Page 36 - New Empire Affinitas Life Senior Housing Division

b) The following additional rules will apply in maintaining Capital Accounts:
i. For purposes of this definition, amounts described in section 709 of the Code (other than
amounts with respect to which an election is in effect under section 709(b) of the Code) will be
treated as described in section 705(a)(2)(B) of the Code.
ii. If the Book Values of Company assets are adjusted, as provided in the definition of Book
Value, the Capital Accounts of all Members will be adjusted simultaneously to reflect the aggregate
net adjustment as if the Company recognized gain or loss, equal to the amount of such aggregate
net adjustment and such gain or loss were allocated to the Members in the manner required by this
Article.
iii. If, in any taxable year, the Company has in effect an election under section 754 of the Code,
Capital Accounts will be adjusted in accordance with Treasury Regulations.
c) The foregoing provisions and the other provisions of this Agreement relating to the maintenance
of Capital Accounts are intended to comply with Treasury Regulation and will be interpreted and
applied in a manner consistent with such regulations. To the extent such provisions are inconsistent
with such regulations or are incomplete with respect thereto, the Capital Accounts of the Members
will be maintained in accordance with such Regulations.

d) Except as may otherwise be provided in this Agreement, whenever it is necessary to determine
the Capital Account of a Member, the Capital Account of such Member will be determined after
giving effect to all allocations and distributions for transactions effected prior to the time as of which
such determination is to be made. Any Member who will acquire an interest in the Company or
whose interest will be increased by means of a transfer to him of all or part of another Member’s
interest in the Company, will have a Capital Account, which reflects such transfer. Any Member
which transfers a part of its interest in the Company will have a Capital Account, which reflects such
transfer.

5.2. Allocations for Book Purposes.
a) Deficit Capital Account and Non-recourse Debt Rules. Notwithstanding the general allocation
rules set forth above, the following special allocation rules will apply under the circumstances
described therein.
i. Limitation on Loss Allocations. The Net Losses allocated to any
Member with respect to any fiscal year may not exceed the maximum amount of Net Losses that can
be so allocated without causing such Member to have a Capital Account Deficit at the end of such
fiscal year. All Net Losses in excess of the limitation set forth in this Section will be allocated to
Members.
ii. Qualified Income Offset. If in any fiscal year a Member unexpectedly
receives an adjustment, allocation or distribution described in Treasury Regulations, and such

Re-LIFE-Ment: Reinventing Past Notions of Retirement
- 11 -

36