EX 10.85.1 Loan Agreemnt betwn HRT and ESC Jun 30 05


    LOAN
      AGREEMENT

    


    


    BETWEEN

    


    


    HEALTHCARE
      REALTY TRUST INCORPORATED

    


    


    AND

    


    


    EMERITUS
      CORPORATION

    


    


    June
      30, 2005

    


    



    
      
        
          


        

        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    



    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.

     


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


     

    


     

     

    “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 

     


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


     

    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 

     


    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    


     

    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 


    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    


    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)

     


    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    


     

    


     

     

    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 

            
	 	 


    

     

    


     


    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    


    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



    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    


    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.

    


    



    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    


    


    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.

     

     

    


     


    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    


    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:
      


    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    


     

    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.

     

    



    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    


    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%

            
	 	 	 
	 	 	 


    

    



    
      
        
        

      

      
        35