LOAN AGREEMENT

BETWEEN

HEALTHCARE REALTY TRUST INCORPORATED

AND

EMERITUS CORPORATION

June 30, 2005

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TABLE OF CONTENTS

ARTICLE 1: PURPOSE AND DEFINITIONS
5
1.1
Purpose
5
1.2
Definitions
5
1.3
Incorporation of Amendments
8
1.4
Exhibits
8
ARTICLE 2: LOAN AND LOAN DOCUMENTS
8
2.1
Obligation to Lend
8
2.2
Obligation to Repay
9
2.2.1
Term of the Loan
9
2.2.2
Interest and Payments
9
2.3
Use of Proceeds
9
2.4
Loan Expenses
9
2.5
Accrued Interest Payment
9
2.6
Insurance Certificate
9
2.7
Closing
9
2.8
Post-Closing
9
ARTICLE 3: CONDITIONS PRECEDENT TO DISBURSEMENT
10
3.1
Conditions Precedent to Initial Disbursement
10
3.1.1
Legal Opinion
10
3.1.2
Lender’s Documents
10
3.1.3
Organizational Documents
10
3.1.4
Financial Statements
10
3.1.5
No Default
10
3.1.6
Estoppel Letters
10
3.1.7
Lessor Consent
10
3.1.8.
Lease Amendments
11
ARTICLE 4: BORROWER’S REPRESENTATIONS AND WARRANTIES
11
4.1
Organization and Good Standing
11
4.2
Power and Authority
11
4.3
Enforceability
11
4.4
No Violation
11
4.5
No Litigation
11
4.6
Financial Statements
12
4.7
Reports, Statements and Copies
12
4.8
No Default
13
4.9
ERISA
13
4.10
Chief Executive Office
13
4.11
Affirmation of Additional Representations and Warranties
13
4.12
Intentionally omitted
13
4.13
Obligations for Facility Improvements
13

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4.14
No Adverse Changes
13
4.15
Compliance
14
4.16
Environmental Matters
14
ARTICLE 5: AFFIRMATIVE COVENANTS
14
5.1
Perform Obligations
14
5.2
Documents and Information
14
5.2.1
Furnish Documents
14
5.2.2
Furnish Information
15
5.2.3
Further Assurances and Information
15
5.2.4
Material Communications
15
5.2.5
Requirements for Financial Statements
16
5.3
Broker’s Commission
16
5.4
Existence
16
5.5
Financial Covenants
16
ARTICLE 6: NEGATIVE COVENANTS
16
ARTICLE 7: DEFAULT AND REMEDIES
16
7.1
Event of Default
16
7.2
Remedies on Default
18
7.2.1
Acceleration
18
7.2.2
Foreclosure
18
7.2.3
Default Under Other Agreements with Lender
18
7.2.4
Lease Modification
19
7.2.5
Minimum Rent Adjustment Collections
19
7.2.6
Letter of Credit
19
7.2.7
Other Remedies
19
7.2.8
Waiver
19
ARTICLE 8: MISCELLANEOUS
19
8.1
Advances by Lender
19
8.2
No Novation
20
8.3
Construction of Rights and Remedies and Waiver of Notice and Consent
20
8.3.1
Applicability
20
8.3.2
Waiver of Notices and Consent to Remedies
20
8.3.3
Cumulative Rights
20
8.3.4
Extension or Modification of Loan
20
8.3.5
Right to Select Security
20
8.3.6
Forbearance Not a Waiver
20
8.3.7
No Waiver
21
8.3.8
No Continuing Waivers
21
8.3.9
Approval Not a Waiver
21
8.3.10
No Release
21

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8.4
Assignment
21
8.4.1
Assignment by Lender
21
8.4.2
Assignment, Merger or Change of Control by Borrower
22
8.5
Notices
22
8.6
Entire Agreement
22
8.7
Severability
23
8.8
Captions and Headings
23
8.9
Governing Law
23
8.1
Binding Effect
23
8.11
Modification of this Agreement
23
8.12
Construction of Agreement
23
8.13
Counterparts
23
8.14
No Third-Party Beneficiary Rights
23
8.15
Lender’s Authority to Furnish Copies of Loan Documents
23
8.16
Lender Merely a Lender
24
8.16.1
No Agency
24
8.16.2
No Obligation to Pay
24
ARTICLE 9: ADDITIONAL PROVISIONS
24
9.1
Collateral
24
9.1.1
Mortgage
24
9.1.2
Letter of Credit
24
9.2
Venue
26
9.3
Oral Agreements
26
9.4
Assignment of Certain Lease Rights
27
9.5
RESERVED
27
9.6
Claims Against Lender
27
9.7
Demolitions or Alterations of Facilities
27
9.8
Substitution and Addition of Facilities Securing Loan
27
9.9
Indemnity
28
9.1
Consent to Jurisdiction
28
EXHIBIT A: LEASES
31
EXHIBIT B: DOCUMENTS TO BE DELIVERED
33
EXHIBIT C: BORROWER’S CERTIFICATE
34
EXHIBIT D: POST CLOSING ITEMS
35
SCHEDULE A LOAN ALLOCATION PER FACILITY
36

 

 

 

 

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LOAN AGREEMENT
 
THIS LOAN AGREEMENT (“Agreement”) is made and entered into effective as of June
30, 2005 (the “Effective Date”) between EMERITUS CORPORATION, a corporation
organized under the laws of the State of Washington, having its chief executive
office at 3131 Elliott Avenue, Suite 500, Seattle, Washington, 98121, and
HEALTHCARE REALTY TRUST INCORPORATED, a corporation organized under the laws of
the State of Maryland, having an address of 3310 West End Avenue, Suite 400,
Nashville, Tennessee, 37203.
 
R E C I T A L S:
 
A. HR Acquisition I Corporation, Capstone Capital of Pennsylvania, Inc. and HRT
Holdings, Inc., all affiliates of Lender (the “Master Lease Lessors”), pursuant
to that certain Lease Agreement dated May 1, 2003, as amended by First Amendment
to Lease dated as of June 30, 2005 (the “Master Lease”) by and between said
parties, as Lessor, and Borrower, as Lessee, leased eight (8) certain assisted
living facilities (the “Master Lease Facilities”) to Borrower. The Master Lease
Facilities include Loyalton of Harrisburg, in Harrisonburg, Pennsylvania;
Loyalton of Creekview, in Hampden, Pennsylvania; Loyalton of Bloomsburg, in
Bloomsburg, Pennsylvania; Loyalton of Harrisonburg, in Harrisonburg, Virginia;
Loyalton of Roanoke, in Roanoke, Virginia; Loyalton of Danville, in Danville,
Virginia; Loyalton of Ravenna, in Ravenna, Ohio; Loyalton of Greensboro, in
Greensboro, North Carolina.
 
 
B. Capstone Capital of San Antonio, Ltd., which has since changed its name to HR
Acquisition of San Antonio, Ltd. (the “Texas Lessor” and together with the
Master Lease Lessors, the “Lessors”), entered into four (4) certain leases, each
dated December 31, 1996, as amended by a certain First Amendment to Lease
Agreement dated as of December 1, 1997 and by a Second Amendment to Lease
Agreement dated as of May 9, 2002 (the “Texas Leases”) by and between Capstone
Capital of San Antonio, Ltd. as Lessor and affiliates of Integrated Living
Communities as Lessee for certain assisted living facilities located in
Henderson, McKinney, and San Antonio, Texas (the “Texas Lease Facilities”). The
rights of the Lessee under the Texas Leases have since been assigned to HB-ESC
V, L.P., a Washington limited partnership (“HB-ESC”), which in turn assigned
them to ESC IV, L.P., a Washington limited partnership doing business in Texas
as Texas-ESC IV, L.P., which is an affiliate of Borrower (“Texas-ESC”) pursuant
to Assignment and Assumption of Lease Agreements, each dated as of December 31,
2003. The obligations of HB-ESC and of Texas-ESC under the Texas Leases have
been guaranteed by Daniel R. Baty (“Guarantor”).
 
 
C. A more particular description of the Leases is attached hereto as Exhibit A
and incorporated herein by reference.
 

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NOW, THEREFORE, in consideration of the mutual covenants and the premises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
 
ARTICLE 1: PURPOSE AND DEFINITIONS
 
1.1 Purpose. The purpose of this Agreement is to state the terms and conditions
of the Loan.
 
 
1.2 Definitions. Except as otherwise expressly provided, [i] the terms defined
in this section have the meanings assigned to them in this section and include
the plural as well as the singular; [ii] all accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with generally
accepted accounting principles as of the time applicable; and [iii] the words
“herein”, “hereof”, and “hereunder” and similar words refer to this Agreement as
a whole and not to any particular section.
 
 
“Affiliate” means any person, corporation, partnership, limited liability
company, trust, or other legal entity that, directly or indirectly, controls, or
is controlled by, or is under common control with Borrower. “Control” (and the
correlative meanings of the terms “controlled by” and “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity. “Affiliate”
includes, without limitation, Texas-ESC. An Affiliate of Borrower shall
specifically exclude Columbia Pacific Management, Inc., or any Affiliate
thereof, Holiday Retirement Corporation, or any Affiliate thereof, Alterra
Healthcare Corporation, or any Affiliate thereof, but only prior to the date of
Borrower’s acquisition thereof, Saratoga Partners IV, L.P. or any Affiliate
thereof and Senior Healthcare Partners, LLC or any Affiliate thereof.
 
 
“Affiliate Obligation” means all indebtedness and obligations of Borrower and
any Affiliate to Lender or any Lender Affiliate now existing or hereafter
arising, including, without limitation, obligations arising under the Lease
Documents, the Existing HRT Loan, and all other obligations and indebtedness of
Borrower or any Affiliate of Borrower to Lender or any Lender Affiliate
evidenced by promissory notes, lease agreements, guaranties or otherwise, and
all obligations under such indebtedness documents and all other documents
executed by Borrower or any Affiliate in favor of Lender or any Lender Affiliate
in connection therewith, and any extensions, modifications, substitutions or
renewals thereof.
 
 
“Annual Financial Statements” means for Borrower, the audited balance sheet and
statement of income of Borrower for the most recent fiscal year.
 

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“Borrower” means Emeritus Corporation, a corporation organized under the laws of
the State of Washington, its successors and permitted assigns.
 
 
“Borrower’s Organizational Documents” means the Articles of Incorporation of
Borrower certified by the Secretary of State of the State, as amended to date,
and the Bylaws of Borrower certified by Borrower, as amended to date.
 
 
“Business Day” means any day which is not a Saturday or Sunday or a public
holiday under the laws of the United States of America or the State.
 
 
“Closing” means the closing of the loan transaction contemplated by this
Agreement.
 
 
“Commitment” means the non-binding letter of understanding dated May __, 2005
between Lender and Borrower.
 
 
“Effective Date” means the date of this Agreement.
 
 
“Event of Default” has the meaning set forth in §7.1.
 
 
“Existing HRT Collateral” means all leasehold estates and related collateral
which secure the Existing HRT Loan, including any “Substitute Lease” or “New HRT
Lease” as described in that certain Second Amended and Restated Loan Agreement
between Borrower and Lender dated March 3, 2005.
 
 
“Existing HRT Loan” means the loan to Borrower now held by Lender evidenced by
that certain Second Amended and Restated Loan Agreement between Borrower and
Lender dated March 3, 2005, which Existing HRT Loan is also evidenced by that
certain Second Amended and Restated Promissory Note dated March 3, 2005, in the
original principal amount of $21,426,000.00, made by Borrower and payable to the
order of Lender, together with all amendments, modifications and renewals
thereof from time to time.
 
 
“Facility” means each assisted living or retirement facility leased to Borrower
or Texas ESC pursuant to a Lease.
 
 
“Financial Statements” means the Form 10-Q for the three month period ended
March 31, 2005 provided by Borrower to Lender prior to Closing.
 
 
“Lease” or “Leases” means individually and collectively, the Master Lease and
Texas Leases, together with any amendments, modifications, renewals,
restatements or extensions thereof from time to time.
 
 
“Lease Documents” means each Lease and all other documents executed by Borrower
in connection with each Lease, each as amended from time to time.
 

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“Leased Property” means individually and collectively all real property subject
to any Lease.
 
 
“Lender” means Healthcare Realty Trust Incorporated, its successors and assigns.
 
 
“Lender Affiliate” means any person, corporation, partnership, limited liability
company, trust or other legal entity that, directly or indirectly, controls or
is controlled by, or is under common control with Lender. “Control” (and the
correlative meanings of the terms “controlled by” and “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity.
 
 
“Lender Diligence” has the meaning set forth in §4.7.
 
 
“Loan” means the loan to Borrower by Lender in the amount of the Loan Amount and
secured by the Mortgage.
 
 
“Loan Amount” means $10,800,000.00 which shall be allocated among the Facilities
in the manner set forth in Schedule A attached hereto.
 
 
“Loan Documents” means [i] this Agreement; [ii] the Note; and [iii] any other
documents and instruments executed by Borrower in connection with the Loan for
the benefit of Lender.
 
 
“Loan Expenses” means all reasonable costs and expenses incurred by Lender in
connection with the Loan, including but not limited to, [i] reasonable
attorneys’ and paralegals’ fees and costs; reasonable travel, transportation,
food, and lodging costs and expenses incurred by Lender and Lender’s attorneys
and paralegals; [ii] title examinations obtained by Lender; [iii] recording fees
and/or indebtedness or similar taxes imposed upon the sale of the Loan or the
recordation of any of the closing documents; and [iv] the cost of opinions of
counsel required by Lender in connection therewith.
 
 
“Material Obligation” means [i] any indebtedness in excess of $250,000.00
secured by a security interest in or a lien, deed of trust or mortgage on any
Facility (or any part thereof, including any Personal Property) and any
agreement relating thereto; [ii] any obligation or agreement that is material to
the construction or operation of the Facility or that is material to Borrower’s
business or financial condition and where a breach thereunder, if not cured
within any applicable cure period, would have a material adverse affect on the
financial condition of Borrower or the results of operations at the Facility;
[iii] any unsecured indebtedness or lease of Borrower that has an outstanding
principal balance or obligation of at least $1,000,000.00 and any agreement
relating thereto; and [vi] any indebtedness or
 

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lease of Borrower or of any other party that has been guaranteed by Borrower,
that has an outstanding principal balance or obligation of at least $250,000.00.
 
 
“Master Lease” has the meaning ascribed to it in Recital A.
 
 
“Minimum Rent Adjustment” shall mean the dollar amount which would be required
to be paid on a monthly basis from the date of the occurrence of an Event of
Default in order to fully amortize the then current balance of the Loan
allocated to each Facility, together with accrued interest monthly at the rate
stated in the Note, over a period of time ending April 30, 2013, as more
particularly described in the Lease Amendments (as hereinafter defined).
 
 
“Mortgage” means individually and collectively the Leasehold Mortgage/Deed of
Trust, Security Agreement, Assignment of Leases and Rents, Financing Statement
and Fixture Filing granted by Borrower to Lender of even date, together with any
other mortgages or deeds of trust entered into by Borrower or any Affiliate to
secure the Loan.
 
 
“Note” means the Promissory Note of even date made by Borrower in favor of
Lender for a principal amount equal to the Loan Amount, and any extensions,
modifications, substitutions, replacements, restatements or renewals thereof.
 
 
“Periodic Financial Statements” means for Borrower, the unaudited balance sheet
and statement of income of Borrower for the most recent quarter.
 
 
“Personal Property” means any tangible or intangible personal property owned by
Borrower in connection with any Lease or the operation of any Facility, which
property is assigned, pledged or otherwise conveyed as security for the Loan.
 
 
“State” means the State of Washington.
 
 
“Texas Leases” has the meaning ascribed to it in Recital B.
 
 
1.3 Incorporation of Amendments. The definition of any agreement, document, or
instrument set forth in this Agreement or in any other Loan Document shall be
deemed to incorporate all amendments, modifications, and renewals thereof and
all substitutions and replacements therefore.
 
 
1.4 Exhibits. The following exhibits are attached hereto and incorporated
herein:
 
Exhibit A: Leases
Exhibit B: Documents to be Delivered
Exhibit C: Borrower’s Certificate

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Exhibit D: Post-Closing Items

ARTICLE 2: LOAN AND LOAN DOCUMENTS
 
2.1 The Loan. The indebtedness of Borrower to Lender for the Loan is evidenced
by the Note.
 
 
2.2 Obligation to Repay. Borrower shall repay the Loan in accordance with the
terms of the Note and the other Loan Documents.
 
 
2.2.1 Term of the Loan. The term of the Loan will expire on the Maturity Date,
subject to extension, as defined and set forth in the Note.
 
 
2.2.2 Interest and Payments. Borrower shall make payments in accordance with the
Note at the rate set forth in the Note, as amended, modified or renewed from
time to time.
 
 
2.3 Use of Proceeds. The Loan proceeds shall be used by Borrower solely for the
purpose of redemption of preferred stock in Borrower and payment of all accrued
dividends on such preferred stock, to cover the out of pocket costs incurred by
Borrower in closing the transaction provided for herein, including the Loan
Expenses, and for no other purpose.
 
 
2.4 Loan Expenses. At the Closing, Borrower shall pay or reimburse Lender for
any Loan Expenses incurred by Lender up to the Effective Date. Within 30 days
after receipt of an invoice therefore, Borrower shall reimburse Lender for any
subsequent Loan Expenses incurred by Lender.
 
 
2.5 Accrued Interest Payment. If Borrower fails to pay all accrued interest on
the Loan within 10 days after any monthly due date set forth in the Note,
whether due to inadequate cash flow of any Facility or otherwise, Lender may, at
its option, and in addition to the exercise of any rights and remedies provided
in the Loan Documents, advance additional Loan proceeds to pay the accrued
interest.
 
 
2.6 Insurance Certificate. At Closing, the Borrower shall deliver to Lender
certificates of all insurance policies required under the Mortgage, which
certificates shall name Lender as additional insured on all liability policies
and as Mortgagee on all property and casualty policies with loss payable to
Lender.
 

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2.7 Closing. The Closing of the Loan shall occur as of the Effective Date.
Lender may elect to close by exchanging executed counterparts of one or more of
the Loan Documents and other closing documents by mail or a national courier
service, or by telecopier followed by exchanging documents by mail or national
courier service.
 
2.8 Post-Closing. Within ten (10) days after Closing, or within such longer
period as may be specifically provided herein, Borrower shall furnish to Lender
any documents or information required under this Agreement that were not
furnished to Lender by Borrower at or prior to Closing, all in form and
substance reasonably satisfactory to Lender; or if, by reason of the nature of
such document or information the same cannot be delivered within the said ten
(10) days, Borrower shall have an additional period to provide the same to
Lender; provided, however, if Borrower fails to proceed with diligence
reasonably satisfactory to Lender to deliver the same or, in any event, fails to
cure such default within twenty (20) days after receipt of written notice from
Lender, the same shall constitute an Event of Default hereunder. Such documents
and information to be provided post-closing shall include, without limitation,
the items scheduled on Exhibit D attached hereto.

 
ARTICLE 3: CONDITIONS PRECEDENT TO DISBURSEMENT
 
 
3.1 Conditions Precedent to Initial Disbursement. Lender’s obligation as set
forth herein shall be conditioned upon satisfaction of the following conditions
precedent:
 
 
3.1.1 Legal Opinion. Borrower shall have delivered to Lender an opinion of its
primary outside counsel, and, to the extent reasonably required by Lender,
opinions of local counsel as to enforceability of the Mortgage, each in form and
substance reasonably satisfactory to Lender.
 
 
3.1.2 Lender’s Documents. Except as otherwise provided in Section 2.7, Borrower
shall have delivered to Lender fully executed originals of the Loan Documents to
which Borrower is a party.
 
 
3.1.3 Organizational Documents. Borrower shall have delivered to Lender copies
of Borrower’s Organizational Documents, in form and substance reasonably
satisfactory to Lender, and Borrower’s resolutions authorizing the Loan
Documents to which Borrower is a party, certified by Borrower to be true and
complete and not revoked or amended since the respective dates thereof.
 

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3.1.4 Financial Statements. Borrower shall have delivered to Lender the
Financial Statements, all in form and substance reasonably satisfactory to
Lender.
 
3.1.5 No Default. Except as set forth in those certain Estoppel Certificates of
even date herewith executed by Borrower for the benefit of Lender (the “Estoppel
Certificates”), no uncured Event of Default shall have occurred under any Lease
or the Existing HRT Loan, or any event which with the giving of notice or the
passage of time, or both, would constitute such an Event of Default.
 
3.1.6 Estoppel Certificates. Lender shall have received from Borrower the
Estoppel Certificates.
 
 
In addition, the obligation of Borrower to consummate the transaction provided
for herein shall be subject to satisfaction of the following conditions:
 
 
3.1.7 Lessor Consent. Lender shall have delivered to Borrower the written
consent of the Lessors under the Leases to the granting by Borrower of the
security provided for herein and in the other Loan Documents related to the
Leases.
 
 
3.1.8. Lease Amendments. Lender shall have delivered to Borrower amendments to
the Leases on terms and conditions acceptable to Borrower and the Lessors under
the Leases (i) modifying the financial covenants contained therein, (ii)
modifying the purchase options contained therein and/or (iii) providing for the
payment of the Minimum Rent Adjustment, as and when applicable (the “Lease
Amendments”).
 
ARTICLE 4: BORROWER’S REPRESENTATIONS AND WARRANTIES
 
Borrower hereby makes the following representations and warranties to Lender as
of the Effective Date, unless an earlier date is specified, then as of such
date, and acknowledges that Lender is making the Loan in reliance upon such
representations and warranties. Borrower’s representations and warranties shall
survive the Closing and, except as specifically provided below, shall continue
in full force and effect until Borrower has repaid the Loan in full and
performed all other obligations under the Loan Documents.
 
 
4.1 Organization and Good Standing. Borrower is a corporation duly organized,
validly existing, and in good standing under the laws of the State.
 

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4.2 Power and Authority. Borrower has the power and authority to execute,
deliver, and perform Borrower’s obligations under the Loan Documents to which it
is a party and has taken all requisite action to authorize the execution,
delivery and performance of Borrower’s obligations under such documents.
 
 
4.3 Enforceability. The Loan Documents to which Borrower is a party constitute
valid and binding obligations of Borrower, enforceable in accordance with their
terms except as such enforceability may be limited by creditors rights laws and
general principles of equity.
 
 
4.4 No Violation. The execution, delivery and performance of the Loan Documents
to which Borrower is a party and the consummation of the transactions
contemplated thereby [i] do not conflict with and will not conflict with, and do
not result and will not result in a breach of Borrower’s Organizational
Documents; [ii] except as set forth in the Estoppel Certificates, do not
conflict with and will not conflict with, and do not result and will not result
in a breach of, or constitute or will constitute a default (or an event which,
with or without notice or lapse of time, or both, would constitute a default)
under any of the terms, conditions or provisions of any agreement or other
instrument or obligation to which Borrower is a party or by which its assets are
bound; and [iii] do not violate and will not violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Borrower.
 
 
4.5 No Litigation. As of the Effective Date and except as previously disclosed
by Borrower to Lender in writing, [i] to the best of Borrower’s knowledge there
are no actions, suits, proceedings or investigations by any governmental agency
or regulatory body pending against Borrower or any Facility which, if determined
adversely to Borrower, would materially and adversely affect a Facility or title
to a Facility (or any part thereof), the right to operate a Facility as
presently operated, or the financial condition of Borrower; [ii] Borrower has
not received notice of any threatened actions, suits or proceeding or
investigations against Borrower or any Facility at law or in equity, or before
any governmental board, agency or authority which, if determined adversely to
Borrower, would materially and adversely affect a Facility or title to a
Facility (or any part thereof), the right to operate a Facility as presently
operated, or the financial condition of Borrower; [iii] there are no unsatisfied
or outstanding judgments against Borrower or any Facility; [iv] there is no
labor dispute materially and adversely affecting the operation or business
conducted by Borrower or any Facility; and [v] Borrower does not have knowledge
of any facts or circumstances which might reasonably form the basis for any such
action, suit, or proceeding.
 

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4.6 Financial Statements. Subject to any new information set forth in the
Estoppel Certificates which would reasonably be expected to have a material
adverse effect on the financial condition of Borrower, Borrower has furnished
Lender with true, correct and complete copies of the Financial Statements. The
Financial Statements fairly present the financial position of Borrower as of the
respective dates and the results of operations for the periods then ended in
conformance with generally accepted accounting principles applied on a basis
consistent with prior periods. The Financial Statements are true, complete and
correct and, as of the Effective Date, except as set forth in the Estoppel
Certificates, no material adverse change has occurred since the furnishing of
such statements and information. As of the Effective Date, the Financial
Statements, as modified by the Estoppel Certificates, do not contain any
material untrue statement or omission of a material fact and are not misleading
in any material respect. Borrower is solvent, and no bankruptcy, insolvency, or
similar proceeding is pending or contemplated by or, to the best of its
knowledge, against Borrower.  
 
 
4.7 Reports, Statements and Copies. All current reports, statements,
certificates, title information, surveys, inspection reports, environmental
assessments, and other data furnished by or on behalf of Borrower to Lender in
connection with the Loan Documents or the transactions contemplated thereunder,
and all representations and warranties made therein, or in any certificate or
other instrument delivered in connection therewith (collectively, the “Lender
Diligence”), are true and correct in all material respects as of the Effective
Date. The Lender Diligence does not fail to state any material fact or
circumstance necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading as of the date of such
reports, statements or certificates or other data subject to any new information
contained in the Estoppel Certificates. The copies of all agreements and
instruments submitted to Lender by Borrower in connection with the Loan are
true, correct and complete copies and include all material amendments and
modifications of such agreements.
 
 
4.8 No Default. As of the Effective Date, except as set forth in the Estoppel
Certificates, there is no existing Event of Default by Borrower under the Loan
Documents, under the Existing HRT Loan, or under any Lease, and Borrower has no
knowledge that any event has occurred which, with the giving of notice or the
passage of time, or both, would constitute or result in such an Event of
Default.
 
 
4.9 ERISA. All plans [as defined in §402l(a) of the Employee Retirement Income
Security Act of 1974 as amended or supplemented from time to time (“ERISA”)] for
which Borrower is an “employer” or a “substantial
 

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employer” [as defined in §§3(5) and 4001(a)(2) of ERISA, respectively] are in
compliance with ERISA and the regulations and published interpretations
thereunder. To the extent Borrower maintains a qualified defined benefit pension
plan: [i] there exists no accumulated funding deficiency; [ii] no reportable
event and no prohibited transaction has occurred; [iii] no lien has been filed
or threatened to be filed by the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA; and [iv] Borrower has
not been deemed to be a substantial-employer as of the Effective Date.
 
 
4.10 Chief Executive Office. Borrower maintains its chief executive office and
its books and records at the address set forth in the introductory paragraph of
this Agreement.
 
 
4.11 Affirmation of Additional Representations and Warranties. In addition to
the specific representations and warranties set forth in this Agreement, and
without limiting any such representations and warranties, Borrower also affirms
to Lender that all representations and warranties set forth in the Lease
Documents, the Mortgage, and all other Loan Documents, and all representations
and warranties made by Borrower in connection with the Existing HRT Loan are
true, complete and accurate as of the Effective Date, as updated with respect to
the matters set forth in the Estoppel Certificates.
 
 
4.12 Intentionally omitted.
 
 
4.13 Obligations for Facility Improvements. Borrower does not owe any third
parties any amounts for labor or materials furnished in connection with the
improvement of any of the Facilities except for amounts due for repairs made in
the ordinary course of business which are not past due or which are being duly
contested in accordance with the terms of the Leases.
 
 
4.14 No Adverse Changes. Since May 9, 2002 with respect to the Texas Lease
Facilities and since May 1, 2003 with respect to the Master Lease Facilities,
there have been no adverse changes in (i) the environmental condition of any
Facility, (ii) the title to any Facility, (iii) except as previously disclosed
to Lender in writing, any matters which a current ALTA/ACSM Land Title Survey of
any Facility might reflect, or (iv) any significant casualty loss, condemnation
or conveyance affecting any Facility.
 
 
4.15 Compliance. Borrower and each Facility are, to the best knowledge of
Borrower, in compliance with all requirements of law with respect to which
non-compliance would reasonably be expected to adversely impact the financial
condition of Borrower or the operation of such Facility.
 

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4.16 Environmental Matters. Without limiting any of the representations and
warranties set forth above, Borrower represents and warrants that (i) each
Facility is in compliance with all applicable Environmental Laws (as defined in
the Mortgage); (ii) to the knowledge of Borrower, there have been no releases or
threatened releases of Hazardous Materials (as defined in the Mortgage) on,
from, or under any Facility, except in compliance with all Environmental Laws;
(iii) to the knowledge of Borrower, no Hazardous Materials have been, are, or
will be used, generated, stored or disposed of at any Facility, except in full
compliance with all Environmental Laws; (iv) to the knowledge of Borrower,
asbestos has not been and will not be used in the construction of any Facility;
(v) to the knowledge of Borrower, no permit has been required from the
Environmental Protection Agency or any similar federal, state or local
governmental agency for the use or maintenance of any Facility; (vi) to the
knowledge of Borrower, any underground storage tanks located on any Facility
have been and currently are being operated in compliance with all applicable
Environmental Laws; (vii) to the knowledge of Borrower, any closure, abandonment
in place, or removal of any underground storage tank on or from any Facility has
been performed in compliance with applicable Environmental Laws, and has not
resulted in any release contaminating any Facility which has not been remediated
fully in compliance with applicable Environmental Laws; (viii) to the knowledge
of Borrower, no summons, citation or inquiry has been made by any party
demanding any right of recovery for payment or reimbursement for costs incurred
under CERCLA or any other Environmental Laws, and no Facility is subject to any
liens for any such costs; and (ix) to the knowledge of Borrower, environmental
conditions at each of the Facilities have not changed in any adverse manner
since May 9, 2002 with respect to the Texas Lease Facilities and since May 1,
2003 with respect to the Master Lease Facilities,
 
ARTICLE 5: AFFIRMATIVE COVENANTS
 
5.1 Perform Obligations. Borrower shall in accordance with the terms of the Loan
Documents and the Lease Documents perform in all material respects all of its
obligations under the Loan Documents and the Lease Documents.
 
 
5.2 Documents and Information.
 
 
5.2.1 Furnish Documents. Borrower shall periodically during the term of the Loan
deliver to Lender the Annual Financial Statements, Periodic Financial Statements
and other documents described on Exhibit B attached hereto and incorporated
herein within the specified
 

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time periods. With each delivery of Annual Financial Statements and Periodic
Financial Statements to Lender, Borrower shall also deliver to Lender a
certificate signed by the Chief Financial Officer of Borrower in the form of
Exhibit C attached hereto and incorporated herein.
 
 
5.2.2 Furnish Information. Borrower shall [i] promptly supply Lender with such
information concerning its financial condition, affairs and property, as Lender
may reasonably request from time to time hereafter; [ii] promptly notify Lender
in writing of any condition or event that constitutes a breach or event of
default of any term, condition, warranty, representation, or provisions of any
Loan Document or any other Material Obligation, and of any material adverse
change in its financial condition; [iii] maintain a standard and modern system
of accounting; [iv] permit Lender or any of its agents or representatives to
have access to and to examine all of its books and records regarding the
financial condition of the Facility at any time or times hereafter during
business hours and on reasonable advance notice subject to any applicable state
or federal laws governing confidentiality of patient or employee records; and
[v] permit Lender to copy and make abstracts from any and all of said books and
records subject to any applicable state or federal laws governing
confidentiality of patient and employee records. Without limitation, Borrower
shall, upon request, supply Lender with respect to each Facility any and all
financial reporting required under any Lease with respect to any other Facility
either on an individual Facility basis or on a consolidated basis even if such
financial reporting is not otherwise required by the terms of the Lease to which
such Facility is subject.
 
 
5.2.3 Further Assurances and Information. In addition to the obligations imposed
on Borrower under Section 2.8, Borrower shall, on request of Lender from time to
time, execute, deliver, and furnish such documents as may be reasonably
necessary to consummate fully the transactions contemplated under this
Agreement. Within 10 Business Days after a request from Lender, Borrower shall
provide to Lender such additional information in Borrower’s control or
possession regarding Borrower or Borrower’s financial condition as Lender, or
any existing or proposed creditor of Lender, or any auditor or underwriter of
Lender, may reasonably require from time to time, including, without limitation,
a current Borrower’s Certificate in the form of Exhibit C attached hereto and
incorporated herein
 
 
5.2.4 Material Communications. Borrower shall transmit to Lender, within five
Business Days after receipt thereof, any material communication affecting any
Facility, the Loan Documents or the Lease Documents, and Borrower will promptly
respond to Lender’s inquiry with respect to such information. Borrower shall
promptly notify Lender in writing after Borrower has actual knowledge of any
threatened or existing litigation or proceeding against, or investigation of,
Borrower or any
 

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Facility that may affect the right to operate a Facility, the financial
condition of a Facility, or title to a Facility or Lender’s interest therein.
 
 
5.2.5 Requirements for Financial Statements. Borrower shall meet the following
requirements in connection with the preparation of the Annual Financial
Statements and the Periodic Financial Statements delivered to Lender hereunder:
[i] all audited financial statements shall be prepared in accordance with
generally accepted accounting principles consistently applied; [ii] all
unaudited financial statements shall be prepared in a manner substantially
consistent with prior audited and unaudited financial statements submitted to
Lender; [iii] all financial statements shall fairly present the financial
condition and performance for the relevant period in all material respects; [iv]
the audited financial statements shall include all notes to the financial
statements and a complete schedule of contingent liabilities and transactions
with Affiliates; and [v] the audited financial statements shall contain an
unqualified opinion to the extent set forth in the Leases.
 
 
5.3 Broker’s Commission. Borrower shall indemnify Lender from claims of brokers
arising by the execution hereof or the consummation of the transactions
contemplated hereby and from expenses incurred by Lender in connection with any
such claims (including reasonable attorneys’ fees).
 
 
5.4 Existence. Borrower shall maintain its existence to the extent and in
accordance with the provisions set forth in each Lease.
 
 
5.5 Lease Covenants. Borrower shall comply with the financial covenants, and all
other affirmative covenants applicable to Borrower as set forth in each Lease.
 
ARTICLE 6: NEGATIVE COVENANTS
 
Until the Loan has been paid in full, Borrower covenants and agrees that
Borrower shall comply with each Negative Covenant applicable to Borrower as set
forth in the Leases.
 
ARTICLE 7: DEFAULT AND REMEDIES
 
7.1 Event of Default. Any one or more of the following events shall constitute
an “Event of Default” hereunder:
 
 
7.1.1 Borrower fails to pay any installment on the Note or any other monetary
obligation payable by Borrower under the Loan Documents within 10 days after
such payment is due.
 

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7.1.2 Borrower fails to comply with any covenant set forth in §§5.4, 5.5 or
Article 6 of this Agreement and such failure continues beyond all applicable
grace, notice and/or cure periods.
 
 
7.1.3 Borrower fails to observe and perform any other covenant, condition or
agreement under the Loan Documents to be performed by Borrower and [i] such
failure continues for a period of 30 days after written notice thereof is given
to the Borrower by the Lender; or [ii] if, by reason of the nature of such
default the same cannot be remedied within the said 30 days, Borrower fails to
proceed with diligence reasonably satisfactory to Lender after receipt of the
notice to cure the same or, in any event, fails to cure such default within 60
days after receipt of the notice. The foregoing notice and cure provisions do
not apply to any Event of Default otherwise specifically described in any other
subsection of §7.1.
 
 
7.1.4 [i] The filing by Borrower of a petition under 11 U.S.C. or the
commencement of a bankruptcy or similar proceeding by Borrower; [ii] the failure
by Borrower within 60 days to dismiss an involuntary bankruptcy petition or
other commencement of a bankruptcy, reorganization or similar proceeding against
Borrower, or to lift or stay any execution, garnishment or attachment of such
consequences as will impair its ability to carry on its operation at a Facility;
[iii] the entry of an order for relief under 11 U.S.C. in respect of Borrower;
[iv] any assignment by Borrower for the benefit of its creditors; [v] the entry
by Borrower into an agreement of composition with its creditors; [vi] the
approval by a court of competent jurisdiction of a petition applicable to
Borrower in any proceeding for its reorganization instituted under the
provisions of any state or federal bankruptcy, insolvency, or similar laws; or
[vii] appointment by final order, judgment or decree of a court of competent
jurisdiction of a receiver of the whole or any substantial part of the
properties of Borrower (provided such receiver shall not have been removed or
discharged within 60 days of the date of his qualification).
 
 
7.1.5 [i] Any receiver, administrator, custodian or other person takes
possession or control of all or part of any Facility and continues in possession
for 60 days; [ii] any writ against all or part of any Facility is not released
within 60 days; [iii] any final judgment is rendered against all or part of any
Facility or Borrower which affects all or part of a Facility for the payment of
money in excess of $250,000.00 (exclusive of judgement amounts covered by
insurance) which is undismissed for 60 days (except as otherwise provided in
this Agreement) or such longer period during which such judgement shall have
been appealed and execution of the same shall have been stayed during such
appeal; [iv] all or a substantial part of the assets of Borrower are attached,
seized, subjected to a writ or distress warrant, or are levied upon, or come
into the possession of any receiver, trustee, custodian, or assignee for the
benefit of creditors and are not released within 60 days; [v] Borrower is
enjoined, restrained, or in any way prevented by court order,
 

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or any proceeding is filed or commenced seeking to enjoin, restrain, or in any
way prevent Borrower from conducting all or a substantial part of its business
or affairs; or [vi] except as otherwise permitted hereunder, a final notice of
lien, levy, or assessment is filed of record with respect to all or any part of
a Facility and is not dismissed within 30 days.
 
 
7.1.6 Any material representation or warranty made by Borrower in the Loan
Documents, any security for the Loan, or any report, certificate, application,
financial statement or other instrument furnished by Borrower pursuant hereto or
thereto shall prove to be false, misleading or incorrect in any material respect
as of the date made.
 
 
7.1.7 [i] Borrower or any Affiliate defaults on the Existing HRT Loan, or any
other payment or performance obligation owed to Lender or any Lender Affiliate;
or [ii] Borrower defaults on any Material Obligation, and any applicable grace
or cure period with respect to default under such indebtedness, obligation or
agreement described in clauses (i) and (ii) above expires without such default
having been cured. This provision applies to all such indebtedness, obligations
and agreements as they may be amended, modified, extended, or renewed from time
to time.
 
 
7.1.8 Borrower defaults on any material provision of any Lease, and such default
is not cured within any applicable grace or cure period.
 
 
7.2 Remedies on Default. Whenever any Event of Default occurs, Lender may, in
addition to any other remedies under the Loan Documents, at law or in equity,
take any one or more of the following remedial steps concurrently or
successively:
 
 
7.2.1 Acceleration. Lender may declare the Loan to be immediately due and
payable, without presentment of any kind, demand, notice of dishonor, protest or
other notice of any kind, all of which Borrower hereby waives.
 
 
7.2.2 Foreclosure. Lender may foreclose on any and all collateral securing the
Loan including the interest of Borrower under the Leases, as encumbered by the
Mortgage. The proceeds of foreclosure shall secure all obligations of the
Borrower to Lender under the Loan Documents and, under the Existing HRT Loan.
 
 
7.2.3 Default Under Other Agreements with Lender. Lender may elect to declare an
Event of Default under the Existing HRT Loan, the Leases, any New HRT Lease
(defined below), any Substitute Lease (defined below), and any other lease or
loan then in effect between Lender or any Lender Affiliate, as Landlord or
Lender, and Borrower or any Affiliate, as Tenant or Borrower. In such event, no
 

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further notices or cure periods shall be required under any such loans or
leases, notwithstanding any provisions to the contrary contained therein.
 
 
7.2.4   Lease Modification. In addition to any other remedies available to
Lender under this Article 7, in the event following the occurrence of an Event
of Default, Lender does not elect to terminate or to foreclose upon its lien on
the Leases, then upon giving the Borrower and Texas-ESC written notice, as set
forth in the Lease Amendments, Lender may require the Minimum Rent Adjustment to
be paid effective as of the date of the occurrence of an Event of Default, which
is not waived by Lender (the “Minimum Rent Adjustment Effective Date”).
 
 
7.2.5 Minimum Rent Adjustment Collections. Notwithstanding any other provisions
in this Article 7, from and after the Minimum Rent Adjustment Effective Date,
(i) any amounts of Minimum Rent Adjustment collected by Lender under the Leases
shall be credited dollar for dollar against sums due hereunder with respect to
the payment of the Loan as provided in the Lease Amendments and (ii) any
payments received by Lender as payments due under this Loan Agreement, shall
also be credited against Minimum Rent Adjustment payments and accordingly shall
be allocated pro-rata among the then existing Leases in accordance with Schedule
A and credited dollar for dollar against the Minimum Rent Adjustment for each
such Lease. In furtherance and not in limitation of the foregoing, the parties
acknowledge and agree that it is their intent that from and after the Minimum
Rent Adjustment Effective Date Borrower shall have only one obligation to Lender
for the repayment of the Loan and that the addition of the Minimum Rent
Adjustment to the amount due under the Leases is to provide Lender with an
additional means to collect the amounts due under the Loan from and after the
Minimum Rent Adjustment Effective Date and not to create a monetary obligation
of Borrower to Lender above and beyond the amount then due and owing with
respect to the Loan. The parties further agree that Schedule A will be adjusted
in a commercially reasonable fashion to reflect the future termination ,
addition, or substitution of any Leases hereunder, including any Substitute
Leases or New HRT Leases (as defined in Section 9.8 below),and that the full
amount of the Minimum Rent Adjustment will be allocated among whatever Leases
remain in effect from time to time, as contemplated above.
 
 
7.2.6 Letter of Credit. Lender shall be entitled to draft the full amount of the
Letter of Credit described in Section 9.1 below, and apply the proceeds of such
Letter of Credit as provided therein. 
 
 
7.2.7 Other Remedies. Subject to the limitations set forth above, Lender may
take whatever action
 

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at law or in equity as may appear necessary or desirable to collect any monies
then due and/or thereafter to become due.
 
 
7.2.8 Waiver. Without waiving any prior or subsequent Event of Default, Lender
may waive any Event of Default or, with or without waiving any Event of Default,
remedy any Event of Default.
 
ARTICLE 8: MISCELLANEOUS
 
8.1 Advances by Lender. At any time and from time to time, Lender may incur
and/or pay and/or advance costs or expenses: [i] which Lender is authorized or
has the right (but not necessarily the obligation) to incur or may incur under
any Loan Document or any law; [ii] in exercising any right or remedy provided
under any Loan Document or in taking any action which Lender is authorized to
take under any Loan Document; [iii] which are required to be paid by Borrower
under any Loan Document or Lease Document, but which Borrower fails to pay upon
demand; or [iv] from which Borrower is required to hold Lender harmless under
any Loan Document, but from which Borrower fails to hold Lender harmless. Any
costs, expenses, or advances incurred or paid by Lender shall become part of the
Loan and, upon demand, shall be paid to Lender together with interest thereon at
the Default Rate (as defined in the Note) from the date of disbursement by
Lender.
 
 
8.2 Intentionally Deleted.
 
 
8.3 Construction of Rights and Remedies and Waiver of Notice and Consent.
 
 
8.3.1 Applicability. The provisions of this §8.3 shall apply to all rights and
remedies provided by any Loan Document or by law or equity.
 
 
8.3.2 Waiver of Notices and Consent to Remedies. Unless otherwise expressly
provided herein, any right or remedy may be pursued without notice to or further
consent of Borrower, both of which Borrower waives.
 
 
8.3.3 Cumulative Rights. Subject to the limitations set forth above, each right
or remedy under the Loan Documents is distinct from but cumulative to each other
right or remedy provided in the Loan Documents and may be exercised
independently of, concurrently with, or successively to any other such rights
and remedies.
 

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8.3.4 Extension or Modification of Loan. No extension of time for or
modification of amortization of the Loan shall release the liability or bar the
availability of any right or remedy against Borrower or any successor in
interest, and Lender shall not be required to commence proceedings against
Borrower or any successor or to extend time for payment or otherwise to modify
amortization of the Loan secured by this Agreement by reason of any demand by
Borrower or any successor.
 
 
8.3.5 Right to Select Security. Lender has the right to proceed at its election
against all security or against any item or items of such security from time to
time, and no action against any item or items of security shall bar subsequent
actions against any item or items of security. Borrower waives any right to seek
marshalling of any assets securing the Loan.
 
 
8.3.6 Forbearance Not a Waiver. No forbearance in exercising any right or remedy
shall operate as a waiver thereof; no forbearance in exercising any right or
remedy on any one or more occasions shall operate as a waiver thereof on any
further occasion; and no single or partial exercise of any right or remedy shall
preclude any other exercise thereof or the exercise of any other right or
remedy.
 
 
8.3.7 No Waiver. Failure by Lender to insist upon the strict performance of any
of the covenants and agreements herein set forth or to exercise any rights or
remedies upon default by Borrower hereunder shall not be considered or taken as
a waiver or relinquishment for the future of the right to insist upon and to
enforce by mandamus or other appropriate legal or equitable remedy strict
compliance by Borrower with all of the covenants and conditions hereof, or of
the rights to exercise any such rights or remedies, if such default by Borrower
is continued or repeated, or of the right to recover possession of the Facility
by reason thereof. To the extent permitted by law, any two or more of such
rights or remedies may be exercised at the same time.
 
 
8.3.8 No Continuing Waivers. If any covenant or agreement contained in the Loan
Documents is breached by Borrower and thereafter waived by Lender, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder. No waiver shall be binding unless it is in
writing and signed by Lender. No course of dealing between Lender and Borrower,
nor any delay nor omission on the part of Lender in exercising any rights under
the Loan Documents, shall operate as a waiver.
 

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8.3.9 Approval Not a Waiver. Lender’s review and approval of any contracts
relating to a Facility shall not constitute a waiver by Lender of any of the
terms or requirements of the Loan Documents which may conflict with any
provision of any such contracts.
 
 
8.3.10 No Release. Borrower and any other person now or hereafter obligated for
the payment or performance of all or any part of the Note shall not be released
from paying and performing under the Note by reason of [i] the failure of Lender
to comply with any request of Borrower (or of any other person so obligated), to
take action to enforce any of the provisions of the Loan Documents, or [ii] the
release, regardless of consideration, of the obligations of any person liable
for payment or performance of the Note, or any part thereof, or [iii] any
agreement or stipulation extending the time of payment or modifying the terms of
the Note, and in the event of such agreement or stipulation, Borrower and all
such other persons shall continue to be liable under such documents, as amended
by such agreement or stipulation, unless expressly released and discharged in
writing by Lender.
 
 
8.4 Assignment.
 
 
8.4.1 Assignment by Lender. Lender may assign, negotiate, pledge, or transfer
this Agreement, the Note and all other Loan Documents to any third party or
parties for any purpose and, in case of such assignment, the rights and remedies
of Lender shall be enforceable against Borrower by such party or parties with
the same force and effect and to the same extent as the same would have been
enforceable by Lender but for such assignment.
 
 
8.4.2 Assignment, Merger or Change of Control by Borrower. Borrower shall not
assign or attempt to assign its rights nor delegate its obligations under this
Agreement, and any attempt to do so without the prior written consent of Lender,
not to be unreasonably withheld, shall be voidable at Lender’s election and
shall constitute an Event of Default hereunder. The Lender shall also have the
same right to consent to any sale of assets or stock, merger, tender offer,
proxy contest, business combination or other similar transaction of or by
Emeritus (or any of the foregoing in a related series of transactions, which
shall be deemed a single transaction) whereby (A) the persons who held the
voting and economic interests in Emeritus prior to such transaction do not hold
at least 50% of the voting and economic interests in Emeritus or a successor
entity following such transaction; or (B) the persons who served as members of
the board of directors of Emeritus prior to the transaction do not constitute a
majority of the voting members of the board of directors of Emeritus or a
successor entity following the transaction. Any attempt
 

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to complete any such transaction without the prior written consent of Lender,
not to be unreasonably withheld, shall be voidable at Lender’s election and
shall constitute an Event of Default hereunder.
 
 
8.5 Notices. Borrower and Lender hereby agree that all notices, demands,
requests, and consents (hereinafter “notices”) given pursuant to the terms of
this Agreement shall be in writing, shall be addressed to the addresses set
forth in the introductory paragraph of this Agreement and shall be served by [i]
personal delivery; [ii] certified mail, return receipt requested; [iii]
nationally recognized overnight courier; or [iv] by facsimile, provided that a
copy thereof is mailed by certified mail promptly thereafter. All notices shall
be deemed to be given upon the earlier of actual receipt (provided, that in the
case of facsimiles, any facsimile received after 5:00 p.m. local time shall be
deemed received on the next Business Day) or three days after deposit in the
United States mail or one Business Day after deposit with the overnight courier.
Any notices meeting the requirements of this Section shall be effective,
regardless of whether or not actually received. Lender and Borrower may change
their notice address at any time by giving the other party notice of such
change.
 
 
8.6 Entire Agreement. This Agreement, the other Loan Documents, the Lease
Documents, and any other documents referred to herein constitute the entire
agreement between Borrower and Lender with respect to the subject matter hereof
and supersede all prior negotiations, discussions or writings with respect
thereto. No representations, warranties, and agreements have been made by Lender
except as set forth in such documents. If there is any conflict between the
terms and provisions of the Commitment and the terms of this Agreement, this
Agreement shall govern.
 
 
8.7 Severability. If any term or provision of this Agreement is held or deemed
by a court of competent jurisdiction to be invalid or unenforceable, such
holding shall not affect the remainder of this Agreement and the same shall
remain in full force and effect.
 
 
8.8 Captions and Headings. The captions and headings are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope of this Agreement or the intent of any provision thereof.
 
 
8.9 Governing Law. This Agreement shall be governed by and construed under the
laws of the State.
 
 
8.10 Binding Effect. This Agreement will be binding upon and inure to the
benefit of the successors and permitted assigns of Lender and Borrower.
 

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8.11 Modification of this Agreement. This Agreement may only be modified by a
writing signed by both Lender and Borrower. All references to this Agreement,
whether in this Agreement or in any other document or instrument, shall be
deemed to incorporate all amendments, modifications, and renewals of this
Agreement made after the date hereof. If Borrower requests Lender’s consent to
any change in ownership, merger or consolidation of Borrower, any assumption of
the Loan, or any modification of the Loan Documents, Borrower shall provide
Lender all relevant information and documents sufficient to enable Lender to
evaluate the request. In connection with any such request, Borrower shall pay
Lender’s actual reasonable attorney’s fees and expenses and other reasonable
out-of-pocket expenses incurred in connection with Lender’s evaluation of
Borrower’s request, the preparation of any documents and amendments, the
subsequent amendment of any documents between Lender and its collateral pool
lenders (if applicable), and all related matters.
 
 
8.12 Construction of Agreement. This Agreement has been prepared by Lender and
its professional advisors and reviewed by Borrower and its professional
advisors. Lender, Borrower and their advisors believe that this Agreement is the
product of all their efforts, it expresses their agreement, and that it shall
not be interpreted in favor of either Lender or Borrower or against either
Lender or Borrower merely because of their efforts in preparing it.
 
 
8.13 Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original hereof.
 
 
8.14 No Third-Party Beneficiary Rights. No person not a party to this Agreement,
a successor party or an assignee of a party shall have or enjoy any rights
hereunder, and all third-party beneficiary rights are expressly negated.
 
 
8.15 Lender’s and Borrower’s Authority to Furnish Copies of Loan Documents.
Lender may exhibit or furnish the Loan Documents or copies thereof to any
potential transferee of the Loan (whether such transfer is absolute or
collateral) and Lender and Borrower may exhibit or furnish the Loan Documents or
copies thereof to any governmental or regulatory authority in connection with
any legal, administrative or regulatory proceedings requiring the disclosure of
the terms of the Loan Documents, to Lender’s or Borrower’s attorneys, auditors
and underwriters, and to any other person or entity for which there is a
legitimate business purpose for such disclosure.
 

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8.16 Lender Merely a Lender.
 
 
8.16.1 No Agency. Lender is not and will not be in any way the agent for or
trustee of Borrower. Lender does not intend to act in any way for or on behalf
of Borrower in disbursing the proceeds of the Loan. Lender does not intend to be
and is not and will not be responsible for the completion of any improvements
erected or to be erected upon the land; the payment of bills or any other
details in connection with the land and improvements; any plans and
specifications prepared in connection with the land and improvements; or
Borrower’s relations with any contractors, subcontractors, materialmen, or
laborers performing work or supplying materials for the land and improvements.
 
 
8.16.2 No Obligation to Pay. This Agreement is not to be construed by Borrower
or anyone furnishing labor, materials, or any other work or product for
improving any Facility as an agreement upon the part of Lender to assure that
anyone will be paid for furnishing such labor, materials, or any other work or
product. Borrower shall be solely responsible for such payments.
 
ARTICLE 9: ADDITIONAL PROVISIONS
 
9.1 Collateral. Without limitation, the Loan shall be secured by the following
collateral:
 
 
9.1.1 Mortgage. The Loan shall be secured by all real property and other
collateral described in the Mortgage, including any Personal Property assigned
or pledged thereunder. A schedule of all Personal Property for each Facility
shall also be provided by Borrower to Lender, and updated from time to time, at
Lender’s request. Borrower shall execute such UCC financing statements and other
documents as Lender may reasonably require to perfect any security interest
granted in the Mortgage or otherwise to secure the performance of Borrower’s
obligations hereunder.
 
 
9.1.2 Letter of Credit. The Loan shall also be secured by an unconditional,
irrevocable Letter of Credit issued by a bank reasonably acceptable to Lender
(the “Issuer”) in the amount of $1,000,000.00, for a term of at least one year,
and, unless earlier terminated by the Issuer in accordance with the terms
thereof, automatically renewable thereafter for an additional term of at least
one year unless the same expires by its terms at least thirty (30) days after
the Maturity Date, and otherwise in form and substance reasonably satisfactory
to Lender (the “Letter of Credit”). The Letter of Credit will secure all other
obligations of Borrower to Lender under the Loan Agreement as
 

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well. Without limitation, the Letter of Credit will be an unconditional sight
draft containing the following language as the same may be modified with the
consent of Lender:
 
WE HEREBY OPEN OUR CLEAN, IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR FOR
THE ACCOUNT OF THE ABOVE MENTIONED APPLICANT IN THE AGGREGATE OF USD
$1,000,000.00 AVAILABLE BY PAYMENT AT OUR COUNTERS WHEN ACCOMPANIED BY THE
FOLLOWING:

1. A DRAFT DRAWN AT SIGHT ON [INSERT NAME OF ISSUING BANK] AND DULY ENDORSED ON
ITS REVERSE SIDE THEREOF BY THE BENEFICIARY, SPECIFICALLY REFERENCING THIS
LETTER OF CREDIT NUMBER.

2. THE ORIGINAL LETTER OF CREDIT PLUS ANY AND ALL AMENDMENTS ATTACHED THERETO.

WE HEREBY AGREE WITH YOU THAT DRAFT(S) DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THIS CREDIT SHALL BE DULY HONORED IF PRESENTED AT OUR
OFFICES LOCATED AT [INSERT LOCATION FOR PRESENTATION] ON OR BEFORE THE ABOVE
STATED EXPIRY DATE, OR ANY EXTENDED DATE THEREOF IF APPLICABLE.

IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE DEEMED AUTOMATICALLY
EXTENDED WITHOUT WRITTEN AMENDMENT FOR ONE YEAR FROM THE PRESENT OR ANY FUTURE
EXPIRY DATE UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO SUCH EXPIRATION DATE,
ISSUER SENDS THE BENEFICIARY NOTICE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
OR BY RECOGNIZED NATIONAL OVERNIGHT COURIER, THAT ISSUER ELECTS NOT TO EXTEND
THE LETTER OF CREDIT BEYOND THE CURRENT EXPIRY DATE OR ANY EXTENDED DATE
THEREOF. [NOTE: LENDER AND BORROWER AGREE THAT THIS PARAGRAPH SHALL NOT BE
REQUIRED IF THE EXPIRATION DATE OF THE LETTER OF CREDIT IS AT LEAST THIRTY (30)
DAYS AFTER THE MATURITY DATE OF THE LOAN].

Borrower and Lender agree that upon the occurrence and continuance of an Event
of Default hereunder, which is not cured within any applicable notice, grace
and/or cure period, Lender may draft the full amount of the Letter of Credit and

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apply the full proceeds of the Letter of Credit to the payment of any
obligations of Borrower to Lender arising under this Agreement or the Loan.

All other terms of the Letter of Credit must be reasonably satisfactory to
Lender. The Letter of Credit shall be delivered to Lender as part of the
Closing. If Borrower is unable to provide Lender with the original Letter of
Credit at Closing, Borrower shall deliver directly to Lender at Closing One
Million and no/100 Dollars ($1,000,000.00) by wire transfer of federal funds
available for immediate disbursement, and Lender will hold such funds as
security for all obligations of Borrower under this Agreement until such time as
Borrower is able to furnish Lender with the Letter of Credit required hereunder.
So long as Borrower provides Lender with the required One Million and no/100
Dollars ($1,000,000.00) cash collateral at the Closing, Borrower’s inability to
furnish the Letter of Credit will not constitute an Event of Default hereunder.

Borrower agrees to use commercially reasonable efforts to obtain a Letter of
Credit in the form required above, but if the Issuer will not issue an
automatically renewable Letter of Credit, the inability of Borrower to obtain
the renewable Letter of Credit shall not constitute an Event of Default
hereunder; however, Borrower will have the duty either (i) to give Lender
written notice at least sixty (60) days prior to the expiration date of the
Letter of Credit that the Letter of Credit will not renew or (ii) within at
least thirty (30) days prior to the expiration date of the Letter of Credit,
provide a replacement Letter of Credit meeting the requirements of this Section
9.1. Failure of Borrower to give such notice or provide such replacement Letter
of Credit shall authorize Lender to draw on the Letter of Credit which it is
then holding at anytime thereafter without further notice or opportunity to
cure, whether or not there is then outstanding an Event of Default hereunder,
and Lender will then hold such funds as security for all obligations of Borrower
under this Agreement until the earlier to occur of (i) such time, if any, as
Borrower delivers to Lender a Letter of Credit meeting the requirements of this
Section 9.1, at which time such proceeds shall be returned to Borrower or (ii)
there is then outstanding an Event of Default that is not cured within any
applicable notice, grace and/or cure period, at which time Lender may apply such
proceeds to the payment of the Loan.
 
 
9.2 Venue. Any actions for enforcement of the Loan Documents shall be brought in
courts located in the Middle District of Tennessee, which is the location of the
chief executive offices of Lender.
 
 
9.3 Oral Agreements. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER THE LAWS OF THE STATE OF WASHINGTON.
 

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9.4 Assignment of Certain Lease Rights. To the extent permitted by law, Borrower
irrevocably assigns to Lender Borrower’s right to treat any Lease as terminated
and all other rights of Borrower under 11 U.S.C. Section 365 (h)(1)(A)(i) or any
comparable provision of law, including Borrower’s right to exercise any option
to reject or terminate the Lease, any right of Borrower to object to any sale of
any Facility or any interest in any Facility and under Section 11 U.S.C. 363, or
otherwise, in any bankruptcy or insolvency proceeding affecting Borrower or any
Lease. To the extent permitted by law, this assignment of Borrower’s rights is
absolute and shall last until such time as the Loan has been fully satisfied and
the Mortgage has been released. At such time, Borrower’s rights under the
applicable bankruptcy or insolvency laws shall automatically vest in Borrower.
 
 
9.5 RESERVED.
 
 
9.6 Claims Against Lender. Borrower has no claims of any type against Lender or
any Lender Affiliate or any other rights of offset against the Note,
counterclaims, or any defenses against payment obligations under the Note or the
Existing HRT Loan arising prior to or upon the Effective Date. Borrower waives
the right to any such claims of offset, counterclaims, or defenses, known or
unknown, arising prior to the Effective Date. Borrower releases any claim it
might have against Lender or any Lender Affiliate based upon any circumstances
occurring prior to the Effective Date, whether known or unknown. Without
limitation, Borrower acknowledges that Lender has properly performed all of its
obligations under the Leases through the Effective Date and under the existing
HRT Loan through the Effective Date.
 
 
9.7 Demolitions or Alterations of Facilities. Borrower will not make or permit
any demolitions or material alterations of any improvements located at any
Facilities without the prior written consent of Lender, not to be unreasonably
withheld; except as otherwise required or permitted without Landlord’s consent
under the Lease Documents in which case Lender’s consent shall not be required.
 
 
9.8 Substitution and Addition of Facilities Securing Loan. Subject to the prior
written consent of Lender, which consent shall not be unreasonably withheld, the
Mortgage of a particular Lease may be released and replaced with new collateral
upon request by Borrower as follows: (i) Borrower may grant a leasehold mortgage
in favor of Lender on its interest with respect to a substitute facility
(“Substitute Facility”) under a substitute lease (“Substitute Lease”) with equal
or better economics (not leased from Lender) or (ii) Borrower, or an affiliate,
as Tenant, and Lender, or an affiliate, as Landlord, may enter into one or more
new
 

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leases for additional Facilities (each a “New HRT Lease”). In determining
whether or not to give such consent to substitution of collateral, Lender may
consider commercially reasonably factors including, without limitation,
occupancy rates, debt service coverage ratios, total revenues, total expenses,
and EBITDARM for the proposed Substitute Facility, as well as the value that a
New HRT Lease would contribute to the existing Lender/Borrower portfolio.
Borrower shall pay all reasonable attorneys’ fees and other costs of Lender
incurred in connection with consideration of the proposed substitution of
collateral. If Lender agrees to the substitution of collateral, then a Mortgage
shall be provided for the Substitute Lease in the same form as the Mortgage
encumbering the replaced Facility, and all representations and warranties
contained in this Agreement with respect to Facilities shall be deemed to be
effective with respect to the Mortgage of the Substitute Lease and the
Substitute Facility as of the effective date of the substituted Mortgage. On
such date, the existing Mortgage which is being replaced will be released of
record. All costs incurred in connection with the substitution of collateral
transaction will be paid by Borrower, including, without limitation, reasonable
attorneys’ fees, costs of title insurance, survey, environmental assessment,
property condition reports, and similar commercial loan items as may be
reasonably required by Lender.
 
 
9.9 Indemnity. Borrower shall indemnify Lender and hold Lender harmless for any
claims, losses, expenses (including reasonable attorneys’ fees and consultant
fees), liabilities, or other losses incurred as a result of the breach of any
representations, warranties, or covenants contained in the Loan Documents.
 
9.10 Consent to Jurisdiction. Borrower hereby irrevocably submits to and
consents to the non-exclusive jurisdiction and venue of any state or federal
court having jurisdiction over Davidson County, Tennessee for any action or
proceeding to enforce or defend any matter arising from or related to this
Agreement, the Note, or any other Loan Document. Borrower hereby irrevocably
waives, to the fullest extent Borrower may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding in
Davidson County, Tennessee. Borrower agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on a judgment or in any other manner provided by law.
Borrower and any guarantor agree not to institute any legal action or proceeding
against Lender or any director, officer, employee, agent or property of Lender
concerning any manner arising out of or relating to this Agreement, the Note or
any loan document other than in a state or federal court having jurisdiction
over Davidson County, Tennessee, or if such court lacks subject matter or in
personam jurisdiction, such action or proceeding may be brought in any court
which has such jurisdiction. Borrower hereby consents to service of process by
Lender in any manner and in any jurisdiction permitted by law. Nothing herein
shall affect or impair Lender’s right to serve legal process in any manner
permitted

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by law, or Lender’s right to bring any action proceeding against Borrower or the
property of Borrower or any guarantor in the courts of any other jurisdiction.
 
TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AND LENDER, HEREBY KNOWINGLY
AND VOLUNTARILY WAIVE THE RIGHT TO A JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTER CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE, OR ANY
LOAN DOCUMENT.
 
 
(Signatures on following page)
 

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IN WITNESS WHEREOF, Lender and Borrower have executed and delivered this
Agreement effective as of the Effective Date.
 
 
LENDER:
 
HEALTHCARE REALTY TRUST INCORPORATED
 
 
 
By: /s/ J.D. Carter Steele   
J. D. Carter Steele
 
 
Title: Senior Vice President
Chief Operating Officer
 
BORROWER:
 
 
EMERITUS CORPORATION
 
 
By: /s/ William M. Shorten  
William M. Shorten
Tax I.D. No.  91-1605464  
 
Title: Director of Real Estate Finance 
   

 

 

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EXHIBIT A: LEASES

Master Lease:

Lease Agreement dated May 1, 2003 by and between HR Acquisition I Corporation, a
Maryland corporation, Capstone Capital of Pennsylvania, Inc., a Pennsylvania
corporation, and HRT Holdings, Inc., a Delaware corporation (collectively
“Lessor”) and Emeritus Corporation (“Lessee”)

Texas Leases:

1. Henderson:

Lease dated December 31, 1996 by and between Capstone Capital of San Antonio,
Ltd. (“Lessor”) and Integrated Living Communities of Henderson, L.P. (“Lessee”),
as amended by First Amendment to Lease Agreement dated as of December 1, 1997,
as assigned by Integrated Living Communities of Henderson, L.P. to HB-ESC V,
L.P., a Washington limited partnership(“HB-ESC”) by Assignment and Assumption
Agreement dated as of May 9, 2002, as further amended by Second Amendment to
Lease Agreement dated as of May 9, 2002, and as assigned by HB-ESC to ESC IV,
L.P., a Washington limited partnership doing business in Texas as Texas-ESC IV,
L.P., by Assignment and Assumption Agreement dated as of December 31, 2003, and
as further amended by Third Amendment to Lease Agreement dated as of June 30,
2005.

2. Oakwell:

Lease dated December 31, 1996 by and between Capstone Capital of San Antonio,
Ltd. (“Lessor”) and Integrated Living Communities of Oakwell, L.P. (“Lessee”),
as amended by First Amendment to Lease Agreement dated as of December 1, 1997,
as assigned by Integrated Living Communities of Oakwell, L.P. to HB-ESC V, L.P.,
a Washington limited partnership (“HB-ESC”) by Assignment and Assumption
Agreement dated as of May 9, 2002, as further amended by Second Amendment to
Lease Agreement dated as of May 9, 2002, and as assigned by HB-ESC to ESC IV,
L.P., a Washington limited partnership doing business in Texas as Texas-ESC IV,
L.P. and as further amended by Third Amendment to Lease Agreement dated as of
June 30, 2005.

3. McKinney:

Lease dated December 31, 1996 by and between Capstone Capital of San Antonio,
Ltd. (“Lessor”) and Integrated Living Communities of McKinney, L.P. (“Lessee”),
as amended by First Amendment to Lease Agreement dated as of December 1, 1997,
as

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assigned by Integrated Living Communities of McKinney, L.P. to HB-ESC V, L.P., a
Washington limited partnership (“HB-ESC”) by Assignment and Assumption Agreement
dated as of May 9, 2002, as further amended by Second Amendment to Lease
Agreement dated as of May 9, 2002, and as assigned by HB-ESC to ESC IV, L.P., a
Washington limited partnership doing business in Texas as Texas-ESC IV, L.P. and
as further amended by Third Amendment to Lease Agreement dated as of June 30,
2005

4. San Antonio:

Lease dated December 31, 1996 by and between Capstone Capital of San Antonio,
Ltd. (“Lessor”) and Integrated Living Communities of San Antonio, L.P.
(“Lessee”), as amended by First Amendment to Lease Agreement dated as of
December 1, 1997, as assigned by Integrated Living Communities of San Antonio,
L.P. to HB-ESC V, L.P., a Washington limited partnership (“HB-ESC”) by
Assignment and Assumption Agreement dated as of May 9, 2002, as further amended
by Second Amendment to Lease Agreement dated as of May 9, 2002, and as assigned
by HB-ESC to ESC IV, L.P., a Washington limited partnership doing business in
Texas as Texas-ESC IV, L.P. and as further amended by Third Amendment to Lease
Agreement dated as of June 30, 2005.

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EXHIBIT B: DOCUMENTS TO BE DELIVERED
 
Borrower shall deliver each of the following documents to Lender no later than
the date specified for each document:
 
 
1. Annual Financial Statement of Borrower - within 90 days after the end of each
fiscal year.
 
 
2. Periodic Financial Statement of Borrower - within 45 days after the end of
each quarter and 30 days after the end of each month.
 
 
3. Borrower’s Certificate - with each delivery of Borrower’s financial
statements.
 
 
4. Federal tax returns of Borrower - within 15 days after the filing of the
return. If the filing date is extended, also provide a copy of the extension
application within 15 days after filing.
 
 

 

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EXHIBIT C: BORROWER’S CERTIFICATE
 
Report Period: Commencing       and ending     (the “Report Period”)
 
Loan: $10,800,000 Indebtedness owed by Emeritus Corporation (“Borrower”) to
Healthcare Realty Trust, Incorporated (“Lender”) pursuant to that Loan Agreement
dated as of June 30, 2005 (the “Loan Agreement”)
 
Borrower hereby certifies to Lender to the best of its knowledge as follows:
 
1. Except as otherwise disclosed to Lender, the attached [specify audited or
unaudited and annual or quarterly, and if consolidated, so state] financial
statements of Borrower [i] have been prepared in accordance with generally
accepted accounting principles consistently applied; [ii] have been prepared in
a manner substantially consistent with prior financial statements submitted to
Lender; and [iii] fairly present the financial condition and performance of
Borrower in all material respects.
 
 
2. Borrower was in compliance with all of the provisions of the Loan Agreement
and all other Loan Documents executed by Borrower in connection with the Loan at
all times during the Report Period, and no Event of Default, or any event which
with the passage of time or the giving of notice or both would constitute an
Event of Default, has occurred under the Loan.
 
 
Capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to them in the Loan Agreement.
 
 
Executed this   day of     ,  .
 
 

 
EMERITUS CORPORATION

 
By:
Name:
Title:

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EXHIBIT D: POST CLOSING ITEMS
 

 
1. Legal Opinion from local counsel for Emeritus Corporation.
 
2. Schedule of Personal Property for each Facility to the extent not previously
provided to Lender.
 
3. Owner’s Affidavit for each Facility certifying certain information with
respect to the absence of parties in possession and mechanics liens.
 

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SCHEDULE A
LOAN ALLOCATION PER FACILITY
 

 
Allocation of $10.8MM
Percentage of $10.8 MM
     
Kingsley Place Medical Oakwell
1,194,487
11.06%
Kingsley Place of Henderson
927,327
8.59%
Kingsley Place of McKinney
1,097,116
10.16%
Kingsley Place of Oakwell
1,267,635
11.74%
Loyalton at Bloomsburg
639,989
5.93%
Loyalton at Creekview
1,195,487
11.07%
Loyalton at Danville
735,950
6.81%
Loyalton at Greensboro
703,808
6.52%
Loyalton at Harrisburg
689,197
6.38%
Loyalton at Ravenna
663,591
6.14%
Loyalton at Roanoke
834,246
7.72%
Loyalton at Harrisonburg
851,167
7.88%
Total
10,800,000
100%
           

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