). If at any time
there shall not exist the Consumer Price Index in
the same format as recited in this Section 3.3,
Landlord shall substitute any official index
published by the Bureau of Labor Statistics or
successor or similar governmental agency, as may
then be in existence and shall be most equivalent
thereto. The increase in the Consumer Price Index
shall be determined by according to the percentage
increase, if any, between the index published and
in effect ninety (90) days preceding the
adjustment date and the index published and in
effect ninety (90) days preceding the Rent
Commencement Date.

     Section 3.4. RENT DURING THE RENEWAL TERMS.
As of the commencement of each Renewal Term the
Basic Rent shall be adjusted to equal the greater
of (a) the Basic Rent payable during the last
Lease Year prior to the Renewal Term or (b) the
then prevailing Fair Market Rental (as defined
below) for the Premises. As used herein, the term
"Fair Market Rental" for the Premises shall mean
the rental that


7



Landlord could obtain from a third party desiring
to lease the Premises for the Renewal Term and
shall be based on the Premises in its "as is"
condition, provided that the Facility has been
maintained in accordance with the terms of this
Lease. Landlord shall send to Tenant, within
fifteen (15) days following Landlord's receipt of
Tenant's notice exercising the renewal option,
written notice setting forth Landlord's
determination of the Fair Market Rental for the
Renewal Term. If Tenant objects to Landlord's
determination of the Fair Market Rental for the
Premises, Tenant shall notify Lessor within
fifteen (15) days of Tenant's receipt of
Landlord's notice. If Tenant fails to notify
Landlord within said fifteen (15) day period,
Tenant shall be deemed to have approved Landlord's
determination of the Fair Market Rental.

     If Tenant objects to Landlord's
determination, Landlord and Tenant shall each
appoint its own qualified MAI appraiser, with
nationally recognIzed credentials in the field of
senior housing with assisted living services, with
substantial experience in senior housing with
assisted living services, to appraise the Premises
within forty-five (45) days of Tenant's objection
(the "Landlord's Appraisal" and "Tenant's
Appraisal") for the purpose of determining the
Fair Market Rental. If either party fails to
employ and pay an MAI appraiser to determine the
Fair Market Rental and/or fails to submit its
appraisal to the other within said forty-five (45)
days together with a written summary of the
methods used and the data collected, the remaining
party's appraisal shall be accepted as the Fair
Market Rental. If Landlord's Appraisal and
Tenant's Appraisal differ by (i) less than ten
percent (10%), the average of the two shall be the
Fair Market Rental for the Premises, or (ii) more
than ten percent (10%), Landlord and Tenant shall
promptly instruct its respective appraiser to
jointly appoint a third MAI appraiser with similar
credentials and experience, who shall within
fifteen (15) days of his selection select the one
of the two appraisals which most accurately
defines Fair Market Rental. The third appraiser
shall not have the power to amend, modify,
compromise, or average the first two appraisals.
Landlord and Tenant shall each pay the cost of its
own appraiser and one-half (1/2) of the cost of
the third appraiser. In the event the Basic Rent
for the Renewal Term is determined by the
appraisal procedure described above, Tenant shall
have the right to terminate Tenant's exercise of
the renewal option by written notice delivered to
Landlord delivered at any time within twenty (20)
days following Tenant's receipt of written notice
regarding the third appraiser's Fair Market Rental
determination. Time is of the essence for all of
the time periods set forth in this Section.

     Section 3.5. TAXES.

     Section 3.5.1. Landlord shall use its best
efforts to cause the Real Property and the
Improvements to be separately assessed and/or
valued from the Adjacent Land and any improvements
constructed thereon. For as long during the Term
hereof as that is the case, Tenant shall pay
directly to the applicable taxing authority, by
the applicable due date, all "Taxes" (as that term
is defined below) for each fiscal period wholly
included in the Lease Term (and a prorated amount
thereof for partial years occurring during the
first and last Lease Years of the Lease Term)
assessed with respect to the Premises, which
payments shall be deemed additional rent
hereunder, in addition to the basic rent
hereinbefore set forth.

     In the event that, for any portion of the
Term, the Premises and Adjacent Land are not
separately assessed, Tenant shall pay to Landlord,
as Additional Rent, for each fiscal period wholly
included in the Lease Terrn (and a prorated amount
thereof for partial years occurring during the
first and last Lease Years of the Lease Term) (i)
One Hundred percent (100%) of all "Taxes" (as that
term is defined below) attributable to the value
of the Improvements and all Personal Property and
(ii) Forty-two percent (42%) of all taxes
attributable to the value of the Real Property.
Notwithstanding anything to the contrary contained
herein, upon Landlord's commencement of
construction of the Future


8



Development, Tenant's proportionate liability
hereunder for any real estate taxes and
assessments properly attributable to the Access
Road shall equal forty-two percent (42%) thereof.
Any interest or penalties which accrue as a result
of Tenant's failure to make such payment within
the time required by this Article 5 shall be the
sole responsibility and obligation of Tenant. At
such time as Landlord receives any bill for Taxes,
Landlord shall promptly notify Tenant and Tenant
agrees to pay to Landlord at least one (1)
business day prior to delinquency Tenant's share
of such Taxes calculated ii the manner provided
for above. "Taxes" shall mean all real estate
taxes, general and special assessments, personal
property taxes, and other public charges which are
assessed, levied, confirmed, or imposed upon the
Premises during the Lease Term, and all sales
taxes and other taxes that are now or hereafter
may be payable in connection with the Basic Rent
payable hereunder during the Initial Lease Term
and any Renewal Term (other than income taxes
owing by Landlord as a result of Tenant's payment
of Basic Rent hereunder and principal and interest
payments owing to Landlord's Mortgagee).

     Section 3.5.2. Any taxes and assessments
relating to a fiscal period of any authority, a
part of which is already included within the
Initial Lease Term or any Renewal Term and a part
of which is included in a period of time before or
after the Initial Lease Term or any Renewal Term,
shall be adjusted pro rata between Landlord and
Tenant and each party shall be responsible for its
pro rata share of any such taxes and assessments.

     Section 3.5.3. Nothing herein shall require
Tenant to pay income taxes assessed against
Landlord, or estate, succession or inheritance
taxes of Landlord.

     Section 3.5.4. Tenant may contest, in is own
name or in the name of Landlord, with Landlord's
cooperation, which Landlord agrees to give, the
legality or validity of any such tax or assessment
or of any law under which the same shall be
imposed. This must be done in good faith, with due
diligence, and at Tenant's own expense. If Tenant
does so contest such tax or assessment beyond the
time limit for payment thereof by Tenant, Tenant
shall either pay such amount under protest or
procure and maintain a stay of all proceedings
with adequate bond to enforce collection of such
tax or assessment. Once such action is taken by
Tenant, Tenant shall not be considered to be in
default hereunder with respect thereto.
Notwithstanding anything to the contrary, Tenant
shall not exercise its contest rights in
contravention of any of the terms and conditions
of any Facility Mortgage. Landlord shall also have
the right, at Landlord's sole cost and expense, to
contest in good faith and with due diligence any
assessment with respect to the Real Property
or-the Future Development.

     Section 3.5.5. Tenant shall have, and
Landlord hereby irrevocably grants to Tenant, the
power and authority, at Tenant's cost to make and
file and prosecute any statement or report or
claim for refund which may be required or
permitted by law, as the basis of or in connection
with the assessment, determination, equalization,
reduction or payment of any and every tax or
assessment or license or charge which Tenant is
required to pay or discharge hereunder.

     Section 3.5.6. Landlord shall not be required
to join in any proceedings referred to in this
Section, unless the provisions of any law, rule or
regulation at the time in effect shall require
that such proceedings be brought by and/or in the
name of Landlord, in which event Landlord shall
join in such proceedings or permit the same to be
brought in its name. Landlord shall not ultimately
be subjected to any liability for the payment of
any costs or expenses in connection with any such
proceedings, and Tenant will indemnify, defend and
save harmless Landlord from any such costs and
expenses. Tenant shall be entitled to any refund
of any taxes and assessments and penalties or
interest thereon received by Landlord but
previously paid or reimbursed in full by Tenant.


9



     Section 3.5.7. Upon the termination of any
such proceeding, Tenant shall pay the amount of
such taxes and assessments or part thereof as
finally determined in such proceedings, the
payment of which may have been deferred during the
prosecution of such proceedings, together with any
costs, fees, interest, penaltie_ or other
liabilities in Connection therewith.

     Section 3.5.8. Notwithstanding any other
provision of Section 3.5 to the contrary, in the
event that any Facility Mortgagee requires the
monthly escrow of estimated Taxes, then Tenant
shall cause such monthly payments to be made in to
an impound account as directed by said Facility
Mortgagee, provided that all interest accruing on
funds deposited in to said account shall accrue
for the benefit of Tenant.

     Section 4. USE OF THE PREMISES/COMPLIANCE
WITH LAWS.

     Section 4.1. PERMITTED USES. The Premises may
be used only for senior housing with assisted
living services and for no other purpose. Tenant
agrees that such use shall not change, for the
term of Landlord's construction loan and for the
term of any permanent loan, unless such change is
approved by the applicable Facility Mortgagee. The
approval of a Facility Mortgagee shall not be
unreasonably withheld, provided that, in
considering a request for a change in use, the
Facility Mortgagee may consider the market
feasibility of any proposed use, the existence of
competing projects, the demand for assisted living
housing, the operating history of the Facility and
similar criteria. Tenant assumes full
responsibility for confirming that such use is
permitted under all laws, statutes, ordinances,
regulations, and orders governing the Real
Property and for obtaining any certificate of
need, license or other authorization required to
operate such use and/or to provide assisted living
services within the Facility (provided that it
shall be Landlord's obligation to obtain the
necessary building permit and certificate of
occupancy for the Improvements and for assuring
that the Improvements constructed by Landlord
comply with all applicable laws, statutes,
ordinances, rules, regulations, orders,
restrictions and other governmental requirements
of any governmental entities and divisions having
regulatory authority over Tenant and the
Improvements by virtue of the health care business
conducted by Tenant). Landlord makes no
representation or warranty as to the compliance of
such use under any such laws, statutes,
ordinances, regulations, and orders governing the
Real Property and/or insurance requirements. Any
failure by Tenant to obtain or maintain any
required authorization or approval (other than by
reason of Landlord's failure to cause the
Improvements to be constructed so as to comply
with the licensure/approval requirements as
required of Landlord herein) shall not affect
Tenant's obligation to pay Rent or any other
obligation hereunder.

     Section 4.2. OPERATING APPROVALS. Tenant
covenants upon execution of this Lease to proceed
with all due diligence to comply with all
not)fication and reporting requirements imposed on
an operator or proposed operator of a managed
residential community and to obtain prior to the
Rent Commencement Date all approvals needed to
operate the Facility and to provide assisted
living services therein under applicable state and
federal law and shall maintain the same in full
force and effect throughout the Lease Term.
Landlord agrees to assist Tenant as reasonably
necessary to obtain such approvals at Tenant's
expense.

     Section 4.3. COMPLIANCE WITH INSURANCE. After
the Commencement Date, Tenant shall neither use
nor permit to be used the Premises, or any part
thereof for any purpose wh ch will cause the
cancellation of any insurance policy covering the
Premises or any part thereef, nor shall Tenant
sell or permit to be kept, used or sold in or
about the Premises any article which may be
prohibited by the standard form of fire



10




insurance policies. Tenant shall, at its sole
cost, comply with all of the requirements
pertaining to the Premises of any insurance
organization or company necessary for the
maintenance of insurance, as herein provided,
covering the Premises.

     Section 4.4. WASTE/COMPLIANCE WITH LAWS.
Tenant covenants and agrees that the Premises
shall not be used for any unlawful purpose. Tenant
shall not commit or suffer to be committed any
waste on the Premises, nor shall Tenant cause or
permit any nuisance thereon. Tenant further
covenants and agrees that Tenant's use of the
Premises and maintenance, alteration, and
operation thereof shall at all times conform to
all applicable and lawful local, state, and
federal laws, ordinances, and regulations,
including orders of agencies which regulate or are
responsible for accrediting senior housing with
assisted living services. Tenant shall make such
alterations to the Premises (whether capital or
non-capital in nature) as may become necessary
after the Rent Commencement Date to maintain the
Premises in compliance with applicable laws. If a
change in law requires alterations of a capital
nature during the last three (3) years of the
Term, then Tenant shall pay the cost thereof but
may amortize same over its useful life under
generally accepted accounting principles and, upon
Lease termination, Landlord shall reimburse Tenant
for that portion of the cost attributable to the
remaining useful life. Tenant may, however,
contest the legality or applicability of any such
legal requirements. This must be done in good
faith, with due diligence, without prejudice to
Landlord's rights hereunder, and at Tenant's own
expense. While such a contest is pending Tenant
shall not be considered in default under this
Section 4.4. Notwithstanding anything to the
contrary, Tenant shall not exercise its rights to
contest under this Section in contravention of the
terms and conditions of any mortgage which may be
secured by the Facility.

     Section 4.5. SURVEVS AND INSPECTIONS. Upon
written request, Tenant shall deliver to Landlord
a copy of the results of all surveys,
investigations and inspections of the Facility and
its operation performed by state or federal
authorities.

     Section 4.6. ENVIRONMENTAL COMPLIANCE.

     Section 4.6.1. Tenant shall use the Premises
in compliance with all applicable Environmental
Laws (as defined below). Tenant shall not
generate, store or use any Hazardous Materials in
or on the Premises, nor permit any Person to do so
on the Premises, except those customarily
generated, stored and used in the operation of a
senior housing facility with assisted living
services, and then only in compliance with all
Environmental Laws (as defined below), insurance
requirements and applicable industry standards.
Tenant shall not dispose of Hazardous Materials on
the Premises (or permit any person to do so) to
any other location except a properly licensed
disposal facility and then only in compliance with
all applicable Environmental Laws. Tenant shall,
at its sole cost and expense, promptly remove or
clean up any hazardous substances introduced onto
the Premises by Tenant or with its permission or
at its sufferance. Such removal or cleanup shall
be in compliance with all applicable Environmental
Laws. Tenant hereby agrees to indemnify and hold
Landlord and any Facility Mortgagee harmless and
agrees to defend Landlord and any Facility
Mortgagee from all losses, damages, claims and
liabilities and fines, including costs and
reasonable attorneys' fees, of any nature
whatsoever in connection with the actual presence
upon the Premises of any hazardous substance
introduced by Tenant. For purposes hereof, the
term "Environmental Laws" shall mean any and all
applicable governmental laws, regulations and
requirements relating to environmental and
occupational health and safety matters and
hazardous materials, substances or wastes (as
defined from time to time under any applicable
federal, state or local laws, regulations or
ordinances). The provisions of this Section 4.6
shall survive the expiration or earlier
termination of this Lease.


11




     Section 4.6.2. HAZARDOUS MATERIALS. The term
"hazardous materials" shall mean any chemical,
substance, waste, material, gas or emission which
is deemed hazardous, toxic, a pollutant, or a
contaminant under any statute, ordinance, by-law,
rule, regulation, executive order or other
administrative order, judgement, decree,
injunction or other judicial order of or by any
governmental authority, now or hereafter in
effect, relating to pollution or protection of
human health or the environment. By way of
illustration and not limitation, "Hazardous
Materials" includes asbestos, radioactive
materials, and "oil", "hazardous materials",
"hazardous waste", "hazardous substance" and
"toxic material" as defined in the Comprehensive
Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et =., as amended, the
Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 2601 et =., as amended, the
regulations promulgated thereunder, and Title 22a
of the Connecticut General Statutes and the
regulations promulgated thereunder.

     Section 5. FACILITY MORTGAGEE REQUIREMENTS.
In order to satisfy the requirements of Landlord's
construction lender and/or permanent lender
holding a Facility Mortgage (collectively,
together with their successors and assigns,
"Facility Mortgagee") Tenant hereby agrees as
follows:

     Section 5.1. From and after the Rent
Commencement Date, Tenant shall provide Landlord
with the following financial statements and
information on a continuing basis:

     (a) Within ninety (90) days after the end of
each calendar year, a statement of income and
expenses for the year then ended, and separate
financial statements on the operations of the
Facility certified by the chief financial offficer
of the Tenant to be true and correct.

     (b) Within forty-five (45) days after the end
of each calendar year quarter, and within fifteen
(15) days after the request of a Facility
Mortgagee (but not more often than monthly), in
either case after the Rent Commencement Date, a
certificate from the chief financial officer of
the Tenant, in form acceptable to the Facility
Mortgagee, providing occupancy data (including
unit rents) for the Facility.

     (c) Within forty-five (45) days after the end
of each calendar quarter, following the Rent
Commencement Date, a current year-to-date
operating statement for the Facility as of the end
of such quarter and the quarterly financial
statement for the Facility in the form and detail
set forth in Exhibit H hereto, properly completed
and certified by the Tenant to be true and
correct.

     (d) Within three (3) days of the receipt by
the Tenant or the Facility, any and all notices
(regardless of form) from any licensing and/or
certifying agency that such license or
certification (held by Tenant or other service
provider) is being revoked, downgraded or
suspended or that action is pending or being
considered to revoke or suspend the license,
certification, permits or any rights thereunder
(held by Tenant or other service provider) and any
license and certification survey reports or
statements of deficiencies (with plans of
correction attached thereto).

     The Landlord reserves the right to require
from Tenant supporting or back-up information with
respect to items (a) through (d) above.

     Section 5.2. CONDUCT OF BUSINESS. Upon the
Rent Commencement Date, Tenant shall cause the
Facility to be properly operated as a senior
housing with assisted living services facility and
for no other uses. Without limiting the foregoing,
Tenant shall:



12



     (a) maintain the standard of care for the
residents of the Facility at all times at a level
necessary to insure quality care for the residents
of the Facility;

     (b) maintain aufficient inventory and
equipment of types and quantities at the Facility
to enable Tenant adequately to perform all
operations at the Facility.

     Section 5.3. RESIDENCY AGREEMENTS. Tenant
shall establish as policy and will request and use
its best efforts to require that any and all
residents or other persons for which the Tenant
(or an agency retained by Tenant) provides
services execute and deliver to the Tenant a
residency agreement. Tenant has submitted to
Landlord its form of residency agreement;
Landlord's consent shall not be required for
changes to or modifications of such residency
agreement over the term of this Lease.

     Section 6. MAINTENANCE, REPAIR, ALTERATIONS
AND UTILITIES.

     Section 6.1. TENANT'S MAINTENANCE. Tenant
shall, at its own cost, and without expense to the
Landlord, maintain the Premises, including all
sidewalks, buildings, building systems, water,
sewer and other utility lines on the Real Property
serving the Facility, surface parking lots,
exterior lighting and improvements of any kind
which may be a part thereof in good, sanitary and
neat order, condition and repair, ordinary wear
and tear, casualty, condemnation and acts of God
excepted. Tenant's obligations shall include,
without limitation, replacements of structural
components, roof and building systems, and other
necessary capital expenditures, as required by the
previous sentence. Tenant shall maintain the
Premises in such a manner as may be necessary to
operate the Facility in accordance with applicable
state and/or federal laws or regulations. Tenant
shall perform all interior and exterior painting,
and maintain the grounds of the Facility in a good
and sightly appearance. Notwithstanding the
foregoing, Tenant shall not be responsible for any
repairs or alterations to the Improvements which
are required as a result of any patent or latent
defects in Landlord's construction of the
Improvements, all of which repairs and alterations
shall be the obligation of Landlord in accordance
with and to the extent set forth in Landlord's
warranty as set forth in the Work Letter.

     Section 6.2. ALTERATIONS. Tenant will not
remove or demolish any improvement or building
which is part of the Premises or any portion
thereof or allow it to be removed or demolished,
without the prior written consent of Landlord,
which may be withheld at Landlords's sole
discretion. Notwithstanding the foregoing,
Landlord agrees that Tenant shall be permitted to
make any changes or alterations in or to the
Premises without the requirement of obtaining
Landlord's consent therefor, provided that such
Alterations do not constitute a "Major
Alteration". A "Major Alteration" shall mean an
alteration to the Improvements which is estimated
to cost more than $100,000 and involves: (a)
alteration, removal, cutting, or adding to any
structural component of the building (including,
without limitation, walls, exterior windows,
roofs, or floor slabs or any building system), (b)
an alteration to non-residential areas which has a
sign)ficant adverse effect on services which are
provided to residents, or (c) changing any
category within the unit mix by more than twenty
percent (20%). Tenant agrees not to make any Major
Alterations to the Premises without first
obtaining the Landlord's written consent thereto,
which consent shall not be unreasonably withheld,
and subject to Tenant's compliance with all of the
remaining qualifications set forth in this Section
6.2. It shall be deemed reasonable for Landlord to
withhold its consent to a Major Alteration for the
following reasons, among others: such Major
Alteration would (i) materially and adversely
affect the character, value, usefulness or
rentability of the building or the Premises or any
part thereof or any of the facilities, equipment
or improvements therein, (ii) weaken or impair
(temporarily or permanently) the structure of the
building, (iii) materially lessen the usable area
of the building, or (iv) not be consistent with
the use


13



permitted hereunder by any future occupant.
Landlord shall respond to Tenant's request for
approval within thirty (30) days of Landlord's
receipt of complete plans and specifications.
Landlord's failure to respond within the
applicable time period set forth in the preceding
sentence shall be deemed to be approval of the
proposed Major Alterations. If Landlord
disapproves any proposed Major Alterations,
Landlord shall set forth in writing the reasons
for such disapproval with reasonable specificity.
If Tenant fails to obtain Landlord's prior wriKen
consent for any Major Alteration, and such consent
is required under: this Lease or Tenant fails to
notify Landlord in writing of any Alteration, then
such alteration must be removed/restored at the
end of the Lease Term. With respect to any
alteration for which Tenant requests Landlord's
consent (as required hereunder) or of which
Landlord is otherwise not)fied, said alteration
shall not be required to be removed/restored by
Tenant at the end of the term unless Landlord
reasonably specifies the same for removal in a
notice delivered to Tenant either within ten (10)
days after receipt of Tenant's notice of the
alteration, or (ii) within the applicable 30-day
period during which Landlord shall respond to
Tenant's request for approval of plans and
specifications. Without limitation, Landlord shall
be deemed reasonable in requiring
removal/restoration for any of the reasons listed
as (i) through (iv) above. All alterations,
including any Major Alteration consented to by
Landlord, shall be in quality and class at least
equal to the original work and shall meet all
building and fire codes, and all other applicable
codes, rules, regulations, laws and ordinances.
Tenant also agrees to maintain builder's risk
insurance and shall cause its contractors to carry
the types of insurance as a prudent owner or
tenant would require. Landlord shall have the
right to approve the plans and specifications for
any Major Alteration, which approval shall not be
unreasonably withheld or delayed. Regardless of
whether the Landlord's consent is required
hereunder, Tenant agrees to notify Landlord in
writing of the proposed alteration prior to the
commencement of any construction.

     Section 6.3. CAPITAL RESERVES. In order to
satisfy the requirements of the Facility
Mortgagee, Tenant shall pay, as additional rent
hereunder, from and after the Rent Commencement
Date, into a capital reserve fund, the amount of
$12.50 per unit per month, or $12,000 per year,
which funds shall be deposited into an interest
bearing escrow account to be disbursed from time
to time in accordance with an escrow agreement
approved by Tenant and such Facility Mortgagee to
pay for replacements and correction of deferred
maintenance items. Any funds remaining in the
account at Lease expiration shall be returned to
Tenant.

     Section 6.4. UTILITIES. Tenant shall pay all
charges for water, electricity, gas, sewage,
waste, trash and garbage disposal, telephone,
cable television, and other services furnished to
the Premises from and after the Rent Commencement
Date. Included therein is the "sewer connection
charge", amortized over fifteen (15) years, with
interest thereon at six percent (6%), as more
specifically set forth in an Agreement between
Landlord and The Metropolitan District of
Connecticut. Except as set forth below, Landlord
shall not be responsible in any manner for any
suspension, interruption or curtailment of any
services or utilities to the Premises regardless
of the cause thereof, and no such suspension,
interruption or curtailment shall give rise to any
claim for abatement of Rent or other compensation
to Tenant from Landlord, nor may Tenant claim any
damages on account thereof, nor shall this Lease
or any obligation of Tenant hereunder be affected
thereby, nor shall Tenant claim the same as a
constructive eviction. Notwithstanding the
foregoing, Landlord shall be liable for any direct
damages due to an interruption of any services or
utilities caused by Landlord or its affiliate or
agents, and if such interruption caused by
Landlord or its affiliate or agents causes the
Premises to be untenantable for more than three
(3) days then the Rent shall abate until such
services or utilities are restored. Landlord shall
cause its affiliate to make every reasonable
effort, when constructing the Future Development,
to avoid any interruption of services or utilities
to the Premises.


14



     Section 7. LIENS AGAINST THE PREMISES.

Section 7.1. LIENS. Tenant will not permit the
Premises to become subject-to any lien, charge, or
encumbrance. Tenant shall maintain the Premises
free from all orders, notices, and violations
filed or entered by any public or quasi-public
authorities. Notwithstanding the foregoing, in the
event any such lien, charge, or encumbrance is
imposed, Tenant may contest any such lien, charge,
encumbrance, order, notice or violation, provided
that Tenant causes same to be bonded within
forty-five (45) days of the filing of such lien.
This must be done in good faith, with due
diligence and at Tenant's own expense and Tenant
shall not be considered in default of the
provisions of this Section 7.1 as a result of such
contest.

     Section 7.2. LANDLORD'S RIGHTS. Should a
judgment on any lien, charge, encumbrance, order,
notice or, violation be rendered against the
Premises for any work
performed by or for Tenant (other than the
construction of the Improvements by Landlord
hereunder) or any person claiming through or under
Tenant and should Tenant fail to discharge such
judgment or take action to protest such judgment,
Landlord shall have the right, but not the
obligation, to discharge said judgment. If
Landlord exercises that option, any amounts paid
by Landlord shall be due from Tenant as additional
rent. Such additional rent shall be due and
payable on the next date after the expense is
incurred that Basic Rent is otherwise due.

     Section 7.3 MECHANIC'S LIENS. Tenant shall
take all reasonable steps necessary to ensure that
no lien arising under Connecticut law as a result
of construction done at the Premises at Tenant's
request shall extend to the interest of Landlord
in the Premises. Tenant shall pay all costs
incurred by Tenant in connection with the
construction, alteration, demolition, maintenance
and repair of any and all improvements on the
Premises. Should a lien or claim of lien be filed
against the Landlord's interest in the Premises by
any contractor, subcontractor, mechanic, laborer,
materialman or any other person whomsoever
retained by Tenant, Tenant shall, within sixty
(60) days after the filing thereof, cause the same
to be discharged of record.

     Section 8. NON-LIABILITV AND INDEMNIFICATION.

     Section 8.1. TENANT'S INDEMNITY. During the
Term, Tenant agrees to defend, protect, indemnify
and save harmless Landlord and any Facility
Mortgagee from and against all claims arising out
of or connected with the use and occupancy of the
Premises by Tenant, any person claiming by,
through or under Tenant, or their respective
officers, directors, servants, agents, customers,
contractors, employees or invitees and shall pay
all costs and expenses incurred by Landlord and
any Facility Mortgagee in connection with such
claims, including without limitation, court costs
and reasonable attorney's fees for trial and
appellate proceedings. Landlord and any Facility
Mortgagee shall be protected hereby from all
claims arising during the Term from loss of or
damage to property, or death or personal or bodily
injury to persons except to the extent such loss,
damage, death or injury is caused by the
negligence or willful actions of Landlord or any
person claiming by, through or under Landlord, or
their respective officers, directors, servants,
agents, customers, contractors, employees or
invitees in which case Landlord shall be fully
responsible therefor and shall indemnify, defend
and hold harmless Tenant with respect thereto in
accordance with the-terms of Section 8.2. The
provisions of this Section shall survive the
termination or expiration or earlier termination
of this Lease.






15



     Section 8.2. LANDLORD. Landlord will
indemnify, defend and hold harmless Tenant from
any and all costs, expenses and liability,
including, without limitation, court costs and
reasonable attorney's fees for trial and appellate
proceedings, which it may incur in connection with
the performance by Landlord of its obligations
hereunder, including, without limitation, the
construction and completion of the Improvements.
The provisions of this Section shall survive the
expiration or earlier termination or expiration of
this Lease, provided that claims also covered by
Landlord's limited warranty set forth in the Work
Letter shall be subject to the limitations set
forth in such limited warranty.

     Section 8.3 LIMITATION ON LIABILITY. It is
expressly agreed by the parties that in no case
shall Landlord (or its partners any individuals or
entities comprising Landlord) be personally
liable, under any express or implied covenant,
agreement or provision of this Lease, for any
damages whatsoever to Tenant beyond Landlord's
interest in the Premises. Neither party hereto
shall be liable to the other for indirect or
consequential damages.

     Section 9. INSURANCE.

     Section 9.1. All insurance policies required
by this Section 9 shall be issued by a good and
solvent insurance company or companies licensed to
do business in the State of Connecticut, with a
rating of "A XII" or higher by Bests, selected by
Tenant and reasonably satisfactory to Landlord,
and shall include Landlord and each mortgagee of
which Landlord has not)fied Tenant as additional
insureds as their interests may appear. Tenant
shall provide a copy of binders for insurance
policies conforming to the requirements of this
Lease for Landlord's review at least thirty (30)
days prior to the estimated completion date.
Tenant agrees to deliver certificates of such
insurance to Landlord as of the Rent Commencement
Date and thereafter not less than thirty (30) days
prior to the expiration of any such policy. Such
insurance shall not be canceled, materially
changed, or non-renewed without thirty (30) days'
written notice to Landlord.

     Landlord and Tenant shall each give prompt
notice to the other of all losses, damages or
injuries to any person or damage to any property
which may in any way be related to this Lease and
for which a claim might be made against the other
party. Each party shall promptly report to the
other party all such claims, whether related to
matters insured or uninsured. Landlord and Tenant
shall assist and cooperate with any insurance
company in the adjustment or litigation of all
claims and losses arising under this Lease.

     Section 9.2. PROPERTY INSURANCE. From and
after the Rent Commencement Date, Tenant shall
obtain and keep in force throughout the Lease
Term, at its expense, "all-risk" property
insurance upon the Improvements against fire and
such other hazards, casualties and contingencies
(including boiler and machinery coverage on a
comprehensive basis) as are from time to time
customarily covered by all-risk policies for
similar buildings used for similar purposes as
Tenant is then making of the Facility with
endorsements insuring against earthquake and
subsidence. The limit of such insurance shall
never be less than 100% of the actual replacement
cost at the time and place of loss, and the policy
shall include an agreed amount endorsement. This
policy shall include coverage for increased cost
of construction, demolition and contingent
liability as a result of compliance with then
existing applicable legal requirements. Such
insurance will be subject only to such deductibles
as are from time to time reasonably approved by
Landlord based on the then current practice for
similar buildings used for senior housing with
assisted living services located within the
vicinity of the Real Property (Tenant agreeing to
pay to Landlord, upon demand as Additional Rent,
the amount of any such deductible following any
casualty loss). The policy shall include rent
continuation coverage payable to Landlord,
notwithstanding abatement of Tenant's Rent, of no
less than eighteen (18)


16



months rent (including Base Rent and Additional
Rent). All such policies shall name Landlord as
the Named Insured and each Facility Mortgagee as a
loss payee as its interest may appear.

     In the event that Landlord receives a notice
of cancellation of such insurance policy or
policies without a corresponding notice regarding
the issuance of new insurance prior to the
effective date of such cancellation, Landlord may,
in addition to and without thereby waiving any
other remedies, pay the premiums necessary to
prevent such cancellation and bill Tenant
therefor. Tenant shall reimburse Landlord therefor
by paying such amount, together with interest at
the rate set forth in Section 3.2.3, to Landlord,
as Additional Rent, within five (5) days after
demand therefor by Landlord.

     Section 9.3. LIABILITY INSURANCE. Tenant
shall provide or cause to be provided at its
expense, and keep in force during the Lease Term:

     (a) Commercial general liability insurance
(without any so-called employee exclusion or the
like) in an amount reasonably required by Landlord
from time to time based on the then current
practice for similar buildings used for senior
housing with assisted living services located
within the vicinity of the Real Property, but in
any event not less than the greater of (i) One
Million Dollars ($1,000,000.00) per occurrence,
$2,000,000 aggregate, or (ii) the liability
coverage typically carried by Tenant in similar
facilities, including contractual liability
coverage. Such policy shall name Tenant as a named
insured and Landlord and each Facility Mortgagee
of which Landlord has not)fied Tenant, as
additional insureds with respect to any claim
arising from Tenant's use, occupancy, repair or
operation of the Premises; and property

     (b) Comprehensive automobile liability
insurance including personal injury and property
damage in the amount of a combined single limit of
$1,000,000 each occurrence. Coverage must include
owned, leased, hired and non-owned vehicles;

     (c) Worker's compensation and occupational
disease insurance with statutory limits;

     (d) Employer's liability insurance with a
limit not less than $500,000; and

     (e) Excess liability policy in umbrella form
with a minimum limit of liability of $15,000,000,
applying in excess of the coverages listed in (a),
(b) and (d) above.

     (f) Professional liability insurance in the
amount of One Million Dollars ($1,000,000) per
occurrence, which shall be written on an
occurrence basis.

     All liability insurance shall be on an
occurrence basis. Tenant may not elect to carry
claims made commercial general liability insurance
unless occurrence coverage is generally
unavailable at commercially reasonable rates in
the marketplace. Tenant's insurance shall state
that it is primary and not contributing with any
insurance purchased by Landlord. Tenant's
insurance shall also state that it is severable
with respect to all insureds under the policy and
that acts of one insured will not abrogate
coverage for other insureds.

     Section 9.4 PERSONAL PROPERTY INSURANCE.
Tenant shall obtain and keep in force throughout
the Lease Term, at its expense, `'all-risk"
property insurance on its personal property,
including but not limited to furniture, fixtures,
machinery and equipment, for the full replacement
cost .




17



     Section 9.5. MORTGAGEE'S OTHER REQUIREMENTS.
Tenant shall maintain any other insurance
reasonably required by the holder of a Facility
Mortgagee, which reasonableness standard shall be
based on industry standards of lenders whose loans
are secured by senior housing with assisted living
services properties similar in nature to the
Premises, and on any such other insurance be
generally available at commercially reasonable
rates.

     Section 9.6. BLANKET INSURANCE. Nothing
contained in this Section 9 shall prohibit
Landlord or Tenant from obtaining a policy or
policies of blanket insurance which may cover
other properties of Landlord or Tenant provided
that (a) any such blanket policy expressly
allocates to the Premises not less than the amount
of insurance required hereunder to be maintained
and (b) such blanket policy shall not diminish the
obligations to insure hereunder, so that proceeds
from such policies shall be an amount no less than
the proceeds that would be available under a
separate policy.

     Section 9.7. WAIVER OF SUBROGATION. Landlord
and Tenant, each for itself and its insurer,
hereby waive all claims and rights against the
other and their respective officers, directors,
employees, contractors, servants, and agents, for
any damage to or destruction of real or personal
property of Landlord or Tenant to the extent
covered by the insurance required to be maintained
hereunder. All property insurance policies carried
at any time during the Lease Term by either party
covering the Premises shall include a clause to
the effect that such waiver of subrogation shall
not adversely affect or impair such policies or
prejudice the rights of the insureds to recover
thereunder. The provisions of this Section 9.7
shall survive the expiration or earlier
termination of this Lease.

     Section 10. DAMAGE AND DESTRUCTION.

     Section 10.1. REPAIR OR RESTORATION AFTER
MAJOR CASUALTY. In the event that any part of the
Improvements or the Personal Property shall be
damaged or destroyed by fire or other casualty for
which Tenant is required to maintain insurance
hereunder and the cost to repair such casualty is
greater than $200,000, (any such event being
called a "Major Casualty"), Landlord shall
promptly replace, repair and restore the same as
nearly as possible to its condition immediately
prior to such Major Casualty, in accordance with
all of the terms, covenants and conditions and
other requirements of this Lease and any mortgage
applicable in the event of such Major Casualty.
If, pursuant to this Section 10, Landlord shall be
obligated to make repairs, the Premises shall be
so replaced, repaired and restored as to be
substantially the same character as prior to such
Major Casualty. The Plans and Specifications for
such restoration shall be first submitted to and
approved in writing by Tenant, which approval
shall not be unreasonably withheld. Tenant may
elect to retain, at its expense, an independent
architect, reasonably approved by Landlord, who
shall oversee such repairing, restoring or
replacing. Tenant covenants that it will give to
Landlord prompt written notice of any casualty
affecting the Premises or any portion thereof.

     Section 10.2. EXCEPTION FOR MAJOR CASUALTV
DURING LAST TWO LEASE YEARS AND UNINSURED
CASUALTV. Notwithstanding the foregoing, in the
event of (a) a Major Casualty occurring during the
last two Lease Years of the Initial Term or any
Renewal Term or (b) resulting from a flood,
nuclear accident, war or other event for which
Tenant is not obligated to maintain insurance
hereunder and which, in the reasonable opinion of
Landlord, Tenant and Facility Mortgagee, renders
the Premises unsuitable for Tenant's use as a
senior housing with assisted living services
facility as operated by Tenant prior to the
Casualty, then Landlord or Tenant shall have the
right to terminate this Lease upon written notice
to the other and, in such event, all insurance
proceeds attributable to the Real Property,
Improvements and Personal Property shall be


18



payable to the Facility Mortgagee or, if none, to
Landlord and all insurance proceeds attributable
to Tenant's Equipment shall be payable to Tenant.
Each party's termination rights under this Section
shall be exercised by written notice to the other
party sent within thirty (30) days after the
occurrence of the destruction or damage. Any
termination notice sent by Landlord or Tenant
shall take effect thirty (30) days after mailing
thereof. If, however, Landlord sends such
termination notice to Tenant during the last two
Lease years (other than for an uninsured
casualty), and within such 30-day period Tenant
sends Landlord written notice exercising Tenant's
next upcoming extension option, then (i)
Landlord's termination notice shall be void, (ii)
Tenant shall be deemed to have irrevocably
exercised its renewal option and waived any right
to terminate its renewal notice in connection
therewith, (iii) the next upcoming Renewal Term
shall automatically be added to the then current
portion of the Lease Term, and (iv) Landlord shall
make the repairs and restorations required by this
Section.

     Section 10.3. FAILURE BY LANDLORD TO COMPLETE
REPAIRS. In the event that (a) Landlord has not
procured the necessary permits and approvals for
the restoration and/or has not commenced repair
and restoration of the Premises within 180 days of
the date of the Major Casualty, or (b) Landlord's
work is not thereafter substantiaIly completed
within twelve (12) months following commencement
of repair and restoration, then, in either event,
Tenant may give written notice to Landlord and any
Facility Mortgagee of Tenant's intention to
terminate this Lease or assume responsibility for
completion of such repair and restoration of the
Premises unless the same is commenced or
substantially completed (as the case may be)
within thirty (30) days of the date on which such
notice is given. If Landlord or any Facility
Mortgagee fails to so commence or to substantially
complete (as the case may be) such repair and
restoration within such 30-day period, then
immediately upon the expiration of such 30-day
period, Tenant shall have the right to either
terminate this Lease by written notice to Landlord
or the right, but not the obligation, to assume
responsibility for such repair and restoration and
Landlord shall make available to Tenant use of all
insurance proceeds available therefor, subject to
the terms of Section 6 hereof and the terms of any
Facility Mortgage
governing insurance proceeds. Landlord agrees to
use its best efforts to negotiate as part of the
loan documents with any mortgagee, the right to
apply insurance proceeds to the repair and
restoration of the Improvements. If, despite such
best efforts, the prior approval of any Facility
Mortgagee or other Mortgagee is required for
conducting any repair or restoration hereunder
(whether by Landlord or by Tenant), Landlord
agrees to use its best efforts to secure such
approval and the right to apply the insurance
proceeds thereto.

     Section 10.4. TERMINATION. Notwithstanding
anything to the contrary contained in this Section
10, Landlord shall not be obligated to rebuild
following a Major Casualty if the repairs or
reconstruction of the damage cannot be made under
existing laws, ordinances, statutes or regulations
of any governmental authority applicable thereto.
In the event Landlord is unable to rebuild in
accordance with the provisions hereof, and such
casualty causes the premises to be rendered
unsuitable for use as a senior housing with
assisted living services facility, then this Lease
shall terminate effective thirty (30) days after
the damage occurs and Tenant shall remit insurance
proceeds in its possession to any Facility
Mortgagee or, if none, to Landlord within ten (10)
days of said Lease termination date free and clear
of all liens or claims and shall promptly, at its
own expense, remove from the Premises any of
Tenant's Equipment not so damaged or destroyed.

     Section 10.5. RENDERED UNSUITABLE. For the
purposes of this Section 10, the Facility shall be
deemed to have been rendered unsuitable for use as
a senior housing with assisted living services
facility if, in the good faith judgment of
Landlord, Tenant and any Facility Mortgagee,
reasonably exercised, the Facility cannot after
any such loss


19



be operated on a commercially practicable basis as
a senior housing with assisted living services
facility of the type and quality existing and
licensed immediately prior to such loss, taking
into account, among other relevant factors, the
number of licensed and operational beds, dining
and kitchen facilities, parking lots, driveways,
or walkways affected by such loss.

     SECTION 10.6. REPAIR OR RESTORATION AFTER
MINOR CASUALTY. In the event that any part of the
Improvements or Personal Property shall be damaged
or destroyed by fire or other casualty and the
cost to repair such casualty is $200,000 or less
(a "Minor Casualty"), then Tenant shall promptly
repair and restore the same as nearly as possible
to its condition immediately prior to such Minor
Casualty, in accordance with all of the applicable
terms, covenants and conditions
and other requirements of this Lease and the
requirements of any Facility Mortgagee in the
event of such Minor Casualty, and Tenant shall be
entitled to the use of all insurance proceeds
available therefor, subject to the terms of such
Facility Mortgage.

     Section 10.7. ABATEMENT OF RENT. This Lease
shall remain in full force and effect during the
period of any repair and restoration; provided,
however, Tenant's obligation to pay Rent shall be
equitably abated to reflect the nature and extent
to which such casualty event has rendered the
Premises unusable by Tenant. For purposes of
applying the foregoing abatement provision, the
parties shall take into account the impact of the
casualty (and subsequent repairs) on Tenant's
ability to provide to its residents any services
which are significant to Tenant's operations of a
senior housing facility with assisted living
services of the type and quality which was
operated prior to the Casualty.

     Section 10.8. Tenant hereby acknowledges
that, notwithstanding any provision in this
Section 10, the terms and provisions of any
Facility Mortgagee shall govern with respect to
the settlement of insurance claims and
availability of insurance proceeds for
restoration.

     Section 11. CONDEMNATION.

     Section 11. 1. TAKING OF WHOLE.

     Section 11.1.1. If, during the Lease Term, so
much of the Premises are taken or condemned in fee
for a public or quasi-public use that in the
reasonable judgement of Landlord, Tenant and
Facility Mortgagee the Premises are rendered
unsuitable for use as senior housing with assisted
living services, this Lease shall terminate.
Termination will be effective without entry or
notice. Termination shall occur as of the day when
possession is required to be surrendered to the
taking or condemning authority.

     Section 11.1.2. For purposes of this Section
11, the Premises shall be deemed to have been
rendered unsuitable for use as a senior housing
with assisted living services facility if, in the
good faith judgment of Landlord, Tenant and any
Facility Mortgagee reasonably exercised, the
Premises after such loss cannot be operated on a
commercially practicable basis as a senior housing
with assisted living services facility of the type
and quality existing and licensed immediately
prior to such loss taking into account, among
other relevant factors, the number of licensed
beds and/or parking lots, driveways, dining and
kitchen facilities, or walkways affected by such
loss.

     Section 11.2. TAKING OF A PORTION. If during
the Lease Term, a portion of the Premises and/or
the Facility is taken or condemned in fee for a
public or quasi-public use such that the Facility
is not rendered unsuitable for use as a senior
housing with assisted living services facility,
this Lease shall not terminate. If, however, as a
result of the taking, the number of beds available
for operation of the Facility as a senior housing


20



with assisted living services facility of the type
and quality existing and licensed prior to the
taking has been or must be reduced, Tenant shall
be entitled to an abatement of rent. The rent
abatement shall be to the extent that is fair,
just and equitable to both Tenant and Landlord,
taking into consideration, among other relevant
factors, the number of licensed beds and/or
parking lots, driveways, dining and kitchen
facilities or walkways affected by such loss.

     Section 11.3. DAMAGES FOR TAKING. All damages
awarded in connection with the taking of the
Premises shall vest in Landlord but the immediate
payment and use of such damage award shall be
governed by the provisions of any Facility
Mortgage. In the event of a partial taking where
the Lease is not terminated, subject to the
provisions of any Leasehold Mortgage, Landlord
shall apply or make available to Tenant that
portion of the proceeds reasonably necessary for
the repair or reconstruction of the Premises.
Notwithstanding anything to the contrary contained
in any Facility Mortgage or related document, all
damages awarded (or otherwise sought by Tenant) in
connection with the taking of Tenant's Equipment,
and all moving and relocation costs, shall vest in
Tenant.

     Section 12. DEFAULT. The occurrence of any of
the events, acts or circumstances described in
this Section 12.1 shall constitute an Event of
Default under this Lease.

     Section 12.1.1. EVENTS OF DEFAULT. Failure by
Tenant to pay in full any rent payable under this
Lease when due and the continuance of such failure
for ten (10) days after Landlord has given Tenant
written notice of such failure.

     Section 12.1.2. Failure by Tenant to observe,
perform or comply with any of the terms, covenant,
agreements or conditions contained in this Lease
(other than as specified in Section 12.1.1,L2. 1.4
and 12.1.6), and the continuance of such failure
for thirty (30) days after Landlord has given
Tenant written notice of such failure. If Tenant
has promptly commenced and diligently pursued
remedial action within said thirty (30) day period
but has been unable to cure its default (except
for any default that can be reasonably cured by
the payment of money) prior to the expiration
thereof, said thirty (30) day period shall be
extended for the minimum time reasonably required
for the completion of Tenant's remedial action.

     Section 12.1.3. The making by Tenant of an
assignment for the benefit of its creditors or the
commencement of proceedings in a court of
competent jurisdiction for the reorganization,
liquidation or involuntary dissolution of Tenant
or for the adjudication of Tenant as a bankrupt or
insolvent or for the appointment of a receiver of
the property of Tenant which, with respect to any
involuntary proceedings, are not dismissed and any
receiver, trustee or liquidator appointed therein
is not discharged, within ninety (90) days after
the institution thereof.

     Section 12.1.4. The abandonment of the
Premises by Tenant other than as a result of the
damage, destruction or taking thereof.

     Section 12.1.5. The involuntary, imposed or
required revocation, suspension, termination,
probation, restriction, limitation or refusal to
re-new, or pending revocation, suspension,
termination, probation, restriction, limitation
of, or refusal to renew, any license or permit
which materially affects the ability of the Tenant
to operate the Facility in the absence of (i) the
submittal by Tenant of any corrective or remedial
plan the effect of which is to stay any such
revocation, suspension, termination, probation,
restriction, time limitation or refusal to renew
any license or permit, or, (ii) in



21



the case of any assisted living service provider
license, the replacement of Tenant with another
provider approved by Landlord and any Facility
Mortgagee in their reasonable discretion within
ten (10) days of revocation or other such action
on such license.

     Section 12.1.6. The failure to open the
Facility for business within thirty (30) days
after the Substantial Completion date.

     Section 13. LANDLORD'S REMEDIES: DAMAGES ON
DEFAULT.

     Section 13.1. LANDLORD'S REMEDIES. If an
Event of Default shall occur, Landlord may, at its
option, give to Tenant a written notice
terminating this Lease upon a date specified in
such notice, which date shall be not less than ten
(10) business days after the date of receipt by
Tenant of such notice from Landlord, and upon the
date specified in said notice, the term and estate
hereby vested in Tenant shall cease and any and
all other right, title and interest of Tenant
hereunder shall likewise cease without further
notice or lapse of time, as fully and with like
effect as if the entire Lease Term had elapsed,
but Tenant shall continue to be liable to Landlord
as hereinafter provided.

     Section 13.2. SURRENDER. Upon any termination
of this Lease as the result of an Event of
Default, Tenant shall quit and peacefully
surrender the Premises to Landlord, and Landlord,
upon or at any time after any such termination,
may without further notice, enter the Premises and
possess itself thereof by summary proceedings or
otherwise, and may dispossess Tenant and remove
Tenant and all other personal property from the
premises and may have, hold and enjoy the Premises
and the right to receive all rental income of and
from the same.

     Section 13.3. RIGHT TO RELET. At any time or
from time to time after any such termination,
Landlord may relet the premises or any part
thereof, in the name of Landlord or otherwise, for
such term or terms (which may be greater or less
than the period which would otherwise have
constituted the balance of the Lease Term) and on
such conditions (which may include concessions or
free rent) as Landlord, in its reasonable
discretion, may determine and may collect and
receive the rents therefor. Landlord shall in no
way be responsible or liable for any failure to
relet the Premises or any part thereof, or for any
failure to collect any rent due upon any such
reletting.

     Section 13.4. SURVIVAL OF COVENANTS: DAMAGES.
In the event of any such termination Tenant shall
pay to Landlord the Rent up to the date of such
termination. No such termination of this Lease
shall relieve Tenant of its liability and
obligations under this Lease and such liability
and obligations shall survive any such
termination. Tenant shall indemnify and hold
Landlord harmless from all 10ss, cost, expense,
damage or liability arising out of or in
connection with such termination, including
reasonable attorney's fees.

     If this Lease is terminated for Tenant's
Event of Default, then unless and until Landlord
elects lump sum damages described in the
succeeding paragraphs of this Section, Tenant
shall pay on the last day of each calendar month
until the stated expiration date all Basic Rent
and Additional Rent which would have been due for
such month if this Lease had not been terminated.
If, however, Landlord re-lets the Premises, there
shall be credited against such obligation each
month the amount actually received by Landlord
from such reletting during such month on account
of such month, after first deducting all expenses
incurred in connection with such reletting,
including, without limitation, all repossession
costs, brokerage commissions, legal expenses,
reasonable attorneys' fees, alteration costs, and
expenses of preparation for such reletting.




22


                    At any time after such termination,
and regardless of whether Tenant has made any
payments to Landlord pursuant to the preceding
provisions of this Section, Tenant shall pay to
Landlord, on demand, as damages for Tenant's Event
of Default, the difference between

     (1) the aggregate Rent which would have been
payable under this Lease by Tenant from the date
Landlord last received full Rent payments from
Tenant (whether pursuant to the preceding
paragraph or earlier) until the stated expiration
date, minus

     (2) the fair and reasonable rental value of
the Premises for the same period determined as of
the date Landlord elects such damages, taking into
account market conditions and the likelihood of
reletting the premises, less Landlord's reasonable
estimate of expenses to be incurred in connection
with reletting the Premises, including, without
limitation, all repossession costs, brokerage
commissions, legal expenses, reasonable attorneys'
fees, alternation costs, and expenses of
preparation for such reletting;

with the amounts in the preceding clauses (1) and
(2) discounted to present value using the Federal
Reserve discount rate as in effect on the date on
which Landlord makes such demand.

     If the Premises or any part thereof are relet
by Landlord for the period prior to the stated
expiration date, or any part thereof, before
presentation of proof of such damage any court,
commission or tribunal, the amount of rent
reserved upon such reletting shall be, prima
facie, the fair and reasonable rental value for
the part or the whole of the Premises so relet
during the term of the reletting.

     Section 13.5. LIQUIDATED DAMAGES. In lieu of
recovery by Landlord of sums payable under the
foregoing provisions of Section 13.4 or any other
damages resulting from Tenant's Event of Default,
Landlord may by written notice to Tenant, at any
time after this Lease is terminated, elect to
recover, and Tenant shall thereupon pay, as
liquidated damages, an amount equal to the
aggregate of the Rent accrued during the
twenty-four (24) months prior to such termination
plus the amount of Rent accrued and unpaid at the
time of termination and less the amount of any
recovery by Landlord under the foregoing
provisions of this Section up to the date of
payment of such liquidated damages; provided,
however, if such notice is given less than
twenty-four (24) months before the stated
expiration date, then liquidated damages shall be
measured by the number of months remaining until
the stated expiration date.

     Except as to the terms of the liquidated
damages provision set forth above, nothing herein
shall limit or prejudice the right of Landlord to
prove and obtain an amount equal to the maximum
allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in
which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than
the amount of the difference referred to above.

     Section 13.6. RIGHT TO EQUITABLE RELIEF. In
the event there shall occur an Event of Default or
threatened Event of Default Landlord shall be
entitled to enjoin such Event of Default or
threatened Event of Default.

     Section 13.7. RIGHT TO SELF HELP. If an Event
of Default shall occur and be continuing, Landlord
shall have the right, but shall not be obligated,
to enter upon the Premises and to perform such
obligation notwithstanding the fact that no
specific provision for such substituted
performance by Landlord is made in this Lease with
respect to such Event of Default. In the event
Tenant fails to comply with Section 4.2, or


23



there occurs an Event of Default under Section
12.1.5 hereof, then Landlord shall have the right
to submit on behalf of Tenant to any licensing
authority a corrective or remedial plan in order
to stay a license revocation or similar proceeding
and the right to contract directly on behalf of
Tenant with a licensed assisted living service
provider for the provision of such services to the
Facility and Tenant shall cooperate with such
service provider so as to permit the smooth
operation of the Facility and Tenant hereby
appoints Landlord its attorney-in-fact for the
purposes of this Section 13.7 only. In performing
such obligation, Landlord may make any payment of
money or perform any other act. The aggregate of
(i) all sums so paid by Landlord, (ii) interest on
such sums at the "Prime Rate" as published in The
Wall Street Journal on the day on which demand for
payment is made by Landlord as hereinafter
provided plus two percent (2%) per annum, and
(iii) all necessary incidental costs and expenses
in connection with the performance of any such act
by Landlord, shall be deemed to be Rent under this
Lease and shall be payable to Landlord immediately
upon demand. Landlord may exercise the foregoing
rights without waiving any other of its rights or
releasing Tenant from any of its obligations under
this Lease.

     Section 13.8. FURTHER REMEDIES. Except as
otherwise provided in this Lease, Landlord shall
have the right to invoke any right and remedy
allowed at law or in equity or by statute or
otherwise, and nothing in this Lease shall require
Landlord to elect any remedy for an Event of
Default by Tenant hereunder, and all rights herein
provided shall be cumulative with one another and
with any other rights and remedies which Landlord
may have at law or in equity in the case of such
an Event of Default. Landlord's remedies under
this Section 13 shall survive the early
termination of this Lease.

     Section 14. QUIET ENJOYMENT.

Landlord covenants and agrees that, so long as
Tenant observes and performs all of the covenants,
conditions, and stipulations of this Lease, Tenant
may lawfully and quietly hold, occupy and enjoy
the Premises during the Lease Term.
Notwithstanding the foregoing, Landlord and Tenant
hereby acknowledge that the kinds of
inconveniences or disruptions to Tenant which
would normally be associated with a nearby
construction project, if caused by the
construction of the Future Development, shall not
constitute a breach of the covenant of quiet
enjoyment, provided that Landlord shall take all
reasonable measures to minimize disruptions to
Tenant and to Tenant's residents, taking into
account the nature of Tenant's use of the
Premises.

     Section 15. ASSIGNMENT AND SUBLETTING.

     Section 15.1. AFFILIATES. Tenant may, without
prior approval from Landlord, assign its rights
and obligations under this Lease to any parent
corporation or any sister or subsidiary
corporation whose ownership is at least 51% in
common with Tenant and of which Tenant has control
(an "Affiliate"). Tenant shall give Landlord
notice of any such assignment or subletting, and
shall give to Landlord, concurrently with such
assignment, an executed original assignment and
assumption agreement wherein such assignee agrees
to be bound by the terms and conditions of this
Lease. The initial public offering of stock by
Tenant and any subsequent sale or transfer of any
stock of Tenant shall not be deemed to be an
assignment hereunder requiring Landlord's consent
pursuant to this Section 15. Tenant shall not be
required to obtain the consent of Landlord with
respect to a merger, consolidation or other
reorganization provided that, in any of such
events (i) the successor to Tenant has a net worth
computed in accordance with GAAP at least equal to
the net worth of the Tenant named herein and (ii)
the successor to Tenant has experience in the
assisted living housing industry at least
comparable to that of the named Tenant.



24



     Section 15.2. LANDLORD'S CONSENT. Provided
that there is then no outstanding Event of
Default, Tenant may sublease the Premises or
assign its rights and obligations under this Lease
to a person or entity that is not an Affiliate
with the prior written consent of Landlord; such
consent shall not be unreasonably withheld, unless
a Facility Mortgagee has approval rights in its
loan documents over such assignment rights and the
Facility Mortgagee retains the right to exercise
its sole discretion, in which case the standard
for Landlord shall also be "at its sole
discretion". If Tenant wishes to assign this Lease
and Landlord's consent is required hereunder,
Tenant shall deliver to Landlord (i) a true and
complete copy of the proposed instrument of
assignment containing all of the terms and
conditions of such proposed assortment, (ii)
information as to the identity and experience of
the assignee as Landlord may reasonably require,
(iii) such financial information concerning the
proposed assignee as Landlord may reasonably
require, and (iv) a written agreement, in form
reasonably approved by Landlord, between such
proposed assignee and Landlord in which such
proposed assignee agrees with Landlord to perform
and observe all of the terms, covenants and
conditions of this Lease from and after the date
of such assignment, all of which Landlord may
consider in determining whether to grant its
consent. Landlord agrees to notify Tenant within
fifteen (15) days following delivery of the
foregoing information, as to whether or not
Landlord shall grant its consent. If Landlord
fails to notify Tenant in writing within said 15
day period, Landlord shall be deemed to have
consented to said assignment or sublease.

     If Landlord consents to an assignment, then
prior to such assignee taking occupancy of the
Premises, Tenant shall deliver to Landlord an
original of the fully-executed instrument of
assignment and of the agreement described in
clause (iv) of the preceding paragraph of this
Section.

     Section 15.3. LANDLORD'S ASSIGNMENT RIGHTS.
Landlord may at any time assign its rights and
obligations under this Lease, provided, however,
that Landlord shall furnish to Tenant a written
statement from Landlord's assignee that such
assignee recognizes all of Tenant's rights under
this Lease. Notwithstanding the failure of
Landlord to obtain said recognition from
Landlord's assignee, any assignment of Landlord's
rights and obligations shall be subject to
Tenant's rights under this Lease.

     Section 15.4. SUBSEQUENT ASSIGNMENTS OR
SUBLEASES. No assignment or subletting that is
approved pursuant to this Section 15 shall be
deemed to remove any subsequent assignment or
subletting from the provisions of this Section 15,
it being the intent hereof that every assignment
and subletting, whenever occurring, shall require
the same approval as is set forth herein for an
original assignment or subletting.

     Section 15.5. RESIDENTIAL LEASES.
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted, without
obtaining Landlord's consent, to sublease
individual assisted living units. Tenant shall
provide to Landlord a copy of Tenant's standard
form residential lease and any subsequent changes
which may be made to the standard form.

     Section 15.5. COMMERCIAL LEASES. Landlord
acknowledges and understands that Tenant may enter
into one or more commercial subleases covering
portions of the Premises with subtenants who shall
provide certain specialized services and amenities
to the residents of the Facility (e.g. beauty
parlor, convenience store, bank outlet).
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted to enter
subleases for such purposes without obtaining
Landlord's consent, provided that (i) the term of
such sublease is not greater than five (5) years,
(ii) the square footage to be subleased does not
exceed three thousand (3,000) square feet (iii)
such sublease shall be terminated by the
termination or expiration of this Lease and (iv)
such sublessees shall carry appropriate liability,
including malpractice insurance, if


25



applicable, naming Landlord, Tenant and any
mortgagee as additional insureds. Any such
commercial sublease which does not meet the
foregoing qualifications shall require Landlord's
prior consent, which shall not be unreasonably
withheld or delayed. Upon the request of Landlord,
Tenant shall provide copies of any such executed
subleases to Landlord.

     Section 15.6. EFFECT OF ASSIGNMENT OR
SUBLETTING. In all events, notwithstanding any
assignment or subletting permitted hereunder,
Tenant's liability to Landlord shall remain direct
and primary. Any assignee of Tenant's interest in
the Premises shall be deemed to have agreed
directly with Landlord to be jointly and severally
liable with Tenant for the performance of Tenant's
obligations hereunder and such assignee shall upon
request execute and deliver such instruments as
Landlord reasonably requests in confirmation
thereof (and agrees that its failure to do so
shall be subject to the default provisions of this
Lease). At any time after the occurrence of an
Event of Default hereunder, Landlord may collect
rent and other charges from any assignee or
sublessee (and upon notice any assignee or
sublessee shall pay such sums directly to
Landlord) and apply the amount collected to the
rent and other charges herein reserved. No consent
to assignment or collection of rent by Landlord
directly from any assignee or sublessee or failure
so to collect such rent shall be deemed a waiver
of the provisions of this Section 15, an
acceptance of such assignee or sublessee as a
tenant
hereunder, or a release of Tenant from direct and
primary liability for the performance of all of
the covenants of this Lease.

     Section 16. NOTICES. All notices provided for
in this Lease or related to this Lease shall be in
writing and shall be delivered to the parties at
the addresses set forth below. All such notices or
other papers or instruments related to this Lease
shall be deemed aufficiently served or delivered
on the date of receipt or refusal of delivery,
provided that they are sent by United States
Registered or Certified Mail, postage prepaid
return receipt requested, by hand delivery, by
overnight courier or by facsimile transmission:

     To Landlord:   LM Rocky Hill Assisted Living
Limited Partnership
                         c/o LMP Retirement
Properties, Inc.
                        10 Post Office Square
                         Boston, Massachusetts
02109
                         Telephone No.: (617)
422-7000
                         Facsimile No.: (617)
422-7099
                         Attn.: Mr. John P.
Sawyer, Jr., President

     with a copy to:     Goodwin, Procter & Hoar
                        Exchange Place
                        Boston, MA 02109
                        Facsimile No.: (617)
227-8591
                        Telephone No.: (617)
570-1000
                        Attn: Elizabeth McDermott,
Esq.

     with a copy to:     Fleet National Bank
                              111 Westminster
Street
                         Providence, RI 02903-2305
                        Attn: Mr. Casey N. Moore







26



     To Tenant:     Emeritus Corporation
                              Market Place One
                         2003 Western Avenue,
Suite 660
                         Seattle, WA 98121
                              Telephone No.:
2064434313
                         Facsimile No.:
206443-5432
                        Attn: Mr. Ray Brandstrom,
President

     Both Landlord and Tenant may change the
address or the name of the addressee applicable to
subsequent notices by giving notice as provided
above.

     Section 17. MORTGAGEE PROTECTIONS.

     Section 17.1. ATTORNMENT. Tenant covenants
and agrees that, if by reason of a default upon
the part of the Landlord in the performance of any
of the terms and conditions of any mortgage, the
estate of Landlord thereunder is terminated by
summary disposition proceedings or otherwise,
Tenant will attorn to the then Facility Mortgagee
or the purchaser in such foreclosure proceedings,
as the case may be, and will recognize such
Facility Mortgagee or such purchaser as the
Landlord under this Lease; provided, however, that
the holder of such mortgage or the purchaser in
foreclosure proceedings agrees in writing not to
disturb Tenant's quiet enjoyment of the Premises
so long as Tenant is not in default hereunder
beyond applicable notice and cure periods. Tenant
covenants and agrees to execute and deliver, at
any time and from time to time, upon reasonable
request of Landlord or the holder of such mortgage
or the purchaser in foreclosure, any instrument
which may be necessary to evidence such
attornment.

     Section 17.2. CURE RIGHTS. Tenant shall have
the right to cure any default by Landlord in the
payment of any amounts due under any mortgage
secured by the Premises, provided that Tenant
shall not have the right to offset any such sums
against rent due later under the terms of this
Lease.

     Section 17.3. ESTOPPEL STATEMENTS. The
parties hereto shall, at any time and from time to
time upon not less than ten (10) days prior
written notice from the other party, execute,
acknowledge and deliver to such other party, in
form reasonably satisfactory to such other party
or to such other party's mortgagee, a written
statement certifying (if true) that this Lease is
unmodified and in fall force and effect (or if
there have been modifications stating the nature
thereof), that such other party is not in default
hereunder (or specifying the nature of any
default), the date to which rental and other
charges have been paid and such other information
as may be reasonably required by such other party.
It is intended that any such statement delivered
pursuant to this subsection may be relied upon by
any prospective purchaser or mortgagee of the
Premises and their respective successors and
assigns.

     Section 17.4. SUBORDINATION. This Lease
shall, at the request and option of the holder of
any Facility Mortgage, be subordinated to the lien
of any Facility Mortgage, so long as Landlord
shall provide Tenant at Landlord's expense with a
Non-Disturbance Agreement from Landlord's
mortgagee providing that Tenant's tenancy under
this Lease Agreement will not be disturbed so long
as Tenant is not in default under this Lease and
in the event of a default by Landlord and
foreclosure under the Facility Mortgage,
Landlord's mortgagee or any purchaser at a
foreclosure sale will take title to the Premises
subject to Tenant's rights under this Lease and
will not disturb Tenant's possession of the
Premises as long as Tenant is not then or
thereafter in default hereunder.
     
     
     
     
     
     27
     



     Section 17.5. RENT ASSIGNMENT. If from time
to time Landlord assigns this Lease or the rents
payable hereunder to any person or entity, whether
such assignment is conditional in nature or
otherwise, such assignment shall not be deemed an
assumption by the assignee of any obligations of
Landlord; but the assignee shall be responsible
only for non-performance of Landlord's obligations
which occur after it succeeds to and only while it
holds Landlord's interest in the Premises or is a
mortgagee in possession of the Premises.

     Section 17.6. NOTICE TO MORTGAGEE. No act or
failure to act on the part of Landlord which would
entitle Tenant under the terms of this Lease, or
by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result
in a release or termination of such obligations or
a termination of this Lease unless (i) Tenant
shall have first given written notice of
Landlord's act or failure to act to each of the
holders under any Facility Mortgage specifying the
act or failure to act on the part of Landlord
which could or would give basis to Tenant's
rights; and (ii) such mortgage holder, after
receipt of such notice, has failed or refused to
correct or cure the condition complained of within
a reasonable time thereafter; but nothing
contained in this Section shall be deemed to
impose any obligation on any such mortgage holder
to correct or cure any such condition. Tenant's
obligation to send a notice to Landlord's
mortgagee in the preceding sentence shall be
limited to mortgagees of which Landlord has
supplied Tenant with names and addresses.
"Reasonable time" as used above shall mean a
period of not less than thirty (30) days and shall
include (but not be limited to) a reasonable time
to obtain possession of the Premises if the
mortgagee elects to do so and a reasonable time to
correct or cure the condition if such condition is
determined to exist. The agreements in this Lease
with respect to the rights and powers of a
mortgagee constitute a continuing offer to any
such third party baneficiary which may be accepted
by taking a mortgage of the Premises.

     Section 18. LANDLORD INSPECTION. Landlord
may, enter upon the Premises during normal
business hours and upon prior reasonable notice
for the purpose of inspecting the same.

     Section 19. REPRESENTATIONS AND WARRANTIES.

     Section 19.1 TENANT'S REPRESENTATIONS AND
WARRANTIES. Tenant represents, warrants and
covenants to Landlord as follows:

     (a) Tenant is a corporation duly organized
and validly existing under the laws of the State
of Washington, is duly authorized to tfansact
business in the state of - Connecticut and is in
good standing under the laws of the state of
Washington.

     (b) Tenant has full right and power to enter
into, or perform its obligations under this Lease
and has taken all requisite action to authorize
the execution, delivery and performance of this
Lease.

     Section 19.2. LANDLORD'S REPRESENTATIONS AND
WARRANTIES. Landlord represents, warrants and
covenants to Tenant as follows:

     (a) Landlord is a limited partnership duly
organized and validly existing under the laws of
the State of Delaware.




28





     (b) Landlord has full right and power to
enter into this Lease and has taken all requisite
action to authorize the execution, delivery and
performance of this Lease and to carry out the
transactions contemplated herein.

     Section 20. FINANCIAL STATEMENTS. Tenant
shall furnish to Landlord, from time to time,
within a reasonable time after its demand, (a)
current financial statements of Tenant and (b)
current financial statements for the operations of
the Facility.

     Section 21. SURRENDER. Upon Lease
termination, Tenant shall quit and surrender the
Premises free and clear of all tenants, occupants,
liens, and encumbrances whatsoever except (i)
Permitted Exceptions and (ii) encumbrances
restrictions or reservations caused by or
consented to in writing by Landlord. Tenant shall,
subject to the provisions of Sections 10 and 11
hereof, surrender the Premises to Landlord broom
clean and in good order, condition and repair,
reasonable wear and tear excepted, with all
Tenant's signs, furniture, trade fixtures,
equipment and other personal property removed. Any
of Tenant's furniture, trade fixtures, equipment
or other personal property which is not removed
from the Premises by the termination date shall be
deemed abandoned to Landlord and Landlord may
dispose of the same as it sees fit, at Tenant's
expense. All alterations which Landlord has
designated in writing for removal by Tenant
pursuant to Section 6.2 shall be removed by Tenant
except that if having so designated an alteration
for removal, Landlord thereafter gives notice to
Tenant at least six (6) months before the
expiration of the Lease Term that Landlord would
be willing to let such alteration remain after the
expiration of the Lease Term, then Tenant may
elect whether to remove such alteration or leave
it as part of the Premises upon the expiration of
the Lease Term. Tenant shall repair any damage
caused by the removal of any alterations or any of
Tenant's furniture, trade fixtures, equipment or
other personal property and restore the building
or the surface of the Real Property, as the case
may be, to substantially the condition in which it
was prior to such removal.

     Section 22 MISCELLANEOUS.

     Section 22.1. CAPTIONS. The captions in this
Lease are for convenience of reference only. In no
way do those captions define, limit or describe
the scope or intent of this Lease;

     Section 22.2. INTERPRETATION. Words showing
number shall be taken to include both the singular
and the plural forms. Words showing gender shall
be taken to include masculine, feminine and
neuter.

     Section 22.3. SUCCESSORS AND ASSIGNS. Subject
to the restrictions on transfers set forth herein,
this Lease shall inure to the benefit of and be
binding upon Landlord and Tenant and their
respective successors and assigns. The definition
of "Landlord" and "Tenant" herein refer to the
Landlord and Tenant at the time in question.

     Section 22.4. GOVERNING LAW. This Lease shall
be governed, construed, and enforced in accordance
with the laws of the State of Connecticut.

     Section 22.5. ENTIRE AGREEMENT. This Lease
represents the entirety of the agreement among the
parties hereto and shall be deemed to supersede
any prior discussions or agreements among the
parties hereto. This Lease may not be amended or
modified except by written instrument signed by
the parties hereto.





29



     Section 22.6. WAIVER. The failure of either
party to insist upon strict performance of any of
the covenants, agreements, terms and conditions of
this Lease in any one or snore instances shall not
be construed as a waiver or relinquishment of any
such covenant, agreement, terms, or condition and
the same shall remain in full force and effect.

     Section 22.7. ATTORNEY'S FEES. In the event
either party brings an action to enforce any of
the terms hereof or in connection herewith, the
prevailing party in such action shall be entitled
to and the losing party agrees to pay the
reasonable attorneys' fees and expenses, including
attorneys' fees and expenses of appellate
proceedings, of the prevailing party.

     Section 22.8. MEMORANDUM. Landlord and Tenant
shall execute a Memorandum of this Lease in a form
acceptable to Landlord and Tenant. The Memorandum
shall be recorded in the public records of Rocky
Hill, Connecticut. Landlord and Tenant shall share
the cost of recording.

     Section 22.9. UNENFORCEABLE PROVISION. Each
term and provision of this Lease shall be enforced
to the fullest extent permitted by law. Should any
term or provision of this Lease, or the
application thereof, prove illegal or
unenforceable, the remainder of this Lease shall
still be valid and enforced.

     Section 22.10. BROKER. Landlord and Tenant
each represent to the other that there are no
claims for brokerage or other commissions or
finder's or other similar fees in connection with
the transactions contemplated by this Lease
insofar as such claims shall be based on
arrangements or agreements made by or on behalf of
the party so representing.

     Section 22.11. AMENDMENTS. Neither this Lease
nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an
instrument in writing signed by the parties hereto
and approved in writing by Landlord'sMortgagee if
required under the terms of the Facility Mortgage.

     Section 22.12. COUNTERPARTS. This Lease may
be executed in any number of counterparts, each of
which shall be deemed to be an original and all of
which together shall comprise but a single
instrument.

     Section 22.13. APPLYING PROVISIONS. No
provision of this Lease shall be construed against
or interpreted to the disadvantage of either
Landlord or Tenant by any court or other
governmental or judicial authority by reason of
such party's having or being deemed to have
structured, written, drafted or dictated such
provisions.

     Section 22.14. TIME OF ESSENCE. Time is of
the essence of this Lease.

     Section 22.15. RELATIONSHIP OF PARTIES.
Nothing in this Lease shall be construed to render
or constitute Landlord in any way or for any
purpose a partner, joint venturer or associate in
any relationship with Tenant other than that as
Landlord and Tenant, nor shall this Lease be
construed to authorize either party to act as
agent for the other party except as expressly
provided to the contrary in this Lease.

     Section 22.16. HOLDING OVER. If Tenant
occupies the Premises after the Lease expiration
date without having entered into a new lease of
the Premises with Landlord, Tenan. shall be a
tenant-at-sufferance only subject to all of the
terms and provisions of this Lease except that,
after a holdover of sixty (60) days after Lease



30



expiration, the Basic Rent shall be one hundred
fifty percent (150%) of the Basic Rent during the
last Lease Year. Such a holding over, even if with
the consent of Landlord, shall not constitute an
extension or renewal of this Lease.

     IN WITNESS WHEREOF, the parties hereby
execute this Lease Agreement on the day and year
first written above.

     LANDLORD:      LM ROCKY HILL ASSISTED LIVING
LIMITED
     
     PARTNERSHIP, a Delaware limited partnership
     
                    By: LMP Retirement Properties,
Inc.,

General Partner


By: /s/ John P. Sawyer, Jr.

- --------------------------------------

Its:  President
     
     TENANT:        EMERITUS CORPORATION,
                                                a
Washington corporation,
     
     f.k.a Assisted Living of America, Inc.


By: /s/ Raymond R. Brandstrom

- ---------------------------------------

Its:  President































31

EX-10.58.3

                                            LEASE
AGREEMENT

THIS AGREEMENT (the "Lease") is made and entered
into this 10th day of
October, 1996 by and between EMERITUS CORPORATION,
a Washington corporation ("Tenant"), and LM
CHELMSFORD ASSISTED LIVING, LLC, a Massachusetts
limited liability company ("Landlord").

     Section 1. THE PREMISES.
     
     Section 1.1. FACILITY. Landlord hereby
demises and leases to Tenant and Tenant hereby
leases and takes from Landlord, the real property
described in Exhibit A hereto (the "Real
Property"), together with those certain
improvements (the "Improvements") to be
constructed by Landlord thereon consisting of a
senior housing Facility with assisted living
services (the "Facility") as more particularly
described and provided for in the Construction
Work Letter attached hereto as Exhibit B and
incorporated herein by this reference (the "Work
Letter"), subject to those encumbrances and other
matters of record set forth on Exhibit C attached
hereto and incorporated herein by this reference
(the "Permitted Encumbrances"). The Real Property,
the Improvements and the Personal Property
(defined below) shall collectively constitute the
"Premises." Included within the Improvements is
the non-exclusive right to use that certain
Secondary Access Road as shown on Exhibit D-1
attached hereto which is located in part on the
Real Property and in part on the adjacent Lot 1
(as shown on Exhibit D) and which shall provide
vehicular access for emergency vehicles to and
from the Facility and Technology Drive (the
"Secondary Access Road"). Tenant's right to use
the Secondary Access Road shall be shared only
with those tenants and occupants of said Lot 1 as
described and deDned in Section 1.5.4 below.

     Section 1.2. PERSONAL PROPERTY. Landlord
hereby further demises and leases to Tenant, and
Tenant hereby leases and takes from Landlord, all
equipment, furniture, furnishings, and fixtures
which are to be installed as part of the
Improvements pursuant to the "Working Drawings and
Specifications" (as that term is defined in the
Work Letter) approved by Landlord and Tenant, as
provided for in the Work Letter, together with any
additional items added thereto from time to time
by written agreement between Landlord and Tenant
(such equipment, furniture, furnishings and
fixtures, together with all additions thereto or
replacements thereof will hereinafter be referred
to as the "Personal Property"). If any equipment,
in addition to the Personal Property, is necessary
or convenient to operate the Facility, all such
additional equipment shall be acquired by and at
the cost of Tenant and the same shall be and
remain the Property of Tenant in accordance with
the terms of Section 1.2.1 below.

     Section 1.2. 1. Tenant shall keep all of the
Personal Property in good working order and
condition at Tenant's sole cost and expense, and
at the expiration or termination of the Lease Term
(as deOned below) shall return and deliver all of
such Property to Landlord in good working order
and condition, reasonable wear and tear excepted.
If necessary for the proper operation of the
Facility, Tenant shall, during the Lease Term,
replace part or all of the items of Personal
Property which have been damaged or destroyed or
become worn out or obsolete, and such replacement
shall be at the sole cost of Tenant, but any such
equipment which has been acquired for the purpose
of replacing Personal Property previously provided
by Landlord shall be and remain the property of
Landlord. Tenant may place additional property on
the Premises (not required for replacement of
property covered in this Lease), and the same
shall be and remain the Property of Tenant
("Tenant's Equipment").

     Section 1.2.2. Landlord agrees upon request
of Tenant to subordinate any statutory or
Landlord's lien that Landlord may have to any
security interest granted by the Tenant to secure
a purchase money obligation or an acquisition
lease of any of Tenant's Equipment acquired by
Tenant pursuant to Section 1.2.1.

     Section l.3. INTENTIONALLY OMITED.

     Section 1.4. INTENTIONALLY OMITTED.







     Section 1.5. Future Development.

     Section 1.5.1. Tenant hereby acknowledges
tbat an affiliate of Landlord intends (but shall
not be obligated) to further develop land adjacent
to the Real Property identified on Exhibit D
attached hereto as "Lot 3" (the "Adjacent Land")
by constructing thereon one or more buildings
together with associated parking areas, driveways,
utility installations and other related
improvements (the "Future Development"). Tenant
agrees to cooperate with ndlord's affiliate in
connection with any such Future Development by
providing any necessary temporary construction
easements, provided that said easements do not
interfere with the construction of the
Improvements, unreasonably interfere with the
operation of Tenant's business from the Premises,
reduce the available parking for the Facility,
obstruct Tenant's access to the Facility and/or
interfere with the quiet enjoyment of Tenant's
residents. Landlord covenants and agrees that any
such Future Development shall (i) be of the same
or better quality of construction as the
Improvements constructed hereunder, (ii) consist
of an architectural style and appearance which
would be compatible and aesthetically consistent
with the appearance of the Improvements
constructed hereunder, (iii) not result in any
relocation or decrease in the parking facilities
constructed hereunder for the Improvements, all of
which parking hereunder shall remain for the
exclusive use of the Facility, (iv) not result in
any additional cost or expense to Tenant, and (v)
not create or result in, any noncompliance of the
Facility or associated improvements with any
statutes, codes, regulations, ordinances, or
orders of any agencies which regulate or are
responsible for approving or accrediting senior
housing with assisted living services (and
assisted Ihing specifically) or which may be at
any time applicable to any portion of the Premises
or any use thereof. T qndlord agrees that its
affiliate shall not deliver a substantially
completed Future Development to the occupant
thereof within one year of the Rent Commencement
Date hereunder, nor permit any marketing of said
Future Development facility within said one year
period. Any failure by the owner and/or operator
of the Adjacent Land to comply with the provisions
of Sections 1.5.1 and 1.5.2 (it being the
responsibility of the Landlord to notify any such
owner and operator of the same) shall be deemed a
default by Landlord hereunder.

     Section 1.5.2. Tenant shall, at no time, have
any responsibility whatsoever with respect to the
maintenance of the Adjacent Land. Until such time
as the Adjacent Land has been improved with the
Future Development, Landlord covenants and agrees,
at Landlord's sole cost and expense, to perform
routine weed abatement and trash removal as
necessary to keep and maintain the Adjacent Land
in a clean and sightly condition. In connection
with Landlord's design and construction of the
Future Development, Landlord shall cause the
Future Development to be professionally landscaped
consistent with the quality of landscaping
installed for the improvements hereunder. Upon
completion of the Future Development, Landlord
shall cause its aff'liate to keep and maintain or
shall cause the occupant of the Future Development
or any successor to Landlord's affiliate's
interest therein, to keep and maintain, all such
landscaping installed at the Adjacent Land in a
good and sightly condition. Any failure by the
owner and/or operator of the Adjacent Land to
comply with the provisions of Sections 1.5.1 and
1.5.2 (it being the responsibility of the Landlord
to notify any such owner and operator of the same)
shall be deemed a default by Landlord hereunder.

     Section 1.5.3. As an alternative to Sections
1.5.1 and 1.5.2 hereof, at Landlord's election,
but in any event upon the sale of the Adjacent
Land, Landlord shall cause its aff'liate to record
in the coungr recorder's offce, prior to said
sale, restrictive covenants consistent with the
provisions of Sections 1.5.1 and 1.5.2 and in form
and substance reasonably approved by Tenant. Upon
the recording of such restrictive covenants, as
reasonably approved by Tenant, Sections 1.5.1 and
1.5.2 shall be of no further force or effect and
shall be automatically deemed deleted from this
Lease.

     Sectior1 1.5.4. Tenant hereby acknowledges
that Landlord reserves the right to grant to any
owner or occupant of Lot 1 (as shown on Exhibit D)
a non-exclusive easement over the Secondary Access
Road shown on Exibit D-1 attached hereto
permitting the owner or occupant of Lot 1 to use
such Secondary Access Road for emergency vehicles
and for delivery vehicles, provided that the
owner/occupant of Lot 1 shall be responsible for
marntenance of the Secondary Access Road,
including the portion located on the Real Property
and that the owner of Lot 1 grants for the benefit
of Lot 2 non-exclusive easement rights to use the
portion of such Secondary Access Road located on
Lot 1 for emergency vehicles. The terms of such
easement shall be subject to the reasonable
approval of Tenant.

2


     Section 1.5.5. Tenant hereby acknowledges
that Landlord reserves the right, but only in the
event that Lot 4 has not been provided with access
to a public road approved by the Chelmsford
Planning Board, to grant to any owner or occupant
of Lot 4, as shown on Exhibit D, the non-exclusive
right of access over the driveway serving the
Premises as shown on Exhibit D-1 as well as the
right to extend such driveway to Lot 4 as shown on
Exhibit D (at no expense to Tenant), provided that
such easement imposes on the grantee the
obligation to share in maintenance costs of the
shared driveway located on the Premises on a pro
rata basis based on the number of units
constructed on Lot 4 in relation to the total
number of units constructed, in the aggregate, on
the Premises and Lot 4. The terms of such easement
shall be subject to the reasonable approval of
Tenant.

     Section 2. TERM.

     Section 2.1. INITIA1 LEASE TERM. Subject to
the provisions of Section 2.1.1, the term of this
Lease shall commence on the date of execution as
first set forth above (the "Commencement Date")
and shall continue for a period of twenty (20)
years following the "Rent Commencement Date" (as
that term is defined below), subject to (i) the
right of Tenant to extend the term as provided for
in Section 2. 1.1 below and (ii) any earlier
termination by either party, as permitted herein
(the "Initial Lease Term"). Notwithstanding the
foregoing, in the event the Lease Term expires on
any day other than the last day of a calendar
month, the Lease Term shall be automatically
extended by the number of days necessary to cause
the Lease Term to expire on the last day of the
month.

     Section 2.1,.1. Tenant shall have the right
to renew this Lease beyond the Initial Lease Term
for two (2) successive ten (10) year renewal terms
(the "Renewal Terms" and together with the Initial
Lease Term, the "Lease Term") by giving notice of
the exercise of its renewal option at least
fifteen (15) months prior to the expiration of the
Initial Lease Term with respect to the exercise of
the first such renewal option, and at least
fffteen (15) months prior to the expiration of the
ffrst Renewal Term with respect to the exercise of
the second renewal option. In the event Tenant is
in default on the date of the giving of notice of
its intent to renew the Lease, the notice shall be
ineffective; in the event Tenant is in default on
the date the applicable Renewal Term is to
commence, then the Renewal Term shall not commence
and this Lease shall expire as of the end of the
Initial Lease Term or the applicable Renewal Term.
Tenant shall have no right to renew this Lease
beyond the expiration of the final Renewal Term.
During each Renewal Term all of the terms and
conditions of this Lease shall continue to apply,
except that there shall be an adjustment to the
amount of Basic Rent as provided for in Section
3.4 below.

     Section 2.2 RIGHT TO TERMINATE. Landlord
acknowledges and understands that it is Tenant's
intent that this Lease comply with Rule 13 of the
Financial Accounting Standards Board ("FASB 13")
in order to permit Tenant, for accounting
purposes, to treat this Lease as an operating
lease; except as explicitly provided in this
Section 2.2, Tenant's intent to comply with FASB
13 shall not affect any of the rights or
obligations of Landlord and Tenant as set forth in
this Lease. For that purpose, Landlord hereby
agrees that, notwithstanding anything to the
contrary contained herein, Tenant may elect to
terminate this Lease effective as of the
expiration of the sixteenth (16th) Lease Year of
the Term by giving Landlord written notice of its
election not later than the expiration of the
ninth (9th) Lease Year of the Term (the
"Termination Notice"). Tenant shall not, however,
have the right to terminate this Lease if Tenant
shall be in default hereunder either at the time
of delivery of the Termination Notice or as of the
effective date of termination. If Tenant fails for
any reason to deliver the Termination Notice by
the expiration of the ninth (9th) Lease Year,
Tenant's right to so terminate this Lease shall
not have expired or be deemed to have been waived
until such time as (i) Landlord not)fies Tenant in
writing that the date for the delivery of the
Termination Notice is past due (the "Reminder
Notice") and (ii) Tenant shall have failed, within
thirty (30) days following Tenant's receipt of the
Reminder Notice, to have delivered to Landlord the
Termination Notice. In the event Tenant exercises
its right to terminate this Lease pursuant to the
foregoing, Landlord shall have the right,
exercisable by written notice to Tenant, to select
an effective termination date earlier than the
expiration of the sixteenth (16th) Lease Year (the
"Early Termination Effective Date'), provided that
the Early Termination Effective Date shall not be
earlier than the date one hundred twenty (120)
days following the date Tenant receives Landlord's
written notice designating said Early



3


Termination Effective Date. The parties further
acknowledge that this Lease is being entered into
in conjunction with those certain three (3) other
Lease Agreements, one of which relates to a parcel
of real property located in Rocky Hill,
Connecticut and is by and between Tenant and LM
Rocky Hill Assisted Living Limited Partnership, a
Delaware limited partnership (the "Rocky Hill
Lease") one of which relates to a parcel of real
property located in Auburn, Massachusetts and is
by and between Tenant and LM Auburn Assisted
Living LLC, a Massachusetts limited liabiliq
company (the "Auburn Lease"), and the third of
which relates to a parcel of real property located
in Louisville, Kentucky and is by and between
Tenant and LM Louisville Assisted Living LLC, a
Delaware limited liability company (the
"Louisville Lease"). The Rocky Hill Lease, Auburn
Lease and the Louisville Lease each include a
provision comparable to this Section 2.2 which
- -permits Tenant to terminate each such lease
early. The exercise by Tenant of its right to
terminate any of the Rocky Hill Lease, Auburn
Lease and/or the Louisville Lease pursuant to any
such comparable provision thereof shall also be
deemed an election by Tenant to terminate the Term
of this Lease pursuant to the terms of this
Section 2.2 regardless of whether or not Tenant
has delivered the Termination Notice hereunder and
a termination of this Lease pursuant to this
Section 2.2 shall operate to terminate each of the
Rocky Hill Lease, Auburn Lease and the Louisville
Lease

     Section 3.  RENT

     Section 3.1. BASIC RENT. During the Initial
Lease Term, the annual rent due hereunder (the
"Basic Rent") shall be determined according to the
following formula:

                                    Basic Rent =
TPC x CR x DC

     "TPC" means the "Total Project Cost" as that
term is defined in the Work Letter which amount is
$6,900,000.

     "CR" means a coverage ratio of 1.20.

     "DC" means a debt constant equal to the
greater of (a) 9.64% and (b) Landlord's costof
funds calculated at the time Landlord secures a
commitment for permanent financing which meets the
following criteria: (i) interest shall be at a
fixed rate, (ii) the loan shall be non-recourse to
Landlord, subject to customary exceptions (e.g.
recourse for environmental liability and
violations of the American Disabilities Act),
(iii) the term of the loan shall be for 10 years,
(iv) the loan shall be amortized over a term of 22
years, (v) the principal amount of the loan shall
be not more than one hundred percent (100%) of the
Total Project Cost. Landlord shall keep Tenant
apprised with respect to its efforts to secure
permanent financing and Tenant may participate in
the process of obtaining such financing.

     The parties hereto agree that when all the
components of the above formula are known, the
parties hereto shall execute a written memorandum
setting forth the Basic Rent.

     Section 3.1.1. The obligation to pay the
Basic Rent and Additional Rent shall commence on
the earlier of (i) the date of Substantial
Completion or (ii) the date upon which Tenant
moves into the Facility and commences to occupy
the Premises (other than for the purpose of
constructing any tenant improvements) (the "Rent
Commencement Date"). Basic Rent shall be paid in
advance in equal monthly installments on the tenth
day of each month; provided, however, that the
first monthly payment shall be due on the tenth
day after the Substantial Completion, For purposes
of this Lease, a Lease Year shall be the twelve
(12) month period commencing on the date of
Substantial Completion. In the event the date of
Substantial Completion shall be other than the
first day of the month, Tenant shall pay to
Landlord a pro rata portion of rent for the month.

     Section 3.1.2. Notwithstanding any other
provisions of this Lease Agreement to the
contrary, from and after the Rent Commencement
Date until the Maturity Date of Landlord's
construction loan, to the extent that Tenant's Net
Operating Income from the Facility is less than
the monthly Basic Rent owed to Landlord (the
difference being the "Net Operating Deficiency"),
after Tenant demonstrates in writting to
Landlord's reasonable satisfaction that Tenant has
used $250,000 of Tenant's own funds to make up



4


operating deficits, Tenant shall have the right to
pay to Landlord in full satisfaction of its
monthly Basic Rent obligation (subject to the
provisions of this Section 3.1.2), its monthly Net
Operating Income from the Facility for the prior
month and Landlord may draw down the balance of
its monthly Basic Rent from "Rent up Reserve
Funds" (as hereinafter defined). The "Rent-up
Reserve Funds" shall mean the amount of Two
Hundred Fifty Thousand Dollars ($250,000), set
aside by Landlord's constrution lender for such
purpose and funded on a monthly basis upon
requisitions by Landlord with proceeds from
Landlord's construction loan. Tenant's right
pursuant to this Section 3.1.2 to pay less than
the full monthly Basic Rent then due (a) shall be
contingent upon Landlord's construction lender's
actual funding of the Rent-up Reserve Funds and
the continued availability thereof based on the
construction lender's requirements and conditions
set forth in the pertinent loan documents and (b)
shall automadcally terminate upon the depletion of
the Rent-up Reserve Funds or if for any other
reason any or all of such Rentup Reserve Funds
become unavailable to Landlord. If in any month,
Tenant has paid its monthly Net Operating Income
from the previous month but Landlord is unable to
draw the remaining Basic Rent due from the Rent-up
Reserve Funds, then Tenant shall pay to Landlord
such remaining Basic Rent due within five (5) days
of written notice from Landlord. If such Rent-up
Reserve Funds become unavailable to Landlord as a
result of a default in its construction loan,
which default is not caused by the default of
Tenant hereunder, then Basic Rent shall be
adjusted prospectively (i.e., from the date such
funds become unavailable due to such Landlord
default) (but not retroactively) by reducing Total
Project Cost by such portion (or all) of the
$250,000 Rent-up Resene Funds as are not available
to Tenant. If the Rent-up Reserve Funds are
temporarily unavailable due to a Landlord default,
but such funds become available again due to
Landlord's cure, then Basic Rent shall not be
adjusted. In the event that, during the term of
Landlord's consttuction loan, Net Operating Income
is equal to or greater than the monthly Basic Rent
so that there is no longer a monthly Net Operating
Deficiency, prior to the full disbursement of the
Rent-up Reserve Funds, then Tenant may direct
Landlord to, and upon receipt of said direction
from Tenant Landlord shall draw down any unfunded
amount of the Rent-up Reserve Funds to reimburse
Tenant for amounts expended by it for Operating
deficits prior to its exercise of rights under
this Section 3.1.2. In the event that Tenant
elects not to draw down the full $250,000 Rent-up
Reserve Funds, then Tenant shall so notify
Landlord and Total Project Cost shall be reduced
by the amount which Tenant elects not to draw down
and Basic Rent shall be adjusted prospectively
(but not retroactively), provided that once Tenant
has so modfied Landlord, it may not thereafter
have the benefit of this Section 3.1.2. In any
month where the Tenant exercises its rights under
this Section 3.1.2,its payment of its monthly Net
Operating Income from the previous month shall be
accompanied by an accounting of income and
expenses for such previous month, certified by the
President of Tenant as true and correct and
calculated in compliance with generally accepted
accounting principles, consistently applied. For
purposes of this Section, "Net Operating Income"
shall mean Tenant's net income from continuing
operations at the Facility before debt service
(which net income shall not include depreciation,
amortization, non cash expenses, or any
extraordinary or non-recurring items of income or
loss).

     Section 3.2. PAYMENT OF BASIC RENT. Except as
specifically provided for herein, the Basic Rent
shall be payable without offset, abatement or
other deduction to Landlord at the address set
forth in Section 16, or to such other person, fum
or corporation at such other address as Landlord
may designate by notice in wridag to Tenant.

     Section 3.2.1. This Lease is intended to be
triple net to Landlord, and Tenant shall pay to
Landlord, net throughout the Inidal Lease Term and
any Renewal Term, the Basic Rent prescribed by
Section 3.1. free of any offset, abatement, or
other deduction, except as may be expressly set
forth herein. Except as may otherwise be expressly
set forth herein, Landlord shall not be required
to make any payment of any kind with respect to
the Premises and Tenant agrees to pay as they
become due and payable all costs, expenses, and
obligations of every kind relating to the Premises
whether usual or unusual, ordinary or
extraordinary, foreseen or unforeseen, which may
arise or become due following the Rent
Commencement Date (the "Additional Rent"). (Basic
Rent and Additional Rent are somedmes referred to
collecdvely


5





herein as "Rent"). Notwithstanding the foregoing,
Landlord shall be responsible for making all
payments due with respect to any mortgage or deed
of trust secured by the Premises (the "Facility
Mortgage"), and all income taxes assessed against
Landlord, and all estate, succession or
inheritance taxes of Landlord.

     Section 3.2.2. This Lease shall continue in
full force and effect, and the obligations of
Tenant hereunder shall not be released, discharged
or otherwise affected except as specifically set
forth in (i) Section l0, regarding damage to or
destruction of the Premises or any part thereof,
(ii) Section 11, regarding the taking of the
Premises or any part thereof by condemnation,
requisition or otherwise for any reason, and (iii)
such other provisions of this Lease which
expressly provide for any abatement or termination
rights granted in favor of Tenant.

     Section .3.2.3. If any payment of any sums
required to be paid by Tenant to Landlord under
this Lease and payments made by Landlord under any
provision hereof for which Landlord is entitled to
reimbursement by Tenant is not paid when due or
within ten (10) days after written notice of
nonpayment from Landlord, interest shall be due at
the "Prime Rate" plus two percent (2%) per annum,
to Landlord from the original date due until
actually paid. No failure by Landlord to insist
upon the strict performance by Tenant of Tenant's
obligation to pay interest or late charges shall
conshtute a waiver by Landlord of its rights to
enforce the provisions of this Section in any
instance thereafter occurring.

     Section, 3.3. RENT INCREASES. Effective as of
the expiration of each sixty (60) month period
during the Term commencing from the Rent
Commencement Date, the Basic Rent shall be
adjusted upward by an amount equal to the greater
of (0 one-half of the increase in the Consumer
Price Index (as that term is defined below)
determined in the manner provided for below, and
(ii) ten percent (10%) of the Basic Rent payable
by Tenant hereunder as of the date immediately
preceding the effecdve date of the rent
adjustment; provided, however, in no event shall
the Basic Rent be increased on any adjustment date
by more than fifteen percent (15%) of the Basic
Rent in effect as of the date immediately
preceding the effective date of adjustment.

     As used herein the term "Consumer Price
Increase" shall mean the United States Department
of Labor, Bureau of Labor Stadshcs Consumer Price
Index, All Urban Consumers, All Items, for
Northeast Urban (1982-1984=100). If at any time
there shall not exist the Consumer Price Index in
the same format as recited in this Section 3.3,
Landlord shall substitute any official index
published by the Bureau of Labor Statistics or
successor or similar governmental agency, as may
then be in existence and shall be most equivalent
thereto. The increase in the Consumer Price Index
shall be determined by according to the percentage
increase, if any, between the index published and
in effect ninety (90) days preceding the
adjustment date and the index published and in
effect ninety (90) days preceding the Rent
Commencement Date.

     Section 3.4. RENT DURING THE RENEWAL TERMS.
As of the commencement of each Renewal Term the
Basic Rent shall be adjusted to equal the greater
of (a) the Basic Rent payable during the last
Lease Year prior to the Renewal Term or (b) the
then prevailing Fair Market Rental (as defined
below) for the Premises. As used herein, the term
"Fair Market Rental" for the Premises shall mean
the rental that Landlord could obtain from a third
party desiring to lease the Premises for the
Renewal Term and shall be based on the Premises in
its "as is" condition, provided that the Facility
has been maintained in accordance with the terms
of this Lease. Landlord shall send to Tenant,
within fifteen (15) days following Landlord's
receipt of Tenant's notice exercising the renewal
option, written notice setting forth Landlord's
determination of the Fair Market Rental for the
Renewal Term. If Tenant objects to Landlord's
determination of the Fair Market Rental for the
Premises, Tenant shall notify Lessor within
fifteen (15) days of Tenant's receipt of T
qndlord's notice. If Tenant fails to notify
Landlord within said fifteen (15) day period,
Tenant shall be deemed to have approved Landlord's
determination of the Fair Market Rental.






6



     If Tenant objects to Landlord's
determination, Landlord and Tenant shall each
appoint its own qualified MAI appraiser, with
nationally recognized credentials in the field of
senior housing with assisted living services, with
substantial experience in senior housing with
assisted living services, to appraise the Premises
within forty-five (45) days of Tenant's objection
(the "Landlord's Appraisal" and "Tenant's
Appraisal") for the purpose of determining the
Fair Market Rental. If either party fails to
employ and pay an MAI appraiser to determine the
Fair Market Rental and/or fails to submit its
appraisal to the other within said forty-five (45)
days together with a written sumtnary of the
methods used and the data collected, the remaining
party's appraisal shall be accepted as the Fair
Market Rental. If Landlord's Appraisal and
Tenant's Appraisal differ by (i) less than ten
percent (10%), the average of the two shall be the
Fair Market Rental for the Premises, or (ii) more
than ten percent (10%), Landlord and Tenant shall
promptly instruct its respecdve appraiser to
jointly appoint a third MAI appraiser with similar
credentials and experience, who shall within
fifteen (15) days of his selection select the one
of the two appraisals which most accurately
defines Fair Market Rental. The third appraiser
shall not have the power to amend, modify,
compromise, or average the first two appraisals. I
qndlord and Tenant shall each pay the cost of its
own appraiser and one-half (1/2) of the cost of
the third appraiser. In the event the Basic Rent
for the Renewal Term is determined by the
appraisal procedure described above, Tenant shall
have the right to terminate Tenant's exercise of
the renewal ophon by written notice delivered to
Landlord delivered at any time within twenty (20)
days following Tenant's receipt of written notice
regarding the third appraiser's Fair Market Rental
determination. Time is of the essence for all of
the dme periods set forth in this Section.

     Section 3.5. TAXES.

     Section 3.5.1. Tenant shall pay directly to
the applicable taxing authority, by the applicable
due date, all "Taxes" (as that term is defined
below) for each ffscal period wholly included in
the Lease Term (and a prorated amount thereof for
partial years occurring during the first and last
Lease Years of the Lease Term) assessed with
respect to the Premises, which payments shall be
deemed additional rent hereunder, in addition to
the basic rent hereinbefore set forth.

     Any interest or penalties which accrue as a
result of Tenant's failure to make such payment
within the time required by this Article 3 shall
be the sole responsibility and obligation of
Tenant. In the event Landlord receives any bill
for Taxes with respect to the Premises, Landlord
shall promptly deliver to Tenant a copy of the
same. "Taxes" shall mean all real estate taxes,
general and special assessments, personal property
taxes, license fees and other public charges which
are assessed, levied, confirmed, or imposed upon
the Premises or imposed upon the operation of
Tenant's business during the Lease Term, and all
sales taxes and other taxes that are now or
hereafter may be payable in connection with the
Basic Rent payable hereunder during the Initial
Lease Term and any Renewal Terms (other than
income taxes owing by Landlord as a result of
Tenant's payment of Basic Rent hereunder and
principal and interest payments owing to
Landlord's Mortgagee).

     Section 3.5.2. Any taxes and assessments
relating to a fiscal period of any authoriq, a
part of which is already included within the
Inidal Lease Term or any Renewal Term and a part
of which is included in a period of dme before or
after the Inidal Lease Term or any Renewal Term,
shall be adjusted pro rata between Landlord and
Tenant and each parq shall be responsible for its
pro rata share of any such taxes and assessments.

     Section 3.5.3. Nothing herein shall require
Tenant to pay income taxes assessed against
Landlord, or estate, succession or inheritance
taxes of Landlord.

     Section 3.5.4. Tenant may contest, in is own
name or in the name of Landlord, with Landlord's
cooperation, which Landlord agrees to give, the
legality or validty of any such tax or assessment
or of any law under which the same shall be
imposed. This must be done in good faith, with due
diligence, and at Tenant's own expense. If Tenant
does so contest such tax or assessment beyond the
time limit for payment thereof by Tenant, Tenant
shall either pay such amount under protest or
procure and maintain a stay of all proceedings
with adequate bond to enforce collection of such
tax or assessment. Once


7



such action is taken by Tenant, Tenant shall not
be considered to be in default hereunder with
respect thereto. Notwithstanding anything to the
contrary, Tenant shall not exercise its contest
rights in contravention of any of the terms and
conditions of any Facility Mortgage. Landlord
shall also have the right, at Landlord's sole cost
and expense, to contest in good faith and with due
diligence any assessment with respect to the Real
Property.

     Section 3.5.5. Tenant shall have, and
Landlord hereby irrevocably grants to Tenant, the
power and authoriq, at Tenant's cost to make and
file and prosecute any statement or report or
claim for refund which may be required or
permitted by law, as the basis of or in connection
with the assessment, determination, equalization,
reduction or payment of any and every tax or
assessment or license or charge which Tenant is
required to pay or discharge hereunder.

     Section 3.5.6. Landlord shall not be required
to join in any proceedings referred to in this
Section, unless the provisions of any law, rule or
regulation at the time in effect shall require
that such proceedings be brought by and/or in the
name of Landlord, in which event Landlord shall
join in such proceedings or permit the same to be
brought in its name. Landlord shall not ultimately
be subjected to any liability for the payment of
any costs or expenses in connection with any such
proceedings, and Tenant will indemnify, defend and
save harmless Landlord from any such costs and
expenses. Tenant shall be entitled to any refund
of any taxes and assessments and penaldes or
interest thereon received by Landlord but
previously paid or reimbursed in full by Tenant.

     Section 3.5.7. Upon the termination of any
such proceeding, Tenant shall pay the amount of
such taxes and assessments or part thereof as
fnally determined in such proceedings, the payment
of which may have been deferred during the
prosecution of such proceedings, together with any
costs, fees, interest, penaldes or other
liabilities in connection therewith.

     Section 3.5.8. Notwithstanding any other
provision of Section 3.5 to the contrary, in the
event that any Facility Mortgagee requires the
monthly escrow of eshmated Taxes, then Landlord
may so nodfy Tenant and Tenant shall cause such'
monthly payments to be made in to an impound
account as directed by said Facility Mortgagee or
Landlord, provided that all interest accruing on
funds deposited in to said account shall accrue
for the benefit of Tenant.

     Section 4. Use of the Premises/Compliance
With Laws.

     Section 4.1. Permitted Uses. The Premises may
be used only for senior housing with assisted
living services and for no other purpose. Tenant
agrees that such use shall not change, for the
term of Landlord's construction loan and for the
term of any permanent loan, unless such change is
approved by the applicable Facility Mortgagee. The
approval of a Facility Mortgagee shall not be
unreasonably withheld, provided that, in
considering a request for a change in use, the
Facility Mortgagee may consider the market
feasibility of any proposed use, the existence of
compedog projects, the demand for assisted living
housing, the operadng history of the Facility and
similar criteria. Tenant assumes full
responsibility for confirming that such use is
permitted under all laws, statutes, ordinances,
regulations, and orders governing the Real
Property and for obtaining any certificate of
need, license or other authorization required to
operate such use and/or to provide assisted living
services within the Facility (provided that it
shall be Landlord's obligation to obtain the
necessary building permit and certificate of
occupancy for the Improvements and for assuring
that the Improvements constructed by Landlord
comply with all applicable laws, statutes,
ordinances, rules, regulations, orders,
restrictions and other governmental requirements
of any governmental enddes and divisions having
regulatory authority over Tenant and the
Improvements by virtue of the health care business
conducted by Tenant). Landlord makes no
representation or warranty as to the compliance of
such use under any such laws, statutes,
ordinances, regulations, and orders governing the
Real Property and/or insurance requirements. Any
failure by Tenant to obtain or maintain any
required authorization or approval (other than by
reason of Landlord's failure to cause the
Improvements to be constructed so as to comply
with the licensure/approval requirements as
required of Landlord herein) shall not affect
Tenant's obligation to pay Rent or any other
obligation hereunder.


8



     Section 4.2. OPERATING APPROVALS. Tenant
covenants upon execution of this Lease to proceed
with all due diligence to comply with all
not)fication and reporting requirements imposed on
an operator or proposed operator of an assisted
living residence and to use its best efforts to
obtain within thirty (30) days after the
Substantial Completion date the necessary
certification for the operation of the Facility as
an assisted living residence under applicable
state and federal law and shall maintain the same
in full force and effect throughout the Lease
Term.  Landlord agrees to assist Tenant as
reasonably necessary to obtain said certification
at Tenant's expense. In addition, in the event
that any certification or license held by Tenant
lapses, expires or is canceled, revoked or
suspended, then Tenant shall immediately notify
Landlord. Notwithstanding the foregoing, Landlord
acknowledges and understands that the Executive
Off'ce of Elder Affairs for the Commonwealth of
Massachusetts has only recently enacted
regulations governing the certification of
assisted living residences and that said
regulations have not been in place long enough so
as to permit the executive off'ce of Elder Affairs
to establish definidve procedures for the
implementation of said regulations. Accordingly,
in the event Tenant is unable, despite its best
efforts, to obtain said certification within said
thirty (30) day period, Tenant shall not be deemed
in default hereunder, provided that Tenant is
proceeding with all necessary due diligence and is
condnuing to exercise its best efforts, to obtain
said cardfication from the Executive Office of
Elder Affairs as soon as possible.

     Section 4.3. COMPLIANCE WITH INSURANCE. After
the Commencement Date, Tenant shall neither use
nor permit to be used the Premises, or any part
thereof for any purpose which will cause the
cancellation of any insurance policy covering the
Premises or any part thereof, nor shall Tenant
sell or permit to be kept, used or sold in or
about the Premises any ardcle which may be
prohibited by the standard form of fire insurance
policies. Tenant shall, at its sole cost, comply
with all of the requirements pertaining to the
Premises of any insurance organization or company
necessary for the maintenance of insurance, as
herein provided, covering the Premises or the
Tenant.

     Section 4.4. WASTE/COMPLIANCE WITH LAWS.
Tenant covenants and agrees that the Premises
shall not be used for any unlawful purpose. Tenant
shall not commit or suffer to be committed any
waste on the Premises, nor shall Tenant cause or
permit any nuisance thereon. Tenant further
covenants and agrees that Tenant's use of the
Premises and maintenance, alteration, and
operation thereof shall at all times conform to
all applicable and lawful local, state, and
federal laws, ordinances, and regulations,
including orders of agencies which regulate or are
responsible for accredidng senior housing with
assisted living services. Tenant shall make such
alterations to the Premises (whether capital or
non-capital in nature) as may become necessary
after the Rent Commencement Date to maintain the
Premises in compliance with applicable laws. If a
change in law requires alterations of a capital
nature during the last three (3) years of the
Term, then Tenant shall pay the cost thereof but
may amortize same over its useful life under
generally accepted accounting principles and, upon
Lease termination, Landlord shall reimburse Tenant
for that portion of the cost attributable to the
remaining useful life, unless such alteration
would be of no benefit to Landlord at the end of
the Term due to Landlord's use of the facility for
a use other than senior housing (in which case the
entire cost of the alteration shall be borne by
Tenant). Tenant may, however, contest the legality
or applicability of any such legal requirements.
This must be done in good faith, with due
diligence, without prejudice to Landlord's rights
hereunder, and at Tenant's own expense. While such
a contest is pending Tenant shall not be
considered in default under this Section 4 4.
Notwithstanding anything to the contrary, Tenant
shall not exercise its rights to contest under
this Section in contravention of the terms and
conditions of any mortgage which may be secured by
the Facility.

     Section 4.5. SURVEYS AND INSPECTIONS. Upon
written request, Tenant shall deliver to Landlord
a copy of the results of all surveys,
investigations and inspections of the Facility and
its operation performed by state or federal
authorities.








9



     Section 4.6. EVIRONMENTAL COMPLIANCE.

     Section 4.6.1. Tenant shall use the Premises
in compliance with all applicable Environmental
Laws (as defined below). Tenant shall not
generate, store or use any Hazardous Materials in
or on the Premises, nor permit any Person to do so
on the Premises, except those customarily
generated, stored and used in the operation of a
senior housing facility with assisted living
services, and then only in compliance with all
Environmental Laws (as defined below), insurance
requirements and applicable industry standards.
Tenant shall not dispose of Hazardous Materials on
the Premises (or permit any person to do so) to
any other location except a properly licensed
disposal facility and then only in compliance with
all applicable Environmental Laws. Tenant shall,
at its sole cost and expense, promptly remove or
clean up any hazardous substances introduced onto
the Premises by Tenant or with its permission or
at its sufferance. Such removal or cleanup shall
be in compliance with all applicable Environmental
Laws. Tenant hereby agrees to indemnify and hold
Landlord and any Facility Mortgagee harmless and
agrees to defend Landlord and any Facility
Mortgagee from all losses, damages, claims and
liabilities and fines, including costs and
reasonable attorneys' fees, of any nature
whatsoever in connection with the actual presence
of any hazardous substances upon the Premises or
off-site, but only to the extent introduced by
Tenant. For purposes hereof, the term
"Environmental Laws" shall mean any and all
applicable governmental laws, regulations and
requirements relating to environmental and
occupational health and safety matters and
hazardous materials, substances or wastes (as
defined from time to time under any applicable
federal, state or local laws, regulations or
ordinances). The provisions of this Section 4.6
shall survive the expiration or earlier
termination of this Lease. Landlord shall have the
right to enter the Premises to perform an
environmental site assessment at any time upon
prior written notice to Tenant as long as such
environmental site assessment does not
unreasonably interfere with Tenant's operation of
the facility and Landlord pays the cost thereof.

     Section 4.6.2. HAZARDOUS MATERIALS. The term
"hazardous materials" shall mean any chemical,
substance, waste, material, gas or emission which
is deemed hazardous, toxic, a pollutant, or a
contaminant under any statute, ordinance, by-law,
rule, regulation, executive order or other
administrative order, judgement, decree,
injunction or other judicial order of or by any
governmental authority, now or hereafter in
effect, relating to pollution or protection of
human health or the environment. By way of
illustration and not limitation, "Hazardous
Materials" includes asbestos, radioactive
materials, and "oil", "hazardous materials",
"hazardous waste", "hazardous substance" and
"toxic material" as defined in the Comprehensive
Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended,
the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section 2601 et seq., as amended,
the regulations promulgated thereunder, the
Massachusetts Oil and Hazardous Material Release
Prevention and Response Act, M.G.L. c. 21E; and
the Massachusetts Hazardous Waste Management Act,
M.G.L. c. 21C. and the regulations promulgated
thereunder.

     Section 5. FACILITY MORTGAGEE REQUIREMENTS.
In order to satisfy the requirements of Landlord's
construction lender and/or permanent lender
holding a Facility Mortgage (collectdvely,
together with their successors and assigns,
"Facility Mortgagee") Tenant hereby agrees as
follows:

     Section 5.1. From and after the Rent
Commencement Date, Tenant shall provide Landlord
with the following financial statements and
information on a condnuing basis:

     (a) Within ninety (90) days after the end of
each calendar year, a statement of income and
expenses for the year then ended, and separate
financial statements on the operations of the
Facility certified by the chief financial officer
of the Tenant to be true and correct.

     (b) Within forty-five (45) days after the end
of each calendar year quarter, and within fifteen
(15) days after the request of a Facility
Mortgagee (but not more often than monthly), in
either case after the Rent Commencement Date, a
cerdficate from the chief financial officer of the
Tenant, in form acceptable to the Facility
Mortgagee, providing occupancy data (including
unit rents) for the Facility.


10



     (c) Within forty-five (45) days after the end
of each calendar quarter, following the Rent
Commencement Date, a current year-to-date
operating statement for the Facility as of the end
of such quarter and the quarterly financial
statement for the Facility in the form and detail
set forth in Exhibit M hereto, properly completed
and certified by the Tenant to be true and
correct.

     (d) Within three (3) days of the receipt by
the Tenant or the Facility, any and all notices
(regardless of form) from any licensing and/or
certifying agency that such license or
certification (held by Tenant or other service
provider) is being revoked, downgraded or
suspended or that action is pending or being
considered to revoke or suspend the license,
certification, permits or any rights thereunder
(held by Tenant or other service provider) and any
license and certification survey reports or
statements of deficiencies (with plans of
correction attached thereto).

     The Landlord reserves the right to require
from Tenant supporting or back-up information with
respect to items (a) through (d) above and the
right to provide all financial statements and
information to any Facility Mortgagee.

     Section 5.2. CONDUCT OF BUSINESS. Upon the
Rent Commencement Date, Tenant shall cause the
Facility to be properly operated as a senior
housing with assisted living services facility and
for no other uses. Without limiting the foregoing,
Tenant shall:

     (a) maintain the standard of care for the
residents of the Facility at all times at a level
necessary to insure quality care for the residents
of the Facility;

     (b) maintain aufficient inventory and
equipment of types and quantides at the Facility
to enable Tenant adequately to perform all
operations at the Facility.

     Section 5.3. RESIDENCY AGREEMENTS. Tenant
shall establish as policy and will request and use
its best efforts to require that any and all
residents or other persons for which the Tenant
(or an agency retained by Tenant) provides
services execute and deliver to the Tenant a
residency agreement. Tenant has submitted to
Landlord its form of residency agreement;
Landlord's consent shall not be required for
changes to or modifications of such residency
agreement over the term of this Lease.

     Section 6. MAINTENANCE, REPAIR, ALTERATIONS
AND UTILITIES.

     Section 6.1. TENANT'S MAINTENANCE. Tenant
shall, at its own cost, and without expense to the
Landlord, maintain the Premises, including all
sidewalks, buildings, building systems, water,
sewer and other utility lines on the Real Property
serving the Facility, surface parking lots,
exterior lighting and improvements of any kind
which may be a part thereof in good, sanitary and
neat order, condition and repair, ordinary wear
and tear, casualty, condemnation and acts of God
excepted. Tenant's obligations shall include,
without limitation, replacements of structural
components, roof and building systems, and other
necessary capital expenditures, as required by the
previous sentence. Tenant shall maintain the
Premises in such a manner as may be necessary to
operate the Facility in accordance with applicable
state and/or federal laws or regulations. Tenant
shall perform all interior and exterior painting,
and maintain the grounds of the Facility in a good
and sightly appearance. Notwithstanding the
foregoing, Tenant shall not be responsible for any
repairs or alterations to the Improvements which
are required as a result of any patent or latent
defects in Landlord's construction of the
Improvements, all of which repairs and alterations
shall be the obligation of Landlord in accordance
with and to the extent set forth in Landlord's
warranty as set forth in the Work Letter, but
Landlord shall not incur any other expense under
this Lease with respect to any maintenance, care,
operation, repair, replacement, alteration,
addition, change or substitution of or to the
Premises, except as expressly provided for in this
Lease.







11



     Section 6.2. ALTERATIONS. Tenant will not
remove or demolish any improvement or building
which is part of the Premises or any portion
thereof or allow it to be removed or demolished,
without the prior written consent of Landlord,
which may be witbheld at Landlord's sole
discretion. Notwithstanding the foregoing,
Landlord agrees that Tenant shall be permitted to
make any changes or alterations in or to the
Premises without the requirement of obtaining
Landlord's consent therefor, provided that suefi
Alterations do not constitute a "Major
Alteration". A "Major Alteration" shall mean an
alteration to the Improvements which is eshmated
to cost more than $100,000 and involves: (a)
alteration, removal, cutting, or adding to any
structural component of the building (including,
without limitation, walls, exterior windows,
roofs, or floor slabs or any building system), (b)
an alteration to non-residential areas which has a
significant adverse effect on services which are
provided to residents, or (c) changing any
category within the unit mix by more than twenty
percent (20%). Tenant agrees not to make any Major
Alterations to the Premises without first
obtaining the Landlord's written consent thereto,
which consent shall not be unreasonably withheld,
and subject to Tenant's compliance with all of the
remaining qualifications set forth in this Section
6.2. It shall be deemed reasonable for Landlord to
withhold its consent to a Major Alteration for the
following reasons, among others: such Major
Alteration would (i) materially and adversely
affect the character, value, usefulness or
rentability of the building or the Premises or any
part thereof or any of the facilities, equipment
or improvements therein, (ii) weaken or impair
(temporarily or permanently) the structure of the
building, (iu) materially lessen the usable area
of the building, or (iv) not be consistent with
the use permitted hereunder by any future
occupant. Landlord shall respond to Tenant's
request for approval within thirty (30) days of
Landlord's receipt of complete plans and
specifications. Landlord's failure to respond
within the applicable dme period set forth in the
preceding sentence shall be deemed to be approval
of the proposed Major Alterations. If Landlord
disapproves any proposed Major Alterations,
Landlord shall set forth in wridng the reasons for
such disapproval with reasonable specificity. If
Tenant fails to obtain Landlord's prior written
consent for any Major Alteration, and such consent
is required under this Lease or Tenant fails to
notify Landlord in writing of any Alteration, then
such alteration must be removed/restored at the
end of the Lease Term. With respect to any
alteration for which Tenant requests Landlord's
consent (as required hereunder) or of which
Landlord is otherwise notified, said alteration
shall not be required to be removed/restored by
Tenant at the end of the term unless Landlord
reasonably specifies the same for removal in a
notice delivered to Tenant either (i) within
fifteen (15) days after receipt of Tenant's notice
of the alteration, or (ii) within the applicable
30 day period during which Landlord shall respond
to Tenant's request for approval of plans and
specifications. Without limitation, Landlord shall
be deemed reasonable in requiring
removal/restoration for any of the reasons listed
as (i) through (iv) above. All alterations,
including any Major Alteration consented to by
Landlord, shall be in quality and class at least
equal to the original work and shall meet all
building and fire codes, and all other applicable
codes, rules, regulations, laws and ordinances.
Tenant also agrees to maintain builder's risk
insurance and shall cause its contractors to carry
the types of insurance as a prudent owner or
tenant would require. Landlord shall have the
right to approve the plans and specifications for
any Major Alteration, which approval shall not be
unreasonably withheld or delayed. Regardless of
whether the Landlord's consent is required
hereunder, Tenant agrees to notify Landlord in
wridug of the proposed alteration prior to the
commencement of any construction.

     Section 6.3. CAPITAL RESERVES. In order to
satisfy the requirements of the Facility
Mortgagee, Tenant shall pay, as additional rent
hereunder, from and after the Rent Commencement
Date, into a capital reserve fund, the amount of
$12.50 per unit per month, or $12,000 per year,
which funds shall be deposited into an interest
bearing escrow account to be disbursed from dme to
time in accordance with an escrow agreement
approved by Tenant and such Facility Mortgagee to
pay for replacements and correction of deferred
maintenance items. Any funds remaining in the
account at Lease expiration shall be returned to
Tenant.

     Section 6,4. UTILITIES. Tenant shall pay all
charges for water, electricity, gas, sewage,
waste, trash and garbage disposal, telephone,
cable television, and other services furnished to
the Premises from and after the Rent Commencement
Date. Except as set forth below, Landlord shall
not be responsible in any manner for any
suspension, interruphon or curtailment of any
services or udlides to the Premises regardless of
the



12


cause thereof, and no such suspension, interruphon
or curtailment shall give rise to any claim for
abatement of Rent or other compensation to Tenant
from Landlord, nor may Tenant claim any damages on
account thereof, nor shall this Lease or any
obligation of Tenant hereunder be affected
thereby, nor shall Tenant claim the same as a
construcdve eviction. Notwithstanding the
foregoing, Landlord shall be liable for any direct
damages due to an interruption of any services or
udlides caused by Landlord or its affiliate or
agents, and if such interruphon caused by Landlord
or its affiliate or agents causes the Premises to
be untenantable for more than three (3) days then
the Rent shall abate undl such services or udlides
are restored. Landlord shall cause its affiliate
to make every reasonable effort, when constructing
the Future Development, to avoid any interruphon
of services or udlides to the Premises.

     Section 7. LIENS AGAINST THE PREMISES.

     Section 7.1. LIENS. Tenant will not permit
the Premises to become subject to any lien,
charge, or encumbrance. Tenant shall maintain the
Premises free from all orders, notices, and
violations filed or entered by any public or
quasi-public authorities. Notwithstanding the
foregoing, in the event any such lien, charge, or
encumbrance is imposed, Tenant may contest any
such lien, charge, encumbrance, order, notice or
violation, provided that Tenant causes same to be
bonded within forty-five (45) days of the filing
of such lien. This must be done in good faith,
with due diligence and at Tenant's own expense and
Tenant shall not be considered in default of the
provisions of this Section 7. 1 as a result of
such contest.

     Section 7.2. LANDLORD'S RIGHTS. Should a
judgment on any lien, charge, encumbrance, order,
notice or, violation be rendered against the
Premises for any work performed by or for Tenant
(other than the construction of the Improvements
by Landlord hereunder) or any person claiming
through or under Tenant and should Tenant fail to
discharge such judgment or take action to protest
such judgment, Landlord shall have the right, but
not the obligation, to discharge said judgment or
lien. If Landlord exercises that option it shall
notify Tenant in writting prior to discharging
such judgment or lien and any amounts paid by
Landlord, together with interest from the time of
expenditure by Landlord, at the rate specified in
Section 3.2.3 hereof, shall be due from Tenant as
additional rent. Such additional rent shall be due
and payable on the next date after the expense is
incurred that Basic Rent is otherwise due.

     Section, 7.3 MECHANIC'S LIENS. Tenant shall
take all reasonable steps necessary to ensure that
no lien arising under Massachusetts law as a
result of construction done at the Premises at
Tenant's request shall extend to the interest of
Landlord in tbe Premises. Tenant shall pay all
costs incurred by Tenant in connection with the
construction, alteration, demolition, maintenance
and repair of any and all improvements on the
Premises. Should a lien or claim of lien be filed
against the Landlord's interest in the Premises by
any contractor, subcontractor, mechanic, laborer,
materialman or any other person whomsoever
retained by Tenant, Tenant shall, within sixty
(60) days after the filing thereof, cause the same
to be discharged of record. Notbing in this Lease
shall be construed as a consent on Landlord's part
to subject Landlord's estate in the Premises to
any lien.

     Section 8. NON-LIABILITY AND INDEMNIFICATION.

     Section 8.1. TENANT'S INDEMNITY. During the
Term, Tenant agrees to defend, protect, indemnify
and save harmless Landlord and any Facility
Mortgagee from and against all claims arising out
of or connected with the use and occupancy of the
Premises by Tenant, any person claiming by,
through or under Tenant, or their respecdve
officers, directors, servants, agents, customers,
contractors, employees or invitees, including
without limitation, (i) their use or non-use of
the Premises, or the condition thereof; or (ii)
the conduct of Tenant's business or from any
activity, work or things done, permitted or
suffered by Tenant in or about the Premises or
elsewhere; or (iii) any breach or default in the
performance of any obligation on their part to be
performed under the terms of this Lease; or (iv)
any negligence of Tenant, or





13



any of Tenant's agents, contractors or employees;
or (v) the performance on behalf of Tenant of any
labor or service, or the furnishing of any
materials to the Premises and Tenant shall pay all
costs and expenses incurred by Landlord and any
Facility Mortgagee in connection with such claims,
including without limitation, court costs and
reasonable attorney's fees for trial and appellate
proceedings. Landlord and any Facility Mortgagee
shall be protected hereby from all claims arising
during the Term from loss of or damage to
property, or death or personal or bodily injury to
persons except to the extent such loss, damage,
death or injury is caused by the negligence or
willful actions of Landlord or any person claiming
by, through or under Landlord, or their respective
off'cers, directors, servants, agents, customers,
contractors, employees or invitees in which case
Landlord shall be fully responsible therefor and
shall indemnify, defend and hold harmless Tenant
with respect thereto in accordance with the terms
of Section 8.2. The provisions of this Section
shall survive the termination or expiration or
earlier termination of this Lease.

     Tenant hereby agrees that, subject to the
provisions of Section 11 of Exhibit B hereto, and
except with respect to Landlord's own negligence
or wilful misconduct and/or that of its agents,
Landlord shall not be liable for injury to
Tenant's business or any loss of income therefrom
or for damage to the goods, wares, or other
property of Tenant, Tenant's employees, invitees,
sublessees, customers or any other person in or
about the Premises, nor shall Landlord be liable
for injury to the Tenant, Tenant's employees,
agents or contractors whether such damage or
injury is caused by or results from fire, steam,
electricity, gas, water or rain or from the
breakage, leakage, obstruction or other defects of
pipes or from the sprinklers, wires, appliances,
plumbing, air conditioning or lighdog fixtures, or
from any other cause whether the said damage or
injury results from conditions arising upon the
Premises or from other sources or places and
regardless of whether the cause of such damage or
injury or the means of repairing the same is
inaccessible to Tenant.

     Section 8.2. LANDLORD. Landlord will
indemnify, defend and hold harmless Tenant from
any and all costs, expenses and liability,
including, without limitation, court costs and
reasonable attorney's fees for trial and appellate
proceedings, which it may incur in connection with
the performance by Landlord of its obligations
hereunder, including, without limitation, the
construction and completion of the Improvements.
The provisions of this Section shall survive the
expiration or earlier termination or expiration of
this Lease, provided that claims also covered by
Landlord's limited warranty set forth in the Work
Letter shall be subject to the limitations set
forth in such limited warranty.

     Section 8.3 LIMITATION ON LIABILITY. It is
expressly agreed by the parties that in no case
shall Landlord (or its members, any individuals or
entices comprising Landlord) be personally liable,
under any express or implied covenant, agreement
or provision of this Lease, for any damages
whatsoever to Tenant beyond Landlord's interest in
the Premises, except that the foregoing limitation
shall not apply with respect to Landlord's
liability following an assignment of this Lease
for acts, omissions or claims arising prior to
such assignment, as provided in Section 15.3
hereof. Neither party hereto shall be liable to
the other for indirect or consequential damages.

     Section 9. INSURANCE.

     Section 9.1. All insurance policies required
by this Section 9 shall be issued by a good and
solvent insurance company or companies licensed to
do business in the Commonwealth of Massachusetts,
with a rating of "A XII" or higher by Bests,
selected by Tenant and reasonably satisfactory to
Landlord, and shall include Landlord and each
mortgagee of which Landlord has notified Tenant as
additional insureds as their interests may appear.
Tenant shall provide a copy of binders for
insurance policies conforming to the requirements
of this Lease for Landlord's review at least
thirty (30) days prior to the estimated completion
date. Tenant agrees to deliver certificates of
such insurance to Landlord as of the Rent
Commencement Date and thereafter not less than
thirty (30) days prior to the expiration of any
such policy. Such insurance shall not be canceled,
materially changed, or non-renewed without thirty
(30) days' written notice to Landlord and any
Facility Mortgagee.




14



     Landlord and Tenant shall each give prompt
notice to the other of all losses, damages or
injuries to any person or damage to any property
which may in any way be related to this Lease and
for which a claim might be made against the other
party. Each party shall promptly report to the
other party all such claims, whether related to
matters insured or uninsured. Landlord and Tenant
shall assist and cooperate with any insurance
company in the adjustment or lidgation of all
claims and losses arising under this Lease.

     Section 9.2. PROPERTY INSURANCE. From and
after the Rent Commencement Date, Tenant shall
obtain and keep in force throughout the Lease
Term, at its expense, "all-risk" property
insurance upon the Improvements against fire and
such other hazards, casualdes and condagencies
(including boi1er and machinery coverage on a
comprehensive basis) as are from time to time
customarily covered by all- risk policies for
similar buildings used for similar purposes as
Tenant is then making of the Facility with
endorsements insuring against earthquake and
subsidence. The limit of such insurance shall
never be less than 100% of the actual replacement
cost at the dme and place of loss, and the policy
shall include an agreed amount endorsement. This
policy shall include coverage for increased cost
of construction, demolition and condngent
liability as a result of compliance with then
exisdug applicable legal requirements. Such
insurance will be subject only to such deduchbles
as are from time to dme reasonably approved by
Landlord based on the then current pracdee for
similar buildings used for senior housing with
assisted living services located within the
vicinity of the Real Property (Tenant agreeing to
pay to Landlord, upon demand as Additional Rent,
the amount of any such deductible following any
casualty loss). The policy shall include rent
continuation coverage payable to Landlord,
notwithstanding abatement of Tenant's Rent, of no
less than eighteen (18) months rent (including
Base Rent and Additional Rent). All such policies
shall name Landlord as the Named Insured and each
Facility Mortgagee as a loss payee as its interest
may appear.

     In the event that Landlord receives a notice
of cancellation of such insurance policy or
policies without a corresponding notice regarding
the issuance of new insurance prior to the
effective date of such cancellation, Landlord may,
in addition to and without thereby waiving any
other remedies, pay the premiums necessary to
prevent such cancellation and bill Tenant
therefor. Tenant shall reimburse Landlord therefor
by paying such amount, together with interest at
the rate set forth in Section 3.2.3, to Landlord,
as Additional Rent, within five (5) days after
demand therefor by Landlord.

     Section 9.3. LIABILITY INSURANCE. Tenant
shall provide or cause to be provided at its
expense, and keep in force during the Lease Term:

     (a) Commercial general liability insurance
(without any so-called employee exclusion or the
like) in an amount reasonably required by Landlord
from time to time based on the then current
practice for similar buildings used for senior
housing with assisted living services located
within the vicinity of the Real Property, but in
any event not less than the greater of (i) One
Million Dollars ($1,000,000.00) per occurrence,
$2,000,000 aggregate, or (ii) the Ihbility
coverage typically carried by Tenant in similar
facilities, including contractual liability
coverage. Such policy shall name Tenant as a named
insured and Landlord and each Facility Mortgagee
of which Landlord has nodfied Tenant, as
additional insureds with respect to any claim
arising from Tenant's use, occupancy, repair or
operation of the Premises;

     (b) Comprehensive automobile liability
insurance including personal injury and property
damage in the amount of a combined single limit of
$1,000,000 each occurrence. Coverage must include
owned, leased, hired and non-owned vehicles;

     (c) Worker's compensation and occupational
disease insurance with statutory limits;

     (d) Employer's liability insurance with a
limit not less than $500,000; and

     (e) Excess liability policy in umbrella form
with a minimum limit of Ihbility of $15,000,000,
applying in excess of the coverages listed in (a),
(b) and (d) above.




15



     (f) Professional Ihbility insurance in the
amount of One Million Dollars ($1,000,000) per
occurrence, which shall be written on an
occurrence basis.

     All liability insurance shall be on an
occurrence basis. Tenant may not elect to carry
claims made commercial general Ihbility insurance
unless occurrence coverage is generally
unavailable at commercially reasonable rates in
the marketplace. Tenant's insurance shall state
that it is primary and not contributing with any
insurance purchased by Landlord. Tenant's
insurance shall also state that it is severable
with respect to all insureds under the policy and
that acts of one insured will not abrogate
coverage for other insureds.

     Section 9.4 PERSONAL PROPERTY INSURANCE.
Tenant shall obtain and keep in force throughout
the Lease Term, at its expense, "all-risk"
property insurance on its personal property,
including but not limited to furniture, fixtures,
machinery and equipment, for the full replacement
cost .

     Section 9.5. MORTGAGEE'S OTHER REQUIREMENTS.
Tenant shall maintain any other insurance
reasonably required by the holder of a Facility
Mortgagee, which reasonableness standard shall be
based on industry standards of lenders whose loans
are secured by senior housing with assisted living
services properties similar in nature to the
Premises, and on any such other insurance as is
generally available at commercially reasonable
rates.

     Section 9.6. BLANKET INSURANCE. Nothing
contained in this Section 9 shall prohibit
Landlord or Tenant from obtaining a policy or
policies of blanket insurance which may cover
other properties of Landlord or Tenant provided
that (a) any such blanket policy expressly
allocates to the Premises not less than the amount
of insurance required hereunder to be maintained
and (b) such blanket policy shall not diminish the
obligations to insure hereunder, so that proceeds
from such policies shall be an amount no less than
the proceeds that would be available under a
separate policy.

     Section 9.7. WAIVER OF SUBROGATION. Landlord
and Tenant, each for itself and its insurer,
hereby waive all claims and rights against the
other and their respective officers, directors,
employees, contractors, servants, and agents, for
any damage to or destruction of real or personal
property of Landlord or Tenant to the extent
covered by the insurance required to be maintained
hereunder. All property insurance policies carried
at any time during the Lease Term by either party
covering the Premises shall include a clause to
the effect that such waiver of subrogation shall
not adversely affect or impair such policies or
prejudice the rights of the insureds to recover
thereunder. The provisions of this Section 9.7
shall survive the expiration or earlier
termination of this Lease.

     Sectiorl 10. DAMAGE AND DESTRUCTION.

     Sectior1 10.1. REPAIR OR RESTORATION AFTER
MAJOR CASUALTY. In the event that any part of the
Improvements or the Personal Property shall be
damaged or destroyed by fire or other casualty for
which Tenant is required to maintain insurance
hereunder and the cost to repair such casualty is
greater than $200,000, (any such event being
called a "Major Casualty"), all insurance proceeds
shall be paid to Landlord and Landlord shall
promptly replace, repair and restore the same as
nearly as possible to its condition immediately
prior to such Major Casualty, in accordance with
all of the terms, covenants and conditions and
other requirements of this Lease and any mortgage
applicable in the event of such Major Casualty. In
the event that insurance proceeds are not adequate
or unavailable, due solely to Tenant's failure to
comply with its insurance obligations set forth in
this Lease, then Tenant sball pay to Landlord an
amount equal to the insurance proceeds which
Landlord would have received had Tenant so
complied with its insurance obligations (minus any
insurance proceeds actually received by
Landlord). lf, pursuant to this Section 10,
Landlord shall be obligated to make repairs, the
Premises shall be so replaced, repaired and
restored as to be substantially the same character
as prior to such Major Casualty. The Plans and
Specifications for such restoration shall be first
submitted to and approved in writing by Tenant,
which approval shall not be unreasonably withheld.
Tenant may elect to retain, at its expense, an




16


independent architect, reasonably approved by
Landlord, who shall oversee such repairing,
restoring or replacing. Tenant covenants that it
will give to Landlord prompt written notice of any
casualty affecting the Premises or any portion
thereof.

     Section 10.2. EXCEPTION FOR MAJOR CASUALTY
DURING LAST TWO LEASE YEARS AND UNINSURED
CASUALTY. Notwithstanding the foregoing, in the
event of (a) a Major Casualty occurring during the
last two Lease Years of the Initial Term or any
Renewal Term or (b) resuldog from a flood, nuclear
accident, war or other event for which Tenant is
not obligated to maintain insurance hereunder and
which, in the reasonable opinion of Landlord,
Tenant and Facility Mortgagee, renders the
Premises unsuitable for Tenant's use as a senior
housing with assisted living services facility as
operated by Tenant prior to the Casualty, then
Landlord or Tenant shall have the right to
termluate this Lease upon written notice to the
other and, in such event, all insurance proceeds
attributable to the Real Property, Improvements
and Personal Property shall be payable to the
Facility Mortgagee or, if none, to Landlord and
all insurance proceeds attributable to Tenant's
Equipment shall be payable to Tenant. Each party's
termination rights under this Section shall be
exercised by written notice to the other party
sent within thirty (30) days after the occurrence
of the destruction or damage. Any termination
notice sent by Landlord or Tenant shall take
effect thirty (30) days after mailing thereof. If,
however, T qndlord sends such termination notice
to Tenant during the last two Lease years (other
than for an uninsured casualty), and within such
30-day period Tenant sends Landlord written notice
exercising Tenant's next upcoming extension ophon,
then (i) Landlord's termination notice shall be
void, (ii) Tenant shall be deemed to have
irrevocably exercised its renewal ophon and waived
any right to termmste its renewal notice in
connection therewith which it would otherwise have
pursuant to the penuldmate sentence of Section 3.4
hereof, (iii) the next upcoming Renewal Term shall
automadcally be added to the then current portion
of the Lease Term, and (iv) Landlord shall make
the repairs and restorations required by this
Section.

     Section 10.3. FAILURE BY LANDLORD TO COMPLETE
REPAIRS. In the event that (a) Landlord has not
procured the necessary permits and approvals for
the restoration and/or has not commenced repair
and restoration of the Premises within 180 days of
the date of the Major Casualty, or (b) Landlord's
work is not thereafter substandally completed
within twelve (12) months following commencement
of repair and restoration, then, in either event,
Tenant may give written notice to Landlord and any
Facility Mortgagee of Tenant's intention to
terminate this Lease or assume responsibility for
completion of such repair and restoration of the
Premises unless the same is commenced or
substantially completed (as the case may be)
within thirty (30) days of the date on which such
notice is given. If Landlord or any Facility
Mortgagee fails to so commence or to substandally
complete (as the case may be) such repair
and restoration within such 30-day period, then
immediately upon the expiration of such 30-day
period, Tenant shall have the right to either
terminate this Lease by written notice to Landlord
or the right, but not the obligation, to assume
responsibility for such repair and restoration and
Landlord shall make available to Tenant use of all
insurance proceeds available therefor, subject to
the terms of Section 6 hereof and the terms of any
Facility Mortgage governing insurance proceeds.
Landlord agrees to use its best efforts to
negotiate as part of the loan documents with any
mortgagee, the right to apply insurance proceeds
to the repair and restoration of the Improvements.
If, despite such best efforts, the prior approval
of any Facility Mortgagee or other Mortgagee is
required for conducting any repair or restoration
hereunder (whether by Landlord or by Tenant),
Landlord agrees to use its best efforts to secure
such approval and the right to apply the insurance
proceeds thereto.

     Section 10.4. TERMINATION. Notwithstanding
anything to the contrary contained in this SecdQIl
10, Landlord shall not be obligated to rebuild
following a Major Casualty if the repairs or
reconstruction of the damage cannot be made under
existing laws, ordinances, statutes or regulations
of any governmental authority applicable thereto.
In the event Landlord is unable to rebuild in
accordance with the provisions hereof, and such
casualty causes the premises to be rendered
unsuitable for use as a senior housing with
assisted living services facility, then this Lease
shall terminate effective thirty (30) days after
the damage occurs and Tenant shall remit insurance
proceeds in its possession to any Facility
Mortgagee or, if none, to Landlord



17



within ten (10) days of said Lease termination
date free and clear of all liens or claims and
shall promptly, at its own expense, remove from
the Premises any of Tenant's Equipment not so
damaged or destroyed.

     Section 10.5. Rendered Unsuitable. For the
purposes of this Section 10 the Facility shall be
deemed to have been rendered unsuitable for use as
a senior housing with assisted living services
facility if, in the good faith judgment of
Landlord, Tenant and any Facility Mortgagee,
reasonably exercised, the Facility cannot after
any such loss be operated on a commercially
pracdcable basis as a senior housing with assisted
living services facility of the type and quality
existing and licensed immediately prior to such
loss, taking into account, among other relevant
factors, the number of licensed and operational
beds, dining and kitchen facilides, parking lots,
driveways, or walkways affected by such loss.

     Section 10.6. REPAIR OR RESTORATION AFTER
MINOR CASUALTY. In the event that any part of the
Improvements or Personal Property shall be damaged
or destroyed by fire or other casualty and the
cost to repair such casualty is $200,000 or less
(a "Minor Casualty"), then Tenant shall promptly
repair and restore the same as nearly as possible
to its condition immediately prior to such Minor
Casualq, in accordance with all of the applicable
terms, covenants and conditions and other
requirements of this Lease and the requirements of
any Facility Mortgagee in the event of such Minor
Casualty, and Tenant shall be endtled to the use
of all insurance proceeds available therefor,
subject to the terms of such Facility Mortgage.

     Section 10.7. ABATEMENT OF RENT. This Lease
shall remain in full force and effect during the
period of any repair and restoration; provided,
however, Tenant's obligation to pay Rent shall be
equitably abated to reflect the nature and extent
to which such casualty event has rendered the
Premises unusable by Tenant. For purposes of
applying the foregoing abatement provision, the
parties shall take into account the impact of the
casualty (and subsequent repairs) on Tenant's
ability to provide to its residents any services
which are significant to Tenant's operations of a
senior housing facility with assisted living
services of the type and quality which was
operated prior to the Casualty.

     Section 10.8. Tenant hereby acknowledges
that, notwithstanding any provision in this
Section 10, the terms and provisions of any
Facility Mortgagee shall govern with respect to
the settlement of insurance claims and
availability of insurance proceeds for
restoration.

     Section 11. CONDEMNATION.

     Section 11.1. TAKING OF WHOLE.

     Section 11.1.1. If, during the Lease Term, so
much of the Premises are taken or condemned in fee
for a public or quasi-public use that in the
reasonable judgement of Landlord, Tenant and
Facility Mortgagee the Premises are rendered
unsuitable for use as senior housing with assisted
living services, this Lease shall terminate.
Termination will be effecdve without entry or
notice. Termination shall occur as of the day when
possession is required to be surrendered to the
taking or condemning authority.

     Section 11.1.2. For purposes of this Section
11, the Premises shall be deemed to have been
rendered unsuitable for use as a senior housing
with assisted living services facility if, in the
good faith judgment of Landlord, Tenant and any
Facility Mortgagee reasonably exercised, the
Premises after such loss cannot be operated on a
commercially pracdcable basis as a senior housing
with assisted living services facility of the type
and quality exisdng and licensed immediately prior
to such loss taking into account, among other
relevant factors, the number of licensed beds
and/or parking lots, driveways, dining and kitchen
facilides, or walkways affected by such loss.

     Section 11.2. TAKING OF A PORTION. If during
the Lease Term, a portion of the Premises mdlor
the Facility is taken or condemned in fee for a
public or quasi-public use such that the Facility
is not rendered unsuitable for use as a senior
housing with assisted living services facility,
this Lease shall not terminate. If, however, as a
result of the taking, the number of beds available
for operation of the Facility as a senior housing



18


with assisted Ihing services facility of the type
and quality exisdag and licensed prior to the
taking has been or must be reduced, Tenant shall
be endtled to an abatement of rent. The rent
abatement shall be to the extent that is fair,
just and equitable to both Tenant and Landlord,
taking into consideration, among other relevant
factors, the number of licensed beds and/or
parking lots, driveways, dining and kitchen
facilides or walkways affected by such loss.

     Section 11,3. DAMAGES FOR TAKING. All damages
awarded in connection with the taking of the
Premises shall vest in Landlord but the immediate
payment and use of such damage award shall be
governed by the provisions of any Facility
Mortgage. In the event of a partial taking where
the Lease is not terminated, subject to the
provisions of any Leasehold Mortgage, Landlord
shall apply or make available to Tenant that
portion of the proceeds reasonably necessary for
the repair or reconstruction of the Premises.
Notwithstanding anything to the contrary contained
in any Facility Mortgage or related document, all
damages awarded (or otherwise sought by Tenant) in
connection with the taking of Tenant's Equipment,
and all moving and relocation costs, shall vest in
Tenant.

     Section 12. EVENT OF DEFAULT. The occurrence
of any of the events, acts or circumstances
described in this Section 12.1 shall conshtute an
Event of Default under this Lease.

     Section 12.1.1. Failure by Tenant to pay in
full any rent payable under this Lease when due
and the condnuance of such failure for ten (10)
days after Landlord has given Tenant written
notice of such failure.

     Section 12.1.2. Failure by Tenant to obsewe,
perform or comply with any of the terms, covenant,
agreements or conditions contained in this Lease
(other than as specified in Section 12.1.1,
12.1.4. 12.1.6. 12.1.7 and 12.1.8), and the
continuance of such failure for thirty (30) days
after Landlord has given Tenant written notice of
such failure. If Tenant has promptly commenced and
diligently pursued remedial action within said
thirty (30) day period but has been unable to cure
its default (except for any default that can be
reasonably cured by the payment of money) prior to
the expiration thereof, said thirty (30) day
period shall be extended for the minimum time
reasonably required for the completion of Tenant's
remedial action.

     Section 12.1.3. The making by Tenant of an
assignment for the benefit of its creditors or the
commencement of proceedings in a court of
competent jurisdiction for the reorganization,
liquidation or involuntary dissolution of Tenant
or for the adjudication of Tenant as a bankrupt or
insolvent or for the appointment of a receiver of
the property of Tenant which, with respect to any
involuntary proceedings, are not dismissed and any
receiver, trustee or liquidator appointed therein
is not discharged, within ninety (90) days after
the institution thereof.

Section 12.1.4. The abandonment of the Premises by
Tenant other than as a result of the damage,
destruction or taking thereof.

     Section 12.1.5. The involuntary, imposed or
required revocation, suspension, termination,
probation, restriction, limitation or refusal to
renew, or pending revocation, suspension,
termination, probation, restriction, limitation
of, or refusal to renew, any certification which
materially affects the ability of the Tenant to
operate the Facility in the absence of the
submittal by Tenant of any corrective or remedial
plan the effect of which is to stay any such
revocation, suspension, termination, probation,
restriction, time limitation or refusal to renew
any certification within ten (10) days of
revocation or other such action on such license.

     Section 12.1.6. The failure to use best
efforts to obtain the necessary certification to
operate and actually open the Facility for
business within thirty (30) days after the
Substantial Completion date.

     Section 12.1.7. The delivery by Tenant to
Landlord or any Facility Mortgagee (or their
designees) of a financial statement which is
materially false or misleading.




19


     Section 12.1.8. Any purported assignment or
sublease of all or substantially all of the
Premises by Tenant without all necessary written
consents (to the extent any consent is required
pursuant to this Lease).

     Section 13. LANDLORD'S REMEDIES: DAMAGES ON
DEFAULT.

     Section 13.1. LANDLORD'S REMEDIES. If an
Event of Default shall occur, Landlord may, at its
ophon, give to Tenant a written notice terminating
this Lease upon a date specified in such notice,
which date shall be not less than ten (10)
business days after the date of receipt by Tenant
of such notice from Landlord, and upon the date
specified in said notice, the term and estate
hereby vested in Tenant shall cease and any and
all other right, title and interest of Tenant
hereunder shall likewise cease without further
notice or lapse of time, as fully and with like
effect as if the endre Lease Term had elapsed, but
Tenant shall continue to be liable to Landlord as
hereinafter provided.

     Section 13.2. SURRENDER. Upon any termination
of this Lease as the result of an Event of
Default, Tenant shall quit and peacefully
surrender the Premises to Landlord, and Landlord,
upon or at any dme after any such terrnination,
may without further notice, enter the Premises and
possess itself thereof by summary proceedings or
otherwise, and may dispossess Tenant and remove
Tenant and all other personal property from the
premises and may have, hold and enjoy the Premises
and the right to receive all rental income of and
from the same.

     Section 13.3. RIGHT TO RELET. At any dme or
from dme to time after any such termination,
Landlord may relet the premises or any part
thereof, in the name of Landlord or otherwise, for
such term or terms (which may be greater or less
than the period which would otherwise have
conshtuted the balance of the Lease Term) and on
such conditions (which may include concessions or
free rent) as Landlord, in its reasonable
discretion, may determine and may collect and
receive the rents therefor. Landlord shall in no
way be responsible or liable for any failure to
relet the Premises or any part thereof, or for any
failure to collect any rent due upon any such
relethng.

     Section 13.4. SURVIVAL OF COVENANTS: DAMAGES.
In the event of any such termination Tenant shall
pay to Landlord the Rent up to the date of such
termination. No such termination of this Lease
shall relieve Tenant of its liability and
obligations under this Lease and such liability
and obligations shall survive any such
termination. Tenant shall indemnify and hold
Landlord harmless from all loss, cost, expense,
damage or liability arising out of or in
connection with such termination, including
reasonable attorney's fees.

     If this Lease is terminated for Tenant's
Event of Default, then unless and until Landlord
elects lump sum damages described in the
succeeding paragraphs of this Section, Tenant
shall pay on the last day of each calendar month
until the stated expiration date all Basic Rent
and Additional Rent which would have been due for
such month if this Lease had not been terminated.
If, however, Landlord relets the Premises, there
shall be credited against such obligation each
month the amount actually received by Landlord
from such reletting during such month on account
of such month, after first deduchng all expenses
incurred in connection with such reletting,
including, without limitation, all repossession
costs, brokerage commissions, legal expenses,
reasonable attorneys' fees, alteration costs, and
expenses of preparation for such reletting.

     At any time after such termination, and
regardless of whether Tenant has made any payments
to Landlord pursuant to the preceding provisions
of this Section, Tenant shall pay to Landlord, on
demand, as damages for Tenant's Event of Default,
the difference between

     (1) the aggregate Rent which would have been
payable under this Lease by Tenant from the date
Landlord last received full Rent payments from
Tenant (whether pursuant to the preceding
paragraph or earlier) until the stated expiration
date, minus

     (2) the fair and reasonable rental value of
the Premises for the same period determined as of
the date Landlord elects such damages, taking into
account market conditions and the likelihood of
reletting the premises, less Landlord's reasonable



20


estimate of expenses to be incurred in connection
with reletdag the Premises, including, without
limitation, all repossession costs, brokerage
commissions, legal expenses, reasonable attorneys'
fees, alteration costs, and expenses of
preparation for such reletting;
with the amounts in the preceding clauses (1) and
(2) discounted to present value using the Federal
Reserve discount rate as in effect on the date on
which Landlord makes such demand.

     If the Premises or any part thereof are relet
by Landlord for the period prior to the stated
expiration date, or any part thereof, before
presentation of proof of such damage any court,
commission or tribunal, the amount of rent
reserved upon such reletting shall be, prima
facie, the fair and reasonable rental value for
the part or the whole of the Premises so relet
during the term of the reletting.

     Section 13.5. LIQUIDATED DAMAGES. In lieu of
recovery by Landlord of sums payable under the
foregoing provisions of Section 13.4 or any other
damages resulting from Tenant's Event of Default,
Landlord may by written notice to Tenant, at any
time after this Lease is terminated, elect to
recover, and Tenant shall thereupon pay, as
liquidated damages, an amount equal to the
aggregate of the Rent accrued during the
twenty-four (24) months prior to such termination
plus the amount of Rent accrued and unpaid at the
time of termination and less the amount of any
recovery by Landlord under the foregoing
provisions of this Section up to the date of
payment of such liquidated damages; provided,
however, if such notice is given less than
twenty-four (24) months before the stated
expiration date, then liquidated damages shall be
measured by the number of months remaining until
the stated expiration date.

     Except as to the terms of the liquidated
damages provision set forth above, nothing herein
shall limit or prejudice the right of Landlord to
prove and obtain an amount equal to the maximum
allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in
which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than
the amount of the difference referred to above.

     Section 13.6. RIGHT TO EQUITABLE RELIEF. In
the event there shall occur an Event of Default or
threatened Event of Default Landlord shall be
entitled to enjoin such Event of Default or
threatened Event of Default.

     Section 13.7. RIGHT TO SELF HELP. If an Event
of Default shall occur and be continuing, Landlord
shall have the right, but shall not be obligated,
to enter upon the Premises and to perform such
obligation notwithstanding the fact that no
specific provision for such subshtuted performance
by Landlord is made in this Lease with respect to
such Event of Default. In the event Tenant fails
to comply with Section 4.2, or there occurs an
Event of Default under Section 12.1.S hereof, then
Landlord shall have the right to submit on behalf
of Tenant to any licensing authority a correcdve
or remedial plan in order to stay a license
revocation or similar proceeding. In performing
such obligation, Landlord may make any payment of
money or perform any other act. The aggregate of
(i) all sums so paid by Landlord, (ii) interest on
such sums at the "Prime Rate" as published in The
Wall Street Journa-l on the day on which demand
for payment is made by Landlord as hereinafter
provided plus two percent (2%) per annum, and
(iii) all necessary incidental costs and expenses
in connection with the performance of any such act
by Landlord, shall be deemed to be Rent under this
Lease and shall be payable to Landlord immediately
upon demand. Landlord may exercise the foregoing
rights without waiving any other of its rights or
releasing Tenant from any of its obligations under
this Lease.

     Section 13.8. FURTHER REMEDIES. Except as
otherwise provided in this Lease, Landlord shall
have the right to invoke any right and remedy
allowed at law or in equity or by statute or
otherwise, and nothing in this Lease shall require
Landlord to elect any remedy for






21




an Event of Default by Tenant hereunder, and all
rights herein provided shall be cumulative with
one another and with any other rights and remedies
which Landlord may have at law or in equity in the
case of such an Event of Default. Landlord's
remedies under this Section 13 shall survive the
early termination of this Lease.

     Section 14. QUIET ENJOYMENT

     Landlord covenants and agrees that, so long
as Tenant observes and performs all of the
covenants, conditions, and stipulations of this
Lease, Tenant may lawfully and quietly hold,
occupy and enjoy the Premises during the Lease
Term. Notwithstanding the foregoing, Landlord and
Tenant hereby acknowledge that the kinds of
inconveniences or disruptions to Tenant which
would normally be associated with a nearby
construction project, if caused by the
construction of the Future Development, shall not
constitute a breach of the covenant of quiet
enjoyment, provided that Landlord shall take all
reasonable measures to minimize disruptions to
Tenant and to Tenant's residents, taking into
account the nature of Tenant's use of the
Premises.

     Section 15. ASSIGNMENT AND SUBLETTING.

     Section 15.1. AFFILIATES. Tenant may, without
prior approval from Landlord, assign its rights
and obligations under this Lease to any parent
corporation or any sister or subsidiary
corporation whose ownership is at least 51% in
common with Tenant and of which Tenant has control
(an "Affliate"). Tenant shall give Landlord notice
of any such assignment or sublethug, and shall
give to Landlord, concurrently with such
assignmeDt, an executed original assignment and
assumption agreement wherein such assignee agrees
to be bound by the terms and conditions of this
Lease. The inidal public offering of stock by
Tenant and any subsequent sale or transfer of any
stock of Tenant shall not be deemed to be an
assignment hereunder requiring Landlord's consent
pursuant to this Section 15. Tenant shall not be
required to obtain the consent of Landlord with
respect to a merger, consolidation or other
reorganization provided that, in any of such
events (i) the successor to Tenant has a net worth
computed in accordance with GAAP at least equal to
the net worth of the Tenant named herein and (ii)
the successor to Tenant has experience in the
assisted living housing industry at least
comparable to that of the named Tenant.

     Section 15.2. LANDLORD'S CONSENT. Provided
that there is then no outstanding Event of
Default, Tenant may sublease the Premises or
assign its rights and obligations under this Lease
to a person or endq that is not an Affiliate with
the prior written consent of T andlord; such
consent shall not be unreasonably withheld, unless
a Facility Mortgagee has approval rights in its
loan documents over such assignment rights and the
Facility Mortgagee retains the right to exercise
its sole discretion, in which case the standard
for Landlord shall also be "at its sole
discretion". If Tenant wishes to assign this Lease
and Landlord's consent is required hereunder,
Tenant shall deliver to Landlord (i) a true and
complete copy of the proposed instrument of
assignment containing all of the terms and
conditions of such proposed assortment, (ii)
information as to the identity and experience of
the assignee as Landlord may reasonably require,
(iii) such financial information concerning the
proposed assignee as Landlord may reasonably
require, and (iv) a written agreement, in form
reasonably approved by Landlord, between such
proposed assignee and Landlord in which such
proposed assignee agrees with Landlord to perform
and observe all of the terms, covenants and
conditions of this Lease from and after the date
of such assignment, all of which Landlord may
consider in determining whether to grant its
consent. Landlord agrees to notify Tenant within
fifteen (15) days following delivery of the
foregoing information, as to whether or not
Landlord shall grant its consent. If Landlord
fails to nodfy Tenant in wridng within said 15 day
period, Landlord shall be deemed to have consented
to said assignment or sublease. Landlord's written
consent to any subletting of the Premises by
Tenant shall not constitute an acknowledgment that
no default then exists under this Lease of the
obligations to be performed by Tenant nor shall
such consent be deemed a waiver of any then
existing default, except as may be otherwise
stated by Landlord at the dme.






22



     If Landlord consents to an assignment, then
prior to such assignee taking occupancy of the
Premises, Tenant shall deliver to Landlord an
original of the fully-executed instrument of
assignment and of the agreement described in
clause (iv) of the preceding paragraph of this
Section.

     Section 15.3. LANDLORD'S ASSIGNMENT RIGHTS.
Landlord may at any time assign its rights and
obligations under this Lease, provided, however,
that Landlord shall furnish to Tenant a written
statement from Landlord's assignee that such
assignee recognizes all of Tenant's rights under
this Lease and assumes all of Landlord's remaining
obligations under this Lease. An assignment by
Landlord upon a conveyance of the Premises, which
complies with the provisions of this Section 15.3,
shall terminate any liabiliq of Landlord pursuant
to this Lease with respect to acts, omissions or
claims arising after the effecdve date of such
assignment and assumption. Landlord shall remain
liable to Tenant for Landlord's or its agents
acts, omissions or claims arising prior to the
effective date of such assignment and assumption.
Notwithstanding the failure of Landlord to obtain
said written recognition from Landlord's assignee,
any assignment of Landlord's rights and
obligations shall be subject to Tenant's rights
under this Lease.

     Section 15.4. SUBSEQUENT ASSIGNMENTS OR
SUBLEASES. No assignment or subletting that is
approved pursuant to this Section 15 shall be
deemed to remove any subsequent assignment or
subletting from the provisions of this Section 15,
it being the intent hereof that every assignment
and subletting, whenever occurring, shall require
the same approval as is set forth herein for an
original assignment or subletting.

     Section 15.5. RESIDENTIAL LEASES.
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted, without
obtaining Landlord's consent, to sublease
individual assisted living units. Tenant shall
provide to Landlord a copy of Tenant's standard
form residential lease and any subsequent changes
which may be made to the standard form.

     Section 15.6. COMMERCIAL LEASES. Landlord
acknowledges and understands that Tenant may enter
into one or more commercial subleases covering
portions of the Premises with subtenants who shall
provide certain specialized services and amenities
to the residents of the Facility (e.g. beauty
parlor, convenience store, bank outlet).
Notwithstanding anything to the contrary contained
herein, Tenant shall be permitted to enter
subleases for such purposes without obtaining
Landlord's consent, provided that (i) the term of
such sublease is not greater than five (5) years,
(ii) the square footage to be subleased does not
exceed three thousand (3,000) square feet (iii)
such sublease shall be terminated by the
termination or expiration of this Lease and (iv)
such sublessees shall carry appropriate liability,
including malpractice insurance, if applicable,
naming Landlord, Tenant and any mortgagee as
additional insureds. Any such commercial sublease
which does not meet the foregoing qualiffcations
shall require Landlord's prior consent, which
shall not be unreasonably withheld or delayed.
Upon the request of Landlord, Tenant shall provide
copies of any such executed subleases to Landlord.

     Section 15.7. EFFECT OF ASSIGNMENT OR
SUBLETTING. In all events, notwithstanding any
assignment or subletting permitted hereunder,
Tenant's liability to Landlord shall remain direct
and primary. Any assignee of Tenant's interest in
the Premises shall be deemed to have agreed
directly with Landlord to be jointly and severally
liable with Tenant for the performance of Tenant's
obligations hereunder and such assignee shall upon
request execute and deliver such instruments as
Landlord reasonably requests in confirmation
thereof (and agrees that its failure to do so
shall be subject to the default provisions of this
Lease). At any dme after the occurrence of an
Event of Default hereunder, Landlord may require
any assignee or sublessee to attorn to Landlord
and may collect rent and other charges from any
assignee or sublessee (and upon notice any
assignee or sublessee shall pay such sums directly
to Landlord) and apply the amount collected to the
rent and other charges herein reserved, provided
however that Landlord shall not be liable for any
prepaid rents or security deposits paid by any
sublessees to Tenant or for any other prior
defaults of Tenant under such sublease. No consent
to assigument or collection of rent by Landlord
directly from any assignee or




23



sublessee or failure so to collect such rent shall
be deemed a waiver of the provisions of this
Section 15, an acceptance of such assignee or
sublessee as a tenant hereunder, or a release of
Tenant from direct and primary liability for the
performance of all of the covenants of this Lease.

     Section 16. NOTICES. All notices provided for
in this Lease or related to this Lease shall be in
wridog and shall be delivered to the pardes at the
addresses set forth below. All such notices or
other papers or instruments related to this Lease
shall be deemed aufficiently served or delivered
on the date of receipt or refusal of delivery,
provided that they are sent by United States
Registered or Cerdfied Mail, postage prepaid
return receipt requested, by hand delivery, by
overnight courier or by facsimile transmission:


     To Landlord:   LM Chelmsford Assisted Living
LLC
               c/o LMP Retirement Properties, Inc.
               10 Post Office Square
               Boston, Massachusetts 02109
               Telephone No.:
               Facsimile No.:
               Attn.: Mr. John P. Sawyer, Jr.,
President

     with a copy to:     MSC Assisted Living LLC
               c/o AMRESCO Advisors, Inc.,
               265 Franklin Street, 18th Floor
               Boston, MA 02110
               Attn.: Mr. Richard M. Reeves

     with a copy to:     Goodwin, Procter & Hoar
               Exchange Place
               Boston, MA 02109
               Facsimile No.: (617) 227-8591
               Telephone No.: (617) 570-1000
               Attn: Elizabeth McDermott, Esq.

     with a copy to:     Lerner & Holmes, LLP
               265 Franklin Street, 18th Floor
               Boston, MA 0210
               Telephone No.: 617 443-9470
               Facsimile No.: 617 443-9471
               Attn.: Joel D. Lerner, Esq.

     To Tenant:     Emeritus Corporation
               Market Place One
               2003 Western Avenue, Suite 660
               Seattle, WA 98121
               Telephone No.: 2064434313
               Facsimile No.: 206443-5432
               Attn: Mr. Ray Brandstrom, President

     Both Landlord and Tenant may change the
address or the name of the addressee applicable to
subsequent notices by giving notice as provided
above.

     Section 17. MORTGAGEE PROTECTIONS.

     Section 17.1. ATTORNMENt. Tenant covenants
and agrees that, if by reason of a default upon
the part of the Landlord in the performance of any
of the terms and conditions of any mortgage, the
estate of Landlord thereunder is terminated by
summary disposition proceedings or otherwise,
Tenant will attorn to the then Facility Mortgagee
or the purchaser in such foreclosure proceedings,
as the case may be, and will recognize such
Facility Mortgagee or such purchaser as the
Landlord under this Lease; provided, however, that
the holder of such mortgage or the purchaser in
foreclosure proceedings agrees in writing not to
disturb Tenant's quiet enjoyment of the Premises
so long as


24



Tenant is not in default hereunder beyond
applicable notice and cure periods. Neither such
mortgagee nor purchaser shall be liable for the
acts of the prior Landlord, bound by any prepaid
rent (paid more than one month in advance),
subject to offsets or defenses against the prior
landlord, or bound by any amendments to this Lease
without its consent. Tenant covenants and agrees
to execute and deliver, at any time and from time
to time, upon reasonable request of Landlord or
the holder of such mortgage or the purchaser in
foreclosure, any instrument which may be necessary
to evidence such attornment.

     Section 17.2. CURE RIGHTS. Tenant shall have
the right to cure any default by Landlord in the
payment of any amounts due under any mortgage
secured by the Premises, provided that Tenant
shall not have the right to offset any such sums
against rent due later under the terms of this
Lease.

     Section 17.3. ESTOPPEL STATEMENTS. The
parties hereto shall, at any time and from time to
time upon not less than ten (10) days prior
written notice from the other party, execute,
acknowledge and deliver to such other party, in
form reasonably satisfactory to such other party
or to such other party's mortgagee, a written
statement certifying (if true) that this Lease is
unmodified and in fall force and effect (or if
there have been modifications stating the nature
thereof), that such other party is not in default
hereunder (or specifying the nature of any
default), the date to which rental and other
charges have been paid and such other information
as may be reasonably required by such other party.
It is intended that any such statement delivered
pursuant to this subsection may be relied upon by
any prospective purchaser or mortgagee of the
PreTnises and their respective successors and
assigns.

     Section 17.4. SUBORDINATION. This Lease
shall, at the request and option of the holder of
any Facility Mortgage, be subordinated to the lien
of any Facility Mortgage, so long as Landlord
shall provide Tenant at Landlord's expense with a
Non-Disturbance Agreement from Landlord's
mortgagee providing that Tenant's tenancy under
this Lease Agreement wil1 not be disturbed so long
as Tenant is not in default under this Lease and
in the event of a default by Landlord and
foreclosure under the Facility Mortgage,
Landlord's mortgagee or any purchaser at a
foreclosure sale will take title to the Premises
subject to Tenant's rights under this Lease and
will not disturb Tenant's possession of the
Premises as long as Tenant is not then or
thereafter in default hereunder

     Section 17.5. RENT ASSIGNMENT. If from time
to time Landlord assigns this Lease or the rents
payable hereunder to any person or entiq, whether
such assignment is conditional in nature or
otherwise, such assignment shall not be deemed an
assumption by the assignee of any obligations of
Landlord; but the assignee shall be responsible
only for non-performance of Landlord's obligations
which occur after it succeeds to and only whUe it
holds Landlord's interest in the Premises or is a
mortgagee in possession of the Premises.

     Section 17.6. NOTICE TO MORTGEE. No act or
failure to act on the part of Landlord which would
entitle Tenant under the terms of this Lease, or
by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result
in a release or termination of such obligations or
a termination of this Lease unless (i) Tenant
shall have first given written notice of
Landlord's act or failure to act to each of the
holders under any Facility Mortgage specifying the
act or failure to act on the part of Landlord
which could or would give basis to Tenant's
rights; and (ii) such mortgage holder, after
receipt of such notice, has failed or refused to
correct or cure the condition complained of within
a reasonable time thereafter; but nothing
contained in this Section shall be deemed to
impose any obligation on any such mortgage holder
to correct or cure any such condition. Tenant's
obligation to send a notice to Landlord's
mortgagee in the preceding sentence shall be
limited to mortgagees of which Landlord has
supplied Tenant with names and addresses.
"Reasonable time" as used above shall mean a
period of not less than thirq (30) days and shall
include (but not be limited to) a reasonable time
to obtain possession of the Premises if the
mortgagee elects to do so and a reasonable time to
correct or cure the condition if such condition is
determined to exist. The agreements in this Lease
with respect to the rights and powers of a
mortgagee constitute a continuing offer to any
such third parq baneficiary which may be accepted
by taking a mortgage of the Premises.



25



     Section 18. LANDLORD INSPECTION. Landlord may
enter upon the Premises during normal business
hours and upon prior reasonable notice for the
purpose of inspecting the same. During the last
year of the Term, Landlord shall have the right to
post a "for rent" sign at the Premises provided
such sign shall be similar in size and aesthetic
quality to such other signs used in similar senior
housing developments and which sign shall be
subject to Tenant's reasonable approval.

     Section 19. REPRESENTATIONS AND WARRANTIES.

     Section 19.1 TENANT'S REPRESENTATIONS AND
WARRANTIES. Tenant represents, warrants and
covenants to T qndlord as follows:

     (a) Tenant is a corporation duly organized
and validly existing under the laws of the State
of Washington, is duly authorized to transact
business in the Commonwealth of Massachusetts and
is in good standing under the laws of the State of
Washington.

     (b) Tenant has full right and power to enter
into, or perform its obligations under this Lease
and has taken all requisite action to authorize
the execution, delivery and performance of this
Lease.

     Section 19.2. LANDLORD'S REPRESENTATIONS AND
WARRANTIES.  Landlord represents, warrants and
covenants to Tenant as follows:

     (a) Landlord is a limited liability company
duly organized and validly existing under the laws
of the Commonwealth of Massachusetts.

     (b) Landlord has full right and power to
enter into this Lease and has taken all requisite
action to authorize the execution, delivery and
performance of this Lease and to carry out the
transactions contemplated herein.

     Section 20. FINANCIAL STATEMENT. Tenant shall
furnish to Landlord, from time to time, within a
reasonable time after its demand, (a) current
financial statements of Tenant and (b) current
financial statements for the operations of the
Facility.

     Section 21. SURRENDER. Upon Lease
termination, Tenant shall quit and surrender the
Premises free and clear of all tenants, occupants,
liens, and encumbrances whatsoever except (i)
Permitted Exceptions and (ii) encumbrances
restrictions or reservations caused by or
consented to in writing by Landlord. Tenant shall,
subject to the provisions of Section 10 and 11
hereof, surrender the Premises to Landlord broom
clean and in good order, condition and repair,
reasonable wear and tear excepted, with all
Tenant's signs, furniture, trade fixtures,
equipment and other personal property removed. Any
of Tenant's furniture, trade fixtures, equipment
or other personal property which is not removed
from the Premises by the termination date shall be
deemed abandoned to Landlord and Landlord may
dispose of the same as it sees fit, at Tenant's
expense. All alterations which Landlord has
designated in writing for removal by Tenant
pursuant to Section 6.2 shall be removed by Tenant
except that if having so designated an alteration
for removal, Landlord thereafter gives notice to
Tenant at least six (6) months before the
expiration of the Lease Term that Landlord would
be willing to let such alteration remain after the
expiration of the Lease Term, then Tenant may
elect whether to remove such alteration or leave
it as part of the Premises upon the expiration of
the Lease Term. Tenant shall repair any damage
caused by the removal of any alterations or any of
Tenant's furrliture, trade fixtures, equipment or
other personal property and restore the building
or the surface of the Real Property, as the case
may be, to substantially the condition in which it
was prior to such removal. At any time during the
last six (6) months prior to tbe expiration or
termination of the Lease Term, or after the Term
has ended, Landlord may have an environmental
assessment of the Premises peRormed, at Landlord's
sole cost and expense. Tenant shall peRorm, at it
sole cost and expense, any cleanup or remedial
work required applicable laws and recommended by
the consultant that performed the environmental
assessment to remove, mitigate or remediate any
hazardous substances contamination of the Premises
which, based on such envirormental assessment, is
determined (or reasonably concluded) to have been
introduced by Tenant or its agents, employees,
contractors, or invitees. Prior to surrendering
possession of the




26


Premises, Tenant shall also remove to the extent
required by applicable laws and to the extent
installed by Tenant any personal property,
equipment, fixture and/or storage device or vessel
on or about the Premises which is contaminated by
or which contains hazardous substances.

     Section 22 MISCELLANEOUS.

     Section 22,1. CAPTIONS. The captions in this
Lease are for convenience of reference only. In no
way do those captions define, limit or describe
the scope or intent of this Lease.

     Section 22.2. INTERPRETATION. Words showing
number shall be taken to include both the singular
and the plural forms. Words showing gender shall
be taken to include masculine, feminine and
neuter.

     Section 22.3. SUCCESSORS AND ASSIGNS. Subject
to the restrictions on transfers set forth herein,
this Lease shall inure to the benefit of and be
binding upon Landlord and Tenant and their
respective successors and assigns. The definition
of "Landlord" and "Tenant" herein refer to the
Landlord and Tenant at the time in question.

     Section 22.4. GOVERNING LAW. This Lease shall
be governed, construed, and enforced in accordance
with the laws of the Commonwealth of
Massachusetts.

     Section 22.5. ENTIRE AGREEMENT. This Lease
represents the entirety of the agreement among the
parties hereto and shall be deemed to supersede
any prior discussions or agreements among the
parties hereto. This Lease may not be amended or
modified except by written instrument signed by
the parties hereto.

     Section 22.6. WAIVER. The failure of either
party to insist upon strict peRormance of any of
the covenants, agreements, terms and conditions of
this Lease in any one or snore instances shall not
be construed as a waiver or relinquishment of any
such covenant, agreement, terms, or condition and
the same shall remain in full force and effect.

     Section. 22.7. ATTORNEY'S FEES. In the event
either party brings an action to enforce any of
the terms hereof or in connection herewith, the
prevailing party in such action shall be entitled
to and the losing party agrees to pay the
reasonable attorneys' fees and expenses, including
attorneys' fees and expenses of appellate
proceedings, of the prevailing party.

     Section 22.8. MEMORANDUM. Landlord and Tenant
shall execute a Memorandum of this T Psm in a form
acceptable to Landlord and Tenant. The Memorandum
shall be recorded in the public records of
Middlesex County, Massachusetts. Landlord and
Tenant shall share the cost of recording.

     Section 22.9. UNENFORCEABLE PROVISION. Each
term and provision of this Lease shall be enforced
to the fullest extent permitted by law. Should any
term or provision of this Lease, or the
application thereof, prove illegal or
unenforceable, the remainder of this Lease shall
still be valid and enforced.

     Section 22.10. BROKER. Landlord and Tenant
each represent to the other that there are no
claims for brokerage or other commissions or
finder's or other similar fees in connection with
the transactions contemplated by this Lease
insofar as such claims shall be based on
arrangements or agreements made by or on behalf of
the party so representing, and each indemnifies
the other with respect to any claim by any
purported broker arising from the actions of such
indemnifying party.

     Section 22.11. AMENDMENTS. Neither this Lease
nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an
instrument in writing signed by the parties hereto
and approved in writing by Landlord's Mortgagee if
required under the terms of the Facility Mortgage.





27


     Section 22.12. COUNTERPARTS. This Lease may
be executed in any number of counterparts, each of
which shall be deemed to be an original and all of
which together shall comprise but a single
instrument.

     Section 22.13. APPLYING PROVISIONS. No
provision of this Lease shall be construed against
or interpreted to the disadvantage of either
Landlord or Tenant by any court or other
governmental or judicial authority by reason of
such party's having or being deemed to have
stmctured, written, drafted or dictated such
provisions.

     Section 22.14. TIME OF ESSENCE. Time is of
the essence of this Lease.

     Section 22.15. RELATIONSHIP OF PARTIES.
Nothing in this Lease shall be construed to render
or constitute Landlord in any way or for any
purpose a partner, joint venturer or associate in
any relationship with Tenant other than that as
Landlord and Tenant, nor shall this Lease be
construed to authorize either party to act as
agent for the other party except as expressly
provided to the contrary in this Lease.

     Section 22.16. HOLDING OVER. If Tenant
occupies the Premises after the Lease expiration
date without having entered into a new lease of
the Premises with Landlord, Tenant shall be a
tenant-at- sufferance only subject to all of the
terms and provisions of this Lease except that,
after a holdover of sixty (60) days after Lease
expiration, the Basic Rent shall be one hundred
fifty percent (150%) of the Basic Rent during the
last Lease Year. Such a holding over, even if with
the consent of Landlord, shall not constitute an
extension or renewal of this Lease.

     Section 22.17. USE OF UNION LABOR. Tenant
covenants and agrees that, for so long as MSC
Assisted Living LLC is a Facility Mortgagee, or a
member of Landlord or its successors or assigns,
with respect to any and all alterations,
improvements and/or additions that are made to the
Premises, where the carpentry labor component of
the budget for such alteration, improvement or
addition exceeds $10,000, then Tenant's
contractors and mechanics for such work as is
customarily performed by a member of the
Massachusetts State Council of Carpenters shall be
subject to or covered by the standard collective
bargaining agreements then applicable with locals
aff'liated with the Massachusetts State Council of
Carpenters. If the contractor or mechanics are not
parties to or covered by the aforesaid collective
bargaining agreements, then the Landlord shall
have the right, upon twenty-four (24) hours
written notice to the Tenant, to order Tenant to
cease all work on the Premises (which cease-work
order and the enforcement thereof shall be
Landlord's sole remedy for Tenant's failure to
comply with this Section 22.1.7), in which event,
all work then in progress shall be halted and
shall not be recommenced until and unless the
Tenant's contractors, workers, and mechanics
become subject to or covered by the aforesaid
collective bargaining agreements. Provided that
Tenant has not)fied Landlord prior to or following
commencement of such work as to its plans to use
union or non-union carpentry labor, then Landlord
shall have a period of thirty (30) days from
receipt of such notice to exercise its enforcement
rights under this Section 22.17, and shall be
deemed to have waived such rights if not exercised
within such thirty (30) days, unless Tenant
informs Landlord of its intent to use union
carpentry labor and then uses non-union carpentry
labor, in which case Landlord's rights under this
Section 22.17 shall not be deemed waived. Any
subleases of all or any portion of the Premises
shall also contain the foregoing provision.

     Section 22.18. WAIVER OF TRIAL BY JURY. THE
PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY
PARTY(IES) ON ANY MATTER ARISING OUT OF OR IN ANY
WAY CONNECTED Wll H I HIS LEASE OR THE
RELATIONSHIP OF 1lIE PARTES CREATED HEREUNDER.









28





     IN WITNESS WHEREOF, the parties hereby
execute this Lease Agreement on the day and year
first written above.

     LANDLORD: LM CHELMSFORD ASSISTED LIVING LLC
               Leggatt McCall Retirement
Properties, LLC,
                                           its
Managing Member

                                           By:
/s/ John P. Sawyer, Jr.

- -------------------------------
                                           Its:
President


     TENANT:        EMERITUS CORPORATION,
               a Washington corporation,
               f.k.a Assisted Living of America,
          Inc.

               By:  /s/ Raymond R. Brandstrom

- --------------------------------------
                                           Its:
President













































29

EX-10.58.4

PROMISSORY NOTE

(Auburn)

$ 1,255,000.00
December 3, 1996

Boston, Massachusetts

     FOR VALUE RECEIVED, the undersigned LM Auburn
Assisted Living LLC, a Massachusetts limited
liability company having an address c/o Leggett
McCall Companies, 10 Post Office Square, Boston,
Massachusetts 02109 (hereinafter referred to as
"Borrower"), promises to pay to the order of
Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Lender", Lender and
any and all other holders of this Note being
hereinafter collectively referred to as "Holder"),
at its head office at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 ("Head Office") or
such other place as Holder hereof may designate in
writing, the principal sum of ONE MILLION TWO
HUNDRED FIFTY FIVE THOUSAND AND NO/100 DOLLARS
($1,255,000.00), or so much thereof as may be
advanced hereunder pursuant to the terms hereof,
together with interest as provided herein, as
follows:

I.   PRINCIPAL.

     (a) With respect to that portion of the
principal amount of the Loans evidenced hereby
that is attributable to the Second Advance (as
hereinafter defined), such principal amount shall
be repaid on the basis of a ten (10) year
amortization schedule commencing on the Permanent
Loan Closing Date, together with quarterly
interest payments in an amount and at an interest
rate to be determined in accordance with Paragraph
II(b) below. Such principal amortization payments
shall be made on the last day of each calendar
quarter. If the Permanent Loan Closing Date does
not occur on the last day of a calendar quarter,
the first and last such quarterly principal
payment shall be prorated based on the number of
days elapsed in said partial calendar quarter.

     (b) The outstanding principal balance of the
Initial Advance (as hereinafter defined), together
with all accrued but unpaid interest thereon
(other than interest capitalized pursuant to
Paragraph II(a)) and all other sums due under this
Note, shall be due and payable in full on the
earlier of (i) the Maturity Date (as defined
below), or (ii) the date on which a Capital Event
first occurs. For purposes of this Note, the
Maturity Date shall mean March 15, 2017; provided
that if (i) the term of the Lease (as defined
below) is extended to a date later than March 15,
2017, (ii) no Default or Event or Default is
continuing hereunder at the time of such
extension, and (iii) the Borrower pays to the
Lender a fee in an amount equal to one percent
(l%) of the then outstanding principal balance of
the Loans hereunder, the Maturity Date shall mean
the earlier of (a) the date on which the extended
term of the Lease expires or is terminated, or (b)
March 15, 2027. Notwithstanding the foregoing, the
principal amount of the Initial Advance shall be
repaid only to the extent of (i) seventy-five
percent (75%) of Cash Available for Recapture (as
hereinafter defined) attributable to a Capital
Event (as hereinafter defined), or (ii) if no
Capital Event has occurred on or prior to the
Maturity Date, seventy-five percent (75%) of the
Appraised Value (as hereinafter defined) of the
Facility. The remaining twenty-five percent (25%)
of such Cash Available for Recapture Attributable
to a Capital Event shall be used to pay to Leggett
McCall Retirement Properties LLC






("LMP") a disposition fee in an amount equal to
the sum of (A) $100,000, plus (ii) one-third (1/3)
of the amount of interest capitalized on the
Permanent Loan Closing Date pursuant to the last
sentence of Paragraph II(a) below.

     (c) Borrower shall have no right to prepay
this Note without the prior written consent of the
Holder, except that the Borrower may prepay this
Note from time to time as and to the extent of
seventy-five percent (75%) of Cash Available for
Recapture arising in connection with a Capital
Event that is not used for payment of interest
under Paragraphs II(a) and/or II(b) hereof.

II. INTEREST.

     (a) From and after the date of the advancing
of any portion of the Initial Advance, interest on
the principal amount of such portion of the
Initial Advance shall accrue at a rate per annum
equal to fourteen percent (14%) without
compounding. Unless an Event of Default has
occurred and is continuing (in which event
interest shall become immediately due and
payable), such interest shall accrue but shall not
be payable. Upon the occurrence of the Permanent
Loan Closing Date (as hereinafter defined), such
accrued and unpaid interest shall be capitalized
by becoming part of the principal amount of the
Initial Advance.

     (b) From and after the occurrence of the
Permanent Loan Closing Date, interest on the Loans
(both the Initial Advance and the Second Advance)
shall accrue at a rate per annum to be calculated
based upon a 10 year amortization of the Second
Advance at an annual rate of interest on such
Second Advance equal to fourteen percent (14%),
with such rate of interest on all Loans calculated
to equal the interest component of such ten year
amortization (an example of such calculation is
attached hereto as Exhibit A). Such interest shall
be payable in arrears on the last day of each
calendar quarter. From and after the date at which
the principal amount of the Second Advance has
fully amortized pursuant to this Paragraph II(b),
interest shall continue to accrue and be paid with
respect to the outstanding principal amount of the
Initial Advance at the rate calculated on the
Permanent Loan Closing Date pursuant to this
Paragraph II(b). Such interest shall continue to
be payable in arrears on the last day of each
calendar quarter.

     (c) In addition to the foregoing, the
Borrower shall pay to the Holder additional
interest ("Additional Interest") in an amount
equal to seventy-five percent (75%) of Cash
Available for Recapture.

     (d) In addition to the foregoing, as another
component of Additional Interest, if no Capital
Event consisting of the sale of substantially all
of the Facility shall have occurred on or before
the Maturity Date, Lender and Borrower shall each
select an independent appraiser who shall be a
member of the American Institute of Real Estate
Appraisers of the National Association of
Realtors, and who has received a certificate as an
M.A.I., or its equivalent, and has more than 10
years of experience appraising comparable real
estate in the area of the Facility. The selection
of the second appraiser shall be made within ten
(10) days after either the Lender or Borrower
notifies the other party of the selection of its
appraiser. The first and second appraisers so
selected shall select a third appraiser no later
than ten (10) days after the selection of the
second



2



appraiser. If either the Lender or the Borrower
shall fail to select an appraiser having the
qualifications provided for herein within the time
period specified herein, the appraiser selected in
accordance herewith shall select the second
appraiser within five (5) days after the date that
the second duly qualified appraiser should have
been, but has not been selected. No appraiser
shall have any personal or financial interest as
would disqualify such appraiser from exercising an
independent and impartial judgment as to the value
of the Facility. Within twenty (20) days after the
selection of the last appraiser, each appraiser
shall independently determine and certify to the
Lender and Borrower in writing the fair market
value of the Facility. Upon the completion of such
appraisals, the Borrower shall make a final
payment of Additional Interest in an amount equal
to seventy-five percent (75%) of (i) the value of
the Facility established by such appraisals, less
(ii) the principal amount of all "Senior
Indebtedness" (as that term is defined below) and
all accrued and unpaid interest thereon (the
difference of (i) less (ii) being referred to
herein as the "Appraised Value") after repaying
the outstanding principal amount of the Loans
evidenced hereby and interest accrued thereon
pursuant to Paragraph II(b) and after paying the
Disposition Fee. Notwithstanding anything to the
contrary set forth herein, (1) at no time shall
the aggregate amount of Additional Interest that
has been paid by the Borrower pursuant to this
Paragraph II (c) exceed an amount equal to twenty
percent (20%) (compounding annually) per annum on
the outstanding principal amount of the Loans
hereunder, less the aggregate amount of all
interest paid pursuant to Paragraph II (b) above,
and (2) at no time shall the sum of all amounts
(whether in respect of principal, interest, or
otherwise) paid under this Note exceed an
aggregate amount equal to the sum of (A) seventy-
five percent (75%) of Cash Available for
Recapture, plus (B) any amounts paid or payable
hereunder, to the extent deducted in determining
Cash Available for Recapture.
As used herein, the following terms shall have the
following meanings:

     CAPITAL EVENT. The occurrence, on or before
the Maturity Date, of the sale of all or
substantially all of the Facility.

     CASH AVAILABLE FOR RECAPTURE. For any period,
an amount equal to the sum of (i) Excess Cash Flow
for such period hereunder, plus (ii) all of the
net proceeds from a Capital Event, after payment
of reasonable brokerage fees and other reasonable
closing costs, and payment of all Senior
Indebtedness, plus (iii) all of the net proceeds
from a Refinancing Event, after payment of such
Senior Indebtedness and reasonable out-of-pocket
costs and fees incurred by the Borrower in
connection with such Refinancing Event.

     EXCESS CASH FLOW: For any period, the amount
by which gross payments received under the Lease
during such period exceed the sum of (i) operating
and/or ownership expenses for the Facility
incurred and paid by the Borrower during such
period; plus (ii) payment of any scheduled amounts
of principal, interest or fees due during such
period with respect to any Senior Indebtedness to
the extent that the Loans are subordinate to such
Senior Indebtedness; plus (iii) amounts due during
such period with respect to the Loans, including
scheduled principal amortization and accrued
interest through the end of any such period
commencing on or after the Permanent Loan Closing
Date at the rate set forth in Paragraph II(b).



3




     FACILITV. The real estate described on
Exhibit B hereto, together with the assisted
living facility to be constructed thereon.

     PERMANENT LOAN. The loan to be made to the
Borrower pursuant to that certain Loan Application
and Commitment Agreement dated as of April 4,
1996, by and between the Borrower and Teachers
Insurance and Annuity Association of America or
any subsequent refinancing of such indebtedness.
     
     PERMANENT LOAN CLOSING DATE. The earlier of
(i) the date on which 100% of the proceeds of the
Permanent Loan are advanced to the Borrower, or
(ii) the date which is six (6) months after the
initial disbursement of proceeds in connection
with the Permanent Loan.

     REFINANCING EVENT. The occurrence, on or
before the Maturity Date, of any refinancing, or
other replacement, of the Senior Indebtedness.

     SENIOR INDEBTEDNESS. The sum of (i) any
indebtedness of Borrower which is secured by a
lien upon the Facility, and (ii) that certain
promissory note dated as of April 26, 1996, in the
original principal amount of $1,646,027, executed
and delivered by the Borrower to Hansa Finance
Limited Liability Company, the collective total
amount of which shall not exceed $7,082,227.

     Notwithstanding any provisions in this Note,
or in any instrument securing this Note, the total
liability for payments legally regarded as
interest shall not exceed the maximum limits
imposed by the laws of the State of Washington in
effect on the date hereof, and any payment of same
in excess of the amount allowed thereby shall, as
of the date of such payment, automatically be
deemed to have been applied to the payment of the
principal indebtedness evidenced hereby, or, if
same has been fully repaid, shall be deemed to be
held by Holder as additional security for all
remaining indebtedness of Borrower to Holder and
shall be repaid to Borrower upon demand after all
of such indebtedness has been fully paid. Any
notation or record of Holder with respect to such
required application which is inconsistent with
the provisions of this paragraph shall be
disregarded for all purposes and shall not be
binding upon either Borrower or Holder.

     The Borrower and the Lender have each entered
into a Lease Agreement dated as of February
26,1996 (the "Lease"), pursuant to which the
Borrower has leased the Facility to the Lender. In
the event that the Lender fails to pay to the
Borrower any amounts owing with respect to the
Lease from time to time, then until such time as
such amounts are paid, the Borrower's obligations
under this Note shall be abated by an amount (the
"Reduction Amount") equal to the lesser of (i) any
amounts then due and payable under this Note that
have not. otherwise been paid or (ii) the amount
of such nonpayment under the Lease, such reduction
to be applied first to accrued interest which is
due and payable (other than Additional Interest),
and then to the outstanding principal amount of
the Loans evidenced hereby. Upon payment by Lender
of amounts due under the Lease, such abatement
shall cease and all amounts then due and payable,
including interest accruing at the non-default
rate during such period of abatement, shall be
promptly paid to Lender.




4



     The loans evidenced hereby (the "Loans")
shall be made to the Borrower in three separate
advances. The first such advance shall occur on
the date hereof in the amount of $200,000 (the
"Original Initial Advance"). So long as no Event
of Default is continuing hereunder, the second
such advance shall occur on or before January 15,
1997, in the amount of $100,000 (collectively with
the Original Initial Advance, the
"Initial Advance"). So long as (a) no Event of
Default is continuing hereunder, and (b) the
Lender shall have received an assignment of all of
the economic interests of the members of the
Borrower, other than the one percent (l%) interest
of the managing member of the Borrower, pursuant
to a collateral assignment of interests (all such
interests assigned pursuant to any such collateral
assignment being hereinafter collectively referred
to as the "Collateral") in the form of Exhibit C
attached hereto (collectively, the "Collateral
Assignments" and, collectively with this Note, the
"Loan Documents"), the final such advance shall
occur on the Permanent Loan Closing Date in the
amount of $955,000, or such other amount as the
Lender and the Borrower shall agree to in writing
(the "Second Advance"), provided, that the
Borrower may request a lesser amount without the
written consent of the Lender.

     All sums payable under this Note shall be
paid in immediately available funds in lawful
money of the United States of America which shall
be legal tender for public and private purposes at
the time of such payment.

     All payments under this Note shall be made to
Holder without notice, demand, set-off (except for
the abatement of payments due expressly set forth
herein with respect to Lender's failure to make
payments under the Lease) or counterclaim and free
and clear of and without deduction on account of
taxes, levies, fees, deductions, withholdings,
restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any
political subdivision thereof unless Borrower is
required by law to make such deductions. If any
such obligation is imposed upon Borrower with
respect to any amount payable by it hereunder, it
will pay to Holder, on the date on which such
amount becomes due and payable hereunder, such
additional amount as shall be necessary to enable
Holder to receive the same net amount which it
would have received on such due date had no such
obligation been imposed upon Borrower.

III. EVENTS OF DEFAULT.

If any of the following events ("Events of
Default") shall occur:

     (a) the Borrower shall fail to pay when due
and payable any principal, interest, Additional
Interest or any other monetary amount with respect
to the obligations hereunder when the same becomes
due, and such failure shall continue for five (5)
business days thereafter;

     (b) the Borrower shall fail to perform any
other nonmonetary term, covenant or agreement
contained in the Loan Documents within ten (10)
business days following Borrower's receipt of
notice of such failure;

     (c) any of the Loan Documents shall cease to
be in full force and effect,



5





     (d) the Borrower (i) shall make an assignment
for the benefit of creditors, (ii) shall be
adjudicated bankrupt or insolvent, (iii) shall
seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or
receiver as to all or part of its assets, (iv)
shall commence, approve or consent to, any case or
proceeding under any bankruptcy, reorganization or
similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not
dismissed within sixty (60) days following the
commencement thereof, or (v) shall be the subject
of an order for relief in an involuntary case
under federal bankruptcy law;

     (e) there shall remain undischarged for more
than sixty (60) days following the expiration of
any applicable appeals period any final judgment
or execution action against the Borrower, with
respect to which the Borrower has failed to
provide a surety bond, that, together with other
outstanding claims and execution actions against
the Borrower exceeds $100,000.00 in the aggregate;

THEN, or at any time thereafter:

     (1) In the case of any Event of Default under
clause III(d) above, the Lender shall have no
obligation to advance further funds hereunder, and
the entire unpaid principal amount of this Note,
all interest accrued and unpaid thereon, and all
other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) shall
automatically become forthwith due and payable,
without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived
by the Borrower; and

     (2) In the case of any Event of Default other
than III(d) above, the Lender may, by written
notice to the Borrower that has caused or is
otherwise the subject of such Event of Default,
terminate any further obligation to provide funds
hereunder and/or declare the unpaid principal
amount of this Note, all interest accrued and
unpaid thereon, and all other amounts payable
hereunder and under the other Loan Documents
(including, without limitation, the payment of
Additional Interest pursuant to an appraisal of
the Facility) to be forthwith due and payable,
without presentment, demand, protest or further
notice of any kind, all of which are hereby
expressly waived by the Borrower.

     No remedy herein conferred upon the Lender is
intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and in
addition to every other remedy hereunder, now or
hereafter existing at law or in equity or
otherwise.

     Anything contained in this Note or the Loan
Documents notwithstanding, the Lender hereby
agrees that none of the members of the Borrower
shall be personally liable for the repayment of
any of the obligations hereunder or under any
other Loan Documents, including any deficiency
judgment obtained by the Lender after foreclosure
on its Collateral.





6




     In the event of any default in the payment of
this Note, and if the same is referred to an
attorney at law for collection or suit is brought
hereon, Borrower shall pay Holder, in either case,
all expenses and costs of collection, including,
but not limited to, reasonable attorney's fees.
Time is of the essence of this Note.

     Borrower and Lender acknowledge and agree
that the late payment of amounts due under this
Note shall result in Lender incurring
administrative costs and expenses that will be
difficult, if not impossible, to calculate.
Therefore, as a reasonable estimation of such
costs and expenses that Lender will incur upon
such late payment, Borrower agrees to pay Lender a
late payment fee in an amount equal to five
percent (5%) of the late-paid amount, provided,
that in the event of any payments due to the
Lender in connection with a Capital Event or a
Refinancing Event, such late payment fee shall not
be applicable so long as the Borrower makes such
payments to the Lender not later than fifteen (15)
days after the occurrence of such Capital Event or
Refinancing Event. Such late payment fee shall
become due and payable when Borrower's failure to
pay the amount owed constitutes an Event of
Default.

     From time to time, without affecting the
obligation of Borrower or any sureties,
guarantors, endorsers, accommodation parties or
other persons liable or to become liable on this
Note to pay the outstanding principal balance of
this Note and observe the covenants of Borrower
contained herein, without giving notice to or
obtaining the consent of Borrower or any such
sureties, guarantors, endorsers, accommodation
parties or other persons, and without liability on
the part of Holder, Holder may, at the option of
Holder, extend the time for payment of said
outstanding principal balance, interest or any
part thereof, reduce the payments thereon, release
anyone liable on any of said outstanding principal
balance, accept a renewal of this Note, modify the
terms and time of payment of said outstanding
principal balance or join in any extension or
subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period
of amortization of this Note or change the amount
of the monthly installments payable hereunder. No
one or more of such actions shall constitute a
novation.

     Presentment, notice of dishonor, protest and
notice of protest are hereby waived by Borrower
and all sureties, guarantors, endorsers and
accommodation parties hereof and all other persons
liable or to become liable on this Note. Borrower
further waives any and all homestead and exemption
rights under the laws and constitutions of the
United States of America, the State of Washington
and any other state. This Note shall be the joint
and several obligation of Borrower and all
sureties, guarantors, endorsers, accommodation
parties and all other persons liable or to become
liable on this Note, and shall be binding upon
them and their successors and assigns.

     The obligations evidenced hereby are
expressly subordinate and junior in right and
payment to (i) the Senior Liabilities under and as
defined in (and to the extent provided for in)
that certain Subordination and Standstill
Agreement of even date herewith by and between
Fleet National Bank and the Lender, and (ii) the
Senior Liabilities under and as defined in (and to
the extent provided for in) that certain
Subordination and Standstill Agreement of even
date herewith, by and between Hansa Finance
Limited Liability Company and the Lender.



7



     This Note shall be governed and construed in
accordance with the laws of the State of
Washington.

     Borrower hereby irrevocably and
unconditionally (a) submits to personal
jurisdiction in the State of Washington over any
suit, action or proceeding arising out of or
relating to this Note, and (b) waives any and all
personal rights under the laws of any state (i) to
the right, if any, to trial by jury, or (ii) to
object to jurisdiction within the State of
Washington or venue in any particular forum within
the State of Washington. Borrower agrees that, in
addition to any methods of service of process
provided for under applicable law, all service of
process in any such suit, action or proceeding may
be made by certified or registered mail, return
receipt requested, directed to Borrower at the
address set forth above, and service so made shall
be complete five (5) days after the same shall be
so mailed. Nothing contained herein, however,
shall prevent Holder from bringing any suit,
action or proceeding or exercising any rights
against any security and against Borrower, and
against any property of Borrower, in any other
state. Initiating such suit, action or proceeding
or taking such action in any state shall in no
event constitute a waiver of the agreement
contained herein that the laws of the State of
Washington shall govern the rights and obligations
of Borrower and Holder hereunder or the submission
herein made by Borrower to personal jurisdiction
within the State of Washington.

     This Note may not be amended, modified, or
changed, nor shall any waiver of any provision
hereof be effective, except only by an instrument
in writing signed by the party against whom
enforcement of any waiver, amendment, change,
modification or discharge is sought.

     Whenever used herein, the words "Borrower"
and "Holder" shall be deemed to include their
respective heirs, legal representatives,
successors and assigns.

     IN WITNESS WHEREOF, Borrower has executed
this Note under seal as of the date first above
written.


LM AUBURN ASSISTED LIVING LLC


By:  Leggett McCall Retirement

Properties LLC, its

managing member


By:   Leggett McCall Properties

Group LLC, its

managing member


By: /s/ John P. Sawyer, Jr.

- ------------------------------

Authorized Member





8

EX-10.58.5

PROMISSORY NOTE

$1,450,000.00
January 15,1997

Boston, Massachusetts

     FOR VALUE RECEIVED, the undersigned LM
Louisville Assisted Living LLC, a Delaware limited
liability company having an address c/o Leggett
McCall Companies, 10 Post Office Square, Boston,
Massachusetts 02109 (hereinafter referred to as
"Borrower"), promises to pay to the order of
Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Lender", Lender and
any and all other holders of this Note being
hereinafter collectively referred to as "Holder"),
at its head office at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 ("Head Office") or
such other place as Holder hereof may designate in
writing, the principal sum of ONE MILLION FOUR
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($1,450,000.00), or so much thereof as may be
advanced hereunder pursuant to the terms hereof,
together with interest as provided herein, as
follows:

     I. PRINCIPAL.

     (a) With respect to that portion of the
principal amount of the Loans evidenced hereby
that is attributable to the Second Advance (as
hereinafter defined), such principal amount; shall
be repaid on the basis of a twelve (12) year
amortization schedule commencing on the Permanent
Loan Closing Date, together with quarterly
interest payments in an amount and at an interest
rate to be determined in accordance with Paragraph
II(b) below. Such principal amortization payments
shall be made on the last day of each calendar
quarter. If the Permanent Loan Closing Date does
not occur on the last day of a calendar quarter,
the first and last such quarterly principal
payments shall be prorated based on the number of
days elapsed in said partial calendar quarter.

     (b) The outstanding principal balance of the
Initial Advance (as hereinafter defined), together
with all accrued but unpaid interest thereon
(other than interest capitalized pursuant to
Paragraph II(a)) and all other sums due under this
Note, shall be due and payable in full on the
earlier of (i) the Maturity Date (as defined
below), or (ii) the date on which a Capital Event
first occurs. For purposes of this Note, the
Maturity Date shall mean April 15, 2017; provided
that if (i) the term of the Lease (as defined
below) is extended to a date later than April 15,
2017, (ii) no Default or Event of Default is
continuing hereunder at the time of such
extension, and (iii) the Borrower pays to the
Lender a fee in an amount equal to one percent
(1%) of the then outstanding principal balance of
the Loans hereunder, the Maturity Date shall mean
the earlier of (a) the date on which the extended
term of the Lease expires or is terminated, or (b)
April 15, 2027. Notwithstanding the foregoing, the
principal amount of the Initial Advance shall be
repaid only to the extent of (i) seventy-five
percent (75%) of Cash Available for Recapture (as
hereinafter defined) attributable to a Capital
Event (as hereinafter defined), or (ii) if no
Capital Event has occurred on or prior to the
Maturity Date, seventy-five percent (75%) of the
Appraised Value (as hereinafter defined) of the
Facility.

     (c) Borrower shall have no right to prepay
this Note without the prior written consent of the
Holder.






II. INTEREST.

     (a) From and after the date of the Initial
Advance, interest on the principal amount of the
Initial Advance shall accrue at a rate per annum
equal to fourteen percent (14%) without
compounding. Unless an Event of Default has
occurred and is continuing (in which event
interest shall become immediately due and
payable), such interest shall accrue but shall not
be payable. Upon the occurrence of the Permanent
Loan Closing Date (as hereinafter defined), such
accrued and unpaid interest shall be capitalized
by becoming part of the principal amount of the
Initial Advance.

     (b) From and after the occurrence of the
Permanent Loan Closing Date, interest on the Loans
(both the Initial Advance and the Second Advance)
shall accrue at a rate per annum to be calculated
based upon a 10 year amortization of the Second
Advance at an annual rate of interest on such
Second Advance equal to fourteen percent (14%),
with such rate of interest on all Loans calculated
to equal the interest component of such ten year
amortization (an example of such calculation is
attached hereto as Exhibit A). Such interest shall
be payable in arrears on the last day of each
calendar quarter. From and after the date at which
the principal amount of the Second Advance has
fully amortized pursuant to this Paragraph II(b),
interest shall continue to accrue and be paid with
respect to the outstanding principal amount of the
Initial Advance at the rate calculated on the
Permanent Loan Closing Date pursuant to this
Paragraph II(b). Such interest shall continue to
be payable in arrears on the last day of each
calendar quarter.

     (c) In addition to the foregoing, the
Borrower shall pay to the Holder additional
interest ("Additional Interest") in an amount
equal to seventy-five percent (75%) of Cash
Available for Recapture. Such interest shall be
payable in arrears fifteen days following the end
of each calendar quarter, provided, that if a
Capital Event or Refinancing Event occurs during
such calendar quarter, such Additional Interest
shall be payable fifteen days following such
occurrence.

     (d) In addition to the foregoing, as another
component of Additional Interest, if no Capital
Event shall have occurred on or before the
Maturity Date, Lender and Borrower shall each
select an independent appraiser who shall be a
member of the American Institute of Real Estate
Appraisers of the National Association of
Realtors, and who has received a certificate as an
M.A.I., or its equivalent, and has more than 10
years of experience appraising comparable real
estate in the area of the Facility. The selection
of the second appraiser shall be made within ten
(10) days after either the Lender or Borrower
notifies the other party of the selection of its
appraiser. The first and second appraisers so
selected shall select a third appraiser no later
than ten (10) days after the selection of the
second appraiser. If either the Lender or the
Borrower shall fail to select an appraiser having
the qualifications provided for herein within the
time period specified herein, the appraiser
selected in accordance herewith shall select the
second appraiser within five (5) days after the
date that the second duly qualified appraiser
should have been, but has not been selected. No
appraiser shall have any personal or financial
interest as would disqualify such appraiser from
exercising an independent and impartial judgment
as to the value of the Facility. Within twenty
(20) days after the selection of the last
appraiser, each appraiser shall independently
determine and certify to the Lender and Borrower
in writing the fair market value of the Facility.
Upon the


                                                2



completion of such appraisals, the Borrower shall
make a final payment of Additional Interest in an
amount equal to seventy-five percent (75%) of (i)
the value of the Facility established by such
appraisals, less (ii) the principal amount of all
"Senior Indebtedness" (as that term is defined
below) and all accrued and unpaid interest thereon
after repaying the outstanding principal amount of
the Loans evidenced hereby and interest accrued
thereon pursuant to Paragraph II(b) and after
paying the Disposition Fee, as hereinafter defined
(the difference of (i) less (ii) being referred to
herein as the "Appraised Value"). The phrase
"Disposition Fee" shall mean a disposition fee
payable to Leggett McCall Retirement Properties
LLC in an amount equal to the sum of (A) $100,000,
plus (B) one-third (1/3) of the amount of interest
capitalized on the Permanent Loan Closing Date
pursuant to the last sentence of Paragraph II(a).
Notwithstanding anything to the contrary set forth
herein, (1) at no time shall the aggregate amount
of Additional Interest that has been paid by the
Borrower pursuant to Paragraph II(c) and this
Paragraph II(d) exceed an amount equal to twenty
percent (20%) (compounding annually) per annum on
the outstanding principal amount of the Loans
hereunder, less the aggregate amount of all
interest paid pursuant to Paragraph II (b) above,
and (2) at no time shall the sum of all amounts
(whether in respect of principal, interest, or
otherwise) paid under this Note exceed an
aggregate amount equal to the sum of (A) seventy-
five percent (75%) of Cash Available for
Recapture, plus (B) any amounts paid or payable
hereunder, to the extent deducted in determining
Cash Available for Recapture.

     As used herein, the following terms shall
have the following meanings:

     CAPITAL EVENT. The occurrence, on or before
the Maturity Date, of the sale of all or
substantially all of the Facility.

     CASH AVAILABLE FOR RECAPTURE. For any period,
an amount equal to the sum of (i) Excess Cash Flow
for such period hereunder, plus (ii) all of the
net proceeds from a Capital Event, after payment
of reasonable brokerage fees and other reasonable
closing costs, and payment of all Senior
Indebtedness, plus (iii) all of the net proceeds
from a Refinancing Event, after payment of such
Senior Indebtedness and reasonable out-of-pocket
costs and fees incurred by the Borrower in
connection with such Refinancing Event.

     EXCESS CASH FLOW: For any period, the amount
by which gross payments received under the Lease
during such period exceed the sum of (i) operating
and/or ownership expenses for the Facility
incurred and paid by the Borrower during such
period; plus (ii) payment of any scheduled amounts
of principal, interest or fees due during such
period with respect to any Senior Indebtedness to
the extent that the Loans are subordinate to such
Senior Indebtedness; plus (iii) amounts due during
such period with respect to scheduled principal
amortization pursuant to Paragraph I(b) and
accrued interest through the end of any such
period commencing on or after the Permanent Loan
Closing Date at the rate set forth in Paragraph
II(b).

     FACILITY. The real estate described on
Exhibit B hereto, together with the assisted
living facility to be constructed thereon.





3



     PERMANENT LOAN. The loan to be made to the
Borrower pursuant to that certain Loan Application
and Commitment Agreement dated as of
April 4, 1996, by and between the Borrower and
Teachers Insurance and Annuity Association of
America.

     PERMANENT LOAN CLOSING DATE. The earlier of
(i) the date on which 100% of the proceeds of the
Permanent Loan are advanced to the Borrower, or
(ii) the date which is six (6) months after the
initial disbursement of proceeds in connection
with the Permanent Loan.

     REFINANCING EVENT. The occurrence, on or
before the Maturity Date, of any refinancing, or
other replacement, of the Senior Indebtedness.

     SENIOR INDEBTEDNESS. The sum of (i) any
indebtedness of Borrower which is secured by a
lien upon the Facility, and (ii) that certain
promissory note dated as of April 29, 1996, in the
original principal amount of $1,505,000, executed
and delivered by the Borrower to Hansa Finance
Limited Liability Company, the collective total
amount of which shall not exceed $6,474,700.

     Notwithstanding any provisions in this Note,
or in any instrument securing this Note, the total
liability for payments legally regarded as
interest shall not exceed the maximum limits
imposed by the laws of the State of Washington in
effect on the date hereof, and any payment of same
in excess of the amount allowed thereby shall, as
of the date of such payment, automatically be
deemed to have been applied to the payment of the
principal indebtedness evidenced hereby, or, if
same has been fully repaid, shall be deemed to be
held by Holder as additional security for all
remaining indebtedness of Borrower to Holder and
shall be repaid to Borrower upon demand after all
of such indebtedness has been fully paid. Any
notation or record of Holder with respect to such
required application which is inconsistent with
the provisions of this paragraph shall be
disregarded for all purposes and shall not be
binding upon either Borrower or Holder.

     The Borrower and the Lender have entered into
a Lease Agreement dated as of February 26, 1996
(the "Lease"), pursuant to which the Borrower has
leased the Facility to the Lender. In the event
that the Lender fails to pay to the Borrower any
amounts owing with respect to the Lease from time
to time, then until such time as such amounts are
paid, the Borrower's obligations under this Note
shall be abated by an amount (the "Reduction
Amount") equal to the lesser of (i) any amounts
then due and payable under this Note that have not
otherwise been paid or (ii) the amount of such
nonpayment under the Lease, such reduction to be
applied first to accrued interest which is due and
payable (other than Additional Interest), and then
to the outstanding principal amount of the Loans
evidenced hereby. Upon payment by Lender of
amounts due under the Lease, such abatement shall
cease and all amounts then due and payable,
including interest accruing at the non-default
rate during such period of abatement, shall be
promptly paid to Lender.







4




     The loans evidenced hereby (the "Loans")
shall be made to the Borrower in two separate
advances. The first such advance shall occur on
the date hereof in the amount of $300,000 (the
"Initial Advance"). So long as (a) no Event of
Default is continuing hereunder, and (b) the
Lender shall have received an assignment of all of
the economic interests of the members of the
Borrower, other than the one percent (1%) interest
of the managing member of the Borrower, pursuant
to a collateral assignment of membership interests
(all such interests assigned pursuant to any such
collateral assignment being hereinafter
collectively referred to as the "Collateral") in
the form of Exhibit A attached hereto
(collectively, the "Collateral Assignments" and,
collectively with this Note, the "Loan
Documents"), the second such advance shall occur
on the Permanent Loan Closing Date in the amount
of $1,150,000, or such other amount as the Lender
and the Borrower shall agree to in writing (the
"Second Advance"), provided, that the Borrower may
request a lesser amount without the written
consent of the Lender.

     All sums payable under this Note shall be
paid in immediately available funds in lawful
money of the United States of America which shall
be legal tender for public and private purposes at
the time of such payment.

     All payments under this Note shall be made to
Holder without notice, demand, set-off (except for
the abatement of payments due expressly set forth
herein with respect to Lender's failure to make
payments under the Lease) or counterclaim and free
and clear of and without deduction on account of
taxes, levies, fees, deductions, withholdings,
restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any
political subdivision thereof unless Borrower is
required by law to make such deductions. If any
such obligation is imposed upon Borrower with
respect to any amount payable by it hereunder, it
will pay to Holder, on the date on which such
amount becomes due and payable hereunder, such
additional amount as shall be necessary to enable
Holder to receive the same net amount which it
would have received on such due date had no such
obligation been imposed upon Borrower.

III. EVENTS OF DEFAULT.

If any of the following events ("Events of
Default") shall occur:

     (a) the Borrower shall fail to pay when due
and payable any principal, interest, Additional
Interest or any other monetary amount with respect
to the obligations hereunder when the same becomes
due, and such failure shall continue for five (5)
business days thereafter;

     (b) the Borrower shall fail to perform any
other nonmonetary term, covenant or agreement
contained in the Loan Documents within ten (10)
business days following Borrower's receipt of
notice of such failure;

     (c) any of the Loan Documents shall cease to
be in full force and effect,

     (d) the Borrower (i) shall make an assignment
for the benefit of creditors, (ii) shall be
adjudicated bankrupt or insolvent, (iii) shall
seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or
receiver as to all or part of its assets, (iv)
shall commence, approve or consent to, any case or
proceeding under any


5



bankruptcy, reorganization or similar law and, in
the case of an involuntary case or proceeding,
such case or proceeding is not dismissed within
sixty (60) days following the commencement
thereof, or (v) shall be the subject of an order
for relief in an involuntary case under federal
bankruptcy law;

     (e) there shall remain undischarged for more
than sixty (60) days following the expiration of
any applicable appeals period any final judgment
or execution action against the Borrower, with
respect to which the Borrower has failed to
provide a surety bond, that, together with other
outstanding claims and execution actions against
the Borrower exceeds $100,000.00 in the aggregate;

THEN, or at any time thereafter:

     (1) In the case of any Event of Default under
clause III(d) above, the Lender shall have no
obligation to advance further funds hereunder, and
the entire unpaid principal amount of this Note,
all interest accrued and unpaid thereon, and all
other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) shall
automatically become forthwith due and payable,
without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived
by the Borrower; and

     (2) In the case of any Event of Default other
than an Event of Default under clause III(d)
above, the Lender may, by written notice to the
Borrower that has caused or is otherwise the
subject of such Event of Default, terminate any
further obligation to provide funds hereunder
and/or declare the unpaid principal amount of this
Note, all interest accrued and unpaid thereon, and
all other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) to be
forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all
of which are hereby expressly waived by the
Borrower.

     No remedy herein conferred upon the Lender is
intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and in
addition to every other remedy hereunder, now or
hereafter existing at law or in equity or
otherwise.
Anything contained in this Note or the Loan
Documents notwithstanding, the Lender hereby
agrees that none of the members of the Borrower
shall be personally liable for the repayment of
any of the obligations hereunder or under any
other Loan Documents, including any deficiency
judgment obtained by the Lender after foreclosure
on its Collateral.

     In the event of any default in the payment of
this Note, and if the same is referred to an
attorney at law for collection or suit is brought
hereon, Borrower shall pay Holder, in either case,
all expenses and costs of collection, including,
but not limited to, reasonable attorney's fees.
Time is of the essence of this Note.





6




     Borrower and Lender acknowledge and agree
that the late payment of amounts due under this
Note shall result in Lender incurring
administrative costs and expenses that will be
difficult, if not impossible, to calculate.
Therefore, as a reasonable estimation of such
costs and expenses that Lender will incur upon
such late payment, Borrower agrees to pay Lender a
late payment fee in an amount equal to five
percent (5%) of the late-paid amount, provided,
that in the event of any payments due to the
Lender in connection with a Capital Event or a
Refinancing Event, such late payment fee shall not
be applicable so long as the Borrower makes such
payments to the Lender not later than fifteen (15)
days after the occurrence of such Capital Event or
Refinancing Event. Such late payment fee shall
become due and payable when Borrower's failure to
pay the amount owed constitutes an Event of
Default.

     From time to time, without affecting the
obligation of Borrower or any sureties,
guarantors, endorsers, accommodation parties or
other persons liable or to become liable on this
Note to pay the outstanding principal balance of
this Note and observe the covenants of Borrower
contained herein, without giving notice to or
obtaining the consent of Borrower or any such
sureties, guarantors, endorsers, accommodation
parties or other persons, and without liability on
the part of Holder, Holder may, at the option of
Holder, extend the time for payment of said
outstanding principal balance, interest or any
part thereof, reduce the payments thereon, release
anyone liable on any of said outstanding principal
balance, accept a renewal of this Note, modify the
terms and time of payment of said outstanding
principal balance or join in any extension or
subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period
of amortization of this Note or change the amount
of the monthly installments payable hereunder. No
one or more of such actions shall constitute a
novation.

     Presentment, notice of dishonor, protest and
notice of protest are hereby waived by Borrower
and all sureties, guarantors, endorsers and
accommodation parties hereof and all other persons
liable or to become liable on this Note. Borrower
further waives any and all homestead and exemption
rights under the laws and constitutions of the
United States of America, the State of Washington
and any other state. This Note shall be the joint
and several obligation of Borrower and all
sureties, guarantors, endorsers, accommodation
parties and all other persons liable or to become
liable on this Note, and shall be binding upon
them and their successors and assigns.

     The obligations evidenced hereby are
expressly subordinate and junior in right and
payment to (i) the Senior Liabilities under and as
defined in (and to the extent provided for in)
that certain Subordination and Standstill
Agreement of even date herewith by and between
Fleet National Bank and the Lender, and (ii) the
Senior Liabilities under and as defined in (and to
the extent provided for in) that certain
Subordination and Standstill Agreement of even
date herewith, by and between Hansa Finance
Limited Liability Company and the Lender.

     This Note shall be governed and construed in
accordance with the laws of the State of
Washington.





7



     Borrower hereby irrevocably and
unconditionally (a) submits to personal
jurisdiction in the State of Washington over any
suit, action or proceeding arising out of or
relating to this Note, and (b) waives any and all
personal rights under the laws of any state (i) to
the right, if any, to trial by jury, or (ii) to
object to jurisdiction within the State of
Washington or venue in any particular forum within
the State of Washington. Borrower agrees that, in
addition to any methods of service of process
provided for under applicable law, all service of
process in any such suit, action or proceeding may
be made by certified or registered mail, return
receipt requested, directed to Borrower at the
address set forth above, and service so made shall
be complete five (5) days after the same shall be
so mailed. Nothing contained herein, however,
shall prevent Holder from bringing any suit,
action or proceeding or exercising any rights
against any security and against Borrower, and
against any property of Borrower, in any other
state. Initiating such suit, action or proceeding
or taking such action in any state shall in no
event constitute a waiver of the agreement
contained herein that the laws of the State of
Washington shall govern the rights and obligations
of Borrower and Holder hereunder or the submission
herein made by Borrower to personal jurisdiction
within the State of Washington.

     This Note may not be amended, modified, or
changed, nor shall any waiver of any provision
hereof be effective, except only by an instrument
in writing signed by the party against whom
enforcement of any waiver, amendment, change,
modification or discharge is sought.

     Whenever used herein, the words "Borrower"
and "Holder" shall be deemed to include their
respective heirs, legal representatives,
successors and assigns.

     IN WITNESS WHEREOF, Borrower has executed
this Note under seal as of the date first above
written.


LM LOUISVILLE  ASSISTED LIVING

LLC, by its general partner


By: Leggett McCall Retirement

Properties LLC


By: /s/ John P. Sawyer, Jr.

- ------------------------------------------

Authorized Member













8

EX-10.58.6

PROMISSORY NOTE

$1,275,000.00
January 15,1997

Boston, Massachusetts
     
     FOR VALUE RECEIVED, the undersigned LM Rocky
Hill Assisted Living Limited Partnership, a
Delaware limited partnership having an address c/o
Leggett McCall Companies, 10 Post Office Square,
Boston, Massachusetts 02109 (hereinafter referred
to as "Borrower"), promises to pay to the order of
Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Lender", Lender and
any and all other holders of this Note being
hereinafter collectively referred to as "Holder"),
at its head office at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 ("Head Office") or
such other place as Holder hereof may designate in
writing, the principal sum of ONE MILLION TWO
HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($1,275,000.00), or so much thereof as may be
advanced hereunder pursuant to the terms hereof,
together with interest as provided herein, as
follows:

I. PRINCIPAL.
     
     (a) With respect to that portion of the
principal amount of the Loans evidenced hereby
that is attributable to the Second Advance (as
hereinafter defined), such principal amount shall
be repaid on the basis of a ten (10) year
amortization schedule commencing on the Permanent
Loan Closing Date, together with quarterly
interest payments in an amount and at an interest
rate to be determined in accordance with Paragraph
II(b) below. Such principal amortization payments
shall be made on the last day of each calendar
quarter. If the Permanent Loan Closing Date does
not occur on the last day of a calendar quarter,
the first and last such quarterly principal
payments shall be prorated based on the number of
days elapsed in said partial calendar quarter.
     
     (b) The outstanding principal balance of the
Initial Advance (as hereinafter defined), together
with all accrued but unpaid interest thereon
(other than interest capitalized pursuant to
Paragraph II(a)) and all other sums due under this
Note, shall be due and payable in full on the
earlier of (i) the Maturity Date (as defined
below), or (ii) the date on which a Capital Event
first occurs. For purposes of this Note, the
Maturity Date shall mean April 7, 2017; provided
that if (i) the term of the Lease (as defined
below) is extended to a date later than April 7,
2017, (ii) no Default or Event of Default is
continuing hereunder at the time of such
extension, and (iii) the Borrower pays to the
Lender a fee in an amount equal to one percent
(l%) of the then outstanding principal balance of
the Loans hereunder, the Maturity Date shall mean
the earlier of (a) the date on which the extended
term of the Lease expires or is terminated, or (b)
April 7, 2027. Notwithstanding the foregoing, the
principal amount of the Initial Advance shall be
repaid only to the extent of (i) seventy-five
percent (75%) of Cash Available for Recapture (as
hereinafter defined) attributable to a Capital
Event (as hereinafter defined), or (ii) if no
Capital Event has occurred on or prior to the
Maturity Date, seventy-five percent (75%) of the
Appraised Value (as hereinafter defined) of the
Facility.
     
     (c) Borrower shall have no right to prepay
this Note without the prior written consent of the
Holder.






II. INTEREST.
     
     (a) From and after the date of the Initial
Advance, interest on the principal amount of the
Initial Advance shall accrue at a rate per annum
equal to fourteen percent (14%) without
compounding. Unless an Event of Default has
occurred and is continuing (in which event
interest shall become immediately due and
payable), such interest shall accrue but shall not
be payable. Upon the occurrence of the Permanent
Loan Closing Date (as hereinafter defined), such
accrued and unpaid interest shall be capitalized
by becoming part of the principal amount of the
Initial Advance.
     
     (b) From and after the occurrence of the
Permanent Loan Closing Date, interest on the Loans
(both the Initial Advance and the Second Advance)
shall accrue at a rate per annum to be calculated
based upon a 10 year amortization of the Second
Advance at an annual rate of interest on such
Second Advance equal to fourteen percent (14%),
with such rate of interest on all Loans calculated
to equal the interest component of such ten year
amortization (an example of such calculation is
attached hereto as Exhibit A). Such interest shall
be payable in arrears on the last day of each
calendar quarter. From and after the date at which
the principal amount of the Second Advance has
fully amortized pursuant to this Paragraph II(b),
interest shall continue to accrue and be paid with
respect to the outstanding principal amount of the
Initial Advance at the rate calculated on the
Permanent Loan Closing Date pursuant to this
Paragraph II(b). Such interest shall continue to
be payable in arrears on the last day of each
calendar quarter.

     (c) In addition to the foregoing, the
Borrower shall pay to the Holder additional
interest ("Additional Interest") in an amount
equal to seventy-five percent (75%) of Cash
Available for Recapture. Such interest shall be
payable in arrears fifteen days following the end
of each calendar quarter, provided, that if a
Capital Event or Refinancing Event occurs during
such calendar quarter, such Additional Interest
shall be payable fifteen
days following such occurrence.
     
     (d) In addition to the foregoing, as another
component of Additional Interest, if no Capital
Event shall have occurred on or before the
Maturity Date, Lender and Borrower shall each
select an independent appraiser who shall be a
member of the American Institute of Real Estate
Appraisers of the National Association of
Realtors, and who has received a certificate as an
M.A.I., or its equivalent, and has more than 10
years of experience appraising comparable real
estate in the area of the Facility. The selection
of the second appraiser shall be made within ten
(10) days after either the Lender or Borrower
notifies the other party of the selection of its
appraiser. The first and second appraisers so
selected shall select a third appraiser no later
than ten (10) days after the selection of the
second appraiser. If either the Lender or the
Borrower shall fail to select an appraiser having
the qualifications provided for herein within the
time period specified herein, the appraiser
selected in accordance herewith shall select the
second appraiser within five (5) days after the
date that the second duly qualified appraiser
should have been, but has not been selected. No
appraiser shall have any personal or financial
interest as would disqualify such appraiser from
exercising an independent and impartial judgment
as to the value of the Facility. Within twenty
(20) days after the selection of the last
appraiser, each appraiser shall independently
determine and certify to the Lender and Borrower
in writing the fair market value of the Facility.
Upon the completion of such appraisals, the
Borrower shall make a final payment of Additional



2


Interest in an amount equal to seventy-five
percent (75%) of (i) the value of the Facility
established by such appraisals, less (ii) the
principal amount of all "Senior Indebtedness" (as
that term is defined below) and all accrued and
unpaid interest thereon after repaying the
outstanding principal amount of the Loans
evidenced hereby and interest accrued thereon
pursuant to Paragraph II(b) and after paying the
Disposition Fee, as hereinafter defined (the
difference of (i) less (ii) being referred to
herein as the "Appraised Value"). The phrase
"Disposition Fee" shall mean a disposition fee
payable to Leggett McCall Retirement Properties
LLC in an amount equal to the sum of (A) $100,000,
plus (B) one-third (1/3) of the amount of interest
capitalized on the Permanent Loan Closing Date
pursuant to the last sentence of Paragraph II(a).
Notwithstanding anything to the contrary set forth
herein, (1) at no time shall the aggregate amount
of Additional Interest that has been paid by the
Borrower pursuant to Paragraph II(c) and this
Paragraph II(d) exceed an amount equal to twenty
percent (20%) (compounding annually) per annum on
the outstanding principal amount of the Loans
hereunder, less the aggregate amount of all
interest paid pursuant to Paragraph II (b) above,
and (2) at no time shall the sum of all amounts
(whether in respect of principal, interest, or
otherwise) paid under this Note exceed an
aggregate amount equal to the sum of (A) seventy-
five percent (75%) of Cash Available for
Recapture, plus (B) any amounts paid or payable
hereunder, to the extent deducted in determining
Cash Available for Recapture.
     
     As used herein, the following terms shall
have the following meanings:
     
     CAPITAL EVENT. The occurrence, on or before
the Maturity Date, of the sale of all or
substantially all of the Facility.
     
     CASH AVAILABLE FOR RECAPTURE. For any period,
an amount equal to the sum of (i) Excess Cash Flow
for such period hereunder, plus (ii) all of the
net proceeds from a Capital Event, after payment
of reasonable brokerage fees and other reasonable
closing costs, and payment of all Senior
Indebtedness, plus (iii) all of the net proceeds
from a Refinancing Event, after payment of such
Senior Indebtedness and reasonable out-of-pocket
costs and fees incurred by the Borrower in
connection with such Refinancing Event.
     
     EXCESS CASH FLOW: For any period, the amount
by which gross payments received under the Lease
during such period exceed the sum of (i) operating
and/or ownership expenses for the Facility
incurred and paid by the Borrower during such
period; plus (ii) payment of any scheduled amounts
of principal, interest or fees due during such
period with respect to any Senior Indebtedness to
the extent that the Loans are subordinate to such
Senior Indebtedness; plus (iii) amounts due during
such period with respect to scheduled principal
amortization pursuant to Paragraph I(b) and
accrued interest through the end of any such
period commencing on or after the Permanent Loan
Closing Date at the rate set forth in Paragraph
II(b).
     
     FACILITY. The real estate described on
Exhibit B hereto, together with the assisted
living facility to be constructed thereon.
     
     
     
     
     
     
     3



     PERMANENT LOAN. The loan to be made to the
Borrower pursuant to that certain Loan Application
and Commitment Agreement dated as of
April 4, 1996, by and between the Borrower and
Teachers Insurance and Annuity Association of
America.

     PERMANENT LOAN CLOSING DATE. The earlier of
(i) the date on which l00% of the proceeds of the
Permanent Loan are advanced to the Borrower, or
(ii) the date which is six (6) months after the
initial disbursement of proceeds in connection
with the Permanent Loan.

     REFINANCING EVENT. The occurrence, on or
before the Maturity Date, of any refinancing, or
other replacement, of the Senior Indebtedness.

     SENIOR INDEBTEDNESS. The sum of (i) any
indebtedness of Borrower which is secured by a
lien upon the Facility, and (ii) that certain
promissory note dated as of April 29, 1996, in the
original principal amount of 1,671,000, executed
and delivered by the Borrower to Hansa Finance
Limited Liability Company, the collective total
amount of which shall not exceed $6,814,600.
     
     Notwithstanding any provisions in this Note,
or in any instrument securing this Note, the total
liability for payments legally regarded as
interest shall not exceed the maximum limits
imposed by the laws of the State of Washington in
effect on the date hereof, and any payment of same
in excess of the amount allowed thereby shall, as
of the date of such payment, automatically be
deemed to have been applied to the payment of the
principal indebtedness evidenced hereby, or, if
same has been fully repaid, shall be deemed to be
held by Holder as additional security for all
remaining indebtedness of Borrower to Holder and
shall be repaid to Borrower upon demand after all
of such indebtedness has been fully paid. Any
notation or record of Holder with respect to such
required application which is inconsistent with
the provisions of this paragraph shall be
disregarded for all purposes and shall not be
binding upon either Borrower or Holder.
     
     The Borrower and the Lender have entered into
a Lease Agreement dated as of February 26, 1996
(the "Lease"), pursuant to which the Borrower has
leased the Facility to the Lender. In the event
that the Lender fails to pay to the Borrower any
amounts owing with respect to the Lease from time
to time, then until such time as such amounts are
paid, the Borrower's obligations under this Note
shall be abated by an amount (the "Reduction
Amount") equal to the lesser of (i) any amounts
then due and payable under this Note that have not
otherwise been paid or (ii) the amount of such
nonpayment under the Lease, such reduction to be
applied first to accrued interest which is due and
payable (other than Additional Interest), and then
to the outstanding principal amount of the Loans
evidenced hereby. Upon payment by Lender of
amounts due under the Lease, such abatement shall
cease and all amounts then due and payable,
including interest accruing at the non-default
rate during such period of abatement, shall be
promptly paid to Lender.
     
     The loans evidenced hereby (the "Loans")
shall be made to the Borrower in two separate
advances. The first such advance shall occur on
the date hereof in the amount of $300,000 (the
"Initial Advance"). So long as (a) no Event of
Default is continuing hereunder, and (b) the
Lender shall have received an assignment of all of
the economic interests of the limited partners of
the Borrower, pursuant to a collateral assignment
of


4



limited partnership interests (all such interests
assigned pursuant to any such collateral
assignment being hereinafter collectively referred
to as the "Collateral") in the form of Exhibit A
attached hereto (collectively, the "Collateral
Assignments" and, collectively with this Note, the
"Loan Documents"), the second such advance shall
occur on the Permanent Loan Closing Date in the
amount of $975,000, or such other amount as the
Lender and the Borrower shall agree to in writing
(the "Second Advance"), provided, that the
Borrower may request a lesser amount without the
written consent of the Lender.
     
     All sums payable under this Note shall be
paid in immediately available funds in lawful
money of the United States of America which shall
be legal tender for public and private purposes at
the time of such payment.
     
     All payments under this Note shall be made to
Holder without notice, demand, set-off (except for
the abatement of payments due expressly set forth
herein with respect to Lender's failure to make
payments under the Lease) or counterclaim and free
and clear of and without deduction on account of
taxes, levies, fees, deductions, withholdings,
restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any
political subdivision thereof unless Borrower is
required by law to make such deductions. If any
such obligation is imposed upon Borrower with
respect to any amount payable by it hereunder, it
will pay to Holder, on the date on which such
amount becomes due and payable hereunder, such
additional amount as shall be necessary to enable
Holder to receive the same net amount which it
would have received on such due date had no such
obligation been imposed upon Borrower.

III. EVENTS OF DEFAULT.

     If any of the following events ("Events of
Default") shall occur:

     (a) the Borrower shall fail to pay when due
and payable any principal, interest, Additional
Interest or any other monetary amount with respect
to the obligations hereunder when the same becomes
due, and such failure shall continue for five (5)
business days thereafter;
     
     (b) the Borrower shall fail to perform any
other nonmonetary term, covenant or agreement
contained in the Loan Documents within ten (10)
business days following Borrower's receipt of
notice of such failure;
     
     (c) any of the Loan Documents shall cease to
be in full force and effect,
     
     (d) the Borrower (i) shall make an assignment
for the benefit of creditors, (ii) shall be
adjudicated bankrupt or insolvent, (iii) shall
seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or
receiver as to all or part of its assets, (iv)
shall commence, approve or consent to, any case or
proceeding under any bankruptcy, reorganization or
similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not
dismissed within sixty (60) days following the
commencement thereof, or (v) shall be the subject
of an order for relief in an involuntary case
under federal bankruptcy law;
     
     
     
                                              5


     
     (e) there shall remain undischarged for more
than sixty (60) days following the expiration of
any applicable appeals period any final judgment
or execution action against the Borrower, with
respect to which the Borrower has failed to
provide a surety bond, that, together with other
outstanding claims and execution actions against
the Borrower exceeds $100,000.00 in the aggregate;

THEN, or at any time thereafter:
     
     (1) In the case of any Event of Default under
clause III(d) above, the Lender shall have no
obligation to advance further funds hereunder, and
the entire unpaid principal amount of this Note,
all interest accrued and unpaid thereon, and all
other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) shall
automatically become forthwith due and payable,
without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived
by the Borrower; and
     
     (2) In the case of any Event of Default other
than an Event of Default under clause III(d)
above, the Lender may, by written notice to the
Borrower that has caused or is otherwise the
subject of such Event of Default, terminate any
further obligation to provide funds hereunder
and/or declare the unpaid principal amount of this
Note, all interest accrued and unpaid thereon, and
all other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) to be
forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all
of which are hereby expressly waived by the
Borrower.

     No remedy herein conferred upon the Lender is
intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and in
addition to every other remedy hereunder, now or
hereafter existing at law or in equity or
otherwise.
     
     Anything contained in this Note or the Loan
Documents notwithstanding, the Lender hereby
agrees that none of the partners of the Borrower
shall be personally liable for the repayment of
any of the obligations hereunder or under any
other Loan Documents, including any deficiency
judgment obtained by the Lender after foreclosure
on its Collateral.
     
     In the event of any default in the payment of
this Note, and if the same is referred to an
attorney at law for collection or suit is brought
hereon, Borrower shall pay Holder, in either case,
all expenses and costs of collection, including,
but not limited to, reasonable attorney's fees.
Time is of the essence of this Note.
     
     Borrower and Lender acknowledge and agree
that the late payment of amounts due under this
Note shall result in Lender incurring
administrative costs and expenses that will be
difficult, if not impossible, to calculate.
Therefore, as a reasonable estimation of such
costs and expenses that Lender will incur upon
such late payment, Borrower agrees to pay Lender a
late payment fee in an amount equal to five
percent (5%) of the late-paid amount, provided,
that in the event of any payments due to the
Lender in



6



connection with a Capital Event or a Refinancing
Event, such late payment fee shall not be
applicable so long as the Borrower makes such
payments to the Lender not later than fifteen (15)
days after the occurrence of such Capital Event or
Refinancing Event. Such late payment fee shall
become due and payable when Borrower's failure to
pay the amount owed constitutes an Event of
Default.

     From time to time, without affecting the
obligation of Borrower or any sureties,
guarantors, endorsers, accommodation parties or
other persons liable or to become liable on this
Note to pay the outstanding principal balance of
this Note and observe the covenants of Borrower
contained herein, without giving notice to or
obtaining the consent of Borrower or any such
sureties, guarantors, endorsers, accommodation
parties or other persons, and without liability on
the part of Holder, Holder may, at the option of
Holder, extend the time for payment of said
outstanding principal balance, interest or any
part thereof, reduce the payments thereon, release
anyone liable on any of said outstanding principal
balance, accept a renewal of this Note, modify the
terms and time of payment of said outstanding
principal balance or join in any extension or
subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period
of amortization of this Note or change the amount
of the monthly installments payable hereunder. No
one or more of such actions shall constitute a
novation.
     
     Presentment, notice of dishonor, protest and
notice of protest are hereby waived by Borrower
and all sureties, guarantors, endorsers and
accommodation parties hereof and all other persons
liable or to become liable on this Note. Borrower
further waives any and all homestead and exemption
rights under the laws and constitutions of the
United States of America, the State of Washington
and any other state. This Note shall be the joint
and several obligation of Borrower and all
sureties, guarantors, endorsers, accommodation
parties and all other persons liable or to become
liable on this Note, and shall be binding upon
them and their successors and assigns.
     
     The obligations evidenced hereby are
expressly subordinate and junior in right and
payment to (i) the Senior Liabilities under and as
defined in (and to the extent provided for in)
that certain Subordination and Standstill
Agreement of even date herewith by and between
Fleet National Bank and the Lender, and (ii) the
Senior Liabilities under and as defined in (and to
the extent provided for in) that certain
Subordination and Standstill Agreement of even
date herewith, by and between Hansa Finance
Limited Liability Company and the Lender.
     
     This Note shall be governed and construed in
accordance with the laws of the State of
Washington.
     
     Borrower hereby irrevocably and
unconditionally (a) submits to personal
jurisdiction in the State of Washington over any
suit, action or proceeding arising out of or
relating to this Note, and (b) waives any and all
personal rights under the laws of any state (i) to
the right, if any, to trial by jury, or (ii) to
object to jurisdiction within the State of
Washington or venue in any particular forum within
the State of Washington. Borrower agrees that, in
addition to any methods of service of process
provided for under applicable law, all service of
process in any such suit, action or proceeding may
be made by certified or registered mail, return
receipt requested, directed to Borrower at the


7



address set forth above, and service so made shall
be complete five (5) days after the same shall be
so mailed. Nothing contained herein, however,
shall prevent Holder from bringing any suit,
action or proceeding or exercising any rights
against any security and against Borrower, and
against any property of Borrower, in any other
state. Initiating such suit, action or proceeding
or taking such action in any state shall in no
event constitute a waiver of the agreement
contained herein that the laws of the State of
Washington shall govern the rights and obligations
of Borrower and Holder hereunder or the submission
herein made by Borrower to personal jurisdiction
within the State of Washington.
     
     This Note may not be amended, modified, or
changed, nor shall any waiver of any provision
hereof be effective, except only by an instrument
in writing signed by the party against whom
enforcement of any waiver, amendment, change,
modification or discharge is sought.
     
     Whenever used herein, the words "Borrower"
and "Holder" shall be deemed to include their
respective heirs, legal representatives,
successors and assigns.
     
     IN WITNESS WHEREOF, Borrower has executed
this Note under seal as of the date first above
written.


LM ROCKY HILL ASSISTED

LIVING LIMITED

PARTNERSHIP, by its general

partner


By: /s/ John P. Sawyer, Jr.

- --------------------------

authorized member





















8

EX-10.58.7

PROMISSORY NOTE

(Chelmsford)

$300,000.00
January 15,1997

Boston, Massachusetts

     FOR VALUE RECEIVED, the undersigned LM
Chelmsford Assisted Living LLC, a Massachusetts
limited liability company, having an address c/o
Leggett McCall Companies, 10 Post Office Square,
Boston, Massachusetts 02109 (hereinafter referred
to as "Borrower"), promises to pay to the order of
Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Lender", Lender and
any and all other holders of this Note being
hereinafter collectively referred to as "Holder"),
at its head office at 3131 Elliott Avenue,
Seattle, Washington 98121 ("Head Office") or such
other place as Holder hereof may designate in
writing, the principal sum of THREE HUNDRED
THOUSAND AND NO/100 DOLLARS ($300,000.00), or so
much thereof as may be advanced hereunder pursuant
to the terms hereof, together with interest as
provided herein, as follows:

I. PRINCIPAL.

     (a) The outstanding principal balance of the
loans evidenced hereby (the "Loans"), together
with all accrued but unpaid interest thereon and
all other sums due under this Note, shall be due
and payable in full on the earlier of (i) the
Maturity Date (as defined below), or (ii) the date
on which a Capital Event (as defined below) first
occurs. For purposes of this Note, the Maturity
Date shall mean September l, 2017; provided that
if (i) the term of the Lease (as defined below) is
extended to a date later than September l, 2017,
(ii) no default or Event of Default is continuing
hereunder at the time of such extension, and (iii)
the Borrower pays to the Lender a fee in an amount
equal to one percent (l%) of the then outstanding
principal balance of the Loans hereunder, the
Maturity Date shall mean the earlier of (a) the
date on which the extended term of the Lease
expires or is terminated, or (b) September 1,
2027. Notwithstanding the foregoing, the principal
amount of the Loans shall be repaid only to the
extent of (i) seventy-five percent (75%) of the
Borrower's Share of Cash Available for Recapture
(as hereinafter defined) attributable to a Capital
Event, or (ii) if no Capital Event has occurred on
or prior to the Maturity Date, seventy-five
percent (75%) of the Borrower's Share of the
Appraised Value (as hereinafter defined) of the
Facility.

     (b) Borrower shall have no right to prepay
this Note without the prior written consent of the
Holder.

II. INTEREST.

     (a) From and after the date of the date
hereof, interest on the principal amount of the
Loans shall accrue at a rate per annum equal to
eight percent (8%) without compounding. Unless an
Event of Default has occurred and is continuing
(in which event interest shall become immediately
due and payable), such interest shall accrue but
shall not be payable. Upon the occurrence of the
Permanent Loan Closing Date (as hereinafter
defined), such accrued and unpaid interest shall
be capitalized by becoming part of the principal
amount of the Loans.





     (b) From and after the occurrence of the
Permanent Loan Closing Date, interest on the Loans
shall accrue at a rate per annum equal to eight
percent (8%) without compounding. Such interest
shall be payable in arrears on the last day of
each calendar quarter.

     (c) In addition to the foregoing, from and
after the Permanent Loan Closing Date, the
Borrower shall pay to the Holder additional
interest ("Additional Interest") in an amount
equal to seventy-five percent (75%) of the
Borrower's Share of Cash Available for Recapture.
Such interest shall be payable in arrears fifteen
days following the end of each calendar quarter,
provided, that if a Capital Event or Refinancing
Event occurs during such calendar quarter, such
Additional Interest shall be payable fifteen days
following such occurrence.

     (d) In addition to the foregoing, as another
component of Additional Interest, if no Capital
Event shall have occurred on or before the
Maturity Date, Lender and Borrower shall each
select an independent appraiser who shall be a
member of the American Institute of Real Estate
Appraisers of the National Association of
Realtors, and who has received a certificate as an
M.A.I., or its equivalent, and has more than 10
years of experience appraising comparable real
estate in the area of the Facility. The selection
of the second appraiser shall be made within ten
(10) days after either the Lender or Borrower
notifies the other party of the selection of its
appraiser. The first and second appraisers so
selected shall select a third appraiser no later
than ten (10) days after the selection of the
second appraiser. If either the Lender or the
Borrower shall fail to select an appraiser having
the qualifications provided for herein within the
time period specified herein, the appraiser
selected in accordance herewith shall select the
second appraiser within five (5) days after the
date that the second duly qualified appraiser
should have been, but has not been selected. No
appraiser shall have any personal or financial
interest as would disqualify such appraiser from
exercising an independent and impartial judgment
as to the value of the Facility. Within twenty
(20) days after the selection of the last
appraiser, each appraiser shall independently
determine and certify to the Lender and Borrower
in writing the fair market value of the Facility.
Upon the completion of such appraisals, the
Borrower shall make a final payment of Additional
Interest in an amount equal to seventy-five
percent (75%) of (i) the value of the Facility
established by such appraisals, less (ii) the
principal amount of all "Senior Indebtedness" (as
that term is defined below) and all accrued and
unpaid interest thereon after repaying the
outstanding principal amount of the Loans
evidenced hereby and interest accrued thereon
pursuant to Paragraph II(b) and after paying the
Disposition Fee, as hereinafter defined (the
difference of (i) less (ii) being referred to
herein as the "Appraised Value").
As used herein, the phrase "Disposition Fee" shall
mean a disposition fee to be paid to Leggett
McCall Retirement Properties LLC ("LMP") in an
amount equal to the sum of (A) $100,000, plus (B)
one-third (1/3) of the amount of interest
capitalized on the Permanent Loan Closing Date
pursuant to the last sentence of Paragraph II(a)
below. Notwithstanding anything to the contrary
set forth herein, (1) at no time shall the
aggregate amount of Additional Interest that has
been paid by the Borrower pursuant to Paragraph
II(c) this Paragraph II(d) exceed an amount equal
to twenty percent (20%) (compounding annually) per
annum on the outstanding principal amount of the
Loans hereunder, less the aggregate amount of all
interest paid pursuant to Paragraph II (b) above,
and (2) at no time shall the sum of all amounts
(whether in respect of principal,



2



interest, or otherwise) paid under this Note
exceed an aggregate amount equal to the sum of (A)
seventy-five percent (75%) of the Borrower's Share
of Cash Available for Recapture, plus (B) any
amounts paid or payable hereunder, to the extent
deducted in determining the Borrower's Share of
Cash Available for Recapture.

     As used herein, the following terms shall
have the following meanings:

     BORROWER'S SHARE. Initially, a percentage
equal to l00%. At any time after the Borrower
conveys the Facility to any other person (a
"Subsequent Transferee"), a percentage equal to
the percentage of the overall economic interests
in the Subsequent; Transferee which is held by the
Borrower.

     CAPITAL EVENT. The occurrence, on or before
the Maturity Date, of the sale of all or
substantially all of the Facility.

     CASH AVAILABLE FOR RECAPTURE. For any period,
an amount equal to the sum of (i) Excess Cash Flow
for such period hereunder, plus (ii) all of the
net proceeds from a Capital Event, after payment
of reasonable brokerage fees and other reasonable
closing costs, and payment of all Senior
Indebtedness, plus (iii) all of the net proceeds
from Refinancing Event, after payment of such
Senior Indebtedness and reasonable out-of pocket
costs and fees incurred by the Borrower (or the
Subsequent Transferee) in connection with such
Refinancing Event.

     EXCESS CASH FLOW: For any period, the amount
by which gross payments received under the Lease
during such period exceed the sum of (i) operating
and/or ownership expenses for the Facility
incurred and paid by the Borrower (or the
Subsequent Transferee) during such period; plus
(ii) payment of any scheduled amounts of
principal, interest or fees due during such period
with respect to Senior Indebtedness to the extent
that the Loans are subordinate to such Senior
Indebtedness; plus (iii) amounts due during such
period with respect to accrued interest through
the end of any such period commencing on or after
the Permanent Loan Closing Date at the rate set
forth in Paragraph II(b).

     FACILITY. The real estate described on
Exhibit B hereto together with the assisted living
facility to be constructed thereon.

     PERMANENT LOAN. The loan to be made pursuant
to the Permanent Loan Commitment as defined in
that certain Agreement to form Limited Liability
Company dated as of November 19, 1996, by and
between the Borrower and MSPCF Assisted Living,
Inc. ("MSPCF").

     PERMANENT LOAN CLOSING DATE. The earlier of
(i) the date on which l00% of the proceeds of the
Permanent Loan are advanced to the Borrower or the
Subsequent Transferee, as the case may be, or (ii)
the date which is six (6) months after the initial
disbursement of proceeds in connection with the
Permanent Loan.

     REFINANCING EVENT. The occurrence, on or
before the Maturity :Date, of any refinancing, or
other replacement, of the Senior Indebtedness.



3



     SENIOR INDEBTEDNESS. Any indebtedness of
Borrower which is secured by a lien upon the
Facility, the collective total amount of which
shall not exceed $7,100,000.
     
     Notwithstanding any provisions in this Note,
or in any instrument securing this Note, the total
liability for payments legally regarded as
interest shall not exceed the maximum limits
imposed by the laws of the State of Washington in
effect on the date hereof, and any payment of same
in excess of the amount allowed thereby shall, as
of the date of such payment, automatically be
deemed to have been applied to the payment of the
principal indebtedness evidenced hereby, or, if
same has been fully repaid, shall be deemed to be
held by Holder as additional security for all
remaining indebtedness of Borrower to Holder and
shall be repaid to Borrower upon demand after all
of such indebtedness has been fully paid. Any
notation or record of Holder with respect to such
required application which is inconsistent with
the provisions of this paragraph shall be
disregarded for all purposes and shall not be
binding upon either Borrower or Holder.

     This Note is secured by, inter alia, certain
Collateral Assignments of Membership Interests of
even date herewith, executed and delivered by each
member of the Borrower to the Lender
(collectively, the "Collateral Assignment") (all
such interests assigned pursuant to the Collateral
Assignments being hereinafter collectively
referred to as the "Collateral"). This Note and
the Collateral Assignments are hereinafter
collectively referred to as the "Loan Documents".

     All sums payable under this Note shall be
paid in immediately available funds in lawful
money of the United States of America which shall
be legal tender for public and private purposes at
the time of such payment.

     All payments under this Note shall be made to
Holder without notice, demand, set-off (except for
the abatement of payments due expressly set forth
herein with respect to Lender's failure to make
payments under the Lease) or counterclaim and free
and clear of and without deduction on account of
taxes, levies, fees, deductions, withholdings,
restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any
political subdivision thereof unless Borrower is
required by law to make such deductions. If any
such obligation is imposed upon Borrower with
respect to any amount payable by it hereunder, it
will pay to Holder, on the date on which such
amount becomes due and payable hereunder, such
additional amount as shall be necessary to enable
Holder to receive the same net amount which it
would have received on such due date had no such
obligation been imposed upon Borrower.

III. EVENTS OF DEFAULT.

If any of the following events ("Events of
Default") shall occur:

     (a) the Borrower shall fail to pay when due
and payable any principal, interest, Additional
Interest or any other monetary amount with respect
to the obligations hereunder when the same becomes
due, and such failure shall continue for five (5)
business days thereafter;




4




     (b) the Borrower shall fail to perform any
other nonmonetary term, covenant or agreement
contained in the Loan Documents within ten (10)
business days following Borrower's receipt of
notice of such failure;

     (c) any of the Loan Documents shall cease to
be in full force and effect,

     (d) the Borrower (i) shall make an assignment
for the benefit of creditors, (ii) shall be
adjudicated bankrupt or insolvent, (iii) shall
seek the appointment of, or be the subject of an
order appointing, a trustee, liquidator or
receiver as to all or part of its assets, (iv)
shall commence, approve or consent to, any case or
proceeding under any bankruptcy, reorganization or
similar law and, in the case of an involuntary
case or proceeding, such case or proceeding is not
dismissed within sixty (60) days following the
commencement thereof, or (v) shall be the subject
of an order for relief in an involuntary case
under federal bankruptcy law;

     (e) there shall remain undischarged for more
than sixty (60) days following the expiration of
any applicable appeals period any final judgment
or execution action against the Borrower, with
respect to which the Borrower has failed to
provide a surety bond, that, together with other
outstanding claims and execution actions against
the Borrower exceeds $100,000.00 in the aggregate;

THEN, or at any time thereafter:

     (1) In the case of any Event of Default under
clause III (d) above, the Lender shall have no
obligation to advance further funds hereunder, and
the entire unpaid principal amount of this Note,
all interest accrued and unpaid thereon, and all
other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) shall
automatically become forthwith due and payable,
without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived
by the Borrower; and

     (2) In the case of any Event of Default other
than an Event of Default under clause III (d)
above, the Lender may, by written notice to the
Borrower that has caused or is otherwise the
subject of such Event of Default, terminate any
further obligation to provide funds hereunder
and/or declare the unpaid principal amount of this
Note, all interest accrued and unpaid thereon, and
all other amounts payable hereunder and under the
other Loan Documents (including, without
limitation, the payment of Additional Interest
pursuant to an appraisal of the Facility) to be
forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all
of which are hereby expressly waived by the
Borrower.

     No remedy herein conferred upon the Lender is
intended to be exclusive of any other remedy and
each and every remedy shall be cumulative and in
addition to every other remedy hereunder, now or
hereafter existing at law or in equity or
otherwise.






5



     Anything contained in this Note or the Loan
Documents notwithstanding, the Lender hereby
agrees that none of the members of the Borrower
shall be personally liable for the repayment of
any of the obligations hereunder or under any
other Loan Documents, including any deficiency
judgment obtained by the Lender after foreclosure
on its Collateral.

     In the event of any default in the payment of
this Note, and if the same is referred to an
attorney at law for collection or suit is brought
hereon, Borrower shall pay Holder, in either case,
all expenses and costs of collection, including,
but not limited to, reasonable attorney's fees.
Time is of the essence of this Note.

     Borrower and Lender acknowledge and agree
that the late payment of amounts due under this
Note shall result in Lender incurring
administrative costs and expenses that wil1 be
difficult, if not impossible, to calculate.
Therefore, as a reasonable estimation of such
costs and expenses that Lender will incur upon
such late payment, Borrower agrees to pay Lender a
late payment fee in an amount equal to five
percent (5%) of the late-paid amount, provided,
that in the event of any payments due to the
Lender in connection with a Capital Event or a
Refinancing Event, such late payment fee shall not
be applicable so long as the Borrower makes such
payments to the Lender not later than fifteen (15)
days after the occurrence of such Capital Event or
Refinancing Event. Such late payment fee shall
become due and payable when Borrower's failure to
pay the amount owed constitutes an Event of
Default.

     From time to time, without affecting the
obligation of Borrower or any sureties,
guarantors, endorsers, accommodation parties or
other persons liable or to become liable on this
Note to pay the outstanding principal balance of
this Note and observe the covenants of Borrower
contained herein, without giving notice to or
obtaining the consent of Borrower or any such
sureties, guarantors, endorsers, accommodation
parties or other persons, and without liability on
the part of Holder, Holder may, at the option of
Holder, extend the time for payment of said
outstanding principal balance, interest or any
part thereof, reduce the payments thereon, release
anyone liable on any of said outstanding principal
balance, accept a renewal of this Note, modify the
terms and time of payment of said outstanding
principal balance or join in any extension or
subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period
of amortization of this Note or change the amount
of the monthly installments payable hereunder. No
one or more of such actions shall constitute a
novation.

     Presentment, notice of dishonor, protest and
notice of protest are hereby waived by Borrower
and all sureties, guarantors, endorsers and
accommodation parties hereof and all other persons
liable or to become liable on this Note. Borrower
further waives any and all homestead and exemption
rights under the laws and constitutions of the
United States of America, the State of Washington
and any other state. This Note shall be the joint
and several obligation of Borrower and all
sureties, guarantors, endorsers, accommodation
parties and all other persons liable or to become
liable on this Note, and shall be binding upon
them and their successors and assigns.

     This Note shall be governed and construed in
accordance with the laws of the State of
Washington.

     
                                            6


     The obligations evidenced hereby are
expressly subordinate and junior in right and
payment to the Senior Liabilities under and as
defined in (and to the extent provided for in)
that certain Subordination and Standstill
Agreement of even date herewith by and between
MSCPF and the Lender.

     Borrower hereby irrevocably and
unconditionally (a) submits to personal
jurisdiction in the State of Washington over any
suit, action or proceeding arising out of or
relating to this Note, and (b) waives any and all
personal rights under the laws of any state (i) to
the right, if any, to trial by jury, or (ii) to
object to jurisdiction within the State of
Washington or venue in any particular forum within
the State of Washington. Borrower agrees that, in
addition to any methods of service of process
provided for under applicable law, all service of
process in any such suit, action or proceeding may
be made by certified or registered mail, return
receipt requested, directed to Borrower at the
address set forth above, and service so made shall
be complete five (5) days after the same shall be
so mailed. Nothing contained herein, however,
shall prevent Holder from bringing any suit,
action or proceeding or exercising any rights
against any security and against Borrower, and
against any property of Borrower, in any other
state. Initiating such suit, action or proceeding
or taking such action in any state shall in no
event constitute a waiver of the agreement
contained herein that the laws of the State of
Washington shall govern the rights and obligations
of Borrower and Holder hereunder or the submission
herein made by Borrower to personal jurisdiction
within the State of Washington.

     This Note may not be amended, modified, or
changed, nor shall any waiver of any provision
hereof be effective, except only by an instrument
in writing signed by the party against whom
enforcement of any waiver, amendment, change,
modification or discharge is sought.

     Whenever used herein, the words "Borrower"
and "Holder" shall be deemed to include their
respective heirs, legal representatives,
successors and assigns.

     IN WITNESS WHEREOF, Borrower has executed
this Note under seal as of the date first above
written.

                                               LM
CHELMSFORD ASSISTED

LIVING LLC, by its general partner

                                               By:
Leggett McCall Retirement

Properties LLC

                                               By:
/s/ John P. Sawyer, Jr.

- ------------------------------

EX-10.59.1

(Grand Terrace)

                         FIRST AMENDMENT TO
FACILITY LEASE AGREEMENT

     This FIRST AMENDMENT TO FACII.ITY LEASE
AGREEMENT ("Amendment") is dated as of the 31st
day of December,1996 and is between MEDITRUST
ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its principal
office at 197 First Avenue, Needham Heights,
Massachusetts OZ 194, and EMERITUS PROPERTIES I,
INC. ("Lessee"), a Washington corporation, having
its principal office at c/o Emeritus Corporation,
3 I 31 Elliott Avenue, Suite 500, Seattle,
Washington 98121-2162.

     WHEREAS, Lessor and Lessee entered into that
certain Facility Lease Agreement, dated as of
August 2,1996, with respect to certain premises
located in Grand terrace, San Bernardino County,
California (the "Lease"); and

     WHEREAS, Lessor and Lessee have agreed to
amend said Lease in certain respects;

     NOW THEREFORE, for good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee
hereby agree as follows:

     I. Section 1.2 of the Lease is hereby deleted
in its entirety and replaced with the following:

     1.2 TERM. The term of this Lease shall
consist of the "Initial Term", which shall
commence on August 1,1996 (the "Commencement
Date") and end on March 31, 2007 (the "Expiration
Date"); provided, however, that this Lease may be
sooner terminated as hereinafter provided. In
addition, Lessee shall have the option(s) to
extend the Term (as hereinafter defined) as
provided for in Section I. 3.

     2. The first paragraph of Section 1.3 of the
Lease is hereby deleted in its entirety and
replaced with the following:

     1.3 Extended Terms. Provided that this Lease
has not been previously
terminated, and as long as there exists no Lease
Default (as hereinafter defined) at the time of
exercise and on the last day of the Initial Term
or the then current Extended Term (as hereinafter
defined), as the case may be, Lessee is hereby
granted the option to extend the Initial Term of
this Lease for four (4) additional periods
(collectively, the "Extended Terms") as follows:
four (4) successive five (5) year periods for a
maximum Term, if all such options are exercised,
which ends on March 31 2027. Lessee's extension
option,
rights shall be exercised by Lessee by giving
written notice to Lessor of each such
extension at least one hundred eighty ( 180) days,
but not more than three hundred sixty (360) days,
prior to the termination of the Initial Term or
the then current Extended Term, as the case may
be. Lessee shall have no right to rescind any such
notice once given. Lessee may not exercise its
option for more than one Extended Term at a time.
During each effective Extended Term, all of the
terms and conditions of this Lease shall continue
in full force and effect, except that the Base
Rent (as hereinafter defined) for each such
Extended Term shall be adjusted as set forth in
Section 3.1(a).




     3.  The definition of Group Two Acquisition
Facilities" in Section 2.1 of the Lease is hereby
deleted in its entirety and replaced with the
following:
GROUAP ONE ACQUISITION FACILITIES: As defined in
the Agreement Regarding Related Transactions.

     4. The reference to "Group Two Acquisition
Facility Leases" in the definition of
"Related Leases" in Section 2.1 of the Lease is
hereby deleted and replaced with "Group One
Acquisition Facility Leases. "

     5. All references to "Group Two Acquisition
Facilities" in Section 11.3. I of the Lease are
hereby deleted and replaced with "Group One
Acquisition Facilities. "
Except as amended herein, the Lease shall remain
in full force and effect.


[INTENTIONALLY LEFT BLANK)



































2





     IN WITNESS WHEREOF, the parties have caused
this Amendment to be executed and attested by
their respective officers thereunto duly
authorized.

  WITNESS:
LESSEE:


EMERITUS PROPERTIES I, INC.,

a Washington corporation

/s/ Jean T. Fukuda
By:  /s/ Raymond R. Brandstrom
- ----------------------------
- ----------------------------------------
Name:  Jean T. Fukuda
Name:  Raymond R. Brandstrom

Title:    President

 WITNESS:
LESSOR:


MEDITRUST ACQUISITION

CORPORATION I, a

Massachusetts corporation

/s/  Kim M. Priesing
By:  /s/ Michael S. Benjamin, ESQ
- ------------------------
- -------------------------------------
Name:  Kim M. Priesing
Name:  Michael S. Benjamin, ESQ

Title:  Senior Vice President

EX-10.59.2

GRAND TERRACE, CA

                 AMENDED AND RESTATED MEMORANDUM
OF LEASE

THIS AMENDED AND RESTATED MEMORANDUM OF LEASE is
executed as of this 3lst day of December, 1996, by
and between Meditrust Acquisition Corporation I, a
Massachusetts corporation, having a principal
place of business at 197 First Avenue, Needham
Heights, Massachusetts 02194 ("Lessor") and
Emeritus Properties I, Inc., a Washington
corporation, having a principal place of business
c/o Emeritus Corporation, 3131 Elliott Avenue,
Suite 500, Seattle, WA 98121-2162 ("Lessee"), for
the purpose of amending and restating the
Memorandum of Lease, dated August 2,1996, as
previously recorded, and giving notice to any and
all interested parties of that certain Lease
entered into by and between Lessor and Lessee, as
amended by the First Amendment to Facility Lease
Agreement and by the Omnibus Amendment to Group
One Acquisition Facility Leases, both of even date
herewith, and of the Lessee's interest as a lessee
thereunder, as follows:

Date of Execution:  August 2, 1996.
Leased Property:         The real property
described in EXHIBIT A attached
               hereto (the "Land"),together with
the Leased
               Improvements, all easements, rights
and appurtenances of
               every nature and description now or
hereafter relating to
               or benefitting any or all of the
Land and the Leased
               Improvements and Fixtures all as
more particularly
               described in the Lease.

Initia1 Term:       August 1,1996- March 31,2007.

Extension Options:  Four (4) successive five (5)
year periods for a maximum
               Term, if all such options are
exercised, which ends on
               March 31,2027.

Option to Purchase: None.

Right of First Refusal:  Lessee shall have the
right of first refusal to purchase the
               Leased Property, at the price and
               upon the terms set forth in the
               Lease.

Cross Default:           The payment and
performance of the obligations of Lessee
               under the Lease are cross-defaulted
               with the payment and performance of
               the obligations of affiliates of
               Lessee to affiliates of Lessor, now
               or hereafter existing, as more
               particularly set forth in the
               Lease.

Reference is hereby made to the Lease for the full
particulars of the rights, duties and obligations
of the parties. In the event of any conflict or
inconsistency between the terms and conditions of
the Lease and the terms and conditions of this
memorandum, the terms and conditions of the Lease
shall govern and prevail.

                                    [INTENTIONALLY
LEFT BLANK]




     IN WITNESS WHEREOF, the parties have executed
this Amended and Restated Memorandum of Lease on
the date first written above.


WITNESS:
LESSOR:


MEDITRUST ACQUISITION

CORPORATION I, a

Massachusetts corporation

/s/  Susan E. Douglas
By:  /s/ Michael S. Benjamin, ESQ
- ------------------------
- -------------------------------------
Name:  Susan E. Douglas
Name:  Michael S. Benjamin, ESQ

Title:  Senior Vice President


WITNESS:
LESSEE:


EMERITUS PROPERTIES I, INC.,

a Washington corporation

/s/ Jean T. Fukuda
By:  /s/ Raymond R. Brandstrom
- ----------------------------
- ----------------------------------------
Name:  Jean T. Fukuda
Name:  Raymond R. Brandstrom

Title:    President



                          COMMONWEALTH OF
MASSACHUSETTS

Norfolk, ss.
February 11, 1997

     Then personally appeared the above named
Michael S. Benjamin,
Senior Vice President as aforesaid, and
acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of
Meditrust Acquisition Corporation I, before me,


/s/ Kim M. Priesing

- ---------------------------

Notary Public

My commission expires: 8-2-2002









2




STATE OF WASHINGTON           )

) ss.
COUNTY OF KING                       )

     On this 6th day of February, 1997, before me,
a Notary Public in and for the State of
Washington, personally appeared Raymond R.
Brandstrom personally known to me (or proved to me
on the basis of satisfactory evidence) to be the
person who executed this instrument, and on oath
stated that he was authorized to execute the
instrument as the President of Emeritus Properties
I, Inc., a Washington corporation, and
acknowledged it to be the free and voluntary act
and deed of corporation for the uses and purposes
mentioned in the instrument.

     IN WITNESS WHEREOF, I have hereunto set my
hand and official seal the day and year first
above written.


/s/ Catherine L. Pasquan

- --------------------------------

Notary Public in and for the State of

Washington
[SEAL]
Residing at:  Seattle, WA

My commission expires: 3-30-99






























3

EX-10.60.1

(Federal Way)

                  FIRST AMENDMENT TO FACILITY
LEASE AGREEMENT

     This FIRST AMENDMENT TO FACILITY LEASE
AGREEMENT ("Amendment") is dated as of the 31st
day of December,1996 and is between MEDITRUST
ACQUISITION CORPORATION I ("Lessor"), a
Massachusetts corporation having its principal
office at 197 First Avenue, Needham Heights,
Massachusetts 02194, and EMERITUS PROPERTIES I
INC. ("Lessee"), a Washington corporation, having
its principal office at c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121-2162.

     WHEREAS, Lessor and Lessee entered into that
certain Facility Lease Agreement, dated as of
April 1, 1996, with respect to certain premises
located in Federal Way, King County, Washington
(the "Lease"); and

     WHEREAS, Lessor and Lessee have agreed to
amend said Lease in certain respects;

     NOW THEREFORE, for good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee
hereby agree as follows:

     1. Section 1.2 of the Lease is hereby deleted
in its entirety and replaced with the following:

     1.2 TERM. The term of this Lease shall
consist of: the "Initial Term", which shall
commence on April l, 1996 (the "Commencement
Date") and end on March 31,
2008 the Expiration Date provided, however, that
this Lease maybe sooner terminated as hereinafter
provided. In addition, Lessee shall have the
option(s) to extend the Term (as hereinafter
defined) as provided for in Section 1.3.

     2.  The first paragraph of Section 1.3 of the
Lease is hereby deleted in its entirety and
replaced with the following:

     1.3 Extended Terms Provided that this Lease
has not been previously
terminated, and as long as there exists no Lease
Default (as hereinafter defined) at the time of
exercise and on the last day of the Initial Term
or the then current Extended Term (as hereinafter
defined), as the case may be, Lessee is hereby
granted the option to extend the Initial Term of
this Lease for four (4) additional periods
(collectively, the "Extended Terms") as follows:
four (4) successive five (5) year periods for a
maximum Term, if all such options are exercised,
which ends on March 31, 2028. Lessee's extension
option rights shall be exercised by Lessee by
giving written notice to Lessor of each such
extension at least one hundred eighty (180) days,
but not more than three hundred sixty
(360) days, prior to the termination of the
Initial Term or the then current Extended Term, as
the case may be. Lessee shall have no right to
rescind any such notice once given. Lessee may not
exercise its option for more than one Extended
Term at a time. During each effective Extended
Term, all of the terms and conditions of this
Lease shall continue in ful1 force and effect,
except that the Base Rent (as hereinafter defined)
for each such Extended Term shall be adjusted as
set forth in Section 3. 1(a).





     3.  The definition of "Group One Acquisition
Facilities" in Section 2.1 of the Lease is hereby
deleted in its entirety and replaced with the
following:
Group Two Acquisition Facilities: As defined in
the Agreement Regarding Related Transactions.

     4. The reference to "Group One Acquisition
Facility Leases" in the definition of
"Related Leases" in Section 2.1 of the Lease is
hereby deleted and replaced with "Group Two
Acquisition Facility Leases."

     5.  All references to "Group One Acquisition
Facilities" in Section 1 1.3.1 of the Lease are
hereby deleted and replaced with "Group Two
Acquisition Facilities."
Except as amended herein, the Lease shall remain
in full force and effect.


[INTENTIONALLY LEFT BLANK]


































2




     
     IN WITNESS WHEREOF, the parties have caused
this Amendment to be executed and attested by
their respective officers thereunto duly
authorized.
     
WITNESS:
LESSEE:


EMERITUS PROPERTIES I, INC.,

a Washington corporation

/s/ Jean T. Fukuda
By:  /s/ Raymond R. Brandstrom
- ----------------------------
- ----------------------------------------
Name:  Jean T. Fukuda
Name:  Raymond R. Brandstrom

Title:    President

 WITNESS:
LESSOR:


MEDITRUST ACQUISITION

CORPORATION I, a

Massachusetts corporation

/s/  Susan E. Douglas
By:  /s/ Michael S. Benjamin, ESQ
- ------------------------
- -------------------------------------
Name:  Susan E. Douglas
Name:  Michael S. Benjamin, ESQ

Title:  Senior Vice President

     

























3

EX-10.60.2

FEDERAL WAY, WA

          AMENDED AND RESTATED MEMORANDUM OF LEASE

     THIS AMENDED AND RESTATED MEMORANDUM OF LEASE
is executed as of this 3lst day of December, 1996,
by and between Meditrust Acquisition Corporation
I, a Massachusetts corporation, having a principal
place of business at 197 First Avenue Needham
Heights, Massachusetts 02194 ("Lessor") and
Emeritus Properties I, Inc., a Washington
corporation, having a principal place of business
c/o Emeritus Corporation, 3131 Elliott Avenue,
Suite 500, Seattle, WA 98121-2162 ("Lessee"), for
the purpose of amending and restating the
Memorandum of Lease, dated April 1,1996, as
previously recorded, and giving notice to any and
all interested parties of that certain Lease
entered into by and between Lessor and Lessee as
amended b the First Amendment to Facility Lease
Agreement, of even date herewith, and of the
Lessee s interest as a lessee thereunder, as
follows:

Date of Execution:  April 1,1996.

Leased Property:         The real property
described in EXHIBIT A attached
               hereto (the "Land"),together with
the Leased
               Improvements, all easements, rights
and appurtenances of
               every nature and description now or
hereafter relating to
               or benefiting any or all of the
Land and the Leased
               Improvements and Fixtures all as
more particularly
               described in the Lease.

Initia1 Term :      April 1,1996- March 31,2008

Extension Options:  Four (4) successive five (5)
year periods for a maximum
               Term, if all such options are
exercised, which ends on
               March 31,2028.

Option to Purchase: Lessee shall have the option
to purchase the Leased
               Property, at the price and upon the
terms set forth in the
               Lease.

Cross Default:           The payment and
performance of the obligations of Lessee
               under the Lease are cross-defaulted
               with the payment and performance of
               the obligations of affiliates of
               Lessee to affiliates of Lessor, now
               or hereafter existing, as more
               particularly set forth in the
               Lease.

Reference is hereby made to the Lease for the full
particulars of the rights, duties and obligations
of the parties. In the event of any conflict or
inconsistency between the terms and conditions of
the Lease and the terms and conditions of this
memorandum, the terms and conditions of the Lease
shall govern and prevail.

                                 [INTENTIONALLY
LEFT BLANK]







     IN WITNESS WHEREOF, the parties have executed
this Amended and Restated Memorandum of Lease on
the date first written above.
     
WITNESS:
LESSOR:


MEDITRUST ACQUISITION

CORPORATION I, a

Massachusetts corporation

/s/  Susan E. Douglas
By:  /s/ Michael S. Benjamin, ESQ
- ------------------------
- -------------------------------------
Name:  Susan E. Douglas
Name:  Michael S. Benjamin, ESQ

Title:  Senior Vice President


WITNESS:
LESSEE:


EMERITUS PROPERTIES I, INC.,

a Washington corporation

/s/ Jean T. Fukuda
By:  /s/ Raymond R. Brandstrom
- ----------------------------
- ----------------------------------------
Name:  Jean T. Fukuda
Name:  Raymond R. Brandstrom

Title:    President



                          COMMONWEALTH OF
MASSACHUSETTS

Norfolk, ss.
February 11, 1997

     Then personally appeared the above named
Michael S. Benjamin,
Senior Vice President as aforesaid, and
acknowledged the foregoing instrument to be his
free act and deed and the free act and deed of
Meditrust Acquisition Corporation I, before me,


/s/ Kim M. Priesing

- ---------------------------

Notary Public

My commission expires: 8-2-2002










2




STATE OF WASHINGTON           )

) ss.
COUNTY OF KING                       )

     On this 6th day of February, 1997, before me,
a Notary Public in and for the State of
Washington, personally appeared Raymond R.
Brandstrom personally known to me (or proved to me
on the basis of satisfactory evidence) to be the
person who executed this instrument, and on oath
stated that he was authorized to execute the
instrument as the President of Emeritus Properties
I, Inc., a Washington corporation, and
acknowledged it to be the free and voluntary act
and deed of corporation for the uses and purposes
mentioned in the instrument.

     IN WITNESS WHEREOF, I have hereunto set my
hand and official seal the day and year first
above written.


/s/ Catherine L. Pasquan

- --------------------------------

Notary Public in and for the State of

Washington
[SEAL]
Residing at:  Seattle, WA

My commission expires: 3-30-99






























3
     

EX-21.1

                                                Exhibit 21.1
            SUBSIDIARIES OF EMERITUS CORPORATION

1    Emeritus Canada Ltd., Toronto, Ontario

2    Emeritus Employee Leasing, Inc., Washington corporation

3    Emeritus Home Health, Inc., Washington corporation

4    Emeritus Properties I, Inc., Washington corporation,

5    Emeritus Properties II, Inc., Washington corporation

6    Emeritus Properties III, Inc., Washington corporation

7    Emeritus Properties IV, Inc., Washington corporation

8    Emeritus Properties of Illinois, Inc., Washington
     corporation

9    Emeritus Real Estate L.L.C., Delaware limited liability
     company

10   Emeritus Real Estate II, L.L.C., Delaware limited
     liability company

11   Emeritus Real Estate III, L.L.C., Delaware limited
     liability company

12   Emeritus Real Estate IV, L.L.C., Delaware limited
     liability company

13   Emeritus Real Estate V, L.L.C., Delaware limited
     liability company

14   Emeritus Real Estate VI, L.L.C., Delaware limited
     liability company

15   Emeritus Real Estate VII, L.L.C., Delaware limited
     liability company

16   Emeritus Real Estate VIII, L.L.C., Delaware limited
     liability company

17   ESC GP I, Inc., Washington corporation

18   ESC GP II, Inc., Washington corporation

19   ESC I, LP., Washington limited partnership

20   ESC II, LP., Washington limited partnership

21   Cooper George Partners LTD. Partnership, Washington
     limited partnership

22   Fairfield Retirement Center L.L.C., Delaware limited
     liability company

23   Grand Terrace L.L.C., Delaware limited liability
     company

24   Heritage Hills Retirement, Inc., North Carolina
     corporation

25   Painted Post Partnership, Pennsylvania general
     partnership

26   TDC/Emeritus Paso Robles Associates, Washington
     partnership

EX-23.1

                                                Exhibit 23.1
                                                            
     CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Emeritus Corporation

We consent to incorporation by reference in the registration
statement   (No.   333-05965)  on  Form  S-8   of   Emeritus
Corporation of our report dated February 21, 1997,  relating
to  the  consolidated balance sheets of Emeritus Corporation
and  subsidiaries as of December 31, 1996 and 1995, and  the
related consolidated statements of operations, shareholders'
equity  (deficit), and cash flows for each of the  years  in
the  three-year period ended December 31, 1996, which report
appears in the December 31, 1996, annual report on Form 10-K
of Emeritus Corporation.


/s/ KPMG Peat Marwick LLP

Seattle, Washington
March 27, 1997

EX-27.1

 

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.

<MULTIPLIER> 1,000
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                          23,039
<SECURITIES>                                     2,152
<RECEIVABLES>                                    1,840
<ALLOWANCES>                                       127
<INVENTORY>                                        292
<CURRENT-ASSETS>                                32,399
<PP&E>                                         103,586
<DEPRECIATION>                                   3,996
<TOTAL-ASSETS>                                 158,038
<CURRENT-LIABILITIES>                           22,642
<BONDS>                                         98,076
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             1
<OTHER-SE>                                      26,187
<TOTAL-LIABILITY-AND-EQUITY>                   158,038
<SALES>                                              0
<TOTAL-REVENUES>                                68,926
<CGS>                                                0
<TOTAL-COSTS>                                   74,294
<OTHER-EXPENSES>                                    52
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               4,018
<INCOME-PRETAX>                                (8,202)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                            (8,202)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (8,202)
<EPS-PRIMARY>                                   (0.75)
<EPS-DILUTED>                                   (0.75)