LOAN AGREEMENT
                                 --------------

          THIS LOAN AGREEMENT, dated as of August 1, 1999 (this "Agreement"), is
entered  into by and between  BROOKDALE  LIVING  COMMUNITIES,  INC.,  a Delaware
corporation (the "Borrower"),  and LaSALLE BANK NATIONAL ASSOCIATION, a national
banking association (the "Bank"). In consideration of the covenants,  agreements
and provisions set forth herein, and other good and valuable consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereto
agree as follows:

ARTICLE I.  DEFINITIONS; RULES OF CONSTRUCTION.
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          1.01   Definitions.  The following words and phrases,  as used herein,
shall have the following respective meanings:

          "Accounts" shall mean any and all accounts,  contract  rights,  notes,
drafts, chattel paper, instruments, documents and general intangibles consisting
of rights to payment (all as defined in the UCC).

          "Affiliate" shall mean any Person which, directly or indirectly,  owns
or controls,  on an aggregate  basis,  including  all  beneficial  ownership and
ownership  or control  as a trustee,  guardian  or other  fiduciary,  any of the
outstanding  Stock having ordinary voting power to elect a majority of the board
of directors  (irrespective of whether, at the time, Stock of any other class or
classes of such  corporation  have or might have  voting  power by reason of the
happening of any contingency) of the Borrower,  or which controls, is controlled
by or is under  common  control  with the  Borrower or any  stockholders  of the
Borrower.  For purposes  hereof,  "control"  means the  possession,  directly or
indirectly,  of the power to direct or cause the  direction  of  management  and
policies,  whether  through the ownership of voting  securities,  by contract or
otherwise.

          "Authorized  Borrower  Representative"  shall  mean  Mark J.  Schulte,
Darryl W. Copeland, Jr., R. Stanley Young, Robert J. Rudnik or such other person
or persons  approved by  resolution of the Board of Directors of the Borrower or
by the  Executive  Committee of the Board of Directors of Borrower  from time to
time, a certified copy of which resolution shall be delivered to the Bank.

          "Bank"  shall  mean  LaSalle  Bank  National  Association,  a national
banking  association,  with its principal place of business at 135 South LaSalle
Street, Chicago, Illinois 60603.

          "Borrower" shall mean Brookdale Living  Communities,  Inc., a Delaware
corporation  having its  principal  place of business  at 77 West Wacker  Drive,
Suite 4400, Chicago, Illinois 60601.

          "Business  Day" shall mean any  calendar  day,  other than a Saturday,
Sunday or other day in which the Bank's  downtown  Chicago,  Illinois  office is
authorized to close for domestic business.


<PAGE>


          "Capital Z  Documents"  shall  mean the  Indenture,  the  Supplemental
Indenture,  the Note Purchase Agreement, the Registration Rights Agreement dated
as of May 14,  1999  between  the  Borrower  and Health  Partners,  the Note (as
defined in the Note Purchase Agreement), and the Stockholders Agreement dated as
of May 14, 1999 between the  Borrower,  Health  Partners  and the other  parties
thereto,  including all exhibits and schedules attached to any of the foregoing,
as any of the foregoing are amended from time to time.

          "Closing" shall have the meaning specified in Section 3.01.

          "Debt" shall mean,  with respect to the subject  Person,  all items of
Direct Debt and Guaranteed Debt.

          "Debt Service  Coverage Ratio" shall mean Net Operating Income divided
by Property Debt Service, tested by the Bank on a quarterly basis.

          "Designated  Senior  Debt"  shall  have the  meaning  ascribed  in the
Indenture.

          "Direct Debt" shall mean with respect to the subject  Person,  without
duplication,  all  indebtedness,  obligations  and  liabilities  of such  Person
whether matured or unmatured, liquidated or unliquidated, direct or indirect, or
joint or several  which in  accordance  with GAAP are required to be  classified
upon a balance sheet of such Person as  liabilities  of such Person,  and in any
event shall include all (a)  indebtedness,  obligations  or  liabilities of such
Person for  borrowed  money,  including  all  Obligations  of such  Person,  (b)
indebtedness,  obligations  or  liabilities  of such  Person  evidenced  by loan
agreements,  credit agreements,  notes, bonds, debentures or similar instruments
or which have been incurred in connection with the purchase or other acquisition
of property, both real and personal, or assets, (c) indebtedness, obligations or
liabilities  secured  by any  lien  on or  payable  out of  the  proceeds  of or
production  from,  any property or assets  owned by such Person,  whether or not
such  Person has assumed or become  liable for the payment of such  obligations,
(d) all indebtedness,  obligations or liabilities incurred by such Person as the
lessee of property (real and personal),  goods or services under leases that, in
accordance  with GAAP, are or should be reflected on the lessee's  balance sheet
as a capital lease, (e) reimbursement obligations of such Person with respect to
letters of credit  issued  for the  account of such  Person,  (f)  indebtedness,
obligations or  liabilities  under any interest rate and currency  swaps,  caps,
floors, collars, hedge agreements,  forward contracts or similar arrangements or
agreements,  (g) all Senior  Debt that  qualifies  as the kind of  indebtedness,
obligations or liabilities referred to in clauses (a) through (f) above, and (h)
all  renewals,  modifications,   amendments  to,  extensions,   replacements  or
refinancings. of indebtedness, obligations or liabilities referred to in clauses
(a)  through (h) above.  Notwithstanding  the  foregoing,  Direct Debt shall not
include any Guaranteed Debt.  Whether a particular  obligation is Direct Debt or
Guaranteed  Debt shall be  determined  in  accordance  with GAAP with the Bank's
interpretation controlling, absent manifest error.

          "Documents"  shall  mean  this  Agreement,  the  Note  and  any  other
documents, instruments or certificates to be executed and delivered hereunder or
in connection herewith by or on behalf of the Borrower or any of its Affiliates.

                                      - 2 -

<PAGE>


          "Equipment" shall mean all equipment, machinery, fixtures and supplies
and  any and all  parts,  accessories,  attachments,  fittings,  special  tools,
additions  and   accessories   thereto  and  any  renewals,   substitutions   or
replacements thereof.

          "Employee  Benefit Plan" shall mean any employee  benefit plan (within
the meaning of Section  3(3) of ERISA) and any other  profit  sharing,  deferred
compensation,  bonus, stock option, stock ownership, stock purchase, employment,
consulting, incentive, vacation, sick leave, salary continuation,  service ward,
severance pay, insurance,  or other retirement,  welfare or fringe benefit plan,
agreement or practice,  that is (or within the last five years was) established,
maintained or  contributed  to by the Borrower or by any ERISA  Affiliate of the
Borrower.   For  purposes  of  this  definition,   an  ERISA  Affiliate  is  any
corporation,  trade  or  business  that is  considered  a  single  employer,  or
otherwise aggregated,  with the Borrower under Section 414(b), (c), (m), (n), or
(o) of the Code or Section 4001(b)(1) of ERISA.

          "Environmental  Laws"  shall  mean any  federal,  state or local  law,
statute,  ordinance,  order,  decree,  rule or regulation  relating to releases,
discharges,  emissions or disposals to air, water,  land or groundwater,  to the
withdrawal  or  use  of  groundwater,  to  the  use,  handling  or  disposal  of
polychlorinated  biphenyls,  asbestos or urea  formaldehyde,  to the  treatment,
storage,  disposal or management of Hazardous Substances,  to exposure to toxic,
hazardous or other  controlled,  prohibited or regulated  substances  and to the
transportation,  storage,  disposal,  management  or release of gaseous or other
liquid   substances,   including  the  Comprehensive   Environmental   Response,
Compensation  and Liability Act of 1980, as amended by the Superfund  Amendments
and  Reauthorization  Act of  1986,  42  USC  ss.9601  et  seq.,  the  Resource,
Conservation  and Recovery Act of 1976, as amended by the Hazardous  Solid Waste
Amendments of 1984, 42 USC ss.6901 et seq., the Toxic Substances Control Act, 15
USC  ss.2601 et seq.,  the  Occupational  Safety and Health Act of 1970,  29 USC
ss.651 et seq.,  the Clean Air Act of 1966, as amended,  42 USC ss.7401 et seq.,
and the Federal Water  Pollution  Control Act, as amended by the Clean Water Act
of 1977, 33 USC ss.1251 et seq., the Illinois  Environmental  Protection Act, as
amended (415 ILCS 5/1 et seq.) and all rules, regulations and guidance documents
promulgated pursuant thereto or published thereunder.

          "ERISA"  shall mean the  Employee  Retirement  Income  Security Act of
1974,  as amended,  together  with any  successor  statutes  of similar  import,
together with all regulations  thereunder,  in each case as amended from time to
time.

          "Event of Default" shall have the meaning specified in Section 7.01.

          "Financial  Statements"  shall  mean any of the  audited  consolidated
financial  statements of the Borrower for its most  recently  ended fiscal year,
the unaudited  consolidated  financial  statements  for the most recently  ended
quarter of the Borrower that have been filed with a Governmental Authority,  the
internally prepared monthly cash flow statements of the Borrower,  and any other
information and data concerning the financial affairs of the Borrower (including
without  limitation  pro  forma  financial  statements),  copies  of which  have
previously been furnished to the Bank.

          "GAAP"   shall   mean   generally   accepted   accounting   principles
consistently applied.

                                      - 3 -

<PAGE>


          "General  Intangibles" shall mean all general  intangibles,  including
choses in action, designs, patents, trademarks, service marks, trade names, good
will,  applications  for  registration,   registrations,  licenses,  franchises,
customer lists,  and all other  intangible  property of every nature (other than
Accounts).

          "Governmental  Authority" shall mean the United States of America, any
state,  territory or district  thereof,  and any other political  subdivision or
body politic  created  pursuant to any  applicable  Law, and any court,  agency,
department,   commission,  board,  bureau  or  instrumentality  of  any  of  the
foregoing.

          "Guaranteed  Debt" shall mean with respect to the subject Person,  (a)
all indebtedness,  obligations and liabilities (excluding Direct Debt) in effect
guaranteed,  directly  or  indirectly,  by such Person in any manner and for any
purpose whatsoever,  including in connection with the acquisition,  development,
or lease by or for the benefit of a  Subsidiary  or  Affiliate of such Person of
any business, properties or assets (including without limitation the acquisition
of leasehold  interests),  or in connection with any loans or financing obtained
by or for the benefit of any  Subsidiary  or Affiliate  of such Person,  (b) all
indebtedness,  obligations and liabilities in effect  guaranteed by such Person,
directly or  indirectly,  through  agreements  or  arrangements,  contingent  or
otherwise, including agreements to: (1) to purchase such indebtedness, or (2) to
purchase,  sell or lease (as lessee or  lessor)  property  (real and  personal),
products,  materials or supplies or to purchase or sell services,  primarily for
the purpose of enabling  the debtor to make payment of such  indebtedness  or to
assure the owner of the indebtedness  against loss, or (3) to supply funds to or
in any other manner invest in any Person.

          "Hazardous   Substances"   shall  mean  (i)  any  hazardous  or  toxic
substance, chemical or waste, or any pollutant or contaminant defined as such in
any now or hereafter  existing  Environmental  Law, (ii) asbestos,  (iii) radon,
(iv)  petroleum,   its  derivative  by-products  and  other  hydrocarbons,   (v)
polychlorinated  biphenyls,  (vi) explosives,  (vii)  radioactive  materials and
(viii) any additional  substances or materials  which at any time are classified
or considered to be hazardous or toxic under any Environmental Laws.

          "Indenture"  shall mean the Indenture  dated as of May 14, 1999 by and
between Borrower and State Street Bank and Trust Company, as Trustee,  including
all exhibits and schedules attached thereto, as amended from time to time.

          "Inventory"  shall mean all inventory,  goods,  merchandise  and other
personal  property held for sale or lease, or furnished or to be furnished under
any contract of service,  or held as raw materials,  work in process or material
used or consumed,  or to be used or consumed, in business (all as defined in the
UCC).

          "Laws" shall mean any federal, state or local law, statute, ordinance,
order, decree, rule or regulation.

          "LC Documents" shall have the meaning ascribed in Section 2.02 hereof.

                                     - 4 -

<PAGE>


          "LC Drawings" shall have the meaning ascribed in Section 2.02 hereof.

          "LC  Maturity  Date" shall have the meaning  ascribed in Section  2.02
hereof.

          "Letter(s) of Credit" shall have the meaning  ascribed in Section 2.02
hereof.

          "Loan" shall mean the unsecured loan in the principal  amount of up to
Thirty Five  Million  Dollars  ($35,000,000.00)  described in Article II of this
Agreement,  including  any  modifications,   amendments,  extensions,  renewals,
replacements or refinancings thereto or thereof.

          "Loan Advance" shall have the meaning specified in Section 2.01(A).

          "Loan Commitment" shall have the meaning specified in Section 2.01(A).

          "Maturity Date" means October 31, 2000.

          "Net Operating  Income" shall mean,  during each fiscal quarter of the
Borrower  and each  Subsidiary  of the  Borrower,  all  resident  fees  plus all
management  fees generated from all facilities and properties  owned,  leased or
managed  by the  Borrower  and  any  Subsidiaries  of  Borrower,  less  facility
operating expenses of all facilities and properties owned,  leased or managed by
the Borrower  and any  Subsidiaries  of  Borrower,  all as reflected on the 10-Q
filing  and   consolidated   financial   statements  of  the  Borrower  and  its
Subsidiaries required to be delivered to the Bank pursuant to this Agreement.

          "Note" shall mean the Note in form attached hereto as Exhibit A.

          "Note Purchase Agreement" shall mean the Note Purchase Agreement dated
as of April 27, 1999  between the Borrower and Health  Partners,  including  all
exhibits and schedules attached thereto, as amended from time to time.

          "Obligations"  shall mean all of Borrower's  liabilities,  obligations
and  indebtedness  to the Bank of any and every kind and nature,  including  the
Loan,  Borrower's  other  liabilities  and  obligations  to the Bank  under this
Agreement,  and  Borrower's  liabilities  and  obligations to the Bank under any
other agreement,  document or instrument  (including any guaranty to the Bank of
another  Person's  Obligations),  whether  heretofore,  now or hereafter  owing,
arising, due or payable by or from such Person to the Bank, howsoever evidenced,
created,  incurred,  acquired or owing,  and whether  joint,  several,  primary,
secondary, direct, contingent, fixed or otherwise.

          "Ordinary  Course of Business" shall mean, with respect to Borrower or
any  Subsidiary,  such debt,  financing  or other  obligations  incurred  by the
Borrower or any  Subsidiary in the normal  operation and course of its business,
specifically excluding,  however, any indebtedness,  liabilities,  guarantees or
obligations  incurred in connection  with the acquisition or development of real
estate, or which is prohibited under other provisions of this Agreement.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation.

                                      - 5 -

<PAGE>


          "Person"  shall  mean  any   individual,   corporation,   partnership,
association,   limited  liability   company,   limited  liability   partnership,
joint-stock company, trust,  unincorporated  association,  joint venture, court,
Governmental Authority, or any other similar entity.

          "Prime  Rate" shall mean the rate of interest  referred to by the Bank
from time to time as its prime rate, as fixed by the  management of the Bank for
the  guidance  of its  loan  officers,  whether  or not such  rate is  otherwise
published, with each change in such prime rate to take effect on the same day as
the  determination  of each change by the Bank. Such rate is not necessarily the
most favorable rate offered by the Bank to its borrowers.

          "Prior  Loan"  shall  mean  the loan  from  the  Bank to the  Borrower
pursuant to that certain Loan  Agreement  dated as of April 26, 1998, as amended
from time to time.

          "Property  Debt  Service"  shall mean the aggregate of all payments of
principal and interest under any notes,  bonds or other  instruments  evidencing
indebtedness  and all lease payments for all  properties or facilities  owned or
leased by the  Borrower or any  Subsidiary  of the  Borrower  during each fiscal
quarter of the Borrower.

          "Qualified  Plan" shall have the meaning  ascribed in Section  4.11(A)
hereof.

          "Real  Property"  shall mean any improved or unimproved  real property
now or hereafter owned or leased by Borrower.

          "Reportable  Event" shall mean any of the events  described in Section
4043 of ERISA,  other than any such  event for which the thirty  (30) day notice
requirement has been waived.

          "Securities" shall mean the Securities  described,  defined and issued
pursuant  to the  Indenture,  the  Supplemental  Indenture  and  the  Capital  Z
Documents,  including the 5 1/2% Convertible  Subordinated Notes due 2009 issued
pursuant to the Indenture and the Supplemental Indenture.

          "Senior Debt" shall have the meaning ascribed in the Indenture.

          "Stock" shall mean all shares, options,  interests,  participations or
other equivalents,  howsoever designated,  of or in a corporation,  partnership,
limited  liability  company  or similar  entity,  whether  voting or  nonvoting,
including common stock,  warrants,  preferred stock,  convertible  debentures or
notes,  partnership  interests  and all  agreements,  instruments  and documents
convertible, in whole or in part, into any one or more of the foregoing.

          "Subsidiary"  shall mean, with respect to any Person, any corporation,
partnership,  limited liability company or similar entity of which fifty percent
(50%) or more of the  outstanding  Stock having  ordinary voting power is at the
time,  directly or  indirectly,  owned by such Person and/or one or more of such
Person's Subsidiaries  (irrespective of whether, at the time, Stock of any other
class or classes of such entity  shall have or might have voting power by reason
of the happening of any contingency).

                                     - 6 -

<PAGE>


          "Supplemental   Documentation"  means  all  agreements,   instruments,
documents,  financing  statements,  warehouse  receipts,  schedules  of accounts
assigned,  certificates of title and other written matter necessary or requested
by the Bank to create,  evidence,  enforce,  or to consummate  the  transactions
contemplated in or by this Agreement and the other Documents.

          "Supplemental  Indenture" shall mean the Supplemental  Indenture dated
as of May 14,  1999 by and  between  Borrower  and State  Street  Bank and Trust
Company,  as Trustee,  including all exhibits and schedules attached thereto, as
amended from time to time.

          "UCC" shall mean the Uniform Commercial Code as in effect in Illinois.

          1.02   Rules  of  Construction.   Whenever  it  is  provided  in  this
Agreement  that a  party  "may"  perform  an act or do  anything,  it  shall  be
construed that such party "may, but shall not be obligated to," so perform or so
do. The following  words and phrases shall be construed as follows:  (i) "at any
time" shall be construed as "at any time or from time to time;" (ii) "any" shall
be  construed  as "any  and  all;"  (iii)  "include"  and  "including"  shall be
construed as  "including  but not limited to;" and (iv) "will" and "shall" shall
each be  construed as  mandatory.  Except as  otherwise  specifically  indicated
herein, all references to Article,  Section and Sub-Section  numbers and letters
shall refer to  Articles,  Sections  and  Sub-Sections  of this  Agreement;  all
references to Exhibits and  Schedules  shall refer to the Exhibits and Schedules
attached to this Agreement. The words "hereby", "hereof", "hereto", "herein" and
"hereunder"  and any similar terms shall refer to this  Agreement as a whole and
not to any particular  Article,  Section or  Sub-Section.  The word  "hereafter"
shall  mean after the date this  Agreement  is  executed  and  delivered  by the
parties hereto,  and the word "heretofore" shall mean before such date. Words of
the masculine,  feminine or neuter gender shall mean and include the correlative
words of other genders,  and words  importing the singular number shall mean and
include the plural number and vice versa.  The Article  headings are inserted in
this  Agreement for  convenience  only and are not intended to, and shall not be
construed to limit,  enlarge or affect the scope or intent of this  Agreement or
the meaning of any provision hereof. Any accounting terms used in this Agreement
which are not specifically defined shall have the meaning customarily given them
in accordance with GAAP; provided,  however,  that, in the event that changes in
generally  accepted  accounting  principles  shall be mandated by the  Financial
Accounting  Standards  Board,  or any  similar  accounting  body  of  comparable
standing,   or  shall  be  recommended  by  the  Borrower's   certified   public
accountants,  to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof,  such changes shall be followed in
defining such accounting terms only from and after such date as the Borrower and
the Bank shall have  amended this  Agreement to the extent  necessary to reflect
any such changes in the financial  covenants  and other terms and  conditions of
this  Agreement.  All other terms  contained in this Agreement  shall,  when the
context so  indicates,  have the meanings  provided for by the UCC to the extent
the same are used or defined therein.

                                     - 7 -

<PAGE>


ARTICLE II.      THE LOAN.
                 --------

          2.01   Loan Terms.
                 ----------

          (A)    Subject to the terms and conditions of this Agreement, the Bank
will make an unsecured  loan facility (the "Loan  Commitment")  available to the
Borrower,  pursuant  to which  the Bank  shall  from  time to time  make  credit
advances  (each, a "Loan  Advance") to the Borrower.  The Borrower may repay and
reborrow under the Loan  Commitment  subject to the terms and conditions of this
Agreement.  The  aggregate  amount of Loan Advances  outstanding  under the Loan
Commitment  shall at no time  exceed  the sum of  Thirty  Five  Million  Dollars
($35,000,000.00)  ("Maximum  Revolving Loan  Commitment").  The Loan  Commitment
shall  terminate  on the Maturity  Date at which time no further  Loan  Advances
shall be made by the Bank.  Requests for Loan Advances  under this Agreement may
be made by the  Borrower  at any  time,  and  from  time to  time,  prior to the
Maturity Date.

          (B)    Except for  disbursements  made in  connection  with Letters of
Credit,  the proceeds of each Loan Advance  shall be disbursed by deposit to the
Borrower's operating account pursuant to instructions  provided by the Borrower,
unless other arrangements are agreed upon between the Bank and the Borrower. The
Loan shall be used by the Borrower  solely for working  capital or in connection
with the  acquisition,  leasing  or  development  of Real  Property,  or for the
issuance of Letters of Credit by the Bank.

          (C)    Commencing  on the first day of the first month  following  the
first disbursement of any portion of the Loan Commitment and on the first day of
each  consecutive  month  thereafter until the Maturity Date, the Borrower shall
pay all interest that has accrued on the  outstanding  balance of the Loan.  All
outstanding Loan Advances  together with any accrued but unpaid interest thereon
and any  other  costs or  amounts  owed to the  Bank  hereunder,  excluding  the
aggregate  stated  amount of any Letters of Credit  outstanding  on the Maturity
Date,  shall be due and paid in full on the  Maturity  Date.  On the LC Maturity
Date,  the  aggregate  amount of Loan  Advances  made as a result of LC Drawings
together  with any  accrued but unpaid  interest  and any other  costs,  fees or
amounts owed by the Borrower to the Bank arising under this  Agreement  shall be
paid in full.  If any  payment  falls due on a day which is not a Business  Day,
payment shall be made on the next Business Day, and interest  shall accrue until
such later date.

          (D)    The Loan shall be evidenced by the Note.

          (E)    The Loan is a refinance and  replacement  of the Prior Loan. It
is expressly  provided that the Loan constitutes and shall be Designated  Senior
Debt and Senior Debt for purposes of and as defined in the  Indenture.  The Bank
shall have and be entitled to all rights and benefits of a holder of  Designated
Senior Debt and Senior Debt under and pursuant to the Indenture.

                                     - 8 -

<PAGE>


          2.02   Letters of Credit. Provided Borrower is otherwise in compliance
with all terms and conditions of the Loan Agreement and the Documents,  the Bank
agrees  to issue or renew  from the Loan from time to time from the date of this
Agreement to and including August 31, 2000, standby letters of credit (a "Letter
of Credit"  and,  collectively,  the  "Letters  of  Credit")  for the account of
Borrower to and for the benefit of municipalities  and other units of government
and other entities in order to guarantee  Borrower's  completion of improvements
(including public improvements) and other obligations required by those entities
in connection with Borrower's development projects, or in order to satisfy other
requirements  of such entities  (such as the  requirement  to maintain life care
escrows for  purposes of life care permits  issued under the Illinois  Life Care
Act), all subject to the conditions of this Agreement and which,  when added to:
(a) the aggregate amount of all other Letters of Credit  outstanding,  issued or
approved by the Bank as of the proposed  issuance  date,  and (b) the  aggregate
amount of Loan Advances outstanding, excluding Loan Advances made as a result of
LC Drawings  (as defined  herein) as of the  proposed  issuance  date,  will not
exceed  the  Maximum  Revolving  Loan  Commitment  in effect as of the  proposed
issuance  date.  The  Letters of Credit  shall also be subject to the  following
conditions:

                 a.   Application  and  Agreement.  As a condition of the Bank's
          obligation to issue a particular Letter of Credit,  Borrower,  through
          the Authorized Borrower  Representative,  shall notify the Bank of the
          particulars  of the Letter of Credit not less than three (3)  Business
          Days in advance, and Borrower shall provide such borrowing resolutions
          and  information,   and  execute  such  applications,   documents  and
          agreements as are required by the Bank,  including without limitation,
          the Bank's  standard form of application  and credit  agreement.  ("LC
          Documents").

                 b.   Reserve; Maximum Aggregate LC Amount. The stated amount of
          each  Letter of Credit  issued by the Bank shall  reduce the amount of
          the Maximum  Revolving  Loan  Commitment  then in effect in accordance
          with the terms of this  Agreement  on a dollar for  dollar  basis ("LC
          Reserve").  The  aggregate  maximum  amount of the LC Reserve  and the
          aggregate maximum stated amount of the Letters of Credit issued by the
          Bank that are  outstanding  at any time shall not  exceed Ten  Million
          Dollars ($10,000,000.00).

                 c.   Expiry. The Bank shall not issue any Letter of Credit with
          an expiry date later than December 15, 2000 (the "LC Maturity  Date").
          Upon written  request by Borrower,  the Bank shall execute and deliver
          to any  holders of Letters of Credit  existing  as of the date of this
          such  documents  as are  necessary  to extend the expiry  date of such
          Letters of Credit to a date not later than the LC Maturity Date.

                 d.   Fee.  Borrower  shall pay the Bank a fee in the  amount of
          one  percent  (1%) per annum of the  stated  amount of each  Letter of
          Credit issued by the Bank at the request of Borrower, fully earned and
          payable  quarterly in advance.  If the Letter of Credit expires during
          the quarter,  the fee shall be pro-rated based upon the number of days
          in the  quarter  that  the  Letter  of  Credit  is  outstanding.  As a
          condition to the issuance of each Letter of Credit, Borrower shall pay
          the Bank the  quarterly  portion of the Letter of Credit fee stated in
          the preceding sentence.

                                     - 9 -

<PAGE>


                 e.   Payment.  Each drawing  under the Letter of Credit (an "LC
          Drawing") shall constitute a Loan Advance under the Loan Agreement and
          shall be payable in  accordance  with the terms and  provisions of the
          Loan  Agreement  with  respect  to  other  Loan  Advances.  Borrower's
          obligation  to pay all LC  Drawings  shall be  absolute,  irrevocable,
          unconditional  and  without  setoff  under  any and all  circumstances
          whatsoever,  including,  without  limitation,  any of  the  following,
          whether or not with notice to, or the consent of, Borrower:

                      (i)   Any lack of validity or  enforceability  of a Letter
                 of Credit, this Agreement, or any of the LC Documents;

                      (ii)  The  existence  of any  claim,  set-off,  defense or
                 other right  which  Borrower  may have at any time  against the
                 beneficiary of a Letter of Credit, the Bank or any other person
                 or  entity,   whether  in  connection  with  the   transactions
                 contemplated herein or therein or any unrelated transaction;

                      (iii) Any statement or any other document  presented under
                 a Letter of Credit proving to be forged, fraudulent, invalid or
                 insufficient  in any  respect or any  statement  therein  being
                 untrue or inaccurate in any respect whatsoever;

                      (iv)  Payment by the Bank under a Letter of Credit against
                 presentation  of a draft or  certificate  which does not comply
                 with the  terms of the  Letter  of  Credit,  absent  the  gross
                 negligence or wilful misconduct of the Bank;

                      (v)   Any failure,  omission, delay or lack on the part of
                 the Bank or any party to any of the LC  Documents  to  enforce,
                 assert or exercise any right,  power or remedy  conferred  upon
                 the Bank or any such party under the LC Documents, or any other
                 acts or omissions on the part of the Bank or any such party;

                      (vi)  The    voluntary   or    involuntary    liquidation,
                 dissolution,  sale or other disposition of all or substantially
                 all the  assets  of  Borrower,  the  receivership,  insolvency,
                 bankruptcy,   assignment   for  the   benefit   of   creditors,
                 reorganization,  arrangement,  composition  with  creditors  or
                 readjustment or other similar proceedings affecting Borrower or
                 any of the assets of Borrower,  or any allegation or contest of
                 the validity of this Agreement,  the Letter of Credit or any of
                 the LC Documents, in any such proceeding; or

                      (vii) Any other event or action that would, in the absence
                 of this clause, result in the release or discharge by operation
                 of law of Borrower  from the  performance  or observance of any
                 obligation,  covenant or agreement contained in this Agreement,
                 the Letter of Credit or any of the LC Documents.

                 f.   LC  Documents.  Each Letter of Credit shall be governed by
          and  subject to the LC  Documents  required to be executed by Borrower
          for each such Letter of Credit.  In the event of any conflict  between
          any of the  terms  of the LC  Documents  and any of the  terms of this
          Agreement, the terms of this Agreement shall control.

                                     - 10 -

<PAGE>


          2.03   Interest Rate; Calculation. Except as provided in Section 2.04,
Loan Advances  under the Loan  Commitment  shall bear interest  per-annum at the
Prime  Rate.  Interest  shall  be  calculated  on the  basis of a  360-day  year
consisting  of twelve (12) 30-day  months,  counting  the actual  number of days
elapsed, and shall be paid monthly in arrears.

          2.04   Default Rate. Any Obligation of the Borrower hereunder or under
any of the  other  Documents  which is not paid  when  due,  whether  at  stated
maturity,  by acceleration or otherwise,  shall,  without notice,  bear interest
payable on demand at the interest rate then in effect with respect  thereto plus
three  percent  (3%).  In addition,  after the  occurrence of any other Event of
Default and delivery to the Borrower of the Bank's notice to charge post-default
interest,  all Obligations of the Borrower  hereunder shall bear interest at the
rate provided for in the immediately preceding sentence.

          2.05   Excessive  Rate.  If, at any time,  the interest rate and other
charges  imposed  hereunder  shall  be  deemed  by  any  competent  Governmental
Authority  to exceed the maximum rate of interest  permitted  by any  applicable
Laws, for such time as the interest and such charges would be deemed  excessive,
its  application  shall be  suspended  and there  shall be charged  instead  the
maximum rate of interest and charges permissible under such Laws.

          2.06   Prepayment.  The Borrower may prepay the outstanding amounts of
the  Loan  from  time to time in whole or in part on any  Business  Day  without
penalty or premium.  Borrower  may reborrow  any amounts  prepaid,  provided the
conditions set forth in Section 3.02 hereof are satisfied.

          2.07   Application   of  Payments.   All   payments,   which  are  not
prepayments, received from the Borrower for payment on the Loan shall be applied
by the Bank first to unpaid interest due and payable on the Loan, and second the
reduction of the principal outstanding on the Loan.

          2.08   No  Setoff.  All  payments  received  or due from the  Borrower
hereunder  shall be paid directly to the Bank without setoff or  counterclaim in
immediately  available funds. The Bank shall send the Borrower statements of all
amounts  due  hereunder,  which  statements  shall  be  considered  correct  and
conclusively binding on the Borrower absent manifest error.

          2.09   Bank Fees.  The Borrower  shall pay the Bank a fee (the "Unused
Commitment  Fee") in the amount of one-eighth of one percent (1/8%) per annum of
the average  unused Maximum  Revolving Loan  Commitment  amount  hereunder.  The
Unused Commitment Fee shall accrue as of the date of this Agreement and shall be
payable  quarterly in arrears,  commencing on September 30, 1999, and continuing
on the last day of each December, March and June thereafter and at maturity.

                                     - 11 -

<PAGE>


ARTICLE III.     CONDITIONS PRECEDENT
                 --------------------

          The  obligation  of the  Bank  to make  the  Loan  is  subject  to the
following conditions precedent:

          3.01   Conditions  Precedent  to Initial  Loan  Advance.  The Borrower
shall have delivered or caused to be delivered to the Bank on or before the date
of, but prior to, the  disbursement  of any Loan  Advance  pursuant  to the Loan
Commitment (hereinafter called the "Closing"), the following:

          (A)    the Note, duly executed by the Borrower;

          (B)    a certificate of the secretary or an assistant secretary of the
Borrower,  dated the date of the Closing,  as to incumbency,  and resolutions of
the  Board  of  Directors  of  Borrower  (or an  authorized  committee  thereof)
approving the transaction contemplated hereby;

          (C)    a certificate, dated as of the most recent date practicable, of
the  Secretary of State of Delaware and the Secretary of State of Illinois as to
the good standing of the Borrower;

          (D)    a  Solvency  and  Business  Purpose  Affidavit,   in  form  and
substance satisfactory to the Bank, duly executed by the Borrower;

          (E)    an opinion of counsel  to the  Borrower  in form and  substance
satisfactory to the Bank;

          (F)    such other documents,  certificates or evidence as the Bank may
reasonably request to consummate the transactions contemplated hereby.

          3.02   Condition Precedent to Subsequent Loan Advances. At the time of
the Closing,  at the time of each subsequent  request for and disbursement under
the Loan  Commitment  and on the last day of each fiscal quarter of the Borrower
after the date hereof, each of the following statements shall be true:

          (A)    The  representations and warranties set forth in this Agreement
are true and correct in all material respects unless otherwise  disclosed to and
approved by the Bank in writing,  in its sole  discretion,  since the prior Loan
Advance.

          (B)    No Event of Default shall have occurred and be continuing,  and
no event shall have occurred and be continuing  that,  with the giving of notice
or passage of time or both, would be an Event of Default.

          (C)    No material adverse change shall have occurred in the financial
condition of the Borrower since the date of this Agreement.

                                     - 12 -

<PAGE>


ARTICLE IV.      REPRESENTATIONS AND WARRANTIES
                 ------------------------------

          To induce the Bank to consummate the transactions contemplated hereby,
the Borrower represents and warrants to the Bank as follows:

          4.01   The Borrower is a corporation duly organized,  validly existing
and in good  standing  under the laws of the State of  Delaware,  has the lawful
power and  authority to own its  properties  and to carry on its business as now
conducted,  and possesses all material permits necessary to operate the business
it  conducts.  Borrower  is duly  qualified  to  conduct  business  as a foreign
corporation  and is in good  standing in the State of Illinois and in each other
jurisdiction  in  which  such  qualification  is  required  for the  conduct  of
Borrower's  business.  Each  Subsidiary  of  Borrower  is  qualified  to conduct
business  and  is  in  good  standing  in  each   jurisdiction   in  which  such
qualification is required for the conduct of such Subsidiary's business.

          4.02   The  Borrower  is  empowered  to  perform  all acts and  things
undertaken  and done  pursuant to this  Agreement and has taken all corporate or
other action  necessary to authorize the execution,  delivery and performance of
the Documents.  The officers of Borrower  executing the Documents have been duly
elected or appointed and have been fully authorized to execute such Documents at
the time  executed.  The  Documents,  when executed and  delivered,  will be the
legal, valid and binding obligations of the Borrower,  enforceable against it in
accordance with their respective terms.

          4.03   The  Financial  Statements  furnished  by or on  behalf  of the
Borrower to the Bank are complete and  accurate,  fairly  present the  financial
condition of the Borrower and its  Subsidiaries at the respective  dates thereof
and the results of operations for the respective  periods covered  thereby,  and
(subject  to normal  year-end  adjustments  with  respect to  interim  Financial
Statements)  were prepared in accordance  with GAAP.  The Borrower does not have
any material liabilities or obligations (contingent or otherwise), liability for
taxes, or unusual forward or long-term  commitments,  except as disclosed in the
Financial Statements.

          4.04   Since the date of Borrower's most recent  Financial  Statements
furnished to the Bank,  there has been no material adverse change in the assets,
liabilities   or  condition,   financial  or  otherwise,   of  Borrower  or  its
Subsidiaries,  other than changes  arising from  transactions  in the Borrower's
Ordinary Course of Business.

          4.05   Other than as set forth in the Financial Statements,  there are
no actions,  suits or proceedings  pending,  or, to the best of the knowledge of
the  Borrower,  threatened  against  or  affecting  the  Borrower  or any of its
Subsidiaries at law or in equity or before or by any  Governmental  Authority or
any  foreign  equivalent  thereof,  which is  reasonably  likely  to result in a
material  adverse  judgment  against Borrower or liability to Borrower or any of
its  Subsidiaries,  or which are,  in the  aggregate,  material  in light of the
financial  condition and assets of the Borrower or any of its  Subsidiaries,  as
determined  by the Bank in its sole  discretion.  There are no  actions,  suits,
investigations  or proceedings  pending,  or to the best of the knowledge of the
Borrower,  threatened  against the  Borrower or any of its  Subsidiaries  or its
properties regarding  Environmental Laws, the manufacture,  storage or treatment
of Hazardous Substances or products liability.

                                     - 13 -

<PAGE>


          4.06   The  Borrower is not in  violation  of, and the  execution  and
delivery of the Documents and the performance by the Borrower of its obligations
under  the  Documents,  do not and  will not  result  in the  Borrower  being in
violation of or in conflict  with,  or  constitute  a default  under any of, the
Borrower's  Amended  and  Restated  Certificate  of  Incorporation  or  Restated
By-Laws,  any term or  provision  of any note,  mortgage,  indenture,  contract,
agreement,  instrument,  judgment or Law  applicable  to the  Borrower,  and the
execution and delivery of the Documents and the  performance  by Borrower of its
obligations  under the  Documents  do not and will not result in the creation or
imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever
(other  than those in favor of Bank) upon any of the assets of the  Borrower  or
any of its  Subsidiaries  pursuant  to any such term or  provision.  Neither the
Borrower nor any of its Subsidiaries is in default,  after the expiration of any
applicable  grace  or  cure  periods,  in  any  respect  in the  performance  or
fulfillment of any of its obligations,  covenants or conditions contained in any
material  agreement or  instrument to which it is a party or by which any of its
properties may be bound, and the Borrower does not know of any dispute regarding
any such agreement or instrument.

          4.07   Neither  the  Borrower  nor  any  of  its   Subsidiaries   have
outstanding any Debt or other obligation for borrowed money, or for the deferred
purchase  price of property or services nor are the  Borrower or any  Subsidiary
obligated as guarantor,  co-signer or otherwise on any Debt or other  obligation
of any kind of any Person other than  Borrower or its  Subsidiaries,  except (i)
Direct Debt to the extent  shown on or reflected  in the  Financial  Statements,
(ii) Senior Debt and Guaranteed Debt disclosed on Schedule 1 attached hereto and
made a part hereof,  (iii) Debt evidenced by and incurred and issued pursuant to
the Capital Z Documents,  and (iv) trade debt incurred in the Ordinary Course of
Business  of Borrower or any  Subsidiary.  No Person is in default  under any of
said Debt

          4.08   All  tax  returns  and   reports  of  the   Borrower   and  its
Subsidiaries  required by law to be filed have been duly  filed,  and all taxes,
assessments,  fees and other  governmental  charges (other than those  presently
payable  without penalty or interest) upon each or upon any of its properties or
assets,  which are due and payable,  have been paid.  The charges,  accruals and
reserves on the books of the Borrower and its  Subsidiaries  in respect of taxes
are considered  adequate by the Borrower,  and the Borrower does not know of any
assessment of a material nature against it or any of its Subsidiaries.

          4.09   Except  to  the  extent  that   failure  to  comply  would  not
materially  or  practically  interfere  with the conduct of the  business of the
Borrower or its  Subsidiaries,  or affect in any way the Borrower's  obligations
(or Bank's rights) under the Documents,  the Borrower and its Subsidiaries  have
complied  with all  applicable  laws with  respect  to: (i) the conduct of their
business and (ii) the use,  maintenance,  and operation of the real and personal
properties owned or leased by them in the conduct of their business.

          4.10   No authorization, consent, license or approval of, or filing or
registration with, or notification to, any Governmental Authority is required in
connection  with the execution,  delivery or performance of the Documents by the
Borrower.

                                     - 14 -

<PAGE>


          4.11   With respect to each Employee Benefit Plan:

          (A)    each  Employee  Benefit Plan that is intended to qualify  under
Section  401(a) of the Code and the  assets of which are  exempt  from  taxation
under  Section  501 of the Code  ("Qualified  Plan") has  received  a  favorable
determination  letter as to such qualification and there has been no development
or  circumstance  since the date of such letter that creates a material  risk of
the loss of such plan's qualified status;

          (B)    each  Qualified  Plan that is  subject to the  requirements  of
Title IV of ERISA has met the minimum  funding  standards  of Section 412 of the
Code and is not subject to any event or condition  (including a reportable event
under Section 4043 of ERISA) that would be grounds for the  termination  of such
plan by the Pension Benefit Guaranty  Corporation or would otherwise subject the
Borrower to any  liability  with respect to such plan  (including  liability for
Pension Benefit Guaranty Corporation premiums for periods prior to the Closing);

          (C)    no  Employee   Benefit  Plan  has  engaged  in  a   transaction
prohibited by or under Section 406 of ERISA, or which would subject the Borrower
or any of its Subsidiaries to any tax on prohibited  transactions  under Section
4975 of the Code;

          (D)    each  Employee  Benefit  Plan  is in  full  compliance  in  all
material  respects (as determined by the Bank in its sole  discretion)  with the
reporting and disclosure requirements of ERISA and all other applicable laws;

          (E)    no Qualified Plan is a  multi-employer  plan within the meaning
of Section 3(37) of ERISA; and

          (F)    there are no  obligations  for future  post-retirement  health,
medical or death  benefits  under any  Employee  Benefit  Plan  except for death
benefits under a Qualified Plan.

          4.12   The Borrower is solvent,  no transaction  under or contemplated
by this Agreement  renders or will render the Borrower  insolvent,  the Borrower
retains sufficient capital for the business and transactions in which it engages
or intends to engage, no obligation incurred hereby is beyond the ability of the
Borrower to pay as such obligation  matures,  the Borrower is not  contemplating
either  the  filing  of a  petition  under any state or  federal  bankruptcy  or
insolvency  laws  or the  liquidating  of all or a major  portion  of any of its
property,  and Borrower has no knowledge of any person  contemplating the filing
of any such petition against it.

          4.13   There exists no actual or threatened termination,  cancellation
or  limitation  of, or any  modification  or change  in, the  proposed  business
relationship of Borrower or any of its  Subsidiaries  with any customer or group
of customers  whose  purchases  individually or in the aggregate are material to
the current business of Borrower or any of its Subsidiaries,  or in the proposed
business  relationship of Borrower or any of its Subsidiaries  with any material
supplier,  and  Borrower  reasonably  anticipates  that all such  customers  and
suppliers  will  continue  a  business   relationship   with  Borrower  and  its
Subsidiaries,  as the case may be, on a basis no less  favorable to the Borrower
than that heretofore conducted;  and there exists no other condition or state of
facts or  circumstances

                                     - 15 -

<PAGE>

which would materially adversely affect the current operation of the business of
Borrower  after  the  consummation  of the  transactions  contemplated  by  this
Agreement on a basis no less favorable to the Borrower than that in which it has
heretofore been conducted by Borrower.

          4.14   Except  for the strike by  certain  workers at the  Brendenwood
facility  which is being operated by a Subsidiary of Borrower,  no strike,  work
stoppage  or  other  labor  dispute  relating  to  the  Borrower  or  any of its
Subsidiaries  is pending or, to the best knowledge of the Borrower or any of its
Subsidiaries, is threatened and no application for certification of a collective
bargaining  agent is  pending  or, to the best  knowledge  of the  Borrower,  is
threatened.  There are no unfair labor practice charges or grievances or similar
matters  pending  or in  process  or,  to the best  knowledge  of the  Borrower,
threatened  by or on  behalf  of  any  employee  of the  Borrower  or any of its
Subsidiaries,  nor  any  complaints  received  by  the  Borrower,  or any of its
Subsidiaries  or, to the best knowledge of the Borrower,  threatened or on file,
with any  federal,  state or local  governmental  agencies  alleging  employment
discrimination  or other  violations of laws pertaining to such employees,  with
respect to which an adverse  decision is  reasonable  likely  which would have a
material adverse effect on the condition  (financial or otherwise),  properties,
assets, operations, results of operations,  business or rights of the Company or
any of its Subsidiaries.

          4.15   The Borrower's  execution and delivery of this Agreement or any
other Document does not directly or indirectly  violate or result in a violation
of Section 7 of the  Securities  and  Exchange Act of 1934,  as amended,  or any
regulations issued pursuant thereto, including, without limitation,  regulations
G, U, T and X of the Board of  Governors  of the  Federal  Reserve  System,  and
neither the Borrower nor any of its Subsidiaries owns any "margin stock," within
the meaning of said  regulations,  or is engaged in the  business  of  extending
credit to others for such purpose,  and no part of the proceeds of any borrowing
hereunder  will be used to  purchase  or carry any  "margin  stock" or to extend
credit to others for the purpose of purchasing or carrying any "margin stock."

          4.16   No representation or warranty by the Borrower  contained herein
or in any  certificate  or  other  document  furnished  by or on  behalf  of the
Borrower or its  Subsidiaries  in  connection  with the  transactions  hereunder
contains any untrue statement of material fact or omits to state a material fact
necessary to make such representation or warranty not misleading in any material
respect,  as  determined  by the  Bank in its sole  discretion,  in light of the
circumstances under which it was made.

          4.17   Except as indicated in the Financial Statements and, except for
purchase money financing or leasing arrangements used to acquire or lease office
equipment,  furniture,  furnishings,  and similar  items,  the  Borrower has not
encumbered,  pledged, mortgaged, granted a security interest in, assigned, sold,
leased  or  otherwise  disposed  of a  transfer,  in whole or in part,  any Real
Estate, Accounts,  Inventory,  Equipment, General Intangibles or other assets or
properties now owned or leased by Borrower or in which Borrower has an interest.

          4.18   The  Borrower  and its  Subsidiaries  have  reviewed  the areas
within their business and operations  which could be adversely  affected by, and
have  developed or are  developing a program to address on a timely  basis,  the
"Year 2000 Problem"  (that is, the risk that computer  applications  used by the
Borrower and its  Subsidiaries  may be unable to recognize and perform  properly
date-sensitive  functions  involving  certain  dates prior to and any date after
December  31,  1999),  and have

                                     - 16 -

<PAGE>

made related  appropriate  inquiry of material  suppliers and vendors.  Based on
such review and program, the Borrower believes that the "Year 2000 Problem" will
not have a material  adverse  effect on the Borrower.  From time to time, at the
request of the Bank, the Borrower and its Subsidiaries shall provide to the Bank
such updated  information or documentation as is requested  regarding the status
of their efforts to address the Year 2000 Problem.

          4.19   The Borrower represents, warrants and covenants with and to the
Bank that, notwithstanding any provision of this Agreement, the Documents or the
Capital Z  Documents  to the  contrary,  the  payment of the  principal  of (any
premium,  if any) and interest on each and all of the Securities are subordinate
and  subject in right of  payment  to the prior  payment in full of the Loan and
that payment of the Loan by the Borrower to the Bank is superior to the right of
payment to the Holders (as defined in the Indenture) of the Securities.

          4.21   Schedule 1 attached  hereto and made a part  hereof  sets forth
all Senior Debt of the Borrower, as defined and described in the Indenture,  and
all Guaranteed Debt, as of the date of this Agreement. The Borrower has not been
notified,  nor is the  Borrower  aware,  of any default or failure to perform in
connection  with any  Senior  Debt,  or of any  circumstances  which,  given the
passage of time, would or could result in or become such a default. The Borrower
is not aware of any Payment  Blockage  Notice,  as defined  and  describe in the
Indenture, having been issued.

          4.22   Each representation and warranty made by the Borrower to Health
Partners in Sections 4.1 through  4.28,  both  inclusive,  of the Note  Purchase
Agreement  was true and  correct  at the time made and,  except  for  changes to
financial  information  set forth therein that would not otherwise  give rise to
any Event of Default under the terms of this  Agreement,  is true and correct as
of the date of this Agreement.

          4.23   All of the  representations  and  warranties  set forth in this
Article IV shall survive and continue to be true, complete and correct until all
Obligations  of the Borrower  hereunder  are paid and satisfied in full and this
Agreement shall have been terminated.


ARTICLE V.      NEGATIVE COVENANTS
                ------------------

          The  Borrower   covenants  that  until  all  Obligations  of  Borrower
hereunder  are paid and  satisfied in full,  and the Bank's  obligation  to make
advances   hereunder  has  terminated,   the  Borrower  will  not,  directly  or
indirectly, without the prior consent in writing of the Bank:

          5.01   dispose by sale, assignment, lease, sale leaseback or otherwise
any material portion,  as determined by the Bank in its sole discretion,  of its
properties  or assets (other than obsolete or worn out property or equipment not
used or useful in its  business),  whether now owned or  hereafter  acquired and
including,  without limitation,  any notes,  accounts  receivable,  equipment or
machinery;

          5.02   transfer, directly or indirectly, any of its assets or pay out,
directly or  indirectly,  money or property or provide  services or do any other
act,  or fail to do any act,  which  would  have the  effect of  materially  and
adversely affecting its ability to perform its obligations hereunder;

                                     - 17 -

<PAGE>


          5.03   own, hold, purchase from or acquire stock, bonds, debentures or
other  securities of, or make any capital  contribution to any new Subsidiary or
dissolve or liquidate any existing Subsidiary;  provided,  however, Borrower may
create and contribute  capital to new Subsidiaries  upon the conditions that (i)
Borrower  owns  100% of all of the Stock of each such  Subsidiary  (except  with
respect to such projects  involving joint ventures with other parties,  provided
the  Borrower  owns a majority of the Stock of such joint  venture,  and further
provided the Borrower  notifies the Bank of such joint venture  arrangement  and
the Bank approves the same, which approval shall not be unreasonably withheld or
delayed),  and (ii) such  Subsidiary  is formed for the sole  purpose of owning,
operating,  managing or developing  real estate by such  Subsidiary and does not
violate any other provision of this Agreement;

          5.04   make  any  material   change  in  its  ownership  or  financial
structure,  make any material change in its management  (except on 15 days prior
notice to the  Bank),  change its name  (except  on 15 days prior  notice to the
Bank),  enter  into  any  merger,   consolidation,   dissolution,   liquidation,
reorganization or recapitalization,  or reclassification of its stock except for
stock options granted to employees of Borrower pursuant to stock incentive plans
as  previously  disclosed to the Bank and issuing  stock  pursuant to such stock
options;  provided,  however, Borrower may purchase its common stock pursuant to
the stock repurchase program previously  disclosed to and to the extent approved
by the Bank,  and to hold such  common  stock as  treasury  stock or cancel such
common stock; further provided that no proceeds of the Loan may be directly used
to purchase such stock;

          5.05   engage  in  business  activities  or  operations  substantially
different  from and  unrelated  to its business  activities  on the date of this
Agreement;

          5.06   directly or  indirectly  apply any part of the  proceeds of the
Loan for any purpose other than as set forth herein;

          5.07   directly or  indirectly  apply any part of the  proceeds of the
Loan to the  purchasing or carrying of any "margin  stock" within the meaning of
Regulation  U of the Board of Governors of the Federal  Reserve  System,  or any
regulations, interpretations or rulings thereunder;

          5.08   create,  incur,  remain  obligated  on or assume any (i) Direct
Debt other than (a) the Loan,  (b) Direct Debt  disclosed on Schedule 1 attached
hereto or  disclosed  in the  Financial  Statements  provided  to the Bank on or
before the date hereof,  (c) debt incurred in the Borrower's  Ordinary Course of
Business,  provided such debt is not borrowed from or owed to a bank, financial,
lending or similar  institution  (except for purchase money financing or leasing
arrangements used to acquire or lease office equipment, furniture,  furnishings,
and similar items),  and which is not prohibited by the other provisions of this
Agreement,  or  (ii)  Guaranteed  Debt,  whether  heretofore,  now or  hereafter
existing or incurred,  except for (a) total  Guaranteed  Debt in connection with
which the  Borrower's  maximum  obligations  do and will not exceed Two  Hundred
Million Dollars  ($200,000,000.00) in the aggregate (inclusive of the Guaranteed
Debt disclosed on Schedule 1 attached hereto),  as determined by the Bank in its
sole and reasonable  discretion,  provided the Borrower  first gives  reasonable
advance  notice  thereof  to the Bank and  delivers  to the Bank  copies  of all
information and  documentation  in connection with the proposed  Guaranteed Debt
and the Bank confirms, in its sole and reasonable discretion, that the requested
Guaranteed Debt is in fact

                                     - 18 -

<PAGE>

Guaranteed  Debt, (b)  environmental  indemnities to lenders in connection  with
real estate acquisition or development loans made to Subsidiaries of Borrower or
to entities  which lease  property to a  Subsidiary  of Borrower or who contract
with a  Subsidiary  of  Borrower to develop or operate  the  property,  upon the
condition that Borrower has procured from a qualified environmental professional
a Phase I and, if necessary, a Phase II environmental audit of each property for
which an environmental indemnity is delivered,  which concludes that there is no
presence or likely  presence of Hazardous  Substances and that there has been no
release or substantial threat of a release of Hazardous Substances in connection
with such  property  with respect to which  remedial  action is  recommended  or
required, or (c) loan guaranties to lenders in connection with nonrecourse loans
made to Subsidiaries of Borrower in connection with real estate acquisitions and
developments  by Subsidiaries of Borrower or to entities which lease property to
a  Subsidiary  of  Borrower or who  contract  with a  Subsidiary  of Borrower to
develop or operate the property,  upon the condition  that such  guaranties  are
limited to the  customary  "carve-outs"  to  nonrecourse  financing  due to such
matters  as  fraud,  misrepresentation,  waste,  misappropriation  of funds  and
similar conduct of Borrower or such Subsidiary;

          5.09   encumber,  pledge, mortgage or grant a security interest in, in
whole or in part,  any Real  Estate,  Accounts,  Inventory,  Equipment,  General
Intangibles  or other assets or properties  now or hereafter  owned or leased by
Borrower  or in which  Borrower  has an  interest  (except  for  purchase  money
financing or leasing  arrangements  used to acquire or lease  office  equipment,
furniture,  furnishings,  and similar items);  provided,  however,  Borrower may
pledge, on a non-recourse basis to Borrower, Borrower's partnership,  membership
or  ownership  interest in a  Subsidiary  of Borrower  in  connection  with Debt
incurred by such  Subsidiaries to the extent not prohibited by other  provisions
of this Agreement;

          5.10   enter  into,  or  be a  party  to,  any  transaction  with  any
Affiliate,  except in the  ordinary  course of and  pursuant  to the  reasonable
requirements of its business and upon fair and reasonable  terms which are fully
disclosed  in writing to the Bank and are no less  favorable to such Person than
would be obtained in a comparable arm's length  transaction with a person not an
Affiliate;

          5.11   change its fiscal year;

          5.12   furnish  the  Bank  any  certificate  or  other  document  that
contains  any untrue  statement  of  material  fact or that will omit to state a
material fact  necessary to make it not misleading in any material  respect,  as
determined  by the Bank in its sole  discretion,  in light of the  circumstances
under which it was furnished;

          5.13   directly  or   indirectly   redeem,   prepay  or  purchase  the
Securities,  or any of  them,  in  whole or in  part,  or make  any  payment  of
principal,  premium or other amount under or pursuant to the Securities,  or any
of them, in whole or in part, except that, provided that no Event of Default has
occurred or exists  under this  Agreement  or the  Documents,  Borrower may make
regularly  scheduled payment of interest only pursuant to the terms set forth in
the Securities and the Indenture, subject to Article Thirteen of the Indenture;

                                     - 19 -

<PAGE>


          5.14   incur,  assume,  take on or otherwise  become  obligated on any
Senior Debt in addition to the Senior Debt  disclosed  in Schedule 1, or modify,
amend or  otherwise  change the terms of any Senior  Debt,  except to the extent
specifically permitted under Section 5.08 hereof;

          5.15   make any payment of principal,  interest or premium (whether by
redemption, purchase, retirement, defeasance or otherwise) to the Trustee or any
Holder  (as those  terms are  defined  in the  Indenture)  with  respect  to the
Securities  upon the  occurrence  and during the pendency of an Event of Default
under this Agreement or the Documents; or

          5.16   cause,  permit or be a party to any modification,  amendment or
other  change to the terms of any of the  Capital  Z  Documents  or of any other
term, provision, document or instrument involving or relating to the Securities.


ARTICLE VI.      AFFIRMATIVE COVENANTS
                 ---------------------

          The Borrower  covenants that until all Obligations of the Borrower are
paid and satisfied in full, and the Bank's obligation to make advances hereunder
has terminated, the Borrower will:

          6.01   furnish and deliver to the Bank:

          (A)    as soon as practicable,  and in any event within 120 days after
the end of each fiscal  year:  (i) a statement of cash flows of the Borrower for
such year,  (ii) an income  statement  of the  Borrower  for such year,  (iii) a
balance  sheet of the  Borrower  as of the end of such year;  all in  reasonable
detail,  including  all  footnotes,  and  audited  by Ernst & Young LLP or other
certified public accountants selected by the Borrower and reasonably  acceptable
to the  Bank  and  certified  by such  accountants  to  have  been  prepared  in
accordance  with  GAAP,  except  for  any  inconsistencies   explained  in  such
certificate,  and (iv) a copy of all Form 10-K and 8-K  reports  required  to be
filed with any Governmental Authority;

          (B)    as soon as  practicable,  and in any event within 45 days after
the end of each quarter  commencing with the quarter ending  September 30, 1999,
(i) a statement  of cash flows of the  Borrower for such quarter and the portion
of the fiscal year then ended, (ii) an income statement of the Borrower for such
quarter and the portion of the fiscal year then ended,  (iii) a balance sheet of
the  Borrower  as of the end of  such  quarter;  all in  reasonable  detail  and
certified by an Authorized  Borrower  Representative as complete and accurate in
all material respects, fairly presenting the financial condition of the Borrower
and prepared in  accordance  with GAAP,  and (iv) a copy of all Form 10-Q or 8-K
reports required to be filed with any Governmental Authority, and

          (C)    promptly as received or generated  by  Borrower,  a copy of all
development  budgets  for  projects  in  which  Borrower  or any  Subsidiary  is
involved,  and of all certificates  and/or other evidence of compliance with any
covenants,  obligations  and other  requirements  required to be provided to any
Person or Governmental  Authority in connection with any Debt of Borrower or any
Subsidiary of Borrower; and

                                     - 20 -

<PAGE>

          (D)    concurrent  with  year  end  and  quarterly  fiscal  statements
required to be delivered  hereunder,  a certificate  of an  Authorized  Borrower
Representative (a) calculating  Borrower's compliance (or lack thereof) with the
financial  covenants in Section  6.13  hereof,  in  reasonable  detail,  and (b)
stating that no Event of Default has occurred and is  continuing  or if an Event
of Default has occurred and is continuing  setting  forth a description  of such
event and the steps being taken to remedy such event;

          (E)    with   reasonable   promptness   (i)  such  other   information
materially  concerning  the  business,  properties,  conditions  or  operations,
financial or otherwise,  of the Borrower, or compliance by the Borrower with any
of the covenants in the Documents, and (b) copies of all documents,  instruments
or other  agreements  pertaining  or relating to any Debt of the Borrower as the
Bank may from time to time reasonably request;

          6.02   furnish and deliver to Bank:

          (A)    immediately after the occurrence  thereof,  notice of any Event
of Default or of any fact,  condition or event that with the giving of notice or
passage of time or both, could become an Event of Default,  or of the failure by
the Borrower to observe any of its respective undertakings hereunder;

          (B)    immediately after the occurrence thereof, notice of any default
under any Debt, or under any  indenture,  mortgage or other  agreement  relating
thereto  for which the  Borrower  is liable,  including  any  default or Payment
Blockage Notice pursuant to the Indenture or the Capital Z Documents,  or of any
fact,  condition  or event  that with the giving of notice or passage of time or
both, could become a default under any Debt, or under any indenture, mortgage or
other agreement relating thereto for which the Borrower is liable, including any
default or Payment  Blockage  Notice  pursuant to the Indenture or the Capital Z
Documents;

          (C)    immediately after knowledge  thereof,  notice of any litigation
or proceeding in which the Borrower is a party if an adverse decision therein is
reasonably  likely which would require the Borrower to pay more than  $1,000,000
or deliver  assets the value of which exceeds such sum (whether or not the claim
is considered to be covered by insurance);

          (D)    immediately  after  receipt  of notice  thereof,  notice of the
institution  of any other suit or  proceeding  involving the Borrower that would
reasonably  likely  materially  and adversely  affect the  Borrower's  business,
properties or conditions or operations, financial or otherwise, as determined by
the Bank in its sole discretion;

          (E)    immediately after the occurrence  thereof,  notice of any other
matter which has resulted in, or would reasonably likely result in, a materially
adverse  change in the business,  properties,  or the  conditions or operations,
financial or otherwise,  of the Borrower,  as determined by the Bank in its sole
discretion; and

                                     - 21 -

<PAGE>


          (F)    immediately  upon  their  becoming  available,  Borrower  shall
deliver  or  cause to be  delivered  to the  Bank a copy of (i) all  regular  or
special reports or effective  registration  statements  which  Borrower,  or any
Subsidiary  of  Borrower,  shall  file  with the U.S.  Securities  and  Exchange
Commission  (or any  successor  thereto) or any  securities  exchange,  (ii) all
reports,   proxy   statements,   financial   statements  and  other  information
distributed  by  Borrower,  or  any  Subsidiary  of  Borrower,  to  all  of  the
stockholders  and  bondholders  of Borrower  or to the  financial  community  in
general, and (iii) any written reports submitted to Borrower,  or any Subsidiary
of Borrower, by independent  accountants in connection with any annual,  interim
or special audit of the financial  statements of Borrower,  or any Subsidiary of
Borrower;

          6.03   promptly pay and discharge when due all taxes,  assessments and
other  governmental  charges  imposed  upon it, or upon its  income,  profits or
property, and all claims for labor, material or supplies which, if unpaid, might
by law become a lien or charge upon its  property;  provided,  however,  that it
shall  not be  required  to pay any  tax,  assessment,  charge  or  claim  if so
permitted  by law, so long as the  validity  thereof  shall be contested in good
faith by appropriate  proceedings and adequate  reserves  therefor in accordance
with GAAP shall be maintained on its books;

          6.04   maintain  its  inventory,  equipment,  real  estate  and  other
properties in good condition and repair (normal wear and tear excepted), pay and
discharge or cause to be paid and  discharged  when due, the costs of repairs to
or  maintenance  of the same, and pay or cause to be paid all rental or mortgage
payments due on the same except if it is in good faith contesting by appropriate
proceedings  such  amounts due and is  maintaining  adequate  reserves  for such
liability in accordance with GAAP;

          6.05   maintain and comply with leases covering real property, if any,
used by it in accordance with the respective  terms thereof so as to prevent any
default  thereunder  which may  result in the  exercise  or  enforcement  of any
landlord's or other lien against it or its property;  provided, however, that it
may  contest  any  matters in  connection  with such leases in good faith and by
appropriate  proceedings  if it makes such  payments as are  required by law and
maintains  adequate  reserves on its books in accordance with GAAP in connection
therewith;

          6.06   maintain  its   corporate   existence,   maintain  all  rights,
privileges,  franchises,  permits and  approvals  necessary or desirable for the
continuation of its business,  and comply with the  requirements of all material
agreements  to which it is a party or by which any of its  assets is bound,  and
all  applicable  Laws,   including   Environmental   Laws,  and  orders  of  any
Governmental  Authority,  noncompliance  with which would  materially  adversely
affect its business,  properties,  condition, financial or otherwise, or ability
to repay its Obligations;

          6.07   keep adequate  records and books of the accounts and operations
of Borrower,  in which complete entries will be made in accordance with its past
practices and  consistent  with sound business  practice,  reflecting all of its
financial transactions,  and collect its accounts only in the Ordinary Course of
Business;

                                     - 22 -

<PAGE>


          6.08   permit any of the Bank's representatives to examine and inspect
all properties and  operations of Borrower,  and all books of account,  records,
reports  and other  papers and to make  copies and  extracts  therefrom,  and to
discuss the  Borrower's  affairs,  finances and  accounts  with its officers and
employees or its  independent  public  accountants  (and by this  provision  the
Borrower  authorizes said accountants to discuss the finances and affairs of the
Borrower),  all at such  reasonable  times  and as  often  as may be  reasonably
requested and upon two (2) Business Days notice by the Bank,  the costs and fees
for which Borrower  shall pay up to a maximum of $3,000.00  provided no Event of
Default has occurred;

          6.09   at its sole  cost and  expense,  keep and  maintain  all of its
property and assets insured for the full insurable value thereof against loss or
damage by fire,  theft,  explosions,  sprinklers and all other hazards and risks
(i) covered by extended coverage and/or (ii) ordinarily insured against by other
owners or users of  properties  in  similar  businesses.  All such  policies  of
insurance  shall  be in  form,  with  insurers  and in  such  amounts  as may be
reasonably satisfactory to the Bank;

          6.10   pay when due all of its Debt  except if (with  respect  to Debt
other  than  the  Obligations  hereunder)  it is in  good  faith  contesting  by
appropriate  proceedings such amounts due and has maintained  adequate  reserves
for such liability in accordance with GAAP;

          6.11   at the Bank's  request,  execute and/or deliver to the Bank, at
any time or times hereafter,  all Supplemental  Documentation  that the Bank may
request, in form and substance  acceptable to the Bank, and pay the costs of any
recording or filing of the same;

          6.12   maintain its principal  banking  relationship and accounts with
the Bank; and

          6.13   at all times, maintain a minimum Debt Service Coverage Ratio of
1.20:1.0 to be tested and determined by the Bank, in its sole  discretion,  on a
quarterly  basis  based upon the  financial  and  reporting  requirements  to be
complied with by Borrower pursuant to this Article VI.


ARTICLE VII.     EVENTS OF DEFAULT
                 -----------------

          7.01   The  occurrence  of any of the  following  events or acts shall
constitute an Event of Default ("Event of Default"):

          (A)    The Borrower  defaults in the payment of any of its Obligations
or any part thereof when the same shall become due and payable,  either by their
terms or as otherwise herein provided.

          (B)    Any Financial Statement, representation or warranty made by the
Borrower  herein or delivered by the Borrower  pursuant hereto or otherwise made
in writing by the Borrower in connection with this Agreement proves to have been
false in any  material  respect  as of the  date on which it was made or  deemed
made,  or the  Borrower  defaults in the  performance  of any of the  covenants,
conditions or agreements contained in this Agreement.

                                     - 23 -

<PAGE>


          (C)    The  Borrower  fails to pay or  perform  under the terms of any
Debt (including any Debt of Borrower in connection with the Capital Z Documents,
the  Securities  or any other Senior Debt of  Borrower)  when due, or suffers to
exist  any  other  event of  default  giving  rise to any  obligation  under any
agreement  binding the Borrower  and such failure or event of default  continues
beyond any applicable grace period,  the effect of which is to cause the Debt or
such  obligation  to become  due prior to its  stated  maturity  or prior to its
regularly scheduled dates of payment.

          (D)    The Borrower or any of its Subsidiaries  files a petition under
any  section  or chapter of the United  States  Bankruptcy  Code or any  similar
federal or state law or  regulation,  the  Borrower  or any of its  Subsidiaries
admits in writing its inability to pay debts as they mature, the Borrower or any
of its  Subsidiaries  makes an assignment  for the benefit of one or more of its
creditors,  the Borrower or any of its Subsidiaries makes an application for the
appointment  of a receiver,  trustee or custodian  for any of its  properties or
assets, or the Borrower or any of its Subsidiaries  files any case or proceeding
for its reorganization, dissolution or liquidation or for relief from creditors;
provided that any of the foregoing with respect to a Subsidiary  will constitute
an Event of Default only if it materially  and adversely  affects the ability of
Borrower to perform its Obligations hereunder.

          (E)    The Borrower or any of its Subsidiaries is enjoined, restrained
or in any way prevented by court order from  conducting all or any material part
of its business  affairs,  a petition under any section or chapter of the United
States  Bankruptcy  Code or any similar  federal or state law or  regulation  is
filed against the Borrower or any of its Subsidiaries, any case or proceeding is
filed against the Borrower or any of its  Subsidiaries  for its  reorganization,
dissolution or liquidation or for creditor relief,  or an application is made by
any  Person  other  than  the  Borrower  or  any  of its  Subsidiaries  for  the
appointment  of a receiver,  trustee,  or custodian for any of its properties or
assets, and such injunction, restraint, petition or application is not dismissed
or stayed  within ninety (90) days after the entry or filing  thereof;  provided
that any of the foregoing with respect to a Subsidiary  will constitute an Event
of Default only if it materially  and adversely  affects the ability of Borrower
to perform its Obligations hereunder.

          (F)    The Borrower or any of its Subsidiaries  conceals or removes or
permits to be  concealed  or removed  any part of its  property  with  intent to
hinder, delay or defraud its creditors or any of them, or makes or suffers to be
made a transfer of any of its property that may be fraudulent  under any federal
or state bankruptcy, fraudulent conveyance or similar law.

          (G)    The  Borrower  or any of its  Subsidiaries  permits  any of its
properties  or assets to be  attached,  seized,  subjected to a writ or distress
warrant,  or levied  upon,  or to come within the  possession  of any  receiver,
trustee,  custodian or assignee for the benefit of creditors;  provided that any
of the  foregoing  with  respect to a  Subsidiary  will  constitute  an Event of
Default only if it materially  and adversely  affects the ability of Borrower to
perform its Obligations hereunder.

                                     - 24 -

<PAGE>


          (H)    The  Borrower  or any  of  its  Subsidiaries  suffers  a  final
judgment for payment of money in excess of $1,000,000  which shall not be stayed
on appeal and does not  discharge  the same within a period of thirty (30) days;
provided that any of the foregoing with respect to a Subsidiary  will constitute
an Event of Default only if it materially  and adversely  affects the ability of
Borrower to perform its Obligations hereunder,  as determined by the Bank in its
sole discretion.

          (I)    A judgment  creditor of the Borrower or any of its Subsidiaries
obtains possession of any of its properties or assets with an aggregate value in
excess  of  $1,000,000  by  any  means,  including  without  limitation,   levy,
distraint,  replevin  or  self-help;  provided  that any of the  foregoing  with
respect  to a  Subsidiary  will  constitute  an  Event  of  Default  only  if it
materially  and  adversely  affects  the  ability of  Borrower  to  perform  its
Obligations hereunder, as determined by the Bank in its sole discretion.

          (J)    Any  authorization,   consent,  approval,  license,  exemption,
registration,  qualification,  designation,  declaration, report filing or other
action  or  undertaking  now or  hereafter  made  by or  with  any  Governmental
Authority in  connection  with the business or  operations of Borrower or any of
its  Subsidiaries,  or with this  Agreement  or any other  Document  or any such
action or  undertaking  now or  hereafter  necessary  to make its  business  and
operations or this Agreement or any other Document legal, valid, enforceable and
admissible  in evidence is not obtained or shall have ceased to be in full force
and effect or shall have been  revoked,  modified  or amended or shall have been
held to be illegal or  invalid  and,  as a result  thereof,  the  ability of the
Borrower  to perform its  Obligations  hereunder  is  materially  and  adversely
affected, as determined by the Bank in its sole discretion.

          (K)    Any permit  material to the  business,  operations or financial
condition  of the  Borrower  or any of its  Subsidiaries  shall  be  terminated,
suspended  or revoked and, as a result  thereof,  the ability of the Borrower to
perform its  Obligations  hereunder is  materially  and adversely  affected,  as
determined by the Bank in its sole discretion.

          (L)     There shall occur any uninsured damage to, or loss,  theft, or
destruction  of, any of the  properties  or assets of the  Borrower in excess of
$1,000,000 and, as a result thereof,  the ability of the Borrower to perform its
Obligations hereunder is materially and adversely affected, as determined by the
Bank in its sole discretion.

          (M)    A  notice  of lien or  assessment  is filed  or  recorded  with
respect to all or any of the  Borrower's  or any  Subsidiary  of the  Borrower's
assets by the  United  States,  or any  department,  agency  or  instrumentality
thereof, or by any state, county,  municipal or other governmental agency, or if
any taxes or debts owing at any times  hereafter  to any one of these  becomes a
lien or encumbrance  upon any such Person's  assets and the same is not released
within thirty (30) days after the same becomes a lien or  encumbrance  and, as a
result,  the ability of the Borrower to perform its obligations  hereunder is or
could be  materially  and adversely  affected,  as determined by the Bank in its
sole  discretion;  provided  that such Person shall have the right to contest by
appropriate  proceedings  any  such  lien,  levy or  assessment  if such  Person
provides the Bank with a bond or indemnity satisfactory to the Bank assuring the
payment of such lien, levy or assessment.

                                     - 25 -

<PAGE>


          (N)    Any of the following events if such event could have a material
adverse  effect on the Borrower as reasonably  determined  by the Bank:  (i) the
existence of a Reportable  Event,  (ii) the withdrawal of the Borrower or any of
its Subsidiaries,  or any ERISA Affiliate from an Employee Benefit Plan during a
plan  year in  which it was a  "substantial  employer"  as  defined  in  Section
4001(a)(2) of ERISA,  (iii) the occurrence of an obligation to provide  affected
parties with a written notice of intent to terminate an Employee Benefit Plan in
a distress termination under Section 4041 of ERISA, (iv) the institution by PBGC
of  proceedings  to  terminate  any  Employee  Benefit  Plan,  (v) any  event or
condition  which would  require the  appointment  of a trustee to  administer an
Employee  Benefit  Plan,  (vi)  the  withdrawal  of the  Borrower  or any of its
Subsidiaries,  or any ERISA Affiliate from a Multi-employer  Plan, and (vii) any
event that would give rise to a Lien under Section 302(f) of ERISA.

         (O)     The occurrence of an "Event of Default," or similar  default or
event of default,  howsoever  defined,  under the  Indenture,  the Note Purchase
Agreement  or any of the  Capital  Z  Documents,  or the  issuance  of a Payment
Blockage  Notice  referred  to in  the  Indenture,  that  is  not  cured  within
applicable cure periods, if any.

          (P)    The occurrence of a default or an Event of Default under any of
the other  Documents  which is not cured  within  the  time,  if any,  specified
therefor in such other Document.

          7.02   Upon the occurrence of any Event of Default, and at any and all
times while any Event of Default  shall be  continuing,  the Bank shall have all
rights and  remedies  provided by this  Agreement  or any other  Document and by
applicable law and,  without  limiting the generality of the foregoing,  may, at
its option,  declare the Loan  Commitment  to be  terminated  by giving  written
notice  thereof to the  Borrower,  and the Note,  upon such  declaration,  shall
thereupon be and become  forthwith,  due and payable,  without any  presentment,
demand,  protest or other notice of any kind, all of which are hereby  expressly
waived.  The Bank  reserves all rights and remedies of the holder of  Designated
Senior  Debt and  Senior  Debt  pursuant  to the  Indenture  and the  Capital  Z
Documents.  The  Bank  shall  further  have the  right,  without  notice  to the
Borrower,  to set off  against  and to  appropriate  and  apply  to such due and
payable  amounts any debt owing to, and any other funds,  accounts,  deposits or
amounts held in any manner for the account of the Borrower by Lender.


ARTICLE VIII.    MISCELLANEOUS
                 -------------

          8.01   No failure or delay on the part of the Bank in  exercising  any
right, power or remedy hereunder or under any other Documents shall operate as a
waiver  thereof,  nor shall any single or partial  exercise  of any such  right,
power or remedy preclude any other or further  exercise  thereof or the exercise
of any other right,  power or remedy hereunder or under any other Document.  The
remedies  herein  provided and under any other  Document are  cumulative and not
exclusive of any remedies provided by law.

                                     - 26 -

<PAGE>


          8.02   This  Agreement and the other  Documents  constitute the entire
agreement  between the parties  with  respect to the subject  matter  hereof and
thereof and there are no promises  expressed or implied unless  contained herein
and therein. No amendment, modification,  termination or waiver of any provision
of the Documents nor consent to any departure by the Borrower therefrom shall in
any event be  effective  unless the same  shall be in writing  and signed by the
Bank,  and then such waiver or consent shall be effective  only for the specific
purpose  for which  given.  No notice to or demand on the  Borrower  in any case
shall  entitle the Borrower to any other or further  notice or demand in similar
or other circumstances.

          8.03   The Borrower will pay any  documentary,  stamp or similar taxes
payable in respect of the Documents. The Borrower will, on demand, reimburse the
Bank for all  expenses,  including  the  reasonable  fees and  expenses of legal
counsel (including, without limitation, legal assistants) for the Bank, incurred
by the Bank in connection  with any amendment or  modification of the Documents,
the  administration  of the Loan and the  enforcement  of the  Documents and the
collection or attempted collection of the Obligations.

          8.04   (A)  For the purposes of any action or proceeding involving the
Documents or any other agreement or document  referred to therein,  the Borrower
hereby  expressly  submits to the  jurisdiction  of all federal and state courts
located in the State of Illinois and consents that any order, process, notice of
motion or other  application  to or by any of said courts or a judge thereof may
be served within or without such court's  jurisdiction  by registered mail or by
personal service,  provided a reasonable time for appearance is allowed.  To the
extent permitted by applicable law, the Borrower hereby  irrevocably  waives any
objection  that it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement or any other
Document brought in any federal or state court sitting in Cook County,  State of
Illinois, and, to the extent permitted by law, hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

          (B)    THE BORROWER  AND THE BANK HEREBY  KNOWINGLY,  VOLUNTARILY  AND
INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT EITHER
MAY HAVE TO A TRIAL BY JURY OF ANY  DISPUTE  ARISING  UNDER OR  RELATING TO THIS
AGREEMENT, THE NOTE, ANY OTHER OF THE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

          8.05   Any notices or consents required or permitted by this Agreement
shall be in writing and shall be delivered in person or sent by certified  mail,
postage prepaid, return receipt requested, or delivered by, facsimile,  telegram
or telex, or delivered by a nationally  recognized  overnight  express  delivery
service,  addressed as follows, unless such address is changed by written notice
hereunder:

                                     - 27 -

<PAGE>


                 If to the Borrower:    Brookdale  Living  Communities,  Inc.
                                        77 West Wacker  Drive,  Suite 4400
                                        Chicago, Illinois 60601
                                        Attn:     Darryl W. Copeland, Jr.
                                                  Executive Vice President
                                        FAX:      (312) 977-3699

                 with a copy to:        Brookdale Living Communities, Inc.
                                        77 West Wacker Drive, Suite 4400
                                        Chicago, Illinois 60601
                                        Attn:     Robert J. Rudnik
                                                  General Counsel
                                        FAX:      (312) 977-3769

                 If to the Bank:        LaSalle Bank National Association
                                        135 South LaSalle Street
                                        Chicago, Illinois 60603
                                        Attn:     David E. Heise
                                                  Assistant Vice President

Any such notice or  communication  shall be deemed to have been given  either at
the time of personal delivery,  or in the case of overnight express delivery, as
of the Business Day delivery was first  attempted,  or in the case of facsimile,
telegram  or telex,  upon  receipt  or in the case of  certified  mail,  two (2)
Business Days after delivery to the United States Postal Service.

          8.06   This  Agreement  may be executed in any number of  counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed  and  delivered  shall be deemed to be an original  and all of which
taken together shall constitute but one and the same instrument.

          8.07   This Agreement  shall become  effective when it shall have been
executed and  delivered by the Borrower and the Bank,  and  thereafter  shall be
binding  upon and inure to the  benefit of the  Borrower  and the Bank and their
respective  successors and assigns,  except that the Borrower shall not have the
right to assign its rights  hereunder or any interest  herein  without the prior
written consent of the Bank.

          8.08   This  Agreement  has  been,  and any other  Documents  will be,
delivered  and accepted in and shall be deemed to be,  contracts  made under and
governed by the laws of the State of  Illinois,  and for all  purposes  shall be
construed in accordance with the laws of said State.

          8.09   Any  provision  of  this  Agreement   which  is  prohibited  or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining  provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction;  wherever possible,  each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable Law.

                                     - 28 -

<PAGE>


          8.10   All covenants, agreements,  representations and warranties made
by the Borrower herein and any and all certificates and instruments delivered by
the Borrower in connection herewith shall,  notwithstanding any investigation by
the Bank,  be deemed  material  and relied on by the Bank and shall  survive the
execution and delivery to the Bank of this Agreement, the Note and any extension
or renewal thereof.

          8.11   From time to time,  the  Borrower  will  execute and deliver to
Bank such additional  documents and will provide such additional  information as
the Bank may reasonably  require to carry out the terms of this Agreement and be
informed of the Borrower's status and affairs.

          8.12   All  Exhibits  attached  to  this  Agreement  shall  be  deemed
incorporated herein by this reference.

          8.13   Whenever  under  the  terms  of this  Agreement,  the  time for
performance  of a covenant or  condition  falls upon a day other than a Business
Day,  such time for  performance  shall be  extended to the next  Business  Day.
Unless  otherwise  stated,  all references  herein to "days" shall mean calendar
days.

          8.14   The Borrower hereby consents to the Bank's participation, sale,
assignment or transfer,  at any time or times hereafter of this Agreement or the
Documents, or any portion hereof or thereof,  without affecting the liability of
the Borrower hereunder;  provided,  however,  the Bank shall at all times act as
sole agent on behalf of itself and any participant that acquires any interest in
this  Agreement  or the  Documents  and shall at all times  service  the Loan on
behalf of itself and any participant.

                                     - 29 -

<PAGE>


          IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed by their respective  officers  thereunto duly authorized,  as of the
date first above written.

                                   BORROWER:

                                   BROOKDALE LIVING COMMUNITIES, INC.



                              By:  /s/ Darryl W. Copeland, Jr.
                                   --------------------------------------
                              Print Name:    Darryl W. Copeland, Jr.
                                             ----------------------------
                              Title:         Executive Vice President
                                             ----------------------------


ATTEST:


By:       /s/ Robert J. Rudnik
     ------------------------------
Print Name:    Robert J. Rudnik
               --------------------
Title:         Secretary
               --------------------


                                   BANK:

                                   LaSALLE BANK NATIONAL ASSOCIATION



                              By:  /s/ David E. Heise
                                   --------------------------------------
                              Print Name:    David E. Heise
                                             ----------------------------
                              Title:         Assistant Vice President
                                             ----------------------------


                                     - 30 -


<PAGE>


                                    EXHIBIT A

                                      NOTE


$35,000,000.00                                                 Chicago, Illinois
                                                                  August 1, 1999



          FOR VALUE RECEIVED,  BROOKDALE  LIVING  COMMUNITIES,  INC., a Delaware
corporation  (the  "Maker"),  with its  principal  place of  business at 77 West
Wacker Drive, Suite 4400, Chicago, Illinois 60601, hereby promises to pay on the
Maturity  Date to the order of LaSALLE  BANK  NATIONAL  ASSOCIATION,  a national
banking  association  (the "Bank"),  at its office at 135 South LaSalle  Street,
Chicago,  Illinois  60603,  or such other  place as Bank may direct from time to
time, in lawful money of the United States and in available funds, the principal
amount of THIRTY FIVE MILLION DOLLARS ($35,000,000.00), or such lesser amount as
Bank advanced to Maker  hereunder  which is outstanding as of the Maturity Date,
as defined in that certain Loan  Agreement  dated the date hereof by and between
Maker and the Bank (the "Loan Agreement").

          All advances  under this Note shall bear interest in  accordance  with
and be governed by the terms and provisions of the Loan Agreement.  All payments
received  from the Maker  hereunder  shall be applied by the Bank in  accordance
with the terms of the Loan Agreement.

          The Maker may prepay the outstanding  amounts of the Loan from time to
time in whole or in part on any  business  day without  penalty or premium.  The
Maker may reborrow any amounts  prepaid,  provided all  conditions to the Bank's
obligation  to fund  subsequent  amounts  under  the Loan  Agreement  have  been
satisfied.

          This Note is issued  under the Loan  Agreement,  and this Note and the
Bank are entitled to all of the  benefits,  rights and remedies  provided for by
the Loan Agreement or referred to therein,  to which Loan Agreement reference is
made for a statement  thereof.  All capitalized  terms used herein which are not
defined  herein,  but which are  defined in the Loan  Agreement,  shall have the
meaning prescribed in the Loan Agreement.

          All  unpaid  amounts  owing on this Note or on any  other  Obligations
under the Loan Agreement or the other Documents immediately shall become due and
payable at the option of the Bank,  without  notice or demand except as provided
in the Loan Agreement, upon the occurrence of any Event of Default.

          Upon the occurrence of any Event of Default,  and at any and all times
while any Event of Default shall be continuing, the Maker hereby agrees that the
Bank shall have the right,  without notice to the Maker,  to set off against and
to appropriate  and apply to such due and payable amounts any debt owing to, and
any other  funds,  accounts,  deposits  or  amounts  held in any  manner for the
account of the Maker by Bank.

                                     - 1 -

<PAGE>

          No clause or provision contained in this Note or any documents related
hereto shall be construed or shall so operate (a) to raise the interest rate set
forth in this Note above the lawful maximum, if any, in effect from time to time
in the  applicable  jurisdiction  for loans to  borrowers  of the  type,  in the
amount,  for the  purposes,  and otherwise of the kind  contemplated,  or (b) to
require the payment or the doing of any act  contrary to law,  but if any clause
or provision  contained  shall  otherwise so operate to invalidate this Note, in
whole or in part,  then (i) such clauses or provisions  shall be deemed modified
to the extent  necessary to be in compliance with the law, or (ii) to the extent
not possible,  shall be deemed void as though not contained and the remainder of
this Note and such document shall remain operative and in full force and effect.

          All  makers and any  endorsers,  guarantors,  sureties,  accommodation
parties and all other persons  liable or to become liable for all or any part of
the  indebtedness  evidenced by this Note,  jointly and severally  waive, to the
extent  permitted by law, except as otherwise  provided in the Loan Agreement or
the other Loan Documents, diligence,  presentment,  protest and demand, and also
notice of protest,  of demand,  of  nonpayment,  of dishonor and of maturity and
also  recourse  or  suretyship  defenses  generally;  and they also  jointly and
severally hereby consent to any and all renewals, extensions or modifications of
the terms of this Note,  including time for payment,  and further agree that any
such  renewals,  extension  or  modification  of the  terms of this  Note or the
release or substitution of any security for the indebtedness  under this Note or
any other  indulgences  shall not affect the liability of any of the parties for
the  indebtedness  evidenced  by this Note.  Any such  renewals,  extensions  or
modifications may be made without notice to any of said parties.

          The Maker  shall be  liable  to the Bank for all  costs  and  expenses
incurred in connection  with  collection,  whether by suit or otherwise,  of any
amount due under this Note, including, without limitation, reasonable attorneys'
fees, as more fully set forth in the Loan Agreement.

          This Note shall be governed by and  construed in  accordance  with the
laws of the State of Illinois.


                                   BROOKDALE LIVING COMMUNITIES, INC.,
                                   a Delaware corporation



                              By:  /s/ Darryl W. Copeland, Jr.
                                   ----------------------------------------
                              Print Name:    Darryl W. Copeland, Jr.
                                             ------------------------------
                              Title:         Executive Vice President
                                             ------------------------------

                                      - 2 -

<PAGE>


                                   SCHEDULE 1

                   SCHEDULE OF SENIOR DEBT AND GUARANTEED DEBT
                   -------------------------------------------


<TABLE>
<CAPTION>

                                                                                                         Amount              Last
Lender/Purpose                                                                       Amount         Drawn at 6/30/99         Draw
--------------                                                                    --------------------------------------------------
<S>                                                                             <C>                     <C>                 <C>
Capital Corporation of America / Heritage at Austin construction loan (A)       $  24,250,000           $ 18,094,376        11-Jun
Capital Corporation of America / Heritage at Southfield construction loan (A)      26,625,000             21,808,151        14-Jun
Guaranty Federal / Meadows of Glen Ellyn construction loan (A)                     31,125,000              8,256,314        23-Jun
Guaranty Federal / Heritage at Raleigh construction loan (A)                       29,200,000              3,538,009        24-Jun
HRPT Lease Obligation (B)
Brookdale corporate guarantee of Devonshire/Heritage loans (C)                      4,000,000
Letters of Credit (issued by LaSalle) for Battery Park and Glen Ellyn               5,370,000
Battery Park (D)



Notes
-----
(A)       Payment guaranties of construction loans.  Brookdale Living Communities,  Inc. has also issued completion  guaranties in
          connection with these loans.
(B)       Guaranty of lease  obligations  under a Master  Lease of four  facilities  by a  subsidiary  from Health and  Retirement
          Properties Trust.
(C)       Guaranty of  reimbursement  obligations  relating  to credit  enhancements  on these bond  issues.  Maximum  exposure of
          $4,000,000. Guaranty terminates when the amount in the principal reserve fund reaches $4,000,000.
(D)       The  construction  loan for the Battery  Park  facility is expected to close in August,  1999.  In  connection  with the
          closing,  Brookdale  Living  Communities,  Inc. will issue a Payment  Guaranty,  a Completion  Guaranty and an Operating
          Deficit Guaranty. The Construction Loan will be for approximately $49,500,000.




</TABLE>