-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CSAJZzClvHy5lsp+gkUeX4QlymrUTcaNsSZ4awqA4V5tlLPzco279bexfYZIbDNW nTecqKlUF08OL33/7K7rTg== 0000950133-00-001253.txt : 20000331 0000950133-00-001253.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950133-00-001253 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNRISE ASSISTED LIVING INC CENTRAL INDEX KEY: 0001011064 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 541746596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20765 FILM NUMBER: 585270 BUSINESS ADDRESS: STREET 1: 7902 WESTPARK DR CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7032737500 MAIL ADDRESS: STREET 1: 7902 WESTPARK DR CITY: MCLEAN STATE: VA ZIP: 22102 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K [xx] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number 0-20765 SUNRISE ASSISTED LIVING, INC. ---------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 54-1746596 - ------------------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
7902 Westpark Drive McLean, VA 22102 - ------------------------------------------- --------------------------------------- (Address of principal (Zip Code) executive offices)
Registrant's telephone number, including area code: (703) 273-7500 Securities registered pursuant to Section 12(b) of the Act: (Not applicable) Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of class) 5 1/2% Convertible Subordinated Notes due 2002 ---------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the registrant's common stock as of March 17, 2000 was $140,349,245. */ - The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date is: Class: Common Stock, par value $.01 per share. Outstanding at March 17, 2000: 21,938,894 shares. - ------------------- */ Solely for the purposes of this calculation, all directors and executive - - officers of the registrant and all stockholders beneficially owning more than 5% of the registrant's common stock are considered to be affiliates. 2 TABLE OF CONTENTS
Page(s) PART I Item 1. Business..................................................................... 3 Item 2. Properties................................................................... 35 Item 3. Legal Proceedings............................................................ 36 Item 4. Submission of Matters to a Vote of Security Holders.......................... 36 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters................................................. 37 Item 6. Selected Financial Data...................................................... 38 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 39 Item 7A. Quantitative and Qualitative Disclosure About Market Risk............................................................ 59 Item 8. Financial Statements and Supplementary Data.................................. 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 59 PART III Item 10. Directors and Executive Officers of the Registrant........................... 59 Item 11. Executive Compensation....................................................... 59 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................... 59 Item 13. Certain Relationships and Related Transactions............................... 60 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................................. 60 SIGNATURES ....................................................................................... 62
-2- 3 This Form 10-K contains certain forward-looking statements that involve risks and uncertainties. Sunrise's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including development and construction risks, acquisition risks, licensing risks, business conditions, competition, Sunrise's ability to operate the Karrington properties profitably, risks of downturns in economic conditions generally, satisfaction of closing conditions and availability of financing for development and acquisitions. Some of these factors are discussed elsewhere in this Form 10-K. Unless the context suggests otherwise, references in this Form 10-K to "Sunrise" mean Sunrise Assisted Living, Inc. and its subsidiaries and predecessor entities. PART I ITEM 1. BUSINESS. GENERAL Sunrise Assisted Living, Inc. is a provider of assisted living services to the elderly. Sunrise was incorporated in Delaware on December 14, 1994 to combine various activities relating to the development, ownership and operation of the Sunrise assisted living facilities held by predecessor entities. Sunrise currently operates 148 facilities in 23 states and one in the United Kingdom, with a resident capacity of more than 11,500 residents, including 117 facilities owned by Sunrise or in which it has ownership interests, 16 facilities owned by Sunrise and held for sale following the acquisition of Karrington Health, Inc. and 15 facilities managed for third parties. Sunrise had revenues of $255.2 million and net income of $20.2 million in 1999. Approximately 99% of Sunrise's revenues were derived from private pay sources. Sunrise's growth objectives include developing new Sunrise model assisted living facilities. Since its initial public offering in June 1996, Sunrise has completed development of 65 such facilities with a resident capacity of 5,776 and has 22 facilities currently under construction with a resident capacity of approximately 1,900. Sunrise also has entered into contracts to purchase 43 additional sites, 25 of which are zoned, and to lease one additional site. Sunrise is pursuing additional development opportunities and also plans to acquire additional facilities as market conditions warrant. See "--Facility Development" and "--Facility Acquisitions." -3- 4 On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax-free, stock-for-stock transaction in which it issued 2.3 million common shares in exchange for all the outstanding shares of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The total transaction was valued at $85.1 million, including merger and stock issuance costs of $8.4 million and the fair value of assumed employee stock options of $1.5 million. Karrington operates assisted living facilities providing services to the elderly. The acquisition was accounted for using the purchase method of accounting and accordingly, the results of operations of Karrington for the period from May 14, 1999 are included in the accompanying consolidated financial statements. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, which are subject to adjustment when additional information concerning asset and liability valuations is finalized. The $35.1 million of costs in excess of assets acquired are being amortized on a straight-line basis over 38 years. Sunrise intends to sell 16 Karrington operating properties, four zoned development sites and one non-operating property, which were inconsistent with Sunrise's product and market strategy. Most of the facilities are Karrington Cottage prototype models, which consist of 20 units or less. These properties are classified as assets held for sale on the accompanying balance sheet. Sunrise anticipates completing the sale of substantially all of the assets held for sale by the third quarter of 2000. Due to market conditions in the areas where the assets held for sale are located, Sunrise elected in December 1999 to adjust downward the value assigned to certain of these assets, which resulted in an adjustment to the original purchase price allocation of the Karrington acquisition. As a result of the adjustment, the carrying value of assets held for sale decreased by $14.1 million from Sunrise's original estimated assigned fair value. The valuation adjustments are reflected as a change in goodwill and the deferred tax accounts that are associated with the Karrington acquisition. A subsidiary of Sunrise has a syndicated revolving credit facility for $400.0 million to be used for general corporate purposes, including the continued construction and development of assisted living facilities. Sunrise guarantees the repayment of all amounts outstanding under this credit facility. The credit facility is secured by cross-collateralized first mortgages on the real property and improvements and first liens on all other assets of the subsidiary. Advances under the facility bear interest at LIBOR plus 1.50%. The credit facility expires in July -4- 5 2002. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." On June 6, 1997, Sunrise issued and sold $150.0 million aggregate principal amount of 5 1/2% convertible subordinated notes due 2002. These notes bear interest at 5 1/2% per annum payable semiannually on June 15 and December 15 of each year, and are convertible, at the option of the holder, into shares of Sunrise common stock at a conversion rate of $37.1875 per share, or 26.89 shares per $1,000 principal amount of the notes. The conversion rate is subject to customary anti-dilution adjustments. The notes rank junior in payment to substantially all indebtedness of Sunrise existing at the time of the issuance of the notes and subsequently incurred by it. The notes are redeemable at the option of Sunrise commencing June 15, 2000, at specified premiums. The holders of the notes may require Sunrise to repurchase the notes upon a change of control of Sunrise, as defined in the notes. On June 5, 1996, Sunrise completed its initial public offering. On October 31, 1996 Sunrise completed a follow-on public offering. Net proceeds to Sunrise from these two offerings totaled approximately $196.1 million. THE ASSISTED LIVING INDUSTRY Sunrise believes that the assisted living industry is emerging as a preferred alternative to meet the growing demand for a cost-effective setting in which to care for the elderly who do not require the more intensive medical attention provided by a skilled nursing facility but cannot live independently due to physical or cognitive frailties. In general, assisted living represents a combination of housing and 24-hour a day personal support services designed to aid elderly residents with activities of daily living, such as bathing, eating, personal hygiene, grooming and dressing. Some assisted living facilities may also provide assistance to residents with low acuity medical needs, or may offer higher levels of personal assistance for incontinent residents or residents with Alzheimer's disease or other forms of dementia. Unlike assisted living facilities, skilled nursing facilities provide 24-hour skilled nursing care, supervised by a registered nurse. Sunrise believes that consumer preference and demographic trends should allow assisted living to remain one of the fastest growing segments of elder care. The assisted living industry is highly fragmented and characterized by numerous small operators. The scope of assisted living services varies substantially from one operator to another. Many smaller assisted living providers do not operate in purpose-built facilities, do not have professionally trained staff, and may provide -5- 6 only limited assistance with low-level care activities. Sunrise believes that few assisted living operators provide a comprehensive range of assisted living services, such as Alzheimer's care and other services designed to permit residents to "age in place" within the facility as they develop further physical or cognitive frailties. THE SUNRISE OPERATING PHILOSOPHY The Sunrise approach to assisted living is a unique combination of operating philosophy and a signature facility design. Since the first Sunrise facility opened in 1981, Sunrise's operating philosophy has been to provide care and services to its residents in a residential environment in a manner that: "nurtures the spirit, protects privacy, fosters individuality, personalizes services, enables freedom of choice, encourages independence, preserves dignity and involves family and friends." Sunrise believes that its operating philosophy is one of its strengths. Furthermore, in implementing its philosophy, Sunrise continuously seeks to refine and improve the care and services it offers. The elements of the operating philosophy focus on: - the involvement of the resident and the resident's family in important care giving decisions; - Sunrise's proprietary training programs for its management, executive directors and care managers; - Sunrise's quality assurance programs; - the full range of assisted living services offered by Sunrise; and - the architecture and purpose-built design of Sunrise's "Victorian" model facilities. SERVICES Sunrise offers a full range of assisted living services based upon individual resident needs. Upon move-in, Sunrise assesses the resident generally with the resident's family to determine the level of care required and develops an individualized service plan. This individual service plan includes selection of resident accommodations and determination of the appropriate level of care. The plan is periodically reviewed and updated by Sunrise, and communicated to the resident and/or the resident's family. The range of services offered by Sunrise -6- 7 includes: Basic Care, consisting of assistance with activities of daily living and other personalized support services; Plus Care, consisting of more frequent and intensive assistance or increased care; and Reminiscence Care, consisting of care programs and services to help cognitively impaired residents, including residents with Alzheimer's disease. By offering a full range of services, Sunrise can accommodate residents with a broad range of service needs and enable residents to remain at Sunrise as their needs change. In addition, upon move-in Sunrise generally charges each new resident a one-time community fee ranging from 30 to 60 days of daily net resident fees, which is generally not refundable after the first 30 days of residence or after the number of days that the community fee represents. Daily net resident fees are generally revised annually whereas fees for additional care are revised more frequently based on the amount of care needs. The average daily resident fee, consisting of net resident fees plus additional care fees combined, for owned facilities opened or operated by Sunrise for at least 12 months, or that have achieved occupancy percentages of 95% or above, was approximately $97 for 1999, $86 for 1998, and $78 for 1997. BASIC CARE Sunrise's basic care program provided to all residents includes: - assistance with activities of daily living, such as eating, bathing, dressing, personal hygiene, and grooming; - three meals per day served in a common dining room, including two seating times per meal; - coordination of special diets; - 24-hour security; emergency call systems in each unit; - transportation to stores and community services; - assistance with coordination of physician care, physical therapy and other medical services; - health promotion and related programs; - housekeeping services; and - social and recreational activities. -7- 8 ASSISTED LIVING PLUS CARE Through Sunrise's plus care program, residents who require more frequent or intensive assistance or increased care or supervision are provided extra care and supervision. Sunrise charges an additional daily fee based on additional staff hours of care and services provided. The plus care program allows Sunrise, through consultation with the resident, the resident's family and the resident's personal physician, to create an individualized care and supervision program for residents who might otherwise have to move to a more medically intensive facility. At December 31, 1999, approximately 27% of Sunrise's assisted living residents participated in the plus care program. MEDICATION MANAGEMENT Many of Sunrise's residents also require assistance with medications. To the extent permitted by state law, the medication management program includes the storage of medications, the distribution of medications as directed by the resident's physician and compliance monitoring. Sunrise charges an additional fixed daily fee for this service. At December 31, 1999, approximately 41% of Sunrise's assisted living residents participated in the medication management program. REMINISCENCE CARE Sunrise believes its reminiscence care program distinguishes it from many other assisted living providers who do not provide such specialized care. Sunrise's reminiscence program provides the attention, care programs and services needed to help cognitively impaired residents, including residents with Alzheimer's disease, maintain a higher quality of life. Specially trained staff provide basic care and other specifically designed care and services to cognitively impaired residents, in separate areas of facilities. Sunrise charges each cognitively impaired resident a daily fee that includes additional staff time per resident per day. Cognitively impaired residents who require additional care and services pay a higher daily rate based on additional staff hours of care and services provided. At December 31, 1999, approximately 23% of Sunrise's assisted living residents participated in the reminiscence program. -8- 9 THE SUNRISE "VICTORIAN" MODEL FACILITY Sunrise's signature Victorian model facility, first designed in 1985, is a freestanding, residential-style facility generally with a capacity of 65 to 110 residents. The building ranges in size from approximately 37,000 to 65,000 square feet and is built generally on sites ranging from two to five acres. Approximately 40% of the building is devoted to common areas and amenities, including reading rooms, family or living rooms and other areas, such as bistros and ice cream parlors, designed to promote interaction among residents. Sunrise has several basic building plan designs, which provide it with flexibility in adapting the model to a particular site. The building is usually two or three stories and of steel frame construction built to institutional health care standards but strongly residential in appearance. The interior layout is designed to promote a home-like environment, efficient delivery of resident care and resident independence. Resident units are functionally arranged to provide a "community-within-a-community" atmosphere. The model facility may be configured with as many as eight different types of resident units, including double occupancy units, single units and two- and three-room suites. Sitting areas on each floor serve as a family or living room. The ground level typically contains a kitchen and common dining area, administrative offices, a laundry room, a private dining room, library or living room, and bistro or ice cream parlor. Typically, one floor or one or two wings of a facility contain resident units and common areas, including separate dining facilities, specifically designed to serve residents with Alzheimer's disease or other special needs. The architectural and interior design concepts incorporate the Sunrise operating philosophy of protecting resident privacy, enabling freedom of choice, encouraging independence and fostering individuality in a homelike setting. Sunrise believes its model facility meets the desire of many individuals to move to a new residence at least as comfortable as their former home. Sunrise believes that its residential environments also accomplish several other objectives, including: (1) lessening the trauma of change for elderly residents and their families; (2) achieving operational efficiencies through proven designs; (3) facilitating resident mobility and ease of access by care givers; and (4) differentiating Sunrise from other assisted living and long-term care operators. -9- 10 OWNED FACILITIES The table below sets forth certain information regarding owned facilities or facilities in which Sunrise has an ownership interest that are currently operating as well as those under construction or are subject to purchase contracts and zoned:
DEVELOPED, SUNRISE ---------- ------- ACQUIRED OR MODEL YEAR ----------- ----- OPENED CONSTR. FACILITY RESIDENT OWNERSHIP BY ------- -------- -------- --------- FACILITY LOCATION SUNRISE STATUS CAPACITY PERCENTAGE -------- -------- ------- ------ --------- ---------- Sunrise of Oakton Oakton, VA 1981 Acquired(2) 51 100.0%(1) Sunrise of Leesburg Leesburg, VA 1984 Acquired(2) 35 100.0(1) Sunrise of Warrenton Warrenton, VA 1986 Acquired(2) 37 100.0(1) Sunrise of Arlington Arlington, VA 1988 Developed X 58 100.0(1) Sunrise at Bluemont Park Arlington, VA 1990 100.0(1) Potomac Developed X 59 Shenandoah Developed X 77 James Developed X 59 Sunrise of Mercer Island Seattle, WA 1990 Developed X 59 100.0(1) Sunrise of Fairfax Fairfax, VA 1990 Developed X 52 100.0(1)(3) Sunrise of Frederick Frederick, MD 1992 Developed X 86 100.0(1) Sunrise at Countryside Sterling, VA 1992 100.0(1) East Building Developed(4) X 66 West Building Developed(4) X 64 Sunrise of Gunston Lorton, VA 1992 Developed(4) X 67 100.0(1) Sunrise Atrium of Boca Raton Boca Raton, FL 1992 Acquired 196 100.0(1) Sunrise of Falls Church Falls Church, VA 1993 Developed X 66 100.0(1)
-10- 11 Sunrise at Montgomery Village Gaithersburg, MD 1993 Acquired 155(5) 100.0(1) Sunrise of Towson Towson, MD 1994 Developed X 66 13.9(1) Sunrise at Gardner Park Peabody, MA 1994 Developed X 59 50.0(1)(6) Sunrise of Santa Rosa Santa Rosa, CA 1996 Acquired 120 100.0(1) Sunrise of Raleigh Raleigh, NC 1996 Developed X 93 100.0(7) Huntcliff Summit Atlanta, GA 1996 Acquired 251 100.0(1)(8) Sunrise at Northshore St. Petersburg, FL 1996 Acquired 162 100.0(1)(9) Sunrise of Augusta Augusta, GA 1996 Acquired 42 100.0 Sunrise at Brookside Glen Columbus, GA 1996 Acquired 26 100.0 Sunrise of Greenville Greenville, SC 1996 Acquired 39 100.0 Sunrise of Blue Bell Philadelphia, PA 1996 Developed X 97 100.0(7) Sunrise at Hunter Mill Oakton, VA 1997 Developed X 90 100.0(1) Sunrise at Sterling Canyon Valencia, CA 1997 Acquired 130 100.0(1) Sunrise of Napa Napa Valley, CA 1997 Acquired 83 100.0 Sunrise of Petaluma Petaluma, CA 1997 Developed 84 100.0(10) Sunrise of Springfield Springfield, VA 1997 Developed X 95 100.0(1) Sunrise of Severna Park Building I Severna Park, MD 1997 Developed X 93 50.0(1)(3) Sunrise of Severna Park Building II Severna Park, MD 1997 Developed X 66 50.0(1)(3) Sunrise of Morris Plains Morris Plains, NJ 1997 Developed X 92 100.0(1)
-11- 12 Sunrise of Old Tappan Old Tappan, NJ 1997 Developed X 92 100.0(1) Sunrise at Granite Run Granite Run, PA 1997 Developed X 104 100.0(1) Sunrise of Abington Building I Abington, PA 1997 Developed X 95 100.0(1) Sunrise of Abington Building II Abington, PA 1997 Developed X 66 100.0(1) Sunrise of Rockville Rockville, MD 1997 Developed X 84 100.0(1) Sunrise of Alexandria Alexandria, VA 1997 Developed X 91 100.0(1)(3) Sunrise of Wayne Wayne, NJ 1997 Developed X 92 100.0(1) Sunrise of Wayland Wayland, MA 1997 Developed X 71 100.0(1) Sunrise of Westfield Westfield, NJ 1997 Developed X 92 100.0(1) Sunrise at East Cobb East Cobb, GA 1997 Developed X 94 100.0(1) Sunrise of Dunwoody Dunwoody, GA 1997 Acquired 30 100.0 Sunrise of Weston Weston, MA 1997 Acquired 31 100.0(1) Sunrise of Fresno Fresno, CA 1998 Developed 84 100.0(10) Sunrise of Haverford Haverford, PA 1998 Developed X 72 100.0(1) Sunrise of Decatur Decatur, GA 1998 Developed X 92 100.0(1) Sunrise of Walnut Creek Walnut Creek, CA 1998 Developed X 85 100.0(1) Sunrise of Glen Cove Glen Cove, NY 1998 Developed X 91 100.0(1) Sunrise at Ivey Ridge Ivey Ridge, GA 1998 Developed X 102 100.0(1) Sunrise of Cohasset Cohasset, MA 1998 Developed X 74 100.0(1) Sunrise at Orchard Denver, CO 1998 Developed X 94 100.0(1) Sunrise of Pinehurst Denver, CO 1998 Developed X 102 100.0(1) Sunrise at Huntcliff Summit Atlanta, GA 1998 Developed X 91 100.0(1)
-12- 13 Sunrise of Danville Danville, CA 1998 Developed X 86 100.0(10) Sunrise of Lafayette Hill Lafayette Hill, PA 1998 Developed X 84 100.0(1) Sunrise of Bellevue Bellevue, WA 1998 Developed X 84 100.0(1) Sunrise of Paramus Paramus, NJ 1998 Developed X 76 100.0(1) Sunrise at West Essex Fairfield, NJ 1998 Developed X 94 100.0(1) Sunrise of Paoli Malvern, PA 1998 Developed X 98 100.0(1) Sunrise of Mission Viejo Mission Viejo, CA 1998 Developed X 103 100.0 Sunrise at Oakland Hills Oakland, CA 1998 Developed X 102 100.0(1) Sunrise of Rochester Detroit, MI 1999 Developed X 101 9.0(1) Sunrise of East Brunswick East Brunswick, NJ 1999 Developed X 94 9.0(1) Sunrise on Providence Charlotte, NC 1999 Developed X 91 9.0(1) Sunrise of Smithtown Long Island, NY 1999 Developed X 90 100.0(1) Sunrise of Buffalo Grove Buffalo Grove, IL 1999 Developed X 94 100.0(1) Sunrise at La Costa Carlsbad, CA 1999 Developed X 103 9.0(1) Sunrise of Naperville Naperville, IL 1999 Developed X 91 9.0(1) Sunrise of Richmond Richmond, VA 1999 Developed X 84 9.0(1) Sunrise at Canyon Crest Riverside, CA 1999 Developed X 77 100.0(1) Sunrise of San Mateo San Mateo, CA 1999 Developed X 76 100.0(1) Sunrise at Fleetwood Mt. Vernon, NY 1999 Developed X 96 100.0(1) Sunrise of Flossmoor Flossmoor, IL 1999 Developed X 74 100.0(1)
-13- 14 Sunrise of Bloomingdale Bloomingdale, IL 1999 Developed X 91 100.0(1) Sunrise of Wilton Wilton, CT 1999 Developed X 74 100.0(1) Sunrise of Stamford Stamford, CT 1999 Developed X 76 9.0(1) Sunrise at North Lynbrook North Lynbrook, NY 1999 Developed X 98 9.0(1) Sunrise at Frognal House Sidcup, London 1999 Developed X 139 20.1(1) Sunrise of New City New City, NY 1999 Developed X 91 9.0(1) Karrington of Farmington Hills Detroit, MI 1999 Acquired 80 100.0(1) Karrington of Edina Minneapolis, MN 1999 Acquired 110 100.0(1) Karrington of Bexley Columbus, OH 1999 Acquired 61 100.0(10) Karrington at the Scioto Columbus, OH 1999 Acquired 61 100.0(10) Karrington at Tucker Creek Columbus, OH 1999 Acquired 62 100.0(10) Karrington Place for the Memory Impaired Columbus, OH 1999 Acquired 30 100.0(10) Sunrise of Carmel Indianapolis, IN 1999 Acquired 66 100.0(10) Sunrise of Bath Akron, OH 1999 Acquired 77 100.0(10) Karrington of Gahanna Columbus, OH 1999 Acquired 58 100.0(10) Sunrise of Rocky River Cleveland, OH 1999 Acquired 74 100.0(10) Sunrise at Presque Isle Bay Erie, PA 1999 Acquired 79 100.0(10) Sunrise of Eastover Charlotte, NC 1999 Acquired 101 100.0(10) Sunrise of Poland Youngstown, OH 1999 Acquired 77 100.0(10) Sunrise of Ann Arbor Ann Arbor, MI 1999 Acquired 77 100.0(10)
-14- 15 Sunrise of Shaker Heights Cleveland, OH 1999 Acquired 68 100.0 Sunrise at South Hills Pittsburgh, PA 1999 Acquired 77 100.0(1) Sunrise at Fall Creek Indianapolis, IN 1999 Acquired 71 100.0 Sunrise of Willow Lake Indianapolis, IN 1999 Acquired 71 100.0 Sunrise of Fort Wayne Fort Wayne, IN 1999 Acquired 71 100.0 Karrington of Wooster Wooster, OH 1999 Acquired 98(11) 100.0(1)(3) Sunrise of South Charlotte Charlotte, NC 1999 Acquired 84 100.0(1) Sunrise of Monroeville Pittsburgh, PA 1999 Acquired 72 100.0(1) Karrington at St. Francis Place for the Memory Impaired Albuquerque, NM 1999 Acquired 32 19.9(1) Sunrise at Oakwood Dayton, OH 1999 Acquired 61 50.0(1) Sunrise of Colorado Springs Colorado Springs, CO 1999 Acquired 74 19.9(1) Sunrise at of Kenwood Cincinnati, OH 1999 Acquired 77 35.0(1) Sunrise of Englewood Dayton, OH 1999 Acquired 58 19.9(1) Karrington of Albuquerque Albuquerque, NM 1999 Acquired 69 19.9(1) Sunrise of Findlay Findlay, OH 1999 Acquired 55 50.0(1) Sunrise of Fremont Fremont, OH 1999 Acquired 55 100.0(1)(12) Sunrise at the Shawhan Tiffin, OH 1999 Acquired 62 100.0(1)(12) Karrington Cottages of Bismark Bismarck, ND 1999 Acquired 20 100.0(1)(12) Karrington Cottages of Waterloo Waterloo, IA 1999 Acquired 20 100.0(1)(12) Karrington of Bismark Bismarck, ND 1999 Acquired 76 100.0(1)(12)
-15- 16 Karrington Cottages of Buffalo 1 Buffalo, MN 1999 Acquired 21 100.0(1)(12) Karrington Cottages of Buffalo 2 Buffalo, MN 1999 Acquired 20 100.0(1)(12) Karrington of Buffalo Buffalo, MN 1999 Acquired 78 100.0(1)(12) Karrington Cottages of Rochester 1 Rochester, MN 1999 Acquired 21 100.0(1)(12) Karrington Cottages of Rochester 2 Rochester, MN 1999 Acquired 21 100.0(1)(12) Karrington Cottages of Rochester 3 Rochester, MN 1999 Acquired 28 100.0(1)(12) Karrington Cottages of Rochester 4 Rochester, MN 1999 Acquired 28 100.0(1)(12) Karrington Cottages of Rochester 5 Rochester, MN 1999 Acquired 35 100.0(1)(12) Karrington Cottages of Mankato Mankato, MN 1999 Acquired 21 100.0(1)(12) Sunrise of Park Ridge Chicago, IL 1999 Acquired 128 100.0(1)(12)(13) Sunrise at Northville Northville, MI 2000 Developed X 91 100.0(1) Sunrise of Hermosa Beach Hermosa Beach, CA 2000 Developed X 96 100.0(1)(3) Sunrise of Exton Exton, PA 2000 Developed X 76 9.0(1) Sunrise of Westtown Westtown, PA 2000 Developed X 95 9.0(1) Karrington of Hamilton Hamilton, OH 2000 Developed 58 100.0(1) Karrington Cottages of Rochester 7 Rochester, MN 2000 Acquired 30 100.0(1)(12) Karrington at Finneytown Cincinnati, OH 2000 Developed 82 50.0(1) ----------- 10,284 -----------
-16- 17 Sunrise of Willowbrook Willowbrook, IL 1st half 2000 Construction X 91 100.0 Sunrise at Sheepshead Bay Brooklyn, NY 1st half 2000 Construction X 125 70.0(1) Sunrise of Glen Ellyn Glen Ellyn, IL 1st half 2000 Construction X 102 9.0 Sunrise at Ann Arbor North Ann Arbor, MI 1st half 2000 Construction X 84 9.0 Sunrise of Sunnyvale Sunnyvale, CA 1st half 2000 Construction X 102 9.0 Sunrise at Cherry Creek Denver, CO 1st half 2000 Construction X 95 9.0 Sunrise of Cuyahoga Falls Akron, OH 1st half 2000 Construction X 86 9.0 Sunrise of Wall Wall Township, NJ 2nd half 2000 Construction X 70 100.0 Sunrise of West Bloomfield West Bloomfield, MI 2nd half 2000 Construction X 60 9.0 Sunrise at University Park Colorado Springs, CO 2nd half 2000 Construction X 60 9.0 Sunrrise of Edgewater- Phase I Edgewater, NJ 2nd half 2000 Construction X 84 9.0 Sunrise of Baton Rouge Baton Rouge, LA 2nd half 2000 Construction X 62 100.0 Sunrise of Chesterfield St . Louis, MO 2nd half 2000 Construction X 91 100.0 Sunrise at Bayou - St. Johns New Orleans, LA 2nd half 2000 Construction X 91 100.0(3) Sunrise of Westminister Westminister, CO 2nd half 2000 Construction X 94 100.0 Sunrise of Claremont Claremont, CA 2nd half 2000 Construction X 52 100.0
-17- 18 Sunrise of Woodcliff Lake Woodcliff Lake, NJ 2nd half 2000 Construction X 102 9.0 Sunrise of Tustin Tustin, CA 2nd half 2000 Construction X 60 9.0 Sunrise at Parma Parma, OH 2nd half 2000 Construction 86 100.0 Sunrise at Mill Basin Brooklyn, NY 1st half 2001 Construction X 118 70.0(1) Sunrise of Alta Loma Rancho Cucamonga, CA 1st half 2001 Construction X 55 100.0 Sunrise of Palos Park Palos Park, IL Zoned X 102 100.0 Sunrise of Lincroft Lincroft, NJ Zoned X 88 100.0 Sunrise of Marlboro Marlboro, NJ Zoned X 94 100.0 Sunrise of Holbrook Holbrook, NY Zoned X 91 9.0 Sunrise of Troy Troy, MI Zoned X 70 100.0 Sunrise of Bernards Township Basking Ridge, NJ Zoned X 95 100.0 Sunrise of East Meadow East Meadow, NY Zoned X 98 100.0 Sunrise of Aurora Aurora, CO Zoned X 65 100.0 Sunrise of West Hartford West Hartford, CT Zoned X 98 100.0 Sunrise of Pacific Palisades Pacific Palisades, CA Zoned X 47 100.0 Sunrise of Dix Hills Dix Hills, NY Zoned X 91 100.0 Sunrise of Crystal Lake Crystal Lake, IL Zoned X 70 9.0 Sunrise of Unionville Markham, ON Zoned X 86 20.1
-18- 19 Sunrise of Victoria Victoria, BC Zoned X 110 20.1 Sunrise of Mississauga Missasaugua, ON Zoned X 101 20.1 Sunrise of Burlington Burlington, ON Zoned X 76 20.1 Sunrise of Oakville Oakville, ON Zoned X 84 20.1 Sunrise of Richmond Hill Richmond Hill, ON Zoned X 91 20.1 Sunrise of Edgewater II Edgewater, NJ Zoned X 84 100.0 Sunrise of Farmington Hills Farmington Hills, MI Zoned X 91 100.0 Karrington Cottages of Rochester 6 Rochester, MN Zoned 30 100.0(12) Karrington Cottages of Rochester 8 Rochester, MN Zoned 30 100.0(12) Karrington Cottages of Rochester 9 Rochester, MN Zoned 22 100.0(12) Karrington of Dallas Dallas, TX Zoned 82 100.0 Karrington of Northpointe Jackson, MS Zoned 82 100.0(12) ----------- 3,748 (14) ----------- Total 14,032 ===========
- ------------------ (1) Serves as collateral for Sunrise's outstanding debt. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and note 8 of notes to consolidated financial statements. All facilities that are wholly owned by Sunrise are consolidated in the consolidated financial statements. The Gardner Park, Severna Park, Sheepshead Bay, and Mill Basin facilities are held by limited liability companies or limited partnerships in which Sunrise holds the ownership interests indicated in the table. Sunrise is the general partner or managing member of these entities and through the partnership or operating agreements and the management agreements for the facilities Sunrise controls their ordinary course business operations. Therefore, the Gardner Park, Severna Park, Sheepshead -19- 20 Bay, and Mill Basin facilities are also consolidated in Sunrise's consolidated financial statements. The ordinary course business operations of the Towson, Rochester, East Brunswick, Providence, La Costa, Naperville, Richmond, Stamford, North Lynbrook, Frognal House, New City, Exton, Westtown, Finneytown, St. Francis Place, Oakwood, Colorado Springs, Kenwood, Englewood, Albuqueque and Findlay facilities are not currently controlled by Sunrise and, therefore, are accounted for under the equity method of accounting. The remaining ownership interests in these facilities are owned by third parties. Sunrise manages each of these facilities. (2) Each of these facilities has been redeveloped in a manner consistent with the Sunrise model. (3) Subject to long-term ground lease. (4) These facilities were initially developed by Sunrise for third parties and were subsequently acquired by Sunrise in 1992. (5) This facility is licensed for 40 assisted living residents. The remainder of the resident capacity is for independent living residents. (6) A current officer and a former employee of Sunrise each have a 25% ownership interest in this facility. Sunrise has the right to acquire these minority ownership interests for fair market value, as determined by an appraiser mutually agreeable to the parties. (7) Serves as collateral for one of Sunrise's operating leases. See note 15 of notes to consolidated financial statements. (8) Excludes 10 units owned by the occupants of the units. The occupants can require Sunrise to repurchase the units for their original purchase prices, aggregating approximately $1.3 million, under specified circumstances. Sunrise has a right to purchase the units at fair market value upon the occurrence of specified events and has a right of first refusal on sales of the units. (9) This facility is licensed for 26 skilled nursing residents. The remainder of the resident capacity is for assisted living residents. (10) Sunrise leases these facilities under operating leases, which range from 3 to 20 years. See note 14 of notes to consolidated financial statements. (11) Includes 43 rental apartment units for which no independent or assisted living services are offered. (12) Sunrise intends to sell 16 operating properties and four zoned development sites acquired from Karrington within 12 months following the merger. These properties are classified as held for sale. (13) In February 2000, Sunrise acquired the remaining 30% minority interest of this facility. (14) There can be no assurance that construction delays will not be experienced. -20- 21 FACILITY DEVELOPMENT Sunrise targets sites for development located in major metropolitan areas and their surrounding suburban communities. In evaluating a prospective market, Sunrise considers a number of factors, including: - population; - income and age demographics; - target site visibility; - probability of obtaining zoning approvals; - estimated level of market demand; and - the ability to maximize management resources in a specific market by clustering its development and operating activities. Sunrise continues to develop its Victorian model facilities in major metropolitan markets. Sunrise's growth objectives include developing new Sunrise model assisted living facilities. Since its initial public offering in June 1996, Sunrise has completed development of 65 such new model facilities with a resident capacity of 5,776 and has 22 facilities under construction with resident capacity of approximately 1,900. Sunrise has also entered into contracts to purchase 43 additional sites and to lease one additional site. These sites are located in District of Columbia, Colorado, Ohio, Louisiana, Ontario, British Columbia, Pennsylvania, Massachusetts, New Jersey, Connecticut, New York, Illinois, California, Missouri, Michigan and Virginia. Sunrise is pursuing additional development opportunities as market conditions warrant. Sunrise bases its development primarily upon its "Victorian" model facility that it has developed and refined since the first model facility was designed in 1985. Use of a standard model allows Sunrise to control development costs, maintain facility consistency and improve operational efficiency. Use of the Sunrise model also creates "brand" awareness in Sunrise's markets. The primary milestones in the development process are: - site selection and contract signing; - feasibility; -21- 22 - zoning, site plan approval and building permits; and - completion of construction. Once a market has been identified, site selection and contract signing typically take approximately three to nine months. Zoning and site plan approval generally take 10 to 12 months and are typically the most difficult steps in the development process due to Sunrise's selection of sites in mature communities which usually require site rezoning. Facility construction normally takes 10 to 12 months. Sunrise believes its extensive development experience gives it an advantage relative to certain of its competitors in obtaining necessary governmental approvals and completing construction in a timely manner. After a facility receives a certificate of occupancy, residents usually begin to move in within one month. Since 1993, the total capitalized cost to develop, construct and open a Sunrise model facility, including land acquisition and construction costs, has ranged from approximately $8.5 million to $16.0 million. The cost of any particular facility may vary considerably based on a variety of site-specific factors. Sunrise's development activities are coordinated by its experienced 42-person development staff, which has extensive real estate acquisition, engineering, general construction and project management experience. Architectural design and hands-on construction functions are contracted to experienced outside architects and contractors. The ability of Sunrise to achieve its development plans will depend upon a variety of factors, many of which will be outside the control of Sunrise. These factors include: - obtaining zoning, land use, building, occupancy, licensing and other required governmental permits for the construction of new facilities without experiencing significant delays; - completing construction of new facilities on budget and on schedule; - the ability to work with third-party contractors and subcontractors who construct the facilities; - shortages of labor or materials that could delay projects or make them more expensive; - adverse weather conditions that could delay projects; -22- 23 - finding suitable sites for future development activities at acceptable prices; and - addressing changes in laws and regulations or how existing laws and regulations are applied. Sunrise cannot assure that it will not experience delays in completing facilities under construction or in development or that it will be able to identify suitable sites at acceptable prices for future development activities. If it fails to achieve its development plans, its growth could slow, which would adversely impact its revenues and results of operations. FACILITY ACQUISITIONS Since its 1996 initial public offering, Sunrise has acquired nine existing independent living and assisted living facilities and has completed its planned acquisition of Karrington. See "Item 7 Management Discussion and Analysis of Financial Condition and Results of Operation." In evaluating possible acquisitions, Sunrise considers various factors, including: - location, construction quality, condition and design of the facility; - current and projected facility cash flow; - the ability to increase revenue, occupancy and cash flow by providing a full range of assisted living services; - costs of facility repositioning, including any renovations; and - the extent to which the acquisition will complement Sunrise's development plans. There can be no assurance that any acquisitions of additional assisted living facilities will be completed. The success of Sunrise's acquisitions will be determined by numerous factors, including Sunrise's ability to identify suitable acquisition candidates, competition for such acquisitions, the purchase price, the financial performance of the facilities after acquisition and the ability of Sunrise to integrate or operate acquired facilities. Any failure to do so could have a material adverse effect on Sunrise's business, financial condition, revenues and earnings. -23- 24 NEED FOR ADDITIONAL FINANCING AND MANAGEMENT OF GROWTH Sunrise will need to obtain substantial additional resources to fund its development, construction and acquisition activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation." Sunrise expects that the number of owned and operated facilities will increase as it pursues its development and acquisition programs for new assisted living facilities. This growth will place significant demands on Sunrise's management resources. Sunrise's ability to manage its growth effectively will require it to continue to expand its operational, financial and management information systems and to continue to attract, train, motivate, manage and retain key employees. If Sunrise is unable to manage its growth effectively, its business, revenues, expenses and operating results could be adversely affected. MANAGED FACILITIES Sunrise also manages for third-party owners 15 operating facilities and one facility under construction with total resident capacity of 1,451, including one in Georgia, three in Maryland, four in Massachusetts, one in Nebraska, two in New Jersey, one in Pennsylvania and three in Virginia. The facilities in Georgia, Maryland, and New Jersey and one facility in Massachusetts are Sunrise model facilities. The management contract expiration dates range from June 2001 to September 2013. Sunrise owns $5.8 million carrying value of tax exempt mortgage bonds on the Pennsylvania facility. Under the management agreement for one of the New Jersey facilities, Sunrise has a right of first refusal to purchase the facility if the owner receives a bona fide offer to purchase the facility during the term of the management agreement. Sunrise does not provide financial or accounting services to one of the Virginia facilities. On December 31, 1999, Sunrise's management contract with a facility in Massachusetts ended. Sunrise received management fees of approximately $0.3 million in 1999 for this facility. Sunrise also managed two skilled nursing facilities, Pembrook and Prospect Park, located in West Chester and Prospect Park, Pennsylvania, respectively. The management contracts for these facilities ended on December 31, 1999. Sunrise received management fee revenues of approximately $0.2 million in 1999 for these two facilities. -24- 25 COMPANY OPERATIONS OPERATING STRUCTURE Sunrise has centralized accounting, finance and other operational functions at the corporate headquarters and regional office levels in order to allow facility-based personnel to focus on resident care, consistent with Sunrise's operating philosophy. Sunrise maintains its corporate headquarters office in McLean, Virginia and a business office in Fairfax, Virginia. The business office comprises mainly accounting and information technology staff. Corporate staff members are responsible for: the establishment of Company-wide policies and procedures relating to resident care, facility design and facility operations; billing and collection; accounts payable; finance and accounting; management of Sunrise's development and acquisition activities; development of employee training materials and programs; and providing overall strategic direction to Sunrise. Regional staff are responsible for: overseeing all aspects of facility-based operations, including marketing and sales activities; resident care; the hiring of facility executives, care managers and other facility-based personnel; compliance with applicable local and state regulatory requirements; and implementation of Sunrise's development and acquisition plans within a given geographic region. Sunrise is currently organized into five large geographic regions: Northeast, Mid-Atlantic, Southeast, Midwest and west, with multiple cluster regions under each. Sunrise has regional offices in Boston, MA, Long Island, NY, Paramus, NJ, Villanova, PA, Atlanta, GA, Chicago, IL, Columbus, OH, Claremont, CA, and Concord, CA that support the currently opened and/or to be opened properties in these markets. Each of the regions is headed by either a vice president or director of operations with extensive experience in the senior housing, health care and assisted living industries. Each regional cluster is supported typically by a sales/marketing specialist, a resident care specialist, a human resources specialist and a dining services specialist. Sunrise expects that all regional clusters will create similar staff positions as the number of facilities in those regions increases. FACILITY STAFFING Each of Sunrise's facilities has an executive director responsible for the day-to-day operations of the facility, including: quality of care; resident services; sales and marketing; and financial performance. Each executive director receives specialized training from Sunrise. Sunrise believes that the quality and size of its facilities, coupled with its competitive compensation philosophy, have enabled it to attract high-quality, professional executive directors. The executive director is -25- 26 supported by (a) the department heads, who oversee the care and service of the facility's assisted living neighborhood and Alzheimer neighborhood, (b) a nurse, who serves as a case manager responsible for coordinating the services necessary to meet the health care needs of our residents and (c) the director of community relations, who is responsible for selling Sunrise services. Other key positions include the dining services coordinator, the program coordinator and, in some homes, the director of Alzheimer's care. Care managers, who work on full-time, part-time and flex-time schedules, provide most of the hands-on resident care, such as bathing, dressing and other personalized care services, including housekeeping, meal service and resident activities. As permitted by state law, nurses or care managers who complete a special training program supervise the storage and distribution of medications. The use of care managers to provide substantially all services to residents has the benefits of consistency and continuity in resident care. In most cases, the same care manager assists the resident in dressing, dining and coordinating daily activities. The number of care managers working in a facility varies according to the level of care required by the residents of the facility and the numbers of residents receiving Alzheimer's care and plus care services. The number of care managers ranges from three (Leesburg facility) to 20 (Atrium facility) on the day shifts and from two care managers (Leesburg) to seven care managers (Atrium) on the night shift. Sunrise believes that its facilities can be most efficiently managed by maximizing direct resident and staff contact. Employees involved in resident care, including the administrative staff, are trained in the care manager duties and participate in supporting the care needs of the residents. Accounting functions are centralized so that administrative staff may devote substantially all of their time to care giving. STAFF EDUCATION AND TRAINING Sunrise has attracted, and continues to seek, highly dedicated, experienced personnel. Sunrise has developed a formal training program, the "five star training program," which focuses on providing every employee with the appropriate skills that are required to ensure the highest quality of resident care. All managers and direct care staff must complete a comprehensive orientation and the core curriculum, which consists of basic resident care procedures, Alzheimer's care, communication systems, and activities and dining programming. For the supervisors of direct care staff, additional program levels provide education in medical awareness and management skills. -26- 27 For department managers, Sunrise has developed the "mentor program," which partners each new manager with an experienced, successful manager. Under this program, new managers typically receive several weeks of training including classroom, on the job and corporate orientation. Thereafter, the mentor maintains regular contact with the new manager to provide ongoing support and guidance. Region-based classroom training also is provided monthly for department managers in specialized areas, including Sunrise's "reminiscence program," the social and volunteer programs, human resources, staffing and scheduling and medication management. Sunrise also has developed the "executive director in training program," which offers a structured curriculum to train individuals to become executive directors at Sunrise. This program recruits successful, strong leaders from both Sunrise department head ranks as well as professionals from outside Sunrise and provides them with an accelerated training curriculum to prepare them to be Sunrise executive directors. QUALITY IMPROVEMENT PROCESSES Sunrise coordinates quality assurance programs at each of its facilities through its corporate headquarters staff and through its regional offices. Sunrise's commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services provided by Sunrise. In addition to ongoing training and performance reviews of care managers and other employees, Sunrise's quality control measures include: Family and Resident Feedback. Sunrise surveys residents and family members on a regular basis to monitor the quality of services provided to residents. Semi-annual and annual written surveys are used to appraise and monitor the level of satisfaction of residents and their families. A toll-free telephone line also is maintained which may be used at any time by a resident's family members to convey comments. Regular Facility Inspections. Facility inspections are conducted by vice presidents and other regional staff on a regular basis. These inspections cover: the appearance of the exterior and grounds; the appearance and cleanliness of the interior; the professionalism and friendliness of staff; resident care plans; the quality of activities and the dining program; observance of residents in their daily living activities; and compliance with government regulations. -27- 28 Third-Party Reviews. To further evaluate customer service, Sunrise engages an independent service evaluation company to "mystery shop" Sunrise's facilities. These professionals assess Sunrise's performance from the perspective of a customer, without the inherent biases of a company employee. Each facility is "shopped" at least three times per year in person, as well as one or more times per month by telephone. To evaluate medication management, third-party pharmacists conduct periodic reviews of on-site handling and storage of medications, record-keeping and coordination of medications. SALES AND MARKETING Sunrise's sales and marketing strategy is intended to create awareness which reflect in visits to Sunrise and its services among potential residents and their family members and referral sources, such as hospital discharge planners, physicians, clergy, area agencies for the elderly, skilled nursing facilities, home health agencies and social workers resulting in personal visits to the property. A central marketing staff develops overall strategies for systems and programs promoting Sunrise throughout its markets and monitors the success of Sunrise's marketing efforts. Each regional cluster generally has at least one sales and marketing specialist and each property has at least one sales and marketing director of community relations who is responsible for implementing sales and marketing programs. In addition to direct contacts with prospective referral sources, Sunrise also relies on print and yellow page advertising, direct mail, signage, the internet, and open houses and special events, such as grand openings for new facilities, health fairs and various community receptions. THIRD-PARTY RESIDENT, MANAGEMENT AND DEVELOPMENT SERVICES While Sunrise serves the vast majority of a resident's needs with its own staff, some services, such as physician care, infusion therapy, physical and speech therapy and other home health care services, may be provided to residents at Sunrise facilities by third parties. Company staff assist residents in locating qualified providers for such health care services. In October 1996, Sunrise entered into an affiliation agreement with Jefferson Health System, an integrated health care system located in Philadelphia, Pennsylvania. Under this agreement, Jefferson Health System provides residents of Sunrise facilities located in the Philadelphia metropolitan region, on a preferred but non-exclusive basis, with access to various health care services offered by Jefferson Health System. These health care services may include hospital services, physician services, rehabilitation services, home health services and products and mental health services. -28- 29 Sunrise continues to capitalize on its brand awareness by accepting third-party management and development contracts. Sunrise previously entered into an agreement with Inova Health System Services, Inc., the largest not-for-profit integrated health care system in the Washington, D.C. metropolitan area, to manage Inova's two assisted living communities and provide development and management services for an additional four to eight assisted living communities with a total resident capacity of up to 800. Sunrise has also entered into unconsolidated joint venture arrangements with third parties to develop up to 45 projects in the United States, United Kingdom and Canada. The joint ventures have acquired or assumed purchase contracts for 32 properties, 23 in the United States, two in the United Kingdom and seven in Canada, on which the joint ventures intend to develop assisted living facilities. Sunrise is providing management and development services to the joint ventures on a contract-fee basis with rights to acquire the assets in the future. Sunrise has ownership interests in these joint ventures ranging from 9% to 15%. Sunrise is continuing its previously-announced plan of selling selected real estate assets, subject to market conditions, as a normal part of its operations while retaining long-term management through operating agreements, to include the potential sale of approximately 20 properties each year. This strategy of selling selected real estate assets as a normal part of operations should enable Sunrise to reduce debt, redeploy its capital into new development projects and realize gains on appreciated real estate. To date, Sunrise has completed the sale of four facilities. Sunrise continues to operate the facilities under long-term operating agreements. COMPETITION The long-term care industry is highly competitive and the assisted living segment is becoming increasingly competitive. Sunrise competes with numerous other companies that provide similar long-term care alternatives, such as home health care agencies, facility-based service programs, retirement communities, convalescent centers and other assisted living providers. Although some competitors are significantly larger, there are no one or more dominant companies in the assisted living segment. In general, regulatory and other barriers to competitive entry in the assisted living industry are not substantial. In pursuing its growth strategies, Sunrise has experienced and expects to continue to experience increased competition in their efforts to develop and acquire assisted living facilities. Some of the present and potential competitors of Sunrise are significantly larger and have, or may obtain, greater financial resources than Sunrise. Consequently, Sunrise cannot assure that it will not encounter increased -29- 30 competition that could limit its ability to attract residents or expand its business, which could have a material adverse effect on its revenues and earnings. OVERBUILDING IN THE ASSISTED LIVING INDUSTRY Sunrise believes that some assisted living markets have become or are on the verge of becoming overbuilt. As described above, regulation and other barriers to entry into the assisted living industry are not substantial. Consequently, the development of new assisted living facilities could outpace demand. Overbuilding in Sunrise market areas could, therefore, cause Sunrise to experience decreased occupancy, depressed margins or lower operating results. STAFFING AND LABOR COSTS Sunrise competes with various health care services providers, including other elderly care providers, in attracting and retaining qualified and skilled personnel. A shortage of nurses or other trained personnel or general inflationary pressures may require that Sunrise enhance its pay and benefits package to compete effectively for such personnel. If there is an increase in these costs or if Sunrise fails to attract and retain qualified and skilled personnel, the business and financial results of Sunrise could be adversely affected. GOVERNMENT REGULATION Assisted living facilities and services are subject to regulation and licensing by state and local health and social service agencies and other regulatory authorities. Although requirements vary from state to state, in general, these requirements address: - personnel education, training, and records; - facility services, including: -- administration of medication, -- assistance with self-administration of medication and -- limited nursing services; - monitoring of resident wellness; - physical plant specifications; -30- 31 - furnishing of resident units; - food and housekeeping services; - emergency evacuation plans; and - resident rights and responsibilities, including in some states the right to receive health care services from providers of a resident's choice. Some facilities are also licensed to provide independent living services, which generally involve lower levels of resident assistance. In some states, assisted living services are provided to residents through licensed home-healthcare agencies which are subject to additional regulations. Sunrise operates several licensed home-healthcare agencies. In several of the states in which Sunrise operates or intends to operate, assisted living facilities also require a certificate of need before the facility can be opened. In most states, assisted living facilities and services also are subject to state or local building code, fire code and food service licensing or certification requirements. Like other health care facilities, assisted living facilities and services are subject to periodic survey or inspection by governmental authorities. From time to time in the ordinary course of business, Sunrise receives deficiency reports, which it reviews to take appropriate corrective action. Although most inspection deficiencies are resolved through a plan of correction, the reviewing agency typically is authorized to take action against a licensed facility or home healthcare agency where deficiencies are noted in the inspection process. This action may include imposition of fines, imposition of a provisional or conditional license or suspension or revocation of a license or other sanctions. If Sunrise fails to comply with applicable requirements, its business and revenues could be materially and adversely affected. To date, none of the deficiency reports received by Sunrise has resulted in a suspension, fine or other disposition that has had a material adverse effect on its revenues. Regulation of the assisted living industry is evolving. Sunrise's operations could suffer if future regulatory developments, such as mandatory increases in scope and quality of care given to residents, are enacted and licensing and certification standards are revised. For example, if more states seek and obtain Medicaid waivers to authorize reimbursement for assisted living, the prospect of some federal regulation may become more likely. If the regulatory requirements increase, the costs of complying with those requirements could increase as well. -31- 32 Sunrise also is subject to federal and state anti-remuneration laws, such as the federal health care program anti-kickback law which governs various types of financial arrangements among health care providers and others who may be in a position to refer or recommend patients to these providers. This law prohibits direct and indirect payments that are intended to induce the referral of patients to, the arranging of services by, or the recommending of, a particular provider of health care items or services. The federal health care program anti-kickback law has been interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary from state to state, are sometimes vague and have rarely been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil or criminal penalties and exclusion of health care providers or suppliers from furnishing covered items or services to beneficiaries of the federal health care program. Sunrise cannot be sure that these laws will be interpreted consistently with its practices. ENVIRONMENTAL RISKS Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of removal or remediation of hazardous or toxic substances, including asbestos-containing materials, that could be located on, in or under a property. These laws and regulations often impose liability without regard to whether or not the owner or operator knew of, or was responsible for, the presence or release of the hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial. In addition, the liability of an owner or operator is generally not limited and could exceed the property's value and the aggregate assets of the owner or operator. An owner or operator or an entity that arranges for the disposal of hazardous or toxic substances at a disposal site also may be liable for the costs of any required remediation or removal of hazardous or toxic substances. Sunrise engages consultants to conduct Phase I environmental studies of development sites that are placed under contract. If the Phase I study indicates the existence of hazardous or toxic substances on the property, a Phase II study is requested and performed. The Phase I and Phase II reports, as applicable, may not reveal all environmental liabilities. There could be, therefore, material environmental liabilities of which Sunrise is unaware. In connection with the ownership or operation of its properties, Sunrise could be liable for the costs of remediation or removal of hazardous or toxic substances. Sunrise also could be -32- 33 liable for other costs, including governmental fines and damages for injuries to persons or properties. As a result, the presence, with or without Sunrise's knowledge, of hazardous or toxic substances at any property owned or operated by it, or acquired or operated by it in the future, could have an adverse effect on Sunrise's financial condition or earnings. MEDICAL WASTE Some of Sunrise's facilities generate infectious waste due to the illness or physical condition of the residents, including, for example, blood soaked bandages, swabs and other medical waste products and incontinence products of those residents diagnosed with an infectious disease. The management of infectious medical waste, including handling, storage, transportation, treatment and disposal, is subject to regulation under various laws, including federal and state liability laws. These environmental laws set forth the management requirements, as well as permit, record keeping, notice and reporting obligations. Each of Sunrise's facilities has an agreement with a waste management company for the proper disposal of all infectious medical waste. Any finding that Sunrise is not in compliance with these environmental laws could adversely affect its business operations and financial condition. Because these environmental laws are amended from time to time, Sunrise cannot predict when and to what extent liability may arise. In addition, because these environmental laws vary from state to state, expansion of Sunrise's operations to states where Sunrise does not currently operate may subject Sunrise to additional restrictions on the manner in which it operates its facilities. -33- 34 LIABILITY AND INSURANCE The assisted living business entails an inherent risk of liability. In recent years, Sunrise, as well as other participants in the assisted living industry, have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and significant legal costs. Sunrise maintains insurance policies in amounts and with the coverage and deductibles it believes are adequate, based on the nature and risks of our business, historical experience and industry standards. The insurance currently maintained by Sunrise has the following coverage limits:
Type of Coverage Coverage Limits Examples of Incidents - ---------------- --------------- Covered ------- - - General liability - $1,000,000 per occurrence/per facility, - premises claims by third parties, with additional specific limitations for not including residents particular categories of claims that fall under the general liability category - personal injury and advertising injury - independent contractors - fire damage to other rented locations - - Health care professional liability - $1,000,000 per occurrence/$3,000,000 - negligence claims by residents total for all claims per policy year; coverage limits do not overlap with general liability coverage - - Umbrella excess liability - $25,000,000 per policy year; coverage is - same as under general liability and in excess of the general liability and medical liability professional medical liability limits liability coverages
-34- 35 - - Non-medical professional liability - $5,000,000 per wrongful act/$7,000,000 total; - claims against Sunrise's development coverage limits do not overlap with or management company subsidiaries by general liability, medical liability or third parties for whom Sunrise umbrella excess liability limits develops or manages properties
Sunrise cannot be sure that claims will not arise that are in excess of its coverage or not covered by its policies. If a successful claim against Sunrise is made and it is not covered by insurance or exceeds the policy limits, Sunrise's financial condition and results of operations could be materially and adversely affected. Claims against Sunrise, regardless of their merit or eventual outcome, could also have a material adverse effect on its ability to attract residents or expand its business and could require Sunrise's management to devote time to matters unrelated to the operation of its business. Sunrise also has to renew its policies every year and it cannot be sure that it will be able to continue to obtain liability insurance coverage on acceptable terms. EMPLOYEES At December 31, 1999, Sunrise had 7,060 employees, including 4,123 full-time employees, of which 232 were employed at Sunrise's headquarters and business office. Sunrise believes employee relations are good. ITEM 2. PROPERTIES. Sunrise leases its corporate and business offices, regional operations and development offices, and warehouse space under various leases. The leases have terms of five to twelve years. The corporate headquarters lease commenced upon completion of the building in July 1999 and expires in July 2011. The lease has an initial annual base rent of $1.2 million. The base rent escalates approximately 2.5% per year in accordance with a base rent schedule. The initial annual lease payments of the business office leases amount to $462,000, and the base rent is subject to annual increases based on the consumer price index from a minimum of 2% to a maximum cap of 3% per year. The initial annual base rent payments under the warehouse lease amount to $148,000, subject to annual increases of 3%. Various other leases expire during 2001 and 2003. -35- 36 Sunrise has also entered into operating leases for eleven facilities and five long-term ground leases related to other facilities. The operating lease terms vary from 15 years, with two ten-year extension options, to 20 years and ground leases have terms of 30 to 99 years. For information regarding facilities owned by Sunrise or in which it holds interests, see " Item 1. Business - Owned Facilities" and "Facility Development." In December 1998, a subsidiary of Sunrise entered into a three year operating lease for six assisted living facilities. Sunrise has guaranteed the payment of all obligations of its subsidiary under the lease. There are no extension options. However, Sunrise has the option, 120 days prior to the expiration date of the lease, of either purchasing or selling all the leased properties. If Sunrise exercises its option to sell the properties and the proceeds from the sale exceed the obligation under the lease, Sunrise is entitled to the to excess. However, if the proceeds from the sale are less than the obligation under the lease, Sunrise is obligated to fund the difference. Sunrise is responsible for the payment of real estate taxes, insurance and other operating expenses. The lease requires Sunrise to maintain specified coverage ratios, liquidity and net worth. These six leased properties were sublet to Karrington until the acquisition of Karrington in May 1999. ITEM 3. LEGAL PROCEEDINGS. Sunrise is involved in various lawsuits and claims arising in the normal course of business. In the opinion of management of Sunrise, although the outcomes of these suits and claims are uncertain, in the aggregate they should not have a material adverse effect on Sunrise's business, financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -36- 37 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Sunrise's common stock is traded on the Nasdaq National Market under the symbol "SNRZ." Trading of the common stock commenced May 31, 1996. As of March 17, 2000, there were 282 stockholders of record. No cash dividends have been paid in the past, and none are expected to be paid in the foreseeable future. QUARTERLY MARKET PRICE RANGE OF COMMON STOCK
Quarter Ended High Low - -------------------------------------------------------------------------------------- March 31, 1998 $ 45.13 $ 38.50 June 30, 1998 46.50 27.75 September 30, 1998 35.75 22.50 December 31, 1998 53.13 29.00 Quarter Ended High Low - -------------------------------------------------------------------------------------- March 31, 1999 $ 52.50 $ 30.50 June 30, 1999 45.00 29.88 September 30, 1999 35.50 24.00 December 31, 1999 26.63 9.25
-37- 38 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with Sunrise's Consolidated Financial Statements and notes thereto included elsewhere herein.
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 (1) 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Operating revenue $ 255,219 $ 170,712 $ 89,884 $ 47,345 $ 37,258 Facility operating expenses 131,055 88,834 53,286 28,274 20,882 Facility development and pre-rental expenses 7,184 5,197 5,586 2,420 1,172 General and administrative expenses 20,715 12,726 10,454 10,042 6,875 Depreciation and amortization expenses 25,448 21,650 10,592 4,048 3,009 Interest expense, net 21,750 15,430 4,613 6,425 15,327 Net income (loss) (2) 20,213 22,312 4,001 (4,760) (10,137) Net income (loss) per common share: Basic 0.96 1.16 0.21 (0.52) Diluted 0.94 1.11 0.20 (0.52) BALANCE SHEET DATA (at end of period): Cash and cash equivalents $ 53,540 $ 54,197 $ 82,643 $ 101,811 $ 6,253 Working capital 95,480 69,573 70,340 102,822 2,051 Total assets 1,103,451 683,411 556,260 342,839 123,321 Total debt 700,943 428,326 340,987 145,511 122,289 Series A convertible preferred stock - - - - 23,964 Stockholders' equity (deficit) 335,124 227,655 195,340 185,824 (31,774) OPERATING AND OTHER DATA: Earnings before interest, taxes, depreciation and amortization (3) $ 75,239 $ 59,392 $ 19,206 $ 5,713 $ 8,199 Net cash provided by operating activities 31,080 27,073 12,082 758 944 Net cash used in investing activities (223,358) (146,406) (225,664) (112,495) (17,907) Net cash provided by financing activities 191,621 90,887 194,414 207,295 15,127 Facilities (at end of period): Owned 126 66 54 30 20 Managed 14 11 7 5 8 - ------------------------------------------------------------------------------------------------------------------------------------ Total 140 77 61 35 28 ==================================================================================================================================== Resident capacity (at end of period): Owned 9,756 5,617 4,632 2,584 1,557 Managed 1,289 1,010 683 528 712 - ------------------------------------------------------------------------------------------------------------------------------------ Total 11,045 6,627 5,315 3,112 2,269 ==================================================================================================================================== Occupancy rate (4) 96% 94% 94% 94% 92% - ------------------------------------------------------------------------------------------------------------------------------------
(1) On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax-free, stock-for-stock transaction in which it issued 2.3 million common shares in exchange for all outstanding shares of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The total transaction was valued at $85.1 milion and was accounted for using the purchase method of accounting and, accordingly, the results of operations of Karrington since the acquisition are included in Sunrise's financial information for 1999. See Note 13 of Notes to Consolidated Financial Statements. (2) Net income for 1999 includes non-recurring charges of $5.1 million ($4.0 million after tax). See Management's Discussion and Analysis of Financial Condition and Results of Operations. (3) Earnings before interest, taxes, depreciation and amortization is presented because Sunrise believes this data is used by some investors to evaluate Sunrise's ability to meet debt service requirements. Sunrise considers earnings before interest, taxes, depreciation and amortization to be an indicative measure of its operating performance due to the significance of Sunrise's long-lived assets and because this data can be used to measure Sunrise's ability to service debt, fund capital expenditures and expand its business. However, this data should not be considered as an alternative to net income, operating profit, cash flows from operations or any other operating or liquidity performance measure prescribed by generally accepted accounting principles. In addition, earnings before interest, taxes, depreciation and amortization as calculated by Sunrise may not be comparable to similarly titled measures reported by other companies. Interest expense, taxes, depreciation and amortization, which are not reflected in the presentation of earnings before interest, taxes, depreciation and amortization, have been, and will be incurred by Sunrise. Investors are cautioned that these excluded items are significant components in understanding and assessing Sunrise's financial performance. (4) Based on monthly occupancy for owned facilities, opened or operated for at least 12 months, or that have achieved occupancy percentages of 95% or above at the beginning of the year. The occupancy rate excludes facilities with temporary vacancies and resident relocations generally of between three to six months due to renovations. -38- 39 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the information contained in the Consolidated Financial Statements, including the related notes thereto, and the other financial information appearing elsewhere herein. This Management's Discussion and Analysis contains certain forward-looking statements that involve risks and uncertainties. Sunrise's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including development and construction risks, acquisition risks, licensing risks, business conditions, competition, Sunrise's ability to operate the Karrington properties profitably, risks of downturns in economic conditions generally, satisfaction of closing conditions and availability of financing for development and acquisitions. Some of these factors are discussed elsewhere herein. Unless the context suggests otherwise, references herein to "Sunrise" mean Sunrise Assisted Living, Inc. and its subsidiaries. OVERVIEW Sunrise is a provider of assisted living services for seniors. Sunrise currently operates 148 facilities in 23 states and in the United Kingdom, with a resident capacity of more than 11,500 residents, including 117 facilities owned by Sunrise or in which it has ownership interests, 16 facilities owned by Sunrise and held for sale following the acquisition of Karrington Health, Inc. and 15 facilities managed for third parties. Sunrise provides assistance with the activities of daily living and other personalized support services in a residential setting for elderly residents who cannot live independently but who do not need the level of medical care provided in a skilled nursing facility. Sunrise also provides additional specialized care and services to residents with certain low acuity medical needs and residents with Alzheimer's disease or other forms of dementia. By offering this full range of services, Sunrise is able to accommodate the changing needs of residents as they age and develop further physical or cognitive frailties. Sunrise has continued to experience growth in operations over the 12 months ended December 31, 1999 and continued to capitalize on its brand awareness by accepting third-party management and development contracts. During this period, Sunrise began operating an additional 60 facilities in which it has an ownership interest (including facilities held for sale following the acquisition of Karrington) and managing an additional three facilities for independent third parties. Sunrise also entered into several third-party management and development contracts during 1999. As a result, total operating revenue increased substantially to $255.2 million for 1999 from $170.7 million for 1998, and correspondingly, earnings before interest, taxes, depreciation and amortization ("EBITDA") increased to $75.2 -39- 40 million for 1999 from $59.4 million for 1998. Average resident occupancy for stabilized facilities increased to 95.6% for 1999 from 94.3% for 1998, and the average daily resident fee for these stabilized facilities increased to $97.1 for 1999 from $85.8 for 1998. Net income, however, decreased to $20.2 million for 1999, or $0.94 per share (diluted), from $22.3 million for 1998, or $1.11 per share (diluted). The decrease in net income between 1999 and 1998 was due in part to an $8.0 million increase in general and administrative expenses, recognition of non-recurring charges of $5.1 million, $0.5 million in development and pre-rental expenses resulting from termination of a development project in the Southeast and the recognition of $7.8 million of income taxes in 1999. In prior years, income tax expense was offset by recognizing tax benefits of certain net operating loss carryforwards. Sunrise's growth objectives include developing new Sunrise model assisted living facilities and selectively acquiring existing facilities. Sunrise currently has 22 facilities under construction with a resident capacity of approximately 1,900. Sunrise has also entered into contracts to purchase 43 additional development sites, 25 of which are zoned, and to lease one additional site. Sunrise is pursuing additional development opportunities and also plans to acquire additional facilities as market conditions warrant. In connection with the implementation of its growth plans, in prior years Sunrise made significant investments in its infrastructure through the addition of information technology, as well as additions to headquarters and regional staff. During 1999, Sunrise continued to invest in these areas to support both the growth of Sunrise and to provide expansion and enhancement to some of its existing computer and communication systems, and completed efforts to ensure these systems were year 2000 compliant. Sunrise has expanded its previously-announced plan of selling selected real estate assets, subject to market conditions, as a normal part of its operations while retaining long-term management through operating agreements, to include the potential sale of approximately 20 properties each year. This strategy of selling selected real estate assets as a normal part of operations should enable Sunrise to reduce debt, redeploy its capital into new development projects and realize gains on appreciated real estate. In June 1999, Sunrise completed the sale of two assisted living facilities located in Columbia, Maryland and Norwood, Massachusetts for an aggregate sales price of $27.9 million in cash. The transaction will result in the realization of up to an $11.3 million gain over 3 quarters following the sale. As of December 31, 1999, Sunrise recognized $5.1 million of the gain. Previously, in September 1998, Sunrise completed the sale of two assisted living facilities located in Maryland for an aggregate sales price of $29.3 million in cash that will result in the realization of up to a $6.4 million gain over a maximum of 15 quarters following the sale. As of December 31, 1999, Sunrise has recognized $3.4 million of the -40- 41 gain. The remaining gain is deferred, the recognition of which is contingent upon future events. For tax purposes, the transactions were set up as tax-free exchanges. Sunrise continues to operate the facilities under long-term operating agreements. On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax-free, stock-for-stock transaction in which it issued 2.3 million common shares in exchange for all the outstanding shares of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The total transaction was valued at $85.1 million, including merger and stock issuance costs of $8.4 million and the fair value of assumed employee stock options of $1.5 million. Karrington operates assisted living facilities providing services to the elderly. The acquisition was accounted for using the purchase method of accounting and accordingly, the results of operations of Karrington for the period from May 14, 1999 are included in the accompanying consolidated financial statements. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, which are subject to adjustment when additional information concerning asset and liability valuations is finalized. The $35.1 million of costs in excess of assets acquired are being amortized on a straight-line basis over 38 years, which represents the weighted average useful lives of the assets purchased. The carrying amounts of all intangibles, which represented 6.3% of total assets and 20.7% of stockholders' equity as of December 31, 1999, are reviewed for impairment annually. If the review indicates that the intangible assets are not expected to be recoverable based on the undiscounted cash flows of the acquired assets over the remaining amortization periods, the carrying value of the intangible assets will be adjusted. Sunrise intends to sell 16 Karrington operating properties, four zoned development sites and one non-operating property, which were inconsistent with Sunrise's product and market strategy. Most of the facilities are Karrington Cottage prototype models, which consist of 20 units or less. These properties are classified as assets held for sale on the accompanying balance sheet. Sunrise anticipates completing the sale of substantially all of the assets held for sale by the third quarter of 2000. Due to market conditions in the areas where the assets held for sale are located, Sunrise elected in December 1999 to adjust downward the value assigned to certain of these assets, which resulted in an adjustment to the original purchase price allocation of the Karrington acquisition. As a result of the adjustment, the carrying value of assets held for sale decreased by $14.1 million from Sunrise's original estimated assigned fair value. The valuation -41- 42 adjustments are reflected as a change in goodwill and the deferred tax accounts that are associated with the Karrington acquisition. Sunrise has continued its efforts to explore international development and acquisition possibilities. To date, Sunrise has entered into a joint venture arrangement with a third party that is providing up to $55.3 million of the equity capital to develop up to 22 projects in the United Kingdom and Canada. A director of Sunrise is a managing director in the third party that is providing such equity capital and a former director is a general partner in the third party. Currently, the joint venture has one property operating in the United Kingdom, six properties under development in Canada, a purchase commitment for a property in Canada and a purchase commitment for a property in the United Kingdom. Sunrise provides management and development services to the joint venture on a contract-fee basis with rights to acquire the assets in the future and has agreed to invest up to $2.8 million of equity capital in the joint venture. As of December 31, 1999, the third party has provided approximately $12.5 million and Sunrise has provided $1.0 million of equity capital to the joint venture. Sunrise's Board of Directors has authorized Sunrise to repurchase outstanding shares of Sunrise common stock up to an aggregate purchase price of $30.0 million. Sunrise expects to fund the stock repurchases from available funds and the expansion of its asset sale/manage back program. Under the stock repurchase program, Sunrise is authorized to repurchase Sunrise common stock in the open market or in privately negotiated transactions from time to time over the next 12 months, subject to market conditions, applicable legal requirements and other factors. The stock repurchase program does not obligate Sunrise to repurchase any specific number of shares, and repurchases pursuant to the program may be suspended or resumed at any time or from time to time without further notice or announcement. -42- 43 RESULTS OF OPERATIONS The following table sets forth data expressed as a percentage of operating revenue:
Year Ended December 31, - ------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Operating revenue 100.0% 100.0% 100.0% Operating expenses: Facility operating 51.4 52.0 59.3 Facility contract services 2.5 0.6 - Facility development and pre-rental 2.8 3.0 6.2 General and administrative 8.1 7.5 11.6 Depreciation and amortization 10.0 12.7 11.8 Facility lease 3.1 1.8 1.7 Non-recurring charges 2.0 - - - ------------------------------------------------------------------------------------------------ Total operating expenses 79.9 77.6 90.6 - ------------------------------------------------------------------------------------------------ Income from operations 20.1 22.4 9.4 Other income (expense): Interest income 4.3 3.9 7.6 Interest expense (12.8) (13.0) (12.8) Equity in (losses) earnings of unconsolidated joint ventures (0.5) - 0.1 Minority interests (0.1) (0.3) 0.2 Provision for income taxes (3.1) - - - ------------------------------------------------------------------------------------------------ Net income 7.9% 13.0% 4.5% =================================================================================================
Sunrise derives its revenues from two primary sources: (1) resident fees for the delivery of assisted living services and (2) management services income for management and development of facilities owned by third parties. Historically, most of Sunrise's operating revenue has come from resident fees, which in 1999, 1998 and 1997 comprised 85.2 %, 89.0% and 95.3% of total operating revenues, respectively. Residents, their families or other responsible parties typically pay resident fees monthly. In 1999, 1998 and 1997 approximately 99% of Sunrise's revenue was derived from private pay sources. Resident fees include revenue derived from basic care, community fees, plus care, Reminiscence(TM) and other resident related services. Community fees are one-time fees generally equal to 30 to 60 times the daily resident fee payable by a resident upon admission. Plus care and Reminiscence(TM) fees are paid by residents who require personal care in excess of services provided under the basic care program. -43- 44 Management services income represents fees from long-term contracts for facilities owned by unconsolidated joint ventures and other third party owners. Management services income includes management fees, which are generally in the range of 5% to 7% of a managed facility's total operating revenue for homes in operation, and development fees for site acquisition, development services, facility design and construction management services. Management services income accounted for 9.3%, 9.1% and 4.7% of operating revenue in 1999, 1998, 1997, respectively. Sunrise classifies its operating expenses into the following categories: (1) facility operating, which include labor, food, marketing and other direct facility expenses; (2) facility contract services, which include operating expenses reimbursable to Sunrise (3) facility development and pre-rental, which include non-capitalized development expenses and pre-rental labor and marketing expenses; (4) general and administrative, which primarily include headquarters and regional staff expenses and other overhead costs; (5) depreciation and amortization; and (6) facility lease, which represent rental expenses for facilities and property not owned by Sunrise. YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 Operating Revenue. Operating revenue for 1999 increased 49.5% to $255.2 million from $170.7 million for 1998 due primarily to the growth in resident fees. Resident fees, including community fees, for 1999 increased $65.5 million, or 43.1%, to $217.4 million from $151.9 million for 1998. This increase was due primarily to the inclusion, for the year ended December 31, 1999, of approximately $26.2 million from the Karrington properties acquired in May 1999 and $5.0 million of resident fees generated from the operations of new Sunrise developed assisted living facilities open in 1999 that were not open during 1998. Another $31.4 million of the increase in resident fees was from facilities operated for a full year in 1999 versus a partial period in 1998. This increase was partially offset by an $8.3 million decrease in resident fees due to the sale of properties in 1998 and 1999. The remaining increase in resident fees was primarily due to an increase in the average daily resident fee (excluding community fees) for owned facilities operated by Sunrise for at least twelve months or that have achieved occupancy percentages of 95% or above ("Stabilized Facilities"). Average resident occupancy for Stabilized Facilities increased to 95.6% for 1999 from 94.3% for 1998. The occupancy rate excludes facilities with temporary vacancies and resident relocations generally of between three to six months due to renovations. Sunrise increased its owned and operated Stabilized Facilities by 53 percent over 1998 to 49 Stabilized Facilities for 1999 from 32 -44- 45 Stabilized Facilities in 1998. The average daily resident fee, excluding community fees, for these Stabilized Facilities increased to $97 for 1999 from $86 for 1998. The increase is due to the inclusion of additional stabilized prototype facilities which have higher basic care rates, a general increase in the basic care rate at other facilities and an increase in the number of residents receiving plus care and Reminiscence(TM) care services. For the 29 communities currently owned, which were stabilized in both periods, occupancy increased to 95.4% for 1999 from 94.2% for 1998. The average resident occupancy of the properties acquired from Karrington in May 1999 increased from 77.5% for the third quarter of 1999 to 79.5% for the fourth quarter of 1999. Management services income for 1999 increased to $23.8 million from $15.6 million for 1998. This $8.2 million increase resulted primarily from additional development contracts entered into in 1999 with unconsolidated joint ventures and third-party owners. The increase resulted primarily from a $6.8 million increase in development fees to $19.9 million for 1999 from $13.1 million for 1998 relating to the development of facilities for unconsolidated joint ventures and third party owners. This increase is primarily due to the increase in the number of development contracts entered into during 1999. Facility contract services revenue for 1999 increased to $7.0 million from $1.2 million for 1998. Of the $5.8 million increase, $2.6 was primarily due to the addition of two facilities under long-term operating agreements in 1999. The remaining $3.2 million increase in facility contract services revenue was from operating two facilities sold in 1998 for a full year in 1999 versus a partial period in 1998. In 1999, Sunrise recognized gains of $7.0 million on the sale of assisted living communities compared to $2.0 million in 1998. Operating Expenses. Operating expenses for 1999 increased by 53.8% to $203.8 million from $132.5 million for 1998. The increase in operating expenses for 1999 was attributable to increases in all of the following expenses: facility operating, facility development and pre-rental, general and administrative, depreciation and amortization and facility lease. Sunrise also incurred significant non-recurring charges in 1999. Facility operating expense for 1999 increased by 47.5% to $131.1 million from $88.8 million for 1998. As a percentage of resident fees, facility operating expense for 1999 increased to 60.3% from 58.5% for 1998. Of the $42.2 million increase, $21.7 million was attributable to expenses from operations at the Karrington properties and $3.0 million from operations at new Sunrise developed assisted living facilities open in 1999 that were not open in 1998. Another $17.6 million of the increase in facility operating expenses was from facilities operating for a full -45- 46 year in 1999 versus a partial period in 1998. This increase was partially offset by a $4.8 million decrease due to sale of properties in 1998 and 1999. The remaining balance of the increase was primarily due to an increase in labor and general and administrative expense at facilities that were operational for a full year in both periods. Facility contract services expense for 1999 increased to $6.4 million from $1.1 million for 1998. Of the $5.3 million increase, $2.5 was primarily due to the addition of two facilities under long-term operating agreements in 1999. The remaining $2.8 million increase in facility contract services expense was from operating two facilities sold in 1998 for a full year in 1999 versus a partial period in 1998. Facility development and pre-rental expenses for 1999 increased 38.2% to $7.2 million from $5.2 million for 1998. The $2.0 million increase in facility development and pre-rental expenses for 1999 was primarily related to an increase in development costs related to third-party development activity. General and administrative expenses for 1999 increased 62.8% to $20.7 million from $12.7 million in 1998. As a percentage of operating revenue, general and administrative expenses for 1999 increased to 8.1% compared to 7.5% in 1998. The $8.0 million increase in general and administrative expenses for 1999 was primarily related to labor costs, consisting of hiring and training additional staff at the headquarters and regional offices. The additional staffing is due, in part, to the 63 new facilities operated in 1999, including three managed facilities and the facilities acquired from Karrington in 1999. Depreciation and amortization expenses for 1999 compared to 1998 increased $3.8 million, or 17.5%, to $25.4 million from $21.7 million for 1998 primarily due to a $4.9 million increase in depreciation expense, partially offset by a $1.1 million decrease in amortization expense. Of the increase in depreciation expense, $1.3 million related to the acquisition of the Karrington properties and $0.7 million related to new Sunrise developed facilities that were not open in 1998. Another $2.5 million of the increase in depreciation expense was from facilities operating for a full year in 1999 versus a partial year in 1998. This increase was partially offset by $0.7 million due to the sale of properties in 1998 and 1999. Facility lease expense increased $4.9 million to $7.9 million for 1999 from $3.0 million for 1998. The increase was primarily due to the operation of 12 additional Karrington leased properties assumed in the acquisition. Sunrise recorded non-recurring charges of $5.1 million during 1999, of which $4.4 million related to the consolidation and integration of the acquired operations and development pipeline of Karrington and $0.7 million related to the termination of a property acquisition agreement. -46- 47 Other income (expense). Interest income increased to $10.8 million for 1999 compared to $6.7 million for 1998. This increase in interest income is primarily due to interest income from notes receivable (see Note 4 of Notes to Consolidated Financial Statements). Interest expense increased for 1999 to $32.6 million from $22.1 million for 1998. Of this increase, $6.1 million was due to interest on additional borrowings under one of Sunrise's existing credit facilities and $5.3 million was due to additional borrowings under new credit facilities. Another $1.2 million was due to the debt assumed through the acquisition of Karrington. Interest expense was offset, in part, by a $2.1 million increase in capitalized interest during 1999. Equity in (losses) earnings of unconsolidated assisted living facilities. Equity in losses of unconsolidated assisted living facilities for 1999 was $1.2 million compared to earnings of approximately zero for 1998. The $1.2 million increase in equity in losses of unconsolidated assisted living facilities is primarily due to startup losses of the 10 joint venture properties that opened in 1999, in which Sunrise has ownership interests ranging from 9% to 15%. Provision for Income Taxes. The provision for income taxes was $7.8 million and zero for 1999 and 1998, respectively. The difference between the tax provision calculated at the statutory federal income tax rate and the actual tax provision recorded for each year are as follows:
YEAR ENDED DECEMBER 31, ---------------- 1999 1998 ----- ----- Statutory rate 35% 35% State taxes, net 7 6 Valuation allowance and other (14) (41) ----- ----- 28% 0% ===== =====
Realization of the deferred tax asset of $8.2 million at December 31, 1999 is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Sunrise expects to fully utilize the loss carryforwards prior to expiration. Therefore, the valuation allowance at December 31, 1998 of $8.6 million was released in 1999, of which, $6.0 was credited directly to equity (see Note 16 of Notes to Consolidated Financial Statements). -47- 48 YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 Operating Revenue. Operating revenue for 1998 increased 89.9% to $170.7 million from $89.9 million for 1997 due primarily to the growth in resident fees. Resident fees, including community fees, for 1998 increased $66.2 million, or 77.3%, to $151.9 million from $85.6 million for 1997. This increase was due primarily to the inclusion for the year ended December 31, 1998 of approximately $23.7 million of resident fees generated from the operations of additional facilities opened in 1998 and a $35.6 million increase in resident fees from facilities operated for a full year in 1998 that were initially opened in 1997. The remaining increase in resident fees was primarily due to an increase in the average daily resident fee, excluding community fees, for owned facilities operated by Sunrise for at least twelve months. Average resident occupancy for Stabilized Facilities remained unchanged at 94% for both 1998 and 1997. The occupancy rate excludes facilities with temporary vacancies and resident relocations generally of between three to six months due to renovations. The average daily resident fee, excluding community fees for Stabilized Facilities increased to $86 for 1998 from $78 for 1997. The increase is due to the inclusion of additional stabilized prototype facilities which have higher basic care rates, a general increase in the basic care rate at other facilities, and an increase in the number of residents receiving plus care and Reminiscence(TM) care services. Average resident occupancy for owned facilities in initial resident lease-up increased to 70% for 1998 from 62% for 1997. The average daily resident fee, excluding community fees, for these facilities increased to $107 for 1998 from $94 for 1997. Management services income for 1998 increased to $15.6 million from $4.2 million for 1997. The increase resulted primarily from a $11.2 million increase in development and management fees to $15.2 million for 1998 from $4.0 million for 1997 relating to the development of facilities for unconsolidated joint ventures and third party owners. This increase is primarily due to the increase in the number of development and management contracts entered into from the fourth quarter of 1997 through 1998. Sunrise had 24 development and management contracts as of December 31, 1998 and 18 development and management contracts as of December 31, 1997. In 1998, Sunrise recognized a gain of $1.5 million on the sale of two assisted living communities and a $0.5 million gain on the sale of its minority interest in a tenancy-in-common that owned one facility. -48- 49 Operating Expenses. Operating expenses for 1998 increased by 62.7% to $132.5 million from $81.5 million for 1997. The increase in operating expenses was attributable to increases in all of the following areas: facility operating, facility contract services, general and administrative, depreciation and amortization and facility lease expenses. Facility operating expense for 1998 increased 66.7% to $88.8 million from $53.3 million for 1997. As a percentage of resident fees, facility operating expense for 1998 decreased to 58.5% from 62.2% for 1997. Of the $35.5 million increase, $14.3 million was attributable to expenses from the operations of additional assisted living facilities operated by Sunrise in 1998 as compared to 1997 and $17.9 million was attributable to facilities operated for a full year in 1998 that were initially opened in 1997. The remaining balance of the increase was primarily due to an increase in labor and general and administrative expense at facilities that were operational for a full year in both periods. General and administrative expense for 1998 increased 21.7% to $12.7 million from $10.5 million for 1997. As a percentage of operating revenue, general and administrative expense for 1998 decreased to 7.5% from 11.6% for 1997, which is a reflection of higher operating revenue in the 1998 period. The $2.3 million increase in general and administrative expense for 1998 was primarily related to labor costs, consisting of hiring and training additional staff at the headquarters and regional offices. Depreciation and amortization expense for 1998 compared to 1997 increased $11.1 million, or 104.4%, to $21.7 million from $10.6 million. Of the increase, $6.4 million related to homes opened during 1998 and $4.7 million related to homes operated for a full year in 1998 that were initially opened in 1997. Facility lease expense increased $1.5 million primarily due to the opening of two facilities developed and leased by Sunrise in 1998 and two facilities operated for a full year in 1998 initially opened in 1997. Other Income (Expense). Interest income decreased to $6.7 million for 1998 compared to $6.9 million for 1997. This decrease was primarily due to decreased funds available for investment, offset, in part, by an increase in interest income from notes receivable. See note 4 of notes to consolidated financial statements. Interest expense increased for 1998 to $22.1 million from $11.5 million for 1997. Of this increase, $3.6 million was due to a full year of interest on Sunrise's $150.0 million aggregate principal amount of 5 1/2% convertible subordinated notes due 2002 issued in June 1997 and $5.6 million was due to interest on additional borrowings under one of Sunrise's credit facilities. The remaining increase was primarily due to a decrease in capitalized interest in 1998 versus 1997 due to a reduction in the average balance of funded project costs. -49- 50 Income Tax. Sunrise generated taxable income for the year ended December 31, 1998 for the first time since its formation. Income tax expense for the year was offset by a $9.8 million reduction in Sunrise's deferred tax asset valuation allowance. The change in the valuation allowance reflects the reduction of the combined net difference in net book and tax bases of property and equipment, the expected tax benefit of various timing differences and the anticipated utilization of net operating loss carryforwards. Of the remaining $8.6 million unrecognized deferred tax assets, approximately $2.6 million related to the remaining difference between the net book and tax bases of property and equipment and approximately $6.0 million related to the tax benefit of nonqualified stock options that have not been recognized for tax purposes. When the valuation allowance related to the nonqualified stock options was released, the tax benefit was credited directly to equity in 1999. See note 16 of notes to consolidated financial statements. Realization of the tax benefits associated with the long-term deferred tax assets is dependent on Sunrise generating sufficient taxable income prior to the expiration of the loss carryforward and reversals of the timing differences. Based on this uncertainty, Sunrise maintained a valuation allowance of $8.6 million on the deferred tax asset at December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES To date, the Sunrise has financed its operations from long-term borrowings, equity offerings and cash generated from operations. At December 31, 1999, Sunrise had $700.9 million of outstanding debt at a weighted average interest rate of 7.17%. Of the amount of outstanding debt, Sunrise had $369.3 million of fixed-rate debt, excluding a $0.6 million loan discount, at a weighted average interest rate of 6.92%, and $332.2 million of variable rate debt at a weighted average interest rate of 7.45%. Increases in prevailing interest rates could increase Sunrise's interest payment obligations relating to variable-rate debt. For example, a one percent increase in interest rates would increase annual interest expense by approximately $3.3 million. At December 31, 1999, Sunrise had approximately $53.5 million in unrestricted cash and cash equivalents, including $8.5 million in high quality short-term investments (A1/P1 rated) and currently has $196.1 million of unused lines of credit. At December 31, 1999, a subsidiary of Sunrise had a syndicated revolving credit facility for $400.0 million. Sunrise guarantees the repayment of all amounts outstanding under this credit facility. The credit facility is secured by cross-collateralized first mortgages on the real property and improvements and first liens -50- 51 on all other assets of the subsidiary. Advances under the facility bear interest at LIBOR plus 1.50%. There were $210.0 million of advances outstanding under this credit facility as of December 31, 1999. The credit facility expires in July 2002. Other subsidiaries have revolving credit facilities totaling $174.8 million. The repayments of the amounts outstanding under these credit facilities are also guaranteed by Sunrise. The credit facilities are secured by real property and first liens on other assets. Advances under these facilities totaled $168.7 million as of December 31, 1999 and bear interest at rates ranging from LIBOR plus 1.25% to LIBOR plus 2.35%. Sunrise has outstanding $150.0 million aggregate principal amount of 5 1/2% convertible subordinated notes due 2002. The convertible notes bear interest at 5 1/2% per annum payable semiannually on June 15 and December 15 of each year. The conversion price is $37.1875, which is equivalent to a conversion rate of 26.89 shares per $1,000 principal amount of the convertible notes. The convertible notes are redeemable at the option of Sunrise commencing June 15, 2000, at specified premiums. The holders of the convertible notes may require Sunrise to repurchase the notes upon a change of control of Sunrise, as defined in the convertible notes. In May 1999, Sunrise entered into a multi-property first mortgage loan agreement for $88.0 million secured by eight properties. The loan accrues interest at 7.14% and matures on June 1, 2009. The proceeds were used to reduce the balance of one of Sunrise's credit facilities and, as a result, convert a portion of Sunrise's variable rate debt into debt with a fixed rate. At December 31, 1999, $87.2 million was outstanding. Sunrise has an $85.6 million (excluding a $0.6 million discount) multi-property mortgage, collateralized by a blanket first mortgage on all assets of a subsidiary of Sunrise, consisting of 15 facilities. The multi-property mortgage consists of two separate debt classes: Class A in the amount of $65.0 million bears a fixed interest rate of 8.56% and is interest only until the maturity date of May 31, 2001; and Class B in the amount of $20.6 million bears a variable interest rate of LIBOR plus 1.75% and is payable in installments through May 2001. As of December 31, 1999, Sunrise had various other debt outstanding totaling approximately $168.7 million, including $64.1 million of debt assumed through the acquisition of Karrington, with interest rates ranging from 5.6% to 10.0%. Sunrise has entered into a swap transaction whereby, effective during the period June 18, 1998 through June 18, 2001, outstanding advances of up to $19.0 million LIBOR floating rate debt bear interest at a fixed rate based on a fixed LIBOR base rate of 7.30%. Sunrise has entered into another swap transaction whereby, effective during the period August 20, 1997 through April 1, 2003, -51- 52 outstanding advances of up to $7.0 million under LIBOR floating rate debt bear interest at a fixed LIBOR base rate of 7.14%. In November 1999, Sunrise settled the $7.0 million swap transaction. There was no gain or loss on the settlement. Sunrise recorded net interest expense in 1999, 1998 and 1997 in the amounts of $511,000, $227,000 and $17,000, respectively, for swap transactions. There are various financial covenants and other restrictions in Sunrise's debt instruments, including provisions which: - require it to meet specified financial tests. For example, Sunrise's $85.6 million multi-property mortgage, which is secured by 15 of its facilities, requires that these facilities maintain a cash flow to interest expense coverage ratio of at least 1.25 to 1. Sunrise's $400.0 million credit facility requires Sunrise to have a consolidated tangible net worth of at least $255.0 million, to maintain a consolidated minimum cash liquidity balance of at least $25.0 million and to meet other financial ratios. These tests are administered on a monthly or quarterly basis, depending on the covenant; - require consent for changes in management or control of Sunrise. For example, Sunrise's $400.0 million revolving credit facility requires the lender's consent for any merger where Paul Klaassen or Teresa Klaassen does not remain chairman of the board and chief executive officer of Sunrise; - restrict the ability of Sunrise subsidiaries to borrow additional funds, dispose of assets or engage in mergers or other business combinations without lender consent; and - require that Sunrise maintain minimum occupancy levels at its facilities to maintain designated levels of borrowings. For example, Sunrise's $400.0 million credit facility requires that 85% occupancy be achieved after 12 months for a newly opened facility and, following this 12-month period, be maintained at or above that level. Working capital increased to $95.5 million at December 31, 1999 from $69.6 million at December 31, 1998, primarily due from net borrowings during the year ended December 31, 1999, an increase in receivables related to management and development contracts from unrelated and related parties and, in conjunction with the Karrington acquisition, 16 operating properties, four zoned development sites and one non-operating property that are held for sale. Receivables from related parties are included in prepaid expenses and other current assets on the accompanying consolidated balance sheets. The increase was offset, in part, by Sunrise's continued investment in the development and ownership of assisted living facilities. -52- 53 Net cash provided by operating activities for 1999 and 1998 was approximately $31.1 million and $27.1 million, respectively. Net cash provided by operating activities for 1999 reflects an increase in Sunrise's activities related to the development of unconsolidated joint venture properties. During 1999 and 1998, Sunrise used $223.4 million and $146.4 million, respectively, for investing activities. Investing activities included investment in property and equipment in the amounts of $178.4 million and $126.2 million, respectively, related to the construction of assisted living facilities. In 1999, Sunrise also invested $63.6 million to facilitate the development of assisted living facilities with third parties, compared to $45.3 million in 1998. These investing activities were offset, in part, by proceeds from the sale of two assisted living facilities in June 1999 amounting to $26.9 million plus $7.6 million of proceeds from investments and notes receivable. Net cash provided by financing activities was $191.6 million and $90.9 million for 1999 and 1998, respectively. Financing activities in 1999 and 1998 included additional borrowings of $313.5 million and $108.0 million, respectively, offset, in part, by debt repayments of $122.1 million and $23.4 million, respectively. Additional borrowings during 1999 included the $88.0 million loan entered into in May 1999 and one of Sunrise's credit facilities. The additional borrowings under Sunrise's credit facility during 1999 and 1998 were used to fund Sunrise's continued development of assisted living facilities. Debt repayments during 1999 included the use of the proceeds from the $88.0 million loan to reduce the outstanding balance on one of Sunrise's credit facilities. Sunrise currently estimates that the existing credit facilities, together with existing working capital, proceeds from sales of selected real estate assets as a normal part of its operations, financing commitments and financing expected to be available, will be sufficient to fund facilities currently under construction. Additional financing will, however, be required to complete additional development and to refinance existing indebtedness. Sunrise estimates that it will cost between $90.0 million and $131.0 million to complete the facilities Sunrise currently has under construction. Sunrise has entered into contracts to purchase and lease additional sites. The total contracted purchase price of these sites is $67.5 million. Sunrise estimates that it will cost between $336.5 million and $479.0 million to develop these properties. Sunrise expects that the cash flow from operations, together with borrowings under existing credit facilities, will be sufficient to fund the development sites for these additional properties for at least the next six months. Sunrise expects from time to time to seek additional funding through public or private financing sources, including equity or debt financing. There can be no assurance that such financing and refinancing will be available on acceptable terms. -53- 54 The ability of Sunrise to achieve its development plans will depend upon a variety of factors, many of which will be outside the control of Sunrise. These factors include: - obtaining zoning, land use, building, occupancy, licensing and other required governmental permits for the construction of new facilities without experiencing significant delays; - completing construction of new facilities on budget and on schedule; - the ability to work with third-party contractors and subcontractors who construct the facilities; - shortages of labor or materials that could delay projects or make them more expensive; - adverse weather conditions that could delay projects; - finding suitable sites for future development activities at acceptable prices; and - addressing changes in laws and regulations or how existing laws and regulations are applied. Sunrise cannot assure that it will not experience delays in completing facilities under construction or in development or that it will be able to identify suitable sites at acceptable prices for future development activities. If it fails to achieve its development plans, its growth could slow, which would adversely impact its revenues and results of operations. Sunrise's growth plan includes the acquisition of assisted living facilities or companies operating assisted living facilities such as Karrington. The success of Sunrise's acquisitions will be determined by numerous factors, including the Sunrise's ability to identify suitable acquisition candidates, competition for such acquisitions, the purchase price, the financial performance of the facilities after acquisition and the ability of Sunrise to integrate or operate acquired facilities effectively. Any failure to do so may have a material adverse effect on Sunrise's business, financial condition and results of operations. The long-term care industry is highly competitive and the assisted living segment is becoming increasingly competitive. Sunrise competes with numerous other companies that provide similar long-term care alternatives, such as home health care agencies, facility-based service programs, retirement communities, convalescent centers and other assisted living providers. In general, regulatory and other barriers to competitive entry in the assisted living industry are not substantial. In pursuing its growth strategies, Sunrise has experienced and expects to continue to experience increased competition in its efforts to develop and acquire assisted living facilities. Some of the present and potential competitors of Sunrise are significantly larger and have, or may obtain, greater financial resources than Sunrise. Consequently, Sunrise cannot assure that it will not encounter increased -54- 55 competition that could limit its ability to attract residents or expand its business, which could have a material adverse effect on its revenues and earnings. Sunrise expects that the number of owned and operated facilities will continue to increase substantially as it pursues its development and acquisition programs for new assisted living facilities. This rapid growth will place significant demands on Sunrise's management resources. Sunrise's ability to manage its growth effectively will require it to continue to expand its operational, financial and management information systems and to continue to attract, train, motivate, manage and retain key employees. If Sunrise is unable to manage its growth effectively, its business, financial condition and results of operations could be adversely affected. Sunrise believes that some assisted living markets have become or are on the verge of becoming overbuilt. As described above, regulation and other barriers to entry into the assisted living industry are not substantial. Consequently, the development of new assisted living facilities could outpace demand. Overbuilding in Sunrise market areas could, therefore, cause Sunrise to experience decreased occupancy, depressed margins or lower operating results. Sunrise believes that each local market is different and Sunrise is and will continue to react in a variety of ways, including selective price discounting, to the specific competitive environment that exists in each market. MARKET RISK Sunrise is exposed to market risks related to fluctuations in interest rates on its notes receivable, investments and debt. The purpose of the following analyses is to provide a framework to understand the Company's sensitivity to hypothetical changes in interest rates as of December 31, 1999. Sunrise has investments in notes receivable and bonds. Investments in notes receivable are primarily with joint venture arrangements in which Sunrise has equity ownership percentages ranging from 9% to 15%. Investments in bonds are secured by the operating properties subject to the debt and are with properties that are managed by Sunrise. The majority of the investments have fixed rates. One of the notes has an adjustable rate. Sunrise utilizes a combination of debt and equity financing to fund its development, construction and acquisition activities. Sunrise seeks the financing at the most favorable terms available at the time. When seeking debt financing, Sunrise uses a combination of variable and fixed rate debt, whichever is more favorable in management's judgment at the time of financing. Sunrise has used interest rate swaps to manage the interest rates on some of its long-term borrowings. As of December 31, 1999, Sunrise had one interest rate swap agreement which effectively establishes fixed rates of 7.3% on up to $19.0 million of long-term debt until June 2001. Sunrise does not utilize forward or -55- 56 option contracts on foreign currencies or commodities, or other types of derivative financial instruments. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value of the debt, but do affect the future earnings and cash flows. Sunrise generally cannot prepay fixed rate debt prior to maturity without penalty. Therefore, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until Sunrise would be required to refinance such debt. Holding the variable rate debt balance of $332.2 million at December 31, 1999 constant, each one percentage point increase in interest rates would result in an increase in interest expense for the coming year of approximately $3.3 million. The table below details by category the principal amount, the average interest rates and the estimated fair market value. Some of the mortgage loans receivable and some items in the various categories of debt, excluding the convertible debentures, require periodic principal payments prior to the final maturity date. The fair value estimates for the mortgage loans receivable are based on the estimates of management and on rates currently prevailing for comparable loans. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to Sunrise for debt of the same type and remaining maturity. The fair market value estimate of the convertible notes is based on the market value at December 31, 1999. (dollars in thousands)
Estimated Maturity Date Fair Market 2000 2001 2002 2003 2004 Thereafter Value ---- ---- ---- ---- ---- ---------- ----- ASSETS Notes receivable Fixed rate $ 1,051 $ 3,829 $ 16,632 -- -- $ 14,394 $ 35,906 Average interest rate 6.1% 12.0% 10.0% -- -- 10.0% -- Variable rate -- -- -- $ 24,799 -- -- $ 24,799 Average interest rate -- -- -- 10.0% -- -- -- Investments Bonds -- -- -- -- -- $ 5,750 $ 5,750 Average interest rate -- -- -- -- -- 11.0% -- LIABILITIES Debt Fixed rate $ 4,990 $ 70,221 $ 26,320 $ 6,909 $ 6,133 $ 104,747 $ 219,657 Average interest rate 8.8% 8.6% 7.3% 8.9% 8.9% 7.5% -- Variable rate $ 31,113 $ 39,210 $ 232,591 $ 13,697 $ 10,539 $ 5,073 $ 332,225 Average interest rate 7.3% 8.0% 7.4% 7.8% 7.7% 5.6% -- Convertible notes -- -- $ 150,000 -- -- -- $ 117,375 Average interest rate -- -- 5.5% -- -- -- --
-56- 57 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, Reporting on the Costs of Start-up Activities, which is effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. It is Sunrise's policy to capitalize certain costs incurred to rent its facilities such as costs of model units, their furnishings and "grand openings" in accordance with Statement of Financial Accounting Standards No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects. Additionally, initial direct costs associated with originating lease transactions are capitalized in accordance with Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. Direct costs include employees' compensation and payroll-related fringe benefits directly related to acquiring leases. All costs of Sunrise's development and leasing activities which are not considered to be within the scope of Statement No. 67 or Statement No. 91 are expensed as incurred. SOP 98-5 states that the guidance provided by Statement No. 67 and Statement No. 91 is not affected by the provisions of SOP 98-5. The adoption of SOP 98-5 in January 1999 did not materially affect results of operations or the financial position of Sunrise. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. Statement No. 137 defers for one year the effective day of Statement No. 133, which will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. Statement No. 133 standardizes the accounting for derivative instruments. Sunrise participates in interest rate swap transactions, which would be considered derivatives under Statement No. 133. Sunrise has not entered into any other derivative transactions. To date, the net effect of the interest rate swaps to Sunrise's results of operations has not been material. Therefore, Statement No. 133 is not anticipated to affect results of operations or the financial position of Sunrise. IMPACT OF INFLATION Resident fees from owned assisted living facilities and management services income from facilities operated by Sunrise for third parties are the primary sources of revenue. These revenues are affected by daily resident fee rates and facility occupancy rates. The rates charged for the delivery of assisted living services are -57- 58 highly dependent upon local market conditions and the competitive environment in which the facilities operate. In addition, employee compensation expense is the principal cost element of property operations. Employee compensation, including salary increases and the hiring of additional staff to support Sunrise's growth initiatives, have previously had a negative impact on operating margins and may again do so in the foreseeable future. Substantially all of Sunrise's resident agreements are for terms of one year, but are terminable by the resident at any time upon 30 days' notice, and allow, at the time of renewal, for adjustments in the daily fees payable, and thus may enable Sunrise to seek increases in daily fees due to inflation or other factors. Any increase would be subject to market and competitive conditions and could result in a decrease in occupancy of Sunrise's facilities. Sunrise believes, however, that the short-term nature of its resident agreements generally serves to reduce the risk to Sunrise of the adverse effect of inflation. There can be no assurance that resident fees will increase or that costs will not increase due to inflation or other causes. YEAR 2000 ISSUES In prior years, Sunrise discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, Sunrise experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. Sunrise expenditures were approximately $1.3 million during 1999 in connection with upgrading and remediating its systems. Sunrise is not aware of any material problems resulting from Year 2000 issues, either with embedded systems in facilities operated, its internal financial systems, or the products and services of third parties. Sunrise will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. -58- 59 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Quantitative and qualitative disclosure about market risk appears in the liquidity and capital resources, market risk section of item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements appear on pages F-1 through F-27. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information set contained in the sections "Election of Directors - - Information as to Nominees and Other Directors," "--Other Executive Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in Sunrise's 2000 Annual Meeting Proxy Statement, which Sunrise intends to file within 120 days after its fiscal year-end, is incorporated by reference herein. ITEM 11. EXECUTIVE COMPENSATION. The information set contained in the sections "Compensation of Directors" and "Executive Compensation and Other Information" in Sunrise's 2000 Annual Meeting Proxy Statement, which Sunrise intends to file within 120 days after its fiscal year-end, is incorporated by reference herein. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information set contained in the sections "Stock Owned by Management" and "Principal Holders of Voting Securities" in Sunrise's 2000 -59- 60 Annual Meeting Proxy Statement, which Sunrise intends to file within 120 days after its fiscal year-end, is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information set contained in the sections "Certain Transactions" in Sunrise's 2000 Annual Meeting Proxy Statement, which Sunrise intends to file within 120 days after its fiscal year-end, is incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) List of documents filed as part of Form 10-K.
Page ---- (1) Financial Statements: Report of Independent Auditors. F-1 Consolidated Balance Sheets -- December 31, 1999 and 1998. F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997. F-3 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997. F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997. F-5 Notes to Consolidated Financial Statements. F-6
(2) Financial Statements Schedules: All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable or are included in the consolidated financial statements. (3) Exhibits: Sunrise files as part of this Annual Report on Form 10-K the Exhibits listed in the Index to Exhibits. -60- 61 (b) Reports on Form 8-K. On March 5, 1999, Sunrise filed a Form 8-K with the Securities and Exchange Commission announcing the date of its 1999 annual meeting of stockholders. On March 5, 1999, Sunrise filed a Form 8-K with the Securities and Exchange Commission announcing it had entered into an amendment to the Agreement of Merger, dated as of October 18, 1998, with Karrington Health, Inc., an Ohio corporation, and Buckeye Merger Corporation, an Ohio corporation and a newly-formed wholly owned subsidiary of Sunrise. On May 14, 1999, Sunrise filed a Form 8-K with the Securities and Exchange commission announcing it had completed its acquisition of Karrington Health, Inc., an Ohio corporation that also provides assisted living services to seniors. (c) Exhibits. Sunrise hereby files as part of this Annual Report on Form 10-K the Exhibits listed in the Index to Exhibits. (d) Financial Statement Schedules. Not applicable. -61- 62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SUNRISE ASSISTED LIVING, INC. -------------------------------- Registrant By: /s/ Paul J. Klaassen ----------------------------- Paul J. Klaassen Chairman of the Board and Chief Executive Officer 3/28/00 ----------------------------- Date Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Paul J. Klaassen 3/28/00 --------------------------- --------------------------- Paul J. Klaassen Date Chairman of the Board, and Chief Executive Officer (Principal Executive Officer) By: /s/ David W. Faeder 3/28/00 --------------------------- --------------------------- David W. Faeder Date President and Director -62- 63 By: /s/ Christian B.A. Slavin 3/28/00 --------------------------- --------------------------- Christian B.A. Slavin Date Executive Vice President, and Chief Financial Officer (Principal Financial Officer) By: /s/ Larry E. Hulse 3/27/00 --------------------------- --------------------------- Larry E. Hulse Date Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) By: /s/ Ronald V. Aprahamian 3/27/00 --------------------------- --------------------------- Ronald V. Aprahamian Date Director By: /s/ Craig R. Callen 3/29/00 --------------------------- --------------------------- Craig R. Callen Date Director By: /s/ David G. Bradley 3/28/00 --------------------------- --------------------------- David G. Bradley Date Director By: /s/ Thomas J. Donohue 3/27/00 --------------------------- --------------------------- Thomas J. Donohue Date Director By: /s/ Teresa M. Klaassen 3/28/00 --------------------------- --------------------------- Teresa M. Klaassen Date Executive Vice President, Secretary and Director By: --------------------------- --------------------------- Richard R. Slager Date Director -63- 64 INDEX TO EXHIBITS
Page (by Sequential Exhibit Numbering Number Identity of Exhibit System) - ------ ------------------- ---------- 3.1 Restated Certificate of Incorporation of Sunrise (Exhibit 3.1 to Sunrise's Form S-1 Registration Statement No. 333- 13731). 3.2 Amended and Restated Bylaws of Sunrise, as amended (Exhibit 3 to Sunrise's Form 10-Q for the quarter ended September 30, 1997). 4.1 Form of common stock certificate (Exhibit 4.1 to Sunrise's Form S-1 Registration Statement No. 333-13731). 4.2 Stockholder Rights Agreement (Exhibit 4.2 to Sunrise's Form S-1 Registration Statement No. 333-13731). 4.3 Amendment No. 1 to Rights Agreement, dated as of December 17, 1998, between
-64- 65 Sunrise and First Union National Bank of North Carolina (Exhibit 99(a) to Sunrise's Form 8-K dated December 18, 1998). 10.1 Assignment and Contribution Agreement, effective as of January 4, 1995, by and between Paul and Teresa Klaassen and Sunrise (Exhibit 10.1.1 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.2 Assignment and Contribution Agreement, dated as of January 4, 1995, by and between Paul J. Klaassen and Teresa M. Klaassen, Sunrise Partners, L.P. and Sunrise Assisted Living Investments, Inc. (Exhibit 10.1.2 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.3 Letter Agreement, dated January 4, 1995, from Paul J. Klaassen and Teresa M. Klaassen to the Series A Preferred Stockholders regarding cash distributions from Sunrise Retirement Investments, Inc., Sunrise Terrace of Gunston, Inc., Sunrise Terrace of Countryside, Inc. and Sunrise Atrium, Inc. (Exhibit 10.19 to Sunrise's Form S-1 Registration Statement No. 33-2852). 10.4 Registration Agreement, dated January 4, 1995, by and among Sunrise, the Investors (as defined therein) and Paul and Teresa -65- 66 Klaassen (Exhibit 10.3 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.5 Promissory Note, dated June 8, 1994, executed by Sunrise Assisted Living Limited Partnership in favor of General Electric Capital Corporation (Exhibit 10.4 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.6 Indemnity Agreement dated as of June 8, 1994 by Paul J. Klaassen and Teresa M. Klaassen to and for the benefit of General Electric Capital Corporation (Exhibit 10.4.1 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.7 First Loan Modification Agreement dated as of February 15, 1996 by and between General Electric Capital Corporation and Sunrise Assisted Living Limited Partnership (Exhibit 10.4.2 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.8 Second Loan Modification Agreement dated as of May 1, 1996 by and between General Electric Capital Corporation and Sunrise Assisted Living Limited Partnership (Exhibit 10.4.3 to Sunrise's Form S-1 Registration Statement No. 333-2582). -66- 67 10.9 Letter Agreement dated as of May 1, 1996 by and between General Electric Capital Corporation and Sunrise Assisted Living Limited Partnership (Exhibit 10.4.4 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.10 Letter agreement dated as of December 30, 1996 by and between General Electric Capital Corporation and Sunrise Assisted Living Partnership (Exhibit 10.11 to Sunrise's 1996 Form 10-K). 10.11 Third Loan Modification Agreement dated as of March 4, 1997 by and between General Electric Capital Corporation and Sunrise Assisted Living Limited Partnership (Exhibit 10.11 to Sunrise's 1997 Form 10-K). 10.12 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Arlington, Bluemont Park and Falls Church) (Exhibit 10.5 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.13 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Gunston and Oakton) (Exhibit 10.6 to -67- 68 Sunrise's Form S-1 Registration Statement No. 333-2582). 10.14 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and financing Statement, dated as of June 8, 1994 (Fairfax Leasehold) (Exhibit 10.7 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.15 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Warrenton) (Exhibit 10.8 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.16 Credit Line Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Countryside and Leesburg) (Exhibit 10.9 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.17 First Mortgage and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Boca Raton) (Exhibit 10.10 to Sunrise's Form S-1 Registration Statement No. 333-2582). -68- 69 10.18 First Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, dated as of June 8, 1994 (Frederick) (Exhibit 10.11 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.19 First Deed of Trust and Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement, Dated as of June 8, 1994 (Mercer Island) (Exhibit 10.12 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.20 Amended and Restated Lease Agreement and Assignment of Leasehold Right, dated June 6, 1994, by and among Barbara M. Volentine and Teresa M. Klaassen, the Executor of the Estate of Eldon J. Merritt, Sunrise Assisted Living Limited Partnership Assisted Living Group -- Fairfax Associates, and Sunrise Foundation, Inc. (Exhibit 10.15 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.21 Ground Lease, dated June 7, 1994, by and between Sunrise Assisted Living Limited Partnership and Paul J. Klaassen and -69- 70 Teresa M. Klaassen (Exhibit 10.16 to Sunrise's Form S-1 Registration Statement No. 333-2582) 10.22 Amended and Restated Agreement of Sublease, Indemnification and Easements dated February 5, 1995 by and between Assisted Living Group -- Fairfax Associates and Sunrise Foundation, as amended (Exhibit 10.17 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.23 Indenture, dated as of June 5, 1997, between Sunrise and First Union National Bank of Virginia, as trustee (Exhibit 4.1 to Sunrise's Form 10-Q for the quarter ended June 30, 1997). 10.24 Amended, Restated, Consolidated and Increased Master Promissory Note dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.1 to Sunrise's 1997 Form 10-K). 10.25 Amended and Restated Financing and Security Agreement dated as of December 23, 1997 by and between NationsBank, N.A. as agent and for certain additional lenders and Sunrise East Assisted Living -70- 71 Limited Partnership (Exhibit 10.31.2 to Sunrise's 1997 Form 10-K). 10.26 Amended and Restated Master Construction Loan Agreement dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.3 to Sunrise's 1997 Form 10-K). 10.27 Management Fee Subordination Agreement dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.4 to Sunrise's 1997 Form 10-K). 10.28 Amended and Restated Pledge, Assignment and Security Agreement dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.5 to Sunrise's 1997 Form 10-K). 10.29 Master Guaranty of Performance dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership -71- 72 (Exhibit 10.31.6 to Sunrise's 1997 Form 10-K) 10.30 Amended and Restated Collateral Assignment of Operating Agreements and Management Contracts dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.7 to Sunrise's 1997 Form 10-K). 10.31 Amended and Restated Collateral Assignment of Licenses, Participation Agreements and Resident Agreements dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.8 to Sunrise's 1997 Form 10-K). 10.32 Amended and Restated Master Guarantee of Payment Agreement dated as of December 23, 1997 by and between NationsBank, N. A. as agent and for certain additional lenders and Sunrise East Assisted Living Limited Partnership (Exhibit 10.31.9 to Sunrise's 1997 Form 10-K). -72- 73 10.33 +Form of Indemnification Agreement (Exhibit 10.24 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.34 + 1995 Stock Option Plan, as amended (Exhibit 10.20 to Sunrise's 1997 Form 10-K). 10.35 + 1996 Directors' Stock Option Plan, as amended. 10.36 + Stock Option Agreement, entered into, effective as of January 4, 1995, by and between Sunrise and David W. Faeder (Exhibit 10.14 to Sunrise's Form S-1 Registration Statement No. 333-2582). 10.37 + 1996 Non-Incentive Stock Option Plan, as amended (Exhibit 10.24 to Sunrise's 1997 Form 10-K). 10.38 + 1997 Stock Option Plan, as amended (Exhibit 10.25 to Sunrise's 1997 Form 10-K). 10.39 + 1998 Stock Option Plan, as amended. (Exhibit 10.41 to Sunrise's 1998 Form 10-K) -73- 74 10.40 + 1999 Stock Option Plan (Exhibit 10.1 to Sunrise's Form 10-Q for the quarter ended March 31, 1999). 10.41 Trust Agreement, dated as of December 2, 1998, between the several holders from time to time parties thereto, as the holders, and First Security Bank, National Association, as the Owner Trustee (Sunrise Trust 1998-1) (Exhibit 2.2 to Sunrise's Form 8-K dated December 17, 1998). 10.42 Credit Agreement, dated as of December 2, 1998, among First Security Bank, National Association, not individually, except as expressly stated therein, but solely as the Owner Trustee under the Sunrise Trust 1998-1, as the Borrower, the several lenders from time to time parties thereto, and NationsBank, N.A., as the Agent (Exhibit 2.3 to Sunrise's Form 8-K dated December 17, 1998). 10.43 Participation Agreement, dated as of December 2, 1998, among Sunrise Midwest Leasing, L.L.C., as the Construction Agent and as the Lessee, Sunrise, as the Guarantor, First Security Bank, National Association, not individually, except as expressly stated therein, but solely as the Owner Trustee under the Sunrise Trust 1998-1, the various banks and other lending institutions which are parties thereto from time to time, as the holders, the various banks and other lending institutions which are parties thereto from time to time, as the lenders, and NationsBank, N.A., as the -74- 75 Agent for the Lenders and respecting the Security Documents, as the Agent for the Lenders and the Holders, to the extent of their interests (Exhibit 2.4 to Sunrise's Form 8-K dated December 17, 1998). 10.44 Security Agreement, dated as of December 2, 1998, between First Security Bank, National Association, not individually, but solely as the owner trustee under the Sunrise Trust 1998-1 and NationsBank, N.A., as the agent for the lenders and the holders and accepted and agreed to by Sunrise Midwest Leasing, L.L.C. (Exhibit 2.5 to Sunrise's Form 8-K dated December 17, 1998). 10.45 Lease Agreement, dated as of December 2, 1998, between First Security Bank, National Association, not individually, but solely as the Owner Trustee under the Sunrise Trust 1998-1, as Lessor and Sunrise Midwest Leasing, L.L.C., as Lessee (Exhibit 2.6 to Sunrise's Form 8-K dated December 17, 1998). 10.46 Cross-Collateralization, Cross-Default, and Mortgage Modification Agreement, dated as of May 20, 1999, by and among Sunrise Borrowers (as defined in the agreement) and GMAC Commercial Mortgage Corporation (Exhibit 10.1 to Sunrise's Form 10-Q for the quarter ended June 30, 1999). 10.47 Form of Exceptions to Non-Recourse Guaranty (Multistate), dated as of May 20, -75- 76 1999, between Sunrise Borrower (as defined in the guaranty) and GMAC Commercial Mortgage Corporation (Exhibit 10.2 to Sunrise's Form 10-Q for the quarter ended June 30, 1999). 10.48 Second Amended and Restated Financial and Security Agreement dated as of July 29, 1999 by and between Bank of America, N.A. (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise East Assisted Living Limited Partnership and other subsidiaries of Sunrise 10.49 Second Amended, Restated and Increased Master Promissory Note dated as of July 29, 1999 by and between Bank of America, N.A., (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise East Assisted Living Limited Partnership and other subsidiaries of Sunrise (as amended) 10.50 Second Amended and Restated Master Guaranty of Payment Agreement dated as of July 29, 1999 by and between Bank of America, N.A., (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise 10.51 Confirmation of and Amendement to Master Guaranty of Performance dated as of July 29, 1999 by and between Bank of America, N.A., (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise -76- 77 10.52 Omnibus Confirmation of and Amendment to Security Documents dated July 29, 1999 by Sunrise and certain subsidiaries, as Assignors, in favor of Bank of America, N.A., (formerly NationsBank, N.A.) as agent for certain additional lenders 10.53 Third Amended and Restated Financial and Security Agreement dated as of March 14, 2000 by and between Bank of America, N.A. (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise East Assisted Living Limited Partnership and other subsidiaries of Sunrise 10.54 Third Amended and Restated Master Guaranty of Payment Agreement dated as of March 14, 2000 by and between Bank of America, N.A., (formerly NationsBank, N.A.) as agent for certain additional lenders and Sunrise East Assisted Living Limited Partnership and other subsidiaries of Sunrise 10.55 Amendment No. 1 to Certain Operative Agreements, dated as of March 14, 2000, among Sunrise Midwest Leasing, L.L.C., as the Construction Agent and Lessee, Sunrise as the Guarantor, First Security Bank, National Association, not individually but solely as the Owner Trustee under the Sunrise Trust 1998-1, the various banks and other lending institutions which are parties thereto, as Lenders, and Bank of America, N.A., as the Agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and Holders, to the extent of their interests -77- 78 10.56 Form of Multifamily Note (Multistate), dated as of May 20, 1999, between Sunrise Borrower (as defined in the note) and GMAC Commercial Mortgage Corporation (Exhibit 10.3 to Sunrise's Form 10-Q for the quarter ended June 30, 1999). 10.57 Form of Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of May 20, 1999, between Sunrise Borrower (as defined in the mortgage) and GMAC Commercial Mortgage (Exhibit 10.4 to Sunrise's Form 10-Q for the quarter ended June 30, 1999). 10.58 Amendment No. 1 to Stock Option Agreement by and between Sunrise and David W. Faeder (Exhibit 10.14.1 to Sunrise's Form S-1 Registration Statement No. 333-13731). 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young LLP, Independent Auditors. 27 Financial Data Schedule as of and for the year ended December 31, 1999. - ---------------- + Represents management contract or compensatory plan or arrangement. -78- 79 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Sunrise Assisted Living, Inc. We have audited the accompanying consolidated balance sheets of Sunrise Assisted Living, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sunrise Assisted Living, Inc. as of December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. McLean, Virginia March 8, 2000 /s/ ERNST & YOUNG LLP F-1 80 SUNRISE ASSISTED LIVING, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands)
December 31, ------------------------------------- 1999 1998 ----------------- ----------------- ASSETS Current Assets: Cash and cash equivalents $ 53,540 $ 54,197 Accounts receivable, net 15,441 17,818 Notes receivable 1,051 754 Deferred income taxes, net 8,221 3,978 Assets held for sale 33,724 - Prepaid expenses and other current assets 54,568 15,921 ----------------- ----------------- Total current assets 166,545 92,668 Property and equipment, net 763,306 512,708 Notes receivable 59,654 34,919 Management contracts and leaseholds, net 33,994 - Costs in excess of assets acquired, net 35,412 327 Investments in unconsolidated assisted living facilties, net 20,435 - Investments 5,750 28,329 Other assets 18,355 14,460 ================= ================= Total assets $ 1,103,451 $ 683,411 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,114 $ 3,556 Accrued expenses and other current liabilities 23,373 14,049 Deferred revenue 7,475 3,722 Current maturities of long-term debt 36,103 1,768 ----------------- ----------------- Total current liabilities 71,065 23,095 Long-term debt, less current maturities 664,840 426,558 Investments in unconsolidated assisted living facilities 2,561 1,003 Deferred income taxes, net 22,128 - Other long-term liabilities 3,985 3,194 ----------------- ----------------- Total liabilities 764,579 453,850 Minority interests 3,748 1,906 Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding - - Common stock, $0.01 par value, 60,000,000 shares authorized, 21,938,742 and 19,446,427 shares issued and outstanding in 1999 and 1998 219 194 Additional paid-in capital 304,014 216,783 Retained earnings 30,891 10,678 ----------------- ----------------- Total stockholders' equity 335,124 227,655 ----------------- ----------------- Total liabilities and stockholders' equity $ 1,103,451 $ 683,411 ================= =================
See accompanying notes. F-2 81 SUNRISE ASSISTED LIVING, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
Year Ended December 31, ------------------------------------------------------- 1999 1998 1997 ----------------- ----------------- ---------------- Operating revenue: Resident fees $ 217,397 $ 151,878 $ 85,644 Management services income 23,790 15,596 4,240 Facility contract services 7,015 1,202 - Realized gain on assisted living facilities 7,017 2,036 - ----------------- ----------------- ---------------- Total operating revenue 255,219 170,712 89,884 ----------------- ----------------- ---------------- Operating expenses: Facility operating 131,055 88,834 53,286 Facility contract services 6,439 1,095 - Facility development and pre-rental 7,184 5,197 5,586 General and administrative 20,715 12,726 10,454 Depreciation and amortization 25,448 21,650 10,592 Facility lease 7,903 3,014 1,532 Non-recurring charges 5,069 - - ----------------- ----------------- ---------------- Total operating expenses 203,813 132,516 81,450 ----------------- ----------------- ---------------- Income from operations 51,406 38,196 8,434 Other income (expense): Interest income 10,849 6,695 6,862 Interest expense (32,599) (22,125) (11,475) ----------------- ----------------- ---------------- Total other expense (21,750) (15,430) (4,613) Equity in (losses) earnings of unconsolidated assisted living facilities (1,239) 54 88 Minority interests (376) (508) 92 ----------------- ----------------- ---------------- Income before income taxes 28,041 22,312 4,001 Provision for income taxes (7,828) - - ----------------- ----------------- ---------------- Net income $ 20,213 $ 22,312 $ 4,001 ================= ================= ================ Net income per common share: Basic $ 0.96 $ 1.16 $ 0.21 ================= ================= ================ Diluted $ 0.94 $ 1.11 $ 0.20 ================= ================= ================
See accompanying notes. F-3 82 SUNRISE ASSISTED LIVING, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands)
Shares of Common Retained Common Stock Additional Earnings Stock Amount Paid-in Capital (Deficit) Total ------------ ------------ ------------------ ------------- ------------ Balance at December 31, 1996 18,530 $ 185 $ 201,274 $ (15,635) $ 185,824 Exercise of employee options for common stock 498 5 5,510 5,515 Net income 4,001 4,001 ------------ ------------ ------------------ ------------- ------------ Balance at December 31, 1997 19,028 190 206,784 (11,634) 195,340 Exercise of employee options and warrants for common stock 418 4 6,352 6,356 Tax effect from the exercise of non- qualified stock options 3,647 3,647 Net income 22,312 22,312 ------------ ------------ ------------------ ------------- ------------ Balance at December 31, 1998 19,446 194 216,783 10,678 227,655 Exercise of employee options for common stock 214 2 3,666 3,668 Issuance of common stock to acquire Karrington 2,279 23 75,663 75,686 Tax effect from the exercise of non- qualified stock options 7,902 7,902 Net income 20,213 20,213 ------------ ------------ ------------------ ------------- ------------ Balance at December 31, 1999 21,939 $ 219 $ 304,014 $ 30,891 $ 335,124 ============ ============ ================== ============= ============
See accompanying notes. F-4 83 SUNRISE ASSISTED LIVING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, ------------------------------------------------- 1999 1998 1997 --------------- --------------- --------------- OPERATING ACTIVITIES Net income $ 20,213 $ 22,312 $ 4,001 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of interests (70) (551) - Equity in losses (earnings) of unconsolidated assisted living facilities 1,239 (54) (88) Minority interests 376 508 (92) Provision for bad debts 1,380 521 893 Provision for deferred income taxes 1,930 - - Depreciation and amortization 25,448 21,650 10,592 Amortization of financing costs and discount on long-term debt 2,676 2,084 1,268 Amortization of discount on marketable securities (566) (175) - Non-recurring charges 3,786 - - Changes in assets and liabilities: (Increase) decrease: Accounts receivable 2,793 (12,490) (5,220) Assets held for sale (1,054) - - Prepaid expenses and other current assets (9,799) (1,555) 131 Other assets (1,329) (5,778) (8,146) Increase (decrease): Accounts payable and accrued expenses (11,205) (49) 8,289 Deferred revenue 94 (1,105) (539) Other liabilities (4,832) 1,755 993 --------------- --------------- --------------- Net cash provided by operating activities 31,080 27,073 12,082 --------------- --------------- --------------- INVESTING ACTIVITIES Investment in property and equipment (178,443) (126,167) (213,560) Proceeds from disposition of assisted living facilities 26,923 28,552 - Increase in investments and notes receivable (63,617) (45,315) (20,674) Proceeds from investments and notes receivable 7,574 - - (Increase) decrease in restricted cash and cash equivalents (727) (1,459) 147 Contributions to investments in unconsolidated assisted living facilities (1,519) (742) - Distributions from investment in unconsolidated assisted living facilities 65 65 101 Proceeds from maturities of marketable securities - - 8,322 Acquisition of interests in facilities, net of cash acquired (13,614) (1,340) - --------------- --------------- --------------- Net cash used in investing activities (223,358) (146,406) (225,664) --------------- --------------- --------------- FINANCING ACTIVITIES Additional borrowings under long-term debt 313,529 108,000 255,643 Repayment of long-term debt (122,079) (23,369) (59,403) Net proceeds from exercised options 3,668 6,356 5,515 Net investment of minority interests 1,000 - 525 Repayment of notes payable to affiliated partnerships - - (1,381) Financing costs paid (4,497) (100) (6,485) --------------- --------------- --------------- Net cash provided by financing activities 191,621 90,887 194,414 --------------- --------------- --------------- Net decrease in cash and cash equivalents (657) (28,446) (19,168) Cash and cash equivalents at beginning of year 54,197 82,643 101,811 --------------- --------------- --------------- Cash and cash equivalents at end of year $ 53,540 $ 54,197 $ 82,643 =============== =============== ===============
See accompanying notes. F-5 84 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND PRESENTATION Sunrise Assisted Living, Inc. ("Sunrise" or the "Company") is a provider of assisted living services for seniors. Assisted living services provide a residence, meals and non-medical assistance to elderly residents for a monthly fee. Sunrise's services are generally not covered by health insurance and therefore monthly fees are generally payable by the residents, their family, or another responsible party. Sunrise was incorporated in Delaware on December 14, 1994. The consolidated financial statements include Sunrise's wholly owned subsidiaries that manage, own and develop assisted living facilities. The consolidated financial statements also include one limited partnership which owns a facility (Sunrise of Gardner Park) in which Sunrise owns a 50% partnership interest and controls the limited partnership through its status as the manager of the facility and as the sole general partner with the unilateral ability under the partnership agreement to conduct the ordinary course of business of the partnership. In addition, the consolidated financial statements include four limited liability companies. One of the limited liability companies owns two facilities (Sunrise of Severna Park) in which Sunrise owns a 50% membership interest. The other three limited liability companies own one facility each (Sunrise of Sheepshead Bay, Sunrise of Mill Basin, and Sunrise of Park Ridge) in which Sunrise owns a 70% membership interest. Sunrise controls the four limited liability companies through its status as the manager of the facilities and as sole managing member of the limited liability companies with unilateral ability under the operating agreements to conduct the ordinary course of business of the companies. It is Sunrise's policy to consolidate non-wholly owned interests when, through its managing partnership or operating agreements, status as manager of the facility and sole general partner or managing member, Sunrise holds the unilateral ability to conduct the ordinary course of business of the facility. In February 2000, Sunrise acquired the remaining 30% minority interest in Sunrise of Park Ridge. 2. SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Sunrise considers cash and cash equivalents to include currency on hand, demand deposits, and all highly liquid investments with a maturity of three months or less at the date of purchase. ALLOWANCE FOR DOUBTFUL ACCOUNTS Details of the allowance for doubtful accounts receivable are as follows (in thousands): DECEMBER 31, ----------------------------------------- 1999 1998 1997 ------------------------------------- Beginning balance $2,080 $1,798 $927 Acquired allowance 786 -- -- Provision for bad debts 1,380 521 893 Accounts written off (530) (239) (22) ------------------------------------- Ending balance $3,716 $2,080 $1,798 ===================================== F-6 85 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are recorded at the lower of cost or fair value and include interest and property taxes capitalized on long-term construction projects during the construction period, as well as other costs directly related to the development and construction of facilities. Maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Property and equipment of Sunrise are reviewed for impairment whenever events or circumstances indicate that the asset's undiscounted expected cash flows are not sufficient to recover its carrying amount. Sunrise measures an impairment loss by comparing the fair value of the asset to its carrying amount. Fair value of an asset is calculated as the present value of expected future cash flows. Construction in progress includes pre-acquisition costs and other direct costs related to acquisition, development and construction of facilities including certain direct and indirect costs of Sunrise's development subsidiary. If a project is abandoned, any costs previously capitalized are expensed. INTANGIBLE ASSETS Intangible assets relate primarily to the acquisition of Karrington Health, Inc. and are comprised of management contracts, leaseholds and costs in excess of assets acquired. Costs in excess of assets acquired represent costs of business acquisitions in excess of the fair value of identifiable net assets acquired. Such costs are being amortized over 38 years using the straight-line method. Management contracts and leaseholds are also amortized using the straight-line method over periods ranging from 11 to 40 years. The carrying amounts of all intangible assets are reviewed for impairment annually. If the review indicates that the intangible assets are not expected to be recoverable based on the undiscounted cash flows of the acquired assets over the remaining amortization periods, the carrying value of the intangible assets will be adjusted. PRE-RENTAL COSTS Costs incurred to initially rent facilities are capitalized and amortized over 12 months. All other pre-rental costs are expensed as incurred. Effective January 1, 1999, Sunrise adopted the provisions of Statement of Position 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. It is Sunrise's policy to capitalize certain costs incurred to rent its facilities, such as costs of model units, their furnishings and "grand openings," in accordance with Statement of Financial Accounting Standards No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects. Additionally, initial direct costs associated with originating lease transactions are capitalized in accordance with SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. Direct costs include employees' compensation and payroll-related fringe benefits directly related to acquiring leases. All costs of Sunrise's development and leasing activities which are not considered to be within the scope of Statement No. 67 or Statement No. 91 are expensed as incurred. SOP 98-5 states that the guidance provided by Statement No. 67 and Statement No. 91 is not affected by the provisions of SOP 98-5. Therefore, the adoption of SOP 98-5 did not materially affect results of operations or the financial position of Sunrise. DEFERRED FINANCING COSTS Costs incurred in connection with obtaining permanent financing for Company-owned facilities have been deferred and are amortized over the term of the financing. F-7 86 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INVESTMENTS IN UNCONSOLIDATED ASSISTED LIVING FACILITIES Sunrise owns non-controlling interests in some assisted living facilities, most of which are currently under development. These investments include one facility in which Sunrise has a 13.9% general and limited partnership ownership interest, nine facilities in which Sunrise has a 14.5% interest in a limited company, 23 facilities in which Sunrise has a 9% member interest in four limited liability companies, three facilities in which Sunrise has a 35% member interest in a limited liability company, three facilities in which Sunrise has a 19.9% member interest in a limited liability company, and one facility in which Sunrise has a 50% member interest in a limited liability company. Sunrise does not control these entities as major business decisions require approval by the other partners or members. Accordingly, these investments are accounted for under the equity method, where the investments are recorded at cost and subsequently are adjusted for equity in net income (loss) and cash contributions and distributions. Sunrise eliminates intercompany profits on sales of services that are capitalized by the ventures. Differences between the carrying value of investments and the underlying equity in net assets of the investee are amortized on a straight line basis over the estimated useful life of the investments. Sunrise's interests in accumulated losses of unconsolidated assisted living facilities are recorded below Sunrise's cost basis, which reflects Sunrise's obligations as the general partner or managing member. Sunrise has no liability for any other material commitments or contingencies of partnerships or limited liability companies in which it is a general partner or managing member. As of December 31, 1999, the carrying value of investments in the net assets of unconsolidated assisted living facilities exceeded the underlying equity in net assets of the investees by $15.7 million. INTEREST RATE SWAPS Interest rate swap transactions are designated with certain levels of outstanding debt. Amounts received or paid on the interest rate swaps are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The fair value of and changes in fair value as a result of changes in market interest rates for the interest rate swap agreements are not reflected in the financial statements. Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized into interest expense over the remaining term of the original contract life of the terminated swap agreement. In the event of early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. There were no gains or losses on terminations of interest swap agreements recognized by Sunrise for the periods presented. REVENUE RECOGNITION Operating revenue consists of resident fee revenue, including resident community fees, management services revenue, facility contract services revenue and realized gain on assisted living facilities. Generally, resident community fees approximating thirty to sixty times the daily residence fee are received from potential residents upon occupancy. Resident community fees are recognized as income over the first ninety days of the resident's stay and are ratably refundable if the prospective resident does not move into the facility or moves out of the facility within ninety days. All other resident fee revenue is recognized when services are rendered. Agreements with residents are for a term of one year and are cancelable by residents with thirty days notice. Management services revenue is comprised of revenue from management contracts and development contracts. Revenue from management contracts is recognized in the month in which it is earned in accordance with the terms of the management contract. Revenue from development contracts is recognized over the term of the respective development contracts using the percentage-of-completion method. Facility contract services revenue is comprised of fees plus reimbursable expenses of facilities operated with Sunrise's employees under long-term operating agreements. Realized gain on assisted living facilities is recognized upon consummation of the sale of assets unless a portion of the sale is contingent upon future events or performance. Deferred gains on assets are then recognized upon performance or resolution of the contingency. F-8 87 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INCOME TAXES Sunrise accounts for income taxes under the asset and liability approach which requires recognition of deferred tax assets and liabilities for the differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance reduces deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. STOCK-BASED COMPENSATION Sunrise grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. Sunrise accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly recognizes no compensation expense for the stock option grants. SEGMENTS Effective December 31, 1998, Sunrise adopted the provisions of Statement of Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131 establishes standards for the way that a public company reports information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. See Note 20 for information on Sunrise's operating segments. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. Statement No. 137 defers for one year the effective date of Statement No. 133, which will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. Statement No. 133 standardizes the accounting for derivative instruments. Sunrise participates in interest rate swap transactions, which would be considered derivatives under Statement No. 133. Sunrise has not entered into any other derivative transactions. For the three year period ended December 31, 1999, the net effect of the interest rate swaps to Sunrise's results of operations has not been material. Therefore, Statement No. 133 is not anticipated to affect results of operations or the financial position of Sunrise. RECLASSIFICATIONS Certain 1998 and 1997 balances have been reclassified to conform with the 1999 presentation. F-9 88 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands): DECEMBER 31, ------------------------- ASSET LIVES 1999 1998 ------------------------- Land and land improvements 10-15 yrs. $115,516 $80,263 Building and building improvements 40 yrs. 520,502 355,807 Furniture and equipment 3-10 yrs. 76,072 56,678 ------------------------- 712,090 492,748 Less accumulated depreciation And amortization (55,983) (38,504) ------------------------- 656,107 454,244 Construction in progress 107,199 58,464 ------------------------- 763,306 $512,708 ========================= Depreciation expense was $18.6 million, $13.7 million and $7.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. 4. NOTES RECEIVABLE Notes receivable plus accrued interest consist of the following (in thousands): DECEMBER 31, ----------------------- 1999 1998 ----------------------- LLC Note I, interest accrues at LIBOR plus 5.0% (10.8% at December 31, 1999) $ 24,799 $ 23,795 LLC Note II, interest accrues at 10.0% 7,797 - LLC Note III, interest accrues at 10.0% 16,632 - LLC Note IV, interest accrues at 10.0% 6,054 - Note with United Kingdom joint venture, interest accrues at 12.0% 3,829 3,431 Promissory Note, interest accrues at 8.0% 562 754 Beverly Hills Note, interest accrued at prime through March 1998 - 2,185 Note with Karrington, interest accrued at 10.0% - 5,508 ADG Note, interest accrues at 10.0% 543 - Other notes receivable 489 - ----------------------- 60,705 35,673 Current maturities (1,051) (754) ----------------------- $59,654 $34,919 ======================= In October 1997, a wholly owned subsidiary of Sunrise jointly formed a limited liability company ("LLC I") with an unrelated third party in which Sunrise's subsidiary owns a 9% minority interest. The purpose of LLC I is to develop, construct and own assisted living facilities. Sunrise loaned LLC I $15.0 million (the "LLC Note I") to partially finance the initial development and construction of six properties. The LLC Note I to Sunrise's subsidiary is subordinated to other lenders of LLC I. In September 1998, Sunrise and LLC I amended the LLC Note I to increase the loan by $6.0 million to a total of $21 million in order to partially finance the initial development and construction of two additional properties. Principal and interest are due October 2003. F-10 89 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In January 1999, a wholly owned subsidiary of Sunrise jointly formed a limited liability company ("LLC II") with an unrelated third party in which Sunrise's subsidiary owns a 9% minority interest. The purpose of LLC II is to develop, construct and own assisted living facilities. Sunrise loaned LLC II $7.3 million (the "LLC Note II") to partially finance the initial development and construction of four properties. The LLC Note II to Sunrise's subsidiary is subordinated to other lenders of LLC II. The principal amount of the loan and accrued interest are due on the earlier of March 30, 2006 or termination of the management agreement between the parties. See Note 17 Related-Party Transactions, Joint Ventures. In March 1999, a wholly owned subsidiary of Sunrise jointly formed a limited liability company ("LLC III") with an unrelated third party in which Sunrise's subsidiary owns a 9% minority interest. The purpose of LLC III is to develop, construct and own assisted living facilities. Sunrise loaned LLC III $15.8 million (the "LLC Note III") to partially finance the initial development and construction of five properties. The LLC Note III to Sunrise's subsidiary is subordinated to other lenders of LLC III. The principal amount of the loan and accrued interest are due on March 11, 2005. See Note 17 Related-Party Transactions, Joint Ventures. In March 1999, a wholly owned subsidiary of Sunrise jointly formed a limited liability company ("LLC IV") with an unrelated third party in which Sunrise's subsidiary owns a 9% minority interest. The purpose of LLC IV is to develop, construct, and own assisted living facilities. Sunrise loaned LLC IV $6.0 million (the "LLC Note IV") to partially finance the initial development and construction of six properties. The LLC Note IV to Sunrise's subsidiary is subordinated to other lenders of LLC IV. The principal amount of the loan and accrued interest are due on the earlier of May 28, 2006 or termination of the management agreement between the parties. See Note 17 Related-Party Transactions, Joint Ventures. In November 1998, Sunrise agreed to make available up to approximately $3.4 million to a subsidiary of a joint venture of Sunrise in the United Kingdom under a revolving credit arrangement. Interest on advances made under the credit arrangement accrues at 12.0%. The outstanding principal and unpaid accrued interest are due November 2001. See Note 17 Related-Party Transactions, Joint Ventures. In connection with the sale of Sunrise's minority interest in a tenancy-in-common that owned one facility, a wholly owned subsidiary of Sunrise accepted a promissory note in the amount of $850,000 in March 1998. The promissory note accrued interest at 8.0% per annum and was due in September 1998. In October 1998, the promissory note was amended to extend the maturity date to August 1, 1999 and modify the payment terms to include a payment due in October 1998, which has been received, followed by quarterly payments of principal and interest. Under the terms of the amended promissory note, the promissory note was in default as of August 1, 1999. The promissory note was paid in full in February 2000. In September 1997, a wholly owned subsidiary of Sunrise loaned $1.9 million ("Beverly Hills Note") to owners of certain property on which Sunrise plans to develop an assisted living facility. The proceeds of the Beverly Hills Note were used by the owners to retire a note previously outstanding and secured by the same property. Immediately following issuance of the Beverly Hills Note, the wholly owned subsidiary of Sunrise entered into a purchase agreement with the owners to acquire this property. The entire sum of principal and unpaid accrued interest of the promissory note is due on the earliest to occur of: 270 days following the termination of the purchase and sale agreement by either the owners or the wholly owned subsidiary of Sunrise; any breach of the purchase agreement by the owners; or the closing date as defined in the purchase agreement. In April 1998, the promissory note was amended to increase the loan by $250,000 and stop accruing interest. In June 1999, the principal balance plus accrued and unpaid interest under the promissory note was paid in full. In November 1998, Sunrise agreed to loan up to $10.0 million to Karrington Health, Inc., a Columbus-based leading assisted living provider, under a revolving line of credit. The proceeds of the line of credit were used by Karrington for use in operations. Interest on the outstanding principal balance of the line of credit was due and payable monthly. The note was amended in March 1999 to provide for up to $6.5 F-11 90 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) million of additional advances and to extend the maturity to January 2000. The principal balance of the line of credit plus accrued and unpaid interest was eliminated in May 1999 in connection with the acquisition of Karrington. In January 1999, a facility, in which Sunrise has a controlling interest, accepted a $0.5 million promissory note ("ADG Note") from its minority owner. The ADG Note accrues interest at 10% per annum and is due annually beginning February 22, 2000. The principal balance plus accrued and unpaid interest are due on February 22, 2009. Management believes the net carrying cost of the notes receivable approximates market value at December 31, 1999 and 1998. 5. INVESTMENTS The balances outstanding are as follows (in thousands):
FACE AMOUNT DECEMBER 31, -------------------- DESCRIPTION 1999 1998 INTEREST RATE MATURITY DATE - ------------------------------------------------------------------------------------------------ Bonds: Series A $5,000 $ 5,000 11% July 1, 2025 Series B 750 750 11% July 1, 2015 20% subject to Series C - 750 available cash July 1, 2010 -------------------- 5,750 6,500 Bond discount - Series C - (575) -------------------- 5,750 5,925 -------------------- September 30, 2006 to Mortgages - 22,154 9.46% - 10.00% September 30, 2010 Mortgage premium - 250 -------------------- - 22,404 -------------------- $5,750 $28,329 ====================
On March 1, 1995, Sunrise purchased all of the outstanding mortgage revenue bonds used to finance a facility managed by Sunrise. The 10% Bucks County Industrial Development Authority, First Mortgage Revenue Bonds, July 1, 2019, having a face value of $12.5 million, were purchased for $5.0 million. The bonds were in financial default when purchased. On June 30, 1995, the bonds were restructured, at no gain or loss to Sunrise, to reduce their face amount to $5.8 million (Series A and C) and provide the facility managed by Sunrise additional funding up to $750,000 for renovations (Series B). Interest only is payable until maturity. In March 1999, the Series C bonds were paid in full. Subsequent to June 30, 1995, all interest payments on these bonds are current. Sunrise recognized $721,000, $957,000, and $783,000 in interest income during 1999, 1998 and 1997, respectively, on this investment. The bond discount for the Series C bonds WAS being recognized as interest income over the life of the loan commencing in 1998. Sunrise amortized $575,000 and $175,000 of the bond discount in 1999 and 1998, respectively. On December 2, 1998, Sunrise purchased four separate first trust mortgages, secured by Karrington properties for $22.4 million, which includes a $0.3 million premium. The premium was being amortized over the life of the mortgages. One of the mortgages matured on September 30, 2006 and the others F-12 91 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) matured on September 30, 2010. In May 1999, the mortgages and premium were eliminated in connection with the acquisition of Karrington. Management believes the net carrying cost of the investments approximates market value at December 31, 1999 and 1998. 6. INTANGIBLES AND OTHER ASSETS Intangible assets consist of the following (dollars in thousands):
DECEMBER 31, ---------------------- ESTIMATED 1999 1998 USEFUL LIFE ----------------------------------- Management contracts, less accumulated amortization of $250 $ 7,138 $ -- 11-20 years Leaseholds, less accumulated amortization of $584 26,856 18-40 years ---------------------- $ 33,994 $ -- ====================== Costs in excess of assets acquired, less accumulated amortization of $474 and $48 $ 35,412 $ 327 38 years ======================
Other assets consist of the following (in thousands):
DECEMBER 31, ---------------------- 1999 1998 ---------------------- Restricted cash $ 4,380 $ 3,032 Deferred financing costs less amortization of $6,045 and $3,670 8,705 5,761 Pre-rental costs less amortization of $15,896 and $11,393 4,707 4,297 Other 563 1,370 ---------------------- $18,355 $14,460 ======================
Restricted cash consists of real estate tax escrows, operating reserves and capital reserves related to the Sunrise's debt agreements and resident deposits. 7. TRANSACTIONS WITH UNCONSOLIDATED ENTITIES Included in prepaid expenses and other current assets are net receivables from unconsolidated partnerships or limited liability companies of $38.6 million and $11.8 million as of December 31, 1999 and 1998, respectively. Included in other current liabilities are net payables to unconsolidated partnerships or limited liability companies of $1.6 million and zero in 1999 and 1998, respectively. Net receivables from unconsolidated partnerships or limited liability companies relate primarily to development activities. F-13 92 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 31, ------------------------- 1999 1998 ------------------------- 5 1/2% Convertible Subordinated Notes due 2002 $150,000 $150,000 Syndicated revolving credit facility 209,972 137,000 Multi-property/participating blanket first mortgage 85,602 86,187 Multi-property first mortgage 87,242 - Other mortgages and notes payable 168,720 56,151 Discount on the multi-property mortgage less amortization of $2,607 and $2,188 (593) (1,012) ------------------------- 700,943 428,326 Current maturities (36,103) (1,768) ------------------------- $664,840 $426,558 =========================
Included in long-term debt is a note due to an employee and an entity related to that employee. Interest accrued at 18% annually and principal was due June 8, 1999. The balance of the note at December 31, 1998 was $40,000. In October 1999, the principal balance plus accrued and unpaid interest under the promissory note was paid in full. On June 6, 1997, Sunrise issued and sold $150.0 million aggregate principal amount of 5 1/2% convertible subordinated notes due 2002. The convertible notes bear interest at 5 1/2% per annum payable semiannually on June 15 and December 15 of each year, beginning on December 15, 1997. The conversion price is $37.1875 (equivalent to a conversion rate of 26.89 shares per $1,000 principal amount of the convertible notes). The convertible notes are redeemable at the option of Sunrise commencing June 15, 2000, at specified premiums. The holders of the convertible notes may require Sunrise to repurchase the convertible notes upon a change of control of Sunrise as defined in the convertible notes. The net proceeds to Sunrise from the sale of the convertible notes, after deducting underwriting discounts and offering expenses, were approximately $145.6 million. A subsidiary of Sunrise has obtained a syndicated revolving credit facility for $400.0 million to be used for general corporate purposes, including the continued construction and development of assisted living facilities. Sunrise guarantees the repayment of all amounts outstanding under this credit facility. The credit facility is secured by cross-collateralized first mortgages on the real property and improvements and first liens on all assets of the subsidiary. Advances under the facility bear interest at LIBOR plus 1.50%. The credit facility expires in July 2002. There were $210.0 million of advances outstanding under this credit facility as of December 31, 1999. The multi-property mortgage is collateralized by a blanket first mortgage on all assets of a subsidiary of Sunrise, consisting of 15 facilities. The multi-property mortgage consists of two separate debt classes. Class A in the amount of $65.0 million bears a fixed interest rate of 8.56% and is interest only until the maturity date of May 31, 2001. Class B in the amount of $20.6 million bears a variable interest rate. Class B was interest only until July 1, 1997 at which time principal and interest payments were due using a 20-year amortization schedule. The interest rate applicable to the floating rate debt was reduced from LIBOR plus 5.75% to LIBOR plus 3.75% and, effective March 4, 1997 was further reduced to LIBOR plus 1.75%. A participation interest of $3.2 million payable in connection with the multi-property mortgage was recorded at the loan date. A corresponding amount recorded as a loan discount is being amortized over the life of the loan. Amortization of the discount of $419,000 has been included as interest expense in 1999, 1998 and 1997. F-14 93 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In May 1999, Sunrise entered into a multi-property first mortgage for $88.0 million secured by eight properties. The loan accrues interest at 7.14% and matures on June 1, 2009. The proceeds were used to reduce the balance of one of Sunrise's credit facilities and, as a result, convert a portion of Sunrise's variable rate debt into debt with a fixed rate. At December 31, 1999, $87.2 million was outstanding. The other mortgages and notes payable relate primarily to 30 facilities whereby outstanding balances are collateralized by the total assets of the respective facility. Payments of principal and interest are made monthly. Interest rates range from 5.6% to 10.0% with remaining maturities ranging from less than one to 34 years. These other mortgages and notes payable total $174.8 million and have total borrowings of $168.7 million as of December 31, 1999, which include $64.1 million of debt assumed through the acquisition of Karrington. Sunrise has entered into a swap transaction whereby, effective during the period June 18, 1998 through June 18, 2001, outstanding advances of up to $19.0 million under LIBOR floating rate debt bear interest at a fixed rate based on a fixed LIBOR base rate of 7.30%. Sunrise entered into another swap transaction whereby, effective during the period August 20, 1997 through April 1, 2003, outstanding advances of up to $7.0 million under LIBOR floating rate debt bear interest at a fixed LIBOR base rate of 7.14%. In November 1999, Sunrise settled the $7.0 million swap transaction. There was no gain or loss on the settlement. Sunrise recorded net interest expense for 1999, 1998 and 1997 in the amounts of $511,000, $227,000 and $17,000, respectively, for swap transactions. There are various financial covenants and other restrictions in Sunrise's debt instruments, including provisions which: (1) require it to meet certain financial tests. For example, Sunrise's $85.6 million multi-property mortgage, which is secured by 15 of its facilities, requires that these facilities maintain a cash flow to interest expense coverage ratio of at least 1.25 to 1. Sunrise's $400.0 million credit facility requires Sunrise to have a consolidated tangible net worth of at least $255.0 million and to maintain a consolidated minimum cash liquidity balance of at least $25.0 million. These tests are administered on a monthly or quarterly basis, depending on the covenant; (2) require consent for changes in management or control of Sunrise. For example, Sunrise's $400.0 million revolving credit facility requires the lender's consent for any merger where Paul Klaassen or Teresa Klaassen does not remain chairman of the board and chief executive officer of Sunrise; (3) restrict the ability of Sunrise's subsidiaries to borrow additional funds, dispose of assets or engage in mergers or other business combinations without lender consent; and (4) require that Sunrise maintain minimum occupancy levels at its facilities. For example, Sunrise's $400.0 million credit facility requires that 85% occupancy be achieved after 12 months for newly opened facilities and, following this 12-month period, be maintained at or above that level. Principal maturities of long-term debt as of December 31, 1999, are as follows (in thousands): 2000 $36,103 2001 109,431 2002 408,311 2003 20,606 2004 16,672 Thereafter 109,820 ------------- $700,943 ============= Interest paid totaled $35.7 million, $23.8 million and $16.9 million in 1999, 1998 and 1997, respectively. Interest capitalized was $6.3 million, $4.2 million and $7.0 million in 1999, 1998 and 1997, respectively. As of December 31, 1999, Sunrise has $11.6 million in unused letters of credit that have been pledged for the benefit of certain lending institutions and municipalities. The letters of credit expire within four years. F-15 94 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK In May 1996, Sunrise issued to one of its lenders warrants to purchase a total of 50,000 shares of common stock. The per share exercise price of the warrants was $17.00. The warrants were exercised in March 1998. On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax free, stock-for-stock transaction in which it issued 2.3 million common shares in exchange for all the outstanding shares of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The total transaction was valued at $85.1 million, including merger and stock issuance costs of $8.4 million and the fair value of assumed employee stock options of $1.5 million. Effective March 2000, Sunrise's Board of Directors authorized Sunrise to repurchase outstanding shares of Sunrise common stock up to an aggregate purchase price of $30.0 million. Sunrise expects to fund the stock repurchases from available funds. Under the stock repurchase program, Sunrise is authorized to repurchase Company common stock in the open market or in privately negotiated transactions from time to time over the next 12 months, subject to market conditions, applicable legal requirements and other factors. The stock repurchase program does not obligate Sunrise to repurchase any specific number of shares, and repurchases pursuant to the program may be suspended or resumed at any time or from time to time without further notice or announcement. 10. STOCK OPTION PLANS Sunrise has stock option plans providing for the grant of incentive and nonqualified stock options to employees, directors, consultants and advisors. At December 31, 1999, these plans provided for the grant of options to purchase up to 6,324,910 shares of common stock. In February 2000, an additional 500,000 shares of common stock were allocated for the granting of options to employees. The option exercise price and vesting provisions of the options are fixed when the option is granted. The options expire ten years from the date of grant and generally vest over a four year period. The option exercise price is not less than the fair market value of a share of common stock on the date the option is granted. Sunrise also had a stock option agreement with one of its senior executives. The agreement, as amended, was effective as of January 4, 1995 and covered 450,000 shares of common stock that were reserved for issuance at an exercise price of $8.00. As of December 31, 1999, all options were exercised. In September 1998, Sunrise canceled 1.6 million options granted to employees at exercise prices greater than $29.00 and granted an equal number of options with an exercise price of $25.00. In connection with the new grants certain vesting periods of the executive officers were extended. On April 25, 1996, the Board of Directors adopted the 1996 Directors' Stock Option Plan (the "Directors' Plan"). Any director who was a member of the Board of Directors but not an officer or employee of Sunrise or any of its subsidiaries (other than the persons elected as director representatives of the holders of Series A Preferred Stock) was eligible to receive options under the Directors' Plan. In March 2000, the Directors' Plan was terminated. An aggregate of 75,000 shares of common stock are reserved for issuance under existing option agreements. The option exercise price is not less than the fair market value of a share of common stock on the date the option was granted. The period for exercising an option begins six months after the option was granted and generally ends ten years from the date the option was granted. Options granted under the Directors' Plan vested immediately. All options granted under the Directors' Plan are non-incentive stock options. As of December 31, 1999, 75,000 options were granted. F-16 95 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A summary of Sunrise's stock option activity, and related information for the years ended December 31 are presented below:
1999 1998 1997 -------------------------------------------------------------------------------- WEIGHTED- SHARES WEIGHTED-AVERAGE SHARES AVERAGE SHARES WEIGHTED-AVERAGE OPTIONS (000) EXERCISE PRICE (000) EXERCISE (000) EXERCISE PRICE PRICE - ----------------------------------------------------------------------------------------------------------------- Outstanding-beginning of year 4,170 24.93 3,156 $ 22.76 2,557 $ 17.79 Granted 1,712 23.02 3,417 32.81 1,384 27.84 Exercised (213) 17.24 (384) 16.39 (498) 11.16 Canceled (419) 30.39 (2,019) 36.51 (287) 23.29 ---------- ---------- --------- Outstanding-end of year 5,250 23.28 4,170 24.93 3,156 22.76 ========== ========== ========= Options exercisable at year-end 1,853 1,055 667 Weighted-average fair value of options granted during the year $16.46 $16.80 $14.65
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ -------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES (000) CONTRACTUAL LIFE EXERCISE PRICE (000) EXERCISE PRICE - ---------------------------------------------------------------------------------------------------------------- $ 3.00 - $ 8.00 157 5.7 $ 4.94 157 $ 4.94 8.01 - 20.00 1,042 8.8 14.06 290 16.61 20.01 - 25.63 2,837 7.6 24.96 1,230 25.02 25.64 - 44.56 1,214 8.9 33.68 176 38.36 ---------------- -------------- 5,250 1,853 ================ ==============
Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, and has been determined as if Sunrise had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997: risk-free interest rate of 4.4% to 6.5%; dividend yield of 0%; expected lives of 7 to 10 years; and volatility of 36.8% to 57.38%. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Sunrise's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-17 96 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For purposes of pro forma disclosures below, the estimated fair value of the options is amortized to expense over the options' vesting period. Sunrise's pro forma information follows (in thousands, except per share data):
YEAR ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 -------------------------------------- Net income (loss): As reported $20,213 $22,312 $ 4,001 Pro forma $7,882 $13,368 $(4,019) Diluted net income (loss) per share: As reported $0.94 $1.11 $ 0.20 Pro forma $0.37 $0.67 $ (0.21)
11. STOCKHOLDER RIGHTS AGREEMENT The Board of Directors adopted a Stockholders Rights Agreement ("Rights Agreement") effective April 25, 1996, as amended. All shares of common stock issued by Sunrise between the date of adoption of the Rights Agreement and the Distribution Date (as defined below) have rights attached to them. The rights expire ten years after adoption of the Rights Agreement. Each right, when exercisable, entitles the holder to purchase one one-thousandth of a share of Series C Junior Participating Preferred Stock at a price of $85.00 (the "Purchase Price"). Until a right is exercised, the holder thereof will have no rights as a stockholder of Sunrise. The rights initially attach to the common stock. The rights will separate from the common stock and a distribution of rights certificates will occur (a "Distribution Date") upon the earlier to occur of (1) ten days following a public announcement that a person or group (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of common stock (the "Stock Acquisition Date") or (2) ten business days (or such later date as the Board of Directors may determine) following the commencement of a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person of 20% or more of the outstanding shares of common stock. However, neither Paul J. Klaassen nor Teresa M. Klaassen (nor their affiliates, associates and estates), each of whom, as of the date of adoption of the Rights Agreement, beneficially owned in excess of 20% of the outstanding shares of common stock, will be deemed an "Acquiring Person," unless they acquire an additional 2% of the common stock which was outstanding at the time of completion of Sunrise's initial public offering. In general, if a person becomes the beneficial owner of 20% or more of the then outstanding shares of common stock, each holder of a right may exercise the right by purchasing common stock having a value equal to two times the Purchase Price. If at any time following the Stock Acquisition Date (1) Sunrise is acquired in a merger or other business combination transaction in which it is not the surviving corporation (other than a merger which follows an offer described in the preceding paragraph), or (2) 50% or more of Sunrise's assets or earning power is sold or transferred, each holder of a right shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the Purchase Price. The Board of Directors of Sunrise generally may redeem the rights at a price of $.005 per right at any time until ten days after an Acquiring Person has been identified as such. F-18 97 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. NET INCOME PER COMMON SHARE The following table summarizes the computation of basic and diluted net income per common share amounts presented in the accompanying consolidated statements of operations (in thousands, expect per share amounts):
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1999 1998 1997 --------------------------------------------------- Numerator: Net income $ 20,213 $ 22,312 $ 4,001 =================================================== Denominator: Denominator for basic net income per common share-weighted average shares 21,045 19,288 18,722 Effect of dilutive securities: Employee stock options and warrants 544 744 1,161 --------------------------------------------------- Denominator for diluted net income per common share-weighted average shares plus assumed conversions 21,589 20,032 19,883 =================================================== Basic net income per common share $ 0.96 $ 1.16 $ 0.21 =================================================== Diluted net income per common share $ 0.94 $ 1.11 $ 0.20 ===================================================
Certain shares issuable upon the exercise of stock options or convertible notes have been excluded from the computation because the effect of their inclusion would be anti-dilutive. Options are included under the treasury stock method to the extent they are dilutive. 13. ACQUISITIONS AND DISPOSITIONS In March 1998, Sunrise sold its minority interest in a tenancy-in-common that owned one facility resulting in a $0.5 million realized gain. In September 1998, Sunrise completed the sale of two facilities for an aggregate sales price of $29.3 million in cash. Sunrise will realize up to a $6.4 million gain from the transaction over a maximum of 15 quarters. Sunrise recognized a gain of $1.9 million and $1.5 million on the sale in 1999 and 1998, respectively. The remaining gain was deferred, the recognition of which is contingent upon future events. For tax purposes, the transaction is treated as a tax-free exchange. Sunrise operates the two facilities under long-term operating agreements. In June 1999, Sunrise completed the sale of two other facilities for an aggregate sales price of $27.9 million in cash. Sunrise will realize up to an $11.3 million gain from the transaction over three quarters. Sunrise recognized a gain of $5.1 million on the sale in 1999. The remaining gain was deferred, the recognition of which is contingent upon future events. For tax purposes, the transaction is treated as a tax-free exchange. Sunrise operates the two facilities under long-term operating agreements. On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax-free, stock-for-stock transaction in which it issued 2.3 million common shares in exchange for all the outstanding shares of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The total transaction was valued at $85.1 million, including merger and stock issuance costs of $8.4 million and the fair value of assumed employee stock options of $1.5 million. Karrington operates assisted living facilities providing services to the elderly. F-19 98 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations of Karrington for the period from May 14, 1999 (excluding assets held for sale) are included in the accompanying consolidated financial statements. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values, which are subject to adjustment when additional information concerning asset and liability valuations is finalized. Based on the preliminary allocation of the purchase price, the excess purchase price over the estimated fair value of the net assets acquired was $35.1 million. Sunrise acquired cash of $2.4 million in the Karrington acquisition, which is included in the statement of cash flows. The remainder of the Karrington transaction was a non-cash transaction for the statement of cash flows. Sunrise recorded non-recurring charges of $5.1 million during 1999, of which $4.4 million related to the consolidation and integration of the acquired operations and development pipeline of Karrington and $0.7 million related to the termination of a property acquisition agreement. Of the $5.1 million non-recurring charges, $3.8 million were non-cash transactions. The following unaudited pro forma information presents the results of operations of Sunrise for the years ended December 31, 1999 and 1998, respectively, as if the acquisition of Karrington had taken place as of January 1, 1998. This pro forma information excludes the results of operations of the assets held for sale. See Note 14 Assets Held For Sale (in thousands, except per share data).
1999 1998 -------------- --------------- Revenue $ 268,074 $ 195,450 Net income 13,101 9,642 Basic earnings per share 0.60 0.45 Diluted earnings per share 0.58 0.43
These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. 14. ASSETS HELD FOR SALE Sunrise intends to sell 16 operating properties, four zoned development sites and one non-operating property acquired from Karrington within 12 months following the merger. Sunrise believes that these properties do not fit with its strategy. Specifically, Sunrise believes such properties are not located within its target markets, cannot be repositioned easily as Sunrise facilities and would not be able to achieve benefits of regional clustering. Consequently, these assets are presented on the balance sheet as assets held for sale at their estimated fair values less estimated costs to sell and operating losses before sale. The operating results of these assets are not reflected in Sunrise's consolidated operating results. As of December 31, 1999, Sunrise has sold one development site that was acquired from Karrington and was originally classified as held for sale. Due to market conditions in the areas where the assets held for sale are located, Sunrise elected in December 1999 to adjust downward the value assigned to certain of these assets which resulted in an adjustment to the original purchase price allocation of the Karrington acquisition. As a result of the adjustment, the carrying value of assets held for sale decreased by $14.1 million from Sunrise's original estimated assigned fair value. The valuation adjustments are reflected as a change in goodwill and the deferred tax accounts that are associated with the Karrington acquisition. The operating results of the properties since completion of the merger on May 14, 1999 through December 31, 1999 are as follows (in thousands): F-20 99 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenue $ 8,552 Operating expenses 7,697 Interest expense 2,643 ------------ Net loss $ (1,788) ============
15. COMMITMENTS Sunrise leases its corporate offices, regional offices, development offices and warehouse space under various leases. During 1998, Sunrise entered into an agreement to lease new office space for its corporate headquarters. The lease commenced upon completion of the building in July 1999 and expires in July 2011. The lease has an initial annual base rent of $1.2 million. The base rent escalates approximately 2.5% per year in accordance with a base rent schedule. In September 1999, Sunrise amended another corporate lease to increase the amount of leased premises and extend the maturity date to October 2004. The initial annual lease payments amount to $462,000, and the base rent is subject to annual increases based on the consumer price index from a minimum of 2% to a maximum cap of 3% per year. The warehouse lease has a term of seven years and expires in May 2004. The initial annual base rent payments amount to $148,000, subject to annual increases of 3%. Also required are an amortization rent of $88,000 and a portion of operating expenses. Various other leases expire between 2001 and 2003. Sunrise has also entered into operating leases for five facilities. Two facilities commenced operations during 1997, two facilities commenced operations in 1998, and the other facility commenced operations in 1999. In May 1999 in connection with the acquisition of Karrington, Sunrise assumed six operating leases for six assisted living properties and a ground lease. The operating lease terms vary from 15-20 years, with two ten-year extension options. Sunrise also has four other ground leases related to two facilities in operation and two facilities under construction. Lease terms range from 30 to 99 years and are subject to annual increases based on the consumer price index and/or stated increases in the lease. In December 1998, a subsidiary of Sunrise entered into a three-year operating lease for six assisted living facilities. Sunrise has guaranteed the payment of all obligations of its subsidiary under the lease. There are no extension options, however Sunrise has the option, 120 days prior to the expiration date of the lease, of either purchasing or selling all the leased properties. If the company exercises its option to sell the properties and the proceeds from the sale exceed the obligation under the lease, Sunrise is entitled to the excess. However, if the proceeds from the sale are less than the obligation under the lease, Sunrise is obligated to fund the difference. Sunrise is responsible for the payment of real estate taxes, insurance and other operating expenses. The lease requires Sunrise to maintain certain coverage ratios, liquidity and net worth. These six leased properties were sublet to Karrington until the acquisition of Karrington in May 1999. Future minimum lease payments under office, equipment, ground and other operating leases as of December 31, 1999 are as follows (in thousands): 2000 $15,095 2001 55,565 2002 11,013 2003 10,850 2004 10,618 Thereafter 144,365 -------------- $247,506 ==============
Sunrise has entered into contracts to purchase and lease additional sites. Total contracted purchase price of these sites is $67.5 million. Sunrise is pursing additional development opportunities and also plans to acquire additional facilities as market conditions warrant. F-21 100 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. On May 14, 1999, Sunrise completed its acquisition of Karrington Health, Inc. through a tax-free, stock-for-stock transaction. The acquisition was accounted for using the purchase method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. Accordingly, the book basis of a majority of the property and equipment acquired from Karrington exceeds its respective tax basis. A net deferred tax liability of approximately $35.5 million was recorded at the time of purchase to account for the Karrington acquisition. The primary components of Sunrise's net deferred tax asset are as follows (in thousands):
DECEMBER 31, ----------------------- 1999 1998 ----------------------- Deferred tax assets: Property and equipment $ - $ 2,116 Operating loss carryforward 18,386 7,776 Accrued expenses 3,525 1,719 Other 2,001 1,280 ----------------------- Total gross deferred tax assets 23,912 12,891 Less valuation allowance - (8,569) ----------------------- Net deferred tax assets 23,228 4,322 ----------------------- Deferred tax liabilities: Property and equipment $ (37,177) $ - Other (642) (344) ----------------------- Deferred tax liabilities (37,819) (344) ----------------------- Net deferred tax amount $ (13,907) $ 3,978 =======================
At December 31, 1999, Sunrise had net operating loss carryforwards available to offset future taxable income of approximately $43.7 million, which expire from 2010 through 2019. This amount includes approximately $22.8 million of net operating loss carryforwards acquired from Karrington, which are subject to certain limitation on utilization. At December 31, 1999, Sunrise had alternative minimum tax credits of approximately $479,000 available to offset future federal tax liabilities. These tax credits do not expire. Realization of the net deferred tax asset is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Sunrise expects to fully utilize the loss carryforward prior to expiration. Therefore, the valuation allowance at December 31, 1998 of $8.6 million was released in 1999, of which $6.0 million was credited directly to equity as it related to the tax benefit of non-qualified stock options. F-22 101 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Significant components of the provision for income taxes are as follows (in thousands):
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 ------------------------------------------------ Current: Federal $ 4,738 $ 3,521 $ - State 1,160 457 - ------------------------------------------------ Total current 5,898 3,978 - Deferred: Federal 4,507 3,891 (2,553) State (8) 1,897 (545) (Decrease) increase in valuation allowance (2,569) (9,766) 3,098 ------------------------------------------------ Total deferred 1,930 (3,978) - ------------------------------------------------ Total tax expense $ 7,828 $ - $ - ================================================
In 1999, 1998 and 1997, Sunrise paid income taxes of $1.8 million, $0.9 million and $0.1 million, respectively. Current taxes payable for 1999 and 1998 have been reduced by approximately $1.9 million and $3.6 million, respectively, reflecting the tax benefit to Sunrise of employee stock options exercised during the year. The tax benefit has been recognized as an increase to additional paid-in capital. The differences between the tax provision calculated at the statutory federal income tax rate and the actual tax provision recorded for each year are as follows:
YEAR ENDED DECEMBER 31, 1999 1998 1997 ------------------------------------------- Statutory rate 35% 35% 34% State taxes, net 7 6 7 Tax exempt interest (3) (4) (7) Stock options - - (96) Other (2) 7 5 Valuation allowance (9) (44) 57 ------------------------------------------- 28% 0% 0% ===========================================
17. RELATED-PARTY TRANSACTIONS SUNRISE ASSISTED LIVING FOUNDATION Paul and Teresa Klaassen, Sunrise's founders, operate two schools, including day care centers, through a not-for-profit organization, Sunrise Assisted Living Foundation, Inc. ("SALF"). SALF reimbursed Sunrise monthly for use of office facilities and support services in the amounts of $84,000 in 1999, $84,000 in 1998 and $68,000 in 1997. Such amounts are included in operating revenue. During 1999, a subsidiary of SALF provided certain health care services to residents of Sunrise facilities located in Illinois. The SALF subsidiary entered into various administrative, accounting and collection service agreements with Sunrise affiliates. The service agreements allow for reimbursement of costs of service plus a management fee. During 1999, Sunrise recognized $49,000 in management fees. As of December 31, 1999, Sunrise owed SALF $0.4 million under such service agreements. F-23 102 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) GROUND LEASE Sunrise has a 99 year ground lease with one of Sunrise's founders. The ground lease expires in May 2085. The basic monthly rent is adjusted annually based on the consumer price index. Rent expense under this lease was $262,000 for each of the years ended December 31, 1999, 1998 and 1997. Sunrise subleases one-half of this ground lease to SALF. The sublease expires in May 2085 and requires payments equal to 50% of all payments made by Sunrise under the ground lease. Sublease rental income was $131,000 for each of the years ended December 31, 1999, 1998 and 1997. Lease expense is recorded net of the sublease income. JOINT VENTURES Sunrise has entered into unconsolidated joint venture arrangements with a third party that is providing up to $70.8 million of the equity capital to develop up to 37 projects in the United States, United Kingdom and Canada. A director of Sunrise is a managing director in the third party that is providing the equity capital and a former director of Sunrise is a general partner in the third party. The joint ventures have acquired or assumed purchase contracts for 24 properties, 15 in the United States, two in the United Kingdom and seven in Canada, on which the joint ventures intend to develop assisted living facilities. Sunrise is providing management and development services to the joint ventures on a contract-fee basis with rights to acquire the assets in the future and has agreed to invest up to $4.3 million of equity capital in the joint ventures. Sunrise recognized development fees from these joint ventures of $12.7 million and $0.7 million, respectively, in 1999 and 1998. As of December 31, 1999 and 1998, the third party had provided approximately $22.5 million and $5.1 million, respectively, and Sunrise has provided $2.0 million and $0.4 million, respectively, of equity capital to the joint ventures. 18. PROFIT-SHARING PLAN Sunrise has a profit-sharing plan (the "Plan") under Internal Revenue Code Section 401(k). All employees of Sunrise are covered by the Plan and are eligible to participate in the Plan after meeting certain eligibility requirements. The Plan contains three elements -- employee salary contributions, discretionary matching employer contributions and special discretionary employer contributions. Deferred salary contributions are made through pre-tax salary deferrals of between 1% and 16%. Prior to April 1, 1997, the Plan provided that the employer contribute $0.25 for every dollar the employee contributes, up to 7% of the employee's annual compensation. In April 1997, Sunrise amended the regular matching contributions to discretionary matching contributions. Matching contributions made by Sunrise totaled $278,000, $177,000 and $121,000 during 1999, 1998 and 1997, respectively. No special discretionary employer contributions were made during these periods. 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value were determined by management, using available market information and valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Sunrise could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have an effect on the estimated fair value amounts. The fair values of the notes receivable and investments are discussed in Notes 4 and 5. F-24 103 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash equivalents, accounts receivable, accounts payable and accrued expenses, marketable securities, investments and other current assets and liabilities are carried at amounts which reasonably approximate their fair values. Fixed rate debt with an aggregate carrying value of $369.3 million, excluding a $0.6 million loan discount, has an estimated aggregate fair value of $337.0 million at December 31, 1999. Estimated fair value of fixed rate debt is based on interest rates currently available to Sunrise for issuance of debt with similar terms and remaining maturities. The estimated fair value of Sunrise's variable rate debt is estimated to be approximately equal to its carrying value of $332.2 million at December 31, 1999. The interest rate swap related to floating rate debt (see Note 8) has an estimated fair value of $0.3 million at December 31, 1999. Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 1999. Although management is not aware of any factors that would significantly affect the reasonable fair value amounts, these amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 1999 and current estimates of fair value may differ from the amounts presented herein. 20. INFORMATION ABOUT SUNRISE'S SEGMENTS Sunrise primarily derives income from two types of services: (1) resident services and (2) management services. Resident services include fees for services provided to residents. The types of products and services include assistance with the activities of daily living and other personalized support services in a residential setting for elderly residents who cannot live independently but who do not need the level of medical care provided in a skilled nursing facility (Basic Care); additional specialized care and services to residents with certain low acuity medical needs (Plus Care); and specialized services for residents with Alzheimer's disease or other forms of dementia (Reminiscence Care). Management services include fees from long-term management contracts and development contracts for facilities owned by unconsolidated joint ventures and other third party owners and for facilities owned and consolidated by Sunrise. F-25 104 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Segment information is as follows (in thousands):
YEAR ENDED DECEMBER 31, 1999 1998 1997 --------------------------------- Operating Revenue: Resident services $217,397 $151,878 $85,644 Management services 43,242 24,686 8,778 Other 7,017 2,036 - Elimination of intersegment revenue (12,437) (7,888) (4,538) ---------------------------------- Total consolidated operating revenue 255,219 170,712 89,884 ---------------------------------- Operating Expenses: Resident services 143,034 96,722 57,824 Management services 29,095 13,746 11,814 Elimination of intersegment expenses (11,979) (7,888) (4,538) ---------------------------------- Total consolidated operating expenses 160,150 102,580 65,100 ---------------------------------- Segment operating income 95,069 68,132 24,784 Reconciliation to net income: Facility pre-rental 3,248 3,194 3,126 General and administrative 1,995 2,078 1,100 Depreciation and amortization 25,448 21,650 10,592 Facility lease 7,903 3,014 1,532 Non-recurring charges 5,069 - - ------------- ------------------- Income from operations 51,406 38,196 8,434 Interest expense, net (21,750) (15,430) (4,613) Equity in earnings (losses) of unconsolidated assisted living facilities (1,239) 54 88 Minority interests (376) (508) 92 Provision for income taxes (7,828) - - ---------------------------------- Total consolidated net income $20,213 $ 22,312 $ 4,001 ==================================
AS OF DECEMBER 31, Assets: 1999 1998 - ------- -------------------------------- Facilities $780,412 503,265 Corporate 323,039 180,146 -------------------------------- Total consolidated assets 1,103,451 $ 683,411 ================================
Other revenues for the year ended December 31, 1999 consist of realized gains on the sale of assisted living facilities (see Note 13 for further discussion). Management services revenue from operations in England were $0.8 million and $0.7 million for 1999 and 1998, respectively. Management services revenue from operations in Canada were $1.2 million for 1999. The remaining revenues and all long-lived assets are domestic. F-26 105 SUNRISE ASSISTED LIVING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 21. QUARTERLY RESULT OF OPERATIONS (UNAUDITED) The following is a summary of quarterly results of operations for the fiscal quarters: (in thousands, except per share amounts):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------------------------------------------------------------- 1999 - ---- Operating revenue $ 51,378 $ 61,524 $ 68,133 $ 74,184 Net income $ 7,226 $ 5,416 $ 3,711 $ 3,860 Diluted net income per common share $ 0.35 $ 0.25 $ 0.17 $ 0.18 1998 - ---- Operating revenue $ 34,912 $ 40,454 $ 46,152 $ 49,194 Net income $ 3,623 $ 4,586 $ 6,686 $ 7,417 Diluted net income per common share $ 0.18 $ 0.23 $ 0.33 $ 0.36
The sum of diluted net income per common share for the four quarters in 1999 and 1998 may not equal diluted net income per common share for the year due to the changes in the number of weighted average shares outstanding and fluctuations in the market price of Sunrise's common stock during the year. F-27 EX-10.48 2 SECOND AMENDED FINANCING AND SECURITY AGREEMENT 1 EXHIBIT 10.48 SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (MASTER AGREEMENT) SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP AND OTHER SUBSIDIARIES OF SUNRISE ASSISTED LIVING, INC. AS BORROWERS BANK OF AMERICA, N.A. D/B/A NATIONSBANK, N.A. AS ADMINISTRATIVE AGENT BANK UNITED, AS SYNDICATION AGENT FLEET NATIONAL BANK, AS DOCUMENTATION AGENT BANC OF AMERICA SECURITIES LLC AS SOLE LEAD ARRANGER AND BOOK MANAGER July 29, 1999 2
TABLE OF CONTENTS ARTICLE I.........................................................................................................3 DEFINITIONS....................................................................................................3 Section 1.1 Certain Defined Terms..........................................................................3 Section 1.2 Accounting Terms and Other Definitional Provisions............................................20 ARTICLE II.......................................................................................................21 BORROWING.....................................................................................................21 Section 2.1 The Loan......................................................................................21 Section 2.2 Procedure for Advances........................................................................22 Section 2.3 Fees..........................................................................................23 Section 2.4 Interest Rate Matters.........................................................................24 Section 2.5 Extensions....................................................................................26 Section 2.6 The Letter of Credit Facility.................................................................27 Section 2.7 Permitted Costs...............................................................................28 Section 2.8 Requisitions Demonstrating Expenses...........................................................28 Section 2.9 Co-Borrower Obligations.....................................................................29 Section 2.10 Agreement Among Borrowers....................................................................30 Section 2.11 Benefits to Borrowers........................................................................31 Section 2.12 Guaranty.....................................................................................31 ARTICLE III......................................................................................................34 COLLATERAL....................................................................................................34 Section 3.1 Collateral....................................................................................34 Section 3.2 Eligible Projects.............................................................................34 Section 3.3 Assignment of Partnership Interests...........................................................35 Section 3.4 Guaranties....................................................................................35 Section 3.5 Collateral for Obligations....................................................................35 Section 3.6 Costs.........................................................................................35 ARTICLE IV.......................................................................................................36 GENERAL FINANCING PROVISIONS..................................................................................36 Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust................36 Section 4.2 Conditions Precedent to Determining Availability Under Borrowing Base.........................40 Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility............................41 Section 4.4 Computation of Interest and Fees..............................................................42 Section 4.5 Liens; Setoff...............................................................................42 Section 4.6 Payment and Performance of Obligations........................................................42 Section 4.7 Payments to Others for the Account of the Borrowers...........................................42 Section 4.8 Prepayment....................................................................................43 Section 4.9 Requisitions for the Operating Reserve........................................................43 Section 4.10 Assignments..................................................................................43 Section 4.11 Liability of the Lenders.....................................................................44 Section 4.12 Stored Materials.............................................................................44 Section 4.13 Limitations on Advances or Readvances........................................................44 ARTICLE V........................................................................................................44 REPRESENTATIONS AND WARRANTIES................................................................................45
1 3 Section 5.1 Existence/Good Standing.......................................................................45 Section 5.2 Power and Authority...........................................................................45 Section 5.3 Binding Agreements............................................................................45 Section 5.4 Litigation....................................................................................45 Section 5.5 No Conflicting Agreements.....................................................................46 Section 5.6 Financial Information.........................................................................46 Section 5.7 No Default....................................................................................46 Section 5.8 Taxes.........................................................................................46 Section 5.9 Place(s) of Business and Location of Collateral...............................................47 Section 5.10 Title to Properties..........................................................................47 Section 5.11 Margin Stock.................................................................................47 Section 5.12 ERISA........................................................................................47 Section 5.13 Governmental Consent.........................................................................48 Section 5.14 Full Disclosure..............................................................................48 Section 5.15 Business Names and Addresses.................................................................48 Section 5.16 Licenses and Certifications..................................................................48 Section 5.17 Operating Agreements and Management Contracts................................................49 Section 5.18 Participation Agreements and Resident Agreements.............................................49 Section 5.19 Compliance with Laws.........................................................................50 Section 5.20 Presence of Hazardous Materials or Hazardous Materials Contamination.........................50 Section 5.21 Nature of Credit Facility; Usury; Disclosures................................................50 Section 5.22 Compliance in Zoning.........................................................................50 Section 5.23 Plans and Specifications.....................................................................51 Section 5.24 Building Permits; Other Permits..............................................................51 Section 5.25 Utilities....................................................................................51 Section 5.26 Access; Roads................................................................................51 Section 5.27 Other Liens..................................................................................51 Section 5.28 Defaults.....................................................................................51 Section 5.29 Survival; Updates of Representations and Warranties..........................................52 Section 5.30 Accounts.....................................................................................52 Section 5.31 Year 2000...................................................................................52 ARTICLE VI.......................................................................................................53 CONDITIONS OF LENDING.........................................................................................53 Section 6.1 No Default....................................................................................53 Section 6.2 Opinion of Counsel for the Borrowers..........................................................53 Section 6.3 Approval of Counsel for the Lenders...........................................................53 Section 6.4 Supporting Documents..........................................................................53 Section 6.5 Financing Documents...........................................................................54 Section 6.6 Insurance.....................................................................................54 Section 6.7 Security Documents............................................................................54 Section 6.8 Joinder Agreement.............................................................................54 ARTICLE VII......................................................................................................55 AFFIRMATIVE COVENANTS OF BORROWER.............................................................................55 Section 7.1 Financial Statements..........................................................................55 Section 7.2 Taxes and Claims..............................................................................56 Section 7.3 Legal Existence...............................................................................56 Section 7.4 Conduct of Business and Compliance with Laws..................................................56 Section 7.6 Insurance.....................................................................................57 Section 7.7 Flood Insurance...............................................................................59 Section 7.8 Maintenance of Properties.....................................................................59 Section 7.9 Maintenance of the Collateral.................................................................60
2 4 Section 7.10 Other Liens, Security Interests, etc.........................................................60 Section 7.11 Defense of Title and Further Assurances......................................................60 Section 7.12 Subsequent Opinion of Counsel as to Recording Requirements...................................60 Section 7.13 Books and Records............................................................................60 Section 7.14 Collections..................................................................................61 Section 7.15 Notice to Account Debtors and Escrow Account.................................................61 Section 7.16 Business Names...............................................................................61 Section 7.17 ERISA........................................................................................61 Section 7.18 Change in Management.........................................................................62 Section 7.19 Management...................................................................................62 Section 7.20 Surveys......................................................................................62 Section 7.21 Inspections; Cooperation; Payment of Inspecting Engineer.....................................63 Section 7.22 Vouchers and Receipts........................................................................63 Section 7.23 Payments for Labor and Materials.............................................................63 Section 7.24 Correction of Construction Defects...........................................................64 Section 7.25 Fees and Expenses; Indemnity.................................................................64 Section 7.26 Governmental Surveys or Inspections..........................................................64 Section 7.27 Cost Reports................................................................................64 Section 7.28 Updated Appraisals...........................................................................64 Section 7.29 Notification of Certain Events, Events of Default and Adverse Developments...................65 Section 7.30 Compliance with Environmental Laws...........................................................66 Section 7.31 Hazardous Materials; Contamination...........................................................66 Section 7.32 Participation in Reimbursement Programs......................................................67 Section 7.33 Minimum Pool A Projects......................................................................67 Section 7.34 Subordination of Distributions and Management Fees...........................................67 Section 7.35 Depository Bank..............................................................................67 Section 7.36 Copies of Notices............................................................................68 Section 7.37 Year 2000 Compliance........................................................................68 ARTICLE VIII.....................................................................................................68 NEGATIVE COVENANTS OF BORROWER................................................................................68 Section 8.1 Borrowings....................................................................................68 Section 8.2 Deeds of Trust and Pledges....................................................................68 Section 8.3 Sale or Transfer of Assets....................................................................69 Section 8.4 Other Liens; Transfers; "Due-on-Sale"; etc....................................................69 Section 8.5 Advances and Loans............................................................................69 Section 8.6 Contingent Liabilities........................................................................69 Section 8.7 Licenses......................................................................................69 Section 8.8 ERISA Compliance..............................................................................69 Section 8.9 Transfer of Collateral........................................................................70 Section 8.10 Sale of Accounts or Receivables..............................................................70 Section 8.11 Amendments; Terminations.....................................................................70 Section 8.12 Prohibition on Hazardous Materials...........................................................70 Section 8.13 Subsidiaries.................................................................................71 Section 8.14 Distributions to Partners or Members.........................................................71 Section 8.15 Mergers or Acquisitions......................................................................71 Section 8.16 Partnership Interests........................................................................71 Section 8.17 Impairment of Security.......................................................................71 Section 8.18 Conditional Sales............................................................................71 Section 8.19 Changes to Plans and Specifications..........................................................72 Section 8.20 Construction Contract; Construction Management...............................................72 ARTICLE IX.......................................................................................................72
3 5 EVENTS OF DEFAULT.............................................................................................72 Section 9.1 Failure to Pay and/or Perform the Obligations.................................................72 Section 9.2 Breach of Representations and Warranties......................................................72 Section 9.3 Failure to Comply with Covenants..............................................................72 Section 9.4 Failure to Comply with Books and Records......................................................73 Section 9.5 Other Defaults................................................................................73 Section 9.6 Default Under Other Financing Documents.......................................................73 Section 9.7 Receiver; Bankruptcy..........................................................................73 Section 9.8 Judgment......................................................................................73 Section 9.9 Execution; Attachment.........................................................................73 Section 9.10 Default Under Other Borrowings...............................................................74 Section 9.12 Impairment of Position.......................................................................74 Section 9.13 Change in Status or Ownership................................................................74 Section 9.14 Zoning.......................................................................................74 Section 9.15 Change in Management.........................................................................74 Section 9.16 Licenses.....................................................................................74 Section 9.17 Damage to Improvements.......................................................................75 Section 9.18 Disclosure of Contractors....................................................................75 Section 9.19 Mechanic's Lien..............................................................................75 Section 9.20 Survey Matters...............................................................................75 Section 9.21 General Contractor Default...................................................................75 Section 9.22 Compliance with Law..........................................................................76 ARTICLE X........................................................................................................76 RIGHTS AND REMEDIES UPON DEFAULT..............................................................................76 Section 10.1 DEMAND; ACCELERATION.........................................................................76 Section 10.2 Further Advances; Immediate Acceleration.....................................................76 Section 10.3 Specific Rights With Regard to Collateral....................................................76 Section 10.4 Performance by Lenders.......................................................................78 Section 10.5 Remedies on Default..........................................................................78 Section 10.6 Uniform Commercial Code and Other Remedies...................................................79 Section 10.7 Receiver or Other Court Order................................................................80 Section 10.8 No Conditions Precedent to Exercise of Remedies..............................................80 Section 10.9 Remedies Cumulative and Concurrent...........................................................80 Section 10.10 Strict Performance..........................................................................81 ARTICLE XI.......................................................................................................81 MISCELLANEOUS.................................................................................................81 Section 11.1 Notices......................................................................................81 Section 11.2 Consents and Approvals.......................................................................82 Section 11.3 Remedies, etc. Cumulative....................................................................82 Section 11.4 No Waiver of Rights by the Lenders...........................................................83 Section 11.5 Entire Agreement.............................................................................83 Section 11.6 Survival of Agreement; Successors and Assigns................................................83 Section 11.7 Expenses.....................................................................................83 Section 11.8 Counterparts.................................................................................84 Section 11.9 Governing Law................................................................................84 Section 11.10 Modifications...............................................................................84 Section 11.11 Illegality..................................................................................84 Section 11.12 Gender, etc.................................................................................85 Section 11.13 Headings....................................................................................85 Section 11.14 Waiver of Trial by Jury.....................................................................85 Section 11.15 No Warranty by Lenders......................................................................85
4 6 Section 11.16 Liability of the Lenders....................................................................85 Section 11.17 License of Tradename........................................................................86 Section 11.18 No Partnership..............................................................................86 Section 11.19 Third Parties; Benefit......................................................................86 Section 11.20 Conditions; Verification....................................................................87 Section 11.21 Signs; Publicity............................................................................87 Section 11.22 Time of Essence.............................................................................87 Section 11.23 Replacement Note.........................................................................87
5 7 SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (MASTER AGREEMENT) THIS SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (the "Agreement") is made this 29th of July, 1999, by and among SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership ("SEAL") and SUNRISE SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL") (collectively, the "Original Borrowers") and SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, (the "Additional Borrowers", collectively with the Original Borrowers and any other Additional Borrowers, as hereinafter defined, the "Borrowers"), and BANK OF AMERICA, N.A. d/b/a/ NATIONSBANK, N.A., as administrative agent (the "Administrative Agent") for itself and for UNITED BANK, as syndication agent (the "Syndication Agent"), FLEET NATIONAL BANK, as documentation agent (the "Documentation Agent") and certain additional lenders who are or shall be from time to time participating as lenders hereunder pursuant to the Agency Agreement, as hereinafter defined (collectively with the Administrative Agent, the "Lenders"). RECITALS A. SEAL obtained from the Administrative Agent and certain other lenders (collectively, the "Original Lenders") a revolving credit facility in the maximum principal sum of $250,000,000 (the "Original Credit Facility"). The Original Credit Facility has been evidenced by an Amended, Restated, Consolidated and Increased Master Promissory Note dated December 23, 1997 as amended pursuant to a First Amendment to Amended, Restated, Consolidated and Increased Promissory Note and Additional Borrower Joinder Supplement dated December 30, 1998 (the "First Note Amendment" collectively, the "Original Note"). B. Advances and readvances under the Credit Facility governed by the terms and conditions of (i) an Amended and Restated Financing and Security Agreement between SEAL and the Administrative Agent on behalf of the Lenders dated December 23, 1997 (the "Original Financing Agreement") as amended by the First Amendment to Amended and Restated Financing and Security Agreement dated December 30, 1998 (the "First Amendment to Financing Agreement"; collectively with the Original Financing Agreement, the "Existing Financing Agreement") and (ii) an Amended and Restated Master Construction Loan Agreement 8 between SEAL and the Administrative Agent on behalf of the Lenders dated December 23, 1997 (the "Original Construction Agreement") as amended by a First Amendment to Amended and Restated Master Construction Loan Agreement dated December 30, 1998 (the "First Amendment to Construction Agreement"; collectively with the Original Construction Agreement, the "Existing Construction Agreement"). C. Pursuant to the terms of the First Note Amendment, the First Amendment to Financing Agreement and the First Amendment to Construction Agreement, Sunrise SEAL became a co-borrower with SEAL under the Original Credit Facility. D. From time to time during the term of the Original Credit Facility, each of the Additional Borrowers became a Guarantor Subsidiary and granted to the Administrative Agent on behalf of the Lenders a first lien Deed of Trust on an Eligible Project and certain other related collateral. The Original Borrowers and the Additional Borrowers have requested and the Lenders have agreed to make the Additional Borrowers co-borrowers under the Credit Facility, jointly and severally liable with the Original Borrowers under the Original Note and the other Financing Documents. E. The Borrowers have applied to the Lenders to increase the maximum principal sum of the Original Credit Facility to $400,000,000 or such greater amount as the Lenders may from time to time commit to lend pursuant to the Agency Agreement (such increased and modified credit facility being hereinafter referred to as the "Credit Facility" or the "Loan"). Advances or readvances of the Loan are to be made pursuant to the provisions of this Agreement. F. In connection with the increase of the maximum principal sum of the Credit Facility, the Borrowers have requested and the Lenders have agreed to permit certain other related entities to become co-borrowers under the Credit Facility from time to time under the terms and conditions set forth in this Agreement. G. Except as otherwise set forth herein, advances or readvances of the Loan may be made to the Borrowers for the general business purposes of the Borrowers, including, but not limited to, financing the construction or purchase of assisted living facilities or independent living facilities and the repayment of advances to the Borrowers previously made by SALI or its Affiliates. H. The Borrowers and the Lenders have agreed to amend and terms of repayment of the indebtedness evidenced by the Original Note pursuant to and the Loan is now evidenced by that certain Second Amended, Restated, Consolidated and Increased Master Promissory Note of even date herewith payable by the Borrowers to Administrative Agent on behalf of the Lenders (as amended, restated, renewed or substituted from time to time, the "Note"). I. The Borrowers and the Lenders have agreed to consolidate the Existing Construction Agreement with the Existing Financing Agreement so that the terms and conditions governing advances or readvances of the Credit Facility shall be set forth in this Agreement. 2 9 J. The Lenders have agreed to make available the Credit Facility upon the conditions that this Agreement amending, restating and consolidating the Existing Financing Agreement and the Existing Construction Agreement be executed and delivered to the Administrative Agent. AGREEMENTS NOW, THEREFORE, in consideration of the premises, the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers and the Administrative Agent, on behalf of the Lenders, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms As used herein, the terms defined in the Preamble and Recitals hereto shall have the respective meanings specified therein, and the following terms shall have the following meanings: "Account", individually, and "Accounts", collectively, mean with respect to any and all Facilities, all presently existing or hereafter acquired or created accounts, accounts receivable, contract rights, notes, drafts, instruments, acceptances, chattel paper, leases and writings evidencing a monetary obligation or a security interest in or a lease of goods, all rights to receive the payment of money or other consideration under present or future contracts arising out of or relating to any and all Facilities (including, without limitation, all rights to receive the payment of money or other consideration from, or on behalf of, any private pay patient), or by virtue of services rendered, loans and advances made or other considerations given, by or set forth in, or arising out of, any present or future chattel paper, note, draft, lease, acceptance, writing, bond, insurance policy, instrument, document or general intangible, and all extensions and renewals of any thereof, all rights under or arising out of present or future contracts, agreements which gave rise to any or all of the foregoing, including all claims or causes of action now existing or hereafter arising in connection with or under any agreement or document or by operation of law or otherwise, all collateral security of any kind (including real property mortgages) given by any person with respect to any of the foregoing, including, without limitation, all rights to receive payment of money or other consideration from, or on behalf of, any private pay patient, all rights to receive payments under all Resident Agreements, and all third-party payor contracts (including Medicare and Medicaid to the extent permitted by Law), including, but not limited to, the Veterans Administration, Participation Agreements, and any and all depository accounts (other than resident trust accounts) into which the proceeds of all or any portion of such accounts may be now or hereafter deposited, and all proceeds (cash and non-cash) of the foregoing. "Account Debtor" means any Person who is obligated on a Receivable and "Account Debtors" mean all Persons who are obligated on the Receivables. 3 10 "Act of Bankruptcy" means the filing of a petition in bankruptcy under the Bankruptcy Code or the other commencement of a proceeding under any other applicable law concerning insolvency, reorganization or bankruptcy, now or hereafter in effect. "Additional Borrower" shall have the meaning set forth in the definition of Joinder Agreement. "Adjusted EBITDA" shall have the meaning set forth in Section 8.14 Distributions to Partners hereof. "Administrative Agent" means Bank of America, N.A., d/b/a NationsBank, N.A., its successors and assigns. "Affiliate" means an entity in which SALI or another entity which SALI controls, holds an ownership interest equal to or greater than twenty-five percent (25%). "Agency Agreement" means that certain Second Amended and Restated Agency Agreement of even date herewith by and among the Administrative Agent and the other Lenders, as the same may be amended, restated or substituted from time to time. "Agreement" means this Second Amended and Restated Financing and Security Agreement and all amendments, extensions, restatements, substitutions and supplements hereto which may from time to time become effective in accordance with the provisions of Section 11.10 Modifications hereof. "Appraised Value" means the appraised value of a Facility as stabilized, as reviewed by the Administrative Agent. "Architect" means the architect named in the Architect's Contract, if any, and his or its successors and permitted assigns. "Architect's Contract" means the architect's agreement by and between any of the Borrowers, as owner, and the architect for the particular Facility, or any contract for architectural services relating to the development of the Land and/or the construction of the Improvements for all of the Facilities made by any of the Borrowers and an architect and approved in writing by the Administrative Agent, as the same may be amended from time to time with the prior written approval of the Administrative Agent. "Banking Day" means any day that is not a Saturday, Sunday or banking holiday in the Commonwealth of Virginia and a day on which banks are open for the transaction of business in U.S. Dollar deposits in London, England. "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C. 101 et seq. 4 11 "Borrowing Base" means at any time an amount equal to the lesser of (a) the aggregate dollar amounts of the Deed of Trust Lien Amounts for each of the Eligible Projects or, in cases where an appraisal is obtained pursuant to Section 7.28 Updated Appraisals hereof, the lesser of the Deed of Trust Lien Amount or 75% of the Appraised Value of such Eligible Project; or (b) the aggregate dollar amount equal to 80% of the Costs Incurred to Date for each Pool A Project, 60% of the Costs Incurred to Date for each Pool B Project, and 40% of the Costs Incurred to Date for each Pool C Project. "Borrowing Base Deficiency" shall have the meaning set forth in Section 2.1 The Loan hereof. "Borrowing Base Report" shall have the meaning set forth in Section 2.1 The Loan hereof. "Chattel Paper" means a writing or writings which evidence both a monetary obligation and a security interest in or lease of specific goods; any returned, rejected or repossessed goods covered by any such writing or writings and all proceeds (in any form including, without limitation, accounts, contract rights, documents, chattel paper, instruments and general intangibles) of such returned, rejected or repossessed goods; and all proceeds (cash and non-cash) of the foregoing. "Collateral" means all of the Borrowers' Accounts, Equipment, General Intangibles, documents, Chattel Paper, Instruments and Inventory, all right, title and interest of the Borrowers in and to the Operating Agreements and Management Contracts (including, without limitation, the Management Agreement), Resident Agreements, Physician Contracts, Participation Agreements, the Licenses (whether or not designated with initial capital letters), and all other management contracts, operating agreements, service agreements and any other agreements pertaining to the Eligible Projects as that term is defined herein and in the Uniform Commercial Code as presently adopted and in effect in the Commonwealth of Virginia, and shall also cover, without limitation, (i) any and all property specifically included in those respective terms in this Agreement or in the Financing Documents, (ii) all right, title and interest of the Borrowers in and to Leases or subleases, rents, royalties, issues, profits, revenues, earnings, income or other benefits of the Property, or arising from the use or enjoyment of the Property, or from any lease or other use and occupancy agreement pertaining to the Property, (iii) all right, title and interest of the Borrowers under all construction, architectural and design contracts and plans and specifications, (iv) any and all property and/or collateral described in any of the Security Documents, including, without limitation, this Agreement, the Deeds of Trust [and the Pledge, Assignment and Security Agreement], (v) any and all bank accounts or other deposit accounts of the Borrowers wherever located, and (vi) all proceeds (cash and non-cash, including, without limitation, insurance proceeds), of the foregoing. "Collateral Assignments" means collectively the Amended and Restated Collateral Assignment of Licenses, Participation Agreements and Resident Agreements dated December 23, 5 12 1997 between the Borrowers and the Administrative Agent and the Amended and Restated Collateral Assignment of Operating Agreements and Management Contracts dated herewith among the Borrowers, the Management Company and the Administrative Agent each as amended and reconfirmed pursuant to the Confirmation of and Amendment to Security Documents of even date herewith. "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with any of the Borrowers within the meaning of Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended and the regulations promulgated or issued thereunder. "Completed Facility" means an Eligible Project which has met the conditions set forth in Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility of this Agreement. "Completion Date" shall mean the date which is fifteen (15) months from the recordation of the Deed of Trust on such Facility or upon the issuance of an occupancy permit. "Construction Contract" or "Construction Contracts" shall mean individually or collectively the general contractor's agreements by and between any of the Borrowers as owner, and a general contractor for the development of any of the Land and/or the construction of any of the Improvements and approved in writing by the Administrative Agent, as the same may be amended from time to time pursuant to Section 8.19 Changes to Plans and Specifications hereof, or otherwise with the prior written approval of the Administrative Agent. "Costs Incurred to Date" means as to an Eligible Project actual costs expended by any of the Borrowers under a Total Development Budget and reported to the Administrative Agent through the requisition process as verified by the Administrative Agent pursuant to the provisions of this Agreement; provided, however, no cost overruns not otherwise covered by a contingency category in the Total Development Budget will be included in the definition of Costs Incurred to Date without the Administrative Agent's prior written consent. "Credit Facility" means the revolving line of credit in a maximum principal sum at any one time outstanding equal to the Credit Facility Committed Amount and the Letter of Credit Facility. "Credit Facility Closing" shall mean the date on which the documents evidencing and securing the Credit Facility as modified in connection herewith, are executed and delivered to the Administrative Agent. "Credit Facility Committed Amount" means $400,000,000 or such larger amount which the Lenders may from time to time severally commit to lend to the Borrowers pursuant to the terms of Agency Agreement and the Note. 6 13 "Debt Service" means for any period of determination an amount equal to 80% of an Eligible Project's Costs Incurred to Date multiplied by a mortgage constant of 10%. "Deed of Trust" or "Deeds of Trust" means, individually or collectively, a Deed of Trust, Assignment and Security Agreement, a Mortgage, Assignment and Security Agreement, an Indemnity Deed of Trust, Assignment and Security Agreement or an Indemnity Mortgage, Assignment and Security Agreement or comparable security documents covering Property and securing the Obligations as the same may be from time to time amended, modified, restated or substituted. "Deed of Trust Lien Amount" means the dollar amount of the first priority Lien created by a Deed of Trust on any Borrower's fee simple interest in an Eligible Project or on any Borrower's leasehold interest in a Qualified Ground Lease, the lien amount being the lesser of (i) 75% of such Eligible Project's Appraised Value, or (ii) 80% of such Eligible Project's Total Development Budget. "Default" means, with respect to each Financing Document, a default which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. "Development Fee" shall have the meaning set forth in Section 2.1 The Loan hereof. "EBITDA" means earnings before interest, federal and state income taxes, depreciation, amortization, but after an imputed Replacement Reserve and a Management Fee equal to the greater of 5% of gross revenues or the actual Management Fee paid to the Management Company. "EBITBAR" means EBITDA plus Rent Expense. "Eligible Project" means any location in the United States where (a) a Borrower proposes to construct or has constructed a Facility (unless the Lenders also authorize inclusion of one or more Facilities acquired by a Borrower); (b) the Administrative Agent has received and reviewed an as-built appraisal of the Facility and a Phase I Environmental Assessment of the Property found them acceptable; (c) using the services of a consulting engineer selected by the Administrative Agent, the Administrative Agent has received, reviewed and found to be acceptable the Plans and Specifications and the Total Development Budget for the proposed Facility; (d) the Administrative Agent has received a pro forma operating budget acceptable to the Administrative Agent; (e) a first lien Deed of Trust has been recorded on the Property; (f) other documentation necessary to perfect a lien on the Collateral in favor of the Lenders has been executed and delivered to the Administrative Agent and recorded, if required; (g) a commitment for a mortgagee title insurance policy has been issued for the benefit of the Lenders and (h) construction has commenced or will commence within sixty (60) days and, once commenced, is being carried on in good faith with reasonable dispatch and is not abandoned or discontinued for a period of more than fifteen (15) consecutive days except for delays caused by Force Majeure. 7 14 Each acceptable pro forma operating budget provided pursuant to (d) must demonstrate that the Facility does or can satisfy the criteria for a Pool A Project. "Enforcement Costs" means all expenses, charges, costs and fees whatsoever (including, without limitation, attorney's fees and expenses) of any nature whatsoever paid or incurred by or on behalf of the Lenders in connection with (a) the collection or enforcement of any or all of the Obligations, (b) the preparation of or changes to this Agreement, the Note, the Security Documents and/or any of the other Financing Documents, (c) the creation, perfection, collection, maintenance, preservation, defense, protection, realization upon, disposition, sale or enforcement of all or any part of the Collateral, including, without limitation, those sums paid or advanced, and costs and expenses, more specifically described in Section 7.11 Defense of Title and Further Assurances, Section 7.25 Fees and Expenses; Indemnity, Section 10.4 Performance by Lenders and Section 11.7 Expenses, (d) the monitoring, administration, processing, servicing of any or all of the Obligations and/or the Collateral (e) post-judgment enforcement or collection actions, and (f) bankruptcy proceedings of any Borrower or the Guarantor. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Equipment" shall mean all equipment, machinery, furniture and fixtures and supplies of every nature, presently existing or hereafter acquired or created and wherever located, together with all accessions, additions, fittings, accessories, special tools, and improvements thereto and substitutions therefor and all parts and equipment which may be attached to or which are necessary for the operation and use of such personal property, whether or not the same shall be deemed to be affixed to real property, and all rights under or arising out of present or future contracts relating to the foregoing and all proceeds (cash and non-cash) of the foregoing. "Eurodollar Period" or "Eurodollar Periods" shall have the meaning set forth in the Note. "Eurodollar Rate" means, for any advance under the Loan for any Eurodollar Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London Time) two Banking Days prior to the first day of such Eurodollar Period for a term comparable to such Eurodollar Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any advance under the Loan for any Eurodollar Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London Time) two Banking Days prior to the first day of such Eurodollar Period for a term comparable to such Eurodollar Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. 8 15 "Event(s) of Default" shall mean the occurrence of any one or more of the events specified in ARTICLE IX of this Agreement or in the Deeds of Trust and the continuance of such event beyond the applicable grace and/or cure periods therefor, if any, set forth in ARTICLE IX. "Expense Payments" shall have the meaning set forth in Section 10.4 Performance by Lenders hereof. "Facility" and "Facilities" mean, individually or collectively, an assisted living facility or independent living facility owned by one of the Borrowers. "Financing Documents" means at any time collectively and includes this Agreement, the Note, the Deeds of Trust, the Guaranty Agreement, the Performance Guaranty, any Joinder Agreements, the Management Fee Subordination Agreements, the Security Documents, the Interest Rate Protection Documents, the Letter of Credit Documents and any other instrument, agreement or document previously, simultaneously or hereafter executed and delivered by any of the Borrowers and/or any other Person, singly or jointly with another Person or Persons, evidencing, securing, guarantying or in connection with any of the Obligations and/or in connection with this Agreement, the Note and/or any of the Security Documents, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Fixed Charge Coverage Ratio" means starting after the issuance of an occupancy permit for any given Facility, such Facility shall maintain a ratio of EBITDA for the Facility to Debt Service for the Facility equal to not less than 0.6 to 1.0 as of the end of the second (2nd) full fiscal quarter, a ratio of 1.1 to 1.0 as of the end of the third (3rd) full fiscal quarter and a ratio of 1.25 to 1.0 as of the end of each of the fourth (4th) through sixth (6th) full fiscal quarters and thereafter measured as of the end of each full fiscal quarter on a rolling four-quarter basis. "Force Majeure" shall mean events occasioned by strikes, lock-outs, labor unrest war or civil disturbance, materials shortages, unavailability of materials, fire, natural disaster or acts of God which cause a delay in any Borrower's performance of an obligation; provided, however, that such Borrower must give Notice to the Administrative Agent within ten (10) days after such Borrower knew of or should have known of the occurrence of an event which it believes to constitute an event of Force Majeure. "Funded Debt" of the Guarantor, at any time means the sum at such time of (a) indebtedness for borrowed money, (b) any obligations in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of the Guarantor, (c) lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of the Guarantor, (d) all liabilities secured by any property owned by the Guarantor to the extent attached to the Guarantor's interest in such property, even though the Guarantor has not assumed or become liable for the payment thereof, and in the case of the Guarantor (e) (i) amounts payable by the Guarantor under any terminated or defaulted interest rate protection products or which remain outstanding or (ii) take-out commitments (excluding a refinancing or a commitment of a third party) or purchase contracts including the deferred purchase price of 9 16 property or services in each instance if the Guarantor does not control the incurring obligation, (f) (i) the amount of any guaranty of indebtedness for borrowed money or (ii) other debt owed by Persons other than the Guarantor which is in default and for which the creditor is pursuing payment by the Guarantor, (g) any obligation of the Guarantor or a Commonly Controlled Entity to a Multiemployer Plan and (h) other amounts considered to be debt by all of the following: the Administrative Agent, the Syndication Agent and the Documentation Agent in a dollar amount to be mutually agreed upon by the Administrative Agent and the Guarantor; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of the Guarantor in accordance with GAAP, all of the above whether recourse or non-recourse, secured or unsecured. For purposes of the definition of Material Adverse Change in this Agreement, the term "Guarantor" as used in this definition of Funded Debt shall be deemed to read "Person". "GAAP" shall mean generally accepted accounting principles in effect in the United States of America from time to time. "General Contractor" or "General Contractors" shall mean individually or collectively the general contractors named in the Construction Contracts and his or its respective successors and permitted assigns. "General Intangibles" shall mean any and all general intangibles of every nature, whether presently existing or hereafter acquired or created arising out of or relating to any or all of the Facilities, including without limitation all books, correspondence, credit files, records, computer programs, computer tapes, cards and other papers and documents in the possession or control of the Borrowers claims (including without limitation all claims for income tax and other refunds), choses in action, judgments, patents, patent licenses, trademarks (excluding the "Sunrise", "Dignity Home Care", "Respect Home Care" or "Karrington" trademark or tradename), trademark licenses (excluding any license to any of the Borrowers for the "Sunrise," "Reminiscence", "Dignity Home Care", "Respect Home Care" or "Karrington" trademarks or tradenames), licensing agreements, rights in intellectual property, goodwill, as that term is defined in accordance with GAAP (including all goodwill of the Borrowers' business symbolized by, and associated with, any and all trademarks, trademark licenses, copyrights and/or service marks), royalty payments, contractual rights, rights as lessee under any lease of real or personal property, literary rights, copyrights, service names, service marks, logos, trade secrets, all amounts received as an award in or settlement of a suit in damages, deposit accounts, interests in joint ventures or general or limited partnerships, all Licenses, construction permits, Operating Agreements and Management Contracts, Participation Agreements and Resident Agreements, and all proceeds (cash and non-cash) of the foregoing. "Governmental Authority or Authorities" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 10 17 "Guarantor" means Sunrise Assisted Living, Inc., a Delaware corporation. "Guaranty Agreement" means the Second Amended and Restated Master Guaranty of Payment Agreement by SALI of even date herewith. "Hazardous Materials" means any flammable explosives, radioactive materials, hazardous waste, toxic substances or related materials, including, without limitation, asbestos, polychlorinated biphenyls, urea-formaldehyde, radon, and any substance defined as or included in the definition of (a) any "hazardous waste" as defined by the Resource Conservation Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (c) any "toxic substance" as defined by the Toxic Substances Control Act, as amended from time to time, and regulations promulgated thereunder; (d) any hazardous or infectious medical waste including, but not limited to, cultures and stocks of infectious agents and associated biologicals, pathological wastes, human and animal blood specimens and blood products, anatomical materials, blood, blood-soiled articles, contaminated materials, microbiological laboratory wastes, sharps, chemical wastes, infectious wastes, chemotherapeutic wastes, and radioactive wastes; (e) any substance, the presence of which on any property now or hereafter owned, operated or acquired by any of the Borrowers is prohibited or regulated under any applicable Federal or state laws or regulations; and (f) any other substance, pollutant, contaminant, chemical, or industrial toxic hazardous substance or waste, including without limitation hazardous materials, which by law is prohibited or is otherwise regulated as a hazardous material. "Hazardous Materials Contamination" shall mean the contamination by, release or spill of (whether presently existing or occurring after the date of this Agreement), Hazardous Materials of or on any property owned, operated or controlled by any of the Borrowers, or for which any of the Borrowers, has responsibility, including, without limitation, improvements, facilities, soil, ground water, air or other elements on, or of, any property now or hereafter owned, operated or acquired by any of the Borrowers, and any other contamination by Hazardous Materials for which any of the Borrowers is, or is claimed to be, responsible. "Home Healthcare Provider" means any Affiliate of SALI or of the Sunrise Foundation which is licensed as a home health care provider in any state in which assistance with tasks of daily living provided to a person must be provided by a home healthcare provider licensed in such state. "Hydric Soils" shall mean any soil category upon which building would be prohibited or restricted under applicable governmental requirements (including, without limitation, those imposed by the U.S. Army Corps of Engineers based upon its guidelines as to, among other things, soil, vegetation and effect on the ecosystem). 11 18 "Improvements" shall have the meaning given to that term in each Deed of Trust. "Inspecting Engineer" shall mean such person or firm as the Administrative Agent may from time to time appoint or designate for purposes related to the inspection of the progress of the development of any of the Land and the construction of any of the Improvements, conformity of construction with the applicable Plans and Specifications, and for such other purposes as the Administrative Agent may from time to time deem appropriate or as may be required by the terms of this Agreement. "Instruments" means any and all notes, notes receivable, drafts, acceptances, and similar instruments or documents, both now owned or hereafter created or acquired arising out of or relating to the Facility (or any part thereof). "Interest Rate Protection" means any or all of the interest rate protection agreements that have been or may from time to time be entered into between the Borrowers and the Administrative Agent or another Lender in connection with the Credit Facility. "Interest Rate Protection Documents" means the documents evidencing and governing the Interest Rate Protection at any time and from time to time. "Interest Reserve" shall have the meaning set forth in Section 2.1 The Loan (i) hereof. "Inventory" means any and all inventory of the Borrowers and all right, title and interest of the Borrowers in, and to, all of its now owned and hereafter acquired goods, merchandise and other personal property furnished under any contract of service or intended for sale or lease arising out of or relating to any and all Facilities, including, without limitation, all supplies of any kind, nature or description which are used or consumed in the Borrowers' business and all documents of title or documents representing the same and all proceeds (cash and non-cash) and products of the foregoing. "Joinder Agreement" means a Joinder Agreement in the form attached hereto as EXHIBIT F executed by an additional Borrower (each an "Additional Borrower") to acknowledge its joinder as a party to this Agreement and a co-borrower jointly and severally liable for the Collateral Assignments and the Management Fee Subordination Agreements of the Obligations pursuant to and in connection with its delivery of a Deed of Trust. "Klaassens" means Paul J. Klaassen and Teresa M. Klaassen. "Land" shall mean the land described in the applicable Deed of Trust. "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any Governmental Authority or any court or similar entity established by any thereof. "Lease" has the meaning set forth in a Deed of Trust. 12 19 "Lender Tax" means any present or future tax, levy, cost or charge of any nature imposed by any Governmental Authority, excluding taxes on or measured by the net income of any Lender imposed by any jurisdiction in which the principal or relevant lending office of such Lender is located. "Letter of Credit" and "Letters of Credit" shall have the meanings described in Section 2.6 The Letter of Credit Facility hereof. "Letter of Credit Agreement" means the collective reference to each letter of credit application and agreement substantially in the form of the Administrative Agent's or other applicable Lender's then standard form of application for letter of credit or such other form as may be approved by the Lender, executed and delivered by the Borrower in connection with the issuance of a Letter of Credit, as the same may from time to time be amended, restated, supplemented or modified and "Letter of Credit Agreements" means all of the foregoing in effect at any time and from time to time. "Letter of Credit Documents" means any and all drafts under or purporting to be under a Letter of Credit, any Letter of Credit Agreement, and any other instrument, document or agreement executed and/or delivered by the Borrower or any other Person under, pursuant to or in connection with a Letter of Credit or any Letter of Credit Agreement. "Letter of Credit Facility" means the facility established by the Lenders pursuant to Section 2.6 The Letter of Credit Facility of this Agreement. "Letter of Credit Fee" and "Letter of Credit Fees" have the meanings described in Section 2.6 The Letter of Credit Facility hereof. "Letter of Credit Obligations" means all Obligations of the Borrower with respect to the Letters of Credit and the Letter of Credit Agreements. "Licenses" means any and all licenses, certificates of need, operating permits, franchises, and other licenses, authorizations, certifications, permits, or approvals, other than construction permits, issued by, or on behalf of, any Governmental Authority now existing or at any time hereafter issued, with respect to the acquisition, construction, renovation, expansion, leasing, management, ownership and/or operation of any and all Facilities, accreditation of any Facility, and/or the participation or eligibility for participation in any third party payment or reimbursement programs to the extent any of the Borrowers are participating in such programs (but specifically excluding any and all Participation Agreements to the extent required by law), any and all operating licenses issued by any state Governmental Authority, any and all pharmaceutical licenses and other licenses related to the purchase, dispensing, storage, prescription or use of drugs, medications, and other "controlled substances," any and all licenses relating to the operation of food or beverage facilities or amenities, if any, and any and all certifications and eligibility for participation in Medicare, Medicaid, Blue Cross and/or Blue 13 20 Shield, or any of the Managed Care Plans, private insurer, employee assistance programs or other third party payment or reimbursement programs as the same may from time to time be amended, renewed, restated, reissued, restricted, supplemented or otherwise modified. "Lien" means any mortgage, deed of trust, deed to secure debt, grant, pledge, security interest, assignment, encumbrance, judgment, lien or charge of any kind, whether perfected or unperfected, avoidable or unavoidable, consensual or non-consensual, including, without limitation, any conditional sale or other title retention agreement, filed or un-filed tax liens, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction. "Liquid Assets" means cash, cash equivalents and readily marketable securities for purposes of any covenant under the Financing Documents, Liquid Assets held by the Borrowers to satisfy the requirements of Section 8.14 Distributions to Partners or Members hereof shall be included. "Liquidation Costs" shall have the meaning set forth in Section 10.6 Uniform Commercial Code and Other Remedies hereof. "Loan" shall have the meaning set forth in Section 2.1 The Loan hereof. "Major Subcontractor" shall mean a subcontractor under a subcontract in an amount of $100,000 or more pertaining to any Facility. "Managed Care Plans" shall mean any health maintenance organization, preferred provider organization, individual practice association, competitive medical plan, or similar arrangement, entity, organization, or Person. "Management Agreement" shall mean any and all Management Agreements entered into or to be entered into by and between any of the Borrowers and the Management Company relating to the management of the Facilities, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Management Company" means SALMI, its successors and assigns and any other Person which may become the manager of the Facilities. "Management Fees" shall have the meaning set forth in Section 7.19 Management. "Management Fee Subordination Agreement" shall have the meaning set forth in Section 7.19 Management hereof. "Material Adverse Change" means a significant adverse change in a Person's financial position or capacity including but not limited to significant adverse changes in (a) liquidity, (b) 14 21 gross revenues, (c) total expenses, (d) such Person's net worth, or (e) ability to meet payment obligations under such Person's Funded Debt, the Obligations and/or contingent liabilities. "Material Lease" has the meaning set forth in a Deed of Trust. "Minimum Occupancy Requirement" means for an Eligible Project with 77 units or fewer, a minimum Resident Occupancy of (A) 50% by the sixth (6th) Operating Month, (B) 70% by the ninth (9th) Operating Month and (C) 85% by the twelfth (12th) Operating Month and thereafter and means for an Eligible Project with 78 units or more, a minimum Resident Occupancy of (A) 50% by the sixth (6th) Operating Month, (B) 70% by the ninth (9th) Operating Month, (C) 80% by the twelfth (12th) Operating Month and (D) 85% by the fifteenth (15th) Operating Month and thereafter. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in SECTION 4001(a)(3) of ERISA. "Net Operating Income" means total operating revenue less total operating expenses (excluding interest, federal and state income taxes, depreciation and amortization) but including a management fee to the Management Company of the higher of five percent (5%) of gross revenues or the actual management fee for the period in question as shown in financial information provided by the Borrowers. "Note" shall have the meaning set forth in Section 2.1 The Loan hereof. "Notice" shall mean a written communication delivered as specified in Section 11.1 Notices hereof. "Obligations" means all present and future debts, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of the Borrowers to the Administrative Agent or any Lender under, arising pursuant to, in connection with and/or on account of the provisions of this Agreement, the Note, each Joinder Agreement, the Deeds of Trust, each Security Document, and any of the other Financing Documents, including, without limitation, the principal of, and interest on, the Note, late charges, Enforcement Costs, and other prepayment penalties (if any), Letter of Credit Fees or fees charged with respect to any guaranty of any Letter of Credit, any indebtedness to the Administrative Agent or other Lender or Lenders who make available the Interest Rate Protection arising out of such Interest Rate Protection pursuant to the Interest Rate Protection Documents, and also means all other present and future indebtedness, liabilities and obligations, whether now existing or contemplated or hereafter arising, of the Borrowers to the Lenders in connection with the Credit Facility of any nature whatsoever regardless of whether such debts, obligations and liabilities be direct, indirect, primary, secondary, joint, several, joint and several, fixed or contingent, and any and all renewals, extensions and rearrangements of any such debts, obligations and liabilities. 15 22 "Operating Agreements and Management Contracts" means any and all contracts and agreements previously, now or at any time hereafter at any time entered into by any of the Borrowers with respect to the acquisition, construction or renovation of a significant nature, expansion, ownership, operation, maintenance, use or management of any or all of the Facilities or otherwise concerning the operations and business of any or all of the Facilities, including, without limitation, any and all service and maintenance contracts, any employment contracts, any and all management agreements, any and all consulting agreements, laboratory servicing agreements, pharmaceutical contracts, physician, other clinician or other professional services provider contracts, resident agreements, food and beverage service contracts, and other contracts for the operation and maintenance of, or provision of services to, a Facility, as the same may from time to time be amended, restated, supplemented, renewed, or modified. "Operating Month" means a full calendar month after the issuance of a certificate of occupancy for any Facility. "Operating Reserve" shall mean a reserve in an amount approved by the Administrative Agent included in each Total Development Budget to cover the costs of leasing up a Facility and initial operating deficits. "Outstanding Letter of Credit Obligations" has the meaning described in Section 2.6 The Letter of Credit Facility hereof. "Participation Agreements" means any and all third party payor participation or reimbursement agreements now or at any time hereafter existing for the benefit of any of the Borrowers relating to rights to payment or reimbursement from, and claims against, private insurers, Managed Care Plans, material employee assistance programs, Blue Cross and/or Blue Shield, federal, state and local Governmental Authorities, including without limitation, Medicare and Medicaid, and other third party payors, as the same may from time to time be amended, restated, extended, supplemented or modified. "Performance Guaranty" means, individually or collectively, that certain Amended and Restated Guaranty of Completion of even date herewith dated December 23, 1997 as modified and confirmed pursuant to a Confirmation of and Amendment to Master Guaranty of Performance of even date herewith executed by the Guarantor in favor of the Lenders and any Guaranty of Performance which may in the future be executed and delivered by the Guarantor in connection with any Facility Closing. "Permitted Liens" means: (a) Liens for Taxes which are not delinquent or which the Administrative Agent has determined in the exercise of its sole and absolute discretion (i) are being diligently contested in good faith and by appropriate proceedings, (ii) the applicable Borrower has the financial ability to pay, with all penalties and interest, at all times without materially and adversely affecting such Borrower, and (iii) are not, and will not be with appropriate filing, the giving of notice and/or the passage of time, entitled to priority over any Lien of the Lenders; (b) deposits or pledges to secure obligations under workers' compensation, 16 23 social security or similar laws, or under unemployment insurance in the ordinary course of business; (c) Liens in favor of the Lenders pursuant to the Credit Facility or the Interest Rate Protection; (d) judgment Liens to the extent the entry of such judgment does not constitute an Event of Default under the terms of this Agreement or result in the sale of, or levy of execution on, any of the Collateral; (e) Liens approved by the Administrative Agent which have been created to secure permitted subordinated debt on a junior lien basis; and (f) such other Liens, if any, as are identified as Permitted Encumbrances as defined in the Deed of Trust. "Person" shall mean and include an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an unincorporated association, any Governmental Authority or any other entity. "Plans and Specifications" shall mean any and all plans and specifications prepared in connection with the development of the Land and/or the construction of the Improvements for any Eligible Project and which are approved in writing by the Administrative Agent, including but not limited to, the plans and specifications prepared by the Architect, a copy of which have been initialed by the applicable Borrower and the Administrative Agent for identification and delivered to the Administrative Agent. "Pledge, Assignment and Security Agreement" means the Amended and Restated Pledge Assignment and Security Agreement of even date herewith executed by the partners of the Borrower in favor of the Administrative Agent, pursuant to which such owners of the Borrower have pledged and assigned all of their respective partners' interests in the Borrower to the Lenders as additional security for the Credit Facility. "Pool A Project" means any Eligible Project for which, when the Borrowing Base is computed at the end of a reporting period, (a) either (i) construction has been on-going for not more than fifteen (15) months or (ii) it is a Completed Facility not later than fifteen (15) months after the date on which the applicable Deed of Trust was executed; or (b) after it is a Completed Facility, meets the Minimum Occupancy Requirement and Fixed Charge Coverage Ratio Requirement. "Pool B Project" means any Eligible Project which, when the Borrowing Base is computed at the end of any reporting period, does not meet the definition of a Pool A Project. "Pool C Project" means any Eligible Project which, when the Borrowing Base is computed at the end of two or more consecutive reporting periods, does not meet the definition of a Pool A Project. "Post Default Rate" means the interest rate on the Note in the absence of an Event of Default plus three percent (3%) per annum. 17 24 "Primary Borrower" means SEAL or another Borrower or a Person designated as an attorney-in-fact for the Borrowers designated as such from time to time by the Borrowers by written notice to the Administrative Agent. "Property" shall mean collectively the "Property" as that term is defined in each of the Deeds of Trust. "Qualified Ground Lease" means (i) any lease (a) which is a direct ground lease (or indirect ground lease, so long as each ground lease in the chain of title meets the following criteria) granted by the fee owner of real property, (b) which may be transferred and/or assigned without the consent of the Lessor (or as to which the lease expressly provides that (i) such lease may be transferred and/or assigned with the consent of the lessor and (ii) such consent shall not be unreasonably withheld or delayed), (c) which has a remaining term (including any renewal terms exercisable at the sole option of the lessee) of at least 50 years, (d) under which no material default has occurred and is continuing, (e) with respect to which a security interest may be granted without the consent of the lessor, and (f) which contains lender protection provisions reasonably acceptable to the Administrative Agent including, without limitation, provisions to the effect that (A) the lessor shall notify the Administrative Agent of the occurrence of any default by the lessee under such lease and shall afford the Administrative Agent the right to cure such default, and (B) in the event that such lease is terminated, the Administrative Agent shall have the option to enter into a new lease having terms substantially identical to those contained in the terminated lease. Upon the submission to the Administrative Agent of a written request for approval of the lender protection provisions and other terms of a proposed Qualified Ground Lease, the Administrative Agent may waive any non-compliances with the foregoing which it considers in its reasonable judgment not to be material and adverse with respect to the eligibility of the Facility subject to the Qualified Ground Lease, and shall use its best efforts to accept or reject such proposal within five (5) Banking Days, and shall accept or reject such proposal within ten (10) Banking Days, in each case following receipt of such request. "Receivables" means all of the Borrowers' now or hereafter owned, acquired or created Accounts, Chattel Paper, Contract Rights, General Intangibles and Instruments, and all cash and noncash proceeds and products thereof. "Rent Expense" means the actual rent expense incurred by the Borrower, the Guarantor or any Affiliate as a tenant under leases with respect to any Facility. "Replacement Reserves" means $250 per year per bed in each Facility. "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Requisition" or "Requisitions" shall have the meaning set forth in Section 2.8 Requisitions Demonstrating Expenses hereof. 18 25 "Resident Agreements" means any and all contracts, authorizations, agreements and/or consents executed by, or on behalf of any resident or other person seeking services from any Borrower pursuant to which such Borrower provides or furnishes health or assisted living care and related services at any and all of the Facilities, including the consent to treatment, assignment of payment of benefits by third party, as the same may from time to time be amended, restated, supplemented or modified. "Resident Occupancy" means the number of residents who are in occupancy at a Facility and paying fees pursuant to a resident agreement divided by the pro forma resident occupancy for such Facility as contained in the pro forma operating budget of an Eligible Facility. "Revolving Credit Expiration Date" means July 29, 2002 or any date to which it may be extended from time to time pursuant to the terms of Section 2.5 Extensions hereof. "Revolving Credit Termination Date" means the earlier of (a) the Revolving Credit Expiration Date, or (b) the date on which the Credit Facility is terminated pursuant to Section 10.5 Remedies on Default hereof or otherwise. "SALI" means Sunrise Assisted Living, Inc., a Delaware corporation. "SALII" means Sunrise Assisted Living Investments, Inc., a Virginia corporation. "SALMI" means Sunrise Assisted Living Management, Inc., a Virginia corporation, formerly known as Sunrise Terrace, Inc. "SDI" means Sunrise Development, Inc., a Virginia corporation. "Security Documents" shall mean, collectively, any assignment, including, without limitation, any Pledge, Assignment and Security Agreement, the Collateral Assignments and any assignment, pledge agreement, security agreement, mortgage, deed of trust (including the Deeds of Trust), leasehold mortgage, leasehold deed of trust, deed to secure debt, financing statement, initial transaction statement and any similar instrument, document or agreement under or pursuant to which a Lien is now or hereafter granted to, or for the benefit of, the Lenders on any collateral to secure the Obligations, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Stabilized Facility" means an Eligible Project with a Resident Occupancy of at least 85% and a ratio of Net Operating Income to Debt Service of not less than 1.25 to 1.00 measured for two consecutive fiscal quarters. "Stored Materials" shall have the meaning set forth in Section 4.12 Stored Materials hereof. 19 26 "Survey" shall mean a plat of the Land for any Facility which clearly designates at least (i) the location of the perimeter of such Land by courses and distances; (ii) the location of all easements, rights-of-way, alleys, streams, waters, paths and encroachments; (iii) the location of all building restriction lines and set-backs, however established; (iv) the location of any streets or roadways abutting such Land; and (v) the then "as-built" location of the Improvements located on such Land and the relation of such Improvements by courses and distances to the perimeter of such Land, building restriction lines and set-backs, all in conformity with the Minimum Standard Detail Requirements for Land Title Surveys adopted by the American Congress on Surveying and Mapping (1992 Edition). "Taxes" means all taxes and assessments whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character (including all penalties or interest thereon), which at any time may be assessed, levied, confirmed or imposed by any Governmental Authority on any of the Borrowers or any of their properties or assets or any part thereof or in respect of any of their franchises, businesses, income or profits. "Total Development Budget" means the development, construction and opening operating expense budget for an Eligible Project as reviewed and approved by the Administrative Agent. "Unused Commitment Amount" shall have the meaning set forth in Section 2.3 Fees hereof. "Unused Line Fee" shall have the meaning set forth in Section 2.3 Fees hereof. "Wholly Owned Subsidiary" or "Wholly Owned Subsidiaries" means one or more subsidiaries 100% owned by SALI or a Borrower or by any Wholly Owned Subsidiary of SALI or a Borrower which is or has been created for the sole purpose of acquiring or constructing and owning and operating a Facility which is included in the Borrowing Base. Section 1.2 Accounting Terms and Other Definitional Provisions Unless otherwise defined in this Agreement, as used in this Agreement and in any certificate, report or other document made or delivered pursuant hereto, accounting terms not otherwise defined in this Agreement, and accounting terms only partly defined in this Agreement, to the extent not defined, shall have the respective meanings given to them under GAAP. Unless otherwise defined in this Agreement, all terms used in this Agreement which are defined by the Virginia Uniform Commercial Code shall have the same meanings as assigned to them by the Virginia Uniform Commercial Code unless and to the extent varied by this Agreement. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, Section, subsection, schedule and exhibit references are references to sections or subsections of, or schedules or exhibits to, as the case may be, this Agreement unless otherwise specified. As used in this Agreement, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders, as the 20 27 context may require. Reference to any one or more of the Financing Documents and any of the Financing Documents shall mean the same as the foregoing may from time to time be amended, restated, substituted, extended, renewed, supplemented or otherwise modified. ARTICLE II BORROWING Section 2.1 The Loan (a) The Lenders agree to lend to the Borrowers pursuant to the terms and conditions of this Agreement, and the Borrowers, jointly and severally, agree to borrow on a revolving basis from the Lenders from time to time the principal amount (the "Loan") not to exceed at any time outstanding the lesser of (i) the Credit Facility Committed Amount, or (ii) the Borrowing Base minus the aggregate face amount of all Letters of Credit outstanding. (b) The obligation of the Borrowers to repay the Loan shall be evidenced by the Second Amended, Restated, Consolidated and Increased Master Note of even date herewith (as amended, restated, substituted, extended, renewed and otherwise modified from time to time, the "Note") payable to the Administrative Agent in the form attached hereto as EXHIBIT A. The Note shall bear interest and shall be repaid by the Borrowers in the manner and at the times set forth in the Note. (c) The conditions precedent for making an advance under the Loan shall be as set forth in this Agreement. Sums borrowed and repaid may be readvanced under the terms and conditions of this Agreement. Advances shall be made by the Lenders on a pro rata basis based on their pro rata shares of the Credit Facility Committed Amount. (d) No advances may be made or be outstanding under the Credit Facility and no Letters of Credit may be issued until and during such times as there are at least eight (8) Eligible Projects in the Borrowing Base of which 83% must be Pool A Projects. The Administrative Agent will prepare a Borrowing Base Report (each a "Borrowing Base Report") in the form attached hereto as EXHIBIT B which must be certified by the Borrowers listing for each of the Eligible Projects (i) the applicable Deed of Trust Lien Amount, (ii) the Costs Incurred to Date, and (iii) its status as of the most recent reporting date as a Pool A, Pool B or Pool C Project within forty-five (45) days after the end of each of the Borrowers' fiscal quarters. The Borrowing Base Report will be based on the outcome of the requisition procedures hereinafter described, appraisals obtained by the Administrative Agent and other information on the Eligible Projects provided by the Borrowers or obtained by the Administrative Agent. The Borrowing Base shall be computed based on the Borrowing Base Report most recently prepared by the Administrative Agent. In the event the Borrowers shall fail to furnish other current reports or information as reasonably required by the Administrative Agent pursuant to the Financing Documents, or in the event the Administrative Agent believes that a Borrowing Base Report is no longer accurate, the Administrative Agent may, in its reasonable discretion exercised from time to time and without limiting its other rights and remedies under the Financing Documents, 21 28 upon notice to the Borrowers and the expiration of a cure period of five (5) Banking Days, designate any Eligible Project as a Pool C Project or suspend the making of or limit advances under the Loan. The Borrowing Base shall be subject to reduction as a result of the following events: (i) the release of an Eligible Project from the lien of the applicable Deed of Trust, (ii) by the change of any Eligible Project's status as a Pool A or B Project to a Pool B or C Project respectively as determined by the Administrative Agent quarterly, or (iii) the change in appraised value of an Eligible Project pursuant to Section 7.28 Updated Appraisals. The Borrowing Base shall be subject to increase as a result of the following events: (i) addition of Eligible Projects, (ii) increase in the Costs Incurred to Date as determined by the Administrative Agent quarterly, or (iii) the change of an Eligible Project's status as a Pool B or C Project to a Pool A as determined by the Administrative Agent quarterly. The Borrowers may request and the Requisite Lenders (as defined in the Agency Agreement) may in their sole discretion agree to include as an Eligible Project a completed Facility which a Borrower has acquired which meets the conditions precedent to including a completed Facility as an Eligible Project. (e) The Borrowers shall furnish to the Administrative Agent such schedules, certificates, lists, records, reports, information and documents as required by the Administrative Agent from time to time so that the Administrative Agent may, in its reasonable discretion, determine the Borrowing Base. (f) If at any time the aggregate principal amount of the Loan outstanding and the Outstanding Letter of Credit Obligations exceeds the Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency exists, the Borrowers shall within three (3) Banking Days of notice thereof from the Administrative Agent either pay the amount and/or add Eligible Projects to increase the Borrowing Base to an amount which is at least equal to the aggregate principal amount outstanding under the Loan and the Outstanding Letter of Credit Obligations. (g) The current Borrowing Base Report is attached hereto as EXHIBIT C. (h) As of the date hereof the Borrower has designated and the Lenders have accepted certain Facilities into the Borrowing Base as Eligible Projects. This Agreement shall govern the procedures for verification by the Administrative Agent of Costs Incurred to Date on each Eligible Project. This Agreement shall also govern the terms, conditions and procedures under which Eligible Projects may be added to the Borrowing Base. (i) The Borrower will give notice to the Administrative Agent in writing in advance of its intention to add a particular Facility as an Eligible Project under the Credit Facility. Each Total Development Budget for an Eligible Project shall include an interest reserve (the "Interest Reserve"), and Operating Reserve, a hard cost contingency reserve of not less than five percent (5%) of the total budgeted construction costs and a development fee payable to SDI (the "Development Fee") and shall demonstrate to the Agent's satisfaction in its sole discretion that the Eligible Project will be designated as a Pool A Project. Section 2.2 Procedure for Advances 22 29 (a) The Administrative Agent will make advances from time to time upon receipt of written request from the Borrowers in the form designated by the Administrative Agent, provided that after giving effect to the Borrowers' request, the outstanding principal balance of the Loan would not exceed the lesser of the Credit Facility Committed Amount or the Borrowing Base minus the aggregate face amounts of all Letters of Credit outstanding. Each advance under the Loan shall be in an amount of not less than $1,000,000, and in increments of $250,000 in excess thereof. Advances or the renewal of a Eurodollar Period shall be requested by the Borrowers orally or in writing by 10:00 A.M. (Baltimore time) three (3) Banking Days prior to the Banking Day on which the funds will be advanced. The Borrowers shall advise the Administrative Agent at the time of such notice which Eurodollar Period they are selecting. The Administrative Agent shall have no obligation to make any advance if at the time such advance is requested and/or is proposed to be funded, there exists an Event of Default or an event which upon notice or lapse of time or both would constitute an Event of Default under the Financing Documents. If the Borrowers fail to advise the Administrative Agent three (3) Banking Days in advance of the expiration of a Eurodollar Period of its intention to either pay off such portion of the Loan or renew the applicable Eurodollar Period, it shall be assumed by the Administrative Agent that the Eurodollar Period is to be renewed. (b) In addition, if the Administrative Agent has reason to believe a Default or an Event of Default has occurred, the Borrowers hereby irrevocably authorize the Lenders to make advances of the Loan at any time and from time to time, without further request from or notice to the Borrowers, which the Lenders, in their sole and absolute discretion, deem necessary or appropriate to protect the Lenders' interests under this Agreement or otherwise, including, without limitation, advances of the Loan made to cover interest on the Loan, fees, and/or Enforcement Costs, prior to, on, or after the termination of this Agreement, regardless of whether the aggregate amount of the advances of the Loan which the Lenders may make hereunder exceeds the Credit Facility Committed Amount. The Lenders shall have no obligation whatsoever to make any advance under this subsection and the making of one or more advances under this subsection shall not obligate the Lenders to make other similar advances. Any such advances will be evidenced by the Note secured by the Collateral and the Deeds of Trust. Section 2.3 Fees The Borrowers shall pay to the Administrative Agent the following fees: (a) Unused Line Fee. The Borrowers shall pay to the Administrative Agent for the benefit of the Lenders beginning on the date set forth below a quarterly revolving credit facility fee (the "Unused Line Fee") in an amount equal to twenty-five (25) basis points per annum of the average undisbursed portion of the "Unused Commitment Amount" for the applicable quarter specified in the right-hand column below. The accrued and unpaid portion of the Unused Line Fee shall be paid by the Borrower to the Administrative Agent as of the Credit Facility Closing Date and on the first day of each fiscal quarter commencing October, 1999 and on the Revolving Credit Termination Date. For purposes hereof "Average Outstandings" shall 23 30 mean the average daily principal under the Note plus the average daily principal amount of the aggregate face amounts of the Letters of Credit for the quarter then ended.
Period Unused Commitment Amount ------ ------------------------ Quarter ending 6/30/1999 $180,000,000 less the Average Outstandings Quarter ending 9/30/1999 $250,000,000 less the Average Outstandings Quarter ending 12/31/1999 $250,000,000 less the Average Outstandings Quarter ending 3/31/2000 $300,000,000 less the Average Outstandings Quarter ending 6/30/2000 $350,000,000 less the Average Oustandings Quarter ending 9/30/2000 and Credit Facility Committed each fiscal quarter there- Amount less the Average after Outstandings
(b) Appraisal Fees. Upon the receipt of an appraiser's invoice from the Administrative Agent, the Borrowers shall pay the fee of the appraiser for an Eligible Project. (c) Extension Fee. In the event the Revolving Credit Expiration Date of the Credit Facility is extended for a twelve-month period pursuant to the terms of Section 2.5 Extensions Section 2.4 Interest Rate Matters (a) Lender Tax Adjustment. Each payment made by the Borrowers under the Note shall either (i) be exempt from, and be made without reduction by reason of, any Lender Tax or (ii) to the extent that any such payment shall be subject to any Lender Tax, be accompanied by an additional payment by the Borrowers of such amount as may be necessary so that the net amount received by each Lender (after deducting all applicable Taxes) is the same as such Lender would have received had such payment not been subject to such Lender Tax. Upon any payment of Lender Tax by the Borrowers, the Borrowers shall promptly (and in any event within 30 days) furnish to the Administrative Agent and applicable Lender such tax receipts, certificates an other evidence of such payment as the Borrowers may have or the Administrative Agent or the applicable Lender may reasonably request. 24 31 (b) Inability to Determine Eurodollar Rate. In the event that the Administrative Agent determines (which determination shall be conclusive absent manifest error) that, by reason of circumstances affecting the London interbank market, quotation of Eurodollar Rates for any portion of the Note are not being provided in the relevant amounts or for the relevant maturities for the purpose of determining a Eurodollar Rate for any portion of the principal sum, the Administrative Agent will give notice of such determination to the Borrowers and each Lender at least one day prior to the date of an advance or any subsequent Eurodollar Period for the Loan. If any such notice is given, no Lender shall have any obligation to make any advance or maintain any principal sum outstanding at a Eurodollar Rate. Until the earlier of the date any such notice has been withdrawn by the Administrative Agent or the date when the Lenders and the Borrowers have mutually agreed upon an alternate method of determining the rates of interest payable on the Loan, as the case may be, the Borrowers shall not have the right to have additional advances or maintain any portion of the Credit Facility at a Eurodollar Rate, whereupon the Lenders and the Borrowers shall mutually agree upon an alternate method of determining the rates of interest payable on the Loan or such Lender's portion of the principal outstanding under all the Note shall be immediately due and payable. (c) Illegality. Notwithstanding any other provision of the Financing Documents to the contrary, in the event that it shall become unlawful for any Lender to obtain funds in the London interbank market or for such Lender to maintain the Loan at the Eurodollar Rate, then, by written notice to the Borrowers and to the Administrative Agent, such Lender may declare that advances will not thereafter be made or the Loan maintained by such Lender hereunder at the Eurodollar Rate, whereupon the Lenders and the Borrowers shall mutually agree upon an alternate method of determining the rates of interest payable on the Loan or such Lender's portion of the principal outstanding under the Note shall be immediately due and payable. (d) Increased Costs and Reduced Return. (i) If any event shall occur (whether in the form of a reserve requirement (not included in the definition of the Eurodollar Rate), exchange control regulations, governmental charges, compliance with any guideline or request from any central bank or other Governmental Authority, changes in the London interbank market or the position of any Lender in such market or otherwise) and the result of any such event is, in such Lender's reasonable judgment, to increase the costs which such Lender determines are attributable to its making or maintaining the Loan at the Eurodollar Rate in excess of those costs already in effect as of July 1, 1999, or its obligation to make available the Loan at the Eurodollar Rate or to reduce the amount of any sum received or receivable by such Lender under the Note, then, within ten (10) days after demand by such Lender, Borrowers hereby agree to pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (ii) In addition to any amounts payable pursuant to Section (i), if any Lender shall have determined that the applicability of any law, rule, regulation or 25 32 guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards," or the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the enforcement or interpretation or administration of any of the foregoing by any court or any central bank or other Governmental Authority, charged with the enforcement or interpretation or administration thereof, or compliance by such Lender (or any lending office of such Lender) or such Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of its making or maintaining the Loan or its incurring any obligations under this Agreement to a level below that which such Lender or such Lender's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then, upon demand by such Lender, the Borrowers hereby agree to pay to such Lender from time to time such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (e) Notice of Amounts Payable to Lenders. If any Lender shall seek payment of any amounts from Borrowers pursuant to this Section or under Section 2.4 Interest Rate Matters, it shall notify the Borrowers and the Administrative Agent of the amount payable by the Borrowers to such Lender hereunder. A certificate of such Lender seeking payment setting forth in reasonable detail the factual basis for and the computation of the amount specified, shall be conclusive and binding on all parties for all purposes, absent manifest error, as to the amounts owned. The Borrowers' obligations under this Section shall survive the termination of this Agreement and the repayment of the Obligations. (f) Change in Basis Point Spread. Any change in the basis point margin added to the Eurodollar Rate based on a change in the rating pursuant to the terms of the Note shall take effect one (1) Banking Day following notice by the Administrative Agent to the Lenders of such rate change. Section 2.5 Extensions At any time not later than thirty (30) days nor earlier than one hundred twenty (120) days prior to the Revolving Credit Expiration Date or any anniversary of the Facility Closing, the Borrowers may request that the Administrative Agent and the Lenders, in their sole discretion, 26 33 may agree to extend the Revolving Credit Expiration Date one or more times for a period of twelve (12) months each. Section 2.6 The Letter of Credit Facility (a) Letters of Credit. Subject to and upon the provisions of this Agreement, and as a part of the Credit Facility Committed Amount, the Borrower may, upon the prior approval of the Administrative Agent, obtain standby letters of credit (as the same may from time to time be amended, supplemented or otherwise modified, each a "Letter of Credit" and collectively the "Letters of Credit") from any Lender selected by the Borrowers from time to time until the Banking Day preceding the Revolving Credit Termination Date. Each Letter of Credit shall be issued for a business purpose of any Borrower, SALI or any Affiliate, provided that one or more Borrowers is a co-obligor with SALI or any Affiliate for the Obligations arising under such Letter of Credit and executes the applicable Letter of Credit Application to evidence such liability. The Borrower will not be entitled to obtain a Letter of Credit hereunder unless (a) after giving effect to the request, the outstanding principal balance of the Loan and of the Letter of Credit Obligations would not exceed the lesser of (i) the Credit Facility Amount, or (ii) the most current Borrowing Base and (b) the sum of the aggregate face amount of the then outstanding Letters of Credit (including the face amount of the requested Letter of Credit) does not exceed Ten Million Dollars ($10,000,000). (b) Letter of Credit Fees. Prior to or simultaneously with the opening of each Letter of Credit, the Borrower shall pay to the Administrative Agent or the other issuing Lender for the benefit of all the Lenders, a letter of credit fee (each a "Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an amount equal to eighty (80) basis points per annum of the amount of the Letter of Credit and a facing fee of 1/8th of 1% of the amount of the Letter of Credit for the benefit of the issuing Lender only. The Letter of Credit Fee but not the facing fee will be pro-rated if the initial term of a Letter of Credit is less than twelve (12) months. Such Letter of Credit Fees shall be paid upon the opening of the Letter of Credit and upon each anniversary thereof, if any. In addition, the Borrower shall pay to the Lender any and all additional issuance, negotiation, processing, transfer or other fees to the extent and as and when required by the provisions of any Letter of Credit Agreement; such additional fees are included in and a part of the "Fees" payable by the Borrower under the provisions of this Agreement. (c) Terms of Letters of Credit. Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit Agreement, and (b) expire on a date not later than the Banking Day preceding the Revolving Credit Expiration Date; provided, however, if any Letter of Credit does have an expiration date later than the Banking Day preceding the Revolving Credit Termination Date, as of the Banking Day preceding the Revolving Credit Termination Date an advance of the Loan shall be made by the Lender in the face amount of such Letter of Credit (or Letters of Credit) and the proceeds thereof shall be deposited in an account titled in the name of the Administrative Agent as trustee for the Borrower. The proceeds of the trustee account referred to in the immediately preceding sentence shall be held as collateral for the Letter of Credit (or Letters of Credit) and in the event of a draw under the Letter of Credit (or Letters of Credit), used to pay any such draw. The aggregate face amount of all Letters of Credit at any one time outstanding and 27 34 issued by the Administrative Agent or any other Lender pursuant to the provisions of this Agreement, plus the amount of any unpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and less the aggregate amount of all drafts issued under or purporting to have been issued under such Letters of Credit that have been paid by the Administrative Agent or any other Lender, is herein called the "Outstanding Letter of Credit Obligations". (d) Procedure for Letters of Credit. The Borrower shall give the Administrative Agent written notice at least two (2) Banking Days prior to the date on which a Letter of Credit is requested to be opened of their request for a Letter of Credit. Such notice shall specify if a Lender other than the Administrative Agent is requested to be the issuing bank for such Letter of Credit shall be accompanied by a duly executed and delivered Letter of Credit Agreement. Upon receipt of the Letter of Credit Agreement and the Letter of Credit Fee, the Administrative Agent or other issuing Lender shall process such Letter of Credit Agreement in accordance with its customary procedures and open such Letter of Credit on the Banking Day specified in such notice. Section 2.7 Permitted Costs Advances under the Borrowing Base shall be made available by the Lenders pursuant to a Borrowing Base Report issued quarterly by the Administrative Agent or more frequently in the Administrative Agent's discretion and certified by the Borrowers in accordance with the terms of this Agreement. That portion of the Borrowing Base composed of Costs Incurred to Date shall be related to expenditures for each Eligible Facility described in the applicable Total Development Budget. Each Total Development Budget may include the cost of (i) the acquisition by the Borrowers of the Land which is the site of such Facility, (ii) the construction on the Premises of a Facility containing residential units and common facilities (iii) marketing, staffing and similar pre-opening expenses and (iv) an Operating Reserve. Unless otherwise agreed to by the Administrative Agent and to the extent specifically permitted by the Administrative Agent, the process of verification of Requisitions shall confirm the payment by any of the Borrowers of the following costs and expenses related to the development of the Premises and the construction of the Improvements and no others may be included in a Total Development Budget: (i) the payment of interest when due without further authorization or consent of the Borrowers; (ii) the actual cost of the Land and all labor, services, materials, supervision, construction fees and the like reasonably incurred by any of the Borrowers in connection with the construction upon the Land of the Improvements in accordance with the Plans and Specifications; (iii) for the actual cost of pre-opening expenses, marketing expenses and operations of the Facility to the extent of operating deficits; (iv) for the actual cost of commitment fees, extension fees, appraisal fees, closing or settlement costs, fees of attorneys, engineers, architects and accountants, insurance and bond premiums, ad valorem real estate taxes and other costs directly related to the development of the Land and the construction, marketing, initial start-up operating of the Improvements and (v) for the development fee payable to SDI (the "Development Fee") and other pre-opening fees. Section 2.8 Requisitions Demonstrating Expenses Verification of the Borrowers' Costs Incurred to Date will be administered by the Administrative Agent's Real Estate Loan Administration Group. Requisitions for each Eligible 28 35 Project shall be submitted by the Borrowers from time to time setting forth costs incurred by the Borrowers shall be in the form approved by the Administrative Agent (each a "Requisition" collectively, the "Requisitions") signed by James S. Pope, Larry Hulse, Christopher Slavin, Thomas B. Newell or David W. Faeder on behalf of the Borrowers and approved by the Architect, showing the percentage of completion and setting forth in trade breakdown form and in such detail as may be required by the Administrative Agent the amounts expended and/or costs incurred for work done and necessary materials incorporated in the Improvements. The Requisition shall also show the percentage of completion of each line item on the applicable Borrower's cost breakdown approved by the Administrative Agent. The Borrowers shall submit with each Requisition a statement that the work completed to the date of such Requisition is of quality consistent with the applicable Plans and Specifications. In addition, at the time of delivery of each Requisition by the Borrowers, the Borrowers shall furnish to the Administrative Agent such additional information (such as paid receipts, invoices, statements of accounts, etc.) as the Administrative Agent may reasonably require to assure that amounts shown in the Requisition have been paid by the Borrowers. Requisitions verified by the Real Estate Loan Administration Group during the course of a fiscal quarter will be included in the calculation of the next Borrowing Base Report. Section 2.9 Co-Borrower Obligations Each Person included in the term "Borrowers", including each Additional Borrower, hereby covenants and agrees with the Administrative Agent on behalf of the Lendersas follows: (a) The Obligations include all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of any one or more of the Additional Borrowers or the Existing Borrowers in connection with the Loan. (b) Reference in this Agreement and the other Financing Documents to the "Borrowers" or otherwise with respect to any one or more of the Persons now or hereafter included in the definition of "Borrowers" shall mean each and every such Person and any one or more of such Persons, jointly and severally, unless the context requires otherwise. (c) For administrative convenience, each Person included in the term "Borrowers" hereby irrevocably appoints the Primary Borrower as the Borrower's attorney-in-fact, with power of substitution (with the prior written consent of the Administrative Agent in the exercise of its sole and absolute discretion), in the name of the Primary Borrower or in the name of the Borrower or otherwise to take any and all actions with respect to this Agreement, the other Financing Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as the Primary Borrower may so elect from time to time, including, without limitation, actions to (i) request advances under the Loan, and direct the Administrative Agent to disburse or credit the proceeds of any advance under the Loan directly to an account of the Primary Borrower, any one or more of such Persons or otherwise, which direction shall evidence the making of such advance and shall constitute the acknowledgment by each such Person of the receipt of the proceeds of the Loan, (ii) enter into, execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any Additional Borrower Joinder Supplement, 29 36 any other Financing Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (iii) endorse any check or other item of payment in the name of such Person or in the name of the Primary Borrower. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of the Administrative Agent, and may be exercised from time to time through the Primary Borrower's duly authorized officer, officers or other Person or Persons designated by the Primary Borrower to act from time to time on behalf of the Primary Borrower. (d) Each Person included in the term "Borrowers" hereby irrevocably authorizes the Administrative Agent to make advances to any one or more or to all of such Persons, pursuant to the provisions of this Agreement upon the written, oral or telephonic request any one or more of the Persons who is from time to time a Responsible Officer of a Borrower under the provisions of the most recent certificate of corporate resolutions and/or incumbency of the Person included in the term "Borrowers" on file with the Administrative Agent and also upon the written, oral or telephone request of any one of Responsible Officer. (e) The Administrative Agent assumes no responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Administrative Agent and any one or more of the Persons included in the term "Borrowers", any advance under the Loan or any other transaction in connection with the provisions of this Agreement except those resulting from the Administrative Agent's gross negligence or willful misconduct. Section 2.10 Agreement Among Borrowers Without implying any limitation on the joint and several nature of the Obligations, the Administrative Agent agrees that, notwithstanding any other provision of this Agreement, the Persons included in the term "Borrowers" may create reasonable inter-company indebtedness between or among the Persons included in the term "Borrowers" with respect to the allocation of the benefits and proceeds of the advances under this Agreement. The Persons included in the term "Borrowers" agree among themselves, and the Administrative Agent consents to that agreement, that each such Person shall have rights of contribution from all of the such Persons to the extent such Person incurs Obligations in excess of the proceeds of the Loans received by, or allocated to purposes for the direct benefit of, such Person. All such indebtedness and rights shall be, and are hereby agreed by the Persons included in the term "Borrowers" to be, subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless the Administrative Agent agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been indefeasibly paid in full in cash. Each Person included in the term "Borrowers" agrees that all of such inter-company indebtedness and rights of contribution are part of the Collateral and secure the Obligations. Each Person included in the term "Borrowers" hereby waives all rights of counterclaim, recoupment and offset between or among themselves arising on account of that indebtedness and otherwise. Unless otherwise consented to in writing by the Administrative Agent, no Person included in the term "Borrowers" shall evidence the inter-company indebtedness or rights of 30 37 contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. Section 2.11 Benefits to Borrowers Each Person included in the term "Borrowers" hereby represents and warrants to the Administrative Agent that each of them will derive benefits, directly and indirectly, from each advance under the Loan, both in their separate capacity and as a member of the integrated group to which each such Person belongs and because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole, because (i) the terms of the consolidated financing provided under this Agreement are more favorable than would otherwise be obtainable by such Persons individually, and (ii) the additional administrative and other costs and reduced flexibility associated with individual financing arrangements which would otherwise be required if obtainable would substantially reduce the value to such Persons of the financing. Section 2.12 Guaranty (a) Each Person included in the term "Borrowers" hereby unconditionally and irrevocably, guarantees to the Administrative Agent: (i) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrowers" of the Obligations, including unpaid and accrued interest thereon, in each case when due and payable, all according to the terms of this Agreement, the Note and the other Financing Documents; (ii) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrowers" of all other sums and charges which may at any time be due and payable in accordance with this Agreement, the Note or any of the other Financing Documents; (iii) the due and punctual performance by the other Persons included in the term "Borrowers" of all of the other terms, covenants and conditions contained in the Financing Documents; and (iv) all the other Obligations of the other Persons included in the term "Borrowers". (b) The obligations and liabilities of each Person included in the term "Borrowers" as a guarantor under this Section shall be absolute and unconditional and joint and several, irrespective of the genuineness, validity, priority, regularity or enforceability of this Agreement, the Note or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. Each Person included in the term "Borrowers" in its capacity as a guarantor expressly agrees that the Administrative Agent may, in its sole and absolute discretion, without notice to or further assent of such 31 38 Borrower and without in any way releasing, affecting or in any way impairing the joint and several obligations and liabilities of such Person as a guarantor hereunder: (i) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (ii) modify, amend, change or terminate any provisions of any of the Financing Documents; (iii) grant extensions or renewals of or with respect to this Agreement, the Note or any of the other Financing Documents; (iv) effect any release, subordination, compromise or settlement in connection with this Agreement, the Note or any of the other Financing Documents; (v) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loan or to the subordination of any lien or security interest therein; (vi) make advances for the purpose of performing any term, provision or covenant contained in this Agreement, the Note or any of the other Financing Documents with respect to which the Borrower shall then be in default; (vii) make future advances pursuant to this Agreement or any of the other Financing Documents; (viii) assign, pledge, hypothecate or otherwise transfer, the Obligations, the Note, any of the other Financing Documents or any interest therein, all as and to the extent permitted by the provisions of this Agreement; (ix) deal in all respects with the other Persons included in the term "Borrowers" as if this Section were not in effect; (x) effect any release, compromise or settlement with any of the other Persons included in the term "Borrowers", whether in their capacity as a Borrower or as a guarantor under this Section or any other guarantor; and (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings under the Bankruptcy Code, it being expressly agreed by all Persons included in the term "Borrowers" that any such financing and/or use would be part of the Obligations. (c) The obligations and liabilities of each Person included in the term "Borrowers", as guarantor under this Section shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that 32 39 such Person may have against any one or more of the other Persons included in the term "Borrowers", the Administrative Agent and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Administrative Agent of any remedies it may have against Persons included in the term "Borrowers" with respect to this Agreement, the Note or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to make any demand upon any of the Persons included in the term "Borrowers", or to sell the Collateral or otherwise pursue, enforce or exhaust its or their remedies against the Persons included in the term "Borrowers" or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against each Person included in the term "Borrowers" under this Section, either in the same action, if any, brought against any one or more of the Persons included in the term "Borrowers" or in separate actions or proceedings, as often as the Administrative Agent may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or more of the Persons included in the term "Borrowers", any other guarantor or any obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against any one or more of the Persons included in the term "Borrowers", in their respective capacities as borrowers and guarantors under this Section, or under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of each Borrower under this Section in any manner whatsoever, and this Section shall remain and continue in full force and effect. It is the intent and purpose of this Section that each Person included in the term "Borrowers" shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Persons included in the term "Borrowers" agree that they shall be liable for the full amount of the obligations and liabilities under this Section regardless of, and irrespective to, any modification, limitation or discharge of the liability of any one or more of the Persons included in the term "Borrowers", any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings. (d) Each Person included in the term "Borrowers", as guarantor under this Section, hereby unconditionally, jointly and severally, irrevocably and expressly waives: (i) presentment and demand for payment of the Obligations and protest of non-payment; (ii) notice of acceptance of this Section and of presentment, demand and protest thereof; (iii) notice of any default hereunder or under the Note or any of the other Financing Documents and notice of all indulgences; (iv) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Section; 33 40 (v) demand for observance, performance or enforcement of any of the terms or provisions of this Agreement, the Note or any of the other Financing Documents; (vi) all errors and omissions in connection with the Administrative Agent's administration of all indebtedness guaranteed by this Section; (vii) any right or claim of right to cause a marshalling of the assets of any one or more of the other Persons included in the term "Borrowers"; (viii) any act or omission of the Administrative Agent which changes the scope of the risk as guarantor hereunder; and (ix) All other notices and demands otherwise r equired by law which such Person may lawfully waive. (e) Within ten (10) days following any request of the Administrative Agent to do so, each Person included in the term "Borrowers" will furnish the Administrative Agent and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this Section. ARTICLE III COLLATERAL Section 3.1 Collateral As security for the payment of any and all of the Obligations and for the Borrowers' performance of, and compliance with, all of the terms, covenants, conditions, stipulations and agreements contained in the Financing Documents, the Borrowers hereby assign, grant and convey to the Lenders, and agree that the Lenders shall have, to the extent permitted by law a perfected, continuing security interest in, all of the Collateral. The Borrowers further agree that the Lenders shall have in respect of the Collateral all of the rights and remedies of a secured party under the Virginia Uniform Commercial Code and the Uniform Commercial Code of those other states in which the Facilities are located, whichever is applicable, and under other applicable Laws as well as those provided in this Agreement. The Borrowers covenant and agree to execute and deliver such financing statements and other instruments and filings as are necessary in the opinion of the Administrative Agent to perfect such security interest. Notwithstanding the fact that the proceeds of the Collateral constitute a part of the Collateral, the Borrowers may not dispose of the Collateral, or any part thereof, other than in the ordinary course of their business or as otherwise may be permitted by this Agreement or other Security Agreements. Section 3.2 Eligible Projects The Borrowers shall from time to time designate Facilities owned by any of the Borrowers as Eligible Projects included in the Borrowing Base pursuant to the terms hereof. The 34 41 Facilities which are currently Eligible Projects are listed on EXHIBIT C attached hereto and incorporated herein by reference or any future Borrowing Base Report. The Credit Facility shall be secured by (a) the first lien Deeds of Trust on the fee simple interests of the Borrowers in the Eligible Projects or on the leasehold interests of Borrowers under Qualified Ground Leases, (b) a first lien security interest in all fixtures, building materials and all other machinery, equipment and other personalty used or installed by the Borrowers or each of the premises of an Eligible Project or in the Improvements constructed thereon, and (c) all of the other Collateral relating to the Eligible Projects. The Borrowers may release an Eligible Project from the lien of its Deed of Trust at any time provided no Event of Default has occurred and is continuing and provided at least eight (8) Pool A Projects remain in the Borrowing Base of which 83% must be Pool A Projects. The Administrative Agent may in its sole discreton agree to include a Facility occupied pursuant to a Qualified Ground Lease; provided, however, that at no time shall Eligible Projects subject to Qualified Ground Leases comprise more than ten percent (10%) of the availability under the Borrowing Base at any one time. Section 3.3 Assignment of Partnership Interests The Obligations are further secured by one or more Pledge, Assignment and Security Agreements, pursuant to which the partners of each of the Borrowers have assigned to the Administrative Agent for the benefit of the Lenders one hundred percent (100%) of all partnership or member interests in each of the Borrowers. Section 3.4 Guaranties The Obligations are the subject of the Guaranty Agreement and the Performance Guaranty executed and delivered by the Guarantor in favor of the Lenders. Section 3.5 Collateral for Obligations The Borrowers acknowledge that it is the intention of the Borrowers that the Collateral and all the Deeds of Trust be security for all of the Obligations, both those now existing and those hereafter created or incurred by future loans, advances, extensions of credit or otherwise and whether or not currently contemplated by the Borrowers and/or the Lenders on or about the date hereof. Section 3.6 Costs The Borrowers agree to pay on demand, to the fullest extent permitted by applicable laws, all reasonable fees, commissions, costs, charges, travel expenses and other expenses incurred by the Lenders, or any of them, in connection with the taking, perfection, preservation, protection and/or release of any security interest or lien on any of the Collateral or Deeds of Trust. The foregoing notwithstanding, the Borrowers shall not be obligated to pay the travel expenses of the Lenders with the exception of travel expenses incurred in connection with any enforcement actions following the occurrence of an Event of Default. 35 42 ARTICLE IV GENERAL FINANCING PROVISIONS Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust (a) Conditions Precedent to Credit Facility Closing. The following shall be conditions precedent to the Credit Facility Closing or to the addition of an Additional Borrower and/or the addition of an Eligible Project to the Borrowing Base (each a "Facility Closing"): (i) The Note, and modifications to the existing Deeds of Trust and Security Documents for Eligible Projects currently included in the Borrowing Base and the other Financing Documents previously provided to the Administrative Agent in connection with the Loan shall have been properly executed and delivered to the Administrative Agent, the applicable modifications to Deeds of Trust shall be acknowledged and recorded in the appropriate public office or delivered to a representative of the title company for recording and payment shall have been made for all conveyancing and recording in connection with the settlement of the Loan, and for any transfer or documentary stamp taxes due under any federal, state or municipal law. (ii) The Administrative Agent shall have received and approved a copy of each Borrower's fully executed Partnership Agreement or Operating Agreement or Articles of Organization (if a limited liability company) and a certified copy of the recorded Certificate of Limited Partnership (if a limited partnership) or Articles of Organization (if a limited liability company) or a certificate of no changes therein since the closing of the Original Credit Facility. In connection with the addition of an Additional Borrower, the Administrative Agent shall have received and approved copies of all organizational documents, including certified copies of all documents on record with the State in which such entity is organized. (iii) The Administrative Agent shall have received and approved a certificate executed by all of the general and limited partners or members of the Borrowers authorizing the execution and delivery of the Financing Documents and consenting to the Loan and similar authority certificates or resolutions of any Additional Borrower. (iv) The Administrative Agent shall have received and approved a current certificate of good standing or certificate of fact from the State in which any Borrower is formed. (v) The Administrative Agent shall have received and approved an opinion of counsel for the Borrowers as to the Borrowers' good standing, form, powers and authority and as to the validity, binding effect and enforceability of 36 43 the Financing Documents such an opinion shall be issued in connection with the execution and delivery of each Joinder Agreement. (vi) The Administrative Agent shall have received and a properly and fully executed Joinder Agreement. (b) Conditions Precedent to Accepting an Eligible Project: (i) The Credit Facility Closing shall have been completed. (ii) The Administrative Agent shall have received a certificate of authority to do business for the applicable Borrower in each jurisdiction where a Facility is located (if different from the state in which such Borrower was formed). (iii) The Total Development Budget for such Eligible Project shall have been reviewed and approved in writing by the Administrative Agent consistent with the provision of Section 2.1 The Loan. (iv) The Administrative Agent shall have received a paid policy of title insurance (American Land Title Association Standard Form "B" Loan Policy - Current Edition) covering the Facility or a valid and enforceable commitment to issue the same, together with such reinsurance agreements and direct access agreements as may be required by the Administrative Agent and/or endorsements to policies issued to the Administrative Agent in connection with the Original Credit Facility, in the amount agreed upon by the Administrative Agent from a company satisfactory to the Administrative Agent and which may be endorsed or assigned to the successors and assigns of the Lenders and to additional Lenders without additional cost, insuring the liens of the Deeds of Trust to be valid first liens on the Property, free and clear of all defects, exception and encumbrances except such as the Administrative Agent and its counsel shall have approved but without a creditor's rights exception and (unless otherwise agreed by the Administrative Agent) containing affirmative insurance against mechanics liens. (v) The Administrative Agent shall have received advice, in form and substance and from a source satisfactory to the Administrative Agent, to the effect that a search of the applicable public records discloses no conditional sales contracts, chattel mortgages, leases of personalty, financing statements or title retention agreements filed or recorded against the Property except such as the Administrative Agent shall have approved. (vi) The Administrative Agent shall have received all policies of insurance required by the terms hereof and by the other Financing Documents to be in effect from a company or companies and in form and amount satisfactory to the Administrative Agent, including without limitation, flood insurance (in the amount or evidence that flood insurance is not available or otherwise required 37 44 with respect to the Property), together with written evidence, in form and substance satisfactory to the Administrative Agent, that all fees and premiums due on account thereof have been paid in full. (vii) The Administrative Agent shall have received and accepted an appraisal of the Facility. (viii) The Administrative Agent shall have received from the Borrowers a complete set of the Plans and Specifications signed and sealed by the Architect, together with written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that the Plans and Specifications are satisfactory to the applicable Borrowers, the General Contractor, the Inspecting Engineer and, to the extent required by applicable law or any effective restrictive covenant, have been approved by all Governmental Authorities having or claiming jurisdiction and by the beneficiary of any such restrictive covenant, respectively. (ix) The Administrative Agent shall have received and approved a fully executed copy of the applicable Construction Contract, the Architect's Contract and a list of Major Subcontractors as well as any information regarding the General Contractor, the Architect and the Major Subcontractors which the Administrative Agent has requested. (x) The Administrative Agent shall have received and approved a copy of a current Survey of the Land certified to the Administrative Agent and to the title insurance company and any recorded subdivision plat of the Land and otherwise complying with the survey requirements set forth on EXHIBIT F attached hereto. (xi) The Administrative Agent shall have received and approved a site plan for the Improvements approved by all appropriate Governmental Authorities. (xii) The Administrative Agent shall have received from the Borrowers written evidence, in form and substance satisfactory to the Administrative Agent, from all Governmental Authorities having or claiming jurisdiction to the effect that all building, construction and other permits required in connection with the development of the Land and the construction of the Improvements have been validly issued, that all fees and bonds required in connection therewith have been paid in full or posted, as the circumstances may require, and that the Improvements meet zoning requirements and all sewer and storm drain requirements. (xiii) The Administrative Agent shall have received and approved a report setting forth a construction progress schedule in form and substance satisfactory to the Administrative Agent, calling for the completion of the Improvements by a date no later than the Completion Date. 38 45 (xiv) If construction work of any kind has commenced upon the Land or materials have been placed or stored upon the Land prior to the recordation of the Deed of Trust among the Land Records where the Land is located, any mechanic's or materialman's Liens or the same shall be fully insured against by the title insurance company. (xv) The Administrative Agent shall have received and approved evidence that the applicable General Contractor carries public liability and property damage insurance and workers' compensation insurance in form and amounts and issued by companies acceptable to the Administrative Agent. (xvi) The Administrative Agent shall have received and accepted a Phase I environmental audit of the applicable Facility prepared by a person or firm acceptable to the Administrative Agent. (xvii) The Administrative Agent shall have received evidence acceptable in all respects through certification by the Architect or other source acceptable to the Administrative Agent that the applicable Improvements, when constructed, will comply with all legal requirements regarding access and facilities for handicapped or disabled persons, including, without limitation and to the extent applicable to assisted living facilities (or, if applicable, independent living facilities), The Federal Architectural Barriers Act (42 U.S.C. Section 4151 et seq.), The Fair Housing Amendments Act of 1988 (42 U.S.C. Section 3601 et seq.), The Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.), The Rehabilitation Act of 1973 (29 U.S.C. Section 794) and any applicable state statutes relating to access and facilities for handicapped or disabled persons. (xviii) The Administrative Agent shall have received and approved soil reports which shall (i) demonstrate that the soil conditions of the Land for the applicable Facility are suitable for the construction of the Improvements and (ii) evidence to the Administrative Agent's satisfaction that there are no Hydric Soils on the Land. (xix) The Administrative Agent shall have received and approved copies of any executed Material Leases of the applicable Property or of any portion thereof. (xx) The Administrative Agent shall have received and approved an opinion of local counsel for the Borrowers in the jurisdiction where the applicable Facility is located that the Financing Documents applicable to that Facility are in proper form and enforceable in the context of a revolving credit facility of the type represented by this Credit Facility that neither the making nor the servicing of the Loan will subject the Lenders to a requirement of qualifying to do business or taxation (except ad valorem taxes on the Property) in the State where the applicable Facility is located and that the Loan is not usurious, which opinion 39 46 must also inform the Lenders (i) of the cost and timing of foreclosure; (ii) of any limitations on the Lenders' right to obtain, or the amount of, a deficiency judgment; and (iii) the existence of and details surrounding any redemption period enjoyed by the Borrower's following a sale at foreclosure. (xxi) At the Administrative Agent's sole option the Administrative Agent shall have obtained the advice of its own local counsel in the jurisdiction where the Facility is located on the form and enforceability of any or all of the Financing Documents at the Borrowers' expense. (xxii) With regard to any Deed of Trust for a Facility located in any state having such requirement, the Administrative Agent shall have received evidence satisfactory to the Administrative Agent that a Certificate of Need has been issued for such Facility. Section 4.2 Conditions Precedent to Determining Availability Under Borrowing Base The Lenders shall not be obligated to include any Requisition for an individual Eligible Project in the calculation of the Borrowing Base unless the conditions described in Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust and the following additional conditions shall have been satisfied with regard to such Eligible Project to the Administrative Agent's satisfaction: (a) The Administrative Agent shall have received a monthly title report on each Eligible Project which is under construction from the applicable title insurance company, indicating that since the last preceding report, there has been no change in the status of title and no other exceptions not theretofore approved by the Administrative Agent, if required by the terms of the existing title insurance policy, the Administrative Agent shall have received an endorsement which shall have the effect of advancing the effective date of the policy to the date of the advance then being made and increasing the coverage of the policy by an amount equal to the Requisition being verified if the policy does not by its terms provide for such an increase. (b) No Default or Event of Default shall have occurred and be continuing under any Note or any of the other Financing Documents. (c) The Improvements shall not have been materially damaged by fire or other casualty unless the Administrative Agent shall have received or reasonably anticipates receiving proceeds of insurance sufficient in the judgment of the Administrative Agent to effect a satisfactory restoration of such Improvements in accordance with the terms of the Deed of Trust. (d) The Administrative Agent shall have received written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that all work requiring inspection by Governmental Authorities having or claiming jurisdiction has been duly inspected and approved by such authorities and by any rating or inspection organization, bureau, association or office having or claiming jurisdiction. 40 47 (e) The representations and warranties made in Article III of this Agreement and in this Agreement shall be true and correct in all material respects on and as of the date of the advance with the same effect as if made on such date. (f) All terms and conditions of the Financing Documents required to be met as of the date of the applicable advance shall have been met to the complete satisfaction of the Administrative Agent. (g) In the reasonable judgment of the Administrative Agent, all work completed on the applicable Property at the time of the application for an advance has been performed in a good and workmanlike manner and all materials and fixtures usually furnished and installed at that stage of construction have been furnished and installed and that all costs covered by the Requisition have been paid by the Borrowers. (h) At least Eighty-three percent (83%) of the Eligible Projects in the Borrowing Base shall be Pool A Projects. The Administrative Agent shall have determined whether each Eligible Project is a Pool A, Pool B or Pool C Project. (i) Before verifying any Requisition, the Administrative Agent shall require the Borrowers to obtain from the applicable General Contractor and if required by the applicable title insurance company from all subcontractors and material suppliers acknowledgments of payment and releases of liens and rights to claim liens for work performed or materials delivered covered by such Requisition. All such acknowledgments and releases shall be in form AIA Forms G706 and G706A. (j) The Administrative Agent's Inspecting Engineer will inspect work performed which is covered by each Requisition being verified. Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility The Administrative Agent shall verify that an Eligible Project is a Completed Facility based on the satisfaction of the following additional conditions: (a) The Administrative Agent shall have received the final "as built" Survey for the applicable Property. (b) The Administrative Agent shall have received written evidence from a qualified third party, in form and substance satisfactory to the Administrative Agent, to the effect that the applicable Improvements have been substantially completed in accordance with their Plans and Specifications. (c) The Administrative Agent shall have received written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that requisite certificates for permanent occupancy or completion of the Improvements have been validly issued. 41 48 (d) Final waivers of liens of the General Contractor, and if required by the applicable title insurance company, subcontractors, laborers and material suppliers have been furnished to the Administrative Agent or, as to any disputed lien or claim of lien, a bond in form and substance acceptable to the Administrative Agent has been provided or other arrangements satisfactory to the Administrative Agent have been made. (e) The Administrative Agent shall have received a copy of an operating License for the Facility or other evidence satisfactory to the Administrative Agent that the Facility may be lawfully operated as contemplated by the Financing Documents. Section 4.4 Computation of Interest and Fees All applicable fees and interest shall be calculated on the basis of a year of 365 days for the actual number of days elapsed pursuant to the terms of the Note and interest shall be payable monthly in arrears. Section 4.5 Liens; Setoff The Borrowers hereby grant to the Lenders a continuing lien and security interest for all the Obligations upon any and all monies, securities, and other property of the Borrowers and the proceeds thereof, now or hereafter held or received by or in transit to, the Lenders, or any affiliate of any of the Lenders, from or for any of the Borrowers, and also upon any and all deposits (general or special) and credits of any of the Borrowers with any of the Lenders, if any, at any time existing. During the continuance of any Event of Default under this Agreement, each Lender is hereby authorized by any of the Borrowers at any time and from time to time, without notice to the Borrowers, to set off, appropriate and apply any or all items hereinabove referred to against all Obligations then outstanding. Section 4.6 Payment and Performance of Obligations The payment and performance by the Borrowers of the Obligations shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Lenders, or any of them, and the Borrowers shall pay absolutely net all of the Obligations, free of any deductions and without abatement, diminution or set-off; and until payment in full of all of the Obligations, the Borrowers: (a) will not suspend or discontinue any payments provided for in the Note and (b) will perform and observe all of its other agreements contained in this Agreement, including (without limitation) all payments required to be made to the Administrative Agent, and (c) will not terminate or attempt to terminate this Agreement or any of the other Financing Documents to which any of the Borrowers is a party for any cause. Section 4.7 Payments to Others for the Account of the Borrowers At the option of the Lenders and without any request from the Borrowers, and without waiving any of its rights hereunder, the Lenders may elect to cure or avoid any default by the Borrowers under the Financing Documents by applying amounts due hereunder or advancing the 42 49 Lenders' own funds to the satisfaction of the conditions of the Financing Documents and any amounts so applied shall be part of the Loan and shall be secured by the Deeds of Trust and the other Collateral. The Administrative Agent agrees to endeavor to give the Borrowers notice of any such payment or performing such act and the amount of any payment whether prior to or contemporaneously with its making such payment or performance of such act; provided, however, that failure to give such notice shall not constitute a waiver by the Lenders of, or constitute a defense to, any of the rights of the Lenders under this Agreement or the Deeds of Trust, including (without limitation) the right of the Lenders to repayment of the amount of such payment. Section 4.8 Prepayment The Borrowers shall have the right to prepay the Loan in full or in part, at any time and from time to time, upon five (5) days' prior written notice to the Administrative Agent without premium or penalty. The foregoing notwithstanding, in connection with any prepayment of a principal sum on any day other than the last day of the Eurodollar Period applicable thereto, the Borrowers shall pay to the Administrative Agent upon request by the Administrative Agent, such amount as shall be sufficient to compensate any of the Lenders for any and all losses or expenses which such Lender may sustain or incur (including without limitation, any such loss or expense arising from the redeployment of funds obtained by such Lender). Unless an Event of Default has occurred, any partial prepayment shall be applied first to such breakage costs, second to accrued and unpaid interest and third to the outstanding principal balance of the Loan due and owing at maturity. Sums borrowed and repaid may be readvanced. The Borrowers' obligations under this Section shall survive the termination of this Agreement and the repayment of the Obligations. Section 4.9 Requisitions for the Operating Reserve No portion of any Requisition for costs included in the Operating Reserve shall be verified until both a certificate of occupancy has been issued by the applicable governmental authorities and, if applicable to the Facility, an operating License has been issued for the Facility by the appropriate Governmental Authority or Authorities. Advances from the Operating Reserve shall be for the sole purpose of paying a portion of the Debt Service on the Loan or net operating losses as shown on a monthly financial report for such Facility prepared in accordance with the requirements set forth in this Agreement, and certified by the Chief Financial Officer or Executive Vice President or President of the Guarantor. Section 4.10 Assignments The Borrowers agree not to transfer, assign, pledge or hypothecate any right or interest in any payment or advance due pursuant to this Agreement, or any of the other benefits of this Agreement, without the prior written consent of the Administrative Agent. Any assignment made or attempted by the Borrowers, or any of them, without the prior written consent of the 43 50 Administrative Agent shall be void and of no effect. No consent by the Administrative Agent to an assignment by the Borrowers shall release the Borrowers as the parties primarily obligated and liable under the terms of this Agreement unless the Borrowers shall be released specifically by the Administrative Agent in writing. No consent by the Administrative Agent to an assignment shall be deemed to be a waiver of the requirement of prior written consent by the Administrative Agent with respect to each and every further assignment and as a condition precedent to the effectiveness of such assignment. Section 4.11 Liability of the Lenders The Lenders shall in no event be responsible or liable to any person other than the Borrowers for the disbursement of or failure to disburse the Loan proceeds or any part thereof and neither the General Contractor nor any subcontractor, laborer or material supplier shall have any right or claim against the Lenders under this Agreement or the administration thereof. No Lender shall be liable to the Borrowers for the failure of any other Lender to fund its ratable portion of any advance pursuant to the Agency Agreement. Section 4.12 Stored Materials The Administrative Agent will permit inclusion of construction materials (the "Stored Materials") to be included in Requisitions prior to their incorporation into the Improvements if they have been fully paid for by the applicable Borrower. The Borrowers shall securely store or cause to be securely stored any Stored Materials. Section 4.13 Limitations on Advances or Readvances The following additional limitations on certain advances or readvances of the Loan shall also apply: (a) Interest Reserve. Except as provided in Section 2.7 Permitted Costs hereof, after the earlier of the issuance of certificate of occupancy for a Facility or the expiration of the Construction Phase, no further advances shall be made from the Interest Reserve in such Total Development Budget. (b) Development Fee. The Development Fee will be advanced ratably with the first twelve (12) monthly Requisitions. (c) Operating Reserve. No advances from the Operating Reserve shall be made until both a certificate of occupancy has been issued by the applicable governmental authorities and, if applicable to the Facility, an operating license has been issued for the Facility by the appropriate Governmental Authority or Authorities. Advances from the Operating Reserve shall be for the sole purpose of paying Debt Service or net operating losses as shown on a monthly financial report for such Facility prepared in accordance with the requirements set forth in this Agreement, and certified by the Chief Financial Officer, Executive Vice President or President of the Guarantor. ARTICLE V 44 51 REPRESENTATIONS AND WARRANTIES To induce the Lenders to make available the Credit Facility, the Borrowers represent and warrant to the Lenders that: Section 5.1 Existence/Good Standing Each Borrower is a limited partnership or a limited liability company duly organized and existing and in good standing under the laws of the jurisdiction of its formation, has the power to own its property and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which each Facility owned by such Borrower is located and in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary. Section 5.2 Power and Authority Each Borrower has full power and authority to execute and deliver this Agreement and each of the other Financing Documents executed and delivered by it, to make the borrowing hereunder, and to incur the Obligations, all of which have been duly authorized by all proper and necessary partnership action. No consent or approval of partners or members of, or lenders to, the Borrowers, and no consent or approval of any Governmental Authority or any third party payor on the part of the Borrowers, is required as a condition to the validity or enforceability of this Agreement or any of the other Financing Documents executed and delivered by any of the Borrowers or to the payment or performance by the Borrowers of the Obligations. Section 5.3 Binding Agreements This Agreement and each of the other Financing Documents executed and delivered by the Borrowers have been properly executed by the Borrowers, constitute valid and legally binding obligations of the Borrowers, and are fully enforceable against the Borrowers in accordance with their respective terms. Section 5.4 Litigation There are no proceedings pending before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, will cause a Material Adverse Change in any of the Borrowers or affect the authority of any of the Borrowers to enter into this Agreement or any of the other Financing Documents executed and delivered by any of the Borrowers. There is no pending revocation, suspension, termination, probation, restriction, limitation or non-renewal of any License, Participation Agreement or any similar accreditation or approval organization or Governmental Authority for healthcare providers, including, without limitation, the issuance of any provisional License or other License with a term of less than twelve (12) months, as a consequence of any sanctions imposed by any Governmental Authority, 45 52 nor is there any pending assessment of any civil or criminal penalties by any Governmental Authority, the outcome of which, if determined adversely to any of the Borrowers, could result in a Material Adverse Change in any of the Borrowers. The Borrowers do not have any appeals regarding rates or reimbursements currently pending or contemplated before any Governmental Authority or any administrator of any third party payor or preferred provider program or referral source, the outcome of which, if determined adversely to any of the Borrowers, could result in a Material Adverse Change in any of the Borrowers. There are no Medicare or Medicaid recoupments or recoupments of any other third party payor being sought, requested or claimed, against any of the Borrowers, the outcome of which, if determined adversely to any of the Borrowers could materially impair any of the Borrowers' ability to pay the Obligations, except as otherwise disclosed in writing to, and approved by, the Administrative Agent. Section 5.5 No Conflicting Agreements There is (a) no provision of any Borrower's partnership agreement, articles of incorporation or operating agreement and no provision of any existing mortgage, indenture, contract or agreement binding on any of the Borrower or affecting its property, and (b) to the knowledge of the Borrowers no provision of law or order of court binding upon any of the Borrowers, which would conflict with or in any way prevent the execution, delivery, or performance of the terms of this Agreement or of any of the other Financing Documents executed and delivered by any of the Borrowers, or which would be violated as a result of such execution, delivery or performance, or, if so, all necessary consents have been obtained. Section 5.6 Financial Information All financial statements or information hereto furnished to the Lenders with respect to the Borrowers, each Facility and the Guarantor is complete and correct in all material respects and fairly presents the financial condition of the Borrowers and the financial condition of the Facilities. There are no liabilities, direct or indirect, fixed or contingent, of any of the Borrowers or the Guarantor which are not reflected in the their respective financial statements or in the notes thereto. There has been no Material Adverse Change in the financial condition or operations of any of the Borrowers or the Guarantor since the financial statements dated December 31, 1998 (and to the Borrowers' and Guarantor's knowledge, no such Material Adverse Change is pending), and neither any of the Borrowers nor the Guarantor has guaranteed the obligations of, or made any investments in or advances to, any company, individual or other entity, except as disclosed in such information. Section 5.7 No Default None of the Borrowers are in default under or with respect to any obligation under any agreement to which such Borrower is a party in any respect which could result in a Material Adverse Change. There is no Event of Default hereunder. Section 5.8 Taxes The Borrowers have filed or have caused to have been filed all federal, state and local tax or informational returns which are required by law to be filed, and has paid or caused to have 46 53 been paid all Taxes as shown on such returns or on any assessment received by them, to the extent that such Taxes have become due, or which are required by law to be paid, unless and to the extent only that such Taxes, assessments and governmental charges are currently contested in good faith and by appropriate proceedings by the Borrowers and adequate reserves therefor have been established as required under GAAP. Section 5.9 Place(s) of Business and Location of Collateral The Borrowers warrant that the address of the Borrowers' chief executive office is as specified in EXHIBIT D attached hereto and made a part hereof and that the address of each other place of business of any of the Borrowers, are as disclosed in EXHIBIT D. The Collateral and all books and records pertaining to the Collateral are and/or will be located at the addresses indicated on EXHIBIT D. The Borrowers will immediately advise the Administrative Agent in writing of the opening of any new place of business or the closing of any existing place of business of any of the Borrowers, and of any change in the location of the places where the Collateral, or any part thereof, or the books and records concerning the Collateral, or any part thereof, are kept. EXHIBIT D may be modified from time to time to add the locations of additional Facilities. Section 5.10 Title to Properties The Borrowers have good and marketable title to all of their properties, including, without limitation, the Property and the Collateral. The Property and the Collateral are free and clear of mortgages, pledges, liens, charges and other encumbrances other than the Permitted Liens. Section 5.11 Margin Stock None of the proceeds of the Loan will be used, directly or indirectly, by any of the Borrowers for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any "margin security" or "margin stock" within the meaning of Regulation U (12 CFR ARTICLE 221), of the Board of Governors of the Federal Reserve System (herein called "margin security" and "margin stock") or for any other purpose which might make the transactions contemplated herein a "purpose credit" within the meaning of said Regulation G or Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any of such statutes. Section 5.12 ERISA With respect to any "pension plan", as defined in Section 3(2) of ERISA, which plan is now or previously has been maintained or contributed to by any of the Borrowers and/or by any Commonly Controlled Entity: (a) no "accumulated funding deficiency" as defined in Code Section 412 or ERISA Section 302 has occurred, whether or not that accumulated funding deficiency has been 47 54 waived; (b) no "reportable event" as defined in ERISA Section 4043 has occurred; (c) no termination of any plan subject to Title IV of ERISA has occurred; (d) neither any of the Borrowers nor any Commonly Controlled Entity has incurred a "complete withdrawal" within the meaning of ERISA Section 4203 from any multiemployer plan; (e) neither any of the Borrowers nor any Commonly Controlled Entity has incurred a "partial withdrawal" within the meaning of ERISA Section 4205 with respect to any multiemployer plan; (f) no multiemployer plan to which any of the Borrowers or any Commonly Controlled Entity has an obligation to contribute is in "reorganization" within the meaning of ERISA Section 4241 nor has notice been received by any of the Borrowers or any Commonly Controlled Entity that such a multiemployer plan will be placed in "reorganization". Section 5.13 Governmental Consent Neither the nature of any of the Borrowers or of its business or properties, nor any relationship between any of the Borrowers and any other Person, nor any circumstance in connection with the making of the Loan, or the offer, issue, sale or delivery of the Note is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority, on the part of any of the Borrowers, as a condition to the execution and delivery of this Agreement or any of the other Financing Documents, the borrowing of the principal amounts of the Loan or the offer, issue, sale or delivery of the Note. Section 5.14 Full Disclosure The financial statements referred to in this ARTICLE V do not, nor does this Agreement, nor do any written statements furnished by the Borrowers to the Administrative Agent in connection with the making available of the Credit Facility, contain any untrue statement of fact or knowingly omit a material fact necessary to make the statements contained therein or herein not materially misleading. The Borrowers have not failed to disclose any fact to the Administrative Agent in writing which materially adversely affects or, will or could prove to materially adversely affect the properties, business, prospects, profits or condition (financial or otherwise) of any of the Borrowers or the ability of any of the Borrowers to perform this Agreement or any of the other Financing Documents. Section 5.15 Business Names and Addresses The Borrowers have not conducted business under any name other than its current names or tradenames or "Karrington" and has not conducted its business in any jurisdiction other than those listed on EXHIBIT D. The Borrowers intend to operate the Facilities under the names set forth on EXHIBIT D. The Borrowers shall promptly notify the Administrative Agent of any change in the name of any Facility. Section 5.16 Licenses and Certifications The Borrowers further represent and warrant to the Lenders that, with respect to any License they possess or have applied for, (a) no Default or Event of Default has occurred or is continuing under the terms of any of the Licenses, or any condition to the issuance, maintenance, renewal and/or continuance of any License, (b) the Borrowers have paid all fees, charges and other expenses to the extent due and payable with respect to, and has provided all information 48 55 and otherwise complied with all material conditions precedent to, the issuance, maintenance, renewal, and continuance of all Licenses, (c) the Borrowers have not received any notice from any Governmental Authority relating to any actual or pending suspension, revocation, restriction, or imposition of any probationary use, of any License, nor has any License been materially amended, supplemented, rescinded, terminated, or otherwise modified except as otherwise disclosed in writing to, and approved by, the Administrative Agent, (d) the Borrowers have not made any previous assignment of any of the Licenses to any Person, and (e) no financing statement covering any of the Licenses is on file in any public office except financing statements in favor of the Lenders. Without implying any limitation to the other representations and warranties contained in this Agreement, the Borrowers are not required by any applicable Law of any state, county or city in which any of the Facilities is located to obtain a certificate of need to operate any Facility as an assisted living facility or, an independent living facility or has applied for and obtained such Certificate(s) of Need. Licenses to operate are required in all states where the Facilities are located and Certificates of Need are also required in the State of New Jersey. Section 5.17 Operating Agreements and Management Contracts The Borrowers have furnished to the Administrative Agent photocopies of all material Operating Agreements and Management Contracts entered into with respect to the Facilities, and all amendments, supplements and modifications thereto including, without limitation, the Management Agreement. The Borrowers further represent and warrant to the Lenders that (a) all of the material Operating Agreements and Management Contracts are or will be at the time of execution and delivery thereof valid and binding on the parties thereto and in full force and effect, (b) no Default or Event of Default has occurred or is continuing under the terms of any of the material Operating Agreements and Management Contracts, and no party thereto has attempted or threatened to terminate any such Management Contract or Operating Agreement, (c) the Borrowers have not made any previous assignment of any Operating Agreements and Management Contracts to any Person, and (d) no financing statement covering any of the Operating Agreements and Management Contracts is on file in any public office, except financing statements in favor of the Lenders in connection with the Credit Facility. Section 5.18 Participation Agreements and Resident Agreements The Borrowers have furnished to the Administrative Agent, on or before the Facility Closing, the Borrowers' form of Resident Agreement used with respect to all Facilities and, if requested by the Administrative Agent after the occurrence and during the continuance of a Default, copies of all current, executed Resident Agreements for any or all of the Eligible Projects. (a) The Borrowers further covenant to the Lenders that, with respect to the Participation Agreements, if any, (i) to the best of their knowledge, all Participation Agreements will be at the time of execution and delivery thereof valid and binding on the parties thereto and in full force and effect, and (ii) all Participation Agreements will provide for payment to the applicable Borrower for services rendered to residents. The Borrowers represent and warrant that as of the date hereof it has not entered into any Participation Agreement for any Facility. 49 56 (b) To the extent the Borrowers participates or will participate in Medicare or Medicaid payment and reimbursement programs, the Borrowers have complied and will comply with all notice and other requirements under Title XVIII and Title XIX of the Social Security Act to enable the Borrowers to participate in the Medicare and Medicaid payment and reimbursement programs. Section 5.19 Compliance with Laws None of the Borrowers is in violation of any applicable laws of any Governmental Authority pertaining to employment practices, health standards or controls, environmental and occupational standards or controls or order of any court or arbitrator, the violation of which, considered in the aggregate, would result in a Material Adverse Change in any of the Borrowers. Each of the Borrowers are in compliance with all accreditation standards and requirements to which it is subject. Each of the Borrowers have obtained or will obtain all Licenses necessary to the ownership of its property or to the conduct of its activities which, if not obtained, could materially adversely affect the ability of any of the Borrowers to conduct its activities of operating each Facility as an assisted living facility, including, without limitation if and as required by any Governmental Authorities for the dispensing, storage, prescription, disposal, and use of drugs, medications and other "controlled substances" and for the maintenance of cafeteria and other food and beverage facilities or services or the condition (financial or otherwise) of any of the Borrowers. Section 5.20 Presence of Hazardous Materials or Hazardous Materials Contamination None of the Borrowers has placed Hazardous Materials on any real property owned, controlled or operated by any of the Borrowers or for which any of the Borrowers are responsible except as described in the following sentence. To the best of the Borrowers' knowledge, no Hazardous Materials are located on any real property owned, controlled or operated by any of the Borrowers or for which any of the Borrowers are responsible, except for reasonable quantities of necessary supplies for use by the Borrowers in the ordinary course of its current line of business and stored, used and disposed of in accordance with applicable Laws, and no property owned, controlled or operated by any of the Borrowers has ever been used as a manufacturing, storage, or dump site for Hazardous Materials nor is such property affected by Hazardous Materials Contamination. Section 5.21 Nature of Credit Facility; Usury; Disclosures Each of the Borrowers is a business or commercial organization, and the Credit Facility is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise. The rate or rates of interest charged on the Note do not, and will not, violate any usury Law or interest rate limitation. The Credit Facility is not subject to the federal Consumer Credit Protection Act (15 U.S.C. Section 1601 et. seq.) nor any other federal or state disclosure or consumer protection laws. The Credit Facility is being transacted solely for business or commercial purposes and not for personal, family or household purposes. Section 5.22 Compliance in Zoning 50 57 The Borrowers represent and warrant that the anticipated use of each Eligible Project complies with applicable zoning ordinances, regulations and restrictive covenants affecting such Land, all use requirements of any Governmental Authority having jurisdiction have been satisfied, and no violation of any law or regulation exists with respect thereto. Section 5.23 Plans and Specifications The Borrowers represent and warrant that, to the extent required by applicable law or any effective restrictive covenant, the Plans and Specifications for each Eligible Project have been approved by all Governmental Authorities having or claiming jurisdiction and by any beneficiary of any such restrictive covenant. Section 5.24 Building Permits; Other Permits The Borrowers represent and warrant that all building, construction and other permits necessary or required in connection with the development of the Land and the construction of the Improvements have been or, prior to any advance under the Loan, will be, unless otherwise agreed to by the Administrative Agent, validly issued and all fees and bonds required in connection therewith have been paid or posted, as the circumstances may require. Section 5.25 Utilities The Borrowers represent and warrant that all utility services necessary for the development of all the Land and the construction of the Improvements for each Eligible Project and the operation thereof for their intended purpose are or will be available at the boundaries of all the Land, including, without limitation, telephone service, water supply, storm and sanitary sewer facilities, natural gas (if available) and electric facilities. Section 5.26 Access; Roads The Borrowers represent and warrant that all roads and other accesses necessary for the development of all the Land and the construction of all the Improvements for all Eligible Projects and full utilization thereof for their intended purposes have either been completed or the necessary rights of way therefor have either been or will be acquired by the appropriate Governmental Authorities or have been or will be dedicated to public use and accepted by such Governmental Authorities and all necessary steps have been taken by the Borrowers or such Governmental Authorities to assure the complete construction and installation thereof by a date sufficient to ensure the timely completion of the Improvements and in no event later than the Completion Date or such Eligible Projects have access to a public road via a private road pursuant to recorded easements satisfactory to the Administrative Agent. Section 5.27 Other Liens The Borrowers represent and warrant that except as otherwise provided in the Financing Documents, the Borrowers have made no contract or arrangement of any kind the performance of which by the other party thereto would give rise to a lien on any Eligible Project. Section 5.28 Defaults 51 58 The Borrowers represent and warrant that there is no default on the part of any of the Borrowers under the Financing Documents and no event has occurred and is continuing which, with notice or the passage of time, or both, would constitute a default under the Note or any of the other Financing Documents. Section 5.29 Survival; Updates of Representations and Warranties All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the date of this Agreement and the Loan made hereunder. The Lenders acknowledge and agree that any and all representations and warranties contained in, or made under, or in connection with, this Agreement may be amended, changed or otherwise modified by the Borrowers at any time and from time to time after the date of this Agreement so as to accurately reflect the matters represented and warranted therein; provided, that such amendments, changes and/or modifications are disclosed in writing to the Administrative Agent. The Lenders shall have no obligation to waive any Event of Default due to any present or future inaccuracy of such representation or warranty or to agree to any amendment, change or modification of any such representation or warranty. Section 5.30 Accounts With respect to all of the Borrowers' Accounts and to the best of the Borrowers' knowledge (a) they are genuine, and in all respects what they purport to be, and are not evidenced by a judgment, an instrument, or chattel paper (unless such judgment has been assigned and such instrument or chattel paper has been endorsed and delivered to the Administrative Agent); (b) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in the invoices relating thereto; (c) the services rendered which resulted in the creation of the Accounts have been delivered or rendered to and accepted by the Account Debtor; (d) the amounts shown on the Borrowers' books and records, with respect thereto are actually and absolutely owing to the Borrowers and are not contingent for any reason; (e) there are no set-offs, counterclaims or disputes known by the Borrowers or asserted with respect thereto, and the Borrowers have made no agreement with any Account Debtor thereof for any deduction or discount of the sum payable thereunder except regular discounts allowed by the Borrowers in the ordinary course of their business for prompt payment; (f) there are no facts, events or occurrences known to any of the Borrowers which in any way impair the validity or enforcement thereof or tend to reduce the amount payable thereunder; (g) all Account Debtors thereof, to the best of the Borrower's knowledge, have the capacity to contract; (h) the services furnished giving rise thereto are not subject to any Liens other than Permitted Liens; (i) the Borrowers have no knowledge of any fact or circumstance which would impair the validity or collectibility thereof; and (j) there are no proceedings or actions known to any of the Borrowers which are pending against any Account Debtor which might result in any material adverse change in its financial condition. Section 5.31 Year 2000. Each Borrower has (i) begun analyzing its operations and those of its subsidiaries and Affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, the computer applications, imbedded microchips and other systems will be able to perform date 52 59 sensitive functions prior to and after December 31, 1999), and (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Each Borrower reasonably believes that it will become Year 2000 compliant for its operations and those of its subsidiaries and Affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon its financial condition. Each Borrower reasonably believes any suppliers and vendors that are material to the operations of itself or its subsidiaries and affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition of such Borrower. ARTICLE VI CONDITIONS OF LENDING The making of any advance under the Loan is subject to the conditions set forth in this Agreement and the following conditions precedent: Section 6.1 No Default No Event of Default and no event which, with the giving of notice or the passage of time or both, would become an Event of Default has occurred and is existing or would result from the making of the Loan or any advance thereunder and all representations and warranties set forth herein or in the other Financing Documents are true and correct, both before and after the making of the Loan or any advance thereunder. Section 6.2 Opinion of Counsel for the Borrowers At the Credit Facility Closing and any Facility Closing the Lenders shall receive a written opinion of counsel for the Borrowers and the Guarantor satisfactory in all respects to the Administrative Agent. Section 6.3 Approval of Counsel for the Lenders All legal matters incident to the Loan and all documents necessary in the opinion of the Administrative Agent to make the Loan or the addition of either an Eligible Project to the Borrowing Base or to add such Deeds of Trust and related Collateral shall be satisfactory in all material respects to counsel for the Lenders. Section 6.4 Supporting Documents The Administrative Agent shall receive at the Facility Closing and in connection with the subsequent granting of a Lien on an Eligible Project: (a) a certificate of the general partner or managing member of each of the Borrowers, in a form acceptable to the Administrative Agent in 53 60 all respects, dated as of the date hereof and certifying (i) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the partners or members of each of the Borrowers authorizing the execution and delivery of this Agreement, the Note and the other Financing Documents, the borrowing thereunder, and the performance of the Obligations, and (ii) as to the incumbency and specimen signature of the authorized officer of the general partner or managing member of the Borrowers executing this Agreement, the Note and the other Financing Documents; (b) such other documents as the Administrative Agent may reasonably require the Borrowers and/or the partners or members of the Borrowers to execute, in form and substance acceptable to the Administrative Agent; and (c) such additional information, instruments, opinions, documents, certificates and reports as the Administrative Agent may reasonably deem necessary. Section 6.5 Financing Documents All of the Financing Documents required by the Administrative Agent whether at the Credit Facility Closing or any subsequent Facility Closing shall be executed, delivered and, if deemed necessary by the Administrative Agent, recorded, all at the sole expense of the Borrowers. Section 6.6 Insurance The Borrowers shall have satisfied the Administrative Agent that any and all insurance required by this Agreement is in effect as of the date of this Agreement or as of the date of the addition of a Deed of Trust and related Collateral, and that, to the extent required by the Financing Documents, the Lenders have been named as an insured lienholder. Section 6.7 Security Documents In order to perfect the lien and security interest created by this Agreement, the Borrowers shall have executed and delivered to the Administrative Agent all Security Documents (in form and substance acceptable to the Administrative Agent in its sole discretion) deemed necessary by the Administrative Agent, in a sufficient number of counterparts for recordation, and, at the Borrowers' sole expense, shall record all such financing statements and Security Documents, or cause them to be recorded, in all public offices deemed necessary by the Administrative Agent. Section 6.8 Joinder Agreement In order to perfect the lien and security interest of the Lenders in the Collateral related to the construction and operation of any Facility encumbered by a Deed of Trust provided by an Additional Borrower, such Additional Borrower shall execute and deliver to the Administrative Agent, a Joinder Agreement joining in the Note as maker and in such assignments of Collateral and such other Security Documents as the Administrative Agent may require or shall execute Security Documents as the Administrative Agent may require each in sufficient number of counterparts for recordation, if required by the Administrative Agent, at the Borrowers' sole expense. The Borrowers or the Administrative Agent shall record all financing statements and 54 61 other Security Documents, or cause them to be recorded, in all public offices deemed necessary to the Administrative Agent. ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER Until payment in full and the performance of all of the Obligations hereunder, the Borrowers shall: Section 7.1 Financial Statements Furnish to the Administrative Agent: (a) Quarterly Statements. Not later than forty-five (45) days after the close of each of the Borrowers' fiscal quarters internally prepared, consolidated and consolidating financial statements of the Borrowers and a balance sheet on a year-to-date basis and as of the close of such period and an income and expense statement for such period and a Compliance Certificate in the form of Exhibit G attached hereto, certified by the chief financial officer of the Borrowers' general partner or managing member unless such report is included in the quarterly report of the Guarantor; and (b) Annual Statements. Not later than one hundred twenty (120) days after the close of each of the Borrowers' fiscal years, (i) a copy of the consolidated annual financial statement of the Borrowers and its Wholly Owned Subsidiaries in reasonable detail satisfactory to the Administrative Agent, prepared in accordance with GAAP and audited by an independent certified public accountant satisfactory to the Administrative Agent, which financial statement shall include a balance sheet of the Borrowers and its Wholly Owned Subsidiaries, as at the end of such fiscal year and the related statements of operations and retained earnings and cash flow statements for such fiscal year in a format acceptable to the Administrative Agent and a Compliance Certificate in the form of EXHIBIT G attached hereto, (ii) an unqualified letter or opinion of the accountant who examined and audited the Borrowers' financial statement and stating whether anything in such independent accountant's examination has revealed the occurrence of an event which constitutes an Event of Default under the Financing Documents or which would constitute such an Event of Default with the giving of notice or the lapse of time or both, (iii) if requested by the Administrative Agent a copy of the Management Letter prepared by the auditor, and (iv) the related statements of operations and retained earnings and cash flows in a format acceptable to the Administrative Agent; and (c) Monthly Operating Reports. Beginning with the first Operating Month (as hereinafter defined), not later than thirty (30) days after the last day of each such calendar month, operating statements for each Eligible Project for such month, including an income and expense statement for such period and census and billing reports with respect to each Eligible Project then operating for such period; 55 62 (d) Tax Returns. Not later than thirty (30) days after the date of filing, the federal and state income tax returns for the Borrower for the year in question as well as any requests for extensions filed in connection therewith; and (e) Other Information. With reasonable promptness such additional information, reports or statements as the Administrative Agent may from time to time reasonably request. (f) Certification. All required financial statements, required pursuant to Sub-paragraphs (a) and (b) hereof shall include the following certification: "The undersigned as _____________ of ____________ certifies that the financial information contained in the financial statement dated _________, is true and complete as of this date. This statement is provided to NationsBank, N.A. (the "Bank") as agent for the Lenders set forth in the Second Amended and Restated Agency Agreement dated _________, ___, 1999 as amended, restated or substituted from time to time for the purpose of obtaining credit or in fulfillment of the terms and conditions of credit already provided. Accordingly, it is intended that the Bank may rely on this information". Section 7.2 Taxes and Claims Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or any of its income or properties prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any of its properties; provided, however, the Borrowers shall not be required to pay any such tax, assessment, charge, levy or claim, the payment of which is being contested in good faith and by proper proceedings. Section 7.3 Legal Existence Maintain their existence as limited partnership or limited liability companies in good standing in the states of their formation and in each jurisdiction where they are required to register or qualify to do business. Section 7.4 Conduct of Business and Compliance with Laws Do or cause to be done all things necessary to obtain, enter into, preserve and to keep in full force and effect its material rights and its trade names, patents, trademarks and Licenses, Participation Agreements, and Operating Agreements and Management Contracts which are necessary for the operation of each Facility as an adult assisted living facility (or independent living facility, as applicable) as contemplated by the Borrowers, engage in and continue to engage substantially only in the business of owning and operating an adult assisted living facility (or independent living facility, as applicable) and related services in compliance with all applicable laws of the state in which the applicable Facility is located or any other Governmental Authority having jurisdiction over such Facility, and comply with all applicable Laws, including, without limitation, regulations issued under the Omnibus Budget Reconciliation Act of 1987 (OBRA'87) (Pub.L.No. 100-203), as amended, and observe the valid requirements of 56 63 Governmental Authorities, and perform the terms of all Participation Agreements to which it is a party, the noncompliance with or the nonobservance of which might materially interfere with the performance of its Obligations or the proper or prudent conduct of its business or the applicable Property. In addition, the Borrowers covenant and agree that they will: (a) obtain and maintain in full force and effect all Licenses necessary to the acquisition and/or ownership and/or operation of each Facility including, without limitation, Licenses and other approvals related to the storage, dispensation, use, prescription and disposal of drugs, medications and other "controlled substances" and, to the extent offered by the Borrowers, the maintenance of cafeteria and other food and beverage facilities or services; (b) administer, maintain and operate (or will cause to be administered, maintained and operated) each Facility as a revenue-producing assisted living facility (or independent living facility, as applicable); (c) to the extent the Borrowers participate in any such programs, maintain and operate each Facility to meet the standards and requirements and to provide healthcare of such quality and in such manner as would enable the Borrowers to participate in, and provide services in connection with, recognized medical and healthcare insurance programs; (d) obtain, maintain and comply with all conditions for the continuance of, all Licenses, including without limitation, Licenses which may at any time be required by the state in which the applicable Facility is located or other appropriate governmental entity, necessary or desirable for the operation of each Facility as an adult assisted living facility (or independent living facility, as applicable); and (e) to the extent the Borrowers presently participate or in the future will participate in such programs, obtain, maintain and comply with all conditions for the continuance of certification from each applicable Governmental Authority that the Borrowers meet all conditions for participation in the Medicare and Medicaid programs. Section 7.5 Use of Proceeds Use the proceeds of the Loan for the purpose or purposes set forth in Recital G above and Section 8.1 Borrowings and Section 8.14 Distributions to Partners herein and, without the prior written consent of the Administrative Agent for no other purpose or purposes. Section 7.6 Insurance Provide or cause to be provided to the Administrative Agent and maintain in full force and effect at all times during the term of the Loan, such policies of insurance as may be required by the terms of the Financing Documents from a company or companies, and in form and amounts satisfactory to the Administrative Agent including, by way of example and not by way of limitation, at least the following: 57 64 (a) During any period of construction in or on an Eligible Project, "builder's risk" insurance, including vandalism and malicious mischief and collapse endorsements in amounts not less than the replacement cost of the Improvements being constructed or of the Property and naming the Administrative Agent on behalf of the Lenders as a loss payee in the mortgagee clause thereof; (b) Casualty or physical damage insurance coverage for each Eligible Project affording protection against loss or damage by fire or other hazards covered by the standard all-risk fire and hazard insurance policy with "extended coverage" endorsement and such other risks as shall be customarily covered with respect to projects similar in construction, location and use as the Property, or as the Administrative Agent may from time to time otherwise require in amounts necessary to prevent the application of any co-insurance provisions of any applicable policies up to an amount not less than the greater of the full insurable value of the Improvements (as defined in the Deed of Trust) or the aggregate principal amount of the Obligations; no policy of insurance shall be written such that the proceeds thereof will produce less than the minimum coverage required by this Section by reason of co-insurance provisions or otherwise; the term "full insurable value" means the actual replacement cost of the Property (as defined in the Deed of Trust) (excluding foundation and excavation costs and costs of underground flues, pipes, drains and other uninsurable items); and as to Eligible Projects naming the Administrative Agent on behalf of the Lenders as loss payee in the mortgagee clause thereof; (c) General public liability insurance in amounts usually carried by similar operations against claims for bodily injury or death and property damage insurance for claims for damage to property (including loss of use) occurring upon, in or about the Property naming the Administrative Agent on behalf of the Lenders as loss payee thereunder, with such insurance to afford protection to the limit of not less than $5,000,000 for the aggregate of all occurrences during any given annual policy period for each Eligible Project; (d) Workers' compensation insurance in accordance with the requirements of applicable law or regulation naming the Administrative Agent on behalf of the Lenders as loss payee thereunder; (e) Business interruption insurance naming the Lenders as additional insureds with respect to each Facility once a certificate of occupancy has been issued for such Facility in an amount equal to at least twelve (12) months' debt service on the applicable Loan; and (f) To the extent that healthcare professionals are employed by any of the Borrowers or the Management Company, medical liability, malpractice and other healthcare professional liability insurance protecting the Borrowers and its employees against claims arising from the professional services performed by the Borrowers or the Management Company and their employees with limits of (i) not less than One Million Dollars ($1,000,000.00) with respect to injury or death for each person or occurrence, and (ii) not less than Three Million Dollars ($3,000,000.00) in the aggregate for claims made for injury or death in any one year, and an umbrella policy insuring against such liability in an aggregate amount of Five Million Dollars ($5,000,000.00). In addition, the Borrowers shall ensure that all healthcare providers with whom 58 65 any of the Borrowers contracts to provide services at any Facility are insured against claims arising from such services with limits as set forth in clauses (i) and (ii) above. The Borrowers shall file with the Administrative Agent, upon its request, a detailed list of the insurance then in effect and stating the names of the insurance companies, the amounts and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby. Each policy of insurance shall (A) be issued by one or more recognized, financially sound and responsible insurance companies approved by the Administrative Agent and which are qualified or authorized by the laws of the state in which the applicable Facility is located to assume the risk covered by such policy, (B) with respect to the insurance described under the preceding subsections (a), (b) and (f) have attached thereto standard noncontributing, non-reporting mortgagee clauses in favor of and entitling the Lenders without contribution to collect any and all proceeds payable under such insurance, (C) provide that such policy shall not be canceled or modified without at least thirty (30) days prior written notice to the Administrative Agent, and (D) provide that any loss otherwise payable thereunder shall be payable notwithstanding any act of negligence of any of the Borrowers which might, absent such agreement, result in a forfeiture of all or a part of such insurance payment. Unless an escrow account has been established for insurance premiums pursuant to the provisions of a Deed of Trust, the Borrowers shall promptly pay all premiums when due on such insurance and, not less than ten (10) days prior to the expiration date of each such policy, the Borrowers will deliver to the Administrative Agent a renewal policy or policies marked "premium paid" or other evidence of payment satisfactory to the Administrative Agent. The Borrowers will immediately give the Administrative Agent notice of any cancellation of, or change in, any insurance policy. The Lenders shall not, because of accepting, rejecting, approving or obtaining insurance, incur any liability for (i) the existence, nonexistence, form or legal sufficiency thereof, (ii) the solvency of any insurer, or (iii) the payment of losses. Section 7.7 Flood Insurance If required by applicable law or regulation, provide or cause to be provided to the Administrative Agent a separate policy of flood insurance in the aggregate amount of the applicable Loan or the maximum limit of coverage available with respect to the Property, whichever is the lesser, from a company or companies satisfactory to the Administrative Agent and written in strict conformity with the Flood Disaster Protection Act of 1973, as amended, and all applicable regulations adopted pursuant thereto. In the event that flood insurance is not required by applicable law or regulation to be provided in connection with the applicable Loan or is not otherwise available with respect to the Property, the Borrowers shall supply the Administrative Agent with written evidence, in form and substance satisfactory to the Administrative Agent, to that effect. Any such policy shall provide that the policy may not be surrendered, canceled or substantially modified (including, without limitation, cancellation for nonpayment of premiums) without at least thirty (30) days' prior written notice to any and all insureds named therein, including the Lenders. Section 7.8 Maintenance of Properties 59 66 Keep its properties, whether owned in fee or otherwise, or leased, including, without limitation, all of the Property, in good operating condition; make all proper repairs, renewals, replacements, additions and improvements thereto needed to maintain such properties in good operating condition; comply with the provisions of all leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder; and comply with all laws, rules, regulations and orders applicable to its properties or business or any part thereof. Section 7.9 Maintenance of the Collateral Not permit anything to be done to the Collateral which may impair the value thereof. Any of the Lenders or an agent designated by such Lender, shall be permitted to enter the premises of any of the Borrowers and examine, audit and inspect the Collateral at any reasonable time and from time to time without notice. The Lenders shall not have any duty to, and the Borrowers hereby release the Lenders from, all claims of loss or damage caused by the delay or failure to collect or enforce any of the Accounts or Receivables or to preserve any rights against any other party with an interest in the Collateral. Section 7.10 Other Liens, Security Interests, etc. Keep the Collateral and the Property free from all liens, security interests and claims of every kind and nature, other than Permitted Liens; provided, the Borrowers may lease office Equipment and other Equipment in the used in normal course of its business for the operation of a Facility provided the total implied cost of such leased Equipment at any Eligible Project shall not exceed $75,000 at any one time. Section 7.11 Defense of Title and Further Assurances At its expense defend the title to the Collateral (or any part thereof), and promptly upon request execute, acknowledge and deliver any financing statement, renewal, affidavit, deed, assignment, continuation statement, security agreement, certificate or other document the Administrative Agent may reasonably require in order to perfect, preserve, maintain, protect, continue and/or extend any lien or security interest granted to the Lenders under this Agreement or any of the Security Documents and its priority. The Borrowers shall pay to the Administrative Agent, on demand all taxes, costs and expenses incurred by any of the Lenders, in connection with the preparation, execution, recording and filing of any such document or instrument. Section 7.12 Subsequent Opinion of Counsel as to Recording Requirements Provide to the Administrative Agent a subsequent opinion of counsel as to the filing, recording and other requirements with which any of the Borrowers have complied to maintain the liens and security interests in favor of the Lenders in the Collateral in the event that the Borrowers shall transfer its principal place of business or the office where it keeps its records pertaining to the Accounts and Receivables. Section 7.13 Books and Records Keep and maintain accurate books and records, make entries on such books and records in form reasonably satisfactory to the Administrative Agent disclosing the Lenders' assignment 60 67 of, and security interest in and lien on, the Collateral and all collections received by the Borrowe on its Accounts, furnish to the Administrative Agent promptly upon request such information, reports, contracts, invoices, lists of purchases of Inventory (showing names, addresses and amount owing) and other data concerning Account Debtors and the Borrowers' Accounts and Inventory and all contracts and collection(s) relating thereto as the Administrative Agent may from time to time specify, unless the Administrative Agent shall otherwise consent in writing, keep and maintain all such books and records mentioned in (a) above only at the addresses listed in EXHIBIT D, and permit any person designated by any of the Lenders to enter the premises of the Borrowers and examine, audit and inspect the books and records at any reasonable time and from time to time. Section 7.14 Collections Until such time as the Administrative Agent shall notify the Borrowers of the revocation of such privilege following an Event of Default, at its own expense have the privilege for the account of and in trust for the Lenders of collecting its Accounts and receiving in respect thereto all items of payment and shall otherwise completely service all of the Accounts including (i) the billing, posting and maintaining of complete records applicable thereto, and (ii) the taking of such action with respect to such Accounts as the Administrative Agent may reasonably request or in the absence of such request, as the Borrowers may deem advisable; and in its discretion, grant, in the ordinary course of business, to any Account Debtor, any rebate, refund or adjustment to which the Account Debtor may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to an Account. The Administrative Agent may, at its option but solely in accordance with applicable law, at any time or from time to time after the occurrence of an Event of Default hereunder, revoke the collection privilege given to the Borrowers herein by either giving notice of its assignment of, and lien on the Collateral, subject to the provisions of Section 3.1 Collateral hereof, to the Account Debtors or giving notice of such revocation to the Borrowers. Section 7.15 Notice to Account Debtors and Escrow Account In the event that (a) a Default or an Event of Default exists, or (b) demand has been made for any or all of the Obligations, promptly upon the request of the Administrative Agent in such form and at such times as reasonably specified by the Administrative Agent, give notice of the Lenders' lien on the Accounts to the Account Debtors requiring those Account Debtors which are permitted by applicable law to make payments thereon directly to the Administrative Agent. Section 7.16 Business Names Immediately notify the Administrative Agent of any change in the name or names under which they conduct their business. Section 7.17 ERISA With respect to any pension plan which any of the Borrowers and/or any Commonly Controlled Entity maintains or contributes to, either now or in the future, that: (a) such bonding as is required under ERISA Section 412 will be maintained; (b) as soon as practicable and in any event 61 68 within 15 days after any of the Borrowers or any Commonly Controlled Entity knows or has reason to know that a "reportable event" has occurred or is likely to occur, the Borrowers will deliver to the Administrative Agent a certificate signed by its chief financial officer setting forth the details of such "reportable event"; (c) neither the Borrowers nor any Commonly Controlled Entity will: (i) engage in or permit any "prohibited transaction" (as defined in ERISA Section 406 or Code Section 4975) to occur; (ii) cause any "accumulated funding deficiency" as defined in ERISA Section 302 and/or Code Section 412; (iii) terminate any pension plan in a manner which could result in the imposition of a lien on the property of the Borrowers pursuant to ERISA Section 4068; (iv) terminate or consent to the termination of any multiemployer plan; (v) incur a complete or partial withdrawal with respect to any multiemployer plan within the meaning of ERISA Sections 4203 and 4205; and (d) within 15 days after notice is received by any of the Borrowers or any Commonly Controlled Entity that any multiemployer plan has been or will be placed in "reorganization" within the meaning of ERISA Section 4241, the Borrowers will notify the Administrative Agent to that effect. Upon the Administrative Agent's request, the Borrowers will deliver to the Administrative Agent a copy of the most recent actuarial report, financial statements and annual report completed with respect to any "defined benefit plan", as defined in ERISA Section 3(35). Section 7.18 Change in Management Notify the Administrative Agent in advance of any change of the Management Company for any Facility. Section 7.19 Management (a) Subject to the terms of (i) the Management Fee Subordination Agreement by and among SEAL, SALMI and the Administrative Agent dated December 23, 1997 as amended and confirmed pursuant to the Confirmation of and Amendment to Security Documents of even date herewith or (ii) any Management Fee Subordination Agreement signed in connection with a Facility Closing (individually or collectively, the "Management Fee Subordination Agreement"), the Borrowers shall cause SALMI to agree to subordinate payment of any and all management fees under, or in connection with, the Management Agreement (the "Management Fees") to payment of the Obligations, in accordance with the terms and conditions of one or more subordination agreements in form and content acceptable to the Administrative Agent in its reasonable discretion, and not amend, restate, supplement, terminate, cancel or otherwise modify any of the terms or conditions of such Management Agreement, in any material respect, without the prior written consent of the Administrative Agent, and (b) terminate the Management Agreement upon receipt of notice from the Administrative Agent directing the Borrowers to terminate the Management Agreement after the occurrence of an Event of Default, and, if requested to do so by the Administrative Agent, enter into a management agreement for the management of any Facility with an independent manager. The Management Agreement shall be approved in writing by the Administrative Agent prior to execution. A fully executed copy of the Management Agreement shall be delivered to the Administrative Agent by the Borrowers promptly after it is signed. Section 7.20 Surveys 62 69 Upon the Administrative Agent's request from time to time as construction of a Facility progresses and upon the completion of the construction of the Improvements, the Borrowers shall furnish the Administrative Agent with a Survey with a current certification to the Administrative Agent by a registered land surveyor of the jurisdiction in which the Land is located. At any time the Borrowers are required to furnish a Survey to the Administrative Agent pursuant to the terms of this Agreement, the Borrower shall also furnish an original print thereof to the title insurance company and such Survey shall not be sufficient for the purposes of this Agreement unless and until the title insurance company shall advise the Administrative Agent, by endorsement to the title insurance policy or otherwise, that the Survey discloses no violations, encroachments or other variances from applicable set-backs or other restrictions except such as the Administrative Agent and its counsel shall approve. Section 7.21 Inspections; Cooperation; Payment of Inspecting Engineer The Borrowers shall permit the Lenders and their duly authorized representatives (including, without limitation, the Inspecting Engineer) to enter upon any of the Land, to inspect the Improvements and any and all materials to be used in connection with the development of any of the Land and/or the construction of the Improvements, to examine all detailed plans and shop drawings and similar materials as well as all records and books of account maintained by or on behalf of the Borrowers relating thereto and to discuss the affairs, finances and accounts pertaining to any Facility and any of the Improvements with representatives of the Borrowers. The Borrowers shall at all times cooperate and cause the General Contractor and each and every one of its subcontractors and materialmen to cooperate with the Lenders and their duly authorized representatives (including, without limitation, the Inspecting Engineer) in connection with or in aid of the performance of the Administrative Agent's or Lenders' functions under this Agreement. The reasonable fees of any Inspecting Engineer engaged or employed by the Administrative Agent in connection with or in aid of the performance of the Administrative Agent's or the Lenders' functions under this Agreement shall be paid by the Borrowers. Section 7.22 Vouchers and Receipts The Borrowers shall furnish to the Administrative Agent, promptly on demand, any contracts, bills of sale, statements, receipted vouchers or agreements pursuant to which any of the Borrowers has any claim of title to any materials, fixtures or other articles delivered or to be delivered to the Land or incorporated or to be incorporated into any of the Improvements. The Borrowers shall furnish to the Administrative Agent, promptly on demand, a verified written statement, in such form and detail as the Administrative Agent may require, showing all amounts paid for labor and materials and all items of labor and materials furnished or to be furnished for which payment has not been made and the amounts to be paid therefor. Section 7.23 Payments for Labor and Materials The Borrowers shall pay when due all bills for services or labor performed and materials supplied in connection with the development of the Land and the construction of the Improvements. In the event any mechanics' lien or other lien or encumbrance shall be filed or attached against the Property without the prior written consent of the Administrative Agent in each instance, the Borrowers covenant and agree that, within thirty (30) days after receipt of 63 70 notice from any source of the filing of such lien, the Borrowers will promptly discharge the same by payment or filing bond or otherwise as permitted by law; and if the Borrowers fail to do so, the Administrative Agent may, at its option, in addition to, and not in limitation of, all other rights and remedies of the Administrative Agent in the Event of Default by the Borrowers, and without regard to the priority of said mechanics' lien or other lien or encumbrance, pay the same, and all amounts expended by the Administrative Agent for such purpose shall constitute loans to the Borrowers and shall be secured by the Deed of Trust and the other Financing Documents, and be due and payable forthwith by the Borrowers to the Administrative Agent with interest thereon at the Reimbursement Rate provided for in the Deed of Trust. Section 7.24 Correction of Construction Defects Promptly following any demand by the Administrative Agent, the Borrowers shall correct or cause the correction of any structural defects in the Improvements and any material departures or deviations from the Plans and Specifications, as determined by the Administrative Agent in its sole but reasonable discretion, not approved in writing by the Administrative Agent. Section 7.25 Fees and Expenses; Indemnity Pay all reasonable fees, charges, costs and expenses required to satisfy the conditions of the Financing Documents. The Borrowers shall hold the Lenders harmless and indemnify the Lenders against all claims of brokers and "finders" arising by reason of the execution and delivery of the Financing Documents or the consummation of the transaction contemplated hereby. Section 7.26 Governmental Surveys or Inspections Furnish to the Administrative Agent upon its request, within thirty (30) days of receipt thereof, copies of any and all annual surveys or inspections performed by any Governmental Authority or accreditation or certification organization with respect to any Facility. Section 7.27 Cost Reports Prepare and file all applicable cost reports to all third-party payors, if any, to the extent required by any such third-party payor and, within thirty (30) days thereafter, notify the Administrative Agent of any settlement of any cost report disclosed to the Administrative Agent as being open or unsettled as of the Closing Date to the extent any such cost report would have a materially adverse effect on the Borrowers. Section 7.28 Updated Appraisals In addition, the Administrative Agent shall have the right but not the obligation to require annual updated appraisals of any or all the Property and the Facilities, which appraisals shall be prepared by an appraiser or appraisers designated by the Administrative Agent and shall be in all respects reasonably acceptable to the Administrative Agent which appraisals shall include, if deemed necessary by the Administrative Agent, in its reasonable discretion, updated discounted cash flow analysis, inspections of and commentary on the physical status of the applicable Facility and an engineering review. The basis of the appraisal calculations shown on such 64 71 appraisal reports and all other aspects of the appraisal reports must be satisfactory to the Administrative Agent in all material respects. The release of such appraisal reports by the Administrative Agent to the Borrowers shall be at the Administrative Agent's sole option if the Borrowers have not paid the cost of such appraisal. If the Borrowers have paid the cost of the appraisal, a copy of the appraisal will be provided to the Borrowers upon their signing of the Administrative Agent's standard appraisal release letter provided an Event of Default has not occurred and is not continuing. The Borrowers shall reimburse the Administrative Agent upon demand for all costs and expenses incurred by any of the Lenders with respect to the preparation and review of all future appraisals required pursuant to the terms hereof, if either (i) such appraisal is required by law or banking regulation, (ii) an event of default has occurred under the Financing Documents, or (iii) the Administrative Agent has reason to believe a change in value has occurred in the Facility being appraised due to an adverse change in the Facility's occupancy status or operating performance. Section 7.29 Notification of Certain Events, Events of Default and Adverse Developments Promptly give written notice to the Administrative Agent who will forward a copy of the notice to the Lenders upon obtaining knowledge of the occurrence of any of the following: (a) any Event of Default under the Financing Documents; (b) any event, development or circumstance whereby the financial statements furnished under the Financing Documents fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of the Borrowers; (c) any judicial, administrative or arbitral proceeding pending against any of the Borrowers or any judicial or administrative proceeding known by the Borrowers to have been threatened against any of them in a written communication which threatened proceeding, if adversely decided, could cause a Material Adverse Change in any of the Borrowers; (d) the revocation, suspension, probation, restriction, limitation or refusal to renew, or any administrative procedure then in process for the revocation, suspension, probation, restriction, limitation, or refusal to renew, of any License, or the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending, decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew or any administrative procedure then in process for any participation or eligibility in any third party payor program in which any of the Borrowers elects to participate, including, without limitation, Medicare, Medicaid or other private insurer programs or any accreditation of any of the Borrowers, or the issuance or pending issuance of any License for a period of less than twelve (12) months, as a consequence of sanctions imposed by any Governmental Authority, or the assessment or pending assessment, of any civil or criminal penalties by any Government Authority, any third party payor or any accreditation organization or Person, which could materially adversely affect the financial condition or operations of any of the Borrowers or an Affiliate (present or prospective) as determined by the Administrative Agent, in its sole but reasonable discretion; 65 72 (e) any action, including, but not limited to, the filing of any certificate of need application if required by law, the amendment of any facility license or certification, or the issuance of any new license or certification for any Facility, under which any of the Borrowers proposes (i) to develop a new facility or service and/or (ii) eliminate, materially expand or materially reduce any service; (f) any actual contingent liability or a potential contingent liability threatened or noticed in a written communication to any of the Borrowers of $50,000 or more per Facility; (g) any other development in the business or affairs of the Borrower results in a Material Adverse Change; and (h) in each case listed in clauses (a) through (g), inclusive, of this Section describing in detail satisfactory to the Administrative Agent the nature thereof and, in the case, if any, of notification under clause (a), the action the Borrowers propose to take with respect thereto or a statement that the Borrowers intend to take no action and an explanation of the reasons for such inaction. In addition, the Borrowers will furnish to the Administrative Agent immediately after receipt thereof copies of all administrative notices material to Borrowers' business and operation of any Facility and all responses by or on behalf of the Borrowers with respect to such administrative notices. Section 7.30 Compliance with Environmental Laws If any Hazardous Materials are used, present or generated on any real property owned or controlled by any of the Borrowers or for which any of the Borrowers are responsible, such Borrower shall use, process, distribute, handle, maintain, treat, store, dispose of and transport such substance in compliance with all applicable laws, including, but not limited to, those regulating PCB's, underground storage tanks, radon and medical waste tracking, as well as any laws that are enacted after the date of this Agreement. Section 7.31 Hazardous Materials; Contamination (a) Give notice to the Administrative Agent within five (5) Banking Days of any of the Borrowers' acquiring knowledge of the presence of any Hazardous Materials on any property owned or controlled by any of the Borrowers or for which any of the Borrowers is responsible or of any Hazardous Materials Contamination with a full description thereof, except for reasonable quantities of necessary supplies for use by the Borrowers in the ordinary course of their current line of business and stored, used and disposed of in accordance with applicable Laws; (b) promptly comply with any laws requiring special handling, maintenance, servicing, removal, treatment or disposal of Hazardous Materials or Hazardous Materials Contamination and provide the Administrative Agent upon request with satisfactory evidence of such compliance; (c) provide the Administrative Agent, within thirty (30) days after a demand by the Administrative Agent, with a bond, letter of credit or similar financial assurance evidencing to the Administrative Agent's satisfaction that funds are available to pay the cost of removing, treating, and disposing of such Hazardous Materials or Hazardous Materials Contamination and discharging any lien which may be established as a result thereof on any property owned, 66 73 operated or controlled by any of the Borrowers or for which any of the Borrowers are responsible; and (d) defend, indemnify and hold harmless the Lenders and each of their agents, employees, trustees, successors and assigns from any and all claims which may now or in the future (whether before or after the termination of this Agreement) be asserted as a result of the presence of any Hazardous Materials on any property owned, operated, controlled or managed by any of the Borrowers for which any of the Borrowers are responsible for any Hazardous Materials Contamination. Section 7.32 Participation in Reimbursement Programs In the event any of the Borrowers elects to participate in any or all plans and/or programs for third party payment and/or reimbursement, and the revenues derived from a single plan or program exceed ten percent (10%) of the gross revenues of the applicable Facility, such Borrower will continue its participation in any and all such plans and/or programs for third party payment and/or reimbursement from, and claims against, private insurers or programs for payment and/or reimbursement from federal, state and local governmental agencies and/or private or quasi-public insurers, including, without limitation, Managed Care Plans, Medicaid and Medicare and the Veterans Administration (as determined by the Borrowers in the good faith exercise of their prudent and commercially reasonable business judgment). While participating in such plans, the Borrowers shall comply with any and all rules, regulations, standards, procedures and decrees necessary to maintain the Borrowers' participation in any such third party payment or reimbursement program or plan. Section 7.33 Minimum Pool A Projects At least 83% of the number of Eligible Projects in the Borrowing Base at any one time shall qualify as Pool A Projects. Section 7.34 Subordination of Distributions and Management Fees Subordinate, and cause the partners or members of each of the Borrowers to subordinate, all distributions of the Borrowers to principal and interest payments on the Loan; provided, however, that the Borrowers may pay distributions to partners or members of the Borrowers in accordance with Section 8.14 Distributions to Partners prior to the occurrence of an Event of Default and so long as the payment of any such distributions will not result in the occurrence of an Event of Default. Subordinate the payment of management fees with respect to each Facility pursuant to the terms of all Management Fee Subordination Agreement (as the same may be modified from time to time) by and among any of the Borrowers, the Administrative Agent and the Management Company. Section 7.35 Depository Bank The Borrowers shall maintain its primary operating accounts, including those accounts containing the Liquid Assets, if any required pursuant to Section 8.14 Distributions to Partners with the Administrative Agent or one of the other Lenders; provided that such Lender shall agree that it will exercise any right of set-off against such account to pay the Obligations (unless the exercise of such right would prejudice other remedies of the Lenders in any jurisdiction) prior to 67 74 applying them to any other indebtedness owed to such Lender and provided such Administrative Agent or other Lender pays commercially competitive rates on the Borrowers' funds. Section 7.36 Copies of Notices Promptly following the giving or receipt by any of the Borrowers of any notice given to or received from the General Contractor or any subcontractor or materialman with respect to the Property, if such notice concerns any default or failure to perform by any party, or relates to any matter requiring the Administrative Agent's or the Lenders' approval under this Agreement, the Borrowers shall forward to the Administrative Agent copies of any such notice. Section 7.37 Year 2000 Compliance. The Borrowers will promptly notify Administrative Agent in the event Borrowers determine that any computer application which is material to the operations of any Borrower, their subsidiaries or any of their material vendors or suppliers will not be fully Year 2000 compliant (as such term is defined in Section 5.31 Year 2000.) on a timely basis, except to the extent that such failure could not reasonably be expected to have a material adverse effect upon the financial condition of any Borrower. ARTICLE VIII NEGATIVE COVENANTS OF BORROWER Until payment in full and the performance of all of the Obligations, without the prior written consent of the Administrative Agent as permitted pursuant to the Agency Agreement, the Borrowers will not directly or indirectly: Section 8.1 Borrowings Create, incur, assume or suffer to exist any liability for borrowed money other than the Credit Facility, Equipment leases permitted by the terms of this Agreement or unsecured loans from Affiliates which are fully subordinated (either by their terms or by separate written agreement) to the Credit Facility and bearing interest at a rate no higher than that then applicable to the Credit Facility; provided, however, so long as no Event of Default has occurred or will occur upon the payment of interest on such indebtedness under the Financing Documents, the Borrowers may make scheduled payments of interest on such debt and may, with the prior written consent of the Administrative Agent, use proceeds of the Loan to make payments on such loans from Affiliates if the loans were for the purpose of financing the acquiring or constructing an Eligible Project. Section 8.2 Deeds of Trust and Pledges Create, incur, assume or suffer to exist any deed of trust, mortgage, pledge, Lien or other encumbrance of any kind upon, or any security interest in, any of its property or assets, including the Collateral, whether now owned or hereafter acquired. 68 75 Section 8.3 Sale or Transfer of Assets Directly or indirectly enter into any arrangement whereby any of the Borrowers shall sell, lease, transfer, assign or otherwise dispose of more than $50,000 of assets in connection with any Eligible Project in any one year other than (a) sales or other disposition of assets in the ordinary course of business for value, provided the proceeds thereof are used to pay down one or more of the Loans or the asset sold or disposed of is replaced by one of equal or greater value or (b) the transfer of an Eligible Project or the sale of an Eligible Project, in either case, in which case the Borrowing Base will be reduced by the availability attributed to such Facility. Section 8.4 Other Liens; Transfers; "Due-on-Sale"; etc. The Borrowers shall not, without the prior written consent of the Administrative Agent, create or permit to be created or remain with respect to any of the Property or any part thereof or income therefrom, any mortgage, pledge, lien, encumbrance or charge, or security interest, or conditional sale or other title retention agreement, whether prior or subordinate to the lien of the Financing Documents, other than in connection with the Financing Documents or as otherwise provided or permitted therein. Except for any grant, conveyance, sale, assignment or transfer in the ordinary course of the Borrowers' business and which is specifically conditioned upon the release of record of the lien of the Deed of Trust and the other Financing Documents as to that portion of the Property granted, conveyed, sold, assigned or transferred, the Borrowers shall not, without the prior written consent of the Administrative Agent, make, create, permit or consent to any conveyance, sale, assignment or transfer of any of the Property or any part thereof, other than in connection with the Financing Documents or as otherwise provided or permitted therein. Section 8.5 Advances and Loans Make loans or advances to any Person, including, without limitation, Affiliates, partners and employees of the Borrowers. Section 8.6 Contingent Liabilities Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except by the endorsement of negotiable instruments for deposit and collection or similar transactions in the ordinary course of business. Section 8.7 Licenses Allow any Licenses, permit, right, franchise or privilege necessary for the ownership or operation of any Facility for the purposes for which any Facility is intended to be used to lapse, be suspended or be forfeited unless solely due to administrative delay by the licensing authority. Section 8.8 ERISA Compliance (a) Restate or amend any Plan established and maintained by the Borrowers or any Commonly Controlled Entity and subject to the requirements of ERISA, in a manner designed to disqualify such Plan and its related trusts under the applicable requirements of the Code; (b) permit any partners of the Borrowers or any Commonly Controlled Entity to materially adversely 69 76 affect the qualified tax-exempt status of any Plan or related trusts of the Borrowers or any Commonly Controlled Entity under the Code; (c) engage in or permit any Commonly Controlled Entity to engage in any Prohibited Transaction; (d) incur or permit any Commonly Controlled Entity to incur any Accumulated Funding Deficiency, whether or not waived, in connection with any Plan; (e) take or permit any Commonly Controlled Entity to take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Borrowers or any Commonly Controlled Entity pursuant to Section 4068 of ERISA; (f) fail to notify the Administrative Agent that notice has been received of a "termination" (as defined in ERISA) of any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute; (g) incur or permit any Commonly Controlled Entity to incur a "complete withdrawal" or "partial withdrawal" (as defined in ERISA) from any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute; or (h) fail to notify the Administrative Agent that notice has been received from the administrator of any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute that any such Plan will be placed in "reorganization" (as defined in ERISA). Section 8.9 Transfer of Collateral Transfer, or permit the transfer, to another location of any of the Collateral or the books and records related to any of the Collateral; provided, however, that the Borrowers may transfer the Collateral or the books and records related thereto to another location if the Borrowers shall have provided to the Administrative Agent prior to such transfer an opinion of counsel addressed to the Administrative Agent to the effect that the Lenders' perfected security interest shall not be affected by such move or if it shall be affected, setting forth the steps necessary to continue the Lender's perfected security interest together with the commencement of such steps by the Borrowers at its expense. Section 8.10 Sale of Accounts or Receivables Sell, discount, transfer, assign or otherwise dispose of any of its Accounts or Receivables of any Facility, such as accounts receivable, notes receivable, installment or conditional sales agreements or any other rights to receive income, revenues or moneys, however evidenced. Section 8.11 Amendments; Terminations Amend or terminate or agree to amend or terminate any License, the Management Agreement, or any participation agreement which exceeds 10% of the gross revenue of the applicable Facility, or except in the ordinary course of business any other Management Contracts and Operating Agreements which may have been entered into by the Borrowers with respect to any Facility and which exceeds 10% of its gross revenue, or consent to or waive any material provisions thereof. Section 8.12 Prohibition on Hazardous Materials Place, manufacture or store or permit to be placed, manufactured or stored, any Hazardous Materials on any property owned, controlled or operated by the Borrowers or any 70 77 Wholly Owned Subsidiary or for which the Borrowers or any Wholly Owned Subsidiary is responsible, except for reasonable quantities of necessary supplies for use by the Borrowers or any Wholly Owned Subsidiary in the ordinary course of its current line of business and stored, used and disposed of in accordance with applicable Laws. Section 8.13 Subsidiaries Create or otherwise acquire any subsidiaries other than Wholly Owned Subsidiaries which are Additional Borrowers. Section 8.14 Distributions to Partners or Members (a) Make any distributions of net operating income to partners or members of any of the Borrowers unless no Event of Default exists, and at such time or times as the Borrowers have on a consolidated basis, both before and after the distribution, at least $5,000,000 in Liquid Assets plus, at such time or times as ten (10) or more of the Eligible Projects are not a Stabilized Facilities, the Borrowers shall have on a consolidated basis an additional $5,000,000 in Liquid Assets; provided, however, that after deducting the amount of such distribution from the EBITDA (the "Adjusted EBITDA") of the Stabilized Facilities in the aggregate, the Borrowers' consolidated ratio of Adjusted EBITDA to Debt Service for the Stabilized Facilities in the aggregate shall not be less than 1.0 to 1.0. For the purposes of computing EBITDA and Debt Service, the period measured shall be on a rolling four-quarters basis. Distributions may be made only within thirty (30) days of the end of a fiscal quarter. (b) Make a distribution to partners or members of any of the Borrowers from proceeds of the Loan as a repayment of equity in an Eligible Project unless the Borrowers give advance written notice to the Administrative Agent of the amount of such proposed distribution and the Administrative Agent acknowledges in writing the availability of equity to make such a distribution. Section 8.15 Mergers or Acquisitions Enter into any merger or consolidation or amalgamation, wind up or dissolve itself (or suffer any liquidation or dissolution), or acquire all or substantially all of the assets of any person, firm, joint venture or corporation except to acquire a Wholly Owned Subsidiary. Section 8.16 Partnership Interests Repurchase, redeem or retire any partnership or membership interest any of in the Borrowers. Section 8.17 Impairment of Security The Borrowers shall take no action which shall impair in any manner the value of any of the Property or the validity, priority or security of any Deed of Trust. Section 8.18 Conditional Sales 71 78 The Borrowers shall not incorporate in the Improvements any property acquired under a conditional sales contract, or lease, or as to which the vendor retains title or a security interest, without the prior written consent of the Administrative Agent. Section 8.19 Changes to Plans and Specifications After review and approval of a Total Development Budget by the Administrative Agent, the Borrowers shall not permit any change order increasing the price of the Improvements for an Eligible Project by more than $50,000 for any one change order or by more than 10% of the total hard cost portion of the Total Development Budget in the aggregate or materially altering the scope of the Improvements, without the prior written consent of the Administrative Agent which consent will not be unreasonably withheld and provided such changes will not cause the Facility not to qualify as a Pool A Project. Section 8.20 Construction Contract; Construction Management The Borrowers shall not execute any contract or agreement or become a party to any arrangement for the construction of any Improvements or for construction management services with respect to any Property without the prior written consent of the Administrative Agent. ARTICLE IX EVENTS OF DEFAULT The occurrence of one or more of the following events shall be "Events of Default" under this Agreement, and the terms "Event of Default" shall mean, whenever they are used in this Agreement, any one or more of the following events: Section 9.1 Failure to Pay and/or Perform the Obligations The Borrowers shall fail to (a) make any payment of interest on the Note, or (b) pay any of the other Obligations including but not limited to the Expense Payments and Liquidation Costs and such failure continues for more than five (5) calendar days after notice thereof by the Administrative Agent, except with regard to payment of (a) any Borrowing Base Deficiency which shall be due as provided in Section 2.1 The Loan hereof, and (b) amounts due at maturity for which no notice or cure period shall be required to be given. Section 9.2 Breach of Representations and Warranties Any material representation or warranty made in this Agreement or in any report, certificate, opinion (including any opinion of counsel for the Borrowers), financial statement or other instrument furnished in connection with the Obligations or with the execution and delivery of any of the Financing Documents, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. Section 9.3 Failure to Comply with Covenants 72 79 Default shall be made by the Borrowers in the due observance and performance of any covenant, condition or agreement contained in Article VII hereof (except for Section 7.8 Maintenance of Properties, Section 7.9 Maintenance of the Collateral, Section 7.10 Other Liens, Security Interests, etc., Section 7.17 ERISA) or in ARTICLE VIII hereof. Section 9.4 Failure to Comply with Books and Records Default shall be made by the Borrowers in the due observance or performance of Section 7.13 Books and Records, which default shall remain unremedied, and the Borrowers shall cure such default promptly, but in no event more than ten (10) days after written notice thereof to the Borrowers by the Administrative Agent. Section 9.5 Other Defaults Default shall be made by the Borrowers in the due observance or performance of any other term, covenant or agreement other than as set forth in this Article IX, which default shall remain unremedied for more than thirty (30) days after written notice thereof to the Borrowers by the Administrative Agent, unless the nature of the failure is such that (a) it cannot be cured within the thirty (30) day period, and (b) the Borrowers institute corrective action within the thirty (30) day period and (c) the Borrowers diligently pursue such action and complete the cure within ninety (90) days. Section 9.6 Default Under Other Financing Documents A Default shall occur under any of the other Financing Documents, and such Default is not cured within any applicable grace period provided therein. Section 9.7 Receiver; Bankruptcy An Act of Bankruptcy occurs with respect to the Borrowers or any of the Borrowers becomes generally unable to pay its debts as they become due; provided, however, if a proceeding with respect to an Act of Bankruptcy is filed or commenced against any of the Borrowers, the same shall not constitute an Event of Default if such proceeding is dismissed within sixty (60) days from the date of such Act of Bankruptcy. Section 9.8 Judgment Any judgment against any of the Borrowers of $250,000 or more or any attachment or other levy against any property of any of the Borrowers remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of thirty (30) days after the same shall have been issued. Section 9.9 Execution; Attachment Any execution or attachment shall be levied against the Collateral, or any part thereof, and such execution or attachment shall not be set aside, discharged or stayed within thirty (30) days after the same shall have been levied. 73 80 Section 9.10 Default Under Other Borrowings (a) Default which continues beyond any applicable grace period shall be made under any obligation of or guaranteed by any of the Borrowers equal to or greater than $250,000, if the effect of such default is to accelerate the maturity of such obligation or to permit the holder or obligee thereof to cause such obligation to become due prior to its stated maturity. (b) Default shall be made under any obligation equal to or greater than $1,000,000 of a consolidated Affiliate, which is otherwise non-recourse to the Borrowers if the holder or obligee of such obligation has commenced action on any of the remedies available to it under the obligation. Section 9.11 Material Adverse Change If the Administrative Agent in its reasonable discretion determines that a Material Adverse Change has occurred in the financial condition of any of the Borrowers; provided, however, that such Default may be cured if only one Borrower is affected, such Borrower owns only one Eligible Project and such Eligible Project is excluded from the calculation of the Borrowing Base. Section 9.12 Impairment of Position If the Administrative Agent in its reasonable discretion determines that an event has occurred which impairs the prospect of payment of the Obligations and/or the value of the Facilities or the Collateral. Section 9.13 Change in Status or Ownership Any of the Borrowers is dissolved, merged, consolidated or reorganized, or any change occurs in the ownership of any of the Borrowers or any Subsidiary without the prior written consent of the Administrative Agent. Section 9.14 Zoning Any change in any zoning ordinance or any other public restriction is enacted, limiting or defining the uses which may be made of any of the Property or a part thereof, such that the use of any of the Property, as specified herein, would be in material violation of such restriction or zoning change unless the Borrower excludes the affected Eligible Project from the calculation of the Borrowing Base. Section 9.15 Change in Management The Management Agreement is terminated without the prior written consent of the Administrative Agent. Section 9.16 Licenses The involuntary, imposed or required revocation, suspension, probation, restriction, limitation or refusal to renew, or the pending revocation, suspension, probation, restriction, 74 81 limitation, of, or refusal to renew, of any License; other than in the ordinary course of business or to the extent that the Borrowers deem such action to be, in the exercise of prudent business judgment, in the best interest of Borrowers, the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew any participation or eligibility in any third party payor program in which the Borrowers elect to participate, including, without limitation, the Medicaid or Medicare programs; or the issuance or pending issuance of any License for a period of less than twelve (12) months as a consequence of any sanctions imposed by any Governmental Authority; or the assessment or pending assessment, of any civil or criminal penalties by any Governmental Authority, any third party payor or any accreditation organization or person. Without limiting the generality of the foregoing, the failure of the Borrowers to obtain an operating license for any Facility within sixty (60) days of the issuance of the certificate of occupancy for such Facility. Section 9.17 Damage to Improvements At any time prior to the issuance of a certificate of occupancy or completion therefor, any of the Improvements are substantially damaged or destroyed by fire or other casualty and the Administrative Agent determines in good faith that such Improvements cannot be restored and completed in accordance with the terms and provisions of the Deed of Trust unless the Borrower excludes the affected Eligible Project from the Borrowing Base. Section 9.18 Disclosure of Contractors The Borrowers shall fail to disclose to the Administrative Agent, upon demand, the names of all persons with whom the Borrowers have contracted or intends to contract for the construction of the Improvements or for the furnishing of labor or materials therefor. Section 9.19 Mechanic's Lien A lien for the performance of work or the supply of materials which is perfected against any of the Land remains unsatisfied or un-bonded or for which no other arrangements satisfactory to the Administrative Agent have been made for a period of thirty (30) days after notice to the Borrowers from any source of the filing of such Lien unless the Borrowers exclude the affected Eligible Project from the Borrowing Base. Section 9.20 Survey Matters Any Survey required by the Lenders during the period of construction shows any matters not approved by the Administrative Agent and such matters not approved are not removed within 30 days after Notice thereof by the Administrative Agent to the Borrowers unless the Borrower excludes the affected Eligible Project from the Borrowing Base. Section 9.21 General Contractor Default The General Contractor shall have defaulted under any Construction Contract, which default the Administrative Agent, in its sole discretion, shall deem substantial, and the Borrowers, after thirty (30) days Notice from the Administrative Agent, shall fail to commence 75 82 exercising any resulting right or remedy to which it may be entitled thereunder and diligently pursue such right or remedy unless the Borrower excludes the affected Eligible Project from the Borrowing Base. Section 9.22 Compliance with Law The Borrowers fail to comply with any requirement of any Governmental Authority having jurisdiction within the time required by such Governmental Authority; or any proceeding is commenced or action taken to enforce any remedy for a violation of any requirement of a Governmental Authority or any restrictive covenant affecting the Property or any part thereof. ARTICLE X RIGHTS AND REMEDIES UPON DEFAULT Section 10.1 DEMAND; ACCELERATION THE OCCURRENCE OR NONOCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS AGREEMENT SHALL IN NO WAY AFFECT OR CONDITION THE RIGHT OF THE LENDERS TO DEMAND PAYMENT AT ANY TIME OF ANY OF THE OBLIGATIONS WHICH ARE PAYABLE ON DEMAND REGARDLESS OF WHETHER OR NOT AN EVENT OF DEFAULT HAS OCCURRED. Upon the occurrence of an Event of Default, and in every such event and at any time thereafter, the Administrative Agent may declare the Obligations due and payable, without presentment, demand, protest, or any notice of any kind, all of which are hereby expressly waived, anything contained herein or in any of the other Financing Documents to the contrary notwithstanding. Section 10.2 Further Advances; Immediate Acceleration Following an Event of Default the Administrative Agent may from time to time without notice to the Borrowers suspend, terminate or limit any further advances under the Loan or other extensions of credit under this Agreement and under any of the other Financing Documents. Further, upon the occurrence of an Event of Default or Default specified in Section 9.7 Receiver; Bankruptcy above, the unpaid principal amount of the Note (with accrued interest thereon) and all other Obligations then outstanding, shall immediately become due and payable without further action of any kind and without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers. Section 10.3 Specific Rights With Regard to Collateral Following an Event of Default, in addition to all other rights and remedies provided hereunder or as shall exist at law or in equity from time to time, the Administrative Agent may, without notice to the Borrowers and subject to the terms of the Agency Agreement: (a) assign any and all Operating Agreements and Management Contracts to any Person designated by the Administrative Agent, and/or exercise all rights and privileges of 76 83 the Borrowers under such contracts and agreements for the purpose of realizing on the Collateral and to the extent and for the time required to realize the value of the Collateral; (b) to the extent permitted by applicable law, assume such management, operation and control of the Property to the extent and for the time necessary to realize the value of the Collateral; (c) cause the Borrowers to engage, contract with, and/or hire qualified service, billing, collection and other such agents, organizations and companies acceptable to the Administrative Agent to collect and/or realize upon any or all of the Collateral and to remit the proceeds to the Administrative Agent; (d) subject to applicable state and federal laws pertaining to resident confidentiality, request any Account Debtor obligated on any of the Accounts to make payments thereon directly to the Administrative Agent to the extent permitted by applicable law, with the Administrative Agent taking control of the cash and non-cash proceeds thereof and/or direct the Borrowers to (and the Borrowers shall) turn over to the Administrative Agent immediately following receipt all payments with respect to the Collateral in the form received (with the addition of all necessary endorsements) and not to deposit, negotiate or otherwise deal with those payments; (e) compromise, extend or renew any of the Collateral or deal with the same as it may deem advisable; (f) make exchanges, substitutions or surrenders of all or any part of the Collateral; (g) remove from any of the Borrowers' places of business all books, records, ledger sheets, correspondence, invoices and documents, relating to or evidencing any of the Collateral or without cost or expense to the Lenders, make such use of the Borrowers' place of business as may be reasonably necessary to administer, control and collect the Collateral; (h) demand, collect, receipt for and give renewals, extensions, discharges and releases of any of the Collateral; (i) institute and prosecute legal and equitable proceedings to enforce collection of, or realize upon, any of the Collateral; (j) settle, renew, extend, compromise, compound, exchange or adjust claims in respect of any of the Collateral or any legal proceedings brought in respect thereof; (k) endorse the name of any of the Borrowers upon any items of payment relating to the Collateral or on any Proof of Claim in Bankruptcy against an Account Debtor; and 77 84 (l) notify the Post Office authorities to change the address for the delivery of mail to the Borrowers to such address or Post Office Box as the Administrative Agent may designate and receive and open all mail addressed to the Borrowers. In addition, the Borrowers shall, following an Event of Default promptly, upon request, execute and deliver to the Administrative Agent written assignments, to the extent permitted by applicable law, in form and content acceptable to the Administrative Agent, of specific Accounts or groups of Accounts; provided, however, that the lien and/or security interest granted to the Lenders under this Agreement shall not be limited in any way to or by the inclusion or exclusion of Accounts within such assignments. Such Accounts shall secure payment of the Obligations and are not sold to the Lenders whether or not any assignment thereof, which is separate from this Agreement, is in form absolute. Following an Event of Default, the Lenders may also direct the Borrowers to appoint a manager for any or all of the Facilities and enter into a management agreement with one or more management companies approved by the Lenders, the terms of which agreement shall be approved by the Lenders. Section 10.4 Performance by Lenders Following an Event of Default, the Administrative Agent without the necessity of prior notice to or demand upon the Borrowers and without waiving or releasing any of the Obligations or any Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Borrowers, and may enter upon the premises of the Borrower for that purpose and take all such action thereon as the Administrative Agent may consider necessary or appropriate for such purpose. The Administrative Agent will give the Borrowers notice, at least subsequently, of any such performance by the Administrative Agent. All sums so paid or advanced by the Administrative Agent and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection therewith (the "Expense Payments") together with interest thereon from the date of payment, advance or incurring until paid in full at the Post-Default Rate shall be paid by the Borrowers to the Administrative Agent on demand and shall constitute and become a part of the Obligations. Section 10.5 Remedies on Default The Administrative Agent shall have the right, upon the happening of any Event of Default, to terminate this Agreement by Notice from the Administrative Agent to the Borrowers and, in addition to any rights or remedies available to them under the Deed of Trust or any of the other Financing Documents, to enter into possession of any of the Property and perform any and all work and labor necessary to complete the development of such Land and the construction of the Improvements thereon (whether or not in accordance with the Plans and Specifications therefor) and to employ watchmen to protect the Property and the Improvements. All sums expended by the Lenders for such purposes shall be deemed to have been advanced to the Borrowers under the Note and shall be secured by the Deeds of Trust and the Collateral. For this purpose, the Borrowers hereby constitute and appoint the Lenders, or the Administrative Agent 78 85 on behalf of the Lenders, its true and lawful attorney-in-fact with full power of substitution to complete work on any Eligible Project in the name of the Borrowers, and hereby empowers said attorney or attorneys as follows: (a) To use any funds of any of the Borrowers including any balance which may be held in escrow and any funds which may remain un-advanced under any of the Loan for the purpose of completing the development of any of the Land and the construction of any of the Improvements, whether or not in the manner called for in the Plans and Specifications; (b) To make such additions and changes and corrections to any of the Plans and Specifications which shall be necessary or desirable in the judgment of the Administrative Agent to complete the development of any of the Land and the construction of any of the Improvements; (c) To employ such contractors, subcontractors, agents, architects and inspectors as shall be necessary or desirable for said purpose; (d) To pay, settle or compromise all existing bills and claims which are or may be liens against any of the Property, or may be necessary or desirable for the completion of the work or the clearance of title to any of the Property; (e) To execute all applications and certificates which may be required in the name of any of the Borrowers; and (f) To do any and every act with respect to the development of the Land and the construction of the Improvements which any of the Borrowers may do in its own behalf. It is understood and agreed that this power of attorney shall be deemed to be a power coupled with an interest which cannot be revoked. Said attorney-in-fact shall also have the power to prosecute and defend all actions or proceedings in connection with the development of the Land and the construction of the Improvements and to take such actions and to require such performance as the Lenders may deem necessary. Section 10.6 Uniform Commercial Code and Other Remedies Upon the occurrence of an Event of Default (and in addition to all of its rights, powers and remedies under this Agreement), the Lenders shall have all of the rights and remedies of a secured party under the applicable Uniform Commercial Code and other applicable laws, and the Lenders are authorized to offset and apply to all or any part of the Obligations all moneys, credits and other property of any nature whatsoever of the Borrowers now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with, any of the Lenders; and upon demand by the Administrative Agent, the Borrowers shall assemble the Collateral and make it available to the Lenders, at a place designated by the Administrative Agent; and the Lenders or their agents may enter upon the Borrowers' premises to take possession of the Collateral, to remove it, to render it unusable, or to sell or otherwise dispose of it. 79 86 Any written notice of the sale, disposition or other intended action by the Lenders with respect to the Collateral which is sent by regular mail, postage prepaid, to the Borrowers at the address set forth in Article XI hereof, or such other address of the Borrowers which may from time to time be shown on the Lenders' records, at least ten (10) days prior to such sale, disposition or other action, shall constitute reasonable notice to the Borrowers. The Borrowers shall pay on demand all costs and expenses, including, without limitation, attorney's fees and expenses, incurred by or on behalf of the Lenders, or any of them, in preparing for sale or other disposition, selling, managing, collecting or otherwise disposing of, the Collateral. All of such costs and expenses (the "Liquidation Costs") together with interest thereon from the date incurred until paid in full at the Post-Default Rate, shall be paid by the Borrowers to the Administrative Agent on demand and shall constitute and become a part of the Obligations. Any proceeds of sale or other disposition of the Collateral will be applied by the Lenders to the payment of the Liquidation Costs and Expense Payments, and any balance of such proceeds will be applied by the Lenders to the payment of the balance of the Obligations in such order and manner of application as the Lenders may from time to time in its sole discretion determine. After such application of the proceeds, any balance shall be paid to the applicable Borrowers or to any other party entitled thereto. Section 10.7 Receiver or Other Court Order Following an Event of Default, as a matter of right, following ten (10) days notice and without regard to the adequacy of the security, and upon application to a court of competent jurisdiction, the Lenders shall be entitled to the immediate appointment of a receiver for all or any part of the Collateral, and of the payments and proceeds thereof and therefrom, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Borrowers hereby consent to the appointment of such a receiver and to an order of court directing that payments, including Medicare and Medicaid payments, be made directly to the receiver. The Borrowers will pay to the Beneficiary, upon demand, all expenses, including receiver's fees, attorney's fees, costs and agents compensation, advanced by the Borrowers and incurred pursuant to the provisions contained in this Section. Section 10.8 No Conditions Precedent to Exercise of Remedies The Borrowers shall not be relieved of any obligation by reason of the failure of the Lenders to comply with any request of the Borrowers or of any other person to take action to foreclose on the Property under the Deed of Trust or otherwise to enforce any provision of the Financing Documents, or by reason of the release, regardless of consideration, of all or any part of the Property, or by reason of any agreement or stipulation between any subsequent owner of the Property and the Lenders extending the time of payment or modifying the terms of the Financing Documents without first having obtained the consent of the Borrowers; and in the latter event, the Borrowers shall continue to be liable to make payments according to the terms of any such extension or modification agreement, unless expressly released and discharged in writing by the Lenders. Section 10.9 Remedies Cumulative and Concurrent 80 87 No remedy herein conferred upon or reserved to the Lenders or the Administrative Agent is intended to be exclusive of any other remedies provided for in the Financing Documents, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder, or under the Financing Documents, or now or hereafter existing at law or in equity or by statute. Every right, power and remedy given by the Financing Documents to the Lenders or the Administrative Agent shall be concurrent and may be pursued separately, successively or together against any or all of the Borrowers or the Property or any part thereof, and every right, power and remedy given by the Financing Documents may be exercised from time to time as often as may be deemed expedient by the Lenders or the Administrative Agent. Section 10.10 Strict Performance No delay or omission of the Lenders or the Administrative Agent to exercise any right, power or remedy accruing upon the happening of an Event of Default shall impair any such right, power or remedy or shall be construed to be a waiver of any such Event of Default or any acquiescence therein. No delay or omission on the part of the Lenders or the Administrative Agent to exercise any option for acceleration of the maturity of the Obligations, or any of them, or for foreclosure of the Deeds of Trust, or any of them, following any Event of Default as aforesaid, or any other option granted to the Lenders hereunder in any one or more instances, or the acceptance by the Lenders of any partial payment on account of the Obligations shall constitute a waiver of any such Event of Default and each such option shall remain continuously in full force and effect. ARTICLE XI MISCELLANEOUS Section 11.1 Notices All notices, certificates or other communications hereunder shall be deemed given when delivered by hand or courier, or three (3) Banking Days after being mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Administrative Agent BANK OF AMERICA, N.A., d/b/a or the Lenders: NATIONSBANK, N.A. 10 Light Street Baltimore, Maryland 21202 Attn: Leslie M. Zuga Senior Vice President with a courtesy copy to: Mays & Valentine, L.L.P. 8201 Greensboro Drive Suite 800 McLean, Virginia 22102 Attn: Margaret Ann Brown, Esq. 81 88 if to the Borrowers: c/o SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP c/o Sunrise Assisted Living Investments, Inc. 9401 Lee Highway, Suite 300 Fairfax, Virginia 22031 After September 15, 1999 7900 Westpark Drive McLean, Virginia 22102 Attention to each of the following separately delivered or mailed: David W. Faeder Thomas B. Newell, Esq. James S. Pope with a courtesy Wayne G. Tatusko, Esquire copy to: Watt, Tieder, Hoffar & Fitzgerald 7929 Westpark Drive McLean, Virginia 22102 Section 11.2 Consents and Approvals If any consent, approval, or authorization of any Governmental Authority or of any Person having any interest therein, should be necessary to effectuate any sale or other disposition of the Collateral, the Borrowers agree to execute all such applications and other instruments, and to take all other action, as may be required in connection with securing any such consent, approval or authorization. Section 11.3 Remedies, etc. Cumulative Each right, power and remedy of the Lenders as provided for in this Agreement or in any of the other Financing Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Agreement or in any of the other Financing Documents or now or hereafter existing at law or in equity, by statute or otherwise, and the exercise or beginning of the exercise by the Lenders of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lenders of any or all such other rights, powers or remedies. In order to entitle the Lenders to exercise any remedy reserved to it herein, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. 82 89 Section 11.4 No Waiver of Rights by the Lenders No failure or delay by the Administrative Agent or the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant or agreement or of any such breach or preclude the Administrative Agent or the Lenders from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, neither the Administrative Agent nor the Lenders shall be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. Section 11.5 Entire Agreement The Financing Documents shall completely and fully supersede all other agreements, both written and oral, between the Lenders and any of the Borrowers relating to the Obligations. Neither the Lenders nor the Borrowers shall hereafter have any rights under such prior agreements but shall look solely to the Financing Documents for definition and determination of all of their respective rights, liabilities and responsibilities relating to the Obligations. Section 11.6 Survival of Agreement; Successors and Assigns All covenants, agreements, representations and warranties made by the Borrowers herein and in any certificate, in the Financing Documents and in any other instruments or documents delivered pursuant hereto shall survive the making by the Lenders of the Loan and the execution and delivery of the Note, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrowers which are contained in this Agreement shall inure to the benefit of the respective successors and assigns of each of the Lenders, and all covenants, promises and agreements by or on behalf of the Lenders which are contained in this Agreement shall inure to the benefit of the permitted successors and permitted assigns of the Borrowers, but this Agreement may not be assigned by the Borrowers without the prior written consent of the Lenders. Section 11.7 Expenses The Borrowers agree to pay all reasonable out-of-pocket expenses of the Lenders and Banc of America Securities LLC (excluding travel expenses but including the reasonable fees and expenses of the legal counsel of the Administrative Agent or any other Lender) in connection with the preparation of this Agreement, the issuance of the Loan hereunder, the recordation of all financing statements and such other instruments as may be required by the Administrative Agent at the time of, or subsequent to, the execution of this Agreement to secure the Obligations (including any and all recordation tax and other costs and taxes incident to recording), the administration of the Credit Facility (not otherwise contemplated by any fee paid by the 83 90 Borrowers), any future modification of the Financing Documents, the addition of Eligible Projects to the Borrowing Base or the enforcement of any provision of this Agreement and the collection of the Obligations. The Borrowers agree to indemnify and save harmless the Lenders from any liability resulting from the failure to pay any required recordation tax, transfer taxes, recording costs or any other expenses incurred by the Lenders in connection with the Obligations. The provisions of this Section shall survive the execution and delivery of this Agreement and the repayment of the Obligations. The Borrowers further agree to reimburse the Lenders upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses and travel expenses) incurred by the Lenders, or any of them, in enforcing any of the Obligations or any security therefor or incurred in connection with any bankruptcy proceeding or in any post-judgment enforcement or collection action, together with interest at the Post-Default Rate which agreement shall survive the termination of this Agreement and the repayment of the Obligations. Section 11.8 Counterparts This Agreement may be executed in any number of counterparts all of which together shall constitute a single instrument. Section 11.9 Governing Law This Agreement and all of the other Financing Documents shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia; provided, however, any Deed of Trust and any financing statements covering fixtures securing such Loan shall be governed by, and construed in accordance with, the laws of the state in which the applicable Facility is located. Section 11.10 Modifications No modification or waiver of any provision of this Agreement or of any of the other Financing Documents, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in the same, similar or other circumstance. Section 11.11 Illegality If fulfillment of any provision hereof or any transaction related hereto or to any of the other Financing Documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause or provisions herein contained other than the provisions hereof pertaining to repayment of the Obligations operates or would prospectively operate to invalidate this Agreement in whole or in part, then such clause or provision only shall be void, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect; and if such provision pertains to 84 91 repayment of the Obligations, then, at the options of the Lenders, all of the Obligations of the Borrowers to the Lenders shall become immediately due and payable. Section 11.12 Gender, etc. Whenever used herein, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders. Section 11.13 Headings The headings in this Agreement are for convenience only and shall not limit or otherwise affect any of the terms hereof. Section 11.14 Waiver of Trial by Jury THE BORROWER AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY OF THEM MAY BE PARTIES, NOT GOVERNED BY THE ARBITRATION PROVISIONS OF THE NOTE OR THE GUARANTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Borrowers and the Lenders, and the Borrowers and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Borrowers and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. Section 11.15 No Warranty by Lenders By accepting or approving anything required to be observed, performed or fulfilled by the Borrowers or to be given to the Administrative Agent or the Lenders pursuant to this Agreement, including, without limitation, any certificate, balance sheet, statement of profit and loss or other financial statement, Survey, receipt, appraisal or insurance policy, the Lenders shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof and any such acceptance or approval thereof shall not be or constitute any warranty or representation with respect thereto by the Lenders. Section 11.16 Liability of the Lenders 85 92 No Lender shall be liable for another Lender's failure to fund its ratable share of any advance under the Loan. The Lenders shall not be liable for any other act or omission by the Lenders, or any of them, pursuant to the provisions of this Agreement in the absence of fraud or gross negligence. The Lenders shall incur no liability to the Borrowers or any other party in connection with the acts or omissions of any of the Lenders in reliance upon any certificate or other paper believed by the Lenders to be genuine or with respect to any other thing which the Lenders may do or refrain from doing, unless such act or omission amounts to fraud or gross negligence. The Borrowers hereby agree that the Lenders shall not be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Lenders, or any of them, (except for the gross negligence or willful misconduct of any person, corporation, partnership or other entity employed by any of the Lenders) in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. The Borrowers, jointly and severally, shall indemnify, defend and hold the Lenders and their successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorney's fees and court costs) arising from or in connection with this Agreement. Any indemnity provision for the benefit of the Lenders set forth herein or in any of the Financing Documents shall extend to any other lender who becomes a Lender under the Credit Facility. The provisions of this Section shall survive the termination of the Credit Facility. Section 11.17 License of Tradename The Borrowers do hereby grant to each of the Lenders and their affiliates and any trustee under a Deed of Trust and their management company a license to use the name of any Borrower and the name "Sunrise", "Dignity Home Care", "Respect Home Care" or "Karrington" and any marks associated therewith in the operation of a Facility upon such Lender's or trustee's taking of possession or taking over management of a Facility or acquiring title thereto at a foreclosure sale which license shall be in effect for a period of thirty (30) months from the date thereof. The Borrowers further agree that a third-party purchaser of a Facility may continue to operate the Facility under the name of any Borrower unless such Borrower objects in writing thereto. Section 11.18 No Partnership Nothing contained in this Agreement shall be construed in a manner to create any relationship between the Borrowers and the Lenders other than the relationship of borrower and lender and the Borrowers and the Lenders shall not be considered partners or co-venturers for any purpose on account of this Agreement. Section 11.19 Third Parties; Benefit All conditions to the obligation of the Lenders to make advances hereunder are imposed solely and exclusively for the benefit of the Lenders and their assigns and no other persons shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lenders will refuse to make advances in the absence of strict compliance with any or all thereof and no other person shall, under any circumstances, be deemed to be the beneficiary of such conditions, any or all of which may be freely waived in 86 93 whole or in part by the Administrative Agent at any time in the sole and absolute exercise of its discretion pursuant to its agreements with the Lenders. The terms and provisions of this Agreement are for the benefit of the parties hereto and, except as herein specifically provided, no other person shall have any right or cause of action on account thereof. Section 11.20 Conditions; Verification Any condition of this Agreement which requires the submission of evidence of the existence or non-existence of a specified fact or facts implies as a condition to the existence or non-existence, as the case may be, of such fact or facts that the Lenders shall, at all times, be free independently to establish to their satisfaction and in its absolute discretion such existence or non-existence. Section 11.21 Signs; Publicity At the Administrative Agent's request, but at the expense of the Administrative Agent, the Borrowers shall place a sign acceptable to the Borrowers at a location on each of the Eligible Projects under construction satisfactory to the Administrative Agent, which sign shall recite, among other things, that the Lenders are financing the development of the Land and the construction of the Improvements. The Borrowers expressly authorize the Administrative Agent to prepare and to furnish to the news media for publication from time to time news releases with respect to the Credit Facility and each Eligible Project, specifically to include but not limited to, releases detailing the Administrative Agent's and the Lenders' involvement with the Credit Facility and the financing of any Eligible Project, all subject to prior review by the Borrowers. Section 11.22 Time of Essence Time shall be of the essence for each and every provision of this Agreement of which time is an element. Section 11.23 Replacement Note In the event any Joinder Agreement is ever lost or destroyed, the Borrowers covenant and agree that they will execute and deliver to the Administrative Agent upon demand a replacement original thereof. [SIGNATURES ON THE FOLLOWING PAGE] 87 94 IN WITNESS WHEREOF, the parties hereto have signed and sealed this Agreement on the day and year first above written. WITNESS/ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: /s/ James S. Pope (SEAL) - -------------------------- -------------------------------- Name: James S. Pope Title: Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company By: Sunrise Development, Inc., Managing Member By: /s/ James S. Pope (SEAL) - --------------------------- ------------------------------------ Name: James S. Pope Title: Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: /s/ James S. Pope (SEAL) - --------------------------- ------------------------------------ Name: James S. Pope Title: Vice President
88 95 SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ------------------------------------- Name: James S. Pope Title: Vice President SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- -------------------------------------- Name: James S. Pope Title: Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - ---------------------------- ---------------------------------------- Name: James S. Pope Title: Vice President
89 96 SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- -------------------------------------- Name: James S. Pope Title: Vice President SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - ---------------------------- --------------------------------------- Name: James S. Pope Title: Vice President SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - ----------------------------- ----------------------------------------- Name: James S. Pope Title: Vice President
90 97 SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------------------- Name: James S. Pope Title: Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------------------- Name: James S. Pope Title: Vice President WITNESS: BANK OF AMERICA, N.A., d/b/a/ NATIONSBANK, N.A., successor by merger to NationsBank, N.A., as Administrative Agent for the Lenders By: /s/ Sabina Kelly (SEAL) - -------------------------- ---------------------------------------- Sabina Kelly Senior Vice President
91 98 LIST OF EXHIBITS A Form of Note B Form of Borrowing Base Report C Current Borrowing Base Report D Places of Business E Form of Joinder Agreement F Survey Requirements G Form of Compliance Certificate 92 99 EXHIBIT A FORM OF NOTE 93 100 EXHIBIT B FORM OF BORROWING BASE REPORT 94 101 EXHIBIT C CURRENT BORROWING BASE REPORT 95 102 EXHIBIT D PLACES OF BUSINESS AS OF JULY_29, 1999 The Borrowers' Chief Executive Office and Principal Place of Business is: 9401 Lee Highway, Suite 300 Fairfax, VA 22031 after September 15, 1999 7900 Westpark Drive McLean, VA 22102 Locations of Collateral: 9401 Lee Highway, Suite 300 Fairfax, VA 22031 after September 15, 1999 7900 Westpark Drive McLean, VA 22102 Sunrise of Decatur 920 Clairemont Avenue Decatur, GA Dekalb County Sunrise of Lafayette Hills 429 Ridge Pike Lafayette Hills, PA 19444 Sunrise of Fairfield Greenbrook Road Township of Fairfield, NJ Essex County Sunrise of Bellevue 15928 NE 8th Street Bellevue, WA 98008 King County 96 103 Sunrise of Walnut Creek 2175 Ygnacio Valley Road Walnut Creek, CA 94598 Contra Costa County Sunrise of Oakland Hills 11889 Skyline Boulevard Oakland, CA Alameda County Sunrise of Paoli 324 Lancaster Avenue Malvern, PA 19355 Chester County, PA Sunrise of Paramus 571 Paramus Road Paramus, NJ 07652 Bergen County Sunrise of Riverside 5265 Chapalla Drive Riverside, CA Riverside County Sunrise of Northville 16100 Haggerty Road Northville, MI Wayne County Sunrise of Bloomingdale 129 E. Lake Street Bloomingdale, IL DuPage County Sunrise of Huntcliff 8480 Roswell Road Atlanta, GA Fulton County Sunrise of Mount Vernon 160 West Lincoln Avenue Mt. Vernon, NY 10550 Westchester County 97 104 Sunrise of Wall Township New Bedford and Allaire Roads Township of Wall, NJ Monmouth County Sunrise of Smithtown 30 Route 111 The Branch Smithtown, NY 11787 Suffolk County Sunrise of Willowbrook 301 3rd Street Clarendon Hills, IL DuPage County Sunrise of Wilton 96 Danbury Road Wilton, CT Town of Wilton Sunrise of Huntcliff Summit I 8490 Roswell Road Atlanta, GA 30350 Fulton County Sunrise of Sterling Canyon 25815 McBean Parkway Valencia, CA Los Angeles County Sunrise of Flossmoor 19715 South Governors Highway Flossmoor, IL Cook County Sunrise of San Mateo 955 South El Camino Real San Mateo, CA San Mateo County 98 105 EXHIBIT E FORM OF JOINDER AGREEMENT 99 106 EXHIBIT F SURVEY REQUIREMENTS 100 107 EXHIBIT G FORM OF COMPLIANCE CERTIFICATE This Compliance Certificate is delivered pursuant to (i) Section 7.1 of the Second Amended and Restated Financing and Security Agreement dated as of July ____, 1999 (together with all amendments and modifications, if any, from time to time made thereto, the "Financing Agreement") between Sunrise East Assisted Living Limited Partnership, Sunrise SEAL, L.L.C. and certain affiliated borrowing entities (collectively, the "Borrower") and Bank of America, N.A. as Administrative Agent, and (ii) Section 3.1 of the Second Amended and Restated Master Guaranty of Payment Agreement dated as of July ____, 1999 (together with all amendments and modifications, if any, from time to time made thereto, the "Guaranty") by Sunrise Assisted Living, Inc. ("Guarantor") and Bank of America, N.A. as Administrative Agent. Unless otherwise defined, terms used herein (including the attachments hereto) have the meanings provided in the Financing Agreement. BORROWER CERTIFICATE The undersigned, one of the Borrowers as of the date hereof, hereby certifies and warrants that: 1. It is authorized to execute this certificate on behalf of all Borrowers. 2. As of the (fiscal quarter) (fiscal year) ending as of ________________, 19____: (a) No Borrower was in default under any of the provisions of the Financing Agreement during the period to which this Compliance Certificate relates; (b) As of the end of this reporting period: (i) the number of Eligible Projects was ____ [minimum number required 8]; (ii) the number of Eligible Projects that qualify as Pool A Projects is ____; (iii) the ratio of Pool A Projects to Eligible Projects is ____% [minimum required percentage 83%]. (c) The attached Borrowing Base Report accurately represents the status of each Eligible Project with regard to any and all applicable covenants set forth in the Financing Agreement (including the ratio of Net Operating Income to Debt Service for such reporting period and the Minimum Occupancy Requirement and actual occupancy as of the end of such reporting period). (d) As of the end of this reporting period: (i) the number of Eligible Projects that are not Stabilized Facilities is ____; (ii) the amount of Liquid Assets held by the Borrower on a consolidated basis, after taking into account any distributions ("Distributions") of net operating income to partners or members of any of the Borrowers made less than 30 days prior to the end of such reporting period, is $____________ [minimum required $5,000,000 plus an additional $5,000,000 if 10 or more Eligible Projects are not Stabilized Facilities]; (iii) if there have been any Distributions, then the ratio of Adjusted EBITDA to Debt Service (calculated on a rolling four-quarter basis), for the Stabilized Facilities in the aggregate, is _____ [minimum required 1.0]. 101 108 SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP By: Sunrise Assisted Living Investments, Inc. its general partner By: (SEAL) --------------------------- James S. Pope Vice President 102 109 GUARANTOR CERTIFICATE The undersigned, being the duly elected, qualified and acting Chief Financial Officer of the Guarantor, on behalf of the Guarantor, hereby certifies and warrants that: 1. He is the Chief Financial Officer of the Guarantor and that, as such, he is authorized to execute this certificate on behalf of the Guarantor. 2. As of the (fiscal quarter) (fiscal year) ending as of ________________, 19____: (a) The Guarantor is not in default under any of the provisions of the Guaranty; (b) The Guarantor's Tangible Net Worth was $_________ as computed on Attachment 1 hereto; (c) The Guarantor's ratio (on a consolidated basis with all subsidiaries) of Funded Debt (as defined in the Guaranty) to EBITDAR was ______ as computed on Attachment 2 hereto; (d) The Guarantor's ratio (on a consolidated basis with all subsidiaries) of EBITDAR to the sum of____ Interest Expense (as defined in the Guaranty) and Rent Expense (as defined in the Guaranty) was _______ as computed on Attachment 3 hereto; (e) The value of the Guarantor's Minimum Liquid Assets was $_____ as computed on Attachment 4 hereto. IN WITNESS WHEREOF, the undersigned has executed and delivered this certificate, this ______ day of ______________, 19____. SUNRISE ASSISTED LIVING, INC. By: (SEAL) --------------------------- Christian B.A. Slavin Chief Financial Officer 103 110 ATTACHMENT 1 Period Ending: ____________, _______ Tangible Net Worth 1. net worth (defined by GAAP) $________________________, less 2. (a) all intangible assets (except for deferred taxes recorded as goodwill) $____________________ (b) write-up in book value of assets subsequent to most recent financial statement $_____________ (c) loans and advances to, or investments in, any person or entity (except: (i) cash equivalents or deposit accounts at financial institutions; (ii) mortgage revenue bonds issued by Bucks County, PA Industrial Development Authority; and (iii) individual investments less than $2,500,000, but not exceeding $10,000,000 in the aggregate) $________________ (d) advances or loans to, or receivables from, unconsolidated affiliates (except subordinated debt of unconsolidated affiliates) $______________ Actual Tangible Net Worth = $_______________ Required Tangible Net Worth equal to the sum of: (i) Guarantor's net worth as of June 30, 1999 $255,000,000 (ii) Guarantor's net income (if positive) for each quarter subsequent to June 30, 1999 x 75% = $____________ (iii) Net proceeds received by Guarantor of any equity capital transaction during each quarter subsequent to June 30, 1999 x 85% = $____________ TOTAL $____________ 104 111 ATTACHMENT 2 Period Ending: ____________, _____ Ratio of Funded Debt to EBITDAR 1. Funded Debt $ * ----------------- 2. EBITDAR (as calculated on Attachment 3) $ ----------------- Actual Ratio: ____ Required Ratio:...not greater than (i) 5.75 for fiscal year 1999 and 2000, and (ii) 5.50 for fiscal year 2001 and 2002 * "Funded Debt" means the sum of the following but shall exclude trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of the Guarantor in accordance with GAAP: (a) indebtedness for borrowed money (excluding the 5 1/2% convertible subordinated notes issued by the Guarantor) $____________ (b) obligations in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of the Guarantor $____________ (c) (i) lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of the Guarantor, plus (ii) the product of Rent Expense (as defined in the Guaranty), with respect to operating leases, multiplied by 8 $____________ (d) liabilities secured by any property owned by the Guarantor, to the extent attached to the Guarantor's interest in such property, even though Guarantor is not liable for the payment thereof $____________ (e) (i) amounts payable by Guarantor under any terminated, defaulted or outstanding interest rate protection products, or (ii) take-out commitments (excluding a refinancing or a commitment of a third party) or purchase contracts including the deferred purchase price of property or services in each instance if the Guarantor does not control the incurring obligation $____________ (f) (i) the amount of any guaranty of indebtedness for borrowed, or (ii) other debt owned by Persons other than the Guarantor which is in default and for which the creditor is pursuing payment by the Guarantor $________________ (g) any obligation of the Guarantor or a Commonly Controlled Entity to a Multiemployer Plan $___________________ (h) other amounts considered to be debt by the Administrative Agent, the Syndication Agent and the 105 112 Documentation Agent in a dollar amount to be mutually agreed upon by the Administrative Agent and the Guarantor (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms which are not overdue or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of Guarantor in accordance with (GAAP) $___________________ 106 113 ATTACHMENT 3 Period Ending: ____________, ______ Ratio of EBITDAR to Interest Expense plus Rent Expense 1. EBITDAR $_____________ (calculated as follows) Net Income $_____________ Plus Interest $_____________ Plus Taxes $_____________ Plus Depreciation $_____________ Plus Amortization $_____________ Plus Rent Expense $_____________ (actual rent expense incurred by Borrower, Guarantor or any Affiliate as a tenant under leases for any senior living facility) Plus Actual Management Fees $_____________ Minus Replacement Reserve $_____________ ($250/year/bed for each Facility) Minus Management Fees $_____________ (equal to the greater of 5% of gross revenues or actual Management Fees) 2. Interest Expense $_____________ (actual interest expense incurred by Guarantor and its subsidiaries on all debt owed to unaffiliated third parties, including 5 1/2% convertible subordinated notes) 3. Rent Expense $_____________ Interest Expense $_____________ Sum of Rent Expense and Interest Expense $_____________ Actual Ratio:________________ Required Ratio: 2.50
107 114 ATTACHMENT 4 Period Ending: ____________, ______ Minimum Liquid Assets Value of cash, cash equivalents and marketable securities $_______________ Required Value: not less than the greater of (a) 90 days of Debt Service, or (b) $25,000,000. 108 EX-10.49 3 SECOND AMENDED, RESTATED AND INCREASED PROMISSORY 1 EXHIBIT 10.49 SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE THIS SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE is made this 29th day of July, 1999, by (i) SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP ("SEAL"), a Virginia limited partnership, (ii) SUNRISE SEAL, L.L.C. ("Sunrise SEAL"), a Virginia limited liability company, (iii) SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership and SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership (collectively, the "SEAL Affiliates") (SEAL, Sunrise SEAL and the SEAL Affiliates sometimes referred to herein collectively as the "Borrowers") and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., its successors and assigns, successor by merger to NationsBank, N.A., as administrative agent (the "Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating in a bank group pursuant to a Second Amended and Restated Agency Agreement of even date herewith (as amended, restated or substituted from time to time, the "Agency Agreement"). RECITALS A. The Lenders have provided a credit facility (such credit facility, as modified, increased, extended, restated or substituted, is referred to hereinafter as the "Credit Facility" or the "Loan") in the maximum principal sum of $250,000,000. Advances or readvances have been made pursuant to, and secured by, the provisions of that certain Amended and Restated Financing and Security Agreement dated December 23, 1997 by and between the Administrative Agent and SEAL (as amended, restated or substituted from time to time, the "Existing Financing Agreement") and that certain Amended and Restated Master Construction Loan Agreement dated December 23, 1997 by and between the Administrative Agent and SEAL (as amended, restated or substituted from time to time, the "Construction Agreement"). B. The Loan is evidenced by that certain Amended, Restated, Consolidated and Increased Master Promissory Note dated December 23, 1997 payable by SEAL to Administrative Agent on behalf of the Lenders as amended pursuant to the First Amendment to Amended, Restated, Consolidated and Increased Promissory Note and Additional Borrower Joinder Supplement by and among SEAL, Sunrise SEAL and the Administrative Agent (collectively, the "Original Note"). 2 C. As of December 30, 1998, the Credit Facility was amended by adding Sunrise SEAL as a co-borrower pursuant to amendments to the Original Note, the Existing Financing Agreement and certain other Financing Documents executed in connection therewith. D. The Lenders have agreed to increase the Credit Facility Committed Amount to $400,000,000. In connection with such increase and other modifications to the Credit Facility, the Existing Financing Agreement and the Construction Agreement are being amended, restated and consolidated pursuant to the Second Amended and Restated Financing and Security Agreement of even date herewith (as amended, restated or substituted from time to time the "Financing Agreement"). E. Certain Eligible Projects owned by Sunrise Riverside Assisted Living, L.P., Sunrise Huntcliff Assisted Living Limited Partnership, Sunrise Sterling Canyon Assisted Living Limited Partnership, Sunrise Paramus Assisted Living Limited Partnership, Sunrise Fairfield Assisted Living, L.P., Sunrise Bellevue Assisted Living Limited Partnership, Sunrise Oakland Assisted Living Limited Partnership, Sunrise Walnut Creek Assisted Living Limited Partnership, and Sunrise Decatur Assisted Living Limited Partnership (collectively, the "SEAL Affiliates") have been financed under the Credit Facility, and the SEAL Affiliates have guaranteed the Credit Facility but have not been added as borrowers under the Credit Facility. F. In connection with the increase to the Credit Facility, (i) the SEAL Affiliates, and (ii) every other entity beneficially owned, in whole or in part, directly or indirectly, by Sunrise Assisted Living, Inc. which hereafter pledges an Eligible Property as collateral for the Credit Facility and enters into a Joinder Agreement pursuant to the terms of the Financing Agreement (collectively, the "Additional SEAL Affiliates") are to be added as borrowers under the Credit Facility. G. The Note, the Deeds of Trust (as defined in the Financing Agreement), the Financing Agreement, the Security Documents (as defined in the Financing Agreement), and all other documents evidencing or securing the Loan are hereinafter referred to collectively as the "Financing Documents." H. All capitalized terms used and not defined herein shall have the meaning given to such terms in the Financing Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Administrative Agent and the Borrower covenant and agree as follows: 1. The above Recitals are incorporated herein by reference. 2 3 2. The Original Note is hereby amended and restated in its entirety as follows: $400,000,000 July 29, 1999 FOR VALUE RECEIVED, SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership, SUNRISE SEAL, L.L.C., a Virginia limited liability company, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership and SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership (collectively referred to herein as the "Borrower"), promises to pay to the order of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A. its successors and assigns (the "Administrative Agent") as administrative agent for itself and the other lenders who are or shall be from time to time participating as lenders (collectively with the Administrative Agent, the "Lenders") hereunder pursuant to the Second Amended and Restated Agency Agreement of even date herewith, (as amended, restated or substituted from time to time, the "Agency Agreement"), the maximum principal sum of FOUR HUNDRED MILLION AND NO/100 DOLLARS ($400,000,000) (the "Principal Sum") or such greater amount as the Lenders may from time commit to lend pursuant hereto and to the Agency Agreement, or so much thereof as may be advanced or readvanced to or for the account of the Borrower pursuant to the terms and conditions of the Financing Agreement (as hereinafter defined), together with interest thereon at the rate or rates hereinafter provided. All defined terms not otherwise defined herein shall have the meaning set forth in the Financing Agreement. 1. Interest. Interest on portions of the outstanding Principal Sum shall accrue and be payable for periods of thirty (30) days each or periods of seven (7) days each (each a "Eurodollar Period") at a fixed rate for such Eurodollar Period equal to the sum of (i) Eurodollar Rate (as defined in the Financing Agreement), which rate shall be adjusted for any Federal Reserve Board reserve requirements imposed upon the Administrative Agent or any of the Lenders from time to time, plus (ii) that certain number of basis points per annum (the "Spread") applicable pursuant to the conditions set forth below. The Eurodollar Rate determined pursuant to the preceding sentence shall be in effect to the end of the applicable Eurodollar Period. Interest payable hereunder shall also be subject to the conditions set forth in Section 2.4 of the Financing Agreement. No more than six (6) different Eurodollar Periods may be in effect at any one time provided that not more than one (1) Eurodollar Period may be a seven day Eurodollar Period. Interest shall be computed for the actual number of days which have elapsed from the date of each advance of a portion of the Principal Sum calculated on the basis of a 365-day year. 3 4 For any Eurodollar Period commencing on a date when one or more of SEAL, Sunrise SEAL or Guarantor (as defined in the Financing Agreement) has a senior secured debt rating from each of Moody's and Standard & Poors and not lower, respectively, than BBB- and Baa3, the Spread shall be determined according to the following grid based on the lower rating, if any, of either Moody's or Standard & Poors.
STANDARD & POORS MOODY'S SENIOR SECURED DEBT RATING SENIOR SECURED DEBT RATING SPREAD -------------------------- -------------------------- ------ A- A3 100 BBB+ Baa1 110 BBB Baa2 120 BBB- Baa3 130
If a senior secured debt rating is not available from both Standard & Poors and Moody's, an implied senior secured debt rating will be used. The implied senior secured debt rating for both Standard & Poors and Moody's will be equivalent to the lower of either (A) one level above the lower of Standard & Poors and Moody's senior unsecured debt rating, or (B) two levels above Standard & Poors and Moody's subordinated debt rating. In all cases where a Spread based on an actual or implied secured debt rating is not available or is lower than above, the Spread shall be one hundred fifty (150) basis points. 2. Payments and Maturity. (a) Interest only on the outstanding principal balance of the Loan shall be due and payable on the fifteenth (15th) day of the first (1st) month following the date hereof and on the fifteenth (15th) day of each and every month thereafter for a total of thirty-six (36) consecutive months unless otherwise extended pursuant to the terms of the Financing Agreement; and (b) Principal sums repaid prior to the Maturity Date (as hereinafter defined) may be reborrowed pursuant to the terms of the Financing Documents. (c) The outstanding principal balance of the Loan and all accrued and unpaid interest thereon shall be due and owing at the Maturity Date. (d) The Loan shall mature and the entire principal balance of the Loan, together with all accrued and unpaid interest thereon, shall be due and payable on the date (the "Maturity Date") referred to in the Financing Agreement as the Revolving Credit Termination Date. The fact that the balance hereunder may be reduced to zero from time to time pursuant to the Financing Agreement will not affect the continuing validity of this Note or the Financing Agreement, and the balance may be increased to the Principal Sum after any such reduction to zero. 4 5 3. Default Interest. Upon the occurrence of an Event of Default (as hereinafter defined), the unpaid Principal Sum shall bear interest thereafter until such Event of Default is cured at a rate which is at all times equal to three percent (3%) per annum in excess of the rate or rates of interest otherwise payable hereunder. 4. Late Charges. In the event that any payment due hereunder is not received by the Administrative Agent within fifteen (15) days of the date such payment is due (inclusive of the date when due), the Borrower shall pay to the Administrative Agent on demand a late charge equal to four percent (4%) of such payment. 5. Application and Place of Payments. Unless an Event of Default (as hereinafter defined) has occurred, all payments made on account of this Note, including prepayments, shall be applied in the following order: (a) First, to all Enforcement Costs and other expenses of the Administrative Agent and/or the Lenders; (b) Second, to all amounts due to the Administrative Agent (in its capacity as Administrative Agent) from the Borrowers or the Lenders; (c) Third, to the Lenders, in accordance with their respective pro rata shares of the Loan, for the past due interest on the Note; (d) Fourth, to the payment of any prepayment penalty due under Section 4.8 of the Financing Agreement. (e) Fifth, to the Lenders, in accordance with their respective pro rata shares of the Loan, for principal of the Note in the order hereinafter provided plus the pro rata share of the settlement payments due to the Administrative Agent or other Lender who provided the Interest Rate Protection (as defined in the Financing Agreement) to the Borrowers (the "Settlement Payments"); (f) Sixth, to the Lenders, in accordance with their respective pro rata shares of the Loan, for past due fees required under the Financing Documents; (g) Seventh, to the Lenders, in accordance with their respective pro rata shares of the Loan, for all other amounts owed the Lenders pursuant to the provisions of the Financing Agreement, this Agreement or the Financing Documents, including but not limited to any unpaid Commitment Fees; and (h) Eighth, to the Administrative Agent, in payment or reimbursement of any over-drafts in any account of the Borrowers. 5 6 The application of payments after an Event of Default shall be determined by the Administrative Agent. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours of the Administrative Agent at its principal office in Baltimore, Maryland or at such other times and places as the Administrative Agent may at any time and from time to time designate in writing to the Borrower. Any payment received after 2:30 p.m. (Baltimore Time) shall be deemed to have been received on the next Banking Day. 6. Prepayment. The Borrower shall have the right to prepay the Principal Sum in full or in part, at any time and from time to time in accordance with Section 4.8 of the Financing Agreement. Sums repaid may be reborrowed. 7. Financing Agreement and Other Financing Documents. This Note is the Note described in the Second Amended and Restated Financing and Security Agreement of even date by and among the Borrowers and the Administrative Agent (as amended or otherwise modified from time to time, the "Financing Agreement"). The term "Financing Documents" as used in this Note shall mean collectively this Note, the Financing Agreement, all Deeds of Trust (as further amended or otherwise modified from time to time), all of the other Financing Documents (as defined in the Financing Agreement) and any other instrument, agreement, or document previously, simultaneously, or hereafter executed and delivered by the Borrower and/or any other person, singularly or jointly with any other person, evidencing, securing, guaranteeing, or in connection with the Credit Facility or the Loan. 8. Security. This Note is secured by, among other things, certain deeds of trust or mortgages (each as amended, restated or substituted from time to time, a "Deed of Trust" collectively, the "Deeds of Trust"), covering that real estate owned by the Borrower and the improvements thereon more particularly described in the Deeds of Trust identified on any Borrowing Base Report or listing of Optional Collateral and all other property, real and personal, more particularly described in the Deeds of Trust (collectively, the "Property"). 9. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (individually, an "Event of Default" and collectively, the "Events of Default") under the terms of this Note: (a) The failure of the Borrower to pay to the Administrative Agent when due any and all amounts payable by the Borrower to the Lenders under the terms hereunder and such failure continues for five (5) calendar days after notice thereof by the Administrative Agent, except with regard to payment of amounts due at maturity for which no notice or cure period shall be required to be given and except for a Borrowing Base Deficiency (as defined in the Financing Agreement) which shall be payable as provided in the Financing Agreement; or (b) The occurrence of a Default or an Event of Default (as those terms are defined in the Financing Agreement) under the terms and conditions of any of the other Financing Documents, which Default or Event of Default remains uncured beyond any applicable grace and/or cure period provided therefor. 6 7 10. Remedies. Upon the occurrence of an Event of Default, at the option of the Lenders, all amounts payable by the Borrower to the Lenders under the terms hereof shall immediately become due and payable by the Borrower to the Lenders without notice to the Borrower or any other person, and the Lenders shall have all of the rights, powers, and remedies available under the terms of this Note, any of the other Financing Documents and all applicable laws. The Borrower and all endorsers, guarantors, and other parties who may now or in the future be primarily or secondarily liable for the payment of the indebtedness under the Loan hereby severally waive presentment, protest and demand, notice of protest, notice of demand and of dishonor and non-payment of this Note and expressly agree that this Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Borrower, guarantors and endorsers. The Borrower and all endorsers, guarantors, and other parties who may now or in the future be liable for payment of the Obligations hereby acknowledge that all advances under the Loan will be made under and will be evidenced by this Note. 11. Mandatory Arbitration. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), as promulgated from time to time by the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc., predecessor in interest to Endispute, Inc., doing business as "J.A.M.S./Endispute" and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The foregoing notwithstanding, in a claim pertaining to a Deed of Trust or Collateral located in a state with "one-action" rule which might limit to Lenders' remedies, the Administrative Agent shall have the right in its sole discretion to restrict the application of this arbitration provision to the extent that it would otherwise result in a limitation on the Lenders' remedies in such state. (i) Special Rules. The arbitration shall be conducted in Fairfax County, Virginia and administered by J.A.M.S./Endispute who will appoint an arbitrator pursuant to its rules of practice and procedure; if J.A.M.S./Endispute is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) calendar days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) calendar days. (ii) Reservations of Rights. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by Administrative Agent of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of the 7 8 Administrative Agent or the Lenders (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. The Administrative Agent or the Lenders may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. At the Administrative Agent's or the Lenders' option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Notwithstanding the foregoing, in the event that the Administrative Agent or the Lenders exercise such self help remedies or other actions, the Borrower has not waived any of its rights to seek legal or equitable relief to defend against the Administrative Agent's or the Lenders' exercise of such self help remedies or other actions. No provision in the Financing Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Financing Document for arbitration of any controversy or claim. (iii) Confidentiality. Any arbitration proceeding, award, findings of fact, conclusions of law, or other information concerning such arbitration matters shall be held in confidence by the parties and shall not be disclosed except to each party's employees or agents as shall be reasonably necessary for such party to conduct its business; provided, however, that either party may disclose such information for auditing purposes by independent certified public accountants, for complying with applicable governmental laws, regulations or court orders, or that is or becomes part of the public domain through no breach of this Note. 12. Consent to Jurisdiction. The Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the Commonwealth of Virginia over any suit, action, or proceeding arising out of or relating to this Note. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection that the Borrower may now or hereafter have to the laying the venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the Borrower and may be enforced in any court in which the Borrower is subject to jurisdiction by a suit upon such judgment provided that service of process is effected upon the Borrower as provided in this Note or as otherwise permitted by applicable law. 13. Service of Process. (a) The Borrower hereby irrevocably designates and appoints Wayne G. Tatusko, Esquire of Watt, Tieder, Hoffar & Fitzgerald, 7929 Westpark Drive, McLean, Virginia 22102, as the Borrower's authorized agent to accept and acknowledge on the Borrower's behalf 8 9 service of any and all process that may be served in any suit, action, or proceeding instituted in connection with this Note in any state or federal court sitting in the Commonwealth of Virginia. If such agent shall cease so to act, the Borrower shall irrevocably designate and appoint without delay another such agent in the Commonwealth of Virginia satisfactory to the Lenders and shall promptly deliver to the Administrative Agent evidence in writing of such agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. (b) The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to the Borrower and (ii) serving a copy thereof upon the agent hereinabove designated and appointed by the Borrower as the Borrower's agent for service of process. The Borrower irrevocably agrees that such service shall be deemed to be service of process upon the Borrower in any such suit, action, or proceeding. Nothing in this Note shall affect the right of the Lenders to serve process in any manner otherwise permitted by law and nothing in this Note will limit the right of the Lenders otherwise to bring proceedings against the Borrower in the courts of any jurisdiction or jurisdictions. 14. WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING NOT REQUIRED TO BE ARBITRATED PURSUANT TO THE TERMS HEREOF TO WHICH THE BORROWER AND THE LENDERS, OR ANY OF THEM, MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE, (B) THE OTHER FINANCING DOCUMENTS OR (C) ANY OF THE PROPERTY. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 15. Expenses. The Borrower promises to pay to the Administrative Agent on demand by the Administrative Agent all costs and expenses incurred by the Lenders in connection with the collection and enforcement of this Note, including, without limitation, all reasonable attorneys' fees and expenses and all court costs. 16. Notices. Any notice, request, or demand to or upon the Borrower or the Lenders shall be deemed to have been properly given or made when delivered in accordance with Section 11.1 of the Financing Agreement. 9 10 17. Miscellaneous. Each right, power, and remedy of the Lenders as provided for in this Note or any of the other Financing Documents, or now or hereafter existing under any applicable law or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Note or any of the other Financing Documents or now or hereafter existing under any applicable law, and the exercise or beginning of the exercise by the Lenders of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Lenders of any or all such other rights, powers, or remedies. No failure or delay by the Lenders to insist upon the strict performance of any term, condition, covenant, or agreement of this Note or any of the other Financing Documents, or to exercise any right, power, or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant, or agreement or of any such breach, or preclude the Lenders from exercising any such right, power, or remedy at a later time or times. By accepting payment after the due date of any amount payable hereunder, the Lenders shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under the terms hereof or to declare an Event of Default for the failure to effect such prompt payment of any such other amount. No course of dealing or conduct shall be effective to amend, modify, waive, release, or change any provisions of this Note. 18. Partial Invalidity. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal, or unenforceable. 19. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit, or describe the scope or intent of this Note. 20. Governing Law. The provisions of this Note shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia as the same may be in effect from time to time. 3. It is expressly understood and agreed that the indebtedness evidenced by the Original Note has not been extinguished or discharged hereby and is consolidated herein. The Borrower and/or the Administrative Agent agree that the execution of this Note is not intended and shall not cause or result in a novation with regard to the Original Note. 4. This Note may be executed in one or more counterparts each of which shall constitute an original for all purposes; provided, however, that all such counterparts shall together constitute one and the same instrument. 10 11 IN WITNESS WHEREOF, the Borrowers and the Administrative Agent have caused this Second Amended, Restated and Increased Master Promissory Note to be executed, under seal, by their duly authorized representatives, as of the date first written above. BORROWERS: WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., general partner By:/s/ James S. Pope (SEAL) - ---------------------- ------------------------------ James S. Pope Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company - ---------------------- By: Sunrise Development, Inc., Managing Member By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership - ---------------------- By: Sunrise Assisted Living Investments, Inc., its general partner By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President 11 12 SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President 12 13 SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., its general partner - ------------------------ By: /s/ James S. Pope (SEAL) ------------------------------ James S. Pope Vice President 13 14 ADMINISTRATIVE AGENT: WITNESS: BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A., as Administrative Agent for itself and the Other Lenders By:/s/ Sabina Kelly (SEAL) - ----------------- ---------------------------- Sabina Kelly Senior Vice President 14 15 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise East Assisted Living Limited Partnership, a Virginia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Development, Inc., a Virginia corporation, the sole member of Sunrise SEAL, L.L.C., a Virginia limited liability company, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 15 16 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Riverside Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Huntcliff Assisted Living Limited Partnership, a Georgia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 16 17 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Sterling Canyon Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Paramus Assisted Living Limited Partnership, a New Jersey limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 17 18 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Fairfield Assisted Living Limited Partnership, a New Jersey limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Bellevue Assisted Living Limited Partnership, a Washington limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 18 19 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Oakland Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Walnut Creek Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 19 20 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Decatur Assisted Living Limited Partnership, a Georgia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Sabina Kelly, a Senior Vice President of Bank of America, N.A., d/b/a NationsBank, N.A., successor by merger to NationsBank, N.A., who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be her act and deed that she executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 20 21 EXHIBIT A JOINDER AGREEMENT 21 22 AMENDMENT TO SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE THIS AMENDMENT TO SECOND AMENDED, RESTATED AND INCREASED PROMISSORY NOTE (this "Agreement") is made this 14th day of March, 2000, by and among SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership ("SEAL"), SUNRISE SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL"), SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, (collectively the "Original Borrowers") and SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability company, SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company, SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company, SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE WESTON ASSISTED LIMITED PARTNERSHIP, a Massachusetts limited partnership, SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership, SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company, and SUNRISE CLAREMONT ASSISTED LIVING, L.P., a California limited partnership (the "Additional Borrowers", collectively with the Original Borrowers and any other Additional Borrowers, as hereinafter defined, the "Borrowers"), and BANK OF AMERICA, N.A., as administrative agent (the "Administrative Agent") for itself and for UNITED BANK, as syndication agent (the "Syndication Agent"), FLEET NATIONAL BANK, as documentation agent (the "Documentation Agent") and certain additional lenders who are or shall be from time to time participating as lenders hereunder pursuant to the Agency Agreement, as hereinafter defined (collectively with the Administrative Agent, the "Lenders"). INTRODUCTORY STATEMENT A. As evidenced by the terms of the Second Amended, Restated and Increased Promissory Note dated July 29, 1999, from the Borrowers other than the Additional Borrowers (as hereinafter defined), jointly and severally, as makers, to the Lender, as payee (such Second Amended, Restated and Increased Promissory Note, together with all modifications thereto, extensions or renewals thereof and substitutions therefor being hereinafter referred to as the 23 "Note"), the Borrowers other than the Additional Borrowers became indebted unto the Lender for a loan in the maximum principal amount at any one time outstanding of $400,000,000 (the "Credit Facility" or the "Loan"). Pursuant to their respective Additional Borrower Joinder Supplements each of the Additional Borrowers became co-borrowers under the Note and jointly and severally liable with the other Borrowers for the obligations under the Loan. B. The Loan is advanced pursuant to the terms of and secured as provided in the Second Amended and Restated Financing and Security Agreement dated July 29, 1999 executed by the Borrowers (the "Existing Financing Agreement"). C. The Borrowers have applied to the Lenders to modify certain terms an conditions of the Existing Financing Agreement and of the Second Amended and Restated Guaranty of Payment Agreement dated July 29, 1999 by Sunrise Assisted Living, Inc. (the "Guarantor") for the benefit of the Lenders (the "Existing Guaranty"). The Lenders have agreed on the condition, among others that the Existing Financing Agreement and the Existing Guaranty be amended and restated in their entirety pursuant to the terms of the Third Amended and Restated Financing and Security Agreement of even date herewith by and among the Borrowers and the Administrative Agent (as amended, modified, restated, renewed or substituted, the "Financing Agreement") and the Third Amended and Restated Guaranty of Payment Agreement of even date herewith by the Guarantor for the benefit of the Lenders (as amended, modified, restated, renewed or substituted, the "Guaranty"). D. The Lenders have agreed to make available the Credit Facility upon the conditions that this Agreement amending the interest rate applicable to the Note be executed and delivered to the Administrative Agent. AGREEMENTS NOW, THEREFORE, in consideration of the premises and for the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the Borrowers and the Lender do hereby mutually covenant and agree as follows: 1. Incorporation of Recitals. The parties hereto acknowledge and agree that the recitals hereinabove set forth are true and correct in all respects and that the same are incorporated herein and made a part hereof. 2. Outstanding Obligations. The parties hereto acknowledge and agree (a) that the outstanding principal balance of the Note as of March 14, 2000 is $238,200,000, and (b) that the unpaid principal balance of the Note, together with accrued and unpaid interest thereon, is due and owing subject to the terms of repayment hereinafter set forth, without defense or offset. 3. Interest Rate. Paragraph 1 (Interest) on page 3 of the Note is hereby amended and restated in its entirety as follows and shall be effective as of the date first above written: 2 24 1. Interest. Interest on portions of the outstanding Principal Sum shall accrue and be payable for periods of thirty (30) days each or periods of seven (7) days each (each a "Eurodollar Period") at a fixed rate for such Eurodollar Period equal to the sum of (i) Eurodollar Rate (as defined in the Financing Agreement), which rate shall be adjusted for any Federal Reserve Board reserve requirements imposed upon the Administrative Agent or any of the Lenders from time to time, plus (ii) one hundred seventy five (175) basis points per annum. The Eurodollar Rate determined pursuant to the preceding sentence shall be in effect to the end of the applicable Eurodollar Period. Interest payable hereunder shall also be subject to the conditions set forth in Section 2.4 of the Financing Agreement. No more than six (6) different Eurodollar Periods may be in effect at any one time provided that not more than one (1) Eurodollar Period may be a seven day Eurodollar Period. Interest shall be computed for the actual number of days which have elapsed from the date of each advance of a portion of the Principal Sum calculated on the basis of a 365-day year. 4. Continuation of Loan Terms. Except as otherwise expressly set forth below, the outstanding principal balance of the Note shall continue to be repaid on the terms and subject to the conditions set forth in the Note and the other documents evidencing the Loan. All capitalized terms used but not defined in this Agreement shall have the meaning given to such terms in the Financing Documents. 5. Continuing Agreements; Novation. Except as expressly modified hereby and by the Financing Agreement and the Guaranty, the parties hereto ratify and confirm each and every provision of the Note, and each of the other Financing Documents as if the same were set forth herein. In the event that any of the terms and conditions in the Note or in any of the other Financing Documents conflict in any way with the terms and provisions hereof, the terms and provisions hereof shall prevail. The parties hereto covenant and agree that the execution of this Agreement is not intended to and shall not cause or result in a novation with regard to the Note, the Financing Agreement, the Guaranty and/or the other Financing Documents and that the existing indebtedness of the Borrowers to the Lender evidenced by the Note is continuing, without interruption, and has not been discharged by a new agreement. 6. Entire Agreement. NO STATEMENTS, AGREEMENTS OR REPRESENTATIONS, ORAL OR WRITTEN, WHICH MAY HAVE BEEN MADE TO ANY OF THE BORROWERS OR TO ANY EMPLOYEE OR AGENT OF THE BORROWERS, EITHER BY THE LENDER OR BY ANY EMPLOYEE, AGENT OR BROKER ACTING ON THE LENDER'S BEHALF, WITH RESPECT TO THE MODIFICATION OF THE LOAN, SHALL BE OF ANY FORCE OR EFFECT, EXCEPT TO THE EXTENT STATED IN THIS AGREEMENT, AND ALL PRIOR AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE MODIFICATION OF THE LOAN ARE MERGED HEREIN. 3 25 7. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit or describe the scope or intent of this Agreement. 8. Governing Law. The provisions of this Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia as the same may be in effect from time to time. [SIGNATURES ON FOLLOWING PAGE] 4 26 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written. BORROWERS: WITNESS/ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company By: Sunrise Development, Inc., Managing Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 5 27 SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 6 28 SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 7 29 SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 8 30 SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE OF NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 9 31 SUNRISE WESTON ASSISTED LIVING LIMITED PARTNERSHIP, a Massachusetts limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President SUNRISE CLAREMONT ASSISTED LIVING L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner - -------------------- By:/s/ James S. Pope (SEAL) ------------------------ James S. Pope Vice President 10 32 ADMINISTRATIVE AGENT: WITNESS: BANK OF AMERICA, N.A., as Administrative Agent for the Lenders - -------------------- By: /s/ Leslie M. Zuga (SEAL) ----------------------------- Leslie M. Zuga Senior Vice President 11 EX-10.50 4 SECOND AMENDED GUARANTY OF PAYMENT AGREEMENT 1 EXHIBIT 10.50 SECOND AMENDED AND RESTATED MASTER GUARANTY OF PAYMENT AGREEMENT THIS SECOND AMENDED AND RESTATED MASTER GUARANTY OF PAYMENT AGREEMENT (this "Agreement") is made this 29th day of July, 1999, by SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the "Guarantor") for the benefit of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A., as administrative agent ("Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating as lenders in a bank group pursuant to the Amended and Restated Agency Agreement of even date herewith (as amended, restated or substituted from time to time, the "Agency Agreement"). RECITALS A. The Original Lenders have provided a credit facility (such credit facility, as modified, increased, extended, restated or substituted, is referred to hereinafter as the "Credit Facility" or the "Loan") in the maximum principal sum of $250,000,000. Advances or readvances are to be made pursuant to, and secured by, the provisions of that certain Amended and Restated Financing and Security Agreement dated December 23, 1997 by and between the Administrative Agent and Sunrise East Assisted Living Limited Partnership ("SEAL") (as amended, restated or substituted from time to time, the "Existing Financing Agreement") and that certain Amended and Restated Master Construction Loan Agreement dated December 23, 1997 by and between the Administrative Agent and SEAL (as amended, the "Construction Agreement"). B. The Loan was evidenced by that certain Amended, Restated, Consolidated and Increased Master Promissory Note dated December 23, 1997 payable by SEAL to Administrative Agent on behalf of the Lenders (as amended, restated, renewed or substituted from time to time, the "Original Note"). C. As of December 30, 1998, the Credit Facility was amended by adding Sunrise SEAL, L.L.C. ("Sunrise SEAL") as a borrower pursuant to an amendment to the Original Note and the Existing Financing Agreement. D. The Lenders have agreed to increase the Credit Facility to $400,000,000 which Credit Facility shall be evidenced by a Second Amended, Restated and Increased Master Note of even date herewith which amends, restates and replaces the Original Note. In connection with such increase and other modifications to the Credit Facility, the Existing Financing Agreement and the Construction Agreement are being amended, restated and consolidated pursuant to the Second Amended and Restated Financing and Security Agreement of even date herewith (as amended, extended or substituted from time to time, the "Financing Agreement"). E. Certain Eligible Projects owned by Sunrise Riverside Assisted Living, L.P., Sunrise Huntcliff Assisted Living Limited Partnership, Sunrise Sterling Canyon Assisted Living Limited Partnership, Sunrise Paramus Assisted Living Limited Partnership, Sunrise Fairfield 2 Assisted Living, L.P., Sunrise Bellevue Assisted Living Limited Partnership, Sunrise Oakland Assisted Living Limited Partnership, Sunrise Walnut Creek Assisted Living Limited Partnership, and Sunrise Decatur Assisted Living Limited Partnership (collectively, the "SEAL Affiliates") have been included in the Borrowing Base under the Credit Facility, and the SEAL Affiliates have guaranteed the Credit Facility but have not been added as borrowers under the Credit Facility. F. In connection with the increase to the Credit Facility, (i) the SEAL Affiliates, and (ii) every other entity beneficially owned, in whole or in part, directly or indirectly, by Sunrise Assisted Living, Inc. which hereafter grants a lien to the Administrative Agent on behalf of the Lenders an Eligible Project and other Collateral as collateral for the Credit Facility and enters into a Joinder Agreement pursuant to the terms of the Financing Agreement (collectively, the "Additional SEAL Affiliates") are to be added as borrowers under the Credit Facility. G. SEAL, Sunrise SEAL, the SEAL Affiliates and the Additional SEAL Affiliates are hereafter referred to collectively as the "Borrowers". H. The Lenders have required, as a condition to increasing the Credit Facility, that the Guarantor execute and deliver this Agreement to the Administrative Agent. I. All capitalized terms used in this Agreement and not defined herein shall have the meaning given to such terms in the Financing Agreement. NOW, THEREFORE, in order to induce the Lenders to make the Loan to the Borrower, the Guarantor covenants and agrees with the Lenders as follows: ARTICLE I THE GUARANTY Section 1.1 Recitals. The Recitals set forth above are incorporated into this Agreement by reference. Section 1.2 Guaranty. The Guarantor hereby unconditionally and irrevocably guarantees to the Lenders: (a) the due and punctual payment in full (and not merely the collectibility) of the principal of the Note and the interest thereon, in each case when due and payable, whether on any installment payment date or at the stated or accelerated maturity, all according to the terms of the Note and the other Financing Documents; (b) the due and punctual payment in full (and not merely the collectibility) of all Obligations and other sums and charges which may at any time be due and payable in accordance with, or secured by, the Note or any of the other Financing Documents; 2 3 (c) the due and punctual performance of all of the other terms, covenants and conditions contained in the Financing Documents; and (d) all indebtedness, obligations and liabilities of any kind and nature of the Borrowers to the Lenders, whether now existing or hereafter created or arising, direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and howsoever owned, held or acquired. Section 1.3 Guaranty Unconditional. The obligations and liabilities of the Guarantor under this Agreement shall be absolute and unconditional, irrespective of the genuineness, validity, priority, regularity or enforceability of the Note or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor expressly accepts the terms and conditions of the Note and the other Financing Documents. The Guarantor expressly agrees that the Lenders may, in their sole and absolute discretion, without notice to or further assent of the Guarantor and without in any way releasing, affecting or in any way impairing the obligations and liabilities of the Guarantor hereunder: (a) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (b) modify, amend, change or terminate any provisions of any of the Financing Documents; (c) grant extensions or renewals of or with respect to the Note or any of the other Financing Documents; (d) effect any release, subordination, compromise or settlement in connection with the Note or any of the other Financing Documents; (e) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loans or to the subordination of any lien or security interest therein; (f) make advances for the purpose of performing any term, provision or covenant contained in the Note or any of the other Financing Documents with respect to which the Borrowers shall then be in default; (g) make future advances to the Borrowers pursuant to the Financing Agreement or any of the other Financing Documents; (h) assign, pledge, hypothecate or otherwise transfer the Note, any of the other Financing Documents or this Agreement or any interest therein; (i) deal in all respects with the Borrowers as if this Agreement were not in effect; and 3 4 (j) effect any release, compromise or settlement with any of the Guarantor or any other guarantor. Section 1.4 Guaranty Primary. The obligations and liabilities of the Guarantor under this Agreement shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that the Guarantor may have against the Borrowers, the Lenders and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Lenders of any remedies it may have against the Borrowers with respect to the Note or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Lenders shall not be required to make any demand upon the Borrowers, or to sell the Collateral or otherwise pursue, enforce or exhaust their remedies against the Borrowers or the Collateral either before, concurrently with or after pursuing or enforcing their rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against the Guarantor under this Agreement, either in the same action, if any, brought against the Borrowers or in separate actions or proceedings, as often as the Lenders may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of the Borrowers or any other obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against the Borrowers or the Guarantor or any obligor under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of the Guarantor hereunder in any manner whatsoever, and this Agreement shall remain and continue in full force and effect. It is the intent and purpose of this Agreement that the Guarantor shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Guarantor agrees that it shall be liable for the full amount of the obligations and liabilities under this Agreement, regardless of, and irrespective to, any modification, limitation or discharge of the liability of the Borrowers, any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings. Section 1.5 Certain Waivers by the Guarantor. The Guarantor hereby unconditionally, irrevocably and expressly waives: (a) presentment and demand for payment of the principal of or interest on the Note and protest of non-payment; (b) notice of acceptance of this Agreement and of presentment, demand and protest thereof; (c) notice of any default hereunder or under the Note or any of the other Financing Documents and notice of all indulgences; 4 5 (d) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Agreement; (e) demand for observance, performance or enforcement of any of the terms or provisions of this Agreement, the Note or any of the other Financing Documents; (f) all errors and omissions in connection with the Lenders' administration of all indebtedness guaranteed by this Agreement, except errors and omissions resulting from acts of bad faith; (g) any right or claim of right to cause a marshalling of the assets of the Borrowers; (h) any act or omission of the Lenders (except acts or omissions in bad faith) which changes the scope of the Guarantor's risk hereunder; and (i) all other notices and demands otherwise required by law which the Guarantor may lawfully waive. Section 1.6 Reimbursement for Expenses. In the event the Lenders shall commence any action or proceeding for the enforcement of this Agreement, then the Guarantor will reimburse the Lenders, promptly upon demand, for any and all reasonable expenses incurred by the Lenders in connection with such action or proceeding including, without limitation, reasonable attorneys' fees together with interest thereon at the Post-Default Rate. Section 1.7 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under the provisions of this Agreement (individually, an "Event of Default" and collectively, the "Events of Default"): (a) The failure of the Guarantor to pay and/or perform any of the Obligations as and when due and payable in accordance with the provisions of this Agreement and such failure continues for five (5) calendar days after written notice thereof to the Guarantor by the Administrative Agent, except with regard to payment of amounts due at maturity, whether by acceleration or otherwise, for which no notice or cure period shall be required to be given. (b) Any representation or warranty made in this Agreement or in any report, statement, schedule, certificate, opinion (including any opinion of counsel for the Guarantor), financial statement or other document furnished in connection with this Agreement, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. 5 6 (c) The failure of the Guarantor to comply with Section 3.1(c) hereof which default shall remain unremedied for ten (10) days after written notice thereof to the Guarantor by the Administrative Agent. (d) The failure of the Guarantor to perform, observe or comply with any covenant, condition or agreement contained in this Agreement other than as set forth in this Section, which default shall remain unremedied for thirty (30) days after written notice thereof to the Guarantor by the Administrative Agent, unless the nature of the failure is such that (a) it cannot be cured within the thirty (30) day period, and (b) the Guarantor institutes corrective action within the thirty (30) day period and (c) the Guarantor diligently pursues such action and completes the cure within ninety (90) days. (e) A default shall occur under any of the other Financing Documents and such default is not cured within any applicable grace period provided therein. (f) The Guarantor shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or any of its property, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy or a petition or an answer seeking or consenting to reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take corporate action for the purposes of effecting any of the foregoing, or (vi) by any act indicate its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or trustee for any of its property, or suffer any such receivership, trusteeship or proceeding to continue undischarged for a period of sixty (60) days, or (vii) by any act indicate its consent to, approval of or acquiescence in any order, judgment or decree by any court of competent jurisdiction or any Governmental Authority enjoining or otherwise prohibiting the operation of a material portion of the Guarantor's business or the use or disposition of a material portion of the Guarantor's assets. (g) (i) An order for relief shall be entered in any involuntary case brought against the Guarantor under the Bankruptcy Code, or (ii) any such case shall be commenced against the Guarantor and shall not be dismissed within sixty (60) days after the filing of the petition, or (iii) an order, judgment or decree under any other Law is entered by any court of competent jurisdiction or by any other Governmental Authority on the application of a Governmental Authority or of a Person other than the Guarantor (A) adjudicating the Guarantor bankrupt or insolvent, or (B) appointing a receiver, trustee or liquidator of the Guarantor, or of a material portion of the Guarantor's assets, or (C) enjoining, prohibiting or otherwise limiting the operation of a material portion of the Guarantor's businesses or the use or disposition of a material portion of the Guarantor's assets, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days from the date entered. (h) Unless adequately insured in the reasonable opinion of the Administrative Agent, the entry of a final judgment for the payment of money involving more than $1,000,000 against the Guarantor, and the failure by the Guarantor to discharge the same, or cause it to be 6 7 discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered, or to secure a stay of execution pending appeal of such judgment. (i) Default which continues beyond any applicable grace period shall be made under any obligation of or guaranteed by the Guarantor equal to or greater than $1,000,000, if the effect of such default is to accelerate the maturity of such obligation or to permit the holder or obligee thereof to cause such obligation to become due prior to its stated maturity. (j) Default shall be made under any obligation equal to or greater than $1,000,000 of a consolidated Affiliate, which is otherwise non-recourse to the Guarantor, if the holder or obligee of such obligation has commenced action on any of the remedies available to it under the obligation. (k) If the Administrative Agent, in its reasonable discretion, determines in good faith that a Material Adverse Change has occurred in the financial condition of the Guarantor. (l) If the Guarantor shall liquidate, dissolve or terminate its existence or any change occurs in the management or control of the Guarantor without the prior written consent of the Administrative Agent. (m) If the Guarantor transfers any of its assets in violation of Section 3.3 hereof. (n) Any execution or attachment shall be levied against any collateral for this Agreement, or any part thereof, and such execution or attachment shall not be set aside, discharged or stayed within thirty (30) days after the same shall have been levied. Section 1.8 Rescission of Election to Accelerate. In the event the Administrative Agent shall elect to accelerate the maturity of the Note as to the Guarantor pursuant to the provisions of this Agreement, such election may be rescinded by written acknowledgment to that effect by the Administrative Agent; provided, however, that the acceptance of a partial payment on account of the Note shall not alone effect or rescind such election. Section 1.9 Subordination; Subrogation. In the event the Guarantor shall advance any sums to the Borrowers, or in the event the Borrowers has heretofore or shall hereafter become indebted to the Guarantor before the Obligations have been paid in full, all such advances and indebtedness shall be subordinate in all respects to the Obligations (the "Guarantor Subordinated Debt"). Any payment to the Guarantor after the occurrence of an Event of Default on account of the Guarantor Subordinated Debt shall be collected and received by the Administrative Agent or the Guarantor in trust for the Lenders and shall be paid over to the Lenders on account of the Obligations without impairing or releasing the obligations of the Guarantor hereunder. 7 8 Without the prior written consent of the Administrative Agent, the Guarantor shall not ask, demand, receive, accept, sue for, set off, collect or enforce the Guarantor Subordinated Debt or any collateral and security therefor. The Guarantor represents and warrants to the Lenders that the Guarantor Subordinated Debt is unsecured and agrees not to receive or accept any collateral or security therefor without the prior written permission of the Administrative Agent. The Guarantor shall assign, transfer, hypothecate or dispose of the Guarantor Subordinated Debt while this Agreement is in effect. In the event of any sale, receivership, insolvency or bankruptcy proceeding, or assignment for the benefit of creditors, or any proceeding by or against the Borrowers for any relief under any bankruptcy or insolvency law or other laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, then and in any such event any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon, or with respect to, all or any part of the Guarantor Subordinated Debt or otherwise shall be paid or delivered directly to the Administrative Agent for application to the obligations and liabilities of the Guarantor under this Agreement (whether due or not due and in such order and manner as the Administrative Agent may determine in the exercise of its sole discretion) until the obligations of the Guarantor hereunder shall have been fully paid and satisfied. The Guarantor hereby irrevocably authorizes and empowers the Lenders to demand, sue for, collect and receive every such payment or distribution on account of the Guarantor Subordinated Debt and give acquittance therefor and to file claims and take such other proceedings in the name of the Lenders or in the names of the Guarantor or otherwise, as the Lenders may deem necessary or advisable to carry out the provisions of this Agreement. The Guarantor hereby agrees to execute and deliver to the Administrative Agent such powers of attorney, assignments, endorsements or other instruments as may be requested by the Administrative Agent in order to enable the Lenders to enforce any and all claims upon, or with respect to, the Guarantor Subordinated Debt, and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect thereto. So as to secure the performance by the Guarantor of the provisions of this Agreement, the Guarantor assigns, pledges and grants to the Lenders a security interest in, and lien on, the Guarantor Subordinated Debt, all proceeds thereof and all and any security and collateral therefor. Upon the request of the Administrative Agent, the Guarantor shall endorse, assign and deliver to the Administrative Agent all notes, instruments and agreements evidencing, securing, guarantying or made in connection with the Guarantor Subordinated Debt. Notwithstanding any provision contained in this Agreement to the contrary, if the Guarantor is or at any time becomes an "insider" (as defined from time to time in Section 101 of the United States Bankruptcy Code) with respect to the Borrowers, or any other guarantor, then the Guarantor irrevocably and absolutely waives any and all rights of contribution, indemnification, reimbursement, subrogation or any similar rights against the Borrowers and/or any such guarantor, with respect to this Guaranty (including any right of subrogation) whether such rights arise under an express or implied contract or by operation of law. It is the intention of the Guarantor that it shall not be deemed to be a "creditor" (as defined in Section 101 of the United States Bankruptcy Code) of the Borrowers, or any such guarantor, by reason of the existence of 8 9 this Agreement in the event that the Borrowers or any such guarantor, becomes a debtor in any proceeding under the United States Bankruptcy Code. This waiver is given to induce the Lenders to make the Loans to the Borrowers. Section 1.10 Mandatory Arbitration. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Guaranty or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), as promulgated from time to time by the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc., predecessor in interest to Endispute, Inc., doing business as "J.A.M.S./Endispute" and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Guaranty may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The foregoing notwithstanding, in a claim pertaining to a Deed of Trust or Collateral located in a state with "one-action" rule which might limit to Lenders' remedies, the Administrative Agent shall have the right in its sole discretion to restrict the application of this arbitration provision to the extent that it would otherwise result in a limitation on the Lenders' remedies in such state. (i) Special Rules. The arbitration shall be conducted in Fairfax County, Virginia and administered by J.A.M.S./Endispute who will appoint an arbitrator pursuant to its rules of practice and procedure; if J.A.M.S./Endispute is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) calendar days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) calendar days. (ii) Reservations of Rights. Nothing in this Guaranty shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Guaranty; or (ii) be a waiver by the Administrative Agent or the Lenders of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of Lender (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. The Lenders may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Guaranty. At the Administrative Agent or the Lenders' option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in 9 10 any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Notwithstanding the foregoing, in the event that the Lender exercises such self help remedies or other actions, the Guarantor has not waived any of its rights to seek legal or equitable relief to defend against the Administrative Agent's or Lenders' exercise of such self help remedies or other actions. No provision in the Financing Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Financing Document for arbitration of any controversy or claim. (iii) Confidentiality. Any arbitration proceeding, award, findings of fact, conclusions of law, or other information concerning such arbitration matters shall be held in confidence by the parties and shall not be disclosed except to each party's employees or agents as shall be reasonably necessary for such party to conduct its business; provided, however, that either party may disclose such information for auditing purposes by independent certified accounts, for complying with applicable governmental laws, regulations or court orders, or that is or becomes part of the public domain through no breach of this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 The Guarantor represents and warrants to the Lenders as follows: (a) Good Standing. The Guarantor (i) is duly organized, existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the power to own its property and to carry on its business as now being conducted, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary. (b) Power and Authority. The Guarantor has full power and authority to execute and deliver this Agreement and the other Financing Documents to which it is a party and to incur and perform the Obligations whether under this Agreement, the other Financing Documents or otherwise, all of which have been duly authorized by all proper and necessary action. No consent or approval of shareholders, members, or any creditors of the Guarantor, and no consent, approval, filing or registration with or notice to any Governmental Authority on the part of the Guarantor, is required as a condition to the execution, delivery, validity or enforceability of this Agreement or the other Financing Documents or the performance by the Guarantor of the Obligations. (c) Binding Agreements. This Agreement and the other Financing Documents executed and delivered by the Guarantor have been properly executed and delivered and constitute the valid and legally binding obligations of the Guarantor and are fully enforceable against the Guarantor in accordance with their respective terms, subject to (a) bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally, (b) general principles of equity (regardless of whether such principles of equity are asserted in an action or proceeding at law or in equity) or the discretion of the court before which any action or 10 11 proceeding may be brought and (c) other applicable laws which may limit the enforceability of certain of the remedial or procedural provisions contained in this Agreement. (d) Compliance with Laws. The Guarantor is not in violation of any applicable Laws (including, without limitation, any Laws relating to employment practices, to environmental, occupational and health standards and controls) or order, writ, injunction, decree or demand of any court, arbitrator, or any Governmental Authority affecting the Guarantor or any of its properties, the violation of which, considered in the aggregate, could materially adversely affect the business, operations or properties of the Guarantor. (e) Litigation. There are no proceedings, actions or investigations pending or, so far as the Guarantor knows, threatened before or by any court, arbitrator or any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of the Guarantor, would have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of the Guarantor. (f) Financial Condition. The financial statements of the Guarantor dated December 31, 1998, are complete and correct and fairly present the financial position of the Guarantor and the results of its operations and transactions in its surplus accounts as of the date and for the period referred to and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, of the Guarantor as of the date of such financial statements which are not reflected therein or in the notes thereto. There has been no Material Adverse Change in the financial condition or operations of the Guarantor since the date of such financial statements and to the Guarantor's knowledge no such Material Adverse Change is pending or threatened. The Guarantor has not guaranteed the obligations of, or made any investment in or advances to, any Person, except as disclosed in such financial statements or as otherwise disclosed in writing to the Lenders. The representations and warranties contained in this Section shall also cover financial statements furnished from time to time to the Administrative Agent pursuant to Section of this Agreement. (g) Full Disclosure. The financial statements referred to in Section 2.1(f) of this Agreement, the Financing Documents (including, without limitation, this Agreement), and the statements, reports or certificates furnished by the Guarantor in connection with the Financing Documents (i) do not contain any untrue statement of a material fact and (ii) when taken in their entirety, do not omit any material fact necessary to make the statements contained therein not misleading. There is no fact known to the Guarantor which the Guarantor has not disclosed to the Lenders in writing prior to the date of this Agreement which constitutes a Material Adverse Change with respect to the Guarantor or in the future could, in the reasonable opinion of the Guarantor, constitute a Material Adverse Change with respect to the Guarantor. (h) Financial Interest. The Guarantor has a financial interest in the Borrowers and will derive a benefit from the Loan. 11 12 Section 2.2 Survival; Updates of Representations and Warranties. All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the Closing Date, the making of any advance under the Loans and the incurring of any Obligations. ARTICLE III COVENANTS Section 3.1 The Guarantor hereby covenants and agrees as follows: (a) Existence. The Guarantor shall maintain its existence in good standing in the jurisdiction in which it is organized and in each other jurisdiction where it is required to register or qualify to do business if the failure to do so in such other jurisdiction might have a material adverse effect on the ability of the Guarantor to perform the Obligations, on the conduct of the Guarantor's operations, on the Guarantor's financial condition, or on the value of, or the ability of the Lenders to realize upon, the Collateral. (b) Further Assurances. The Guarantor will make, execute, acknowledge and deliver all and every such further acts and assurances as the Lenders shall from time to time require for confirming or carrying out the intentions or facilitating the performance of the terms of this Agreement. (c) Financial Records - Inspection. The Guarantor will (i) maintain or cause to be maintained full, complete, accurate and adequate records and books of account in accordance with generally accepted accounting principles consistently applied; (ii) permit the Lenders and their duly authorized agents, attorneys and accountants to inspect, examine, and copy its records and books of account at all reasonable times; (iii) (1) as soon as available, but in no event more than one hundred twenty (120) days after the close of the Guarantor's fiscal years, provide the Administrative Agent with copies of (A) the Guarantor's consolidated financial statements for the year in question, in form and detail satisfactory to the Administrative Agent, prepared in accordance with generally accepted accounting principles, consistently applied, and audited by an independent certified public accountant satisfactory to the Administrative Agent, which financial statements shall include a balance sheet as of the end of such fiscal year, (B) the related statements of operations and retained earnings and cash statements for such fiscal year in a format acceptable to the Administrative Agent, and (C) an unqualified letter or opinion of the independent accountant and a Compliance Certificate in the form of Exhibit G attached to the Financing Agreement, (2) as soon as available, but in no event more than forty-five (45) days after the end of the Guarantor's fiscal quarters, provide the Administrative Agent with copies of internally prepared consolidated and consolidating financial statements of the Guarantor on a year-to-date basis and as of the close of such period which financial statements shall include a balance sheet and income and expense statements for the Guarantor for such period, each certified as to accuracy by the chief financial officer of Guarantor and a Compliance Certificate in the form of Exhibit G attached to the Financing Agreement; and (3) as soon as available but in no event more than thirty (30) days after the date of filing, provide the Administrative Agent 12 13 with copies of the federal and state income tax returns for Guarantor for the year in question as well as any requests for extensions, schedules and exhibits filed in connection therewith; (iv) the Guarantor shall provide to the Administrative Agent copies of each 10K or 10Q report as soon as possible, but in no event more than thirty (30) days after filing such report with the Securities and Exchange Commission; (v) promptly deliver to the Administrative Agent such other information with respect to the financial statements of the Guarantor as the Lenders may from time to time require; and (vi) all required financial statements shall be accompanied by a certificate of compliance with the financial covenants set forth in this Agreement (and shall include the Guarantor's computation of such covenants) signed by the Guarantor's Chief Financial Officer and a representation whether or not there has occurred a Default or Event of Default under the Financing Documents and, if so, stating the facts with respect thereto. All financial statements will include the following certification: "The undersigned as ____________ of ____________ certifies that the financial information contained in the financial statement dated _________, is true and complete as of this date. This statement is provided to NationsBank, N.A. (the "Bank") as agent for the Lenders set forth in the Second Amended and Restated Agency Agreement dated _______________, 1999 as amended, restated or substituted from time to time for the purpose of obtaining credit or in fulfillment of the terms and conditions of credit already provided. Accordingly, it is intended that the Bank may rely on this information". (d) Estoppel Certificates. Within ten (10) days following any request of the Administrative Agent so to do, the Guarantor will furnish the Administrative Agent and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this Agreement. Section 3.2 Financial Covenants. Guarantor hereby covenants and agrees that, until the Loans and all of the other Obligations have been paid and performed in full, it will: (a) Minimum Tangible Net Worth. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending June 30, 1999, a minimum Tangible Net Worth of not less than the sum of $255,000,000, plus 75% of the Guarantor's net income (if positive) for each subsequent quarter, plus 85% of the net proceeds to the Guarantor of any equity capital transaction received during any subsequent quarter. "Tangible Net Worth" means, at any time, the sum at such time of Net Worth (as defined by GAAP) less the total of (aa) all assets which would be classified as intangible assets under GAAP, including goodwill (except for deferred taxes recorded as goodwill), trademarks, trademark applications, trade names, service marks, patent applications and licenses, and deferred charges, (bb) any revaluation or other write-up in book value of assets subsequent to the date of the most recent financial statements delivered to the Administrative Agent prior to the date of this Agreement, (cc) the amount of all loans and advances to, or investments in, any person or entity, excluding (x) cash equivalents and deposit accounts 13 14 maintained by the Guarantor with any financial institution (y) certain mortgage revenue bonds issued by the Bucks County, Pennsylvania Industrial Development Authority and (z) investments of less than $2,500,000 individually (not to exceed $10,000,000 in the aggregate), and (dd) advances or loans made to or receivables from any unconsolidated affiliates (excluding subordinated debt of unconsolidated subsidiaries and affiliates of Guarantor) of which the Guarantor owns less than fifty percent (50%) or any stockholder of the Guarantor or any affiliate. (b) Minimum Liquidity. Maintain at all times, on an individual basis (i.e. parent company only), Liquid Assets (as defined in the Financing Agreement) at all times of the greater of $25,000,000 or ninety (90) days of Debt Service (as defined in the Financing Agreement) on all of the Guarantor's direct and contingent liabilities. The foregoing notwithstanding, Liquid Assets held by the Borrowers in order to satisfy the provisions of Section 8.14 of the Financing Agreement may be included to satisfy this minimum liquidity requirement. (c) Minimum Interest and Rent Coverage. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending September 30, 1999, based on the trailing four quarters, a ratio of EBITDAR to Interest Expense plus Rent Expense of not less than 2.50. "Interest Expense" shall mean the actual interest expense incurred by Guarantor or its subsidiaries with respect to all debt obligations owed to unaffiliated third parties (including the actual interest expense incurred by Guarantor with respect to its 5 1/2% convertible subordinated notes). "Rent Expense" shall mean the actual rent expense incurred by the Borrowers, the Guarantor or any Affiliate as a tenant under leases with respect to any senior living facility. (d) Maximum Funded Debt Ratio. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending September 30, 1999, based on the trailing four quarters, a ratio of Funded Debt to EBITDAR of not more than (i) 5.75 for fiscal year 1999 and 2000, (ii) and 5.50 for fiscal year 2001 and 2002. "Funded Debt" shall have the meaning provided for such term in the Financing Agreement except that (A) the Guarantor's 5 1/2% convertible subordinated notes shall not be included as Funded Debt, and (B) the product of Rent Expense multiplied by eight (8) shall be included as Funded Debt. (e) Notification of Certain Events. Promptly notify the Administrative Agent upon obtaining knowledge of the occurrence of any of the following: (i) any Event of Default under the Financing Documents; (ii) any event, development or circumstance whereby the financial statements furnished under the Financing Documents fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of the Guarantor; (iii) any judicial, administrative or arbitral proceeding pending against the Guarantor in any judicial or administrative proceeding known by the Guarantor to have been 14 15 threatened in a written communication against it which, if adversely decided, could materially adversely affect its financial condition or operations (present or prospective); (iv) (A) the revocation, suspension, probation, restriction, limitation or refusal to renew, or the pending, revocation, suspension, probation, restriction, limitation, or refusal to renew, of any License (as defined in the Financing Agreement) held by the Borrowers, the Guarantor or the Management Company (as defined in the Financing Agreement), or (B) the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending, decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew any participation or eligibility in any third party payor program in which the Borrowers, the Guarantor or Management Company elects to participate which exceeds 10% of the gross revenue of a Facility, including, without limitation, Medicare, Medicaid, or private insurer, or any accreditation of the Guarantor or Management Company, or (C) the issuance or pending issuance of any License for a period of less than twelve (12) months, as a consequence of sanctions imposed by any governmental authority, or (D) the assessment or pending assessment, of any civil or criminal penalties by any government authority, any third party payor or any accreditation organization or Person, if any, which could materially adversely affect the financial condition or operations of the Guarantor or the Management Company; and (v) any other development in the business or affairs of the Guarantor or the Management Company which may be a Material Adverse Change; and (vi) any actual contingent liability or a potential contingent liability threatened or noticed in a written communication of the Borrowers of $1,000,000 or more, in each case described in (i) through (vi) above, such notification shall describe in detail satisfactory to the Administrative Agent the nature thereof and, in the case of notification under this clause (iii), the action the Guarantor or the Management Company proposes to take with respect thereto or a statement that the Guarantor or the Management Company intends to take no action and an explanation of the reasons for such inaction. In addition, the Guarantor or the Management Company will furnish to the Administrative Agent immediately after receipt thereof copies of all administrative notices material to the Guarantor's or the Management Company's business and operation of any Facility and all responses by or on behalf of the Guarantor or the Management Company with respect to such administrative notices. Section 3.3 Negative Covenants. Until the Credit Facility is terminated and the Loans and the other Obligations have been paid or performed in full, the Guarantor will not, without the prior written consent of the Administrative Agent: (a) Mergers or Acquisitions. Enter into any merger or consolidation or amalgamation, wind up or dissolve itself (or suffer any liquidation or dissolution), or acquire all or substantially all of the assets of any person, firm, joint venture or corporation. The foregoing notwithstanding, the consent of the Administrative Agent shall not be required for any merger or consolidation or acquisition of the Guarantor pursuant to which the Guarantor retains its 15 16 corporate identity and Paul J. Klaassen or Teresa M. Klaassen remains the Chairman of the Board and Chief Executive Officer with responsibility for managing the businesses of the Guarantor and which does not result in either a Material Adverse Change or a breach of any covenant under the Credit Facility. (b) Sale of Assets. Sell, lease, or otherwise dispose of any substantial portion of its assets (except for customary political and charitable contributions and assets disposed of in the ordinary course of business) unless such disposition is in exchange for not less than fair market value and does not result in either a Material Adverse Change or a breach of any covenant under the Credit Facility. (c) Subsidiaries. Except for the purpose of acquiring real property to construct an assisted living facility or acquiring an existing assisted living facility, create or otherwise acquire any subsidiaries if such creation or acquisition will result in a Material Adverse Change. (d) Additional Stock and Transfers of Stock. The Guarantor may issue or grant options or rights to purchase its capital stock and there shall be no limitations on the right of shareholders of the Guarantor to pledge, assign, transfer or encumber any of their stock in the Guarantor provided, (1) the Guarantor is an entity whose common equity is registered under an applicable Federal Securities Act and is traded on a National Securities Exchange or NASDAQ national market, and (2) either Paul J. Klaassen or Teresa M. Klaassen is the Chief Executive Officer and Chairman of the Board with responsibility for managing the businesses of the Guarantor; and provided, that, the Guarantor shall provide written notice to Administrative Agent of transfers of stock in the Guarantor under such circumstances and in such manner as the Guarantor is required to give notice thereof to the Securities Exchange Commission. (e) ERISA Compliance. (A) Restate or amend any Plan established and maintained by the Guarantor or any Commonly Controlled Entity and subject to the requirements of ERISA, in a manner designed to disqualify such Plan and its related trusts under the applicable requirements of the Code; (B) permit any officer of the Guarantor or any Commonly Controlled Entity to materially adversely affect the qualified tax-exempt status of any Plan or related trusts of the Guarantor or any Commonly Controlled Entity under the Code; (C) engage in or permit any Commonly Controlled Entity to engage in any Prohibited Transaction; (D) incur or permit any Commonly Controlled Entity to incur any Accumulated Funding Deficiency, whether or not waived, in connection with any Plan; (E) take or permit any Commonly Controlled Entity to take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Guarantor or any Commonly Controlled Entity pursuant to Section 4068 of ERISA; (F) fail to notify the Administrative Agent that notice has been received of a "termination" (as defined in ERISA) of any Multiemployer Plan to which the Guarantor or any Commonly Controlled Entity has an obligation to contribute; (G) incur or permit any Commonly Controlled Entity to incur a "complete withdrawal" or "partial withdrawal" (as defined in ERISA) from any Multiemployer Plan to which the Guarantor or any Commonly Controlled Entity has an obligation to contribute; or (H) fail to notify the Administrative Agent that notice has been received from the administrator of any Multiemployer Plan to which the Guarantor or any Commonly Controlled 16 17 Entity has an obligation to contribute that any such Plan will be placed in "reorganization" (as defined in ERISA). (f) Amendments; Terminations. Amend or terminate or agree to amend or terminate any License, participation agreement, the Management Agreement, by the Guarantor with the Borrowers or except in the ordinary course of business, any other operating agreements which may be entered into by Guarantor with respect to the Facility, or consent to or waive any material provisions thereof. ARTICLE IV MISCELLANEOUS Section 4.1 Notices. All notices, requests and demands to or upon the parties to this Agreement shall be in writing and shall be deemed to have been given or made when delivered by hand on a Business Day, or three (3) days after the date when deposited in the mail, postage prepaid by registered or certified mail, return receipt requested, or when sent by overnight courier, on the Business Day next following the day on which the notice is delivered to such overnight courier, addressed as follows: Guarantor: Sunrise Assisted Living, Inc. 9401 Lee Highway, Suite 300 Fairfax, Virginia 22031 Attention: Thomas B. Newell, Esq. Sunrise Assisted Living, Inc. 9401 Lee Highway, Suite 300 Fairfax, Virginia 22031 Attention: David W. Faeder Sunrise Assisted Living, Inc. 9401 Lee Highway, Suite 300 Fairfax, Virginia 22031 Attention: James S. Pope With a Courtesy Copy to: Wayne G. Tatusko, Esquire Watt, Tieder, Hoffar & Fitzgerald 7929 Westpark Drive McLean, Virginia 22102 17 18 Administrative Bank of America, N.A., d/b/a Agent: NationsBank, N.A. 10 Light Street, 20th Floor Baltimore, Maryland 21202 Attention: Leslie M. Zuga By written notice, each party to this Agreement may change the address to which notice is given to that party, provided that such changed notice shall include a street address to which notices may be delivered by overnight courier in the ordinary course on any Business Day. Section 4.2 Amendments; Waivers. This Agreement may not be amended, modified, or changed in any respect except by an agreement in writing signed by the Administrative Agent and the Guarantor. No waiver of any provision of this Agreement, nor consent to any departure by the Guarantor therefrom, shall in any event be effective unless the same shall be in writing. No course of dealing between the Guarantor and the Lenders and no act or failure to act from time to time on the part of the Lenders shall constitute a waiver, amendment or modification of any provision of this Agreement or any right or remedy under this Agreement or under applicable Laws. Without implying any limitation on the foregoing: (a) any waiver or consent shall be effective only in the specific instance, for the terms and purpose for which given, subject to such conditions as the Administrative Agent may specify in any such instrument. (b) no waiver of any Default or Event of Default shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereto. (c) no notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance. (d) no failure or delay by the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver, amendment or modification of any such term, condition, covenant or agreement or of any such breach or preclude the Lenders from exercising any such right, power or remedy at any time or times. (e) by accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, the Lenders shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. 18 19 Section 4.3 Cumulative Remedies. The rights, powers and remedies provided in this Agreement and in the other Financing Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to time and in such order as the Lenders shall determine and are in addition to, and not exclusive of, rights, powers and remedies provided by existing or future applicable Laws. In order to entitle the Lenders to exercise any remedy reserved to them in this Agreement, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Without limiting the generality of the foregoing, the Lenders may: (a) proceed against the Guarantor with or without proceeding against the Borrowers and any other guarantor or any other Person who may be liable for all or any part of the Obligations; (b) proceed against the Guarantor with or without proceeding under any of the other Financing Documents or against any Collateral or other collateral and security for all or any part of the Obligations; (c) without reducing or impairing the obligation of the Guarantor and without notice, release or compromise with any other Person liable for all or any part of the Obligations under the Financing Documents or otherwise; (d) without reducing or impairing the obligations of the Guarantor and without notice thereof: (a) fail to perfect the Lien in any or all Collateral or to release any or all the Collateral or to accept substitute Collateral, (b) approve the making of advances under the Loans under the Loan Agreement, (c) waive any provision of this Agreement or the other Financing Documents, (d) exercise or fail to exercise rights of set-off or other rights, or (e) accept partial payments or extend from time to time the maturity of all or any part of the Obligations. Section 4.4 Severability. In case one or more provisions, or part thereof, contained in this Agreement or in the other Financing Documents shall be invalid, illegal or unenforceable in any respect under any Law, then without need for any further agreement, notice or action: (a) the validity, legality and enforceability of the remaining provisions shall remain effective and binding on the parties thereto and shall not be affected or impaired thereby; (b) the obligation to be fulfilled shall be reduced to the limit of such validity; (c) if such provision or part thereof pertains to repayment of the Obligations, then, at the sole and absolute discretion of the Lenders, all of the Obligations shall become immediately due and payable; and (d) if the affected provision or part thereof does not pertain to repayment of the Obligations, but operates or would prospectively operate to invalidate this Agreement in 19 20 whole or in part, then such provision or part thereof only shall be void, and the remainder of this Agreement shall remain operative and in full force and effect. Section 4.5 Assignments by Lenders. The Lenders may, without notice to, or consent of, the Guarantor, sell, assign or transfer to or participate with any Person or Persons, including a Federal Reserve Bank, all or any part of the Obligations and the rights under this Agreement and the Note, and each such Person or Persons shall have the right to enforce the provisions of this Agreement and any of the other Financing Documents as fully as the Lenders, provided that the Lenders shall continue to have the unimpaired right to enforce the provisions of this Agreement and any of the other Financing Documents as to so much of the Obligations that such Lender has not sold, assigned or transferred. In connection with the foregoing, the Lenders shall have the right to disclose to any such actual or potential purchaser, assignee, transferee or participant all financial records, information, reports, financial statements and documents obtained in connection with this Agreement and any of the other Financing Documents or otherwise. In connection with any sale, assignment, transfer or participation to a Person who is an affiliate or successor of the Lenders, such Lender shall give notice to Borrowers of such transaction either before or after the transaction has occurred as such Lender shall determine; however, such Lender shall give notice to the Borrowers in advance of any such transaction with a non-affiliate. Section 4.6 Successors and Assigns. This Agreement shall be binding upon the Guarantor and its respective successors and assigns, and shall inure to the benefit of the Lenders and their respective successors and assigns. Section 4.7 Continuing Agreements. All covenants, agreements, representations and warranties made by the Guarantor in this Agreement and in any certificate delivered pursuant hereto shall survive the making by the Lenders of the Loans and the execution and delivery of the Note, shall be binding upon the Guarantor regardless of how long before or after the date hereof any of the Obligations were or are incurred, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. From time to time upon the Administrative Agent's request, and as a condition of the release of any one or more of the Security Documents, the Guarantor and other Persons obligated with respect to the Obligations shall provide the Administrative Agent with such acknowledgments and agreements as the Administrative Agent may require to the effect that there exists no defenses, rights of setoff or recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against the Lenders, their respective agents and others, or to the extent there are, the same are waived and released. Section 4.8 Enforcement Costs. The Guarantor agrees to pay to the Lenders on demand all Enforcement Costs, together with interest thereon from the date incurred or advanced until paid in full at a per annum rate of interest equal at all times to the Post-Default Rate. Enforcement Costs shall be immediately due 20 21 and payable at the time advanced or incurred, whichever is earlier. Without implying any limitation on the foregoing, the Guarantor agrees, as part of the Enforcement Costs, to pay upon demand any and all stamp and other Taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement and to save the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay any Taxes or fees referred to in this Section. The provisions of this Section shall survive the execution and delivery of this Agreement, the repayment of the other Obligations and shall survive the termination of this Agreement. Section 4.9 Applicable Law. As a material inducement to the Lenders to enter into this Agreement, the Guarantor acknowledges and agrees that the Financing Documents, including, this Agreement, shall be governed by the Laws of the Commonwealth of Virginia as if each of the Financing Documents and this Agreement had each been executed, delivered, administered and performed solely within the Commonwealth of Virginia even though for the convenience and at the request of the Borrowers, one or more of the Financing Documents may be executed elsewhere. The Lenders acknowledge, however, that remedies under certain of the Financing Documents which relate to property outside the Commonwealth of Virginia may be subject to the laws of the state in which the property is located. Section 4.10 Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. Section 4.11 Headings. The headings in this Agreement are included herein for convenience only, shall not constitute a part of this Agreement for any other purpose, and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 4.12 No Partnership - Third Parties. Nothing contained in this Agreement shall be construed in a manner to create any relationship between the Guarantor and any of the Lenders other than the relationship of guarantor and lenders and the Guarantor and the Lenders shall not be considered partners or co-venturers for any purpose. The terms and provisions of this Agreement are for the benefit of the Lenders and their respective successors, assigns, endorsees and transferees and all persons claiming under or through it and no other person shall have any right or cause of action on account thereof. The Lenders have no obligation to make any advance of any Loans for the benefit of the Guarantor; the Guarantor has no beneficial interest in the proceeds of the Loans or rights or claims under the Financing Agreement or any of the other Financing Documents. The obligations and liabilities of the Guarantor shall in no manner be affected by the actual use of the proceeds of the Loans or whether the Lenders waive any or all of the conditions to advances set 21 22 forth in the Financing Agreement. Section 4.13 Entire Agreement. The Financing Documents shall completely and fully supersede all prior agreements, both written and oral, between the Lenders and the Borrowers relating to the Loans. Neither the Lenders, the Borrowers nor the Guarantor shall hereafter have any rights under such prior agreements but shall look solely to the Financing Documents for definition and determination of all of their respective rights, liabilities and responsibilities relating to the Obligations. Section 4.14 Consent to Jurisdiction. The Guarantor irrevocably submits to the jurisdiction of any state or federal court sitting in the Commonwealth of Virginia over any suit, action, or proceeding arising out of or relating to this Agreement. The Guarantor irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to laying the venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the Guarantor and may be enforced in any court to the jurisdiction of which the Guarantor is subject, by a suit upon such judgment provided that service of process is effected upon the Guarantor in a manner specified in this Agreement or as otherwise permitted by applicable law. Section 4.15 Service of Process. The Guarantor hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Agreement by (a) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to it at its address designated in Section hereof and (b) serving a copy thereof upon Wayne G. Tatusko, Esquire, 7929 Westpark Drive, McLean, Virginia 22102, the agent hereby designated and appointed as its agent for service of process. The Guarantor irrevocably agrees that such service (i) shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon the Guarantor. Nothing in this Section shall affect the right of the Lenders to serve process in any manner otherwise permitted by law or limit the right of the Lenders otherwise to bring proceedings against the Guarantor in the courts of any other jurisdiction or jurisdictions. Section 4.16 WAIVER OF TRIAL BY JURY. THE GUARANTOR AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING NOT REQUIRED TO BE ARBITRATED PURSUANT TO THE TERMS HEREOF TO WHICH THE GUARANTOR AND THE LENDERS, OR ANY OF THEM, MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF 22 23 ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Guarantor and the Lenders, and the Guarantor and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Guarantor and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. Section 4.17 Liability of the Lenders. The Guarantor hereby agrees that the Lenders shall not be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Lenders in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. By inspecting the Collateral or any other properties of the Borrowers or by accepting or approving anything required to be observed, performed or fulfilled by the Borrowers or to be given to the Lenders pursuant to this Agreement or any of the other Financing Documents, the Lenders shall not be deemed to have warranted or represented the condition, sufficiency, legality, effectiveness or legal effect of the same, and such acceptance or approval shall not constitute any warranty or representation with respect thereto by the Lenders. Section 4.18 Reinstatement. If at any time any payment, or portion thereof, made by, or for the account of, the Borrowers or the Guarantor on account of any of the obligations and liabilities arising hereunder or under any of the Financing Documents is set aside by any court or trustee having jurisdiction as a voidable preference or fraudulent conveyance or must otherwise be restored or returned by the Lenders to the Borrowers or to the Guarantor under any insolvency, bankruptcy or other federal and/or state laws or as a result of any dissolution, liquidation or reorganization of the Borrowers or upon, or as a result of, the appointment of any receiver, intervenor or conservator of, or trustee, or similar officer for, the Borrowers or any substantial part of its properties or assets, the Guarantor hereby agrees that this Agreement shall continue and remain in full force and effect or be reinstated, as the case may be, all as though such payment(s) had not been made. Section 4.19 Complete and Final Expression of Agreement. This Agreement is intended by the Lenders and the Guarantor to be a complete, exclusive and final expression of the agreements contained herein. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or 23 24 modify any terms of this Agreement. The Lenders and the Guarantor further agrees that there are no conditions to the full effectiveness of this Agreement, unless otherwise expressly stated herein. The Guarantor has unconditionally delivered this Agreement to the Administrative Agent, and failure to sign this or any other guarantee by any other person shall not discharge the liability of the Guarantor hereunder. WITNESS the signature and seal of the Guarantor as of the day and year first above written.
WITNESS OR ATTEST: SUNRISE ASSISTED LIVING, INC. - ------------------------- By: /s/ David W. Faeder (SEAL) ----------------------------------- David W. Faeder President - ------------------------- By: /s/ Thomas B. Newell (SEAL) ----------------------------------- Thomas B. Newell Executive Vice President BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A. - ------------------------- By: /s/ Sabina Kelly (SEAL) ----------------------------------- Sabina Kelly Senior Vice President
24 25 STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this 29th day of July, 1999, before me, the undersigned Notary Public of said Commonwealth, personally appeared David W. Faeder who acknowledged himself to be the President of Sunrise Assisted Living, Inc., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained as the duly authorized officer of said corporation by signing the name of the corporation by himself as President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this 29th day of July, 1999, before me, the undersigned Notary Public of said Commonwealth, personally appeared Thomas B. Newell who acknowledged himself to be the Executive Vice President of Sunrise Assisted Living, Inc., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained as the duly authorized officer of said corporation by signing the name of the corporation by himself as Executive Vice President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 25 26 STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this 29th day of July, 1999, before me, the undersigned Notary Public of said Commonwealth, personally appeared Sabina Kelly who acknowledged herself to be the Senior Vice President of Bank of America, N.A., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that she executed the same for the purposes therein contained as the Senior Vice President of said bank by signing the name of the bank by herself as Senior Vice President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 26 EX-10.51 5 CONFIRMATION OF MASTER GUARANTY OF PERFORMANCE 1 EXHIBIT 10.51 CONFIRMATION OF AND AMENDMENT TO MASTER GUARANTY OF PERFORMANCE THIS CONFIRMATION OF AND AMENDMENT TO MASTER GUARANTY OF PERFORMANCE (this "Agreement") is made this 29th day of July 1999, by SUNRISE ASSISTED LIVING, INC., a Delaware corporation ("Guarantor") in favor of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A., as the administrative agent ("Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating as lenders in a bank group pursuant to a Second Amended and Restated Agency Agreement of even dated herewith (as amended, extended or substituted from time to time, the "Agency Agreement"). RECITALS A. In connection with a credit facility (the " Existing Credit Facility") provided by Lenders to Sunrise East Assisted Living Limited Partnership, a Virginia limited partnership ("SEAL") in the amount of $250,000,000, as evidenced by the Amended, Restated, Consolidated and Increased Master Promissory Note made December 23, 1997 by SEAL to Administrative Agent (as amended, restated or substituted from time to time, the "Original Note"), as governed by the Amended and Restated Financing and Security Agreement dated December 23, 1997 between SEAL and Administrative Agent (as amended, restated or substituted from time to time, the "Existing Financing Agreement"), and as further governed by the Amended and Restated Master Construction Loan Agreement dated December 23, 1997 between SEAL and Administrative Agent (as amended, restated or substituted from time to time, the "Construction Agreement"), the Guarantor provided the Administrative Agent, among other documents, with a Master Guaranty of Performance dated December 23, 1997 (as amended, restated or substituted from time to time, the "Performance Guaranty") to secure the construction of certain Eligible Properties. B. As of December 30, 1998 Sunrise SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL") was added as a borrower under the Credit Facility pursuant to amendments to the Original Note, the Existing Financing Agreement and the Construction Agreement. C. Certain Eligible Projects owned by Sunrise Riverside Assisted Living, L.P., Sunrise Huntcliff Assisted Living Limited Partnership, Sunrise Sterling Canyon Assisted Living Limited Partnership, Sunrise Paramus Assisted Living Limited Partnership, Sunrise Fairfield Assisted Living, L.P., Sunrise Bellevue Assisted Living Limited Partnership, Sunrise Oakland Assisted Living Limited Partnership, Sunrise Walnut Creek Assisted Living Limited Partnership, and Sunrise Decatur Assisted Living Limited Partnership (collectively, the "SEAL Affiliates") have been added to the Borrowing Base, and the SEAL Affiliates have guaranteed the Credit Facility but have not been added as borrowers under the Credit Facility. 2 D. The Lenders have agreed to increase the Credit Facility Committed Amount to $400,000,000 which increase shall be evidenced by a Second Amended, Restated and Increased Master Note ("Note") of even date herewith which amends, restates and replaces the Original Note. In connection with such increase and other modifications to the Credit Facility, the Existing Financing Agreement and the Construction Agreement are being amended, restated and consolidated pursuant to the Second Amended and Restated Financing and Security Agreement of even date herewith (as amended, extended or substituted from time to time, the "Financing Agreement"). E. In connection with the increase to the Credit Facility Committed Amount, (i) the SEAL Affiliates, and (ii) every other entity beneficially owned, in whole or in part, directly or indirectly, by Sunrise Assisted Living, Inc. which hereafter grants a lien on an Eligible Project and related Collateral as collateral for the Credit Facility and enters into a Joinder Agreement pursuant to the Note (collectively, the "Additional SEAL Affiliates") are to be added as borrowers under the Credit Facility. F. The term "Borrowers" shall mean, collectively, SEAL, Sunrise SEAL, the SEAL Affiliates and the Additional SEAL Affiliates. G. Any capitalized term not otherwise defined in this Agreement shall have the meaning provided for such term in the Financing Agreement. NOW, THEREFORE, in consideration of and as a material inducement to, the Lenders to modify the terms of the Credit Facility and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of the date hereof, the Guarantor hereby agrees as follows: 1. The Recitals are hereby incorporated by reference and made a part of this Agreement. Capitalized terms not otherwise defined herein shall have the meaning provided for such terms in the Financing Agreement. 2. The Guarantor hereby acknowledges, approves, ratifies and confirms that the Performance Guaranty will continue to apply to the Credit Facility, and agrees that the Administrative Agent's action in requiring the Guarantor's express consent to the modification and increase of the Credit Facility shall not constitute a waiver of the Administrative Agent's or Lenders' right pursuant to the terms of the Performance Guaranty or any of the other Financing Documents to renew, extend, increase the principal amount or otherwise modify the Credit Facility or the Financing Documents without the Guarantor's prior consent and without affecting the Guarantor's liability therefore. 3. The Guarantor acknowledges and agrees that: (a) The Administrative Agent and Lenders have acted in good faith and have conducted themselves in a commercially reasonably manner in their relationship with the 2 3 Borrowers and the Guarantor in connection with the Performance Guaranty and in connection with the Financing Documents and the Guarantor hereby waives and releases any claims to the contrary. (b) The Performance Guaranty is valid and binding, and is an enforceable obligation of the Guarantor, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and the exercise of judicial discretion in accordance with general principles of equity. 4. The Guarantor hereby releases, acquits, and forever discharges the Administrative Agent and Lenders, their officers, employees and agents from any and all claims that the Administrative Agent or Lenders are in any way responsible for the current condition or deterioration of the Borrowers' business operations and/or financial condition, and from any and all claims that the Administrative Agent or Lenders breached any agreement to loan money to the Borrowers to fund any of the Borrowers' operations at any times. The Guarantor further agrees that from and after the date hereof, it will not assert in any legal proceedings that any deterioration of the business operations or financial condition of the Borrowers as of the date of this Agreement was caused by any breach or wrongful act of the Administrative Agent or Lenders. Without limiting the generality of the following, the Guarantor acknowledges that it is personally benefiting from the extension of the Credit Facility and hereby waives any claim that the Administrative Agent or Lenders violated the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq.) in connection with the Credit Facility, the Note or any other obligation or security for any obligation which is the subject thereof. The Guarantor represents and warrants that it has no claims, actions, causes of action, defenses, counterclaims or setoffs of any kind or nature (collectively, "Claims") which it can assert against the Administrative Agent or Lenders in connection with the making, closing, administration, collection, and/or enforcement by the Administrative Agent or Lenders of the Performance Guaranty or any of the Financing Documents. IN THE EVENT THAT THE GUARANTOR HAS ANY CLAIMS WHICH IT NOW OR HEREAFTER MAY ASSERT AGAINST THE ADMINISTRATIVE AGENT OR LENDERS IN CONNECTION WITH THE MAKING, CLOSING, ADMINISTRATION, COLLECTION AND/OR THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT OR THE LENDERS OF THE PERFORMANCE GUARANTY OR ANY OF THE FINANCING DOCUMENTS AT OR PRIOR TO THE DATE HEREOF, THEN BY EXECUTING THIS AGREEMENT, THE GUARANTOR FOREVER IRREVOCABLY WAIVES AND RELINQUISHES SUCH CLAIMS. 5. THE GUARANTOR REPRESENTS AND WARRANTS THAT IT IS REPRESENTED BY COUNSEL OF ITS CHOICE WHO HAVE REVIEWED THIS AGREEMENT AND ADVISED GUARANTOR OF ITS CONTENTS AND MEANING. THE GUARANTOR FURTHER REPRESENTS AND WARRANTS THAT IT IS SIGNING THIS AGREEMENT VOLUNTARILY AND WITH FULL UNDERSTANDING OF ITS CONTENTS AND MEANING. 6. This Agreement shall not constitute a novation with regard to any obligations arising under the Credit Facility or the Performance Guaranty. 3 4 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be duly executed as an instrument under seal effective as of the day and year first written above. WITNESS: SUNRISE ASSISTED LIVING, INC. - ------------------------ By: /s/ David W. Faeder (SEAL) ---------------------------------- David W. Faeder President - ----------------------- By: /s/ Thomas B. Newell (SEAL) ---------------------------------- Thomas B. Newell Executive Vice President 4 EX-10.52 6 OMNIBUS CONFIRMATION TO SECURITY AGREEMENTS 1 EXHIBIT 10.52 OMNIBUS CONFIRMATION OF AND AMENDMENT TO SECURITY DOCUMENTS THIS OMNIBUS CONFIRMATION OF AND AMENDMENT TO SECURITY DOCUMENTS (this "Agreement") is made this 29th day of July, 1999, by SUNRISE ASSISTED LIVING, INC., a Delaware corporation ("SALI"), SUNRISE ASSISTED LIVING INVESTMENTS, INC. a Virginia corporation ("SALII"), SUNRISE DEVELOPMENT, INC., a Virginia corporation ("SDI"), SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership ("SEAL"), SUNRISE SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL") and SUNRISE ASSISTED LIVING MANAGEMENT, INC., a Virginia corporation, formerly known as Sunrise Terrace, Inc. ("SALMI") (SALI, SALII, SDI, SEAL, Sunrise SEAL and SALMI are collectively referred to herein as the "Assignors") in favor of BANK OF AMERICA, N.A. d/b/a NATIONSBANK, N.A. , successor by merger to NationsBank, N.A., as the administrative agent ("Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating as lenders in a bank group pursuant to a Second Amended and Restated Agency Agreement of even date herewith (as amended, extended or substituted from time to time, the "Agency Agreement"). RECITALS A. In connection with a credit facility (as modified, increased, extended, restated or substituted from time to time, the "Credit Facility") originally provided by the Administrative Agent and certain Lenders to SEAL in the amount of $250,000,000, as evidenced by the Amended, Restated, Consolidated and Increased Master Promissory Note made December 23, 1997 by SEAL to Administrative Agent (as amended, restated or substituted from time to time, the "Original Note"), as governed by the Amended and Restated Financing and Security Agreement dated December 23, 1997 between SEAL and Administrative Agent (as amended, restated or substituted from time to time, the "Existing Financing Agreement"), and as further governed by the Amended and Restated Master Construction Loan Agreement dated December 23, 1997 between SEAL and Administrative Agent (as amended, restated or substituted from time to time, the "Construction Agreement"), the Administrative Agent, was provided with the following documents: (i) the Amended and Restated Pledge, Assignment and Security Agreement made December 23, 1997 by SALI and SALII in favor of the Administrative Agent (as amended, confirmed, restated or substituted from time to time, the "Pledge"); (ii) the Pledge, Assignment and Security Agreement made December 30, 1998 by SDI in favor of the Administrative Agent (as amended, confirmed, restated or substituted from time to time, the "SDI Pledge"); (iii) the Amended and Restated Collateral Assignment of Licenses, Participation Agreements and Resident Agreements made December 23, 1997 by SEAL for the benefit of the Administrative Agent (as amended, confirmed, restated or substituted from time to time, the "License Assignment"); (iv) the Amended and Restated Collateral Assignment of Operating Agreements and Management Contracts made December 23, 1997 by SEAL and SALMI to the Administrative Agent (as amended, confirmed, restated or substituted from time to time, the "Contract Assignment"); and (v) the Management Fee Subordination Agreement made December 2 23, 1997 by SEAL and SALMI in favor of the Administrative Agent (as amended, confirmed, restated or substituted from time to time, the "Fee Subordination") (the Pledge, SDI Pledge, License Assignment, Contract Assignment and Fee Subordination are collectively referred to as the "Security Documents"). B. As of December 30, 1998 Sunrise SEAL, was added as a borrower under the Credit Facility pursuant to an amendment to the Original Note and the Original Financing Agreement. C. Certain Eligible Properties owned by Sunrise Riverside Assisted Living, L.P., Sunrise Huntcliff Assisted Living Limited Partnership, Sunrise Sterling Canyon Assisted Living Limited Partnership, Sunrise Paramus Assisted Living Limited Partnership, Sunrise Fairfield Assisted Living, L.P., Sunrise Bellevue Assisted Living Limited Partnership, Sunrise Oakland Assisted Living Limited Partnership, Sunrise Walnut Creek Assisted Living Limited Partnership, and Sunrise Decatur Assisted Living Limited Partnership (collectively, the "SEAL Affiliates") have been included in the Borrowing Base under the Credit Facility, and the SEAL Affiliates have guaranteed the Credit Facility but have not been added as borrowers under the Credit Facility. D. The Lenders have agreed to increase the Credit Facility to $400,000,000 pursuant to the Second Amended, Restated and Increased Master Promissory Note of even date herewith from SEAL, Sunrise SEAL and the SEAL Affiliates to the Administrative Agent (as amended, restated, or substituted from time to time, the "Note") and the Second Amended and Restated Financing and Security Agreement of even date herewith by and among SEAL, Sunrise SEAL, the SEAL Affiliates and the Administrative Agent (as amended, restated or substituted from time to time, the "Financing Agreement"). E. In connection with the increase to the Credit Facility, (i) the SEAL Affiliates, and (ii) every other entity which hereafter grants a lien to the Administrative Agent on behalf of the Lenders on an Eligible Project and related Collateral as collateral for the Credit Facility and enters into a Joinder Agreement pursuant to the Financing Agreement (collectively, the "Additional SEAL Affiliates") are to be added as borrowers under the Credit Facility. F. The term "Borrowers" shall mean individually or collectively, SEAL, Sunrise SEAL, the SEAL Affiliates and the Additional SEAL Affiliates. G. Any capitalized term not otherwise defined in this Agreement shall have the meaning provided for such term in the Financing Agreement. NOW, THEREFORE, in consideration of and as a material inducement to, the Lenders to modify the terms of the Credit Facility and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of the date hereof, the Assignor hereby agrees as follows: 2 3 1. The Recitals are hereby incorporated by reference and made a part of this Agreement. 2. The Assignors hereby acknowledge, approve, ratify and confirm that the Security Documents will continue to apply to the Credit Facility, and agree that the Administrative Agent's action in requiring the Assignors' consent by virtue of this Agreement, to the modification and increase of the Credit Facility shall not constitute a waiver of the Administrative Agent's or Lenders' right pursuant to the terms of the Security Documents or any of the other Financing Documents to renew, extend, increase the principal amount or otherwise modify the Credit Facility or the Financing Documents without the Assignors' prior consent and without affecting the Assignors' liability therefore. 3. The Assignos acknowledge and agree that: (a) The Administrative Agent and the other Lenders have acted in good faith and have conducted themselves in a commercially reasonable manner in their relationship with the Borrower and the Assignors in connection with the Security Documents and the Financing Documents and the Assignors hereby waive and release any claims to the contrary. (b) The Security Documents are valid and binding, and are enforceable obligations of the Assignors, subject, however, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and the exercise of judicial discretion in accordance with general principals of equity. 4. The Assignors hereby release, acquit, and forever discharge the Administrative Agent and Lenders, their officers, employees and agents from any and all claims that the Administrative Agent or Lenders are in any way responsible for the current condition or deterioration of the Borrowers' business operations and/or financial condition, and from any and all claims that the Administrative Agent or Lenders breached any agreement to loan money to the Borrowers to fund any of the Borrowers' operations at any time. The Assignors further agree that from and after the date hereof, they will not assert in any legal proceedings that any deterioration of the business operations or financial condition of the Borrowers as of the date of this Agreement was caused by any breach or wrongful act of the Administrative Agent or Lenders. Without limiting the generality of the following, the Assignors acknowledge that they are personally benefiting from the extension of the Credit Facility and hereby waive any claim that the Administrative Agent or Lenders violated the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq.) in connection with the Credit Facility, the Note or any other obligation or security for any obligation which is the subject thereof. The Assignors represent and warrant that they have no claims, actions, causes of action, defenses, counterclaims or setoffs of any kind or nature (collectively, "Claims") which they can assert against the Administrative Agent or Lenders in connection with the making, closing, administration, collection, and/or enforcement by the Administrative Agent or Lenders of the Security Documents or any of the Financing Documents. IN THE EVENT THAT THE ASSIGNORS HAVE ANY CLAIMS WHICH THEY NOW OR HEREAFTER MAY ASSERT AGAINST THE ADMINISTRATIVE AGENT OR LENDERS IN CONNECTION WITH THE MAKING, CLOSING, ADMINISTRATION, COLLECTION 3 4 AND/OR THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT OR THE LENDERS OF THE SECURITY DOCUMENTS OR ANY OF THE FINANCING DOCUMENTS AT OR PRIOR TO THE DATE HEREOF, THEN BY EXECUTING THIS AGREEMENT, THE ASSIGNORS FOREVER IRREVOCABLY WAIVE AND RELINQUISH SUCH CLAIMS. 5. THE ASSIGNORS REPRESENT AND WARRANT THAT THEY ARE REPRESENTED BY COUNSEL OF THEIR CHOICE WHO HAVE REVIEWED THIS AGREEMENT AND ADVISED ASSIGNORS OF ITS CONTENTS AND MEANING OR HAVE BEEN URGED BY THE ADMINISTRATIVE AGENT TO RETAIN COUNSEL AND HAVE ELECTED NOT TO DO SO. THE ASSIGNORS FURTHER REPRESENT AND WARRANT THAT THEY ARE SIGNING THIS AGREEMENT VOLUNTARILY AND WITH FULL UNDERSTANDING OF ITS CONTENTS AND MEANING. 6. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. IN WITNESS WHEREOF, the Assignors have caused this Agreement to be duly executed as an instrument under seal effective as of the day and year first written above. WITNESS: SUNRISE ASSISTED LIVING, INC. - ------------------------ By: /s/ David W. Faeder (SEAL) ----------------------------------------- David W. Faeder President - ----------------------- By: /s/ Thomas B. Newell (SEAL) ----------------------------------------- Thomas B. Newell Executive Vice President WITNESS: SUNRISE ASSISTED LIVING INVESTMENTS, INC. - ----------------------- By:/s/ James S. Pope (SEAL) ----------------------------------------- James S. Pope Vice President 4 5 WITNESS: SUNRISE DEVELOPMENT, INC. - ----------------------- By:/s/ James S. Pope (SEAL) ----------------------------------------- James S. Pope Vice President WITNESS: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP - ------------------------ By: Sunrise Assisted Living Investments, Inc. it general partner By:/s/ James S. Pope (SEAL) ------------------------------------- James S. Pope Vice President SUNRISE SEAL, L.L.C. By: Sunrise Development, Inc. Managing Member By: /s/ James S. Pope (SEAL) ----------------------------------- James S. Pope Vice President WITNESS: SUNRISE ASSISTED LIVING MANAGEMENT, INC. - ------------------------ By: /s/ James S. Pope (SEAL) ----------------------------------------- James S. Pope Vice President 5 EX-10.53 7 THIRD AMENDED FINANCING AND SECURITY AGREEMENT 1 EXHIBIT 10.53 THIRD AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (MASTER AGREEMENT) SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP AND OTHER SUBSIDIARIES OF SUNRISE ASSISTED LIVING, INC. AS BORROWERS BANK OF AMERICA, N.A. AS ADMINISTRATIVE AGENT BANK UNITED, AS SYNDICATION AGENT FLEET NATIONAL BANK, AS DOCUMENTATION AGENT BANC OF AMERICA SECURITIES LLC AS SOLE LEAD ARRANGER AND BOOK MANAGER March 14, 2000 2 TABLE OF CONTENTS THIRD AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT..........................................................1 ARTICLE I................................................................................................................3 DEFINITIONS..........................................................................................................3 Section 1.1 Certain Defined Terms...............................................................................3 Section 1.2 Accounting Terms and Other Definitional Provisions.................................................21 ARTICLE II..............................................................................................................22 BORROWING...........................................................................................................22 Section 2.1 The Loan...........................................................................................22 Section 2.2 Procedure for Advances.............................................................................23 Section 2.3 Fees...............................................................................................24 Section 2.4 Interest Rate Matters..............................................................................25 Section 2.5 Extensions.........................................................................................27 Section 2.6 The Letter of Credit Facility......................................................................27 Section 2.7 Permitted Costs....................................................................................28 Section 2.8 Requisitions Demonstrating Expenses................................................................29 Section 2.9 Co-Borrower Obligations............................................................................30 Section 2.10 Agreement Among Borrowers..........................................................................31 Section 2.11 Benefits to Borrowers..............................................................................31 Section 2.12 Guaranty...........................................................................................32 ARTICLE III.............................................................................................................35 COLLATERAL..........................................................................................................35 Section 3.1 Collateral.........................................................................................35 Section 3.2 Eligible Projects..................................................................................35 Section 3.3 Assignment of Partnership Interests................................................................36 Section 3.4 Guaranties.........................................................................................36 Section 3.5 Collateral for Obligations.........................................................................36 Section 3.6 Costs..............................................................................................36 ARTICLE IV..............................................................................................................37 GENERAL FINANCING PROVISIONS........................................................................................37 Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust.....................37 Section 4.2 Conditions Precedent to Determining Availability Under Borrowing Base..............................41 Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility.................................42 Section 4.4 Computation of Interest and Fees...................................................................43 Section 4.5 Liens; Setoff......................................................................................43 Section 4.6 Payment and Performance of Obligations.............................................................43 Section 4.7 Payments to Others for the Account of the Borrowers................................................44 Section 4.8 Prepayment.........................................................................................44 Section 4.9 Requisitions for the Operating Reserve.............................................................44 Section 4.10 Assignments........................................................................................45 Section 4.11 Liability of the Lenders...........................................................................45 Section 4.12 Stored Materials...................................................................................45 Section 4.13 Limitations on Advances or Readvances..............................................................45 ARTICLE V...............................................................................................................46 REPRESENTATIONS AND WARRANTIES......................................................................................46
ii 3 Section 5.1 Existence/Good Standing............................................................................46 Section 5.2 Power and Authority................................................................................46 Section 5.3 Binding Agreements.................................................................................46 Section 5.4 Litigation.........................................................................................47 Section 5.5 No Conflicting Agreements..........................................................................47 Section 5.6 Financial Information..............................................................................47 Section 5.7 No Default.........................................................................................48 Section 5.8 Taxes..............................................................................................48 Section 5.9 Place(s) of Business and Location of Collateral....................................................48 Section 5.10 Title to Properties................................................................................48 Section 5.11 Margin Stock.......................................................................................48 Section 5.12 ERISA..............................................................................................49 Section 5.13 Governmental Consent...............................................................................49 Section 5.14 Full Disclosure....................................................................................49 Section 5.15 Business Names and Addresses.......................................................................50 Section 5.16 Licenses and Certifications........................................................................50 Section 5.17 Operating Agreements and Management Contracts......................................................50 Section 5.18 Participation Agreements and Resident Agreements...................................................51 Section 5.19 Compliance with Laws...............................................................................51 Section 5.20 Presence of Hazardous Materials or Hazardous Materials Contamination...............................51 Section 5.21 Nature of Credit Facility; Usury; Disclosures......................................................52 Section 5.22 Compliance with Zoning.............................................................................52 Section 5.23 Plans and Specifications...........................................................................52 Section 5.24 Building Permits; Other Permits....................................................................52 Section 5.25 Utilities..........................................................................................52 Section 5.26 Access; Roads......................................................................................53 Section 5.27 Other Liens........................................................................................53 Section 5.28 Defaults...........................................................................................53 Section 5.29 Survival; Updates of Representations and Warranties................................................53 Section 5.30 Accounts...........................................................................................54 Section 5.31 Year 2000..........................................................................................54 Section 5.32 Development of Eligible Projects...................................................................54 ARTICLE VI..............................................................................................................55 CONDITIONS OF LENDING...............................................................................................55 Section 6.1 No Default.........................................................................................55 Section 6.2 Opinion of Counsel for the Borrowers...............................................................55 Section 6.3 Approval of Counsel for the Lenders................................................................55 Section 6.4 Supporting Documents...............................................................................55 Section 6.5 Financing Documents................................................................................56 Section 6.6 Insurance..........................................................................................56 Section 6.7 Security Documents.................................................................................56 Section 6.8 Joinder Agreement..................................................................................56 ARTICLE VII.............................................................................................................56 AFFIRMATIVE COVENANTS OF BORROWER...................................................................................56 Section 7.1 Financial Statements...............................................................................57 Section 7.2 Taxes and Claims...................................................................................58 Section 7.3 Legal Existence....................................................................................58 Section 7.4 Conduct of Business and Compliance with Laws.......................................................58 Section 7.6 Insurance..........................................................................................59 Section 7.7 Flood Insurance....................................................................................61 Section 7.8 Maintenance of Properties..........................................................................62
iii 4 Section 7.9 Maintenance of the Collateral......................................................................62 Section 7.10 Other Liens, Security Interests, etc...............................................................62 Section 7.11 Defense of Title and Further Assurances............................................................62 Section 7.12 Subsequent Opinion of Counsel as to Recording Requirements.........................................62 Section 7.13 Books and Records..................................................................................63 Section 7.14 Collections........................................................................................63 Section 7.15 Notice to Account Debtors and Escrow Account.......................................................63 Section 7.16 Business Names.....................................................................................64 Section 7.17 ERISA..............................................................................................64 Section 7.18 Change in Management...............................................................................64 Section 7.19 Management.........................................................................................64 Section 7.20 Surveys............................................................................................65 Section 7.21 Inspections; Cooperation; Payment of Inspecting Engineer...........................................65 Section 7.22 Vouchers and Receipts..............................................................................66 Section 7.23 Payments for Labor and Materials...................................................................66 Section 7.24 Correction of Construction Defects.................................................................66 Section 7.25 Fees and Expenses; Indemnity.......................................................................66 Section 7.26 Governmental Surveys or Inspections................................................................67 Section 7.27 Cost Reports......................................................................................67 Section 7.28 Updated Appraisals.................................................................................67 Section 7.29 Notification of Certain Events, Events of Default and Adverse Developments.........................67 Section 7.30 Compliance with Environmental Laws.................................................................69 Section 7.31 Hazardous Materials; Contamination.................................................................69 Section 7.32 Participation in Reimbursement Programs............................................................69 Section 7.33 Minimum Pool A Projects............................................................................70 Section 7.34 Subordination of Distributions and Management Fees.................................................70 Section 7.35 Depository Bank....................................................................................70 Section 7.36 Copies of Notices..................................................................................70 Section 7.37 Commencement of Occupancy..........................................................................71 Section 7.38 Removal of Eligible Project from Borrowing Base....................................................71 ARTICLE VIII............................................................................................................71 NEGATIVE COVENANTS OF BORROWER......................................................................................71 Section 8.1 Borrowings.........................................................................................71 Section 8.2 Deeds of Trust and Pledges.........................................................................71 Section 8.3 Sale or Transfer of Assets.........................................................................71 Section 8.4 Other Liens; Transfers; "Due-on-Sale"; etc.........................................................72 Section 8.5 Advances and Loans.................................................................................72 Section 8.6 Contingent Liabilities.............................................................................72 Section 8.7 Licenses...........................................................................................72 Section 8.8 ERISA Compliance...................................................................................72 Section 8.9 Transfer of Collateral.............................................................................73 Section 8.10 Sale of Accounts or Receivables....................................................................73 Section 8.11 Amendments; Terminations...........................................................................73 Section 8.12 Prohibition on Hazardous Materials.................................................................74 Section 8.13 Subsidiaries.......................................................................................74 Section 8.14 Distributions to Partners or Members...............................................................74 Section 8.15 Mergers or Acquisitions............................................................................74 Section 8.16 Partnership Interests..............................................................................74 Section 8.17 Impairment of Security.............................................................................75 Section 8.18 Conditional Sales..................................................................................75 Section 8.19 Changes to Plans and Specifications................................................................75 Section 8.20 Construction Contract; Construction Management.....................................................75
(iv) 5 ARTICLE IX..............................................................................................................75 EVENTS OF DEFAULT...................................................................................................75 Section 9.1 Failure to Pay and/or Perform the Obligations......................................................75 Section 9.2 Breach of Representations and Warranties...........................................................76 Section 9.3 Failure to Comply with Covenants...................................................................76 Section 9.4 Failure to Comply with Books and Records...........................................................76 Section 9.5 Other Defaults.....................................................................................76 Section 9.6 Default Under Other Financing Documents............................................................76 Section 9.7 Receiver; Bankruptcy...............................................................................76 Section 9.8 Judgment...........................................................................................77 Section 9.9 Execution; Attachment..............................................................................77 Section 9.10 Default Under Other Borrowings.....................................................................77 Section 9.12 Impairment of Position.............................................................................77 Section 9.13 Change in Status or Ownership......................................................................78 Section 9.14 Zoning.............................................................................................78 Section 9.15 Change in Management...............................................................................78 Section 9.16 Licenses...........................................................................................78 Section 9.17 Damage to Improvements.............................................................................78 Section 9.18 Disclosure of Contractors..........................................................................79 Section 9.19 Mechanic's Lien....................................................................................79 Section 9.20 Survey Matters.....................................................................................79 Section 9.21 General Contractor Default.........................................................................79 Section 9.22 Compliance with Law................................................................................79 Section 9.23 Failure to Commence Occupancy......................................................................79 ARTICLE X...............................................................................................................79 RIGHTS AND REMEDIES UPON DEFAULT....................................................................................79 Section 10.1 DEMAND; ACCELERATION..............................................................................80 Section 10.2 Further Advances; Immediate Acceleration..........................................................80 Section 10.3 Specific Rights With Regard to Collateral.........................................................80 Section 10.4 Performance by Lenders............................................................................82 Section 10.5 Remedies on Default...............................................................................82 Section 10.6 Uniform Commercial Code and Other Remedies........................................................83 Section 10.7 Receiver or Other Court Order.....................................................................84 Section 10.8 No Conditions Precedent to Exercise of Remedies...................................................84 Section 10.9 Remedies Cumulative and Concurrent................................................................84 Section 10.10 Strict Performance...............................................................................85 ARTICLE XI..............................................................................................................85 MISCELLANEOUS.......................................................................................................85 Section 11.1 Notices...........................................................................................85 Section 11.2 Consents and Approvals............................................................................86 Section 11.3 Remedies, etc. Cumulative.........................................................................86 Section 11.4 No Waiver of Rights by the Lenders................................................................86 Section 11.5 Entire Agreement..................................................................................87 Section 11.6 Survival of Agreement; Successors and Assigns.....................................................87 Section 11.7 Expenses..........................................................................................87 Section 11.8 Counterparts......................................................................................88 Section 11.9 Governing Law.....................................................................................88 Section 11.10 Modifications.....................................................................................88 Section 11.11 Illegality........................................................................................88 Section 11.12 Gender, etc.......................................................................................88
v 6 Section 11.13 Headings.........................................................................................89 Section 11.14 Waiver of Trial by Jury..........................................................................89 Section 11.15 No Warranty by Lenders...........................................................................89 Section 11.16 Liability of the Lenders.........................................................................89 Section 11.17 License of Tradename.............................................................................90 Section 11.18 No Partnership...................................................................................90 Section 11.19 Third Parties; Benefit...........................................................................90 Section 11.20 Conditions; Verification.........................................................................91 Section 11.21 Signs; Publicity.................................................................................91 Section 11.22 Time of Essence..................................................................................91 Section 11.23 Replacement Note.................................................................................91 AMENDMENT TO SECOND AMENDED, RESTATED...............................................................................22
vi 7 THIRD AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (MASTER AGREEMENT) THIS THIRD AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (the "Agreement") is made this 14th of March, 2000, by and among SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership ("SEAL"), SUNRISE SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL"), SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, (collectively the "Original Borrowers") and SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability company, SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company, SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company, SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE WESTON ASSISTED LIVING LIMITED PARTNERSHIP, a Massachusetts limited partnership, SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership, SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company, SUNRISE CLAREMONT ASSISTED LIVING, L.P., a California limited partnership (the "Additional Borrowers", collectively with the Original Borrowers and any other Additional Borrowers, as hereinafter defined, the "Borrowers"), and BANK OF AMERICA, N.A., as administrative agent (the "Administrative Agent") for itself and for UNITED BANK, as syndication agent (the "Syndication Agent"), FLEET NATIONAL BANK, as documentation agent (the "Documentation Agent") and certain additional lenders who are or shall be from time to time participating as lenders hereunder pursuant to the Agency Agreement, as hereinafter defined (collectively with the Administrative Agent, the "Lenders"). RECITALS 1 8 A. The Original Borrowers obtained from the Lenders a revolving credit facility in the maximum principal sum of $400,000,000 (the "Credit Facility"). The Original Credit Facility is evidenced by a Second Amended, Restated, Consolidated and Increased Master Promissory Note dated July 29, 1999 (the "Note"). B. Advances and readvances under the Credit Facility have been governed by the terms and conditions of the Second Amended and Restated Financing and Security by and among the Original Borrowers and the Administrative Agent on behalf of the Lenders dated July 29, 1999 (the "Existing Financing Agreement"). C. From time to time since the execution of the Existing Financing Documents, each of the Additional Borrowers has become a co-borrower with the Original Borrowers pursuant to the terms of a Joinder Agreement (as hereinafter defined) and granted to the Administrative Agent on behalf of the Lenders a first lien Deed of Trust on an Eligible Project and certain other related collateral. D. The Borrowers have applied to the Lenders to modify certain terms an conditions of the Existing Financing Agreement and of the Second Amended and Restated Guaranty of Payment Agreement dated July 29, 1999 by the Guarantor (as hereinafter defined) for the benefit of the Lenders (the "Existing Guaranty") and the Lenders have agreed on the condition, among others that the Existing Financing Agreement and the Existing Guaranty be amended and restated in their entirety. E. Except as otherwise set forth herein, advances or readvances of the Loan may be made to the Borrowers for the general business purposes of the Borrowers, including, but not limited to, financing the construction or purchase of assisted living facilities or independent living facilities and the repayment of advances to the Borrowers previously made by SALI or its Affiliates. F. The Borrowers and the Lenders have agreed to amend the terms of repayment of the indebtedness evidenced by the Note pursuant to that certain Amendment to the Second Amended, Restated, Consolidated and Increased Master Promissory Note of even date herewith (the "Note Modification"). G. The Lenders have agreed to make available the Credit Facility upon the conditions that this Agreement amending and restating the Existing Financing Agreement be executed and delivered to the Administrative Agent. 2 9 AGREEMENTS NOW, THEREFORE, in consideration of the premises, the mutual agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers and the Administrative Agent, on behalf of the Lenders, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms As used herein, the terms defined in the Preamble and Recitals hereto shall have the respective meanings specified therein, and the following terms shall have the following meanings: "Account", individually, and "Accounts", collectively, mean with respect to any and all Facilities, all presently existing or hereafter acquired or created accounts, accounts receivable, contract rights, notes, drafts, instruments, acceptances, chattel paper, leases and writings evidencing a monetary obligation or a security interest in or a lease of goods, all rights to receive the payment of money or other consideration under present or future contracts arising out of or relating to any and all Facilities (including, without limitation, all rights to receive the payment of money or other consideration from, or on behalf of, any private pay patient), or by virtue of services rendered, loans and advances made or other considerations given, by or set forth in, or arising out of, any present or future chattel paper, note, draft, lease, acceptance, writing, bond, insurance policy, instrument, document or general intangible, and all extensions and renewals of any thereof, all rights under or arising out of present or future contracts, agreements which gave rise to any or all of the foregoing, including all claims or causes of action now existing or hereafter arising in connection with or under any agreement or document or by operation of law or otherwise, all collateral security of any kind (including real property mortgages) given by any person with respect to any of the foregoing, including, without limitation, all rights to receive payment of money or other consideration from, or on behalf of, any private pay patient, all rights to receive payments under all Resident Agreements, and all third-party payor contracts (including Medicare and Medicaid to the extent permitted by Law), including, but not limited to, the Veterans Administration, Participation Agreements, and any and all depository accounts (other than resident trust accounts) into which the proceeds of all or any portion of such accounts may be now or hereafter deposited, and all proceeds (cash and non-cash) of the foregoing. "Account Debtor" means any Person who is obligated on a Receivable and "Account Debtors" mean all Persons who are obligated on the Receivables. "Act of Bankruptcy" means the filing of a petition in bankruptcy under the Bankruptcy Code or the other commencement of a proceeding under any other applicable law concerning insolvency, reorganization or bankruptcy, now or hereafter in effect. 3 10 "Additional Borrower" shall have the meaning set forth in the definition of Joinder Agreement. "Adjusted EBITDA" shall have the meaning set forth in Section 8.14 Distributions to Partners hereof. "Administrative Agent" means Bank of America, N.A., its successors and assigns. "Affiliate" means an entity in which SALI or another entity which SALI controls, holds an ownership interest equal to or greater than twenty-five percent (25%). "Agency Agreement" means that certain Second Amended and Restated Agency Agreement dated July 29, 1999 as amended pursuant to the Modification to second Amended and Restated Agency Agreement of even date herewith by and among the Administrative Agent and the other Lenders, as the same may be further amended, restated or substituted from time to time. "Agreement" means this Second Amended and Restated Financing and Security Agreement and all amendments, extensions, restatements, substitutions and supplements hereto which may from time to time become effective in accordance with the provisions of Section 11.10 Modifications hereof. "Appraised Value" means the appraised value of a Facility as stabilized, as reviewed by the Administrative Agent. "Acquisition Project" means a Facility purchased by a Borrower from a party which is not an Affiliate as a Completed Facility. "Architect" means the architect named in the Architect's Contract, if any, and his or its successors and permitted assigns. "Architect's Contract" means the architect's agreement by and between any of the Borrowers, as owner, or SDI as agent for any Borrower, and the architect for the particular Facility, or any contract for architectural services relating to the development of the Land and/or the construction of the Improvements for all of the Facilities made by any of the Borrowers and an architect and approved in writing by the Administrative Agent, as the same may be amended from time to time with the prior written approval of the Administrative Agent. "Assets Held for Sale" means each of the properties listed on EXHIBIT H attached hereto, which are currently being held by SALI (or an Affiliate of SALI) for resale. "Banking Day" means any day that is not a Saturday, Sunday or banking holiday in the Commonwealth of Virginia and a day on which banks are open for the transaction of business in U.S. Dollar deposits in London, England. 4 11 "Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C. 101 et seq. "Borrowing Base" means at any time an amount equal to the lesser of (a) the aggregate dollar amounts of the Deed of Trust Lien Amounts for each of the Eligible Projects or, in cases where an appraisal is obtained pursuant to Section 7.28 Updated Appraisals hereof, the lesser of the Deed of Trust Lien Amount or 75% of the Appraised Value of such Eligible Project; or (b) (i) for Eligible Projects constructed or being constructed by a Borrower, the aggregate dollar amount equal to 80% of the Costs Incurred to Date for each Pool A Project, 60% of the Costs Incurred to Date for each Pool B Project, and 40% of the Costs Incurred to Date for each Pool C Project or (ii) for Acquisition Projects which were owned by a Borrower for less than twelve (12) months as of the date the Eligible Project is added to the Borrowing Base the aggregate dollar amount equal to 80% of the Purchase Price for each Pool A Project, 60% of the Purchase Price for each Pool B Project and 40% of the Purchase Price for each Pool C Project; provided that for Acquisition Projects owned by a Borrower longer than twelve (12) months the Borrowing Base for an Acquisition Project shall be the lesser of the Deed of Trust Lien Amount or 75% of the Appraised Value of such Eligible Project. "Borrowing Base Deficiency" shall have the meaning set forth in Section 2.1 The Loan hereof. "Borrowing Base Report" shall have the meaning set forth in Section 2.1 The Loan hereof. "Chattel Paper" means a writing or writings which evidence both a monetary obligation and a security interest in or lease of specific goods; any returned, rejected or repossessed goods covered by any such writing or writings and all proceeds (in any form including, without limitation, accounts, contract rights, documents, chattel paper, instruments and general intangibles) of such returned, rejected or repossessed goods; and all proceeds (cash and non-cash) of the foregoing. "Collateral" means all of the Borrowers' Accounts, Equipment, General Intangibles, documents, Chattel Paper, Instruments and Inventory, all right, title and interest of the Borrowers in and to the Operating Agreements and Management Contracts (including, without limitation, the Management Agreement), Resident Agreements, Physician Contracts, Participation Agreements, the Licenses (whether or not designated with initial capital letters), and all other management contracts, operating agreements, service agreements and any other agreements pertaining to the Eligible Projects as that term is defined herein and in the Uniform Commercial Code as presently adopted and in effect in the Commonwealth of Virginia, and shall also cover, without limitation, (i) any and all property specifically included in those respective terms in this Agreement or in the Financing Documents, (ii) all right, title and interest of the Borrowers in and to Leases or subleases, rents, royalties, issues, profits, revenues, earnings, income or other benefits of the Property, or arising from the use or enjoyment of the Property, or from any lease or other use and occupancy agreement pertaining to the Property, (iii) all right, title and interest 5 12 of the Borrowers under all construction, architectural and design contracts and plans and specifications, (iv) any and all property and/or collateral described in any of the Security Documents, including, without limitation, this Agreement, the Deeds of Trust [and the Pledge, Assignment and Security Agreement], (v) any and all bank accounts or other deposit accounts of the Borrowers wherever located, and (vi) all proceeds (cash and non-cash, including, without limitation, insurance proceeds), of the foregoing. "Collateral Assignments" means collectively the Amended and Restated Collateral Assignment of Licenses, Participation Agreements and Resident Agreements dated December 23, 1997 between the Borrowers and the Administrative Agent and the Amended and Restated Collateral Assignment of Operating Agreements and Management Contracts dated December 23, 1997 among the Borrowers, the Management Company and the Administrative Agent each as amended and reconfirmed pursuant to the Confirmation of and Amendment to Security Documents dated July 29, 1999. "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with any of the Borrowers within the meaning of Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended and the regulations promulgated or issued thereunder. "Completed Facility" means an Eligible Project which has met the conditions set forth in Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility of this Agreement. "Completion Date" shall mean the date which is fifteen (15) months from the recordation of the Deed of Trust on such Facility or upon the issuance of an occupancy permit. "Construction Contract" or "Construction Contracts" shall mean individually or collectively the general contractor's agreements by and between any of the Borrowers as owner, or SDI as agent for any Borrower, and a general contractor for the development of any of the Land and/or the construction of any of the Improvements and approved in writing by the Administrative Agent, as the same may be amended from time to time pursuant to Section 8.19 Changes to Plans and Specifications hereof, or otherwise with the prior written approval of the Administrative Agent. "Convertible Debt" means the $150,000,000 convertible subordinated notes of SALI due 2002. "Costs Incurred to Date" means as to an Eligible Project actual costs expended by or on behalf of any of the Borrowers under a Total Development Budget and reported to the Administrative Agent through the requisition process as verified by the Administrative Agent pursuant to the provisions of this Agreement; provided, however, no cost overruns not otherwise covered by a contingency category in the Total Development Budget will be included in the definition of Costs Incurred to Date without the Administrative Agent's prior written consent. 6 13 "Credit Facility" means the revolving line of credit in a maximum principal sum at any one time outstanding equal to the Credit Facility Committed Amount and the Letter of Credit Facility. "Credit Facility Closing" shall mean the date on which the documents evidencing and securing the Credit Facility as modified in connection herewith, are executed and delivered to the Administrative Agent. "Credit Facility Committed Amount" means $400,000,000 or such larger amount which the Lenders may from time to time severally commit to lend to the Borrowers pursuant to the terms of Agency Agreement and the Note. "Debt Service" means for any period of determination an amount equal (i) if the Eligible Project is not an Acquisition Project, the lesser of (a) the Deed of Trust Lien amount or (b) 80% of an Eligible Project's Costs Incurred to Date (if a Facility constructed or being constructed by a Borrower or its Affiliate) or (ii) its Deed of Trust Lien Amount if an Acquisition Project, in either case multiplied by a mortgage constant of 10%. "Deed of Trust" or "Deeds of Trust" means, individually or collectively, a Deed of Trust, Assignment and Security Agreement, a Mortgage, Assignment and Security Agreement, an Indemnity Deed of Trust, Assignment and Security Agreement or an Indemnity Mortgage, Assignment and Security Agreement or comparable security documents covering Property and securing the Obligations as the same may be from time to time amended, modified, restated or substituted. "Deed of Trust Lien Amount" means the dollar amount of the first priority Lien created by a Deed of Trust on any Borrower's fee simple interest in an Eligible Project or on any Borrower's leasehold interest in a Qualified Ground Lease, the lien amount being the lesser of (i) 75% of such Eligible Project's Appraised Value, or (ii) (a) for any Eligible Project which is not a Completed Facility or which was constructed by a Borrower or Sunrise Affiliate and has been open less than twelve (12) months, 80% of such Eligible Project's Total Development Budget or (b) for any Eligible Project which is an Acquisition Project, (i) if owned for less than twelve (12) months the lesser of (aa) 80% of its Purchase Price or (bb) 75% of its appraised value or (ii) 75% of its appraised value if owned for more than twelve (12) months or (c) for any Acquisition Project or for a Completed Facility open more than twelve (12) months such lesser dollar amount as the Borrowers elect to designate with the consent of the Lenders holding 66.67% of the pro rata shares of the Credit Facility Committed Amount. "Default" means, with respect to each Financing Document, a default which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. "Development Fee" shall have the meaning set forth in Section 2.1 The Loan hereof. 7 14 "EBITDA" means earnings before interest, federal and state income taxes, depreciation, amortization, and any other non-cash and one-time, non-recurring charges consented to by the Administrative Agent in its sole discretion (provided that the consent of Lenders holding at least 66.67% of the pro rata shares of the Loan shall be required for adding back charges in excess of $5,000,000 in the aggregate in any one rolling four (4) quarter period, but after an imputed Replacement Reserve and a Management Fee equal to the greater of 5% of gross revenues or the actual Management Fee paid to the Management Company. Earnings shall include income from "Assets Held for Sale" through the date on which any such asset is actually sold and shall include the gain from any sale of an open operating Facility owned by SALI or an Affiliate of SALI up to but not exceeding an aggregate of twenty (20) of such sales in any twelve (12) month period; provided, however that other one-time non-recurring gains including those from sales of Assets Held for Sale will not be included in EBITDA. "EBITDAR" means EBITDA plus Rent Expense. "Eligible Project" means any location in the United States where (a) a Borrower proposes to construct or has constructed a Facility (unless the Lenders also authorize inclusion of one or more Facilities acquired by a Borrower); (b) the Administrative Agent has received and reviewed an as-built appraisal of the Facility and a Phase I Environmental Assessment of the Property found them acceptable; (c) using the services of a consulting engineer selected by the Administrative Agent, the Administrative Agent has received, reviewed and found to be acceptable the Plans and Specifications and the Total Development Budget for the proposed Facility; (d) the Administrative Agent has received a pro forma operating budget acceptable to the Administrative Agent; (e) a first lien Deed of Trust has been recorded on the Property; (f) other documentation necessary to perfect a lien on the Collateral in favor of the Lenders has been executed and delivered to the Administrative Agent and recorded, if required; (g) a commitment for a mortgagee title insurance policy has been issued for the benefit of the Lenders and (h) construction has commenced or will commence within sixty (60) days and, once commenced, is being carried on in good faith with reasonable dispatch and is not abandoned or discontinued for a period of more than fifteen (15) consecutive days except for delays caused by Force Majeure. Each acceptable pro forma operating budget provided pursuant to (d) must demonstrate that the Facility does or can satisfy the criteria for a Pool A Project. "Enforcement Costs" means all expenses, charges, costs and fees whatsoever (including, without limitation, attorney's fees and expenses) of any nature whatsoever paid or incurred by or on behalf of the Lenders in connection with (a) the collection or enforcement of any or all of the Obligations, (b) the preparation of or changes to this Agreement, the Note, the Security Documents and/or any of the other Financing Documents, (c) the creation, perfection, collection, maintenance, preservation, defense, protection, realization upon, disposition, sale or enforcement of all or any part of the Collateral, including, without limitation, those sums paid or advanced, and costs and expenses, more specifically described in Section 7.11 Defense of Title and Further Assurances, Section 7.25 Fees and Expenses; Indemnity, Section 10.4 Performance by Lenders and Section 11.7 Expenses, (d) the monitoring, administration, processing, servicing of any or 8 15 all of the Obligations and/or the Collateral (e) post-judgment enforcement or collection actions, and (f) bankruptcy proceedings of any Borrower or the Guarantor. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Equipment" shall mean all equipment, machinery, furniture and fixtures and supplies of every nature, presently existing or hereafter acquired or created and wherever located, together with all accessions, additions, fittings, accessories, special tools, and improvements thereto and substitutions therefor and all parts and equipment which may be attached to or which are necessary for the operation and use of such personal property, whether or not the same shall be deemed to be affixed to real property, and all rights under or arising out of present or future contracts relating to the foregoing and all proceeds (cash and non-cash) of the foregoing. "Eurodollar Period" or "Eurodollar Periods" shall have the meaning set forth in the Note. "Eurodollar Rate" means, for any advance under the Loan for any Eurodollar Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London Time) two Banking Days prior to the first day of such Eurodollar Period for a term comparable to such Eurodollar Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any advance under the Loan for any Eurodollar Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London Time) two Banking Days prior to the first day of such Eurodollar Period for a term comparable to such Eurodollar Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Event(s) of Default" shall mean the occurrence of any one or more of the events specified in ARTICLE IX of this Agreement or in the Deeds of Trust and the continuance of such event beyond the applicable grace and/or cure periods therefor, if any, set forth in ARTICLE IX. "Expense Payments" shall have the meaning set forth in Section 10.4 Performance by Lenders hereof. "Facility" and "Facilities" mean, individually or collectively, an assisted living facility or independent living facility owned by one of the Borrowers. "Financing Documents" means at any time collectively and includes this Agreement, the Note, the Deeds of Trust, the Guaranty Agreement, the Performance Guaranty, any Joinder Agreements, the Management Fee Subordination Agreements, the Security Documents, the Interest Rate Protection Documents, the Letter of Credit Documents and any other instrument, agreement or document previously, simultaneously or hereafter executed and delivered by any of 9 16 the Borrowers and/or any other Person, singly or jointly with another Person or Persons, evidencing, securing, guarantying or in connection with any of the Obligations and/or in connection with this Agreement, the Note and/or any of the Security Documents, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Fixed Charge Coverage Ratio" means starting after the first resident takes occupancy in any given Facility (regardless of whether a Borrower then owned the Facility or when the Facility was added to the Borrowing Base), such Facility shall maintain a ratio of EBITDA for the Facility to Debt Service for the Facility equal to not less than 0.6 to 1.0 as of the end of the second (2nd) full fiscal quarter, a ratio of 1.1 to 1.0 as of the end of the third (3rd) full fiscal quarter and a ratio of 1.25 to 1.0 as of the end of each of the fourth (4th) through sixth (6th) full fiscal quarters and thereafter measured as of the end of each full fiscal quarter on a rolling four-quarter basis. "Force Majeure" shall mean events occasioned by strikes, lock-outs, labor unrest war or civil disturbance, materials shortages, unavailability of materials, fire, natural disaster or acts of God which cause a delay in any Borrower's performance of an obligation; provided, however, that such Borrower must give Notice to the Administrative Agent within ten (10) days after such Borrower knew of or should have known of the occurrence of an event which it believes to constitute an event of Force Majeure. "Funded Debt" of the Guarantor, at any time means the sum at such time of (a) indebtedness for borrowed money (including specifically but without limiting the generality of the foregoing, the Convertible Debt), (b) any obligations in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of the Guarantor, (c) lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of the Guarantor, (d) all liabilities secured by any property owned by the Guarantor to the extent attached to the Guarantor's interest in such property, even though the Guarantor has not assumed or become liable for the payment thereof, and in the case of the Guarantor (e) (i) amounts payable by the Guarantor under any terminated or defaulted interest rate protection products or which remain outstanding or (ii) take-out commitments (excluding a refinancing or a commitment of a third party) or purchase contracts including the deferred purchase price of property or services in each instance if the Guarantor does not control the incurring obligation, (f) (i) the amount of any guaranty of indebtedness for borrowed money or (ii) other debt owed by Persons other than the Guarantor which is in default and for which the creditor is pursuing payment by the Guarantor, (g) any obligation of the Guarantor or a Commonly Controlled Entity to a Multiemployer Plan (h) any synthetic lease obligations, (i) any other lease expenses for rented real property will be accounted for as debt based on eight times annualized lease payments (provided, however, that so long as the Guarantor or any Affiliate shall continue to own a 50% interest in the Facility located in Severna Park, Maryland known as "Sunrise of Severna Park", lease expenses for Sunrise of Severna Park will be accounted for as debt based on four times the annualized lease payments rather than eight times the annualized lease payments and (j) other amounts considered to be debt by all of the following: the Administrative Agent, the Syndication Agent and the Documentation Agent in a dollar amount to be mutually agreed upon by the 10 17 Administrative Agent and the Guarantor; but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of the Guarantor in accordance with GAAP, all of the above whether recourse or non-recourse, secured or unsecured. For purposes of the definition of Material Adverse Change in this Agreement, the term "Guarantor" as used in this definition of Funded Debt shall be deemed to read "Person". "GAAP" shall mean generally accepted accounting principles in effect in the United States of America from time to time. "General Contractor" or "General Contractors" shall mean individually or collectively the general contractors named in the Construction Contracts and his or its respective successors and permitted assigns. "General Intangibles" shall mean any and all general intangibles of every nature, whether presently existing or hereafter acquired or created arising out of or relating to any or all of the Facilities, including without limitation all books, correspondence, credit files, records, computer programs, computer tapes, cards and other papers and documents in the possession or control of the Borrowers claims (including without limitation all claims for income tax and other refunds), choses in action, judgments, patents, patent licenses, trademarks (excluding the "Sunrise", "Dignity Home Care", "Respect Home Care" or "Karrington" trademark or tradename), trademark licenses (excluding any license to any of the Borrowers for the "Sunrise," "Reminiscence", "Dignity Home Care", "Respect Home Care" or "Karrington" trademarks or tradenames), licensing agreements, rights in intellectual property, goodwill, as that term is defined in accordance with GAAP (including all goodwill of the Borrowers' business symbolized by, and associated with, any and all trademarks, trademark licenses, copyrights and/or service marks), royalty payments, contractual rights, rights as lessee under any lease of real or personal property, literary rights, copyrights, service names, service marks, logos, trade secrets, all amounts received as an award in or settlement of a suit in damages, deposit accounts, interests in joint ventures or general or limited partnerships, all Licenses, construction permits, Operating Agreements and Management Contracts, Participation Agreements and Resident Agreements, and all proceeds (cash and non-cash) of the foregoing. "Governmental Authority or Authorities" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor" means Sunrise Assisted Living, Inc., a Delaware corporation. "Guaranty Agreement" means the Third Amended and Restated Master Guaranty of Payment Agreement by SALI of even date herewith. 11 18 "Hazardous Materials" means any flammable explosives, radioactive materials, hazardous waste, toxic substances or related materials, including, without limitation, asbestos, polychlorinated biphenyls, urea-formaldehyde, radon, and any substance defined as or included in the definition of (a) any "hazardous waste" as defined by the Resource Conservation Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (c) any "toxic substance" as defined by the Toxic Substances Control Act, as amended from time to time, and regulations promulgated thereunder; (d) any hazardous or infectious medical waste including, but not limited to, cultures and stocks of infectious agents and associated biologicals, pathological wastes, human and animal blood specimens and blood products, anatomical materials, blood, blood-soiled articles, contaminated materials, microbiological laboratory wastes, sharps, chemical wastes, infectious wastes, chemotherapeutic wastes, and radioactive wastes; (e) any substance, the presence of which on any property now or hereafter owned, operated or acquired by any of the Borrowers is prohibited or regulated under any applicable Federal or state laws or regulations; and (f) any other substance, pollutant, contaminant, chemical, or industrial toxic hazardous substance or waste, including without limitation hazardous materials, which by law is prohibited or is otherwise regulated as a hazardous material. "Hazardous Materials Contamination" shall mean the contamination by, release or spill of (whether presently existing or occurring after the date of this Agreement), Hazardous Materials of or on any property owned, operated or controlled by any of the Borrowers, or for which any of the Borrowers, has responsibility, including, without limitation, improvements, facilities, soil, ground water, air or other elements on, or of, any property now or hereafter owned, operated or acquired by any of the Borrowers, and any other contamination by Hazardous Materials for which any of the Borrowers is, or is claimed to be, responsible. "Home Healthcare Provider" means any Affiliate of SALI or of the Sunrise Foundation which is licensed as a home health care provider in any state in which assistance with tasks of daily living provided to a person must be provided by a home healthcare provider licensed in such state. "Hydric Soils" shall mean any soil category upon which building would be prohibited or restricted under applicable governmental requirements (including, without limitation, those imposed by the U.S. Army Corps of Engineers based upon its guidelines as to, among other things, soil, vegetation and effect on the ecosystem). "Improvements" shall have the meaning given to that term in each Deed of Trust. "Inspecting Engineer" shall mean such person or firm as the Administrative Agent may from time to time appoint or designate for purposes related to the inspection of the progress of the development of any of the Land and the construction of any of the Improvements, conformity of construction with the applicable Plans and Specifications, and for such other purposes as the 12 19 Administrative Agent may from time to time deem appropriate or as may be required by the terms of this Agreement. "Instruments" means any and all notes, notes receivable, drafts, acceptances, and similar instruments or documents, both now owned or hereafter created or acquired arising out of or relating to the Facility (or any part thereof). "Interest Rate Protection" means any or all of the interest rate protection agreements that have been or may from time to time be entered into between the Borrowers and the Administrative Agent or another Lender in connection with the Credit Facility. "Interest Rate Protection Documents" means the documents evidencing and governing the Interest Rate Protection at any time and from time to time. "Interest Reserve" shall have the meaning set forth in Section 2.1 The Loan (i) hereof. "Inventory" means any and all inventory of the Borrowers and all right, title and interest of the Borrowers in, and to, all of its now owned and hereafter acquired goods, merchandise and other personal property furnished under any contract of service or intended for sale or lease arising out of or relating to any and all Facilities, including, without limitation, all supplies of any kind, nature or description which are used or consumed in the Borrowers' business and all documents of title or documents representing the same and all proceeds (cash and non-cash) and products of the foregoing. "Joinder Agreement" means a Joinder Agreement in the form attached hereto as EXHIBIT F executed by an additional Borrower (each an "Additional Borrower") to acknowledge its joinder as a party to this Agreement and a co-borrower jointly and severally liable for the Collateral Assignments and the Management Fee Subordination Agreements of the Obligations pursuant to and in connection with its delivery of a Deed of Trust. "Klaassens" means Paul J. Klaassen and Teresa M. Klaassen. "Land" shall mean the land described in the applicable Deed of Trust. "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs or decrees of any Governmental Authority or any court or similar entity established by any thereof. "Lease" has the meaning set forth in a Deed of Trust. "Lender Tax" means any present or future tax, levy, cost or charge of any nature imposed by any Governmental Authority, excluding taxes on or measured by the net income of any Lender imposed by any jurisdiction in which the principal or relevant lending office of such Lender is located. 13 20 "Letter of Credit" and "Letters of Credit" shall have the meanings described in Section 2.6 The Letter of Credit Facility hereof. "Letter of Credit Agreement" means the collective reference to each letter of credit application and agreement substantially in the form of the Administrative Agent's or other applicable Lender's then standard form of application for letter of credit or such other form as may be approved by the Lender, executed and delivered by the Borrower in connection with the issuance of a Letter of Credit, as the same may from time to time be amended, restated, supplemented or modified and "Letter of Credit Agreements" means all of the foregoing in effect at any time and from time to time. "Letter of Credit Documents" means any and all drafts under or purporting to be under a Letter of Credit, any Letter of Credit Agreement, and any other instrument, document or agreement executed and/or delivered by the Borrower or any other Person under, pursuant to or in connection with a Letter of Credit or any Letter of Credit Agreement. "Letter of Credit Facility" means the facility established by the Lenders pursuant to Section 2.6 The Letter of Credit Facility of this Agreement. "Letter of Credit Fee" and "Letter of Credit Fees" have the meanings described in Section 2.6 The Letter of Credit Facility hereof. "Letter of Credit Obligations" means all Obligations of the Borrower with respect to the Letters of Credit and the Letter of Credit Agreements. "Licenses" means any and all licenses, certificates of need, operating permits, franchises, and other licenses, authorizations, certifications, permits, or approvals, other than construction permits, issued by, or on behalf of, any Governmental Authority now existing or at any time hereafter issued, with respect to the acquisition, construction, renovation, expansion, leasing, management, ownership and/or operation of any and all Facilities, accreditation of any Facility, and/or the participation or eligibility for participation in any third party payment or reimbursement programs to the extent any of the Borrowers are participating in such programs (but specifically excluding any and all Participation Agreements to the extent required by law), any and all operating licenses issued by any state Governmental Authority, any and all pharmaceutical licenses and other licenses related to the purchase, dispensing, storage, prescription or use of drugs, medications, and other "controlled substances," any and all licenses relating to the operation of food or beverage facilities or amenities, if any, and any and all certifications and eligibility for participation in Medicare, Medicaid, Blue Cross and/or Blue Shield, or any of the Managed Care Plans, private insurer, employee assistance programs or other third party payment or reimbursement programs as the same may from time to time be amended, renewed, restated, reissued, restricted, supplemented or otherwise modified. "Lien" means any mortgage, deed of trust, deed to secure debt, grant, pledge, security interest, assignment, encumbrance, judgment, lien or charge of any kind, whether perfected or 14 21 unperfected, avoidable or unavoidable, consensual or non-consensual, including, without limitation, any conditional sale or other title retention agreement, filed or un-filed tax liens, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction. "Liquid Assets" means cash, cash equivalents and readily marketable securities for purposes of any covenant under the Financing Documents, Liquid Assets held by the Borrowers to satisfy the requirements of Section 8.14 Distributions to Partners or Members hereof shall be included. "Liquidation Costs" shall have the meaning set forth in Section 10.6 Uniform Commercial Code and Other Remedies hereof. "Loan" shall have the meaning set forth in Section 2.1 The Loan hereof. "Major Subcontractor" means a subcontractor under a subcontract in an amount of $100,000 or more pertaining to any Facility. "Managed Care Plans" means any health maintenance organization, preferred provider organization, individual practice association, competitive medical plan, or similar arrangement, entity, organization, or Person. "Management Agreement" means any and all Management Agreements entered into or to be entered into by and between any of the Borrowers and the Management Company relating to the management of the Facilities, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Management Company" means SALMI, its successors and assigns and any other Person which may become the manager of the Facilities. "Management Fees" shall have the meaning set forth in Section 7.19 Management. "Management Fee Subordination Agreement" shall have the meaning set forth in Section 7.19 Management hereof. "Material Adverse Change" means a significant adverse change in a Person's financial position or capacity including but not limited to significant adverse changes in (a) liquidity, (b) gross revenues, (c) total expenses, (d) such Person's net worth, or (e) ability to meet payment obligations under such Person's Funded Debt, the Obligations and/or contingent liabilities. "Material Lease" has the meaning set forth in a Deed of Trust. "Minimum Occupancy Requirement" means for an Eligible Project with 77 units or fewer, a minimum Resident Occupancy of (A) 50% by the sixth (6th) Operating Month, (B) 70% 15 22 by the ninth (9th) Operating Month and (C) 85% by the twelfth (12th) Operating Month and thereafter and means for an Eligible Project with 78 units or more, a minimum Resident Occupancy of (A) 50% by the sixth (6th) Operating Month, (B) 70% by the ninth (9th) Operating Month, (C) 80% by the twelfth (12th) Operating Month and (D) 85% by the fifteenth (15th) Operating Month and thereafter. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in SECTION 4001(a)(3) of ERISA. "Net Operating Income" means total operating revenue less total operating expenses (excluding interest, federal and state income taxes, depreciation and amortization) but including a management fee to the Management Company of the higher of five percent (5%) of gross revenues or the actual management fee for the period in question as shown in financial information provided by the Borrowers. "Note" shall have the meaning set forth in Section 2.1 The Loan hereof. "Notice" shall mean a written communication delivered as specified in Section 11.1 Notices hereof. "Obligations" means all present and future debts, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of the Borrowers to the Administrative Agent or any Lender under, arising pursuant to, in connection with and/or on account of the provisions of this Agreement, the Note, each Joinder Agreement, the Deeds of Trust, each Security Document, and any of the other Financing Documents, including, without limitation, the principal of, and interest on, the Note, late charges, Enforcement Costs, and other prepayment penalties (if any), Letter of Credit Fees or fees charged with respect to any guaranty of any Letter of Credit, any indebtedness to the Administrative Agent or other Lender or Lenders who make available the Interest Rate Protection arising out of such Interest Rate Protection pursuant to the Interest Rate Protection Documents, and also means all other present and future indebtedness, liabilities and obligations, whether now existing or contemplated or hereafter arising, of the Borrowers to the Lenders in connection with the Credit Facility of any nature whatsoever regardless of whether such debts, obligations and liabilities be direct, indirect, primary, secondary, joint, several, joint and several, fixed or contingent, and any and all renewals, extensions and rearrangements of any such debts, obligations and liabilities. "Operating Agreements and Management Contracts" means any and all contracts and agreements previously, now or at any time hereafter at any time entered into by any of the Borrowers with respect to the acquisition, construction or renovation of a significant nature, expansion, ownership, operation, maintenance, use or management of any or all of the Facilities or otherwise concerning the operations and business of any or all of the Facilities, including, without limitation, any and all service and maintenance contracts, any employment contracts, any and all management agreements, any and all consulting agreements, laboratory servicing agreements, pharmaceutical contracts, physician, other clinician or other professional services 16 23 provider contracts, resident agreements, food and beverage service contracts, and other contracts for the operation and maintenance of, or provision of services to, a Facility, as the same may from time to time be amended, restated, supplemented, renewed, or modified. "Operating Month" means a full calendar month after the first resident takes occupancy in a Facility (regardless of whether the Facility was owned by a Borrower or included in the Borrowing Base at the time of such occurrence). "Operating Reserve" shall mean a reserve in an amount approved by the Administrative Agent included in each Total Development Budget to cover the costs of leasing up a Facility and initial operating deficits. "Outstanding Letter of Credit Obligations" has the meaning described in Section 2.6 The Letter of Credit Facility hereof. "Participation Agreements" means any and all third party payor participation or reimbursement agreements now or at any time hereafter existing for the benefit of any of the Borrowers relating to rights to payment or reimbursement from, and claims against, private insurers, Managed Care Plans, material employee assistance programs, Blue Cross and/or Blue Shield, federal, state and local Governmental Authorities, including without limitation, Medicare and Medicaid, and other third party payors, as the same may from time to time be amended, restated, extended, supplemented or modified. "Performance Guaranty" means, individually or collectively, that certain Amended and Restated Guaranty of Completion dated December 23, 1997 as modified and confirmed pursuant to a Confirmation of and Amendment to Master Guaranty of Performance of dated July 29, 1999 executed by the Guarantor in favor of the Lenders and any Guaranty of Performance which may in the future be executed and delivered by the Guarantor in connection with any Facility Closing. "Permitted Liens" means: (a) Liens for Taxes which are not delinquent or which the Administrative Agent has determined in the exercise of its sole and absolute discretion (i) are being diligently contested in good faith and by appropriate proceedings, (ii) the applicable Borrower has the financial ability to pay, with all penalties and interest, at all times without materially and adversely affecting such Borrower, and (iii) are not, and will not be with appropriate filing, the giving of notice and/or the passage of time, entitled to priority over any Lien of the Lenders; (b) deposits or pledges to secure obligations under workers' compensation, social security or similar laws, or under unemployment insurance in the ordinary course of business; (c) Liens in favor of the Lenders pursuant to the Credit Facility or the Interest Rate Protection; (d) judgment Liens to the extent the entry of such judgment does not constitute an Event of Default under the terms of this Agreement or result in the sale of, or levy of execution on, any of the Collateral; (e) Liens approved by the Administrative Agent which have been created to secure permitted subordinated debt on a junior lien basis; and (f) such other Liens, if any, as are identified as Permitted Encumbrances as defined in the Deed of Trust. 17 24 "Person" shall mean and include an individual, a corporation, a partnership, a limited liability company, a joint venture, a trust, an unincorporated association, any Governmental Authority or any other entity. "Plans and Specifications" shall mean any and all plans and specifications prepared in connection with the development of the Land and/or the construction of the Improvements for any Eligible Project and which are approved in writing by the Administrative Agent, including but not limited to, the plans and specifications prepared by the Architect, a copy of which have been initialed by the applicable Borrower, or SDI as agent for such Borrower, and the Administrative Agent for identification and delivered to the Administrative Agent. "Pledge, Assignment and Security Agreement" means the Amended and Restated Pledge Assignment and Security Agreement dated July 29, 1999 executed by the partners of the Borrower in favor of the Administrative Agent, pursuant to which such owners of the Borrower have pledged and assigned all of their respective partners' interests in the Borrower to the Lenders as additional security for the Credit Facility. "Pool A Project" means any Eligible Project for which, when the Borrowing Base is computed at the end of a reporting period, (a) either (i) construction has been on-going for not more than fifteen (15) months or (ii) it is a Completed Facility not later than fifteen (15) months after the date on which the applicable Deed of Trust was executed; or (b) after it is a Completed Facility or for any Acquisition Project, meets the Minimum Occupancy Requirement and Fixed Charge Coverage Ratio Requirement. "Pool B Project" means any Eligible Project which, when the Borrowing Base is computed at the end of any reporting period, does not meet the definition of a Pool A Project. "Pool C Project" means any Eligible Project which, when the Borrowing Base is computed at the end of two or more consecutive reporting periods, does not meet the definition of a Pool A Project. "Post Default Rate" means the interest rate on the Note in the absence of an Event of Default plus three percent (3%) per annum. "Primary Borrower" means SEAL or another Borrower or a Person designated as an attorney-in-fact for the Borrowers designated as such from time to time by the Borrowers by written notice to the Administrative Agent. "Property" means collectively the "Property" as that term is defined in each of the Deeds of Trust. "Purchase Price" means the gross purchase cost to a Borrower of an Acquisition Project. 18 25 "Qualified Ground Lease" means (i) any lease (a) which is a direct ground lease (or indirect ground lease, so long as each ground lease in the chain of title meets the following criteria) granted by the fee owner of real property, (b) which may be transferred and/or assigned without the consent of the Lessor (or as to which the lease expressly provides that (i) such lease may be transferred and/or assigned with the consent of the lessor and (ii) such consent shall not be unreasonably withheld or delayed), (c) which has a remaining term (including any renewal terms exercisable at the sole option of the lessee) of at least 50 years, (d) under which no material default has occurred and is continuing, (e) with respect to which a security interest may be granted without the consent of the lessor, and (f) which contains lender protection provisions reasonably acceptable to the Administrative Agent including, without limitation, provisions to the effect that (A) the lessor shall notify the Administrative Agent of the occurrence of any default by the lessee under such lease and shall afford the Administrative Agent the right to cure such default, and (B) in the event that such lease is terminated, the Administrative Agent shall have the option to enter into a new lease having terms substantially identical to those contained in the terminated lease. Upon the submission to the Administrative Agent of a written request for approval of the lender protection provisions and other terms of a proposed Qualified Ground Lease, the Administrative Agent may waive any non-compliances with the foregoing which it considers in its reasonable judgment not to be material and adverse with respect to the eligibility of the Facility subject to the Qualified Ground Lease, and shall use its best efforts to accept or reject such proposal within five (5) Banking Days, and shall accept or reject such proposal within ten (10) Banking Days, in each case following receipt of such request. "Receivables" means all of the Borrowers' now or hereafter owned, acquired or created Accounts, Chattel Paper, Contract Rights, General Intangibles and Instruments, and all cash and noncash proceeds and products thereof. "Rent Expense" means the actual rent expense incurred by the Borrower, the Guarantor or any Affiliate as a tenant under leases with respect to any Facility. "Replacement Reserves" means $250 per year per bed in each Facility (whether or not such Facility is stabilized). "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Requisition" or "Requisitions" shall have the meaning set forth in Section 2.8 Requisitions Demonstrating Expenses hereof. "Resident Agreements" means any and all contracts, authorizations, agreements and/or consents executed by, or on behalf of any resident or other person seeking services from any Borrower pursuant to which such Borrower provides or furnishes health or assisted living care and related services at any and all of the Facilities, including the consent to treatment, assignment of payment of benefits by third party, as the same may from time to time be amended, restated, supplemented or modified. 19 26 "Resident Occupancy" means the number of residents who are in occupancy at a Facility and paying fees pursuant to a resident agreement divided by the pro forma resident occupancy for such Facility as contained in the pro forma operating budget of an Eligible Facility. "Revolving Credit Expiration Date" means July 29, 2002 or any date to which it may be extended from time to time pursuant to the terms of Section 2.5 Extensions hereof. "Revolving Credit Termination Date" means the earlier of (a) the Revolving Credit Expiration Date, or (b) the date on which the Credit Facility is terminated pursuant to Section 10.5 Remedies on Default hereof or otherwise. "SALI" means Sunrise Assisted Living, Inc., a Delaware corporation. "SALII" means Sunrise Assisted Living Investments, Inc., a Virginia corporation. "SALMI" means Sunrise Assisted Living Management, Inc., a Virginia corporation, formerly known as Sunrise Terrace, Inc. "SDI" means Sunrise Development, Inc., a Virginia corporation. "Security Documents" means, collectively, any assignment, including, without limitation, any Pledge, Assignment and Security Agreement, the Collateral Assignments and any assignment, pledge agreement, security agreement, mortgage, deed of trust (including the Deeds of Trust), leasehold mortgage, leasehold deed of trust, deed to secure debt, financing statement, initial transaction statement and any similar instrument, document or agreement under or pursuant to which a Lien is now or hereafter granted to, or for the benefit of, the Lenders on any collateral to secure the Obligations, as the same may from time to time be amended, restated, supplemented or otherwise modified. "Stabilized Facility" means an Eligible Project with a Resident Occupancy of at least 85% and a ratio of Net Operating Income to Debt Service of not less than 1.25 to 1.00 measured for two consecutive fiscal quarters. "Stored Materials" shall have the meaning set forth in Section 4.12 Stored Materials hereof. "Survey" means a plat of the Land for any Facility which clearly designates at least (i) the location of the perimeter of such Land by courses and distances; (ii) the location of all easements, rights-of-way, alleys, streams, waters, paths and encroachments; (iii) the location of all building restriction lines and set-backs, however established; (iv) the location of any streets or roadways abutting such Land; and (v) the then "as-built" location of the Improvements located on such Land and the relation of such Improvements by courses and distances to the perimeter of such Land, building restriction lines and set-backs, all in conformity with the Minimum Standard 20 27 Detail Requirements for Land Title Surveys adopted by the American Congress on Surveying and Mapping (1992 Edition). "Tangible Net Worth" shall have the meaning set forth in Section 3.2 of the Guaranty. "Taxes" means all taxes and assessments whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character (including all penalties or interest thereon), which at any time may be assessed, levied, confirmed or imposed by any Governmental Authority on any of the Borrowers or any of their properties or assets or any part thereof or in respect of any of their franchises, businesses, income or profits. "Total Development Budget" means the development, construction and opening operating expense budget for an Eligible Project as reviewed and approved by the Administrative Agent. "Unused Commitment Amount" shall have the meaning set forth in Section 2.3 Fees hereof. "Unused Line Fee" shall have the meaning set forth in Section 2.3 Fees hereof. "Wholly Owned Subsidiary" or "Wholly Owned Subsidiaries" means one or more subsidiaries 100% owned by SALI or a Borrower or by any Wholly Owned Subsidiary of SALI or a Borrower which is or has been created for the sole purpose of acquiring or constructing and owning and operating a Facility which is included in the Borrowing Base. Section 1.2 Accounting Terms and Other Definitional Provisions Unless otherwise defined in this Agreement, as used in this Agreement and in any certificate, report or other document made or delivered pursuant hereto, accounting terms not otherwise defined in this Agreement, and accounting terms only partly defined in this Agreement, to the extent not defined, shall have the respective meanings given to them under GAAP. Unless otherwise defined in this Agreement, all terms used in this Agreement which are defined by the Virginia Uniform Commercial Code shall have the same meanings as assigned to them by the Virginia Uniform Commercial Code unless and to the extent varied by this Agreement. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, Section, subsection, schedule and exhibit references are references to sections or subsections of, or schedules or exhibits to, as the case may be, this Agreement unless otherwise specified. As used in this Agreement, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders, as the context may require. Reference to any one or more of the Financing Documents and any of the Financing Documents shall mean the same as the foregoing may from time to time be amended, restated, substituted, extended, renewed, supplemented or otherwise modified. 21 28 ARTICLE II BORROWING Section 2.1 The Loan (a) The Lenders agree to lend to the Borrowers pursuant to the terms and conditions of this Agreement, and the Borrowers, jointly and severally, agree to borrow on a revolving basis from the Lenders from time to time the principal amount (the "Loan") not to exceed at any time outstanding the lesser of (i) the Credit Facility Committed Amount, or (ii) the Borrowing Base minus the aggregate face amount of all Letters of Credit outstanding. (b) The obligation of the Borrowers to repay the Loan shall be evidenced by the Second Amended, Restated, Consolidated and Increased Master Note dated July 29, 1999 as amended by the Note Modification (as further amended, restated, substituted, extended, renewed and otherwise modified from time to time, the "Note") payable to the Administrative Agent in the form attached hereto as EXHIBIT A. The Note shall bear interest and shall be repaid by the Borrowers in the manner and at the times set forth in the Note. (c) The conditions precedent for making an advance under the Loan shall be as set forth in this Agreement. Sums borrowed and repaid may be readvanced under the terms and conditions of this Agreement. Advances shall be made by the Lenders on a pro rata basis based on their pro rata shares of the Credit Facility Committed Amount. (d) No advances may be made or be outstanding under the Credit Facility and no Letters of Credit may be issued until and during such times as there are at least eight (8) Eligible Projects in the Borrowing Base of which 83% must be Pool A Projects. The Borrowers will prepare a Borrowing Base Report (each a "Borrowing Base Report") in the form attached hereto as EXHIBIT B which must also be certified by the Borrowers listing for each of the Eligible Projects (i) the applicable Deed of Trust Lien Amount, (ii) the Costs Incurred to Date, and (iii) its status as of the most recent reporting date as a Pool A, Pool B or Pool C Project within forty-five (45) days after the end of each of the Borrowers' fiscal quarters. The Borrowing Base Report will be based on the outcome of the requisition procedures hereinafter described, appraisals obtained by the Administrative Agent and other information on the Eligible Projects provided by the Borrowers or obtained by the Administrative Agent. The Borrowing Base shall be computed based on the Borrowing Base Report most recently prepared by the Borrowers and reviewed and accepted by the Administrative Agent. In the event the Borrowers shall fail to furnish other current reports or information as reasonably required by the Administrative Agent pursuant to the Financing Documents, or in the event the Administrative Agent believes that a Borrowing Base Report is no longer accurate, the Administrative Agent may, in its reasonable discretion exercised from time to time and without limiting its other rights and remedies under the Financing Documents, upon notice to the Borrowers and the expiration of a cure period of five (5) Banking Days, designate any Eligible Project as a Pool C Project or suspend the making of or limit advances under the Loan. The Borrowing Base shall be subject to reduction as a result of the following events: (i) the release of an Eligible Project from the lien of the applicable Deed 22 29 of Trust, (ii) by the change of any Eligible Project's status as a Pool A or B Project to a Pool B or C Project respectively as determined by the Administrative Agent quarterly, or (iii) the change in appraised value of an Eligible Project pursuant to Section 7.28 Updated Appraisals. The Borrowing Base shall be subject to increase as a result of the following events: (i) addition of Eligible Projects, (ii) increase in the Costs Incurred to Date as determined by the Administrative Agent quarterly, or (iii) the change of an Eligible Project's status as a Pool B or C Project to a Pool A as determined by the Administrative Agent quarterly. The Borrowers may request and the Requisite Lenders (as defined in the Agency Agreement) may in their sole discretion agree to include as an Eligible Project a Completed Facility which a Borrower has acquired which meets the conditions precedent to including a completed Facility as an Eligible Project. (e) The Borrowers shall furnish to the Administrative Agent such schedules, certificates, lists, records, reports, information and documents as required by the Administrative Agent from time to time so that the Administrative Agent may, in its reasonable discretion, determine the Borrowing Base. (f) If at any time the aggregate principal amount of the Loan outstanding and the Outstanding Letter of Credit Obligations exceeds the Borrowing Base, a borrowing base deficiency ("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base Deficiency exists, the Borrowers shall within three (3) Banking Days of notice thereof from the Administrative Agent either pay the amount and/or add Eligible Projects to increase the Borrowing Base to an amount which is at least equal to the aggregate principal amount outstanding under the Loan and the Outstanding Letter of Credit Obligations. (g) The current Borrowing Base Report is attached hereto as EXHIBIT C. (h) As of the date hereof the Borrower has designated and the Lenders have accepted certain Facilities into the Borrowing Base as Eligible Projects. This Agreement shall govern the procedures for verification by the Administrative Agent of Costs Incurred to Date on each Eligible Project. This Agreement shall also govern the terms, conditions and procedures under which Eligible Projects may be added to the Borrowing Base. (i) The Borrower will give notice to the Administrative Agent in writing in advance of its intention to add a particular Facility as an Eligible Project under the Credit Facility. Each Total Development Budget for an Eligible Project shall include an interest reserve (the "Interest Reserve"), and Operating Reserve, a hard cost contingency reserve of not less than five percent (5%) of the total budgeted construction costs and a development fee payable to SDI (the "Development Fee") and shall demonstrate to the Agent's satisfaction in its sole discretion that the Eligible Project will be designated as a Pool A Project. Section 2.2 Procedure for Advances (a) The Administrative Agent will make advances from time to time upon receipt of written request from the Borrowers in the form designated by the Administrative Agent, provided that after giving effect to the Borrowers' request, the outstanding principal 23 30 balance of the Loan would not exceed the lesser of the Credit Facility Committed Amount or the Borrowing Base minus the aggregate face amounts of all Letters of Credit outstanding. Each advance under the Loan shall be in an amount of not less than $1,000,000, and in increments of $250,000 in excess thereof. Advances or the renewal of a Eurodollar Period shall be requested by the Borrowers orally or in writing by 10:00 A.M. (Baltimore time) three (3) Banking Days prior to the Banking Day on which the funds will be advanced. The Borrowers shall advise the Administrative Agent at the time of such notice which Eurodollar Period they are selecting. The Administrative Agent shall have no obligation to make any advance if at the time such advance is requested and/or is proposed to be funded, there exists an Event of Default or an event which upon notice or lapse of time or both would constitute an Event of Default under the Financing Documents. If the Borrowers fail to advise the Administrative Agent three (3) Banking Days in advance of the expiration of a Eurodollar Period of its intention to either pay off such portion of the Loan or renew the applicable Eurodollar Period, it shall be assumed by the Administrative Agent that the Eurodollar Period is to be renewed. (b) In addition, if the Administrative Agent has reason to believe a Default or an Event of Default has occurred, the Borrowers hereby irrevocably authorize the Lenders to make advances of the Loan at any time and from time to time, without further request from or notice to the Borrowers, which the Lenders, in their sole and absolute discretion, deem necessary or appropriate to protect the Lenders' interests under this Agreement or otherwise, including, without limitation, advances of the Loan made to cover interest on the Loan, fees, and/or Enforcement Costs, prior to, on, or after the termination of this Agreement, regardless of whether the aggregate amount of the advances of the Loan which the Lenders may make hereunder exceeds the Credit Facility Committed Amount. The Lenders shall have no obligation whatsoever to make any advance under this subsection and the making of one or more advances under this subsection shall not obligate the Lenders to make other similar advances. Any such advances will be evidenced by the Note secured by the Collateral and the Deeds of Trust. Section 2.3 Fees The Borrowers shall pay to the Administrative Agent the following fees: (a) Unused Line Fee. The Borrowers shall pay to the Administrative Agent for the benefit of the Lenders beginning on the date set forth below a quarterly revolving credit facility fee (the "Unused Line Fee") in an amount equal to twenty-five (25) basis points per annum of the average undisbursed portion of the "Unused Commitment Amount" for the applicable quarter specified in the right-hand column below. The accrued and unpaid portion of the Unused Line Fee shall be paid by the Borrower to the Administrative Agent as of the Credit Facility Closing Date and on the first day of each fiscal quarter and on the Revolving Credit Termination Date. For purposes hereof "Average Outstandings" shall mean the average daily principal under the Note plus the average daily principal amount of the aggregate face amounts of the Letters of Credit for the quarter then ended. Period Unused Commitment Amount ------ ------------------------ 24 31 Quarter ending 3/31/2000 $300,000,000 less the Average Outstandings Quarter ending 6/30/2000 $350,000,000 less the Average Oustandings Quarter ending 9/30/2000 and Credit Facility Committed each fiscal quarter there- Amount less the Average after Outstandings (b) Appraisal Fees. Upon the receipt of an appraiser's invoice from the Administrative Agent, the Borrowers shall pay the fee of the appraiser for an Eligible Project. (c) Extension Fee. In the event the Revolving Credit Expiration Date of the Credit Facility is extended for a twelve-month period pursuant to the terms of Section 2.5 Extensions Section 2.4 Interest Rate Matters (a) Lender Tax Adjustment. Each payment made by the Borrowers under the Note shall either (i) be exempt from, and be made without reduction by reason of, any Lender Tax or (ii) to the extent that any such payment shall be subject to any Lender Tax, be accompanied by an additional payment by the Borrowers of such amount as may be necessary so that the net amount received by each Lender (after deducting all applicable Taxes) is the same as such Lender would have received had such payment not been subject to such Lender Tax. Upon any payment of Lender Tax by the Borrowers, the Borrowers shall promptly (and in any event within 30 days) furnish to the Administrative Agent and applicable Lender such tax receipts, certificates an other evidence of such payment as the Borrowers may have or the Administrative Agent or the applicable Lender may reasonably request. (b) Inability to Determine Eurodollar Rate. In the event that the Administrative Agent determines (which determination shall be conclusive absent manifest error) that, by reason of circumstances affecting the London interbank market, quotation of Eurodollar Rates for any portion of the Note are not being provided in the relevant amounts or for the relevant maturities for the purpose of determining a Eurodollar Rate for any portion of the principal sum, the Administrative Agent will give notice of such determination to the Borrowers and each Lender at least one day prior to the date of an advance or any subsequent Eurodollar Period for the Loan. If any such notice is given, no Lender shall have any obligation to make any advance or maintain any principal sum outstanding at a Eurodollar Rate. Until the earlier of the date any such notice has been withdrawn by the Administrative Agent or the date when the Lenders and the Borrowers have mutually agreed upon an alternate method of determining the rates of interest payable on the Loan, as the case may be, the Borrowers shall not have the right to have additional advances or maintain any portion of the Credit Facility at a Eurodollar Rate, whereupon the Lenders and the Borrowers shall mutually agree upon an alternate method of 25 32 determining the rates of interest payable on the Loan or such Lender's portion of the principal outstanding under all the Note shall be immediately due and payable. (c) Illegality. Notwithstanding any other provision of the Financing Documents to the contrary, in the event that it shall become unlawful for any Lender to obtain funds in the London interbank market or for such Lender to maintain the Loan at the Eurodollar Rate, then, by written notice to the Borrowers and to the Administrative Agent, such Lender may declare that advances will not thereafter be made or the Loan maintained by such Lender hereunder at the Eurodollar Rate, whereupon the Lenders and the Borrowers shall mutually agree upon an alternate method of determining the rates of interest payable on the Loan or such Lender's portion of the principal outstanding under the Note shall be immediately due and payable. (d) Increased Costs and Reduced Return. (i) If any event shall occur (whether in the form of a reserve requirement (not included in the definition of the Eurodollar Rate), exchange control regulations, governmental charges, compliance with any guideline or request from any central bank or other Governmental Authority, changes in the London interbank market or the position of any Lender in such market or otherwise) and the result of any such event is, in such Lender's reasonable judgment, to increase the costs which such Lender determines are attributable to its making or maintaining the Loan at the Eurodollar Rate in excess of those costs already in effect as of July 1, 1999, or its obligation to make available the Loan at the Eurodollar Rate or to reduce the amount of any sum received or receivable by such Lender under the Note, then, within ten (10) days after demand by such Lender, Borrowers hereby agree to pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. (ii) In addition to any amounts payable pursuant to Section (i), if any Lender shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards," or the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the enforcement or interpretation or administration of any of the foregoing by any court or any central bank or other Governmental Authority, charged with the enforcement or interpretation or administration thereof, or compliance by such Lender (or any lending office of such Lender) or such Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of its making or maintaining the Loan or its incurring any obligations under this 26 33 Agreement to a level below that which such Lender or such Lender's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then, upon demand by such Lender, the Borrowers hereby agree to pay to such Lender from time to time such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (e) Notice of Amounts Payable to Lenders. If any Lender shall seek payment of any amounts from Borrowers pursuant to this Section or under Section 2.4 Interest Rate Matters, it shall notify the Borrowers and the Administrative Agent of the amount payable by the Borrowers to such Lender hereunder. A certificate of such Lender seeking payment setting forth in reasonable detail the factual basis for and the computation of the amount specified, shall be conclusive and binding on all parties for all purposes, absent manifest error, as to the amounts owned. The Borrowers' obligations under this Section shall survive the termination of this Agreement and the repayment of the Obligations. (f) Change in Basis Point Spread. Any change in the basis point margin added to the Eurodollar Rate based on a change in the rating pursuant to the terms of the Note shall take effect one (1) Banking Day following notice by the Administrative Agent to the Lenders of such rate change. Section 2.5 Extensions At any time not later than thirty (30) days nor earlier than one hundred twenty (120) days prior to the Revolving Credit Expiration Date or any anniversary of the Facility Closing, the Borrowers may request that the Administrative Agent and the Lenders, in their sole discretion, may agree to extend the Revolving Credit Expiration Date one or more times for a period of twelve (12) months each. Section 2.6 The Letter of Credit Facility (a) Letters of Credit. Subject to and upon the provisions of this Agreement, and as a part of the Credit Facility Committed Amount, the Borrower may, upon the prior approval of the Administrative Agent, obtain standby letters of credit (as the same may from time to time be amended, supplemented or otherwise modified, each a "Letter of Credit" and collectively the "Letters of Credit") from any Lender selected by the Borrowers from time to time until the Banking Day preceding the Revolving Credit Termination Date. Each Letter of Credit shall be issued for a business purpose of any Borrower, SALI or any Affiliate, provided that one or more Borrowers is a co-obligor with SALI or any Affiliate for the Obligations arising under such Letter of Credit and executes the applicable Letter of Credit Application to evidence such liability. The Borrower will not be entitled to obtain a Letter of Credit hereunder unless (a) after giving effect to the request, the outstanding principal balance of the Loan and of the Letter of Credit Obligations would not exceed the lesser of (i) the Credit Facility Amount, or (ii) the most 27 34 current Borrowing Base and (b) the sum of the aggregate face amount of the then outstanding Letters of Credit (including the face amount of the requested Letter of Credit) does not exceed Ten Million Dollars ($10,000,000). (b) Letter of Credit Fees. Prior to or simultaneously with the opening of each Letter of Credit, the Borrower shall pay to the Administrative Agent or the other issuing Lender for the benefit of all the Lenders, a letter of credit fee (each a "Letter of Credit Fee" and collectively the "Letter of Credit Fees") in an amount equal to eighty (80) basis points per annum of the amount of the Letter of Credit and a facing fee of 1/8th of 1% of the amount of the Letter of Credit for the benefit of the issuing Lender only. The Letter of Credit Fee but not the facing fee will be pro-rated if the initial term of a Letter of Credit is less than twelve (12) months. Such Letter of Credit Fees shall be paid upon the opening of the Letter of Credit and upon each anniversary thereof, if any. In addition, the Borrower shall pay to the Lender any and all additional issuance, negotiation, processing, transfer or other fees to the extent and as and when required by the provisions of any Letter of Credit Agreement; such additional fees are included in and a part of the "Fees" payable by the Borrower under the provisions of this Agreement. (c) Terms of Letters of Credit. Each Letter of Credit shall (a) be opened pursuant to a Letter of Credit Agreement, and (b) expire on a date not later than the Banking Day preceding the Revolving Credit Expiration Date; provided, however, if any Letter of Credit does have an expiration date later than the Banking Day preceding the Revolving Credit Termination Date, as of the Banking Day preceding the Revolving Credit Termination Date an advance of the Loan shall be made by the Lender in the face amount of such Letter of Credit (or Letters of Credit) and the proceeds thereof shall be deposited in an account titled in the name of the Administrative Agent as trustee for the Borrower. The proceeds of the trustee account referred to in the immediately preceding sentence shall be held as collateral for the Letter of Credit (or Letters of Credit) and in the event of a draw under the Letter of Credit (or Letters of Credit), used to pay any such draw. The aggregate face amount of all Letters of Credit at any one time outstanding and issued by the Administrative Agent or any other Lender pursuant to the provisions of this Agreement, plus the amount of any unpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and less the aggregate amount of all drafts issued under or purporting to have been issued under such Letters of Credit that have been paid by the Administrative Agent or any other Lender, is herein called the "Outstanding Letter of Credit Obligations". (d) Procedure for Letters of Credit. The Borrower shall give the Administrative Agent written notice at least two (2) Banking Days prior to the date on which a Letter of Credit is requested to be opened of their request for a Letter of Credit. Such notice shall specify if a Lender other than the Administrative Agent is requested to be the issuing bank for such Letter of Credit shall be accompanied by a duly executed and delivered Letter of Credit Agreement. Upon receipt of the Letter of Credit Agreement and the Letter of Credit Fee, the Administrative Agent or other issuing Lender shall process such Letter of Credit Agreement in accordance with its customary procedures and open such Letter of Credit on the Banking Day specified in such notice. Section 2.7 Permitted Costs 28 35 Advances under the Borrowing Base shall be made available by the Lenders pursuant to a Borrowing Base Report issued quarterly by the Administrative Agent or more frequently in the Administrative Agent's discretion and certified by the Borrowers in accordance with the terms of this Agreement. That portion of the Borrowing Base composed of Costs Incurred to Date shall be related to expenditures for each Eligible Facility described in the applicable Total Development Budget. Each Total Development Budget may include the cost of (i) the acquisition by the Borrowers of the Land which is the site of such Facility, (ii) the construction on the Premises of a Facility containing residential units and common facilities (iii) marketing, staffing and similar pre-opening expenses and (iv) an Operating Reserve. Unless otherwise agreed to by the Administrative Agent and to the extent specifically permitted by the Administrative Agent, the process of verification of Requisitions shall confirm the payment by any of the Borrowers of the following costs and expenses related to the development of the Premises and the construction of the Improvements and no others may be included in a Total Development Budget: (i) the payment of interest when due without further authorization or consent of the Borrowers; (ii) the actual cost of the Land and all labor, services, materials, supervision, construction fees and the like reasonably incurred by any of the Borrowers in connection with the construction upon the Land of the Improvements in accordance with the Plans and Specifications; (iii) for the actual cost of pre-opening expenses, marketing expenses and operations of the Facility to the extent of operating deficits; (iv) for the actual cost of commitment fees, extension fees, appraisal fees, closing or settlement costs, fees of attorneys, engineers, architects and accountants, insurance and bond premiums, ad valorem real estate taxes and other costs directly related to the development of the Land and the construction, marketing, initial start-up operating of the Improvements and (v) for the Development Fee and other pre-opening fees. Section 2.8 Requisitions Demonstrating Expenses Verification of the Borrowers' Costs Incurred to Date will be administered by the Administrative Agent's Real Estate Loan Administration Group. Requisitions for each Eligible Project shall be submitted by the Borrowers from time to time setting forth costs incurred by or on behalf of the Borrowers shall be in the form approved by the Administrative Agent (each a "Requisition" collectively, the "Requisitions") signed by James S. Pope, Larry Hulse, Christopher Slavin, Thomas B. Newell or David W. Faeder on behalf of the Borrowers and approved by the Architect, showing the percentage of completion and setting forth in trade breakdown form and in such detail as may be required by the Administrative Agent the amounts expended and/or costs incurred for work done and necessary materials incorporated in the Improvements. The Requisition shall also show the percentage of completion of each line item on the applicable Borrower's cost breakdown approved by the Administrative Agent. The Borrowers shall submit with each Requisition a statement that the work completed to the date of such Requisition is of quality consistent with the applicable Plans and Specifications. In addition, at the time of delivery of each Requisition by the Borrowers, the Borrowers shall furnish to the Administrative Agent such additional information (such as paid receipts, invoices, statements of accounts, etc.) as the Administrative Agent may reasonably require to assure that amounts shown in the Requisition have been paid by or on behalf of the Borrowers. Requisitions verified by the 29 36 Real Estate Loan Administration Group during the course of a fiscal quarter will be included in the calculation of the next Borrowing Base Report. Section 2.9 Co-Borrower Obligations Each Person included in the term "Borrowers", including each Additional Borrower, hereby covenants and agrees with the Administrative Agent on behalf of the Lendersas follows: (a) The Obligations include all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of any one or more of the Additional Borrowers or the Existing Borrowers in connection with the Loan. (b) Reference in this Agreement and the other Financing Documents to the "Borrowers" or otherwise with respect to any one or more of the Persons now or hereafter included in the definition of "Borrowers" shall mean each and every such Person and any one or more of such Persons, jointly and severally, unless the context requires otherwise. (c) For administrative convenience, each Person included in the term "Borrowers" hereby irrevocably appoints the Primary Borrower as the Borrower's attorney-in-fact, with power of substitution (with the prior written consent of the Administrative Agent in the exercise of its sole and absolute discretion), in the name of the Primary Borrower or in the name of the Borrower or otherwise to take any and all actions with respect to this Agreement, the other Financing Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as the Primary Borrower may so elect from time to time, including, without limitation, actions to (i) request advances under the Loan, and direct the Administrative Agent to disburse or credit the proceeds of any advance under the Loan directly to an account of the Primary Borrower, any one or more of such Persons or otherwise, which direction shall evidence the making of such advance and shall constitute the acknowledgment by each such Person of the receipt of the proceeds of the Loan, (ii) enter into, execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any Additional Borrower Joinder Supplement, any other Financing Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (iii) endorse any check or other item of payment in the name of such Person or in the name of the Primary Borrower. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of the Administrative Agent, and may be exercised from time to time through the Primary Borrower's duly authorized officer, officers or other Person or Persons designated by the Primary Borrower to act from time to time on behalf of the Primary Borrower. (d) Each Person included in the term "Borrowers" hereby irrevocably authorizes the Administrative Agent to make advances to any one or more or to all of such Persons, pursuant to the provisions of this Agreement upon the written, oral or telephonic request any one or more of the Persons who is from time to time a Responsible Officer of a Borrower under the provisions of the most recent certificate of corporate resolutions and/or incumbency of 30 37 the Person included in the term "Borrowers" on file with the Administrative Agent and also upon the written, oral or telephone request of any one of Responsible Officer. (e) The Administrative Agent assumes no responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Administrative Agent and any one or more of the Persons included in the term "Borrowers", any advance under the Loan or any other transaction in connection with the provisions of this Agreement except those resulting from the Administrative Agent's gross negligence or willful misconduct. Section 2.10 Agreement Among Borrowers Without implying any limitation on the joint and several nature of the Obligations, the Administrative Agent agrees that, notwithstanding any other provision of this Agreement, the Persons included in the term "Borrowers" may create reasonable inter-company indebtedness between or among the Persons included in the term "Borrowers" with respect to the allocation of the benefits and proceeds of the advances under this Agreement. The Persons included in the term "Borrowers" agree among themselves, and the Administrative Agent consents to that agreement, that each such Person shall have rights of contribution from all of the such Persons to the extent such Person incurs Obligations in excess of the proceeds of the Loans received by, or allocated to purposes for the direct benefit of, such Person. All such indebtedness and rights shall be, and are hereby agreed by the Persons included in the term "Borrowers" to be, subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless the Administrative Agent agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been indefeasibly paid in full in cash. Each Person included in the term "Borrowers" agrees that all of such inter-company indebtedness and rights of contribution are part of the Collateral and secure the Obligations. Each Person included in the term "Borrowers" hereby waives all rights of counterclaim, recoupment and offset between or among themselves arising on account of that indebtedness and otherwise. Unless otherwise consented to in writing by the Administrative Agent, no Person included in the term "Borrowers" shall evidence the inter-company indebtedness or rights of contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. Section 2.11 Benefits to Borrowers Each Person included in the term "Borrowers" hereby represents and warrants to the Administrative Agent that each of them will derive benefits, directly and indirectly, from each advance under the Loan, both in their separate capacity and as a member of the integrated group to which each such Person belongs and because the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole, because (i) the terms of the consolidated financing provided under this Agreement are more favorable than would otherwise be obtainable by such Persons individually, and (ii) the additional administrative and other costs and reduced flexibility associated with individual 31 38 financing arrangements which would otherwise be required if obtainable would substantially reduce the value to such Persons of the financing. Section 2.12 Guaranty (a) Each Person included in the term "Borrowers" hereby unconditionally and irrevocably, guarantees to the Administrative Agent: (i) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrowers" of the Obligations, including unpaid and accrued interest thereon, in each case when due and payable, all according to the terms of this Agreement, the Note and the other Financing Documents; (ii) the due and punctual payment in full (and not merely the collectibility) by the other Persons included in the term "Borrowers" of all other sums and charges which may at any time be due and payable in accordance with this Agreement, the Note or any of the other Financing Documents; (iii) the due and punctual performance by the other Persons included in the term "Borrowers" of all of the other terms, covenants and conditions contained in the Financing Documents; and (iv) all the other Obligations of the other Persons included in the term "Borrowers". (b) The obligations and liabilities of each Person included in the term "Borrowers" as a guarantor under this Section shall be absolute and unconditional and joint and several, irrespective of the genuineness, validity, priority, regularity or enforceability of this Agreement, the Note or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. Each Person included in the term "Borrowers" in its capacity as a guarantor expressly agrees that the Administrative Agent may, in its sole and absolute discretion, without notice to or further assent of such Borrower and without in any way releasing, affecting or in any way impairing the joint and several obligations and liabilities of such Person as a guarantor hereunder: (i) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (ii) modify, amend, change or terminate any provisions of any of the Financing Documents; (iii) grant extensions or renewals of or with respect to this Agreement, the Note or any of the other Financing Documents; 32 39 (iv) effect any release, subordination, compromise or settlement in connection with this Agreement, the Note or any of the other Financing Documents; (v) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loan or to the subordination of any lien or security interest therein; (vi) make advances for the purpose of performing any term, provision or covenant contained in this Agreement, the Note or any of the other Financing Documents with respect to which the Borrower shall then be in default; (vii) make future advances pursuant to this Agreement or any of the other Financing Documents; (viii) assign, pledge, hypothecate or otherwise transfer, the Obligations, the Note, any of the other Financing Documents or any interest therein, all as and to the extent permitted by the provisions of this Agreement; (ix) deal in all respects with the other Persons included in the term "Borrowers" as if this Section were not in effect; (x) effect any release, compromise or settlement with any of the other Persons included in the term "Borrowers", whether in their capacity as a Borrower or as a guarantor under this Section or any other guarantor; and (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings under the Bankruptcy Code, it being expressly agreed by all Persons included in the term "Borrowers" that any such financing and/or use would be part of the Obligations. (c) The obligations and liabilities of each Person included in the term "Borrowers", as guarantor under this Section shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that such Person may have against any one or more of the other Persons included in the term "Borrowers", the Administrative Agent and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Administrative Agent of any remedies it may have against Persons included in the term "Borrowers" with respect to this Agreement, the Note or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to make any demand upon any of the Persons included in the term "Borrowers", or to sell the Collateral or otherwise pursue, enforce or exhaust its or their remedies against the Persons included in the term "Borrowers" or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against each Person included in the term 33 40 "Borrowers" under this Section, either in the same action, if any, brought against any one or more of the Persons included in the term "Borrowers" or in separate actions or proceedings, as often as the Administrative Agent may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or more of the Persons included in the term "Borrowers", any other guarantor or any obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against any one or more of the Persons included in the term "Borrowers", in their respective capacities as borrowers and guarantors under this Section, or under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of each Borrower under this Section in any manner whatsoever, and this Section shall remain and continue in full force and effect. It is the intent and purpose of this Section that each Person included in the term "Borrowers" shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Persons included in the term "Borrowers" agree that they shall be liable for the full amount of the obligations and liabilities under this Section regardless of, and irrespective to, any modification, limitation or discharge of the liability of any one or more of the Persons included in the term "Borrowers", any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings. (d) Each Person included in the term "Borrowers", as guarantor under this Section, hereby unconditionally, jointly and severally, irrevocably and expressly waives: (i) presentment and demand for payment of the Obligations and protest of non-payment; (ii) notice of acceptance of this Section and of presentment, demand and protest thereof; (iii) notice of any default hereunder or under the Note or any of the other Financing Documents and notice of all indulgences; (iv) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Section; (v) demand for observance, performance or enforcement of any of the terms or provisions of this Agreement, the Note or any of the other Financing Documents; (vi) all errors and omissions in connection with the Administrative Agent's administration of all indebtedness guaranteed by this Section; (vii) any right or claim of right to cause a marshalling of the assets of any one or more of the other Persons included in the term "Borrowers"; 34 41 (viii) any act or omission of the Administrative Agent which changes the scope of the risk as guarantor hereunder; and (ix) All other notices and demands otherwise required by law which such Person may lawfully waive. (e) Within ten (10) days following any request of the Administrative Agent to do so, each Person included in the term "Borrowers" will furnish the Administrative Agent and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this Section. ARTICLE III COLLATERAL Section 3.1 Collateral As security for the payment of any and all of the Obligations and for the Borrowers' performance of, and compliance with, all of the terms, covenants, conditions, stipulations and agreements contained in the Financing Documents, the Borrowers hereby assign, grant and convey to the Lenders, and agree that the Lenders shall have, to the extent permitted by law a perfected, continuing security interest in, all of the Collateral. The Borrowers further agree that the Lenders shall have in respect of the Collateral all of the rights and remedies of a secured party under the Virginia Uniform Commercial Code and the Uniform Commercial Code of those other states in which the Facilities are located, whichever is applicable, and under other applicable Laws as well as those provided in this Agreement. The Borrowers covenant and agree to execute and deliver such financing statements and other instruments and filings as are necessary in the opinion of the Administrative Agent to perfect such security interest. Notwithstanding the fact that the proceeds of the Collateral constitute a part of the Collateral, the Borrowers may not dispose of the Collateral, or any part thereof, other than in the ordinary course of their business or as otherwise may be permitted by this Agreement or other Security Agreements. Section 3.2 Eligible Projects The Borrowers shall from time to time designate Facilities owned by any of the Borrowers as Eligible Projects included in the Borrowing Base pursuant to the terms hereof. The Facilities which are currently Eligible Projects are listed on EXHIBIT C attached hereto and incorporated herein by reference or any future Borrowing Base Report. The Credit Facility shall be secured by (a) the first lien Deeds of Trust on the fee simple interests of the Borrowers in the 35 42 Eligible Projects or on the leasehold interests of Borrowers under Qualified Ground Leases, (b) a first lien security interest in all fixtures, building materials and all other machinery, equipment and other personalty used or installed by the Borrowers or each of the premises of an Eligible Project or in the Improvements constructed thereon, and (c) all of the other Collateral relating to the Eligible Projects. The Borrowers may release an Eligible Project from the lien of its Deed of Trust at any time provided no Event of Default has occurred and is continuing and provided at least eight (8) Eligible Projects remain in the Borrowing Base of which 83% must be Pool A Projects. The Administrative Agent may in its sole discretion agree to include a Facility occupied pursuant to a Qualified Ground Lease; provided, however, that at no time shall Eligible Projects subject to Qualified Ground Leases comprise more than ten percent (10%) of the availability under the Borrowing Base at any one time. Section 3.3 Assignment of Partnership Interests The Obligations are further secured by one or more Pledge, Assignment and Security Agreements, pursuant to which the partners of each of the Borrowers have assigned to the Administrative Agent for the benefit of the Lenders one hundred percent (100%) of all partnership or member interests in each of the Borrowers. Section 3.4 Guaranties The Obligations are the subject of the Guaranty Agreement and the Performance Guaranty executed and delivered by the Guarantor in favor of the Lenders. Section 3.5 Collateral for Obligations The Borrowers acknowledge that it is the intention of the Borrowers that the Collateral and all the Deeds of Trust be security for all of the Obligations, both those now existing and those hereafter created or incurred by future loans, advances, extensions of credit or otherwise and whether or not currently contemplated by the Borrowers and/or the Lenders on or about the date hereof. Section 3.6 Costs The Borrowers agree to pay on demand, to the fullest extent permitted by applicable laws, all reasonable fees, commissions, costs, charges, travel expenses and other expenses incurred by the Lenders, or any of them, in connection with the taking, perfection, preservation, protection and/or release of any security interest or lien on any of the Collateral or Deeds of Trust. The foregoing notwithstanding, the Borrowers shall not be obligated to pay the travel expenses of the Lenders with the exception of travel expenses incurred in connection with any enforcement actions following the occurrence of an Event of Default. 36 43 ARTICLE IV GENERAL FINANCING PROVISIONS Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust (a) Conditions Precedent to Credit Facility Closing. The following shall be conditions precedent to the Credit Facility Closing or to the addition of an Additional Borrower and/or the addition of an Eligible Project to the Borrowing Base (each a "Facility Closing"): (i) The Guaranty, this Agreement and the Note Modification shall have been properly executed and delivered to the Administrative Agent. (ii) The Administrative Agent shall have received and approved a copy of each Borrower's fully executed Partnership Agreement or Operating Agreement or Articles of Organization (if a limited liability company) and a certified copy of the recorded Certificate of Limited Partnership (if a limited partnership) or Articles of Organization (if a limited liability company) or a certificate of no changes therein since the closing on July 29, 1999. In connection with the addition of an Additional Borrower, the Administrative Agent shall have received and approved copies of all organizational documents, including certified copies of all documents on record with the State in which such entity is organized. (iii) The Administrative Agent shall have received and approved a certificate executed by all of the general and limited partners or members of the Borrowers authorizing the execution and delivery of this Agreement or any other the Financing Documents being delivered in connection herewith and consenting to the Loan and similar authority certificates or resolutions of any Additional Borrower. (iv) The Administrative Agent shall have received and approved a current certificate of good standing or certificate of fact from the State in which any Borrower is formed. (v) The Administrative Agent shall have received and approved an opinion of counsel for the Borrowers as to the Borrowers' good standing, form, powers and authority and as to the validity, binding effect and enforceability of the Financing Documents such an opinion shall be issued in connection with the execution and delivery of each Joinder Agreement. (vi) The Administrative Agent shall have received and a properly and fully executed Joinder Agreement. (vii) In connection with the execution and delivery of this Agreement, the Guaranty and the Note Modification, the Borrowers shall pay to the 37 44 Administrative Agent for the benefit of the Lenders an amendment fee of 1/8 of 1% of the Credit Facility Committed Amount of ($500,000). Such Amendment fee will be in addition to and shall not be deemed to reduce or replace any other fee due in connection with the Credit Facility. (b) Conditions Precedent to Accepting an Eligible Project: (i) The Credit Facility Closing shall have been completed. (ii) The Administrative Agent shall have received a certificate of authority to do business for the applicable Borrower in each jurisdiction where a Facility is located (if different from the state in which such Borrower was formed). (iii) The Total Development Budget for such Eligible Project shall have been reviewed and approved in writing by the Administrative Agent consistent with the provision of Section 2.1 The Loan. (iv) The Administrative Agent shall have received a paid policy of title insurance (American Land Title Association Standard Form "B" Loan Policy - Current Edition) covering the Facility or a valid and enforceable commitment to issue the same, together with such reinsurance agreements and direct access agreements as may be required by the Administrative Agent and/or endorsements to policies issued to the Administrative Agent in connection with the Original Credit Facility, in the amount agreed upon by the Administrative Agent from a company satisfactory to the Administrative Agent and which may be endorsed or assigned to the successors and assigns of the Lenders and to additional Lenders without additional cost, insuring the liens of the Deeds of Trust to be valid first liens on the Property, free and clear of all defects, exception and encumbrances except such as the Administrative Agent and its counsel shall have approved but without a creditor's rights exception and (unless otherwise agreed by the Administrative Agent) containing affirmative insurance against mechanics liens. (v) The Administrative Agent shall have received advice, in form and substance and from a source satisfactory to the Administrative Agent, to the effect that a search of the applicable public records discloses no conditional sales contracts, chattel mortgages, leases of personalty, financing statements or title retention agreements filed or recorded against the Property except such as the Administrative Agent shall have approved. (vi) The Administrative Agent shall have received all policies of insurance required by the terms hereof and by the other Financing Documents to be in effect from a company or companies and in form and amount satisfactory to the Administrative Agent, including without limitation, flood insurance (in the amount or evidence that flood insurance is not available or otherwise required 38 45 with respect to the Property), together with written evidence, in form and substance satisfactory to the Administrative Agent, that all fees and premiums due on account thereof have been paid in full. (vii) The Administrative Agent shall have received and accepted an appraisal of the Facility. (viii) The Administrative Agent shall have received from the Borrowers a complete set of the Plans and Specifications signed and sealed by the Architect, together with written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that the Plans and Specifications are satisfactory to the applicable Borrowers, the General Contractor, the Inspecting Engineer and, to the extent required by applicable law or any effective restrictive covenant, have been approved by all Governmental Authorities having or claiming jurisdiction and by the beneficiary of any such restrictive covenant, respectively. (ix) The Administrative Agent shall have received and approved a fully executed copy of the applicable Construction Contract, the Architect's Contract and a list of Major Subcontractors as well as any information regarding the General Contractor, the Architect and the Major Subcontractors which the Administrative Agent has requested. (x) The Administrative Agent shall have received and approved a copy of a current Survey of the Land certified to the Administrative Agent and to the title insurance company and any recorded subdivision plat of the Land and otherwise complying with the survey requirements set forth on EXHIBIT F attached hereto. (xi) The Administrative Agent shall have received and approved a site plan for the Improvements approved by all appropriate Governmental Authorities. (xii) The Administrative Agent shall have received from the Borrowers written evidence, in form and substance satisfactory to the Administrative Agent, from all Governmental Authorities having or claiming jurisdiction to the effect that all building, construction and other permits required in connection with the development of the Land and the construction of the Improvements have been validly issued, that all fees and bonds required in connection therewith have been paid in full or posted, as the circumstances may require, and that the Improvements meet zoning requirements and all sewer and storm drain requirements. (xiii) The Administrative Agent shall have received and approved a report setting forth a construction progress schedule in form and substance 39 46 satisfactory to the Administrative Agent, calling for the completion of the Improvements by a date no later than the Completion Date. (xiv) If construction work of any kind has commenced upon the Land or materials have been placed or stored upon the Land prior to the recordation of the Deed of Trust among the Land Records where the Land is located, any mechanic's or materialman's Liens or the same shall be fully insured against by the title insurance company. (xv) The Administrative Agent shall have received and approved evidence that the applicable General Contractor carries public liability and property damage insurance and workers' compensation insurance in form and amounts and issued by companies acceptable to the Administrative Agent. (xvi) The Administrative Agent shall have received and accepted a Phase I environmental audit of the applicable Facility prepared by a person or firm acceptable to the Administrative Agent. (xvii) The Administrative Agent shall have received evidence acceptable in all respects through certification by the Architect or other source acceptable to the Administrative Agent that the applicable Improvements, when constructed, will comply with all legal requirements regarding access and facilities for handicapped or disabled persons, including, without limitation and to the extent applicable to assisted living facilities (or, if applicable, independent living facilities), The Federal Architectural Barriers Act (42 U.S.C. Section 4151 et seq.), The Fair Housing Amendments Act of 1988 (42 U.S.C. Section 3601 et seq.), The Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.), The Rehabilitation Act of 1973 (29 U.S.C. Section 794) and any applicable state statutes relating to access and facilities for handicapped or disabled persons. (xviii) The Administrative Agent shall have received and approved soil reports which shall (i) demonstrate that the soil conditions of the Land for the applicable Facility are suitable for the construction of the Improvements and (ii) evidence to the Administrative Agent's satisfaction that there are no Hydric Soils on the Land. (xix) The Administrative Agent shall have received and approved copies of any executed Material Leases of the applicable Property or of any portion thereof. (xx) The Administrative Agent shall have received and approved an opinion of local counsel for the Borrowers in the jurisdiction where the applicable Facility is located that the Financing Documents applicable to that Facility are in proper form and enforceable in the context of a revolving credit facility of the type represented by this Credit Facility and that the Loan is not usurious, which 40 47 opinion must also inform the Lenders (i) of the cost and timing of foreclosure; (ii) of any limitations on the Lenders' right to obtain, or the amount of, a deficiency judgment; and (iii) the existence of and details surrounding any redemption period enjoyed by the Borrower's following a sale at foreclosure. (xxi) At the Administrative Agent's sole option the Administrative Agent shall have obtained the advice of its own local counsel in the jurisdiction where the Facility is located on the form and enforceability of any or all of the Financing Documents at the Borrowers' expense. (xxii) With regard to any Deed of Trust for a Facility located in any state having such requirement, the Administrative Agent shall have received evidence satisfactory to the Administrative Agent that a Certificate of Need has been issued for such Facility. (xxiii) No Eligible Project may be added to the Borrowing Base if the maximum availability which could be added to the Borrowing Base thereby would cause the Borrowing Base to exceed the then applicable Credit Facility Committed Amount; provided, however that in the case of an Eligible Project to be constructed or under construction, such Eligible Project may be added to the Borrowing Base if sufficient equity is contributed by the Borrowers to permit the Facility to be completed within the Credit Facility Committed Amount and if all of the equity is funded prior to any advance of the Loan for such Eligible Project. Section 4.2 Conditions Precedent to Determining Availability Under Borrowing Base The Lenders shall not be obligated to include any Requisition for an individual Eligible Project in the calculation of the Borrowing Base unless the conditions described in Section 4.1 Conditions Precedent to Credit Facility Closing and Addition of Deeds of Trust and the following additional conditions shall have been satisfied with regard to such Eligible Project to the Administrative Agent's satisfaction: (a) The Administrative Agent shall have received a monthly title report on each Eligible Project which is under construction from the applicable title insurance company, indicating that since the last preceding report, there has been no change in the status of title and no other exceptions not theretofore approved by the Administrative Agent, if required by the terms of the existing title insurance policy, the Administrative Agent shall have received an endorsement which shall have the effect of advancing the effective date of the policy to the date of the advance then being made and increasing the coverage of the policy by an amount equal to the Requisition being verified if the policy does not by its terms provide for such an increase. (b) No Default or Event of Default shall have occurred and be continuing under any Note or any of the other Financing Documents. 41 48 (c) The Improvements shall not have been materially damaged by fire or other casualty unless the Administrative Agent shall have received or reasonably anticipates receiving proceeds of insurance sufficient in the judgment of the Administrative Agent to effect a satisfactory restoration of such Improvements in accordance with the terms of the Deed of Trust. (d) The Administrative Agent shall have received written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that all work requiring inspection by Governmental Authorities having or claiming jurisdiction has been duly inspected and approved by such authorities and by any rating or inspection organization, bureau, association or office having or claiming jurisdiction. (e) The representations and warranties made in Article III of this Agreement and in this Agreement shall be true and correct in all material respects on and as of the date of the advance with the same effect as if made on such date. (f) All terms and conditions of the Financing Documents required to be met as of the date of the applicable advance shall have been met to the complete satisfaction of the Administrative Agent. (g) In the reasonable judgment of the Administrative Agent, all work completed on the applicable Property at the time of the application for an advance has been performed in a good and workmanlike manner and all materials and fixtures usually furnished and installed at that stage of construction have been furnished and installed and that all costs covered by the Requisition have been paid by the Borrowers. (h) At least Eighty-three percent (83%) of the Eligible Projects in the Borrowing Base shall be Pool A Projects. The Administrative Agent shall have determined whether each Eligible Project is a Pool A, Pool B or Pool C Project. (i) Before verifying any Requisition, the Administrative Agent shall require the Borrowers to obtain from the applicable General Contractor and if required by the applicable title insurance company from all subcontractors and material suppliers acknowledgments of payment and releases of liens and rights to claim liens for work performed or materials delivered covered by such Requisition. All such acknowledgments and releases shall be in form AIA Forms G706 and G706A. (j) The Administrative Agent's Inspecting Engineer will inspect work performed which is covered by each Requisition being verified. Section 4.3 Conditions Under Which an Eligible Project is a Completed Facility The Administrative Agent shall verify that an Eligible Project is a Completed Facility based on the satisfaction of the following additional conditions and all Acquisition Projects shall also satisfy the following conditions: 42 49 (a) The Administrative Agent shall have received the final "as built" Survey for the applicable Property. (b) The Administrative Agent shall have received written evidence from a qualified third party, in form and substance satisfactory to the Administrative Agent, to the effect that the applicable Improvements have been substantially completed in accordance with their Plans and Specifications. (c) The Administrative Agent shall have received written evidence, in form and substance satisfactory to the Administrative Agent, to the effect that requisite certificates for permanent occupancy or completion of the Improvements have been validly issued. (d) Final waivers of liens of the General Contractor, and if required by the applicable title insurance company, subcontractors, laborers and material suppliers have been furnished to the Administrative Agent or, as to any disputed lien or claim of lien, a bond in form and substance acceptable to the Administrative Agent has been provided or other arrangements satisfactory to the Administrative Agent have been made. (e) The Administrative Agent shall have received a copy of an operating License for the Facility or other evidence satisfactory to the Administrative Agent that the Facility may be lawfully operated as contemplated by the Financing Documents. Section 4.4 Computation of Interest and Fees All applicable fees and interest shall be calculated on the basis of a year of 365 days for the actual number of days elapsed pursuant to the terms of the Note and interest shall be payable monthly in arrears. Section 4.5. Liens; Setoff The Borrowers hereby grant to the Lenders a continuing lien and security interest for all the Obligations upon any and all monies, securities, and other property of the Borrowers and the proceeds thereof, now or hereafter held or received by or in transit to, the Lenders, or any affiliate of any of the Lenders, from or for any of the Borrowers, and also upon any and all deposits (general or special) and credits of any of the Borrowers with any of the Lenders, if any, at any time existing. During the continuance of any Event of Default under this Agreement, each Lender is hereby authorized by any of the Borrowers at any time and from time to time, without notice to the Borrowers, to set off, appropriate and apply any or all items hereinabove referred to against all Obligations then outstanding. Section 4.6 Payment and Performance of Obligations The payment and performance by the Borrowers of the Obligations shall be absolute and unconditional, irrespective of any defense or any rights of set-off, recoupment or counterclaim it might otherwise have against the Lenders, or any of them, and the Borrowers shall pay absolutely 43 50 net all of the Obligations, free of any deductions and without abatement, diminution or set-off; and until payment in full of all of the Obligations, the Borrowers: (a) will not suspend or discontinue any payments provided for in the Note and (b) will perform and observe all of its other agreements contained in this Agreement, including (without limitation) all payments required to be made to the Administrative Agent, and (c) will not terminate or attempt to terminate this Agreement or any of the other Financing Documents to which any of the Borrowers is a party for any cause. Section 4.7 Payments to Others for the Account of the Borrowers At the option of the Lenders and without any request from the Borrowers, and without waiving any of its rights hereunder, the Lenders may elect to cure or avoid any default by the Borrowers under the Financing Documents by applying amounts due hereunder or advancing the Lenders' own funds to the satisfaction of the conditions of the Financing Documents and any amounts so applied shall be part of the Loan and shall be secured by the Deeds of Trust and the other Collateral. The Administrative Agent agrees to endeavor to give the Borrowers notice of any such payment or performing such act and the amount of any payment whether prior to or contemporaneously with its making such payment or performance of such act; provided, however, that failure to give such notice shall not constitute a waiver by the Lenders of, or constitute a defense to, any of the rights of the Lenders under this Agreement or the Deeds of Trust, including (without limitation) the right of the Lenders to repayment of the amount of such payment. Section 4.8 Prepayment The Borrowers shall have the right to prepay the Loan in full or in part, at any time and from time to time, upon five (5) days' prior written notice to the Administrative Agent without premium or penalty. The foregoing notwithstanding, in connection with any prepayment of a principal sum on any day other than the last day of the Eurodollar Period applicable thereto, the Borrowers shall pay to the Administrative Agent upon request by the Administrative Agent, such amount as shall be sufficient to compensate any of the Lenders for any and all losses or expenses which such Lender may sustain or incur (including without limitation, any such loss or expense arising from the redeployment of funds obtained by such Lender). Unless an Event of Default has occurred, any partial prepayment shall be applied first to such breakage costs, second to accrued and unpaid interest and third to the outstanding principal balance of the Loan due and owing at maturity. Sums borrowed and repaid may be readvanced. The Borrowers' obligations under this Section shall survive the termination of this Agreement and the repayment of the Obligations. Section 4.9 Requisitions for the Operating Reserve No portion of any Requisition for costs included in the Operating Reserve shall be verified until both a certificate of occupancy has been issued by the applicable governmental authorities and, if applicable to the Facility, an operating License has been issued for the Facility by the appropriate Governmental Authority or Authorities. Advances from the Operating Reserve shall be for the sole purpose of paying a portion of the Debt Service on the Loan or net operating 44 51 losses as shown on a monthly financial report for such Facility prepared in accordance with the requirements set forth in this Agreement, and certified by the Chief Financial Officer or Executive Vice President or President of the Guarantor. Section 4.10 Assignments The Borrowers agree not to transfer, assign, pledge or hypothecate any right or interest in any payment or advance due pursuant to this Agreement, or any of the other benefits of this Agreement, without the prior written consent of the Administrative Agent. Any assignment made or attempted by the Borrowers, or any of them, without the prior written consent of the Administrative Agent shall be void and of no effect. No consent by the Administrative Agent to an assignment by the Borrowers shall release the Borrowers as the parties primarily obligated and liable under the terms of this Agreement unless the Borrowers shall be released specifically by the Administrative Agent in writing. No consent by the Administrative Agent to an assignment shall be deemed to be a waiver of the requirement of prior written consent by the Administrative Agent with respect to each and every further assignment and as a condition precedent to the effectiveness of such assignment. Section 4.11 Liability of the Lenders The Lenders shall in no event be responsible or liable to any person other than the Borrowers for the disbursement of or failure to disburse the Loan proceeds or any part thereof and neither the General Contractor nor any subcontractor, laborer or material supplier shall have any right or claim against the Lenders under this Agreement or the administration thereof. No Lender shall be liable to the Borrowers for the failure of any other Lender to fund its ratable portion of any advance pursuant to the Agency Agreement. Section 4.12 Stored Materials The Administrative Agent will permit inclusion of construction materials (the "Stored Materials") to be included in Requisitions prior to their incorporation into the Improvements if they have been fully paid for by or on behalf of the applicable Borrower. The Borrowers shall securely store or cause to be securely stored any Stored Materials. Section 4.13 Limitations on Advances or Readvances The following additional limitations on certain advances or readvances of the Loan shall also apply: (a) Interest Reserve. Except as provided in Section 2.7 Permitted Costs hereof, after the earlier of the issuance of certificate of occupancy for a Facility or the expiration of the Construction Phase, no further advances shall be made from the Interest Reserve in such Total Development Budget. 45 52 (b) Development Fee. The Development Fee will be advanced ratably with the first twelve (12) monthly Requisitions. (c) Operating Reserve. No advances from the Operating Reserve shall be made until both a certificate of occupancy has been issued by the applicable governmental authorities and, if applicable to the Facility, an operating license has been issued for the Facility by the appropriate Governmental Authority or Authorities. Advances from the Operating Reserve shall be for the sole purpose of paying Debt Service or net operating losses as shown on a monthly financial report for such Facility prepared in accordance with the requirements set forth in this Agreement, and certified by the Chief Financial Officer, Executive Vice President or President of the Guarantor. ARTICLE V REPRESENTATIONS AND WARRANTIES To induce the Lenders to make available the Credit Facility, the Borrowers represent and warrant to the Lenders that: Section 5.1 Existence/Good Standing Each Borrower is a limited partnership or a limited liability company duly organized and existing and in good standing under the laws of the jurisdiction of its formation, has the power to own its property and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which each Facility owned by such Borrower is located and in which the character of the properties owned by it therein or in which the transaction of its business makes such qualification necessary. Section 5.2 Power and Authority Each Borrower has full power and authority to execute and deliver this Agreement and each of the other Financing Documents executed and delivered by it, to make the borrowing hereunder, and to incur the Obligations, all of which have been duly authorized by all proper and necessary partnership action. No consent or approval of partners or members of, or lenders to, the Borrowers, and no consent or approval of any Governmental Authority or any third party payor on the part of the Borrowers, is required as a condition to the validity or enforceability of this Agreement or any of the other Financing Documents executed and delivered by any of the Borrowers or to the payment or performance by the Borrowers of the Obligations. Section 5.3 Binding Agreements This Agreement and each of the other Financing Documents executed and delivered by the Borrowers have been properly executed by the Borrowers, constitute valid and legally binding obligations of the Borrowers, and are fully enforceable against the Borrowers in accordance with their respective terms. 46 53 Section 5.4 Litigation There are no proceedings pending before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, will cause a Material Adverse Change in any of the Borrowers or affect the authority of any of the Borrowers to enter into this Agreement or any of the other Financing Documents executed and delivered by any of the Borrowers. There is no pending revocation, suspension, termination, probation, restriction, limitation or non-renewal of any License, Participation Agreement or any similar accreditation or approval organization or Governmental Authority for healthcare providers, including, without limitation, the issuance of any provisional License or other License with a term of less than twelve (12) months, as a consequence of any sanctions imposed by any Governmental Authority, nor is there any pending assessment of any civil or criminal penalties by any Governmental Authority, the outcome of which, if determined adversely to any of the Borrowers, could result in a Material Adverse Change in any of the Borrowers. The Borrowers do not have any appeals regarding rates or reimbursements currently pending or contemplated before any Governmental Authority or any administrator of any third party payor or preferred provider program or referral source, the outcome of which, if determined adversely to any of the Borrowers, could result in a Material Adverse Change in any of the Borrowers. There are no Medicare or Medicaid recoupments or recoupments of any other third party payor being sought, requested or claimed, against any of the Borrowers, the outcome of which, if determined adversely to any of the Borrowers could materially impair any of the Borrowers' ability to pay the Obligations, except as otherwise disclosed in writing to, and approved by, the Administrative Agent. Section 5.5 No Conflicting Agreements There is (a) no provision of any Borrower's partnership agreement, articles of incorporation or operating agreement and no provision of any existing mortgage, indenture, contract or agreement binding on any of the Borrower or affecting its property, and (b) to the knowledge of the Borrowers no provision of law or order of court binding upon any of the Borrowers, which would conflict with or in any way prevent the execution, delivery, or performance of the terms of this Agreement or of any of the other Financing Documents executed and delivered by any of the Borrowers, or which would be violated as a result of such execution, delivery or performance, or, if so, all necessary consents have been obtained. Section 5.6 Financial Information All financial statements or information hereto furnished to the Lenders with respect to the Borrowers, each Facility and the Guarantor is complete and correct in all material respects and fairly presents the financial condition of the Borrowers and the financial condition of the Facilities. There are no liabilities, direct or indirect, fixed or contingent, of any of the Borrowers or the Guarantor which are not reflected in the their respective financial statements or in the notes thereto. There has been no Material Adverse Change in the financial condition or operations of any of the Borrowers or the Guarantor since the financial statements dated 47 54 December 31, 1998 (and to the Borrowers' and Guarantor's knowledge, no such Material Adverse Change is pending), and neither any of the Borrowers nor the Guarantor has guaranteed the obligations of, or made any investments in or advances to, any company, individual or other entity, except as disclosed in such information. Section 5.7 No Default None of the Borrowers are in default under or with respect to any obligation under any agreement to which such Borrower is a party in any respect which could result in a Material Adverse Change. There is no Event of Default hereunder. Section 5.8 Taxes The Borrowers have filed or have caused to have been filed all federal, state and local tax or informational returns which are required by law to be filed, and has paid or caused to have been paid all Taxes as shown on such returns or on any assessment received by them, to the extent that such Taxes have become due, or which are required by law to be paid, unless and to the extent only that such Taxes, assessments and governmental charges are currently contested in good faith and by appropriate proceedings by the Borrowers and adequate reserves therefor have been established as required under GAAP. Section 5.9 Place(s) of Business and Location of Collateral The Borrowers warrant that the address of the Borrowers' chief executive office is as specified in EXHIBIT D attached hereto and made a part hereof and that the address of each other place of business of any of the Borrowers, are as disclosed in EXHIBIT D. The Collateral and all books and records pertaining to the Collateral are and/or will be located at the addresses indicated on EXHIBIT D. The Borrowers will immediately advise the Administrative Agent in writing of the opening of any new place of business or the closing of any existing place of business of any of the Borrowers, and of any change in the location of the places where the Collateral, or any part thereof, or the books and records concerning the Collateral, or any part thereof, are kept. EXHIBIT D may be modified from time to time to add the locations of additional Facilities. Section 5.10 Title to Properties The Borrowers have good and marketable title to all of their properties, including, without limitation, the Property and the Collateral. The Property and the Collateral are free and clear of mortgages, pledges, liens, charges and other encumbrances other than the Permitted Liens. Section 5.11 Margin Stock None of the proceeds of the Loan will be used, directly or indirectly, by any of the Borrowers for the purpose of purchasing or carrying, or for the purpose of reducing or retiring 48 55 any indebtedness which was originally incurred to purchase or carry, any "margin security" or "margin stock" within the meaning of Regulation U (12 CFR ARTICLE 221), of the Board of Governors of the Federal Reserve System (herein called "margin security" and "margin stock") or for any other purpose which might make the transactions contemplated herein a "purpose credit" within the meaning of said Regulation G or Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any of such statutes. Section 5.12 ERISA With respect to any "pension plan", as defined in Section 3(2) of ERISA, which plan is now or previously has been maintained or contributed to by any of the Borrowers and/or by any Commonly Controlled Entity: (a) no "accumulated funding deficiency" as defined in Code Section 412 or ERISA Section 302 has occurred, whether or not that accumulated funding deficiency has been waived; (b) no "reportable event" as defined in ERISA Section 4043 has occurred; (c) no termination of any plan subject to Title IV of ERISA has occurred; (d) neither any of the Borrowers nor any Commonly Controlled Entity has incurred a "complete withdrawal" within the meaning of ERISA Section 4203 from any multiemployer plan; (e) neither any of the Borrowers nor any Commonly Controlled Entity has incurred a "partial withdrawal" within the meaning of ERISA Section 4205 with respect to any multiemployer plan; (f) no multiemployer plan to which any of the Borrowers or any Commonly Controlled Entity has an obligation to contribute is in "reorganization" within the meaning of ERISA Section 4241 nor has notice been received by any of the Borrowers or any Commonly Controlled Entity that such a multiemployer plan will be placed in "reorganization". Section 5.13 Governmental Consent Neither the nature of any of the Borrowers or of its business or properties, nor any relationship between any of the Borrowers and any other Person, nor any circumstance in connection with the making of the Loan, or the offer, issue, sale or delivery of the Note is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority, on the part of any of the Borrowers, as a condition to the execution and delivery of this Agreement or any of the other Financing Documents, the borrowing of the principal amounts of the Loan or the offer, issue, sale or delivery of the Note. Section 5.14 Full Disclosure The financial statements referred to in this ARTICLE V do not, nor does this Agreement, nor do any written statements furnished by the Borrowers to the Administrative Agent in connection with the making available of the Credit Facility, contain any untrue statement of fact or knowingly omit a material fact necessary to make the statements contained therein or herein not materially misleading. The Borrowers have not failed to disclose any fact to the Administrative Agent in writing which materially adversely affects or, will or could prove to materially adversely affect the properties, business, prospects, profits or condition (financial or 49 56 otherwise) of any of the Borrowers or the ability of any of the Borrowers to perform this Agreement or any of the other Financing Documents. Section 5.15 Business Names and Addresses The Borrowers have not conducted business under any name other than its current names or tradenames or "Karrington" and has not conducted its business in any jurisdiction other than those listed on EXHIBIT D. The Borrowers intend to operate the Facilities under the names set forth on EXHIBIT D. The Borrowers shall promptly notify the Administrative Agent of any change in the name of any Facility. Section 5.16 Licenses and Certifications The Borrowers further represent and warrant to the Lenders that, with respect to any License they possess or have applied for, (a) no Default or Event of Default has occurred or is continuing under the terms of any of the Licenses, or any condition to the issuance, maintenance, renewal and/or continuance of any License, (b) the Borrowers have paid all fees, charges and other expenses to the extent due and payable with respect to, and has provided all information and otherwise complied with all material conditions precedent to, the issuance, maintenance, renewal, and continuance of all Licenses, (c) the Borrowers have not received any notice from any Governmental Authority relating to any actual or pending suspension, revocation, restriction, or imposition of any probationary use, of any License, nor has any License been materially amended, supplemented, rescinded, terminated, or otherwise modified except as otherwise disclosed in writing to, and approved by, the Administrative Agent, (d) the Borrowers have not made any previous assignment of any of the Licenses to any Person, and (e) no financing statement covering any of the Licenses is on file in any public office except financing statements in favor of the Lenders. Without implying any limitation to the other representations and warranties contained in this Agreement, the Borrowers are not required by any applicable Law of any state, county or city in which any of the Facilities is located to obtain a certificate of need to operate any Facility as an assisted living facility or, an independent living facility or has applied for and obtained such Certificate(s) of Need. Licenses to operate are required in all states where the Facilities are located and Certificates of Need are also required in the State of New Jersey. Section 5.17 Operating Agreements and Management Contracts The Borrowers have furnished to the Administrative Agent photocopies of all material Operating Agreements and Management Contracts entered into with respect to the Facilities, and all amendments, supplements and modifications thereto including, without limitation, the Management Agreement. The Borrowers further represent and warrant to the Lenders that (a) all of the material Operating Agreements and Management Contracts are or will be at the time of execution and delivery thereof valid and binding on the parties thereto and in full force and effect, (b) no Default or Event of Default has occurred or is continuing under the terms of any of the material Operating Agreements and Management Contracts, and no party thereto has attempted or threatened to terminate any such Management Contract or Operating Agreement, (c) the Borrowers have not made any previous assignment of any Operating Agreements and 50 57 Management Contracts to any Person, and (d) no financing statement covering any of the Operating Agreements and Management Contracts is on file in any public office, except financing statements in favor of the Lenders in connection with the Credit Facility. Section 5.18 Participation Agreements and Resident Agreements The Borrowers have furnished to the Administrative Agent, on or before the Facility Closing, the Borrowers' form of Resident Agreement used with respect to all Facilities and, if requested by the Administrative Agent after the occurrence and during the continuance of a Default, copies of all current, executed Resident Agreements for any or all of the Eligible Projects. (a) The Borrowers further covenant to the Lenders that, with respect to the Participation Agreements, if any, (i) to the best of their knowledge, all Participation Agreements will be at the time of execution and delivery thereof valid and binding on the parties thereto and in full force and effect, and (ii) all Participation Agreements will provide for payment to the applicable Borrower for services rendered to residents. The Borrowers represent and warrant that as of the date hereof it has not entered into any Participation Agreement for any Facility. (b) To the extent the Borrowers participates or will participate in Medicare or Medicaid payment and reimbursement programs, the Borrowers have complied and will comply with all notice and other requirements under Title XVIII and Title XIX of the Social Security Act to enable the Borrowers to participate in the Medicare and Medicaid payment and reimbursement programs. Section 5.19 Compliance with Laws None of the Borrowers is in violation of any applicable laws of any Governmental Authority pertaining to employment practices, health standards or controls, environmental and occupational standards or controls or order of any court or arbitrator, the violation of which, considered in the aggregate, would result in a Material Adverse Change in any of the Borrowers. Each of the Borrowers are in compliance with all accreditation standards and requirements to which it is subject. Each of the Borrowers have obtained or will obtain all Licenses necessary to the ownership of its property or to the conduct of its activities which, if not obtained, could materially adversely affect the ability of any of the Borrowers to conduct its activities of operating each Facility as an assisted living facility, including, without limitation if and as required by any Governmental Authorities for the dispensing, storage, prescription, disposal, and use of drugs, medications and other "controlled substances" and for the maintenance of cafeteria and other food and beverage facilities or services or the condition (financial or otherwise) of any of the Borrowers. Section 5.20 Presence of Hazardous Materials or Hazardous Materials Contamination 51 58 None of the Borrowers has placed Hazardous Materials on any real property owned, controlled or operated by any of the Borrowers or for which any of the Borrowers are responsible except as described in the following sentence. To the best of the Borrowers' knowledge, no Hazardous Materials are located on any real property owned, controlled or operated by any of the Borrowers or for which any of the Borrowers are responsible, except for reasonable quantities of necessary supplies for use by the Borrowers in the ordinary course of its current line of business and stored, used and disposed of in accordance with applicable Laws, and no property owned, controlled or operated by any of the Borrowers has ever been used as a manufacturing, storage, or dump site for Hazardous Materials nor is such property affected by Hazardous Materials Contamination. Section 5.21 Nature of Credit Facility; Usury; Disclosures Each of the Borrowers is a business or commercial organization, and the Credit Facility is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise. The rate or rates of interest charged on the Note do not, and will not, violate any usury Law or interest rate limitation. The Credit Facility is not subject to the federal Consumer Credit Protection Act (15 U.S.C. Section 1601 et. seq.) nor any other federal or state disclosure or consumer protection laws. The Credit Facility is being transacted solely for business or commercial purposes and not for personal, family or household purposes. Section 5.22 Compliance with Zoning The Borrowers represent and warrant that the anticipated use of each Eligible Project complies with applicable zoning ordinances, regulations and restrictive covenants affecting such Land, all use requirements of any Governmental Authority having jurisdiction have been satisfied, and no violation of any law or regulation exists with respect thereto. Section 5.23 Plans and Specifications The Borrowers represent and warrant that, to the extent required by applicable law or any effective restrictive covenant, the Plans and Specifications for each Eligible Project have been approved by all Governmental Authorities having or claiming jurisdiction and by any beneficiary of any such restrictive covenant. Section 5.24 Building Permits; Other Permits The Borrowers represent and warrant that all building, construction and other permits necessary or required in connection with the development of the Land and the construction of the Improvements have been or, prior to any advance under the Loan, will be, unless otherwise agreed to by the Administrative Agent, validly issued and all fees and bonds required in connection therewith have been paid or posted, as the circumstances may require. Section 5.25 Utilities 52 59 The Borrowers represent and warrant that all utility services necessary for the development of all the Land and the construction of the Improvements for each Eligible Project and the operation thereof for their intended purpose are or will be available at the boundaries of all the Land, including, without limitation, telephone service, water supply, storm and sanitary sewer facilities, natural gas (if available) and electric facilities. Section 5.26 Access; Roads The Borrowers represent and warrant that all roads and other accesses necessary for the development of all the Land and the construction of all the Improvements for all Eligible Projects and full utilization thereof for their intended purposes have either been completed or the necessary rights of way therefor have either been or will be acquired by the appropriate Governmental Authorities or have been or will be dedicated to public use and accepted by such Governmental Authorities and all necessary steps have been taken by the Borrowers or such Governmental Authorities to assure the complete construction and installation thereof by a date sufficient to ensure the timely completion of the Improvements and in no event later than the Completion Date or such Eligible Projects have access to a public road via a private road pursuant to recorded easements satisfactory to the Administrative Agent. Section 5.27 Other Liens The Borrowers represent and warrant that except as otherwise provided in the Financing Documents, the Borrowers have made no contract or arrangement of any kind the performance of which by the other party thereto would give rise to a lien on any Eligible Project. Section 5.28 Defaults The Borrowers represent and warrant that there is no default on the part of any of the Borrowers under the Financing Documents and no event has occurred and is continuing which, with notice or the passage of time, or both, would constitute a default under the Note or any of the other Financing Documents. Section 5.29 Survival; Updates of Representations and Warranties All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the date of this Agreement and the Loan made hereunder. The Lenders acknowledge and agree that any and all representations and warranties contained in, or made under, or in connection with, this Agreement may be amended, changed or otherwise modified by the Borrowers at any time and from time to time after the date of this Agreement so as to accurately reflect the matters represented and warranted therein; provided, that such amendments, changes and/or modifications are disclosed in writing to the Administrative Agent. The Lenders shall have no obligation to waive any Event of Default due to any present or future inaccuracy of such representation or warranty or to agree to any amendment, change or modification of any such representation or warranty. 53 60 Section 5.30 Accounts With respect to all of the Borrowers' Accounts and to the best of the Borrowers' knowledge (a) they are genuine, and in all respects what they purport to be, and are not evidenced by a judgment, an instrument, or chattel paper (unless such judgment has been assigned and such instrument or chattel paper has been endorsed and delivered to the Administrative Agent); (b) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in the invoices relating thereto; (c) the services rendered which resulted in the creation of the Accounts have been delivered or rendered to and accepted by the Account Debtor; (d) the amounts shown on the Borrowers' books and records, with respect thereto are actually and absolutely owing to the Borrowers and are not contingent for any reason; (e) there are no set-offs, counterclaims or disputes known by the Borrowers or asserted with respect thereto, and the Borrowers have made no agreement with any Account Debtor thereof for any deduction or discount of the sum payable thereunder except regular discounts allowed by the Borrowers in the ordinary course of their business for prompt payment; (f) there are no facts, events or occurrences known to any of the Borrowers which in any way impair the validity or enforcement thereof or tend to reduce the amount payable thereunder; (g) all Account Debtors thereof, to the best of the Borrower's knowledge, have the capacity to contract; (h) the services furnished giving rise thereto are not subject to any Liens other than Permitted Liens; (i) the Borrowers have no knowledge of any fact or circumstance which would impair the validity or collectibility thereof; and (j) there are no proceedings or actions known to any of the Borrowers which are pending against any Account Debtor which might result in any material adverse change in its financial condition. Section 5.31 Year 2000. Each Borrower has (i) completed a review and assessment of all areas within its and each of its subsidiaries and Affiliates business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the computer applications and devices containing imbedded microchips and other systems will be able to perform date sensitive functions involving dates prior to and any date after December 31, 1999), and (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, substantially completed implementation of that plan in accordance with that timetable. Each Borrower reasonably believes that the Year 2000 Problem will not have a material adverse effect upon its financial condition or business operations or those of its Affiliates. Section 5.32 Development of Eligible Projects To the extent SDI is acting as development agent for any of the Eligible Projects, the applicable Borrowers have entered into an oral agreement therefor with SDI and all contacts entered into by SDI with respect thereto, including, without limitation, the Architect's Contract and the Construction Contracts, were executed with the knowledge and approval of and as agent for the applicable Borrowers. In connection with such services as agent for any of the Borrowers, SDI receives the Development Fee as and when payable pursuant to the terms hereof. 54 61 ARTICLE VI CONDITIONS OF LENDING The making of any advance under the Loan is subject to the conditions set forth in this Agreement and the following conditions precedent: Section 6.1 No Default No Event of Default and no event which, with the giving of notice or the passage of time or both, would become an Event of Default has occurred and is existing or would result from the making of the Loan or any advance thereunder and all representations and warranties set forth herein or in the other Financing Documents are true and correct, both before and after the making of the Loan or any advance thereunder. Section 6.2 Opinion of Counsel for the Borrowers At the Credit Facility Closing and any Facility Closing the Lenders shall receive a written opinion of counsel for the Borrowers and the Guarantor satisfactory in all respects to the Administrative Agent. Section 6.3 Approval of Counsel for the Lenders All legal matters incident to the Loan and all documents necessary in the opinion of the Administrative Agent to make the Loan or the addition of either an Eligible Project to the Borrowing Base or to add such Deeds of Trust and related Collateral shall be satisfactory in all material respects to counsel for the Lenders. Section 6.4 Supporting Documents The Administrative Agent shall receive at the Facility Closing and in connection with the subsequent granting of a Lien on an Eligible Project: (a) a certificate of the general partner or managing member of each of the Borrowers, in a form acceptable to the Administrative Agent in all respects, dated as of the date hereof and certifying (i) that attached thereto is a true, complete and correct copy of resolutions duly adopted by the partners or members of each of the Borrowers authorizing the execution and delivery of this Agreement, the Note and the other Financing Documents, the borrowing thereunder, and the performance of the Obligations, and (ii) as to the incumbency and specimen signature of the authorized officer of the general partner or managing member of the Borrowers executing this Agreement, the Note and the other Financing Documents; (b) such other documents as the Administrative Agent may reasonably require the Borrowers and/or the partners or members of the Borrowers to execute, in form and substance acceptable to the Administrative Agent; and (c) such additional information, instruments, opinions, documents, certificates and reports as the Administrative Agent may reasonably deem necessary. 55 62 Section 6.5 Financing Documents All of the Financing Documents required by the Administrative Agent whether at the Credit Facility Closing or any subsequent Facility Closing shall be executed, delivered and, if deemed necessary by the Administrative Agent, recorded, all at the sole expense of the Borrowers. Section 6.6 Insurance The Borrowers shall have satisfied the Administrative Agent that any and all insurance required by this Agreement is in effect as of the date of this Agreement or as of the date of the addition of a Deed of Trust and related Collateral, and that, to the extent required by the Financing Documents, the Lenders have been named as an insured lienholder. Section 6.7 Security Documents In order to perfect the lien and security interest created by this Agreement, the Borrowers shall have executed and delivered to the Administrative Agent all Security Documents (in form and substance acceptable to the Administrative Agent in its sole discretion) deemed necessary by the Administrative Agent, in a sufficient number of counterparts for recordation, and, at the Borrowers' sole expense, shall record all such financing statements and Security Documents, or cause them to be recorded, in all public offices deemed necessary by the Administrative Agent. Section 6.8 Joinder Agreement In order to perfect the lien and security interest of the Lenders in the Collateral related to the construction and operation of any Facility encumbered by a Deed of Trust provided by an Additional Borrower, such Additional Borrower shall execute and deliver to the Administrative Agent, a Joinder Agreement joining in the Note as maker and in such assignments of Collateral and such other Security Documents as the Administrative Agent may require or shall execute Security Documents as the Administrative Agent may require each in sufficient number of counterparts for recordation, if required by the Administrative Agent, at the Borrowers' sole expense. The Borrowers or the Administrative Agent shall record all financing statements and other Security Documents, or cause them to be recorded, in all public offices deemed necessary to the Administrative Agent. ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER Until payment in full and the performance of all of the Obligations hereunder, the Borrowers shall: 56 63 Section 7.1 Financial Statements Furnish to the Administrative Agent: (a) Quarterly Statements. Not later than forty-five (45) days after the close of each of the Borrowers' fiscal quarters internally prepared, consolidated and consolidating financial statements of the Borrowers and a balance sheet on a year-to-date basis and as of the close of such period and an income and expense statement for such period and a Compliance Certificate in the form of Exhibit G attached hereto, certified by the chief financial officer of the Borrowers' general partner or managing member unless such report is included in the quarterly report of the Guarantor; and (b) Annual Statements. Not later than one hundred twenty (120) days after the close of each of the Borrowers' fiscal years, (i) a copy of the consolidated annual financial statement of the Borrowers and its Wholly Owned Subsidiaries in reasonable detail satisfactory to the Administrative Agent, prepared in accordance with GAAP and audited by an independent certified public accountant satisfactory to the Administrative Agent, which financial statement shall include a balance sheet of the Borrowers and its Wholly Owned Subsidiaries, as at the end of such fiscal year and the related statements of operations and retained earnings and cash flow statements for such fiscal year in a format acceptable to the Administrative Agent and a Compliance Certificate in the form of EXHIBIT G attached hereto, (ii) an unqualified letter or opinion of the accountant who examined and audited the Borrowers' financial statement and stating whether anything in such independent accountant's examination has revealed the occurrence of an event which constitutes an Event of Default under the Financing Documents or which would constitute such an Event of Default with the giving of notice or the lapse of time or both, (iii) if requested by the Administrative Agent a copy of the Management Letter prepared by the auditor, and (iv) the related statements of operations and retained earnings and cash flows in a format acceptable to the Administrative Agent; and (c) Monthly Operating Reports. Beginning with the first Operating Month (as hereinafter defined), not later than thirty (30) days after the last day of each such calendar month, operating statements for each Eligible Project for such month, including an income and expense statement for such period and census and billing reports with respect to each Eligible Project then operating for such period; (d) Tax Returns. Not later than thirty (30) days after the date of filing, the federal and state income tax returns for the Borrower for the year in question as well as any requests for extensions filed in connection therewith; and (e) Other Quarterly Reports. (i) Borrowing Base Reports (as and when described in Section 2.1 The Loan (d) hereof, (ii) not later than fifteen (15) days after the close of each of the Borrowers' fiscal quarters an estimate of the occupancy numbers for each Eligible Project as of the end of such quarters which report shall not be used to measure compliance with covenants described for EXHIBIT G but will assist the Administrative Agent in evaluating 57 64 additional Facilities proposed for inclusion in the Borrowing Base and, (iii) in connection with each Borrowing Base Report, a report describing each then Pool B or Pool C Project, including its performance in the preceding quarter and projected performance for subsequent quarters. (f) Other Information. With reasonable promptness such additional information, reports or statements as the Administrative Agent may from time to time reasonably request. (g) Certification. All required financial statements, required pursuant to Sub-paragraphs (a) and (b) hereof shall include the following certification: "The undersigned as _____________ of ____________ certifies that the financial information contained in the financial statement dated _________, is true and complete as of this date. This statement is provided to Bank of America, N.A. (the "Bank") as agent for the Lenders set forth in the Third Amended and Restated Agency Agreement dated March 14, 2000 as amended, restated or substituted from time to time for the purpose of obtaining credit or in fulfillment of the terms and conditions of credit already provided. Accordingly, it is intended that the Bank may rely on this information". Section 7.2 Taxes and Claims Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or any of its income or properties prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any of its properties; provided, however, the Borrowers shall not be required to pay any such tax, assessment, charge, levy or claim, the payment of which is being contested in good faith and by proper proceedings. Section 7.3 Legal Existence Maintain their existence as limited partnership or limited liability companies in good standing in the states of their formation and in each jurisdiction where they are required to register or qualify to do business. Section 7.4 Conduct of Business and Compliance with Laws Do or cause to be done all things necessary to obtain, enter into, preserve and to keep in full force and effect its material rights and its trade names, patents, trademarks and Licenses, Participation Agreements, and Operating Agreements and Management Contracts which are necessary for the operation of each Facility as an adult assisted living facility (or independent living facility, as applicable) as contemplated by the Borrowers, engage in and continue to engage substantially only in the business of owning and operating an adult assisted living facility (or independent living facility, as applicable) and related services in compliance with all applicable laws of the state in which the applicable Facility is located or any other Governmental 58 65 Authority having jurisdiction over such Facility, and comply with all applicable Laws, including, without limitation, regulations issued under the Omnibus Budget Reconciliation Act of 1987 (OBRA'87) (Pub.L.No. 100-203), as amended, and observe the valid requirements of Governmental Authorities, and perform the terms of all Participation Agreements to which it is a party, the noncompliance with or the nonobservance of which might materially interfere with the performance of its Obligations or the proper or prudent conduct of its business or the applicable Property. In addition, the Borrowers covenant and agree that they will: (a) obtain and maintain in full force and effect all Licenses necessary to the acquisition and/or ownership and/or operation of each Facility including, without limitation, Licenses and other approvals related to the storage, dispensation, use, prescription and disposal of drugs, medications and other "controlled substances" and, to the extent offered by the Borrowers, the maintenance of cafeteria and other food and beverage facilities or services; (b) administer, maintain and operate (or will cause to be administered, maintained and operated) each Facility as a revenue-producing assisted living facility (or independent living facility, as applicable); (c) to the extent the Borrowers participate in any such programs, maintain and operate each Facility to meet the standards and requirements and to provide healthcare of such quality and in such manner as would enable the Borrowers to participate in, and provide services in connection with, recognized medical and healthcare insurance programs; (d) obtain, maintain and comply with all conditions for the continuance of, all Licenses, including without limitation, Licenses which may at any time be required by the state in which the applicable Facility is located or other appropriate governmental entity, necessary or desirable for the operation of each Facility as an adult assisted living facility (or independent living facility, as applicable); and (e) to the extent the Borrowers presently participate or in the future will participate in such programs, obtain, maintain and comply with all conditions for the continuance of certification from each applicable Governmental Authority that the Borrowers meet all conditions for participation in the Medicare and Medicaid programs. Section 7.5 Use of Proceeds Use the proceeds of the Loan for the purpose or purposes set forth in Recital E above and Section 8.1 Borrowings and Section 8.14 Distributions to Partners herein and, without the prior written consent of the Administrative Agent for no other purpose or purposes. Section 7.6 Insurance Provide or cause to be provided to the Administrative Agent and maintain in full force and effect at all times during the term of the Loan, such policies of insurance as may be required by the terms of the Financing Documents from a company or companies, and in form and 59 66 amounts satisfactory to the Administrative Agent including, by way of example and not by way of limitation, at least the following: (a) During any period of construction in or on an Eligible Project, "builder's risk" insurance, including vandalism and malicious mischief and collapse endorsements in amounts not less than the replacement cost of the Improvements being constructed or of the Property and naming the Administrative Agent on behalf of the Lenders as a loss payee in the mortgagee clause thereof; (b) Casualty or physical damage insurance coverage for each Eligible Project affording protection against loss or damage by fire or other hazards covered by the standard all-risk fire and hazard insurance policy with "extended coverage" endorsement and such other risks as shall be customarily covered with respect to projects similar in construction, location and use as the Property, or as the Administrative Agent may from time to time otherwise require in amounts necessary to prevent the application of any co-insurance provisions of any applicable policies up to an amount not less than the greater of the full insurable value of the Improvements (as defined in the Deed of Trust) or the aggregate principal amount of the Obligations; no policy of insurance shall be written such that the proceeds thereof will produce less than the minimum coverage required by this Section by reason of co-insurance provisions or otherwise; the term "full insurable value" means the actual replacement cost of the Property (as defined in the Deed of Trust) (excluding foundation and excavation costs and costs of underground flues, pipes, drains and other uninsurable items); and as to Eligible Projects naming the Administrative Agent on behalf of the Lenders as loss payee in the mortgagee clause thereof; (c) General public liability insurance in amounts usually carried by similar operations against claims for bodily injury or death and property damage insurance for claims for damage to property (including loss of use) occurring upon, in or about the Property naming the Administrative Agent on behalf of the Lenders as loss payee thereunder, with such insurance to afford protection to the limit of not less than $5,000,000 for the aggregate of all occurrences during any given annual policy period for each Eligible Project; (d) Workers' compensation insurance in accordance with the requirements of applicable law or regulation naming the Administrative Agent on behalf of the Lenders as loss payee thereunder; (e) Business interruption insurance naming the Lenders as additional insureds with respect to each Facility once a certificate of occupancy has been issued for such Facility in an amount equal to at least twelve (12) months' debt service on the applicable Loan; and (f) To the extent that healthcare professionals are employed by any of the Borrowers or the Management Company, medical liability, malpractice and other healthcare professional liability insurance protecting the Borrowers and its employees against claims arising from the professional services performed by the Borrowers or the Management Company and their employees with limits of (i) not less than One Million Dollars ($1,000,000.00) with respect to injury or death for each person or occurrence, and (ii) not less than Three Million Dollars 60 67 ($3,000,000.00) in the aggregate for claims made for injury or death in any one year, and an umbrella policy insuring against such liability in an aggregate amount of Five Million Dollars ($5,000,000.00). In addition, the Borrowers shall ensure that all healthcare providers with whom any of the Borrowers contracts to provide services at any Facility are insured against claims arising from such services with limits as set forth in clauses (i) and (ii) above. The Borrowers shall file with the Administrative Agent, upon its request, a detailed list of the insurance then in effect and stating the names of the insurance companies, the amounts and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby. Each policy of insurance shall (A) be issued by one or more recognized, financially sound and responsible insurance companies approved by the Administrative Agent and which are qualified or authorized by the laws of the state in which the applicable Facility is located to assume the risk covered by such policy, (B) with respect to the insurance described under the preceding subsections (a), (b) and (f) have attached thereto standard noncontributing, non-reporting mortgagee clauses in favor of and entitling the Lenders without contribution to collect any and all proceeds payable under such insurance, (C) provide that such policy shall not be canceled or modified without at least thirty (30) days prior written notice to the Administrative Agent, and (D) provide that any loss otherwise payable thereunder shall be payable notwithstanding any act of negligence of any of the Borrowers which might, absent such agreement, result in a forfeiture of all or a part of such insurance payment. Unless an escrow account has been established for insurance premiums pursuant to the provisions of a Deed of Trust, the Borrowers shall promptly pay all premiums when due on such insurance and, not less than ten (10) days prior to the expiration date of each such policy, the Borrowers will deliver to the Administrative Agent a renewal policy or policies marked "premium paid" or other evidence of payment satisfactory to the Administrative Agent. The Borrowers will immediately give the Administrative Agent notice of any cancellation of, or change in, any insurance policy. The Lenders shall not, because of accepting, rejecting, approving or obtaining insurance, incur any liability for (i) the existence, nonexistence, form or legal sufficiency thereof, (ii) the solvency of any insurer, or (iii) the payment of losses. Section 7.7 Flood Insurance If required by applicable law or regulation, provide or cause to be provided to the Administrative Agent a separate policy of flood insurance in the aggregate amount of the applicable Loan or the maximum limit of coverage available with respect to the Property, whichever is the lesser, from a company or companies satisfactory to the Administrative Agent and written in strict conformity with the Flood Disaster Protection Act of 1973, as amended, and all applicable regulations adopted pursuant thereto. In the event that flood insurance is not required by applicable law or regulation to be provided in connection with the applicable Loan or is not otherwise available with respect to the Property, the Borrowers shall supply the Administrative Agent with written evidence, in form and substance satisfactory to the Administrative Agent, to that effect. Any such policy shall provide that the policy may not be surrendered, canceled or substantially modified (including, without limitation, cancellation for 61 68 nonpayment of premiums) without at least thirty (30) days' prior written notice to any and all insureds named therein, including the Lenders. Section 7.8 Maintenance of Properties Keep its properties, whether owned in fee or otherwise, or leased, including, without limitation, all of the Property, in good operating condition; make all proper repairs, renewals, replacements, additions and improvements thereto needed to maintain such properties in good operating condition; comply with the provisions of all leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder; and comply with all laws, rules, regulations and orders applicable to its properties or business or any part thereof. Section 7.9 Maintenance of the Collateral Not permit anything to be done to the Collateral which may impair the value thereof. Any of the Lenders or an agent designated by such Lender, shall be permitted to enter the premises of any of the Borrowers and examine, audit and inspect the Collateral at any reasonable time and from time to time without notice. The Lenders shall not have any duty to, and the Borrowers hereby release the Lenders from, all claims of loss or damage caused by the delay or failure to collect or enforce any of the Accounts or Receivables or to preserve any rights against any other party with an interest in the Collateral. Section 7.10 Other Liens, Security Interests, etc. Keep the Collateral and the Property free from all liens, security interests and claims of every kind and nature, other than Permitted Liens; provided, the Borrowers may lease office Equipment and other Equipment in the used in normal course of its business for the operation of a Facility provided the total implied cost of such leased Equipment at any Eligible Project shall not exceed $75,000 at any one time. Section 7.11 Defense of Title and Further Assurances At its expense defend the title to the Collateral (or any part thereof), and promptly upon request execute, acknowledge and deliver any financing statement, renewal, affidavit, deed, assignment, continuation statement, security agreement, certificate or other document the Administrative Agent may reasonably require in order to perfect, preserve, maintain, protect, continue and/or extend any lien or security interest granted to the Lenders under this Agreement or any of the Security Documents and its priority. The Borrowers shall pay to the Administrative Agent, on demand all taxes, costs and expenses incurred by any of the Lenders, in connection with the preparation, execution, recording and filing of any such document or instrument. Section 7.12 Subsequent Opinion of Counsel as to Recording Requirements 62 69 Provide to the Administrative Agent a subsequent opinion of counsel as to the filing, recording and other requirements with which any of the Borrowers have complied to maintain the liens and security interests in favor of the Lenders in the Collateral in the event that the Borrowers shall transfer its principal place of business or the office where it keeps its records pertaining to the Accounts and Receivables. Section 7.13 Books and Records Keep and maintain accurate books and records, make entries on such books and records in form reasonably satisfactory to the Administrative Agent disclosing the Lenders' assignment of, and security interest in and lien on, the Collateral and all collections received by the Borrowers on its Accounts, furnish to the Administrative Agent promptly upon request such information, reports, contracts, invoices, lists of purchases of Inventory (showing names, addresses and amount owing) and other data concerning Account Debtors and the Borrowers' Accounts and Inventory and all contracts and collection(s) relating thereto as the Administrative Agent may from time to time specify, unless the Administrative Agent shall otherwise consent in writing, keep and maintain all such books and records mentioned in (a) above only at the addresses listed in EXHIBIT D, and permit any person designated by any of the Lenders to enter the premises of the Borrowers and examine, audit and inspect the books and records at any reasonable time and from time to time. Section 7.14 Collections Until such time as the Administrative Agent shall notify the Borrowers of the revocation of such privilege following an Event of Default, at its own expense have the privilege for the account of and in trust for the Lenders of collecting its Accounts and receiving in respect thereto all items of payment and shall otherwise completely service all of the Accounts including (i) the billing, posting and maintaining of complete records applicable thereto, and (ii) the taking of such action with respect to such Accounts as the Administrative Agent may reasonably request or in the absence of such request, as the Borrowers may deem advisable; and in its discretion, grant, in the ordinary course of business, to any Account Debtor, any rebate, refund or adjustment to which the Account Debtor may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to an Account. The Administrative Agent may, at its option but solely in accordance with applicable law, at any time or from time to time after the occurrence of an Event of Default hereunder, revoke the collection privilege given to the Borrowers herein by either giving notice of its assignment of, and lien on the Collateral, subject to the provisions of Section 3.1 Collateral hereof, to the Account Debtors or giving notice of such revocation to the Borrowers. Section 7.15 Notice to Account Debtors and Escrow Account In the event that (a) a Default or an Event of Default exists, or (b) demand has been made for any or all of the Obligations, promptly upon the request of the Administrative Agent in such form and at such times as reasonably specified by the Administrative Agent, give notice of the 63 70 Lenders' lien on the Accounts to the Account Debtors requiring those Account Debtors which are permitted by applicable law to make payments thereon directly to the Administrative Agent. Section 7.16 Business Names Immediately notify the Administrative Agent of any change in the name or names under which they conduct their business. Section 7.17 ERISA With respect to any pension plan which any of the Borrowers and/or any Commonly Controlled Entity maintains or contributes to, either now or in the future, that: (a) such bonding as is required under ERISA Section 412 will be maintained; (b) as soon as practicable and in any event within 15 days after any of the Borrowers or any Commonly Controlled Entity knows or has reason to know that a "reportable event" has occurred or is likely to occur, the Borrowers will deliver to the Administrative Agent a certificate signed by its chief financial officer setting forth the details of such "reportable event"; (c) neither the Borrowers nor any Commonly Controlled Entity will: (i) engage in or permit any "prohibited transaction" (as defined in ERISA Section 406 or Code Section 4975) to occur; (ii) cause any "accumulated funding deficiency" as defined in ERISA Section 302 and/or Code Section 412; (iii) terminate any pension plan in a manner which could result in the imposition of a lien on the property of the Borrowers pursuant to ERISA Section 4068; (iv) terminate or consent to the termination of any multiemployer plan; (v) incur a complete or partial withdrawal with respect to any multiemployer plan within the meaning of ERISA Sections 4203 and 4205; and (d) within 15 days after notice is received by any of the Borrowers or any Commonly Controlled Entity that any multiemployer plan has been or will be placed in "reorganization" within the meaning of ERISA Section 4241, the Borrowers will notify the Administrative Agent to that effect. Upon the Administrative Agent's request, the Borrowers will deliver to the Administrative Agent a copy of the most recent actuarial report, financial statements and annual report completed with respect to any "defined benefit plan", as defined in ERISA Section 3(35). Section 7.18 Change in Management Notify the Administrative Agent in advance of any change of the Management Company for any Facility. Section 7.19 Management (a) Subject to the terms of (i) the Management Fee Subordination Agreement by and among SEAL, SALMI and the Administrative Agent dated December 23, 1997 as amended and confirmed pursuant to the Confirmation of and Amendment to Security Documents dated July 29, 1999 or (ii) any Management Fee Subordination Agreement signed in connection with a Facility Closing (individually or collectively, the "Management Fee Subordination Agreement"), the Borrowers shall cause SALMI to agree to subordinate payment of any and all management fees under, or in connection with, the Management Agreement (the "Management Fees") to 64 71 payment of the Obligations, in accordance with the terms and conditions of one or more subordination agreements in form and content acceptable to the Administrative Agent in its reasonable discretion, and not amend, restate, supplement, terminate, cancel or otherwise modify any of the terms or conditions of such Management Agreement, in any material respect, without the prior written consent of the Administrative Agent, and (b) terminate the Management Agreement upon receipt of notice from the Administrative Agent directing the Borrowers to terminate the Management Agreement after the occurrence of an Event of Default, and, if requested to do so by the Administrative Agent, enter into a management agreement for the management of any Facility with an independent manager. The Management Agreement shall be approved in writing by the Administrative Agent prior to execution. A fully executed copy of the Management Agreement shall be delivered to the Administrative Agent by the Borrowers promptly after it is signed. Section 7.20 Surveys Upon the Administrative Agent's request from time to time as construction of a Facility progresses and upon the completion of the construction of the Improvements, the Borrowers shall furnish the Administrative Agent with a Survey with a current certification to the Administrative Agent by a registered land surveyor of the jurisdiction in which the Land is located. At any time the Borrowers are required to furnish a Survey to the Administrative Agent pursuant to the terms of this Agreement, the Borrower shall also furnish an original print thereof to the title insurance company and such Survey shall not be sufficient for the purposes of this Agreement unless and until the title insurance company shall advise the Administrative Agent, by endorsement to the title insurance policy or otherwise, that the Survey discloses no violations, encroachments or other variances from applicable set-backs or other restrictions except such as the Administrative Agent and its counsel shall approve. Section 7.21 Inspections; Cooperation; Payment of Inspecting Engineer The Borrowers shall permit the Lenders and their duly authorized representatives (including, without limitation, the Inspecting Engineer) to enter upon any of the Land, to inspect the Improvements and any and all materials to be used in connection with the development of any of the Land and/or the construction of the Improvements, to examine all detailed plans and shop drawings and similar materials as well as all records and books of account maintained by or on behalf of the Borrowers relating thereto and to discuss the affairs, finances and accounts pertaining to any Facility and any of the Improvements with representatives of the Borrowers. The Borrowers shall at all times cooperate and cause the General Contractor and each and every one of its subcontractors and materialmen to cooperate with the Lenders and their duly authorized representatives (including, without limitation, the Inspecting Engineer) in connection with or in aid of the performance of the Administrative Agent's or Lenders' functions under this Agreement. The reasonable fees of any Inspecting Engineer engaged or employed by the 65 72 Administrative Agent in connection with or in aid of the performance of the Administrative Agent's or the Lenders' functions under this Agreement shall be paid by the Borrowers. Section 7.22 Vouchers and Receipts The Borrowers shall furnish to the Administrative Agent, promptly on demand, any contracts, bills of sale, statements, receipted vouchers or agreements pursuant to which any of the Borrowers has any claim of title to any materials, fixtures or other articles delivered or to be delivered to the Land or incorporated or to be incorporated into any of the Improvements. The Borrowers shall furnish to the Administrative Agent, promptly on demand, a verified written statement, in such form and detail as the Administrative Agent may require, showing all amounts paid for labor and materials and all items of labor and materials furnished or to be furnished for which payment has not been made and the amounts to be paid therefor. Section 7.23 Payments for Labor and Materials The Borrowers shall pay when due all bills for services or labor performed and materials supplied in connection with the development of the Land and the construction of the Improvements. In the event any mechanics' lien or other lien or encumbrance shall be filed or attached against the Property without the prior written consent of the Administrative Agent in each instance, the Borrowers covenant and agree that, within thirty (30) days after receipt of notice from any source of the filing of such lien, the Borrowers will promptly discharge the same by payment or filing bond or otherwise as permitted by law; and if the Borrowers fail to do so, the Administrative Agent may, at its option, in addition to, and not in limitation of, all other rights and remedies of the Administrative Agent in the Event of Default by the Borrowers, and without regard to the priority of said mechanics' lien or other lien or encumbrance, pay the same, and all amounts expended by the Administrative Agent for such purpose shall constitute loans to the Borrowers and shall be secured by the Deed of Trust and the other Financing Documents, and be due and payable forthwith by the Borrowers to the Administrative Agent with interest thereon at the Reimbursement Rate provided for in the Deed of Trust. Section 7.24 Correction of Construction Defects Promptly following any demand by the Administrative Agent, the Borrowers shall correct or cause the correction of any structural defects in the Improvements and any material departures or deviations from the Plans and Specifications, as determined by the Administrative Agent in its sole but reasonable discretion, not approved in writing by the Administrative Agent. Section 7.25 Fees and Expenses; Indemnity Pay all reasonable fees, charges, costs and expenses required to satisfy the conditions of the Financing Documents. The Borrowers shall hold the Lenders harmless and indemnify the Lenders against all claims of brokers and "finders" arising by reason of the execution and delivery of the Financing Documents or the consummation of the transaction contemplated hereby. 66 73 Section 7.26 Governmental Surveys or Inspections Furnish to the Administrative Agent upon its request, within thirty (30) days of receipt thereof, copies of any and all annual surveys or inspections performed by any Governmental Authority or accreditation or certification organization with respect to any Facility. Section 7.27 Cost Reports Prepare and file all applicable cost reports to all third-party payors, if any, to the extent required by any such third-party payor and, within thirty (30) days thereafter, notify the Administrative Agent of any settlement of any cost report disclosed to the Administrative Agent as being open or unsettled as of the Closing Date to the extent any such cost report would have a materially adverse effect on the Borrowers. Section 7.28 Updated Appraisals In addition, the Administrative Agent shall have the right but not the obligation to require annual updated appraisals of any or all the Property and the Facilities, which appraisals shall be prepared by an appraiser or appraisers designated by the Administrative Agent and shall be in all respects reasonably acceptable to the Administrative Agent which appraisals shall include, if deemed necessary by the Administrative Agent, in its reasonable discretion, updated discounted cash flow analysis, inspections of and commentary on the physical status of the applicable Facility and an engineering review. The basis of the appraisal calculations shown on such appraisal reports and all other aspects of the appraisal reports must be satisfactory to the Administrative Agent in all material respects. The release of such appraisal reports by the Administrative Agent to the Borrowers shall be at the Administrative Agent's sole option if the Borrowers have not paid the cost of such appraisal. If the Borrowers have paid the cost of the appraisal, a copy of the appraisal will be provided to the Borrowers upon their signing of the Administrative Agent's standard appraisal release letter provided an Event of Default has not occurred and is not continuing. The Borrowers shall reimburse the Administrative Agent upon demand for all costs and expenses incurred by any of the Lenders with respect to the preparation and review of all future appraisals required pursuant to the terms hereof, if either (i) such appraisal is required by law or banking regulation, (ii) an event of default has occurred under the Financing Documents, or (iii) the Administrative Agent has reason to believe a change in value has occurred in the Facility being appraised due to an adverse change in the Facility's occupancy status or operating performance. Section 7.29 Notification of Certain Events, Events of Default and Adverse Developments Promptly give written notice to the Administrative Agent who will forward a copy of the notice to the Lenders upon obtaining knowledge of the occurrence of any of the following: (a) any Event of Default under the Financing Documents; 67 74 (b) any event, development or circumstance whereby the financial statements furnished under the Financing Documents fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of the Borrowers; (c) any judicial, administrative or arbitral proceeding pending against any of the Borrowers or any judicial or administrative proceeding known by the Borrowers to have been threatened against any of them in a written communication which threatened proceeding, if adversely decided, could cause a Material Adverse Change in any of the Borrowers; (d) the revocation, suspension, probation, restriction, limitation or refusal to renew, or any administrative procedure then in process for the revocation, suspension, probation, restriction, limitation, or refusal to renew, of any License, or the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending, decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew or any administrative procedure then in process for any participation or eligibility in any third party payor program in which any of the Borrowers elects to participate, including, without limitation, Medicare, Medicaid or other private insurer programs or any accreditation of any of the Borrowers, or the issuance or pending issuance of any License for a period of less than twelve (12) months, as a consequence of sanctions imposed by any Governmental Authority, or the assessment or pending assessment, of any civil or criminal penalties by any Government Authority, any third party payor or any accreditation organization or Person, which could materially adversely affect the financial condition or operations of any of the Borrowers or an Affiliate (present or prospective) as determined by the Administrative Agent, in its sole but reasonable discretion; (e) any action, including, but not limited to, the filing of any certificate of need application if required by law, the amendment of any facility license or certification, or the issuance of any new license or certification for any Facility, under which any of the Borrowers proposes (i) to develop a new facility or service and/or (ii) eliminate, materially expand or materially reduce any service; (f) any actual contingent liability or a potential contingent liability threatened or noticed in a written communication to any of the Borrowers of $50,000 or more per Facility; (g) any other development in the business or affairs of the Borrower results in a Material Adverse Change; and (h) in each case listed in clauses (a) through (g), inclusive, of this Section describing in detail satisfactory to the Administrative Agent the nature thereof and, in the case, if any, of notification under clause (a), the action the Borrowers propose to take with respect thereto or a statement that the Borrowers intend to take no action and an explanation of the reasons for such inaction. In addition, the Borrowers will furnish to the Administrative Agent immediately after receipt thereof copies of all administrative notices material to Borrowers' business and operation of any Facility and all responses by or on behalf of the Borrowers with respect to such administrative notices. 68 75 Section 7.30 Compliance with Environmental Laws If any Hazardous Materials are used, present or generated on any real property owned or controlled by any of the Borrowers or for which any of the Borrowers are responsible, such Borrower shall use, process, distribute, handle, maintain, treat, store, dispose of and transport such substance in compliance with all applicable laws, including, but not limited to, those regulating PCB's, underground storage tanks, radon and medical waste tracking, as well as any laws that are enacted after the date of this Agreement. Section 7.31 Hazardous Materials; Contamination (a) Give notice to the Administrative Agent within five (5) Banking Days of any of the Borrowers' acquiring knowledge of the presence of any Hazardous Materials on any property owned or controlled by any of the Borrowers or for which any of the Borrowers is responsible or of any Hazardous Materials Contamination with a full description thereof, except for reasonable quantities of necessary supplies for use by the Borrowers in the ordinary course of their current line of business and stored, used and disposed of in accordance with applicable Laws; (b) promptly comply with any laws requiring special handling, maintenance, servicing, removal, treatment or disposal of Hazardous Materials or Hazardous Materials Contamination and provide the Administrative Agent upon request with satisfactory evidence of such compliance; (c) provide the Administrative Agent, within thirty (30) days after a demand by the Administrative Agent, with a bond, letter of credit or similar financial assurance evidencing to the Administrative Agent's satisfaction that funds are available to pay the cost of removing, treating, and disposing of such Hazardous Materials or Hazardous Materials Contamination and discharging any lien which may be established as a result thereof on any property owned, operated or controlled by any of the Borrowers or for which any of the Borrowers are responsible; and (d) defend, indemnify and hold harmless the Lenders and each of their agents, employees, trustees, successors and assigns from any and all claims which may now or in the future (whether before or after the termination of this Agreement) be asserted as a result of the presence of any Hazardous Materials on any property owned, operated, controlled or managed by any of the Borrowers for which any of the Borrowers are responsible for any Hazardous Materials Contamination. Section 7.32 Participation in Reimbursement Programs In the event any of the Borrowers elects to participate in any or all plans and/or programs for third party payment and/or reimbursement, and the revenues derived from a single plan or program exceed ten percent (10%) of the gross revenues of the applicable Facility, such Borrower will continue its participation in any and all such plans and/or programs for third party payment and/or reimbursement from, and claims against, private insurers or programs for payment and/or reimbursement from federal, state and local governmental agencies and/or private or quasi-public insurers, including, without limitation, Managed Care Plans, Medicaid and Medicare and the Veterans Administration (as determined by the Borrowers in the good faith exercise of their prudent and commercially reasonable business judgment). While participating in such plans, the Borrowers shall comply with any and all rules, regulations, standards, procedures 69 76 and decrees necessary to maintain the Borrowers' participation in any such third party payment or reimbursement program or plan. Section 7.33 Minimum Pool A Projects At least 83% of the number of Eligible Projects being included in the calculation of the Borrowing Base at any one time shall qualify as Pool A Projects. Section 7.34 Subordination of Distributions and Management Fees Subordinate, and cause the partners or members of each of the Borrowers to subordinate, all distributions of the Borrowers to principal and interest payments on the Loan; provided, however, that the Borrowers may pay distributions to partners or members of the Borrowers in accordance with Section 8.14 Distributions to Partners prior to the occurrence of an Event of Default and so long as the payment of any such distributions will not result in the occurrence of an Event of Default. Subordinate the payment of management fees with respect to each Facility pursuant to the terms of all Management Fee Subordination Agreement (as the same may be modified from time to time) by and among any of the Borrowers, the Administrative Agent and the Management Company. Section 7.35 Depository Bank The Borrowers shall maintain its primary operating accounts, including those accounts containing the Liquid Assets, if any required pursuant to Section 8.14 Distributions to Partners with the Administrative Agent or one of the other Lenders; provided that such Lender shall agree that it will exercise any right of set-off against such account to pay the Obligations (unless the exercise of such right would prejudice other remedies of the Lenders in any jurisdiction) prior to applying them to any other indebtedness owed to such Lender and provided such Administrative Agent or other Lender pays commercially competitive rates on the Borrowers' funds. Section 7.36 Copies of Notices Promptly following the giving or receipt by any of the Borrowers of any notice given to or received from the General Contractor or any subcontractor or materialman with respect to the Property, if such notice concerns any default or failure to perform by any party, or relates to any matter requiring the Administrative Agent's or the Lenders' approval under this Agreement, the Borrowers shall forward to the Administrative Agent copies of any such notice. 70 77 Section 7.37 Commencement of Occupancy The first resident of a Completed Facility shall take occupancy within sixty (60) days of the issuance of the occupancy permit for such Facility. Section 7.38 Removal of Eligible Project from Borrowing Base If the Borrowers elect either to exclude an Eligible Project from the calculation of the Borrowing Base without releasing the Lien of the applicable Deed of Trust or Lien on the related Collateral or to resume including such Eligible Project in the calculation of the Borrowing Base, the Borrowers shall so notify the Administrative Agent in writing in advance and shall immediately submit a revised Borrowing Base Report. In connection with any such removal, the Borrowers shall pay down the Credit Facility if a Borrowing Base Deficiency if thereby created. If an Eligible Project is excluded from the Borrowing Base at Borrowers' election, such Eligible Project shall not be required to comply with any covenants hereunder while it is so excluded. ARTICLE VIII NEGATIVE COVENANTS OF BORROWER Until payment in full and the performance of all of the Obligations, without the prior written consent of the Administrative Agent as permitted pursuant to the Agency Agreement, the Borrowers will not directly or indirectly: Section 8.1 Borrowings Create, incur, assume or suffer to exist any liability for borrowed money other than the Credit Facility, Equipment leases permitted by the terms of this Agreement or unsecured loans from Affiliates which are fully subordinated (either by their terms or by separate written agreement) to the Credit Facility and bearing interest at a rate no higher than that then applicable to the Credit Facility; provided, however, so long as no Event of Default has occurred or will occur upon the payment of interest on such indebtedness under the Financing Documents, the Borrowers may make scheduled payments of interest on such debt and may, with the prior written consent of the Administrative Agent, use proceeds of the Loan to make payments on such loans from Affiliates if the loans were for the purpose of financing the acquiring or constructing an Eligible Project. Section 8.2 Deeds of Trust and Pledges Create, incur, assume or suffer to exist any deed of trust, mortgage, pledge, Lien or other encumbrance of any kind upon, or any security interest in, any of its property or assets, including the Collateral, whether now owned or hereafter acquired. Section 8.3 Sale or Transfer of Assets 71 78 Directly or indirectly enter into any arrangement whereby any of the Borrowers shall sell, lease, transfer, assign or otherwise dispose of more than $50,000 of assets in connection with any Eligible Project in any one year other than (a) sales or other disposition of assets in the ordinary course of business for value, provided the proceeds thereof are used to pay down one or more of the Loans or the asset sold or disposed of is replaced by one of equal or greater value or (b) the transfer of an Eligible Project or the sale of an Eligible Project, in either case, in which case the Borrowing Base will be reduced by the availability attributed to such Facility. Section 8.4 Other Liens; Transfers; "Due-on-Sale"; etc. The Borrowers shall not, without the prior written consent of the Administrative Agent, create or permit to be created or remain with respect to any of the Property or any part thereof or income therefrom, any mortgage, pledge, lien, encumbrance or charge, or security interest, or conditional sale or other title retention agreement, whether prior or subordinate to the lien of the Financing Documents, other than in connection with the Financing Documents or as otherwise provided or permitted therein. Except for any grant, conveyance, sale, assignment or transfer in the ordinary course of the Borrowers' business and which is specifically conditioned upon the release of record of the lien of the Deed of Trust and the other Financing Documents as to that portion of the Property granted, conveyed, sold, assigned or transferred, the Borrowers shall not, without the prior written consent of the Administrative Agent, make, create, permit or consent to any conveyance, sale, assignment or transfer of any of the Property or any part thereof, other than in connection with the Financing Documents or as otherwise provided or permitted therein. Section 8.5 Advances and Loans Make loans or advances to any Person, including, without limitation, Affiliates, partners and employees of the Borrowers. Section 8.6 Contingent Liabilities Assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any Person, except by the endorsement of negotiable instruments for deposit and collection or similar transactions in the ordinary course of business. Section 8.7 Licenses Allow any Licenses, permit, right, franchise or privilege necessary for the ownership or operation of any Facility for the purposes for which any Facility is intended to be used to lapse, be suspended or be forfeited unless solely due to administrative delay by the licensing authority. Section 8.8 ERISA Compliance 72 79 (a) Restate or amend any Plan established and maintained by the Borrowers or any Commonly Controlled Entity and subject to the requirements of ERISA, in a manner designed to disqualify such Plan and its related trusts under the applicable requirements of the Code; (b) permit any partners of the Borrowers or any Commonly Controlled Entity to materially adversely affect the qualified tax-exempt status of any Plan or related trusts of the Borrowers or any Commonly Controlled Entity under the Code; (c) engage in or permit any Commonly Controlled Entity to engage in any Prohibited Transaction; (d) incur or permit any Commonly Controlled Entity to incur any Accumulated Funding Deficiency, whether or not waived, in connection with any Plan; (e) take or permit any Commonly Controlled Entity to take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Borrowers or any Commonly Controlled Entity pursuant to Section 4068 of ERISA; (f) fail to notify the Administrative Agent that notice has been received of a "termination" (as defined in ERISA) of any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute; (g) incur or permit any Commonly Controlled Entity to incur a "complete withdrawal" or "partial withdrawal" (as defined in ERISA) from any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute; or (h) fail to notify the Administrative Agent that notice has been received from the administrator of any Multiemployer Plan to which the Borrower or any Commonly Controlled Entity has an obligation to contribute that any such Plan will be placed in "reorganization" (as defined in ERISA). Section 8.9 Transfer of Collateral Transfer, or permit the transfer, to another location of any of the Collateral or the books and records related to any of the Collateral; provided, however, that the Borrowers may transfer the Collateral or the books and records related thereto to another location if the Borrowers shall have provided to the Administrative Agent prior to such transfer an opinion of counsel addressed to the Administrative Agent to the effect that the Lenders' perfected security interest shall not be affected by such move or if it shall be affected, setting forth the steps necessary to continue the Lender's perfected security interest together with the commencement of such steps by the Borrowers at its expense. Section 8.10 Sale of Accounts or Receivables Sell, discount, transfer, assign or otherwise dispose of any of its Accounts or Receivables of any Facility, such as accounts receivable, notes receivable, installment or conditional sales agreements or any other rights to receive income, revenues or moneys, however evidenced. Section 8.11 Amendments; Terminations Amend or terminate or agree to amend or terminate any License, the Management Agreement, or any participation agreement which exceeds 10% of the gross revenue of the applicable Facility, or except in the ordinary course of business any other Management Contracts and Operating Agreements which may have been entered into by the Borrowers with respect to 73 80 any Facility and which exceeds 10% of its gross revenue, or consent to or waive any material provisions thereof. Section 8.12 Prohibition on Hazardous Materials Place, manufacture or store or permit to be placed, manufactured or stored, any Hazardous Materials on any property owned, controlled or operated by the Borrowers or any Wholly Owned Subsidiary or for which the Borrowers or any Wholly Owned Subsidiary is responsible, except for reasonable quantities of necessary supplies for use by the Borrowers or any Wholly Owned Subsidiary in the ordinary course of its current line of business and stored, used and disposed of in accordance with applicable Laws. Section 8.13 Subsidiaries Create or otherwise acquire any subsidiaries other than Wholly Owned Subsidiaries which are Additional Borrowers. Section 8.14 Distributions to Partners or Members (a) Make any distributions of net operating income to partners or members of any of the Borrowers unless no Event of Default exists, and at such time or times as the Borrowers have on a consolidated basis, both before and after the distribution, at least $5,000,000 in Liquid Assets plus, at such time or times as ten (10) or more of the Eligible Projects are not a Stabilized Facilities, the Borrowers shall have on a consolidated basis an additional $5,000,000 in Liquid Assets; provided, however, that after deducting the amount of such distribution from the EBITDA (the "Adjusted EBITDA") of the Stabilized Facilities in the aggregate, the Borrowers' consolidated ratio of Adjusted EBITDA to Debt Service for the Stabilized Facilities in the aggregate shall not be less than 1.0 to 1.0. For the purposes of computing EBITDA and Debt Service, the period measured shall be on a rolling four-quarters basis. Distributions may be made only within thirty (30) days of the end of a fiscal quarter. (b) Make a distribution to partners or members of any of the Borrowers from proceeds of the Loan as a repayment of equity in an Eligible Project unless the Borrowers give advance written notice to the Administrative Agent of the amount of such proposed distribution and the Administrative Agent acknowledges in writing the availability of equity to make such a distribution. Section 8.15 Mergers or Acquisitions Enter into any merger or consolidation or amalgamation, wind up or dissolve itself (or suffer any liquidation or dissolution), or acquire all or substantially all of the assets of any person, firm, joint venture or corporation except to acquire a Wholly Owned Subsidiary. Section 8.16 Partnership Interests 74 81 Repurchase, redeem or retire any partnership or membership interest any of in the Borrowers. Section 8.17 Impairment of Security The Borrowers shall take no action which shall impair in any manner the value of any of the Property or the validity, priority or security of any Deed of Trust. Section 8.18 Conditional Sales The Borrowers shall not incorporate in the Improvements any property acquired under a conditional sales contract, or lease, or as to which the vendor retains title or a security interest, without the prior written consent of the Administrative Agent. Section 8.19 Changes to Plans and Specifications After review and approval of a Total Development Budget by the Administrative Agent, the Borrowers shall not permit any change order increasing the price of the Improvements for an Eligible Project by more than $50,000 for any one change order or by more than 10% of the total hard cost portion of the Total Development Budget in the aggregate or materially altering the scope of the Improvements, without the prior written consent of the Administrative Agent which consent will not be unreasonably withheld and provided such changes will not cause the Facility not to qualify as a Pool A Project. Section 8.20 Construction Contract; Construction Management The Borrowers shall not execute any contract or agreement or become a party to any arrangement for the construction of any Improvements or for construction management services with respect to any Property without the prior written consent of the Administrative Agent. ARTICLE IX EVENTS OF DEFAULT The occurrence of one or more of the following events shall be "Events of Default" under this Agreement, and the terms "Event of Default" shall mean, whenever they are used in this Agreement, any one or more of the following events: Section 9.1 Failure to Pay and/or Perform the Obligations 75 82 The Borrowers shall fail to (a) make any payment of interest on the Note, or (b) pay any of the other Obligations including but not limited to the Expense Payments and Liquidation Costs and such failure continues for more than five (5) calendar days after notice thereof by the Administrative Agent, except with regard to payment of (a) any Borrowing Base Deficiency which shall be due as provided in Section 2.1 The Loan hereof, and (b) amounts due at maturity for which no notice or cure period shall be required to be given. Section 9.2 Breach of Representations and Warranties Any material representation or warranty made in this Agreement or in any report, certificate, opinion (including any opinion of counsel for the Borrowers), financial statement or other instrument furnished in connection with the Obligations or with the execution and delivery of any of the Financing Documents, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. Section 9.3 Failure to Comply with Covenants Default shall be made by the Borrowers in the due observance and performance of any covenant, condition or agreement contained in Article VII hereof (except for Section 7.8 Maintenance of Properties, Section 7.9 Maintenance of the Collateral, Section 7.10 Other Liens, Security Interests, etc., Section 7.17 ERISA) or in ARTICLE VIII hereof. Section 9.4 Failure to Comply with Books and Records Default shall be made by the Borrowers in the due observance or performance of Section 7.13 Books and Records, which default shall remain unremedied, and the Borrowers shall cure such default promptly, but in no event more than ten (10) days after written notice thereof to the Borrowers by the Administrative Agent. Section 9.5 Other Defaults Default shall be made by the Borrowers in the due observance or performance of any other term, covenant or agreement other than as set forth in this Article IX, which default shall remain unremedied for more than thirty (30) days after written notice thereof to the Borrowers by the Administrative Agent, unless the nature of the failure is such that (a) it cannot be cured within the thirty (30) day period, and (b) the Borrowers institute corrective action within the thirty (30) day period and (c) the Borrowers diligently pursue such action and complete the cure within ninety (90) days. Section 9.6 Default Under Other Financing Documents A Default shall occur under any of the other Financing Documents, and such Default is not cured within any applicable grace period provided therein. Section 9.7 Receiver; Bankruptcy 76 83 An Act of Bankruptcy occurs with respect to the Borrowers or any of the Borrowers becomes generally unable to pay its debts as they become due; provided, however, if a proceeding with respect to an Act of Bankruptcy is filed or commenced against any of the Borrowers, the same shall not constitute an Event of Default if such proceeding is dismissed within sixty (60) days from the date of such Act of Bankruptcy. Section 9.8 Judgment Any judgment against any of the Borrowers of $250,000 or more or any attachment or other levy against any property of any of the Borrowers remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of thirty (30) days after the same shall have been issued. Section 9.9 Execution; Attachment Any execution or attachment shall be levied against the Collateral, or any part thereof, and such execution or attachment shall not be set aside, discharged or stayed within thirty (30) days after the same shall have been levied. Section 9.10 Default Under Other Borrowings (a) Default which continues beyond any applicable grace period shall be made under any obligation of or guaranteed by any of the Borrowers equal to or greater than $250,000, if the effect of such default is to accelerate the maturity of such obligation or to permit the holder or obligee thereof to cause such obligation to become due prior to its stated maturity. (b) Default shall be made under any obligation equal to or greater than $1,000,000 of a consolidated Affiliate, which is otherwise non-recourse to the Borrowers if the holder or obligee of such obligation has commenced action on any of the remedies available to it under the obligation. Section 9.11 Material Adverse Change If the Administrative Agent in its reasonable discretion determines that a Material Adverse Change has occurred in the financial condition of any of the Borrowers; provided, however, that such Default may be cured if only one Borrower is affected, such Borrower owns only one Eligible Project and such Eligible Project is excluded from the calculation of the Borrowing Base. Section 9.12 Impairment of Position If the Administrative Agent in its reasonable discretion determines that an event has occurred which impairs the prospect of payment of the Obligations and/or the value of the Facilities or the Collateral. 77 84 Section 9.13 Change in Status or Ownership Any of the Borrowers is dissolved, merged, consolidated or reorganized, or any change occurs in the ownership of any of the Borrowers or any Subsidiary without the prior written consent of the Administrative Agent. Section 9.14 Zoning Any change in any zoning ordinance or any other public restriction is enacted, limiting or defining the uses which may be made of any of the Property or a part thereof, such that the use of any of the Property, as specified herein, would be in material violation of such restriction or zoning change unless the Borrowers exclude the affected Eligible Project from the calculation of the Borrowing Base. Section 9.15 Change in Management The Management Agreement is terminated without the prior written consent of the Administrative Agent. Section 9.16 Licenses The involuntary, imposed or required revocation, suspension, probation, restriction, limitation or refusal to renew, or the pending revocation, suspension, probation, restriction, limitation, of, or refusal to renew, of any License; other than in the ordinary course of business or to the extent that the Borrowers deem such action to be, in the exercise of prudent business judgment, in the best interest of Borrowers, the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew any participation or eligibility in any third party payor program in which the Borrowers elect to participate, including, without limitation, the Medicaid or Medicare programs; or the issuance or pending issuance of any License for a period of less than twelve (12) months as a consequence of any sanctions imposed by any Governmental Authority; or the assessment or pending assessment, of any civil or criminal penalties by any Governmental Authority, any third party payor or any accreditation organization or person. Without limiting the generality of the foregoing, the failure of the Borrowers to obtain an operating license for any Facility within sixty (60) days of the issuance of the certificate of occupancy for such Facility. Section 9.17 Damage to Improvements At any time prior to the issuance of a certificate of occupancy or completion therefor, any of the Improvements are substantially damaged or destroyed by fire or other casualty and the Administrative Agent determines in good faith that such Improvements cannot be restored and completed in accordance with the terms and provisions of the Deed of Trust unless the Borrowers exclude the affected Eligible Project from the Borrowing Base. 78 85 Section 9.18 Disclosure of Contractors The Borrowers shall fail to disclose to the Administrative Agent, upon demand, the names of all persons with whom the Borrowers have contracted or intends to contract for the construction of the Improvements or for the furnishing of labor or materials therefor. Section 9.19 Mechanic's Lien A lien for the performance of work or the supply of materials which is perfected against any of the Land remains unsatisfied or un-bonded or for which no other arrangements satisfactory to the Administrative Agent have been made for a period of thirty (30) days after notice to the Borrowers from any source of the filing of such Lien unless the Borrowers exclude the affected Eligible Project from the Borrowing Base. Section 9.20 Survey Matters Any Survey required by the Lenders during the period of construction shows any matters not approved by the Administrative Agent and such matters not approved are not removed within 30 days after Notice thereof by the Administrative Agent to the Borrowers unless the Borrower excludes the affected Eligible Project from the Borrowing Base. Section 9.21 General Contractor Default The General Contractor shall have defaulted under any Construction Contract, which default the Administrative Agent, in its sole discretion, shall deem substantial, and the Borrowers, after thirty (30) days Notice from the Administrative Agent, shall fail to commence exercising any resulting right or remedy to which it may be entitled thereunder and diligently pursue such right or remedy unless the Borrower excludes the affected Eligible Project from the Borrowing Base. Section 9.22 Compliance with Law The Borrowers fail to comply with any requirement of any Governmental Authority having jurisdiction within the time required by such Governmental Authority; or any proceeding is commenced or action taken to enforce any remedy for a violation of any requirement of a Governmental Authority or any restrictive covenant affecting the Property or any part thereof. Section 9.23 Failure to Commence Occupancy Any failure to comply with Section 7.37 Commencement of Occupancy unless the Borrowers exclude the affected Eligible Project from the calculation of the Borrowing Base. ARTICLE X RIGHTS AND REMEDIES UPON DEFAULT 79 86 Section 10.1 DEMAND; ACCELERATION THE OCCURRENCE OR NONOCCURRENCE OF AN EVENT OF DEFAULT UNDER THIS AGREEMENT SHALL IN NO WAY AFFECT OR CONDITION THE RIGHT OF THE LENDERS TO DEMAND PAYMENT AT ANY TIME OF ANY OF THE OBLIGATIONS WHICH ARE PAYABLE ON DEMAND REGARDLESS OF WHETHER OR NOT AN EVENT OF DEFAULT HAS OCCURRED. Upon the occurrence of an Event of Default, and in every such event and at any time thereafter, the Administrative Agent may declare the Obligations due and payable, without presentment, demand, protest, or any notice of any kind, all of which are hereby expressly waived, anything contained herein or in any of the other Financing Documents to the contrary notwithstanding. Section 10.2 Further Advances; Immediate Acceleration Following an Event of Default the Administrative Agent may from time to time without notice to the Borrowers suspend, terminate or limit any further advances under the Loan or other extensions of credit under this Agreement and under any of the other Financing Documents. Further, upon the occurrence of an Event of Default or Default specified in Section 9.7 Receiver; Bankruptcy above, the unpaid principal amount of the Note (with accrued interest thereon) and all other Obligations then outstanding, shall immediately become due and payable without further action of any kind and without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrowers. Section 10.3 Specific Rights With Regard to Collateral Following an Event of Default, in addition to all other rights and remedies provided hereunder or as shall exist at law or in equity from time to time, the Administrative Agent may, without notice to the Borrowers and subject to the terms of the Agency Agreement: (a) assign any and all Operating Agreements and Management Contracts to any Person designated by the Administrative Agent, and/or exercise all rights and privileges of the Borrowers under such contracts and agreements for the purpose of realizing on the Collateral and to the extent and for the time required to realize the value of the Collateral; (b) to the extent permitted by applicable law, assume such management, operation and control of the Property to the extent and for the time necessary to realize the value of the Collateral; (c) cause the Borrowers to engage, contract with, and/or hire qualified service, billing, collection and other such agents, organizations and companies acceptable to the Administrative Agent to collect and/or realize upon any or all of the Collateral and to remit the proceeds to the Administrative Agent; 80 87 (d) subject to applicable state and federal laws pertaining to resident confidentiality, request any Account Debtor obligated on any of the Accounts to make payments thereon directly to the Administrative Agent to the extent permitted by applicable law, with the Administrative Agent taking control of the cash and non-cash proceeds thereof and/or direct the Borrowers to (and the Borrowers shall) turn over to the Administrative Agent immediately following receipt all payments with respect to the Collateral in the form received (with the addition of all necessary endorsements) and not to deposit, negotiate or otherwise deal with those payments; (e) compromise, extend or renew any of the Collateral or deal with the same as it may deem advisable; (f) make exchanges, substitutions or surrenders of all or any part of the Collateral; (g) remove from any of the Borrowers' places of business all books, records, ledger sheets, correspondence, invoices and documents, relating to or evidencing any of the Collateral or without cost or expense to the Lenders, make such use of the Borrowers' place of business as may be reasonably necessary to administer, control and collect the Collateral; (h) demand, collect, receipt for and give renewals, extensions, discharges and releases of any of the Collateral; (i) institute and prosecute legal and equitable proceedings to enforce collection of, or realize upon, any of the Collateral; (j) settle, renew, extend, compromise, compound, exchange or adjust claims in respect of any of the Collateral or any legal proceedings brought in respect thereof; (k) endorse the name of any of the Borrowers upon any items of payment relating to the Collateral or on any Proof of Claim in Bankruptcy against an Account Debtor; and (l) notify the Post Office authorities to change the address for the delivery of mail to the Borrowers to such address or Post Office Box as the Administrative Agent may designate and receive and open all mail addressed to the Borrowers. In addition, the Borrowers shall, following an Event of Default promptly, upon request, execute and deliver to the Administrative Agent written assignments, to the extent permitted by applicable law, in form and content acceptable to the Administrative Agent, of specific Accounts or groups of Accounts; provided, however, that the lien and/or security interest granted to the Lenders under this Agreement shall not be limited in any way to or by the inclusion or exclusion of Accounts within such assignments. Such Accounts shall secure payment of the Obligations and are not sold to the Lenders whether or not any assignment thereof, which is separate from this Agreement, is in form absolute. 81 88 Following an Event of Default, the Lenders may also direct the Borrowers to appoint a manager for any or all of the Facilities and enter into a management agreement with one or more management companies approved by the Lenders, the terms of which agreement shall be approved by the Lenders. Section 10.4 Performance by Lenders Following an Event of Default, the Administrative Agent without the necessity of prior notice to or demand upon the Borrowers and without waiving or releasing any of the Obligations or any Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Borrowers, and may enter upon the premises of the Borrower for that purpose and take all such action thereon as the Administrative Agent may consider necessary or appropriate for such purpose. The Administrative Agent will give the Borrowers notice, at least subsequently, of any such performance by the Administrative Agent. All sums so paid or advanced by the Administrative Agent and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred in connection therewith (the "Expense Payments") together with interest thereon from the date of payment, advance or incurring until paid in full at the Post-Default Rate shall be paid by the Borrowers to the Administrative Agent on demand and shall constitute and become a part of the Obligations. Section 10.5 Remedies on Default The Administrative Agent shall have the right, upon the happening of any Event of Default, to terminate this Agreement by Notice from the Administrative Agent to the Borrowers and, in addition to any rights or remedies available to them under the Deed of Trust or any of the other Financing Documents, to enter into possession of any of the Property and perform any and all work and labor necessary to complete the development of such Land and the construction of the Improvements thereon (whether or not in accordance with the Plans and Specifications therefor) and to employ watchmen to protect the Property and the Improvements. All sums expended by the Lenders for such purposes shall be deemed to have been advanced to the Borrowers under the Note and shall be secured by the Deeds of Trust and the Collateral. For this purpose, the Borrowers hereby constitute and appoint the Lenders, or the Administrative Agent on behalf of the Lenders, its true and lawful attorney-in-fact with full power of substitution to complete work on any Eligible Project in the name of the Borrowers, and hereby empowers said attorney or attorneys as follows: (a) To use any funds of any of the Borrowers including any balance which may be held in escrow and any funds which may remain un-advanced under any of the Loan for the purpose of completing the development of any of the Land and the construction of any of the Improvements, whether or not in the manner called for in the Plans and Specifications; (b) To make such additions and changes and corrections to any of the Plans and Specifications which shall be necessary or desirable in the judgment of the Administrative 82 89 Agent to complete the development of any of the Land and the construction of any of the Improvements; (c) To employ such contractors, subcontractors, agents, architects and inspectors as shall be necessary or desirable for said purpose; (d) To pay, settle or compromise all existing bills and claims which are or may be liens against any of the Property, or may be necessary or desirable for the completion of the work or the clearance of title to any of the Property; (e) To execute all applications and certificates which may be required in the name of any of the Borrowers; and (f) To do any and every act with respect to the development of the Land and the construction of the Improvements which any of the Borrowers may do in its own behalf. It is understood and agreed that this power of attorney shall be deemed to be a power coupled with an interest which cannot be revoked. Said attorney-in-fact shall also have the power to prosecute and defend all actions or proceedings in connection with the development of the Land and the construction of the Improvements and to take such actions and to require such performance as the Lenders may deem necessary. Section 10.6 Uniform Commercial Code and Other Remedies Upon the occurrence of an Event of Default (and in addition to all of its rights, powers and remedies under this Agreement), the Lenders shall have all of the rights and remedies of a secured party under the applicable Uniform Commercial Code and other applicable laws, and the Lenders are authorized to offset and apply to all or any part of the Obligations all moneys, credits and other property of any nature whatsoever of the Borrowers now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with, any of the Lenders; and upon demand by the Administrative Agent, the Borrowers shall assemble the Collateral and make it available to the Lenders, at a place designated by the Administrative Agent; and the Lenders or their agents may enter upon the Borrowers' premises to take possession of the Collateral, to remove it, to render it unusable, or to sell or otherwise dispose of it. Any written notice of the sale, disposition or other intended action by the Lenders with respect to the Collateral which is sent by regular mail, postage prepaid, to the Borrowers at the address set forth in Article XI hereof, or such other address of the Borrowers which may from time to time be shown on the Lenders' records, at least ten (10) days prior to such sale, disposition or other action, shall constitute reasonable notice to the Borrowers. The Borrowers shall pay on demand all costs and expenses, including, without limitation, attorney's fees and expenses, incurred by or on behalf of the Lenders, or any of them, in preparing for sale or other disposition, selling, managing, collecting or otherwise disposing of, the Collateral. All of such costs and expenses (the "Liquidation Costs") together with interest thereon from the date 83 90 incurred until paid in full at the Post-Default Rate, shall be paid by the Borrowers to the Administrative Agent on demand and shall constitute and become a part of the Obligations. Any proceeds of sale or other disposition of the Collateral will be applied by the Lenders to the payment of the Liquidation Costs and Expense Payments, and any balance of such proceeds will be applied by the Lenders to the payment of the balance of the Obligations in such order and manner of application as the Lenders may from time to time in its sole discretion determine. After such application of the proceeds, any balance shall be paid to the applicable Borrowers or to any other party entitled thereto. Section 10.7 Receiver or Other Court Order Following an Event of Default, as a matter of right, following ten (10) days notice and without regard to the adequacy of the security, and upon application to a court of competent jurisdiction, the Lenders shall be entitled to the immediate appointment of a receiver for all or any part of the Collateral, and of the payments and proceeds thereof and therefrom, whether such receivership be incidental to a proposed sale of the Collateral or otherwise, and the Borrowers hereby consent to the appointment of such a receiver and to an order of court directing that payments, including Medicare and Medicaid payments, be made directly to the receiver. The Borrowers will pay to the Beneficiary, upon demand, all expenses, including receiver's fees, attorney's fees, costs and agents compensation, advanced by the Borrowers and incurred pursuant to the provisions contained in this Section. Section 10.8 No Conditions Precedent to Exercise of Remedies The Borrowers shall not be relieved of any obligation by reason of the failure of the Lenders to comply with any request of the Borrowers or of any other person to take action to foreclose on the Property under the Deed of Trust or otherwise to enforce any provision of the Financing Documents, or by reason of the release, regardless of consideration, of all or any part of the Property, or by reason of any agreement or stipulation between any subsequent owner of the Property and the Lenders extending the time of payment or modifying the terms of the Financing Documents without first having obtained the consent of the Borrowers; and in the latter event, the Borrowers shall continue to be liable to make payments according to the terms of any such extension or modification agreement, unless expressly released and discharged in writing by the Lenders. Section 10.9 Remedies Cumulative and Concurrent No remedy herein conferred upon or reserved to the Lenders or the Administrative Agent is intended to be exclusive of any other remedies provided for in the Financing Documents, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder, or under the Financing Documents, or now or hereafter existing at law or in equity or by statute. Every right, power and remedy given by the Financing Documents to the 84 91 Lenders or the Administrative Agent shall be concurrent and may be pursued separately, successively or together against any or all of the Borrowers or the Property or any part thereof, and every right, power and remedy given by the Financing Documents may be exercised from time to time as often as may be deemed expedient by the Lenders or the Administrative Agent. Section 10.10 Strict Performance No delay or omission of the Lenders or the Administrative Agent to exercise any right, power or remedy accruing upon the happening of an Event of Default shall impair any such right, power or remedy or shall be construed to be a waiver of any such Event of Default or any acquiescence therein. No delay or omission on the part of the Lenders or the Administrative Agent to exercise any option for acceleration of the maturity of the Obligations, or any of them, or for foreclosure of the Deeds of Trust, or any of them, following any Event of Default as aforesaid, or any other option granted to the Lenders hereunder in any one or more instances, or the acceptance by the Lenders of any partial payment on account of the Obligations shall constitute a waiver of any such Event of Default and each such option shall remain continuously in full force and effect. ARTICLE XI MISCELLANEOUS Section 11.1 Notices All notices, certificates or other communications hereunder shall be deemed given when delivered by hand or courier, or three (3) Banking Days after being mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Administrative Agent BANK OF AMERICA, N.A. or the Lenders: 10 Light Street Baltimore, Maryland 21202 Attn: Leslie M. Zuga Senior Vice President with a courtesy copy to: Mays & Valentine, L.L.P. 8201 Greensboro Drive Suite 800 McLean, Virginia 22102 Attn: Margaret Ann Brown, Esq. 85 92 if to the Borrowers: c/o SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP c/o Sunrise Assisted Living Investments, Inc. 7902 Westpark Drive McLean, Virginia 22102 Attention to each of the following separately delivered or mailed: David W. Faeder Thomas B. Newell, Esq. James S. Pope with a courtesy Wayne G. Tatusko, Esquire copy to: Watt, Tieder, Hoffar & Fitzgerald 7929 Westpark Drive McLean, Virginia 22102 Section 11.2 Consents and Approvals If any consent, approval, or authorization of any Governmental Authority or of any Person having any interest therein, should be necessary to effectuate any sale or other disposition of the Collateral, the Borrowers agree to execute all such applications and other instruments, and to take all other action, as may be required in connection with securing any such consent, approval or authorization. Section 11.3 Remedies, etc. Cumulative Each right, power and remedy of the Lenders as provided for in this Agreement or in any of the other Financing Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Agreement or in any of the other Financing Documents or now or hereafter existing at law or in equity, by statute or otherwise, and the exercise or beginning of the exercise by the Lenders of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lenders of any or all such other rights, powers or remedies. In order to entitle the Lenders to exercise any remedy reserved to it herein, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Section 11.4 No Waiver of Rights by the Lenders No failure or delay by the Administrative Agent or the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing Documents, or to exercise any right, 86 93 power or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant or agreement or of any such breach or preclude the Administrative Agent or the Lenders from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, neither the Administrative Agent nor the Lenders shall be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. Section 11.5 Entire Agreement The Financing Documents shall completely and fully supersede all other agreements, both written and oral, between the Lenders and any of the Borrowers relating to the Obligations. Neither the Lenders nor the Borrowers shall hereafter have any rights under such prior agreements but shall look solely to the Financing Documents for definition and determination of all of their respective rights, liabilities and responsibilities relating to the Obligations. Section 11.6 Survival of Agreement; Successors and Assigns All covenants, agreements, representations and warranties made by the Borrowers herein and in any certificate, in the Financing Documents and in any other instruments or documents delivered pursuant hereto shall survive the making by the Lenders of the Loan and the execution and delivery of the Note, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrowers which are contained in this Agreement shall inure to the benefit of the respective successors and assigns of each of the Lenders, and all covenants, promises and agreements by or on behalf of the Lenders which are contained in this Agreement shall inure to the benefit of the permitted successors and permitted assigns of the Borrowers, but this Agreement may not be assigned by the Borrowers without the prior written consent of the Lenders. Section 11.7 Expenses The Borrowers agree to pay all reasonable out-of-pocket expenses of the Lenders and Banc of America Securities LLC (excluding travel expenses but including the reasonable fees and expenses of the legal counsel of the Administrative Agent or any other Lender) in connection with the preparation of this Agreement, the issuance of the Loan hereunder, the recordation of all financing statements and such other instruments as may be required by the Administrative Agent at the time of, or subsequent to, the execution of this Agreement to secure the Obligations (including any and all recordation tax and other costs and taxes incident to recording), the administration of the Credit Facility (not otherwise contemplated by any fee paid by the Borrowers), any future modification of the Financing Documents, the addition of Eligible Projects to the Borrowing Base or the enforcement of any provision of this Agreement and the collection of the Obligations. The Borrowers agree to indemnify and save harmless the Lenders from any liability resulting from the failure to pay any required recordation tax, transfer taxes, recording costs or any other expenses incurred by the Lenders in connection with the Obligations. 87 94 The provisions of this Section shall survive the execution and delivery of this Agreement and the repayment of the Obligations. The Borrowers further agree to reimburse the Lenders upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses and travel expenses) incurred by the Lenders, or any of them, in enforcing any of the Obligations or any security therefor or incurred in connection with any bankruptcy proceeding or in any post-judgment enforcement or collection action, together with interest at the Post-Default Rate which agreement shall survive the termination of this Agreement and the repayment of the Obligations. Section 11.8 Counterparts This Agreement may be executed in any number of counterparts all of which together shall constitute a single instrument. Section 11.9 Governing Law This Agreement and all of the other Financing Documents shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia; provided, however, any Deed of Trust and any financing statements covering fixtures securing such Loan shall be governed by, and construed in accordance with, the laws of the state in which the applicable Facility is located. Section 11.10 Modifications No modification or waiver of any provision of this Agreement or of any of the other Financing Documents, nor consent to any departure by the Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in the same, similar or other circumstance. Section 11.11 Illegality If fulfillment of any provision hereof or any transaction related hereto or to any of the other Financing Documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if any clause or provisions herein contained other than the provisions hereof pertaining to repayment of the Obligations operates or would prospectively operate to invalidate this Agreement in whole or in part, then such clause or provision only shall be void, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect; and if such provision pertains to repayment of the Obligations, then, at the options of the Lenders, all of the Obligations of the Borrowers to the Lenders shall become immediately due and payable. Section 11.12 Gender, etc. 88 95 Whenever used herein, the singular number shall include the plural, the plural the singular and the use of the masculine, feminine or neuter gender shall include all genders. Section 11.13 Headings The headings in this Agreement are for convenience only and shall not limit or otherwise affect any of the terms hereof. Section 11.14 Waiver of Trial by Jury THE BORROWER AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH ANY OF THEM MAY BE PARTIES, NOT GOVERNED BY THE ARBITRATION PROVISIONS OF THE NOTE OR THE GUARANTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Borrowers and the Lenders, and the Borrowers and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Borrowers and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. Section 11.15 No Warranty by Lenders By accepting or approving anything required to be observed, performed or fulfilled by the Borrowers or to be given to the Administrative Agent or the Lenders pursuant to this Agreement, including, without limitation, any certificate, balance sheet, statement of profit and loss or other financial statement, Survey, receipt, appraisal or insurance policy, the Lenders shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof and any such acceptance or approval thereof shall not be or constitute any warranty or representation with respect thereto by the Lenders. Section 11.16 Liability of the Lenders No Lender shall be liable for another Lender's failure to fund its ratable share of any advance under the Loan. The Lenders shall not be liable for any other act or omission by the Lenders, or any of them, pursuant to the provisions of this Agreement in the absence of fraud or gross negligence. The Lenders shall incur no liability to the Borrowers or any other party in connection with the acts or omissions of any of the Lenders in reliance upon any certificate or 89 96 other paper believed by the Lenders to be genuine or with respect to any other thing which the Lenders may do or refrain from doing, unless such act or omission amounts to fraud or gross negligence. The Borrowers hereby agree that the Lenders shall not be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Lenders, or any of them, (except for the gross negligence or willful misconduct of any person, corporation, partnership or other entity employed by any of the Lenders) in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. The Borrowers, jointly and severally, shall indemnify, defend and hold the Lenders and their successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorney's fees and court costs) arising from or in connection with this Agreement. Any indemnity provision for the benefit of the Lenders set forth herein or in any of the Financing Documents shall extend to any other lender who becomes a Lender under the Credit Facility. The provisions of this Section shall survive the termination of the Credit Facility. Section 11.17 License of Tradename The Borrowers do hereby grant to each of the Lenders and their affiliates and any trustee under a Deed of Trust and their management company a license to use the name of any Borrower and the name "Sunrise", "Dignity Home Care", "Respect Home Care" or "Karrington" and any marks associated therewith in the operation of a Facility upon such Lender's or trustee's taking of possession or taking over management of a Facility or acquiring title thereto at a foreclosure sale which license shall be in effect for a period of thirty (30) months from the date thereof. The Borrowers further agree that a third-party purchaser of a Facility may continue to operate the Facility under the name of any Borrower unless such Borrower objects in writing thereto. Section 11.18 No Partnership Nothing contained in this Agreement shall be construed in a manner to create any relationship between the Borrowers and the Lenders other than the relationship of borrower and lender and the Borrowers and the Lenders shall not be considered partners or co-venturers for any purpose on account of this Agreement. Section 11.19 Third Parties; Benefit All conditions to the obligation of the Lenders to make advances hereunder are imposed solely and exclusively for the benefit of the Lenders and their assigns and no other persons shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that the Lenders will refuse to make advances in the absence of strict compliance with any or all thereof and no other person shall, under any circumstances, be deemed to be the beneficiary of such conditions, any or all of which may be freely waived in whole or in part by the Administrative Agent at any time in the sole and absolute exercise of its discretion pursuant to its agreements with the Lenders. The terms and provisions of this 90 97 Agreement are for the benefit of the parties hereto and, except as herein specifically provided, no other person shall have any right or cause of action on account thereof. Section 11.20 Conditions; Verification Any condition of this Agreement which requires the submission of evidence of the existence or non-existence of a specified fact or facts implies as a condition to the existence or non-existence, as the case may be, of such fact or facts that the Lenders shall, at all times, be free independently to establish to their satisfaction and in its absolute discretion such existence or non-existence. Section 11.21 Signs; Publicity At the Administrative Agent's request, but at the expense of the Administrative Agent, the Borrowers shall place a sign acceptable to the Borrowers at a location on each of the Eligible Projects under construction satisfactory to the Administrative Agent, which sign shall recite, among other things, that the Lenders are financing the development of the Land and the construction of the Improvements. The Borrowers expressly authorize the Administrative Agent to prepare and to furnish to the news media for publication from time to time news releases with respect to the Credit Facility and each Eligible Project, specifically to include but not limited to, releases detailing the Administrative Agent's and the Lenders' involvement with the Credit Facility and the financing of any Eligible Project, all subject to prior review by the Borrowers. Section 11.22 Time of Essence Time shall be of the essence for each and every provision of this Agreement of which time is an element. Section 11.23 Replacement Note In the event any Joinder Agreement is ever lost or destroyed, the Borrowers covenant and agree that they will execute and deliver to the Administrative Agent upon demand a replacement original thereof. [SIGNATURES ON THE FOLLOWING PAGE] 91 98 IN WITNESS WHEREOF, the parties hereto have signed and sealed this Agreement on the day and year first above written. WITNESS/ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company By: Sunrise Development, Inc., Managing Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President 92 99 SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President 93 100 SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President 94 101 SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company 95 102 By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership 96 103 By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE WESTON ASSISTED LIVING LIMITED PARTNERSHIP, a Massachusetts limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE CLAREMONT ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., 97 104 General Partner By:/s/ James S. Pope (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President WITNESS: BANK OF AMERICA, N.A., as Administrative Agent for the Lenders By: /s/ Leslie M. Zuga (SEAL) - --------------------------- -------------------------------- Leslie M. Zuga Senior Vice President 98 105 LIST OF EXHIBITS A Form of Note B Form of Borrowing Base Report C Current Borrowing Base Report D Places of Business E Form of Joinder Agreement F Survey Requirements G Form of Compliance Certificate H List of Assets Held for Sale EXHBIT A-1 106 EXHIBIT A FORM OF NOTE SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE THIS SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE is made this 29th day of July, 1999, by (i) SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP ("SEAL"), a Virginia limited partnership, (ii) SUNRISE SEAL, L.L.C. ("Sunrise SEAL"), a Virginia limited liability company, (iii) SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership and SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership (collectively, the "SEAL Affiliates") (SEAL, Sunrise SEAL and the SEAL Affiliates sometimes referred to herein collectively as the "Borrowers") and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., its successors and assigns, successor by merger to NationsBank, N.A., as administrative agent (the "Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating in a bank group pursuant to a Second Amended and Restated Agency Agreement of even date herewith (as amended, restated or substituted from time to time, the "Agency Agreement"). RECITALS A. The Lenders have provided a credit facility (such credit facility, as modified, increased, extended, restated or substituted, is referred to hereinafter as the "Credit Facility" or the "Loan") in the maximum principal sum of $250,000,000. Advances or readvances have been made pursuant to, and secured by, the provisions of that certain Amended and Restated Financing and Security Agreement dated December 23, 1997 by and between the Administrative Agent and SEAL (as amended, restated or substituted from time to time, the "Existing Financing Agreement") and that certain Amended and Restated Master Construction Loan Agreement dated December 23, 1997 by and between the Administrative Agent and SEAL (as amended, restated or substituted from time to time, the "Construction Agreement"). B. The Loan is evidenced by that certain Amended, Restated, Consolidated and Increased Master Promissory Note dated December 23, 1997 payable by SEAL to Administrative Agent on behalf of the Lenders as amended pursuant to the First Amendment to Amended, EXHBIT A-2 107 Restated, Consolidated and Increased Promissory Note and Additional Borrower Joinder Supplement by and among SEAL, Sunrise SEAL and the Administrative Agent (collectively, the "Original Note"). C. As of December 30, 1998, the Credit Facility was amended by adding Sunrise SEAL as a co-borrower pursuant to amendments to the Original Note, the Existing Financing Agreement and certain other Financing Documents executed in connection therewith. D. The Lenders have agreed to increase the Credit Facility Committed Amount to $400,000,000. In connection with such increase and other modifications to the Credit Facility, the Existing Financing Agreement and the Construction Agreement are being amended, restated and consolidated pursuant to the Second Amended and Restated Financing and Security Agreement of even date herewith (as amended, restated or substituted from time to time the "Financing Agreement"). E. Certain Eligible Projects owned by Sunrise Riverside Assisted Living, L.P., Sunrise Huntcliff Assisted Living Limited Partnership, Sunrise Sterling Canyon Assisted Living Limited Partnership, Sunrise Paramus Assisted Living Limited Partnership, Sunrise Fairfield Assisted Living, L.P., Sunrise Bellevue Assisted Living Limited Partnership, Sunrise Oakland Assisted Living Limited Partnership, Sunrise Walnut Creek Assisted Living Limited Partnership, and Sunrise Decatur Assisted Living Limited Partnership (collectively, the "SEAL Affiliates") have been financed under the Credit Facility, and the SEAL Affiliates have guaranteed the Credit Facility but have not been added as borrowers under the Credit Facility. F. In connection with the increase to the Credit Facility, (i) the SEAL Affiliates, and (ii) every other entity beneficially owned, in whole or in part, directly or indirectly, by Sunrise Assisted Living, Inc. which hereafter pledges an Eligible Property as collateral for the Credit Facility and enters into a Joinder Agreement pursuant to the terms of the Financing Agreement (collectively, the "Additional SEAL Affiliates") are to be added as borrowers under the Credit Facility. G. The Note, the Deeds of Trust (as defined in the Financing Agreement), the Financing Agreement, the Security Documents (as defined in the Financing Agreement), and all other documents evidencing or securing the Loan are hereinafter referred to collectively as the "Financing Documents." H. All capitalized terms used and not defined herein shall have the meaning given to such terms in the Financing Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Administrative Agent and the Borrower covenant and agree as follows: EXHBIT A-3 108 1. The above Recitals are incorporated herein by reference. 2. The Original Note is hereby amended and restated in its entirety as follows: $400,000,000 July 29, 1999 FOR VALUE RECEIVED, SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership, SUNRISE SEAL, L.L.C., a Virginia limited liability company, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership and SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership (collectively referred to herein as the "Borrower"), promises to pay to the order of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A. its successors and assigns (the "Administrative Agent") as administrative agent for itself and the other lenders who are or shall be from time to time participating as lenders (collectively with the Administrative Agent, the "Lenders") hereunder pursuant to the Second Amended and Restated Agency Agreement of even date herewith, (as amended, restated or substituted from time to time, the "Agency Agreement"), the maximum principal sum of FOUR HUNDRED MILLION AND NO/100 DOLLARS ($400,000,000) (the "Principal Sum") or such greater amount as the Lenders may from time commit to lend pursuant hereto and to the Agency Agreement, or so much thereof as may be advanced or readvanced to or for the account of the Borrower pursuant to the terms and conditions of the Financing Agreement (as hereinafter defined), together with interest thereon at the rate or rates hereinafter provided. All defined terms not otherwise defined herein shall have the meaning set forth in the Financing Agreement. 1. Interest. Interest on portions of the outstanding Principal Sum shall accrue and be payable for periods of thirty (30) days each or periods of seven (7) days each (each a "Eurodollar Period") at a fixed rate for such Eurodollar Period equal to the sum of (i) Eurodollar Rate (as defined in the Financing Agreement), which rate shall be adjusted for any Federal Reserve Board reserve requirements imposed upon the Administrative Agent or any of the Lenders from time to time, plus (ii) that certain number of basis points per annum (the "Spread") applicable pursuant to the conditions set forth below. The Eurodollar Rate determined pursuant to the preceding sentence shall be in effect to the end of the applicable Eurodollar Period. Interest payable hereunder shall also be subject to the conditions set forth in Section 2.4 of the Financing Agreement. No more than six (6) different Eurodollar Periods may be in effect at any one time provided that EXHBIT A-4 109 not more than one (1) Eurodollar Period may be a seven day Eurodollar Period. Interest shall be computed for the actual number of days which have elapsed from the date of each advance of a portion of the Principal Sum calculated on the basis of a 365-day year. For any Eurodollar Period commencing on a date when one or more of SEAL, Sunrise SEAL or Guarantor (as defined in the Financing Agreement) has a senior secured debt rating from each of Moody's and Standard & Poors and not lower, respectively, than BBB- and Baa3, the Spread shall be determined according to the following grid based on the lower rating, if any, of either Moody's or Standard & Poors.
STANDARD & POORS MOODY'S SENIOR SECURED DEBT RATING Senior Secured Debt Rating SPREAD -------------------------- -------------------------- ------ A- A3 100 BBB+ Baa1 110 BBB Baa2 120 BBB- Baa3 130
If a senior secured debt rating is not available from both Standard & Poors and Moody's, an implied senior secured debt rating will be used. The implied senior secured debt rating for both Standard & Poors and Moody's will be equivalent to the lower of either (A) one level above the lower of Standard & Poors and Moody's senior unsecured debt rating, or (B) two levels above Standard & Poors and Moody's subordinated debt rating. In all cases where a Spread based on an actual or implied secured debt rating is not available or is lower than above, the Spread shall be one hundred fifty (150) basis points. 2. Payments and Maturity. (a) Interest only on the outstanding principal balance of the Loan shall be due and payable on the fifteenth (15th) day of the first (1st) month following the date hereof and on the fifteenth (15th) day of each and every month thereafter for a total of thirty-six (36) consecutive months unless otherwise extended pursuant to the terms of the Financing Agreement; and (b) Principal sums repaid prior to the Maturity Date (as hereinafter defined) may be reborrowed pursuant to the terms of the Financing Documents. (c) The outstanding principal balance of the Loan and all accrued and unpaid interest thereon shall be due and owing at the Maturity Date. (d) The Loan shall mature and the entire principal balance of the Loan, together with all accrued and unpaid interest thereon, shall be due and payable on the date (the "Maturity Date") referred to in the Financing Agreement as the Revolving Credit Termination Date. EXHBIT A-5 110 The fact that the balance hereunder may be reduced to zero from time to time pursuant to the Financing Agreement will not affect the continuing validity of this Note or the Financing Agreement, and the balance may be increased to the Principal Sum after any such reduction to zero. 3. Default Interest. Upon the occurrence of an Event of Default (as hereinafter defined), the unpaid Principal Sum shall bear interest thereafter until such Event of Default is cured at a rate which is at all times equal to three percent (3%) per annum in excess of the rate or rates of interest otherwise payable hereunder. 4. Late Charges. In the event that any payment due hereunder is not received by the Administrative Agent within fifteen (15) days of the date such payment is due (inclusive of the date when due), the Borrower shall pay to the Administrative Agent on demand a late charge equal to four percent (4%) of such payment. 5. Application and Place of Payments. Unless an Event of Default (as hereinafter defined) has occurred, all payments made on account of this Note, including prepayments, shall be applied in the following order: (a) First, to all Enforcement Costs and other expenses of the Administrative Agent and/or the Lenders; (b) Second, to all amounts due to the Administrative Agent (in its capacity as Administrative Agent) from the Borrowers or the Lenders; (c) Third, to the Lenders, in accordance with their respective pro rata shares of the Loan, for the past due interest on the Note; (d) Fourth, to the payment of any prepayment penalty due under Section 4.8 of the Financing Agreement. EXHBIT A-6 111 (e) Fifth, to the Lenders, in accordance with their respective pro rata shares of the Loan, for principal of the Note in the order hereinafter provided plus the pro rata share of the settlement payments due to the Administrative Agent or other Lender who provided the Interest Rate Protection (as defined in the Financing Agreement) to the Borrowers (the "Settlement Payments"); (f) Sixth, to the Lenders, in accordance with their respective pro rata shares of the Loan, for past due fees required under the Financing Documents; (g) Seventh, to the Lenders, in accordance with their respective pro rata shares of the Loan, for all other amounts owed the Lenders pursuant to the provisions of the Financing Agreement, this Agreement or the Financing Documents, including but not limited to any unpaid Commitment Fees; and (h) Eighth, to the Administrative Agent, in payment or reimbursement of any over-drafts in any account of the Borrowers. The application of payments after an Event of Default shall be determined by the Administrative Agent. All payments on account of this Note shall be paid in lawful money of the United States of America in immediately available funds during regular business hours of the Administrative Agent at its principal office in Baltimore, Maryland or at such other times and places as the Administrative Agent may at any time and from time to time designate in writing to the Borrower. Any payment received after 2:30 p.m. (Baltimore Time) shall be deemed to have been received on the next Banking Day. 6. Prepayment. The Borrower shall have the right to prepay the Principal Sum in full or in part, at any time and from time to time in accordance with Section 4.8 of the Financing Agreement. Sums repaid may be reborrowed. 7. Financing Agreement and Other Financing Documents. This Note is the Note described in the Second Amended and Restated Financing and Security Agreement of even date by and among the Borrowers and the Administrative Agent (as amended or otherwise modified from time to time, the "Financing Agreement"). The term "Financing Documents" as used in this Note shall mean collectively this Note, the Financing Agreement, all Deeds of Trust (as further amended or otherwise modified from time to time), all of the other Financing Documents (as defined in the Financing Agreement) and any other instrument, agreement, or document previously, simultaneously, or hereafter executed and delivered by the Borrower and/or any other person, singularly or jointly with any other person, evidencing, securing, guaranteeing, or in connection with the Credit Facility or the Loan. 8. Security. This Note is secured by, among other things, certain deeds of trust or mortgages (each as amended, restated or substituted from time to time, a "Deed of Trust" collectively, the "Deeds of Trust"), covering that real estate owned by the Borrower and the EXHBIT A-7 112 improvements thereon more particularly described in the Deeds of Trust identified on any Borrowing Base Report or listing of Optional Collateral and all other property, real and personal, more particularly described in the Deeds of Trust (collectively, the "Property"). 9. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (individually, an "Event of Default" and collectively, the "Events of Default") under the terms of this Note: (a) The failure of the Borrower to pay to the Administrative Agent when due any and all amounts payable by the Borrower to the Lenders under the terms hereunder and such failure continues for five (5) calendar days after notice thereof by the Administrative Agent, except with regard to payment of amounts due at maturity for which no notice or cure period shall be required to be given and except for a Borrowing Base Deficiency (as defined in the Financing Agreement) which shall be payable as provided in the Financing Agreement; or (b) The occurrence of a Default or an Event of Default (as those terms are defined in the Financing Agreement) under the terms and conditions of any of the other Financing Documents, which Default or Event of Default remains uncured beyond any applicable grace and/or cure period provided therefor. 10. Remedies. Upon the occurrence of an Event of Default, at the option of the Lenders, all amounts payable by the Borrower to the Lenders under the terms hereof shall immediately become due and payable by the Borrower to the Lenders without notice to the Borrower or any other person, and the Lenders shall have all of the rights, powers, and remedies available under the terms of this Note, any of the other Financing Documents and all applicable laws. The Borrower and all endorsers, guarantors, and other parties who may now or in the future be primarily or secondarily liable for the payment of the indebtedness under the Loan hereby severally waive presentment, protest and demand, notice of protest, notice of demand and of dishonor and non-payment of this Note and expressly agree that this Note or any payment hereunder may be extended from time to time without in any way affecting the liability of the Borrower, guarantors and endorsers. The Borrower and all endorsers, guarantors, and other parties who may now or in the future be liable for payment of the Obligations hereby acknowledge that all advances under the Loan will be made under and will be evidenced by this Note. 11. Mandatory Arbitration. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Note or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), as promulgated from time to time by the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc., predecessor in interest to Endispute, Inc., doing business as "J.A.M.S./Endispute" and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. EXHBIT A-8 113 Any party to this Note may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The foregoing notwithstanding, in a claim pertaining to a Deed of Trust or Collateral located in a state with "one-action" rule which might limit to Lenders' remedies, the Administrative Agent shall have the right in its sole discretion to restrict the application of this arbitration provision to the extent that it would otherwise result in a limitation on the Lenders' remedies in such state. (i) Special Rules. The arbitration shall be conducted in Fairfax County, Virginia and administered by J.A.M.S./Endispute who will appoint an arbitrator pursuant to its rules of practice and procedure; if J.A.M.S./Endispute is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) calendar days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) calendar days. (ii) Reservations of Rights. Nothing in this Note shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Note; or (ii) be a waiver by Administrative Agent of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of the Administrative Agent or the Lenders (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. The Administrative Agent or the Lenders may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Note. At the Administrative Agent's or the Lenders' option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Notwithstanding the foregoing, in the event that the Administrative Agent or the Lenders exercise such self help remedies or other actions, the Borrower has not waived any of its rights to seek legal or equitable relief to defend against the Administrative Agent's or the Lenders' exercise of such self help remedies or other actions. No provision in the Financing Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Financing Document for arbitration of any controversy or claim. (iii) Confidentiality. Any arbitration proceeding, award, findings of fact, conclusions of law, or other information concerning such arbitration matters shall be held in confidence by the parties and shall not be disclosed except to each party's employees or agents as shall be reasonably necessary for such party to conduct its business; provided, however, that EXHBIT A-9 114 either party may disclose such information for auditing purposes by independent certified public accountants, for complying with applicable governmental laws, regulations or court orders, or that is or becomes part of the public domain through no breach of this Note. 12. Consent to Jurisdiction. The Borrower irrevocably submits to the jurisdiction of any state or federal court sitting in the Commonwealth of Virginia over any suit, action, or proceeding arising out of or relating to this Note. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection that the Borrower may now or hereafter have to the laying the venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the Borrower and may be enforced in any court in which the Borrower is subject to jurisdiction by a suit upon such judgment provided that service of process is effected upon the Borrower as provided in this Note or as otherwise permitted by applicable law. 13. Service of Process. (a) The Borrower hereby irrevocably designates and appoints Wayne G. Tatusko, Esquire of Watt, Tieder, Hoffar & Fitzgerald, 7929 Westpark Drive, McLean, Virginia 22102, as the Borrower's authorized agent to accept and acknowledge on the Borrower's behalf service of any and all process that may be served in any suit, action, or proceeding instituted in connection with this Note in any state or federal court sitting in the Commonwealth of Virginia. If such agent shall cease so to act, the Borrower shall irrevocably designate and appoint without delay another such agent in the Commonwealth of Virginia satisfactory to the Lenders and shall promptly deliver to the Administrative Agent evidence in writing of such agent's acceptance of such appointment and its agreement that such appointment shall be irrevocable. (b) The Borrower hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Note by (i) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to the Borrower and (ii) serving a copy thereof upon the agent hereinabove designated and appointed by the Borrower as the Borrower's agent for service of process. The Borrower irrevocably agrees that such service shall be deemed to be service of process upon the Borrower in any such suit, action, or proceeding. Nothing in this Note shall affect the right of the Lenders to serve process in any manner otherwise permitted by law and nothing in this Note will limit the right of the Lenders otherwise to bring proceedings against the Borrower in the courts of any jurisdiction or jurisdictions. 14. WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING NOT REQUIRED TO BE ARBITRATED PURSUANT TO THE TERMS HEREOF TO WHICH THE BORROWER AND THE LENDERS, OR ANY OF THEM, MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE, (B) THE OTHER FINANCING DOCUMENTS OR (C) ANY OF THE PROPERTY. IT IS AGREED AND EXHBIT A-10 115 UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, AND THE BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 15. Expenses. The Borrower promises to pay to the Administrative Agent on demand by the Administrative Agent all costs and expenses incurred by the Lenders in connection with the collection and enforcement of this Note, including, without limitation, all reasonable attorneys' fees and expenses and all court costs. 16. Notices. Any notice, request, or demand to or upon the Borrower or the Lenders shall be deemed to have been properly given or made when delivered in accordance with Section 11.1 of the Financing Agreement. 17. Miscellaneous. Each right, power, and remedy of the Lenders as provided for in this Note or any of the other Financing Documents, or now or hereafter existing under any applicable law or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Note or any of the other Financing Documents or now or hereafter existing under any applicable law, and the exercise or beginning of the exercise by the Lenders of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Lenders of any or all such other rights, powers, or remedies. No failure or delay by the Lenders to insist upon the strict performance of any term, condition, covenant, or agreement of this Note or any of the other Financing Documents, or to exercise any right, power, or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant, or agreement or of any such breach, or preclude the Lenders from exercising any such right, power, or remedy at a later time or times. By accepting payment after the due date of any amount payable hereunder, the Lenders shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under the terms hereof or to declare an Event of Default for the failure to effect such prompt payment of any such other amount. No course of dealing or conduct shall be effective to amend, modify, waive, release, or change any provisions of this Note. 18. Partial Invalidity. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note; but this Note shall be construed as if such EXHBIT A-11 116 invalid, illegal, or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal, or unenforceable. 19. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit, or describe the scope or intent of this Note. 20. Governing Law. The provisions of this Note shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia as the same may be in effect from time to time. 3. It is expressly understood and agreed that the indebtedness evidenced by the Original Note has not been extinguished or discharged hereby and is consolidated herein. The Borrower and/or the Administrative Agent agree that the execution of this Note is not intended and shall not cause or result in a novation with regard to the Original Note. 4. This Note may be executed in one or more counterparts each of which shall constitute an original for all purposes; provided, however, that all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the Borrowers and the Administrative Agent have caused this Second Amended, Restated and Increased Master Promissory Note to be executed, under seal, by their duly authorized representatives, as of the date first written above. BORROWERS: WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company EXHBIT A-12 117 By: Sunrise Development, Inc., - --------------------------- Managing Member By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE PARAMUS ASSISTED LIVING LIMITED EXHBIT A-13 118 PARTNERSHIP, a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited EXHBIT A-14 119 partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- general partner By: (SEAL) ---------------------------- James S. Pope Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., - --------------------------- its general partner By: (SEAL) ---------------------------- James S. Pope Vice President ADMINISTRATIVE AGENT: WITNESS: BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor by merger to NationsBank, N.A., as Administrative Agent for itself and the Other Lenders By: (SEAL) ---------------------------- Sabina Kelly Senior Vice President EXHBIT A-15 120 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise East Assisted Living Limited Partnership, a Virginia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Development, Inc., a Virginia corporation, the sole member of Sunrise SEAL, L.L.C., a Virginia limited liability company, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-16 121 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Riverside Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Huntcliff Assisted Living Limited Partnership, a Georgia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-17 122 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Sterling Canyon Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Paramus Assisted Living Limited Partnership, a New Jersey limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-18 123 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Fairfield Assisted Living Limited Partnership, a New Jersey limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Bellevue Assisted Living Limited Partnership, a Washington limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-19 124 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Oakland Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Walnut Creek Assisted Living Limited Partnership, a California limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-20 125 STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that James S. Pope as Vice President of Sunrise Assisted Living Investments, Inc., a Virginia corporation, the general partner of Sunrise Decatur Assisted Living Limited Partnership, a Georgia limited partnership, who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be his act and deed that he executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, CITY/COUNTY OF ________________, TO WIT: I, _____________________, a Notary Public in and for the jurisdiction aforesaid, do hereby certify that Sabina Kelly, a Senior Vice President of Bank of America, N.A., d/b/a NationsBank, N.A., successor by merger to NationsBank, N.A., who executed the foregoing instrument, personally appeared before me and acknowledged said Instrument to be her act and deed that she executed said Instrument for the purposes therein contained. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: EXHBIT A-21 126 AMENDMENT TO SECOND AMENDED, RESTATED AND INCREASED MASTER PROMISSORY NOTE THIS AMENDMENT TO SECOND AMENDED, RESTATED AND INCREASED PROMISSORY NOTE (this "Agreement") is made this 14th day of March, 2000, by and among SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership ("SEAL"), SUNRISE SEAL, L.L.C., a Virginia limited liability company ("Sunrise SEAL"), SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE FAIRFIELD ASSISTED LIVING, L.P., a New Jersey limited partnership, SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership, SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited partnership, SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership, SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership, SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership, (collectively the "Original Borrowers") and SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability company, SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company, SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company, SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company, SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company, SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership, SUNRISE WESTON ASSISTED LIMITED PARTNERSHIP, a Massachusetts limited partnership, SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership, SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company, and SUNRISE CLAREMONT ASSISTED LIVING, L.P., a California limited partnership (the "Additional Borrowers", collectively with the Original Borrowers and any other Additional Borrowers, as hereinafter defined, the "Borrowers"), and BANK OF AMERICA, N.A., as administrative agent (the "Administrative Agent") for itself and for UNITED BANK, as syndication agent (the "Syndication Agent"), FLEET NATIONAL BANK, as documentation agent (the "Documentation Agent") and certain additional lenders who are or shall be from time to time participating as lenders hereunder pursuant to the Agency Agreement, as hereinafter defined (collectively with the Administrative Agent, the "Lenders"). INTRODUCTORY STATEMENT A. As evidenced by the terms of the Second Amended, Restated and Increased Promissory Note dated July 29, 1999, from the Borrowers other than the Additional Borrowers EXHBIT A-22 127 (as hereinafter defined), jointly and severally, as makers, to the Lender, as payee (such Second Amended, Restated and Increased Promissory Note, together with all modifications thereto, extensions or renewals thereof and substitutions therefor being hereinafter referred to as the "Note"), the Borrowers other than the Additional Borrowers became indebted unto the Lender for a loan in the maximum principal amount at any one time outstanding of $400,000,000 (the "Credit Facility" or the "Loan"). Pursuant to their respective Additional Borrower Joinder Supplements each of the Additional Borrowers became co-borrowers under the Note and jointly and severally liable with the other Borrowers for the obligations under the Loan. B. The Loan is advanced pursuant to the terms of and secured as provided in the Second Amended and Restated Financing and Security Agreement dated July 29, 1999 executed by the Borrowers (the "Existing Financing Agreement"). C. The Borrowers have applied to the Lenders to modify certain terms an conditions of the Existing Financing Agreement and of the Second Amended and Restated Guaranty of Payment Agreement dated July 29, 1999 by Sunrise Assisted Living, Inc. (the "Guarantor") for the benefit of the Lenders (the "Existing Guaranty"). The Lenders have agreed on the condition, among others that the Existing Financing Agreement and the Existing Guaranty be amended and restated in their entirety pursuant to the terms of the Third Amended and Restated Financing and Security Agreement of even date herewith by and among the Borrowers and the Administrative Agent (as amended, modified, restated, renewed or substituted, the "Financing Agreement") and the Third Amended and Restated Guaranty of Payment Agreement of even date herewith by the Guarantor for the benefit of the Lenders (as amended, modified, restated, renewed or substituted, the "Guaranty"). D. The Lenders have agreed to make available the Credit Facility upon the conditions that this Agreement amending the interest rate applicable to the Note be executed and delivered to the Administrative Agent. AGREEMENTS NOW, THEREFORE, in consideration of the premises and for the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the Borrowers and the Lender do hereby mutually covenant and agree as follows: 1. Incorporation of Recitals. The parties hereto acknowledge and agree that the recitals hereinabove set forth are true and correct in all respects and that the same are incorporated herein and made a part hereof. 2. Outstanding Obligations. The parties hereto acknowledge and agree (a) that the outstanding principal balance of the Note as of March 14, 2000 is $238,200,000, and (b) that the unpaid principal balance of the Note, together with accrued and unpaid interest thereon, is due and owing subject to the terms of repayment hereinafter set forth, without defense or offset. EXHBIT A-23 128 3. Interest Rate. Paragraph 1 (Interest) on page 3 of the Note is hereby amended and restated in its entirety as follows and shall be effective as of the date first above written: 1. Interest. Interest on portions of the outstanding Principal Sum shall accrue and be payable for periods of thirty (30) days each or periods of seven (7) days each (each a "Eurodollar Period") at a fixed rate for such Eurodollar Period equal to the sum of (i) Eurodollar Rate (as defined in the Financing Agreement), which rate shall be adjusted for any Federal Reserve Board reserve requirements imposed upon the Administrative Agent or any of the Lenders from time to time, plus (ii) one hundred seventy five (175) basis points per annum. The Eurodollar Rate determined pursuant to the preceding sentence shall be in effect to the end of the applicable Eurodollar Period. Interest payable hereunder shall also be subject to the conditions set forth in Section 2.4 of the Financing Agreement. No more than six (6) different Eurodollar Periods may be in effect at any one time provided that not more than one (1) Eurodollar Period may be a seven day Eurodollar Period. Interest shall be computed for the actual number of days which have elapsed from the date of each advance of a portion of the Principal Sum calculated on the basis of a 365-day year. 4. Continuation of Loan Terms. Except as otherwise expressly set forth below, the outstanding principal balance of the Note shall continue to be repaid on the terms and subject to the conditions set forth in the Note and the other documents evidencing the Loan. All capitalized terms used but not defined in this Agreement shall have the meaning given to such terms in the Financing Documents. 5. Continuing Agreements; Novation. Except as expressly modified hereby and by the Financing Agreement and the Guaranty, the parties hereto ratify and confirm each and every provision of the Note, and each of the other Financing Documents as if the same were set forth herein. In the event that any of the terms and conditions in the Note or in any of the other Financing Documents conflict in any way with the terms and provisions hereof, the terms and provisions hereof shall prevail. The parties hereto covenant and agree that the execution of this Agreement is not intended to and shall not cause or result in a novation with regard to the Note, the Financing Agreement, the Guaranty and/or the other Financing Documents and that the existing indebtedness of the Borrowers to the Lender evidenced by the Note is continuing, without interruption, and has not been discharged by a new agreement. 6. Entire Agreement. NO STATEMENTS, AGREEMENTS OR REPRESENTATIONS, ORAL OR WRITTEN, WHICH MAY HAVE BEEN MADE TO ANY OF THE BORROWERS OR TO ANY EMPLOYEE OR AGENT OF THE BORROWERS, EITHER BY THE LENDER OR BY ANY EMPLOYEE, AGENT OR BROKER ACTING ON THE LENDER'S BEHALF, WITH RESPECT TO THE MODIFICATION OF THE LOAN, SHALL BE OF ANY FORCE OR EFFECT, EXCEPT TO THE EXTENT STATED IN THIS AGREEMENT, AND ALL PRIOR AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE MODIFICATION OF THE LOAN ARE MERGED HEREIN. EXHBIT A-24 129 7. Captions. The captions herein set forth are for convenience only and shall not be deemed to define, limit or describe the scope or intent of this Agreement. 8. Governing Law. The provisions of this Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Virginia as the same may be in effect from time to time. [SIGNATURES ON FOLLOWING PAGE] EXHBIT A-25 130 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written. BORROWERS: WITNESS/ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE SEAL, L.L.C., a Virginia limited liability company By: Sunrise Development, Inc., Managing Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE DECATUR ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE FAIRFIELD ASSISTED LIVING, L.P., EXHBIT A-26 131 a New Jersey limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE BELLEVUE ASSISTED LIVING LIMITED PARTNERSHIP, a Washington limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE WALNUT CREEK ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE OAKLAND ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE PARAMUS ASSISTED LIVING LIMITED PARTNERSHIP, a New Jersey limited EXHBIT A-27 132 partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE RIVERSIDE ASSISTED LIVING, L.P., a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HUNTCLIFF ASSISTED LIVING LIMITED PARTNERSHIP, a Georgia limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE STERLING CANYON ASSISTED LIVING LIMITED PARTNERSHIP, a California limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE WESTMINSTER ASSISTED LIVING, L.L.C., a Colorado limited liability EXHBIT A-28 133 company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE PINEHURST ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE PARMA ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HAMILTON ASSISTED LIVING, L.L.C., a Virginia limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE EDINA ASSISTED LIVING, L.L.C., a Minnesota limited liability company By: Sunrise Assisted Living Investments, Inc., EXHBIT A-29 134 Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE FARMINGTON HILLS ASSISTED LIVING, L.L.C., a Michigan limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE BATON ROUGE ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE OF NEW ORLEANS ASSISTED LIVING, L.L.C., a Louisiana limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE HOLLY ASSISTED LIVING LIMITED PARTNERSHIP, a Colorado limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner EXHBIT A-30 135 By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE WESTON ASSISTED LIVING LIMITED PARTNERSHIP, a Massachusetts limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE NORTHSHORE ASSISTED LIVING LIMITED PARTNERSHIP, a Florida limited partnership By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE CHESTERFIELD ASSISTED LIVING, L.L.C., a Missouri limited liability company By: Sunrise Assisted Living Investments, Inc., Sole Member By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President SUNRISE CLAREMONT ASSISTED LIVING L.P., a California limited partnership EXHBIT A-31 136 By: Sunrise Assisted Living Investments, Inc., General Partner By: (SEAL) - --------------------------- ---------------------------- James S. Pope Vice President ADMINISTRATIVE AGENT: WITNESS: BANK OF AMERICA, N.A., as Administrative Agent for the Lenders By: (SEAL) - --------------------------- ---------------------------- Leslie M. Zuga Senior Vice President EXHBIT A-32 137 EXHIBIT B FORM OF BORROWING BASE REPORT EXHBIT B-1 138 EXHIBIT C CURRENT BORROWING BASE REPORT EXHBIT C-1 139 EXHIBIT D PLACES OF BUSINESS AS OF MARCH 14, 2000 The Borrowers' Chief Executive Office and Principal Place of Business is: 7900 Westpark Drive McLean, VA 22102 Locations of Collateral: 9401 Lee Highway, Suite 300 Fairfax, VA 22031 Fairfax County 7902 Westpark Drive McLean, VA 22102 Fairfax County Sunrise of Decatur 920 Clairemont Avenue Decatur, GA Dekalb County Sunrise of Lafayette Hills (Whitemarsh) 429 Ridge Pike Lafayette Hills, PA Montgomery County Sunrise of Fairfield 115 Greenbrook Road Township of Fairfield, NJ Essex County Sunrise of Bellevue 15928 NE 8th Street Bellevue, WA King County Sunrise of Walnut Creek EXHBIT D-1 140 2175 Ygnacio Valley Road Walnut Creek, CA Contra Costa County Sunrise of Oakland Hills 11889 Skyline Boulevard Oakland, CA Alameda County Sunrise of Paoli 324 Lancaster Avenue Malvern, PA Chester County Sunrise of Paramus 571 Paramus Road Paramus, NJ Bergen County Sunrise of Riverside 5265 Chapalla Drive Riverside, CA Riverside County Sunrise of Northville 16100 Haggerty Road Northville, MI Wayne County Sunrise of Bloomingdale 129 E. Lake Street Bloomingdale, IL DuPage County Sunrise of Huntcliff 8480 Roswell Road Atlanta, GA Fulton County Sunrise of Mount Vernon 160 West Lincoln Avenue EXHBIT D-2 141 Mt. Vernon, NY Westchester County Sunrise of Wall Township 2600 Allaire Road Township of Wall, NJ Monmouth County Sunrise of Smithtown 30 Route 111 The Branch Smithtown, NY Suffolk County Sunrise of Willowbrook 301 3rd Street Clarendon Hills, IL DuPage County Sunrise of Wilton 96 Danbury Road Wilton, CT Town of Wilton Sunrise of Huntcliff Summit I 8490 Roswell Road Atlanta, GA Fulton County Sunrise of Sterling Canyon 25815 McBean Parkway Valencia, CA Los Angeles County Sunrise of Flossmoor 19715 South Governor's Highway Flossmoor, IL Cook County Sunrise of San Mateo 955 South El Camino Real San Mateo, CA EXHBIT D-3 142 San Mateo County Sunrise of Parma 7766 Broadview Road Cleveland, OH Cuyahoga County Sunrise of Hamilton 496 NW Washington Blvd. Hamilton, OH Butler County Sunrise of Edina 7128 France Avenue South Edina, MN Hennepin County Sunrise of Farmington Hills Twelve Mile Road Farmington Hills, MI Oakland County Sunrise of Chesterfield 1880 Clarkson Road Chesterfield, MO St. Louis County Sunrise of Holly 8975 South Holly Street Littleton, CO Arapahoe County Sunrise of Westminster North Sheridan Blvd. Westminster, CO Adams County Sunrise of Baton Rouge 8502 Jefferson Hwy. Baton Rouge, LA East Baton Rouge Parish EXHBIT D-4 143 Sunrise of New Orleans 5958 St. Bernard Avenue New Orleans, LA Orleans Parish Sunrise of Weston 135 North Avenue Weston, MA Middlesex South County Sunrise of Northshore 939 Beach Drive NE St. Petersburg, FL Pinellas County Sunrise of Pinehurst 5195 West Quincy Avenue Pinehurst, CO Denver County Sunrise of Claremont 4353 N. Towne Avenue Claremont, California Los Angeles County EXHBIT D-5 144 EXHIBIT E FORM OF JOINDER AGREEMENT JOINDER AGREEMENT (___________, _______) THIS JOINDER AGREEMENT (this "Agreement") is made this ___ day of _________, 200_ by ________________________________, a ____________________ organized under the laws of ______________, d/b/a "Sunrise of _____________" (the "Additional Borrower") in favor of each of the Lenders under the Agency Agreement (as hereinafter defined) and BANK OF AMERICA, N.A., successor to NationsBank, N.A., as administrative agent for the Lenders (the "Administrative Agent"). NOW, THEREFORE, for value received the undersigned agrees as follows: 1. Reference is hereby made to the Second Amended and Restated Financing and Security Agreement dated July 29, 1999 (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Financing Agreement") by and among Sunrise East Assisted Living Limited Partnership, Sunrise SEAL, L.L.C., certain other affiliated borrowing entities (collectively, the "Borrower") and the Administrative Agent, who together with certain additional lenders (collectively with the Administrative Agent, the "Lenders") are participating in a bank group pursuant to the Second Amended and Restated Agency Agreement by and among the Lenders party thereto dated July 29, 1999 (as amended, restated or substituted from time to time, the "Agency Agreement"). Capitalized terms not otherwise defined in this Agreement shall have the meanings given to them in the Financing Agreement. 2. Pursuant to the Financing Agreement, the Lenders have agreed to extend to the Borrower a credit facility in the maximum principal amount of $400,000,000 or such greater amount as the Lenders may from time to time commit to lend pursuant to the Agency Agreement (the "Credit Facility") for the purposes set forth in the Financing Agreement. The Loans and all other obligations relating to the Credit Facility are evidenced by the Second Amended, Restated and Increased Master Promissory Note dated July 29, 1999 made by the Borrower to the Administrative Agent in the maximum principal amount of $400,000,000 (as amended, restated or substituted from time to time, the "Note"). The Credit Facility is subject to the terms and conditions of the Financing Agreement. 3. As a condition precedent to extending the Credit Facility to the Borrower, the Lenders required that any Wholly Owned Subsidiary or any other entity affiliated with the Borrower which owns a Facility to be encumbered with a Deed of Trust to secure the Credit Facility execute this Agreement to evidence its agreement to the terms of the Financing Documents as applicable. 4. The Additional Borrower hereby acknowledges, confirms and agrees that on and EXHBIT E-1 145 as of the date of this Agreement, the Additional Borrower has or will receive the benefit of certain advances made under the Credit Facility and has granted a [Mortgage/Deed of Trust], Assignment and Security Agreement of even date herewith (the "Deed of Trust") covering its Facility located in _____________, ________ and known as "Sunrise of _________" (the "Property") to secure the Obligations, and as such shall be liable, as provided in the Financing Documents, for all Obligations (whether incurred or arising prior to, on, or subsequent to the date hereof) and otherwise bound by all of the terms, provisions and conditions of the Financing Documents. Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower (i) represents and warrants that all of the representations and warranties contained in the Financing Documents are true and correct on and as the date hereof as if made on and as of the date hereof, both before and after giving effect to this Agreement, and that no Event of Default or Default has occurred and is continuing or exists, or would occur or exist after giving effect to this Agreement, (ii) promises to pay, jointly and severally with the Borrower, all sums due or to become due under the Note and the other Financing Documents, and acknowledges that this Agreement shall constitute an allonge or other modification to the Note for the purposes of adding the Additional Borrower as a Borrower, jointly and severally liable with all other Borrowers; (iii) acknowledges, confirms and agrees that from and after the date hereof Additional Borrower shall be liable for all Obligations under the Financing Documents; and (iv) acknowledges, confirms and agrees that from and after the date hereof the term Borrower as such term (or any similar or related term) is used in the Note, Financing Agreement, this Agreement or any other Financing Document shall include the Additional Borrower. 5. The Additional Borrower hereby represents and warrants to the Administrative Agent and the Lenders that it will derive benefits, directly and indirectly, from each advance of the Credit Facility, both in its individual capacity and as a member of the integrated group of entities which together comprise the Borrower, and the successful operation of the integrated group is dependent upon the continued successful performance of the functions of the integrated group as a whole. Additional Borrower acknowledges and agrees that the terms of the consolidated financing provided under the Financing Agreement are more favorable than would otherwise would be obtainable by the Additional Borrower individually, and the Additional Borrower's additional administrative and other costs and reduced flexibility associated with individual financing arrangements which would otherwise be required if obtainable would substantially reduce the value to the Additional Borrower of the financing. 6. For administrative convenience, the Additional Borrower hereby irrevocably appoints Sunrise Assisted Living Investments, Inc. ("SALII") as the Additional Borrower's attorney-in-fact, with power of substitution (with the prior written consent of the Administrative Agent in the exercise of its sole and absolute discretion), in the name of SALII or in the name of the Additional Borrower or otherwise to take any and all actions with respect to the this Agreement, the other Financing Documents, the Obligations and/or the Collateral (including, without limitation, the proceeds thereof) as SALII may so elect from time to time, including, without limitation, actions to (a) request advances under the Credit Facility and direct the Administrative Agent to disburse or credit the proceeds of any Loan directly to an account of EXHBIT E-2 146 SALII, any one or more of the other entities comprising the Borrower, the Additional Borrower or otherwise, which direction shall evidence the making of such Loan and shall constitute the acknowledgement by the Borrower of the receipt of the proceeds of such Loan, (b) enter into, execute, deliver, amend, modify, restate, substitute, extend and/or renew this Agreement, any other Financing Documents, security agreements, mortgages, deposit account agreements, instruments, certificates, waivers, letter of credit applications, releases, documents and agreements from time to time, and (c) endorse any check or other item of payment in the name of the Additional Borrower or in the name of SALII. The foregoing appointment is coupled with an interest, cannot be revoked without the prior written consent of the Administrative Agent, and may be exercised from time to time through SALII's duly authorized officer, officers or other Person or Persons designated by SALII to act from time to time on behalf of SALII. 7. The Additional Borrower hereby irrevocably authorizes each of the Lenders to make Loans to any one or more of the entities comprising the Borrower pursuant to the provisions of the Financing Agreement upon the written, oral or telephone request any one or more of the Persons who is from time to time a Responsible Officer of SALII under the provisions of the most recent certificate of authorization and/or incumbency of SALII on file with the Administrative Agent. 8. The Additional Borrower acknowledges that neither the Administrative Agent nor any of the Lenders assumes any responsibility or liability for any errors, mistakes, and/or discrepancies in the oral, telephonic, written or other transmissions of any instructions, orders, requests and confirmations between the Administrative Agent and SALII or the Administrative Agent and any of the Lenders in connection with the Credit Facility or any other transaction in connection with the provisions of this Agreement. The Additional Borrower acknowledges that the Borrowers have agreed among themselves, and the Administrative Agent and the Lenders have consented to that agreement, that each Borrower shall have rights of contribution from all of the other of them to the extent any Borrower incurs Obligations in excess of the proceeds of the Loans received by, or allocated to, or advanced for the direct benefit of, such Borrower. The Additional Borrower acknowledges that all such indebtedness and rights shall be subordinate in priority and payment to the indefeasible repayment in full in cash of the Obligations, and, unless the Administrative Agent agrees in writing otherwise, shall not be exercised or repaid in whole or in part until all of the Obligations have been indefeasibly paid in full in cash. The Additional Borrower agrees that all of such inter-company indebtedness and rights of contribution are part of the Collateral and secure the Obligations. The Additional Borrower hereby waives all rights of counterclaim, recoupment and offset between or among the Borrowers arising on account of that indebtedness and otherwise. The Additional Borrower shall not evidence the inter-company indebtedness or rights of contribution by note or other instrument, and shall not secure such indebtedness or rights of contribution with any Lien or security. 9. Without in any way implying any limitation on any of the provisions of this Agreement, the Financing Agreement, or any of the other Financing Documents, the Additional Borrower hereby assigns, pledges and grants to the Administrative Agent, for the ratable benefit of the Lenders as security for the Obligations, and agrees that the Administrative Agent, for the EXHBIT E-3 147 ratable benefit of the Lenders, shall have a perfected and continuing security interest in, and Lien on, (a) all of the Additional Borrower's Accounts, Equipment, General Intangibles, documents, Chattel Paper, Instruments and Inventory, all right title and interest of the Additional Borrower in and to the Operating Agreements and Management Contracts (including, without limitation, the Management Agreement), Resident Agreements, Physician Contracts, Participation Agreements, the Licenses (whether or not designated with initial capital letters), and all other management contracts, operating agreements, service agreements and any other agreements pertaining to the Property as those terms are defined in the Uniform Commercial Code as presently adopted and in effect in the Commonwealth of Virginia (b) any and all property specifically included in those respective terms in the Financing Agreement or in the Financing Documents, (c) all right, title and interest of the Additional Borrower in and to Leases or subleases, rents, royalties, issue, profits, revenues, earnings, income or other benefits of the Property or arising from the use or enjoyment of the Property, or from any lease or other use and occupancy agreement pertaining to the Property, (d) all right, title and interest of the Additional Borrower under all construction, architectural and design contracts and plans and specifications, (e) any and all property and/or collateral described in any of the Security Documents, including, without limitation, the Financing Agreement and the Deed of Trust, (f) any and all bank accounts or other deposit accounts of the Additional Borrower wherever located, and (g) all proceeds (cash and non-cash, including, without limitation, insurance proceeds), of the foregoing. The Additional Borrower further agrees that the Administrative Agent, shall have in respect thereof all of the rights and remedies of a secured party under the Uniform Commercial Code as well as those provided in this Agreement, under each of the other Financing Documents and under applicable Laws. 10. Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower agrees to execute such financing statements, instruments, and other documents as the Administrative Agent may require. 11. Additional Borrower hereby covenants and agrees with the Administrative Agent and the Lenders that the Obligations include all present and future indebtedness, duties, obligations, and liabilities, whether now existing or contemplated or hereafter arising, of the Borrower. 12. Without in any way implying any limitation on any of the provisions of this Agreement, the Additional Borrower agrees to the provisions of this Section 12. (a) Additional Borrower hereby unconditionally and irrevocably, guarantees to the Administrative Agent and the Lenders: (i) the due and punctual payment in full (and not merely the collectibility) by the Borrower of the Obligations, including unpaid and accrued interest thereon, in each case when due and payable, all according to the terms of this Agreement, the Note and the other Financing Documents; (ii) the due and punctual payment in full (and not merely the EXHBIT E-4 148 collectibility) by the Borrower of all other sums and charges which may at any time be due and payable in accordance with this Agreement, the Note or any of the other Financing Documents; (iii) the due and punctual performance by the Borrower of all of the other terms, covenants and conditions contained in the Financing Documents; and (iv) all the other Obligations of the Borrower. (b) The obligations and liabilities of the Additional Borrower under this Section 12 shall be absolute and unconditional, irrespective of the genuineness, validity, priority, regularity or enforceability of this Agreement, the Note or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. The Additional Borrower expressly agrees that the Administrative Agent may, in its sole and absolute discretion, without notice to or further assent of the Additional Borrower without in any way releasing, affecting or in any way impairing the obligations and liabilities of the Additional Borrower hereunder: (i) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (ii) modify, amend, change or terminate any provisions of any of the Financing Documents; (iii) grant extensions or renewals of or with respect to the Credit Facility, the Note or any of the other Financing Documents; (iv) effect any release, subordination, compromise or settlement in connection with this Agreement, the Note or any of the other Financing Documents; (v) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Credit Facility or to the subordination of any lien or security interest therein; (vi) make advances for the purpose of performing any term, provision or covenant contained in this Agreement, the Note or any of the other Financing Documents with respect to which the Borrower shall then be in default; (vii) make future advances pursuant to the Financing Agreement or any of the other Financing Documents; (viii) assign, pledge, hypothecate or otherwise transfer the Obligations, the Note, any of the other Financing Documents or any interest therein, all as and to the extent permitted by the provisions of this Agreement; EXHBIT E-5 149 (ix) deal in all respects with any one or more entities comprising the Borrower as if this Section 12 were not in effect; (x) effect any release, compromise or settlement with any one or more entities comprising the Borrower; and (xi) provide debtor-in-possession financing or allow use of cash collateral in proceedings under the Bankruptcy Code, it being expressly agreed by the Additional Borrower that any such financing and/or use would be part of the Obligations. (c) The obligations and liabilities of the Additional Borrower, as guarantor under this Section 12 shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that Additional Borrower may have against any one or more of the entities comprising the Borrower, the Administrative Agent and the Lenders, and shall not be conditional or contingent upon pursuit or enforcement by the Administrative Agent of any remedies it may have against the Borrower with respect to this Agreement, the Note or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Administrative Agent shall not be required to make any demand upon any one or more entities comprising the Borrower, or to sell the Collateral or otherwise pursue, enforce or exhaust its remedies against any one or more entities comprising the Borrower or the Collateral either before, concurrently with or after pursuing or enforcing its rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against Additional Borrower under this Section 12, either in the same action, if any, brought against the Borrower, or in separate actions or proceedings, as often as the Administrative Agent may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of any one or more entities comprising the Borrower under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against such entities, in any capacity under this Section 12, or under any of the Financing Documents, shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of the Additional Borrower under this Section 12, in any manner whatsoever, and this Section 12 shall remain and continue in full force and effect. It is the intent and purpose of this Section 12 that the Additional Borrower shall and does hereby waive all rights and benefits which might accrue to any one or more entities comprising the Borrower by reason of any such proceeding, and the Additional Borrower agrees that it shall be liable for the full amount of the obligations and liabilities under this Section 12 regardless of any modification, limitation or discharge of the liability of any individual Borrower under any of the Financing Documents, that may result from any such proceedings. (d) The Additional Borrower, as guarantor under this Section 12, hereby unconditionally, irrevocably and expressly waives: (i) presentment and demand for payment of the Obligations and EXHBIT E-6 150 protest of non-payment; (ii) notice of acceptance of this Section 12 and of presentment, demand and protest thereof; (iii) notice of any default hereunder or under the Note or any of the other Financing Documents and notice of all indulgences; (iv) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Section 12; (v) demand for observance, performance or enforcement of any of the terms or provisions of this Section 12, the Note or any of the other Financing Documents; (vi) all errors and omissions in connection with the Administrative Agent's administration of all indebtedness guaranteed by this Section 12; (vii) any right or claim of right to cause a marshalling of the assets of any one or more of the entities comprising the Borrower; (viii) any act or omission of the Administrative Agent which changes the scope of the risk as guarantor hereunder; and (ix) all other notices and demands otherwise required by law which Additional Borrower may lawfully waive. (e) Within ten (10) days following any request of the Administrative Agent so to do, the Additional Borrower will furnish the Administrative Agent and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, off-sets or defenses exist with respect to this Section 12. 13. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without regard to principles of choice of law. 14. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original for all purposes, and all of which shall constitute, collectively, one agreement. WITNESS the due execution hereof as of the day and year first written above. WITNESS OR ATTEST: ----------------------------------- EXHBIT E-7 151 By: ------------------------------- its ---------------------- By: (SEAL) - ---------------------------- ------------------------------ James S. Pope Vice President BANK OF AMERICA, N.A. By: (SEAL) - ---------------------------- ------------------------------ Leslie M. Zuga Senior Vice President EXHBIT E-8 152 EXHIBIT F SURVEY REQUIREMENTS 1. Field Note Description. The Survey shall contain a certified metes and bounds description complying with the following: (a) the beginning point shall be established by a monument located at the beginning point, or by reference to a nearby monument; (b) the sides of the Land shall be described by giving the distances and bearings of each; (c) the distances, bearings, and angles shall be taken from an instrument survey by a registered professional engineer or registered professional land surveyor; (d) curved sides shall be described by data including: length of arc, central angle, radius of circle for the arc and chord distance, and bearing; (e) the description shall be a single perimeter description of the entire Land, if and as instructed, there shall also be a separate metes and bounds description of one or more constituent tracts out of the Land; (f) the description shall include a reference to all streets, alleys, and other rights-of-way that abut the Land, and the width of all rights-of-way mentioned shall be given the first time these rights-of-way are referred to; (g) for each boundary line abutting a street, road, alley or other means of access, the description must, in calling the boundary line, state that the boundary line and the right-of-way line are the same; (h) if the Land has been recorded on a map or plat as part of an abstract or subdivision, reference to such recording data shall be made; and (i) the total acreage and square footage of the Land shall be certified. 2. Lot and Block Description. If the Land consists of one or more complete lots or blocks included within a properly established recorded subdivision or addition, then a lot and block description will be an acceptable substitute for a metes and bounds description, provided that the lot and block description must completely and properly identify the name or designation of the recorded subdivision or addition and give the recording information therefor. 3. Map or Plat. The Survey shall also contain a certified map or plat clearly showing the following: (a) the Land; (b) the relation of the point of beginning of the Land to the monument from which it is fixed; (c) all easements, streets, roads, alleys and rights-of-way on or abutting the Land, showing recording information therefor by volume and page; (d) if the Land has been recorded on a map or plat as part of an abstract or subdivision, all survey lines must be shown, and all lot and block lines (with distances and bearings) and numbers, must be shown; (e) the established building setback lines, if any, including those by restrictive covenant, recorded plat and zoning ordinance (identifying the source in each case, by volume and page reference if applicable); (f) all easements appurtenant to said Land, with recording information by volume and page; (g) the boundary lines of the street or streets abutting the Land and the width of said streets and the width of the rights-of-way therefor; (h) the distance from the nearest intersecting street or road to the Land; (i) all structures and improvements on the Land (with designation and dimensions of each party wall, if any) with horizontal lengths of all sides and the relation thereof by distances to (1) all boundary lines of the Land, (2) easements, (3) established building lines, and (4) street lines; (j) the types of materials comprising the exterior walls and roofs of all buildings; (k) all street addresses of improvements on the Land; (l) all curb cuts, driveways, fences, sidewalks, stoops and landscaping; (m) the number of stories of all multistory structures; EXHBIT F-1 153 (n) the location, type and size of all utility lines as they service the Land and Improvements (sewer, water, gas, electric and telephone); (o) all encroachments and protrusions, if any, from or upon the Land or any improvements thereon or upon any easement, building setback line or other restricted area, with exact measurements; (p) all parking and paved areas, including the number of vehicles that may be parked; (q) all distances, angles and other calls contained in the legal description; (r) the location, type and size of all monuments, and as to each monument, indication whether it was found or placed by the surveyor; (s) the boundaries of any flood hazard area or flood plain area in which any part of the Land lies, with the map number, date and source (governmental authority) of each flood map shown; (t) all surface water bodies or courses; (u) the date of any revisions subsequent to the initial survey prepared pursuant to these requirements; (v) a legend explaining the meaning of all symbols used on the plat; and (w) the scale of all distances and dimensions on the plat. 4. Certification. The certification for the property description and the map or plat shall be addressed to Lender, Borrower and the Title Insurer, signed by the surveyor (a registered professional land surveyor or registered professional engineer), bearing current date, registration number, and seal, and shall be in the following form or its substantial equivalent: 5. This is to certify to Lender, Borrower and Title Insurer that this map or plat and the survey on which it is based were made in accordance with "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys" jointly established and adopted by ALTA and ACSM in 1997, and pursuant to the Accuracy Standards (as adopted by ALTA and ACSM) of an Urban Survey. The undersigned further certifies to Lender, Borrower and the Title Insurer that (a) this survey is true and correct and was made on the ground under my supervision as per the field notes shown hereon and correctly shows the boundary lines and dimensions and area of the land indicated hereon and each individual parcel thereof indicated hereon; (b) all monuments shown hereon actually exist, and the location, size and type of such monuments are correctly shown; (c) this survey correctly shows the size, location and type of all buildings, structures, other improvements and visible items on the subject Property; (d) this survey correctly shows the location and dimensions of all alleys, streets, roads, rights-of-way, easements, building setback lines and other matters of record of which the undersigned has been advised affecting the subject Property according to the legal description in such easements and other matters (with instrument, book, and page number indicated); (e) except as shown, there are no visible (1) improvements, easements, rights-of-way, party walls, drainage ditches, streams, uses, discrepancies or conflicts, (2) encroachments onto adjoining premises, streets, or alleys by any of said buildings, structures, or other improvements, (3) encroachments onto the subject Property by buildings, structures, or other improvements on adjoining premises, or (4) encroachments on any easement, building setback line or other restricted area by any buildings, structures or other improvements on the subject property; (f) the distance from the nearest intersecting street or road is as shown hereon; (g) the subject property abuts a dedicated public street or road as shown hereon; and (h) except as shown, no part of the Property is located in a 100 year Flood Plain or in an identified "flood prone area," as defined pursuant to the Flood Disaster Protection Act of 1973, as amended, as reflected by Flood Insurance Rate Map Panel #_dated , which such map panel covers the area in which the Property is situated. The undersigned has received and examined a copy of the title EXHBIT F-2 154 insurance commitment no. issued by the Title Insurer for the Property as well as a copy of each instrument listed therein. EXHBIT F-3 155 EXHIBIT G FORM OF COMPLIANCE CERTIFICATE This Compliance Certificate is delivered pursuant to (i) Section 7.1 of the Third Amended and Restated Financing and Security Agreement dated as of March 14, 2000 (together with all amendments and modifications, if any, from time to time made thereto, the "Financing Agreement") between Sunrise East Assisted Living Limited Partnership, Sunrise SEAL, L.L.C. and certain affiliated borrowing entities (collectively, the "Borrowers") and Bank of America, N.A. as Administrative Agent, and (ii) Section 3.1 of the Third Amended and Restated Master Guaranty of Payment Agreement dated as of March 14, 2000 (together with all amendments and modifications, if any, from time to time made thereto, the "Guaranty") by Sunrise Assisted Living, Inc. ("Guarantor") and Bank of America, N.A. as Administrative Agent. Unless otherwise defined, terms used herein (including the attachments hereto) have the meanings provided in the Financing Agreement. BORROWER CERTIFICATE The undersigned, one of the Borrowers as of the date hereof, hereby certifies and warrants that: 1. It is authorized to execute this certificate on behalf of all Borrowers. 2. As of the (fiscal quarter) (fiscal year) ending as of ________________, ____: (a) No Borrower was in default under any of the provisions of the Financing Agreement during the period to which this Compliance Certificate relates; (b) As of the end of this reporting period: (i) the number of Eligible Projects was ____ [minimum number required 8]; (ii) the number of Eligible Projects that qualify as Pool A Projects is ____; (iii) the ratio of Pool A Projects to Eligible Projects is ____% [minimum required percentage 83%]. (c) The attached Borrowing Base Report accurately represents the status of each Eligible Project with regard to any and all applicable covenants set forth in the Financing Agreement (including the ratio of Net Operating Income to Debt Service for such reporting period and the Minimum Occupancy Requirement and actual occupancy as of the end of such reporting period). (d) As of the end of this reporting period: (i) the number of Eligible Projects that are not Stabilized Facilities is ____; (ii) the amount of Liquid Assets held by the Borrower on a consolidated basis, after taking into account any distributions ("Distributions") of net operating income to partners or members of any of the Borrowers made less than 30 days prior to the end of such reporting period, is $____________ [minimum required $5,000,000 plus an additional $5,000,000 if 10 or more Eligible Projects are not Stabilized Facilities]; (iii) if there have been any Distributions, then the ratio of Adjusted EBITDA to Debt Service (calculated on a rolling four-quarter basis), for the Stabilized Facilities in the aggregate, is _____ [minimum required 1.0]. EXHBIT G-1 156 SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, on behalf of all Borrowers By: Sunrise Assisted Living Investments, Inc. its general partner By: (SEAL) -------------------------------- James S. Pope Vice President EXHBIT G-2 157 GUARANTOR CERTIFICATE The undersigned, being the duly elected, qualified and acting Chief Financial Officer of the Guarantor, on behalf of the Guarantor, hereby certifies and warrants that: 1. He is the Chief Financial Officer of the Guarantor and that, as such, he is authorized to execute this certificate on behalf of the Guarantor. 2. As of the (fiscal quarter) (fiscal year) ending as of ________________, ____: (a) The Guarantor is not in default under any of the provisions of the Guaranty; (b) The Guarantor's Tangible Net Worth was $_______________ as computed on Attachment 1 hereto; (c) The Guarantor's ratio (on a consolidated basis with all subsidiaries) of Funded Debt (as defined in the Guaranty) to EBITDAR was ______ as computed on Attachment 2 hereto; (d) The Guarantor's ratio (on a consolidated basis with all subsidiaries) of EBITDAR to the sum of Interest Expense (as defined in the Guaranty) and Rent Expense (as defined in the Guaranty) was __________ as computed on Attachment 3 hereto; (e) The value of the Guarantor's Minimum Liquid Assets was $_____ as computed on Attachment 4 hereto. IN WITNESS WHEREOF, the undersigned has executed and delivered this certificate, this ______ day of ______________, 200__. SUNRISE ASSISTED LIVING, INC. By: (SEAL) -------------------------------- Christian B.A. Slavin Chief Financial Officer EXHBIT G-1 158 ATTACHMENT 1 Period Ending: ____________, _______ Tangible Net Worth 1. net worth (defined by GAAP), plus the leasehold value associated with the properties which are the subject of synthetic lease transactions which are otherwise characterized as intangible assets $___________ less 2. (a) all intangible assets (except for deferred taxes recorded as goodwill and except for the goodwill purchased in connection with the acquisition of Karrington Health, Inc. in the approximate amount of $32,000,000 subject to adjustment for final audited calculations as of December 31,1999 and as may be further adjusted as reported in future Form 10Q Reports of the Guarantor). $_____________ (b) write-up in book value of assets subsequent to most recent financial statement $_____________ (c) loans and advances to, or investments in, any person or entity (except: (i) cash equivalents or deposit accounts at financial institutions; (ii) mortgage revenue bonds issued by Bucks County, PA Industrial Development Authority; and (iii) individual investments less than $2,500,000, but not exceeding $10,000,000 in the aggregate) $________________ (d) advances or loans to, or receivables from, unconsolidated affiliates (except subordinated debt or loans of unconsolidated subsidiaries and affiliates of Guarantor which are parties to development and management contracts with Sunrise Development, Inc. and Sunrise Assisted Living Management, Inc.) $______________ Actual Tangible Net Worth = $_______________ Required Tangible Net Worth equal to the sum of : (i) Guarantor's net worth as of September 30, 1999 $258,003,069 (ii) Guarantor's net income (if positive) for each quarter subsequent to September 30, 1999 x 75% = $____________ (iii) Net proceeds received by Guarantor EXHBIT G-2 159 of any equity capital transaction during each quarter subsequent to September 30, 1999 x 85% = $____________ TOTAL $____________ EXHBIT G-3 160 ATTACHMENT 2 Period Ending: ____________, _____ Ratio of Funded Debt to EBITDAR 1. Funded Debt $____________* 2. EBITDAR (as calculated on Attachment 3) $_____________ Actual Ratio: ____ Required Ratio**:
--------------------------------------------------------- PERIOD ENDING MAXIMUM RATIO --------------------------------------------------------- December 31, 1999 8.75 to 1.00 --------------------------------------------------------- March 31, 2000 8.75 to 1.00 --------------------------------------------------------- June 30, 2000 8.75 to 1.00 --------------------------------------------------------- September 30, 2000 8.75 to 1.00 --------------------------------------------------------- December 31, 2000 7.75 to 1.00 --------------------------------------------------------- March 31, 2001 7.75 to 1.00 --------------------------------------------------------- June 30, 2001 7.75 to 1.00 --------------------------------------------------------- September 30, 2001 7.75 to 1.00 --------------------------------------------------------- December 31, 2001 and thereafter 7.00 to 1.00 ---------------------------------------------------------
* "Funded Debt" means the sum of the following but shall exclude trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of the Guarantor in accordance with GAAP: (a) indebtedness for borrowed money (including the 5 1/2 % convertible subordinated notes issued by the Guarantor) $____________ (b) obligations in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of the Guarantor $____________ (c) (i) lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of the Guarantor, plus (ii) the product of Rent Expense (as defined in the Guaranty), with respect to operating leases, multiplied by 8 $____________ EXHBIT G-4 161 (d) liabilities secured by any property owned by the Guarantor, to the extent attached to the Guarantor's interest in such property, even though Guarantor is not liable for the payment thereof $____________ (e) (i) amounts payable by Guarantor under any terminated, defaulted or outstanding interest rate protection products, or (ii) take-out commitments (excluding a refinancing or a commitment of a third party) or purchase contracts including the deferred purchase price of property or services in each instance if the Guarantor does not control the incurring obligation $____________ (f) (i) the amount of any guaranty of indebtedness for borrowed, or (ii) other debt owned by Persons other than the Guarantor which is in default and for which the creditor is pursuing payment by the Guarantor $____________ (g) any obligation of the Guarantor or a Commonly Controlled Entity to a Multiemployer Plan $____________ (h) any synthetic lease obligations, (i) any other lease expenses for rented real property will be accounted for as debt based on eight times annualized lease payments (provided, however, that so long as the Guarantor or any Affiliate shall continue to own a 50% interest in the Facility located in Severna Park, Maryland known as "Sunrise of Severna Park", lease expenses for Sunrise of Severna Park will be accounted for as debt based on four times the annualized lease payments rather than eight times the annualized lease payments $____________ (h) other amounts considered to be debt by the Administrative Agent, the Syndication Agent and the Documentation Agent in a dollar amount to be mutually agreed upon by the Administrative Agent and the Guarantor (excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms which are not overdue or which are being disputed in good faith by the Guarantor and for which adequate reserves are being provided on the books of Guarantor in accordance with GAAP) $____________ ** After the sale of more than ten (10) or more Facilities (other than Assets Held for Sale) during fiscal year 2000, the foregoing maximum ratio will be reduced to 7.75 to 1.00 effective as of the end of the fiscal quarter in which the closing of the sale of the tenth Facility occurred. EXHBIT G-5 162 ATTACHMENT 3 Period Ending: ____________, ______ Ratio of EBITDAR to Interest Expense plus Rent Expense 1. EBITDAR $_____________ (calculated as follows) Net Income $_____________ Plus Interest $_____________ Plus Taxes $_____________ Plus Depreciation $_____________ Plus Amortization $_____________ Plus other non-cash Items* $_____________ Plus Rent Expense $_____________ (actual rent expense incurred by Borrower, Guarantor or any Affiliate as a tenant under leases for any senior living facility) Plus Actual Management Fees $_____________ (equal to actual Management Fees) Plus Gains from the sale of open operating Facilities (not to exceed 20 per 12 month period) $_____________ Minus Replacement Reserve $_____________ ($250/year/bed for each Facility) Minus Management Fees $_____________ (equal to the greater of 5% of gross revenues or actual Management Fees) 2. Interest Expense $_____________ (actual interest expense incurred by Guarantor and its subsidiaries on all debt owed to unaffiliated third parties, including 5 1/2% convertible subordinated notes) 3. Rent Expense $_____________ Interest Expense $_____________ Sum of Rent Expense and Interest Expense $_____________ EXHBIT G-6 163 Actual Ratio: _____ Required Ratio:
-------------------------------------------------------- PERIOD ENDING MINIMUM RATIO -------------------------------------------------------- December 31, 1999 2.00 to 1.00 -------------------------------------------------------- March 31, 2000 2.00 to 1.00 -------------------------------------------------------- June 30, 2000 2.00 to 1.00 -------------------------------------------------------- September 30, 2000 2.00 to 1.00 -------------------------------------------------------- December 31, 2000 2.25 to 1.00 -------------------------------------------------------- March 31, 2001 2.25 to 1.00 -------------------------------------------------------- June 30, 2001 2.25 to 1.00 -------------------------------------------------------- September 30, 2001 2.25 to 1.00 -------------------------------------------------------- December 31, 2001 and thereafter 2.50 to 1.00 --------------------------------------------------------
*Other non-cash and one-time non-recurring items which may be added back to EBITDAR require the consent of the Administrative Agent and if they exceed $5,000,000 in any year require consent of 66.67% of the Lenders by pro rata shares of the Loan. EXHBIT G-7 164 ATTACHMENT 4 Period Ending: ____________, ______ Minimum Liquid Assets Value of unrestricted cash, cash equivalents and marketable securities $_______________ Required Value: not less than the greater of (a) 90 days of Debt Service, or (b) $25,000,000. EXHBIT G-8 165 EXHIBIT H LIST OF ASSETS HELD FOR SALE as of March 14, 2000 Sunrise of Fremont, OH Sunrise of Shahawn (Tiffen), OH Sunrise of Rochester, MN Sunrise of Bismark Commons, ND Sunrise of Bismark Cottages, ND Sunrise of Buffalo Cottages, MN Sunrise of Waterloo, IA Sunrise of Mankato, MN Sunrise of Park Ridge, IL Sunrise Regional Office Building, Columbus, OH EXHIBIT H-1 EX-10.54 8 THIRD AMENDED GUARANTY OF PAYMENT AGREEMENT 1 EXHIBIT 10.54 THIRD AMENDED AND RESTATED MASTER GUARANTY OF PAYMENT AGREEMENT THIS THIRD AMENDED AND RESTATED MASTER GUARANTY OF PAYMENT AGREEMENT (this "Agreement") is made this 14th day of March, 2000, by SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the "Guarantor") for the benefit of BANK OF AMERICA, N.A., as administrative agent ("Administrative Agent") for itself and for certain additional lenders (collectively with the Administrative Agent, the "Lenders") who are or shall be from time to time participating as lenders in a bank group pursuant to the Amended and Restated Agency Agreement dated July 29, 1999 as amended of even date herewith (as further amended, restated or substituted from time to time, the "Agency Agreement"). RECITALS A. The Lenders have provided a credit facility (such credit facility, as modified, increased, extended, restated or substituted, is referred to hereinafter as the "Credit Facility" or the "Loan") in the maximum principal sum of $400,000,000. Advances or readvances have been made pursuant to, and secured by, among other things, the provisions of that certain Second Amended and Restated Financing and Security Agreement dated July 29, 1999 by and among the Administrative Agent and Sunrise East Assisted Living Limited Partnership ("SEAL") and the other Borrowers, as defined therein, the "Existing Financing Agreement"). B. The Loan is evidenced by that certain Second Amended, Restated, Consolidated and Increased Master Promissory Note dated July 29, 1999 payable by the Borrowers to Administrative Agent on behalf of the Lenders (as amended, restated, renewed or substituted from time to time, the "Note"). C. The Guarantor guaranteed the Borrowers' obligations under the Credit Facility pursuant to the terms of a Second Amended and Restated Guaranty of Payment. D. The Guarantor has requested and the Lenders have agreed to modify certain covenants in the Existing Guaranty and certain provisions of the Existing Financing Agreement. In connection with such modifications to the Credit Facility, the Existing Financing Agreement is being amended and restated pursuant to the Third Amended and Restated Financing and Security Agreement of even date herewith (as amended, extended or substituted from time to time, the "Financing Agreement"). E. The Lenders have required, as a condition to making the modifications the Credit Facility, that the Guarantor execute this Agreement amending and restating the Existing Guaranty in it entirety and deliver it to the Administrative Agent. F. All capitalized terms used in this Agreement and not defined herein shall have the meaning given to such terms in the Financing Agreement. NOW, THEREFORE, in order to induce the Lenders to make the Loan to the Borrower, the Guarantor covenants and agrees with the Lenders amending and restated the Existing Guaranty as follows: 2 ARTICLE I THE GUARANTY Section 1.1 Recitals. The Recitals set forth above are incorporated into this Agreement by reference. Section 1.2 Guaranty. The Guarantor hereby unconditionally and irrevocably guarantees to the Lenders: (a) the due and punctual payment in full (and not merely the collectibility) of the principal of the Note and the interest thereon, in each case when due and payable, whether on any installment payment date or at the stated or accelerated maturity, all according to the terms of the Note and the other Financing Documents; (b) the due and punctual payment in full (and not merely the collectibility) of all Obligations and other sums and charges which may at any time be due and payable in accordance with, or secured by, the Note or any of the other Financing Documents; (c) the due and punctual performance of all of the other terms, covenants and conditions contained in the Financing Documents; and (d) all indebtedness, obligations and liabilities of any kind and nature of the Borrowers to the Lenders, whether now existing or hereafter created or arising, direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and howsoever owned, held or acquired. Section 1.3 Guaranty Unconditional. The obligations and liabilities of the Guarantor under this Agreement shall beabsolute and unconditional, irrespective of the genuineness, validity, priority,regularity or enforceability of the Note or any of the Financing Documents or any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor expressly accepts the terms and conditions of the Note and the other Financing Documents. The Guarantor expressly agrees that the Lenders may, in their sole and absolute discretion, without notice to or further assent of the Guarantor and without in any way releasing, affecting or in any way impairing the obligations and liabilities of the Guarantor hereunder: (a) waive compliance with, or any defaults under, or grant any other indulgences under or with respect to any of the Financing Documents; (b) modify, amend, change or terminate any provisions of any of the Financing Documents; 2 3 (c) grant extensions or renewals of or with respect to the Note or any of the other Financing Documents; (d) effect any release, subordination, compromise or settlement in connection with the Note or any of the other Financing Documents; (e) agree to the substitution, exchange, release or other disposition of the Collateral or any part thereof, or any other collateral for the Loans or to the subordination of any lien or security interest therein; (f) make advances for the purpose of performing any term, provision or covenant contained in the Note or any of the other Financing Documents with respect to which the Borrowers shall then be in default; (g) make future advances to the Borrowers pursuant to the Financing Agreement or any of the other Financing Documents; (h) assign, pledge, hypothecate or otherwise transfer the Note, any of the other Financing Documents or this Agreement or any interest therein; (i) deal in all respects with the Borrowers as if this Agreement were not in effect; and (j) effect any release, compromise or settlement with any of the Guarantor or any other guarantor. Section 1.4 Guaranty Primary. The obligations and liabilities of the Guarantor under thisAgreement shall be primary, direct and immediate, shall not be subject to any counterclaim, recoupment, set off, reduction or defense based upon any claim that the Guarantor may have against the Borrowers, the Lenders and/or any other guarantor and shall not be conditional or contingent upon pursuit or enforcement by the Lenders of any remedies it may have against the Borrowers with respect to the Note or any of the other Financing Documents, whether pursuant to the terms thereof or by operation of law. Without limiting the generality of the foregoing, the Lenders shall not be required to make any demand upon the Borrowers, or to sell the Collateral or otherwise pursue, enforce or exhaust their remedies against the Borrowers or the Collateral either before, concurrently with or after pursuing or enforcing their rights and remedies hereunder. Any one or more successive or concurrent actions or proceedings may be brought against the Guarantor under this Agreement, either in the same action, if any, brought against the Borrowers or in separate actions or proceedings, as often as the Lenders may deem expedient or advisable. Without limiting the foregoing, it is specifically understood that any modification, limitation or discharge of any of the liabilities or obligations of the Borrowers or any other obligor under any of the Financing Documents, arising out of, or by virtue of, any bankruptcy, arrangement, reorganization or similar proceeding for relief of debtors under federal or state law initiated by or against the Borrowers or the Guarantor or any obligor under any of the Financing Documents shall not modify, limit, lessen, reduce, impair, discharge, or otherwise affect the liability of the 3 4 Guarantor hereunder in any manner whatsoever, and this Agreement shall remain and continue in full force and effect. It is the intent and purpose of this Agreement that the Guarantor shall and does hereby waive all rights and benefits which might accrue to any other guarantor by reason of any such proceeding, and the Guarantor agrees that it shall be liable for the full amount of the obligations and liabilities under this Agreement, regardless of, and irrespective to, any modification, limitation or discharge of the liability of the Borrowers, any other guarantor or any obligor under any of the Financing Documents, that may result from any such proceedings. Section 1.5 Certain Waivers by the Guarantor. The Guarantor hereby unconditionally, irrevocably and expressly waives: (a) presentment and demand for payment of the principal of or interest on the Note and protest of non-payment; (b) notice of acceptance of this Agreement and of presentment, demand and protest thereof; (c) notice of any default hereunder or under the Note or any of the other Financing Documents and notice of all indulgences; (d) notice of any increase in the amount of any portion of or all of the indebtedness guaranteed by this Agreement; (e) demand for observance, performance or enforcement of any of the terms or provisions of this Agreement, the Note or any of the other Financing Documents; (f) all errors and omissions in connection with the Lenders' administration of all indebtedness guaranteed by this Agreement, except errors and omissions resulting from acts of bad faith; (g) any right or claim of right to cause a marshalling of the assets of the Borrowers; (h) any act or omission of the Lenders (except acts or omissions in bad faith) which changes the scope of the Guarantor's risk hereunder; and (i) all other notices and demands otherwise required by law which the Guarantor may lawfully waive. Section 1.6 Reimbursement for Expenses. In the event the Lenders shall commence any action or proceeding for the enforcement of this Agreement, then the Guarantor will reimburse the Lenders, promptly upon demand, for any and all reasonable expenses incurred by the Lenders in connection with such action or proceeding including, without limitation, reasonable attorneys' fees together with interest thereon at the Post-Default Rate. 4 5 Section 1.7 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under the provisions of this Agreement (individually, an "Event of Default" and collectively, the "Events of Default"): (a) The failure of the Guarantor to pay and/or perform any of the Obligations as and when due and payable in accordance with the provisions of this Agreement and such failure continues for five (5) calendar days after written notice thereof to the Guarantor by the Administrative Agent, except with regard to payment of amounts due at maturity, whether by acceleration or otherwise, for which no notice or cure period shall be required to be given. (b) Any representation or warranty made in this Agreement or in any report, statement, schedule, certificate, opinion (including any opinion of counsel for the Guarantor), financial statement or other document furnished in connection with this Agreement, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. (c) The failure of the Guarantor to comply with Section 3.1(c) hereof which default shall remain unremedied for ten (10) days after written notice thereof to the Guarantor by the Administrative Agent. (d) The failure of the Guarantor to perform, observe or comply with any covenant, condition or agreement contained in this Agreement other than as set forth in this Section, which default shall remain unremedied for thirty (30) days after written notice thereof to the Guarantor by the Administrative Agent, unless the nature of the failure is such that (a) it cannot be cured within the thirty (30) day period, and (b) the Guarantor institutes corrective action within the thirty (30) day period and (c) the Guarantor diligently pursues such action and completes the cure within ninety (90) days. (e) A default shall occur under any of the other Financing Documents and such default is not cured within any applicable grace period provided therein. (f) The Guarantor shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or any of its property, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy or a petition or an answer seeking or consenting to reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or take corporate action for the purposes of effecting any of the foregoing, or (vi) by any act indicate its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or trustee for any of its property, or suffer any such receivership, trusteeship or proceeding to continue undischarged for a period of sixty (60) days, or (vii) by any act indicate its consent to, approval of or 5 6 acquiescence in any order, judgment or decree by any court of competent jurisdiction or any Governmental Authority enjoining or otherwise prohibiting the operation of a material portion of the Guarantor's business or the use or disposition of a material portion of the Guarantor's assets. (g) (i) An order for relief shall be entered in any involuntary case brought against the Guarantor under the Bankruptcy Code, or (ii) any such case shall be commenced against the Guarantor and shall not be dismissed within sixty (60) days after the filing of the petition, or (iii) an order, judgment or decree under any other Law is entered by any court of competent jurisdiction or by any other Governmental Authority on the application of a Governmental Authority or of a Person other than the Guarantor (A) adjudicating the Guarantor bankrupt or insolvent, or (B) appointing a receiver, trustee or liquidator of the Guarantor, or of a material portion of the Guarantor's assets, or (C) enjoining, prohibiting or otherwise limiting the operation of a material portion of the Guarantor's businesses or the use or disposition of a material portion of the Guarantor's assets, and such order, judgment or decree continues unstayed and in effect for a period of thirty (30) days from the date entered. (h) Unless adequately insured in the reasonable opinion of the Administrative Agent, the entry of a final judgment for the payment of money involving more than $1,000,000 against the Guarantor, and the failure by the Guarantor to discharge the same, or cause it to be discharged, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered, or to secure a stay of execution pending appeal of such judgment. (i) Default which continues beyond any applicable grace period shall be made under any obligation of or guaranteed by the Guarantor equal to or greater than $1,000,000, if the effect of such default is to accelerate the maturity of such obligation or to permit the holder or obligee thereof to cause such obligation to become due prior to its stated maturity. (j) Default shall be made under any obligation equal to or greater than $1,000,000 of a consolidated Affiliate, which is otherwise non-recourse to the Guarantor, if the holder or obligee of such obligation has commenced action on any of the remedies available to it under the obligation. (k) If the Administrative Agent, in its reasonable discretion, determines in good faith that a Material Adverse Change has occurred in the financial condition of the Guarantor. (l) If the Guarantor shall liquidate, dissolve or terminate its existence or any change occurs in the management or control of the Guarantor without the prior written consent of the Administrative Agent. (m) If the Guarantor transfers any of its assets in violation of Section 3.3 hereof. 6 7 (n) Any execution or attachment shall be levied against any collateral for this Agreement, or any part thereof, and such execution or attachment shall not be set aside, discharged or stayed within thirty (30) days after the same shall have been levied. Section 1.8 Rescission of Election to Accelerate. In the event the Administrative Agent shall elect to accelerate the maturity of the Note as to the Guarantor pursuant to the provisions of this Agreement, such election may be rescinded by written acknowledgment to that effect by the Administrative Agent; provided, however, that the acceptance of a partial payment on account of the Note shall not alone effect or rescind such election. Section 1.9 Subordination; Subrogation. In the event the Guarantor shall advance any sums to the Borrowers, or in the event the Borrowers has heretofore or shall hereafter become indebted to the Guarantor before the Obligations have been paid in full, all such advances and indebtedness shall be subordinate in all respects to the Obligations (the "Guarantor Subordinated Debt"). Any payment to the Guarantor after the occurrence of an Event of Default on account of the Guarantor Subordinated Debt shall be collected and received by the Administrative Agent or the Guarantor in trust for the Lenders and shall be paid over to the Lenders on account of the Obligations without impairing or releasing the obligations of the Guarantor hereunder. Without the prior written consent of the Administrative Agent, the Guarantor shall not ask, demand, receive, accept, sue for, set off, collect or enforce the Guarantor Subordinated Debt or any collateral and security therefor. The Guarantor represents and warrants to the Lenders that the Guarantor Subordinated Debt is unsecured and agrees not to receive or accept any collateral or security therefor without the prior written permission of the Administrative Agent. The Guarantor shall assign, transfer, hypothecate or dispose of the Guarantor Subordinated Debt while this Agreement is in effect. In the event of any sale, receivership, insolvency or bankruptcy proceeding, or assignment for the benefit of creditors, or any proceeding by or against the Borrowers for any relief under any bankruptcy or insolvency law or other laws relating to the relief of debtors, readjustment of indebtedness, reorganizations, compositions or extensions, then and in any such event any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon, or with respect to, all or any part of the Guarantor Subordinated Debt or otherwise shall be paid or delivered directly to the Administrative Agent for application to the obligations and liabilities of the Guarantor under this Agreement (whether due or not due and in such order and manner as the Administrative Agent may determine in the exercise of its sole discretion) until the obligations of the Guarantor hereunder shall have been fully paid and satisfied. The Guarantor hereby irrevocably authorizes and empowers the Lenders to demand, sue for, collect and receive every such payment or distribution on account of the Guarantor Subordinated Debt and give acquittance therefor and to file claims and take such other proceedings in the name of the Lenders or in the names of the Guarantor or otherwise, as the Lenders may deem necessary or advisable to carry out the provisions of this Agreement. The Guarantor hereby agrees to execute and deliver to the Administrative Agent such powers of attorney, assignments, endorsements or other instruments 7 8 as may be requested by the Administrative Agent in order to enable the Lenders to enforce any and all claims upon, or with respect to, the Guarantor Subordinated Debt, and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or with respect thereto. So as to secure the performance by the Guarantor of the provisions of this Agreement, the Guarantor assigns, pledges and grants to the Lenders a security interest in, and lien on, the Guarantor Subordinated Debt, all proceeds thereof and all and any security and collateral therefor. Upon the request of the Administrative Agent, the Guarantor shall endorse, assign and deliver to the Administrative Agent all notes, instruments and agreements evidencing, securing, guarantying or made in connection with the Guarantor Subordinated Debt. Notwithstanding any provision contained in this Agreement to the contrary, if the Guarantor is or at any time becomes an "insider" (as defined from time to time in Section 101 of the United States Bankruptcy Code) with respect to the Borrowers, or any other guarantor, then the Guarantor irrevocably and absolutely waives any and all rights of contribution, indemnification, reimbursement, subrogation or any similar rights against the Borrowers and/or any such guarantor, with respect to this Guaranty (including any right of subrogation) whether such rights arise under an express or implied contract or by operation of law. It is the intention of the Guarantor that it shall not be deemed to be a "creditor" (as defined in Section 101 of the United States Bankruptcy Code) of the Borrowers, or any such guarantor, by reason of the existence of this Agreement in the event that the Borrowers or any such guarantor, becomes a debtor in any proceeding under the United States Bankruptcy Code. This waiver is given to induce the Lenders to make the Loans to the Borrowers. Section 1.10 Mandatory Arbitration. Any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to this Guaranty or any related agreements or instruments, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), as promulgated from time to time by the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Judicial Arbitration and Mediation Services, Inc., predecessor in interest to Endispute, Inc., doing business as "J.A.M.S./Endispute" and the "Special Rules" set forth below. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Guaranty may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The foregoing notwithstanding, in a claim pertaining to a Deed of Trust or Collateral located in a state with "one-action" rule which might limit to Lenders' remedies, the Administrative Agent shall have the right in its sole discretion to restrict the application of this arbitration provision to the extent that it would otherwise result in a limitation on the Lenders' remedies in such state. (i) Special Rules. The arbitration shall be conducted in Fairfax County, Virginia and administered by J.A.M.S./Endispute who will appoint an arbitrator pursuant to its rules of 8 9 practice and procedure; if J.A.M.S./Endispute is unable or legally precluded from administering the arbitration, then the American Arbitration Association will serve. All arbitration hearings will be commenced within ninety (90) calendar days of the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional sixty (60) calendar days. (ii) Reservations of Rights. Nothing in this Guaranty shall be deemed to (i) limit the applicability of any otherwise applicable statutes of limitation or repose and any waivers contained in this Guaranty; or (ii) be a waiver by the Administrative Agent or the Lenders of the protection afforded to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit the right of Lender (A) to exercise self help remedies such as (but not limited to) setoff, or (B) to foreclose against any real or personal property collateral, or (C) to obtain from a court provisional or ancillary remedies such as (but not limited to) injunctive relief or the appointment of a receiver. The Lenders may exercise such self help rights, foreclose upon such property, or obtain such provisional or ancillary remedies before, during or after the pendency of any arbitration proceeding brought pursuant to this Guaranty. At the Administrative Agent or the Lenders' option, foreclosure under a deed of trust or mortgage may be accomplished by any of the following: the exercise of a power of sale under the deed of trust or mortgage, or by judicial sale under the deed of trust or mortgage, or by judicial foreclosure. Neither the exercise of self help remedies nor the institution or maintenance of an action for foreclosure or provisional or ancillary remedies shall constitute a waiver of the right of any party, including the claimant in any such action, to arbitrate the merits of the controversy or claim occasioning resort to such remedies. Notwithstanding the foregoing, in the event that the Lender exercises such self help remedies or other actions, the Guarantor has not waived any of its rights to seek legal or equitable relief to defend against the Administrative Agent's or Lenders' exercise of such self help remedies or other actions. No provision in the Financing Documents regarding submission to jurisdiction and/or venue in any court is intended or shall be construed to be in derogation of the provisions in any Financing Document for arbitration of any controversy or claim. (iii) Confidentiality. Any arbitration proceeding, award, findings of fact, conclusions of law, or other information concerning such arbitration matters shall be held in confidence by the parties and shall not be disclosed except to each party's employees or agents as shall be reasonably necessary for such party to conduct its business; provided, however, that either party may disclose such information for auditing purposes by independent certified accounts, for complying with applicable governmental laws, regulations or court orders, or that is or becomes part of the public domain through no breach of this Agreement. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 The Guarantor represents and warrants to the Lenders as follows: (a) Good Standing. The Guarantor (i) is duly organized, existing and in good standing under the laws of the jurisdiction of its organization, (ii) has the power to own its property and to carry on its business as now being conducted, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties 9 10 owned by it therein or in which the transaction of its business makes such qualification necessary. (b) Power and Authority. The Guarantor has full power and authority to execute and deliver this Agreement and the other Financing Documents to which it is a party and to incur and perform the Obligations whether under this Agreement, the other Financing Documents or otherwise, all of which have been duly authorized by all proper and necessary action. No consent or approval of shareholders, members, or any creditors of the Guarantor, and no consent, approval, filing or registration with or notice to any Governmental Authority on the part of the Guarantor, is required as a condition to the execution, delivery, validity or enforceability of this Agreement or the other Financing Documents or the performance by the Guarantor of the Obligations. (c) Binding Agreements. This Agreement and the other Financing Documents executed and delivered by the Guarantor have been properly executed and delivered and constitute the valid and legally binding obligations of the Guarantor and are fully enforceable against the Guarantor in accordance with their respective terms, subject to (a) bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally, (b) general principles of equity (regardless of whether such principles of equity are asserted in an action or proceeding at law or in equity) or the discretion of the court before which any action or proceeding may be brought and (c) other applicable laws which may limit the enforceability of certain of the remedial or procedural provisions contained in this Agreement. (d) Compliance with Laws. The Guarantor is not in violation of any applicable Laws (including, without limitation, any Laws relating to employment practices, to environmental, occupational and health standards and controls) or order, writ, injunction, decree or demand of any court, arbitrator, or any Governmental Authority affecting the Guarantor or any of its properties, the violation of which, considered in the aggregate, could materially adversely affect the business, operations or properties of the Guarantor. (e) Litigation. There are no proceedings, actions or investigations pending or, so far as the Guarantor knows, threatened before or by any court, arbitrator or any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of the Guarantor, would have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of the Guarantor. (f) Financial Condition. The financial statements of the Guarantor dated December 31, 1998 are complete and correct and fairly present the financial position of the Guarantor and the results of its operations and transactions in its surplus accounts as of the date and for the period referred to and have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved. There are no liabilities, direct or indirect, fixed or contingent, of the Guarantor as of the date of such financial statements which are not reflected therein or in the notes thereto. There has been no Material Adverse Change in the financial condition or operations of the Guarantor since the date of such financial statements and to the Guarantor's knowledge no such Material Adverse Change is pending or threatened. The Guarantor has not guaranteed the obligations of, or made any investment in or advances to, any 10 11 Person, except as disclosed in such financial statements or as otherwise disclosed in writing to the Lenders. The representations and warranties contained in this Section shall also cover financial statements furnished from time to time to the Administrative Agent pursuant to Section of this Agreement. (g) Full Disclosure. The financial statements referred to in Section 2.1(f) of this Agreement, the Financing Documents (including, without limitation, this Agreement), and the statements, reports or certificates furnished by the Guarantor in connection with the Financing Documents (i) do not contain any untrue statement of a material fact and (ii) when taken in their entirety, do not omit any material fact necessary to make the statements contained therein not misleading. There is no fact known to the Guarantor which the Guarantor has not disclosed to the Lenders in writing prior to the date of this Agreement which constitutes a Material Adverse Change with respect to the Guarantor or in the future could, in the reasonable opinion of the Guarantor, constitute a Material Adverse Change with respect to the Guarantor. (h) Financial Interest. The Guarantor has a financial interest in the Borrowers and will derive a benefit from the Loan. Section 2.2 Survival; Updates of Representations and Warranties. All representations and warranties contained in or made under or in connection with this Agreement and the other Financing Documents shall survive the Closing Date, the making of any advance under the Loans and the incurring of any Obligations. ARTICLE III COVENANTS Section 3.1 The Guarantor hereby covenants and agrees as follows: (a) Existence. The Guarantor shall maintain its existence in good standing in the jurisdiction in which it is organized and in each other jurisdiction where it is required to register or qualify to do business if the failure to do so in such other jurisdiction might have a material adverse effect on the ability of the Guarantor to perform the Obligations, on the conduct of the Guarantor's operations, on the Guarantor's financial condition, or on the value of, or the ability of the Lenders to realize upon, the Collateral. (b) Further Assurances. The Guarantor will make, execute, acknowledge and deliver all and every such further acts and assurances as the Lenders shall from time to time require for confirming or carrying out the intentions or facilitating the performance of the terms of this Agreement. (c) Financial Records - Inspection. The Guarantor will (i) maintain or cause to be maintained full, complete, accurate and adequate records and books of account in accordance with generally accepted accounting principles consistently applied; (ii) permit the Lenders and their duly authorized agents, attorneys and accountants to inspect, examine, and copy its records and books of account at all reasonable times; (iii) (1) as soon as available, but in no event more 11 12 than one hundred twenty (120) days after the close of the Guarantor's fiscal years, provide the Administrative Agent with copies of (A) the Guarantor's consolidated financial statements for the year in question, in form and detail satisfactory to the Administrative Agent, prepared in accordance with generally accepted accounting principles, consistently applied, and audited by an independent certified public accountant satisfactory to the Administrative Agent, which financial statements shall include a balance sheet as of the end of such fiscal year, (B) the related statements of operations and retained earnings and cash statements for such fiscal year in a format acceptable to the Administrative Agent, and (C) an unqualified letter or opinion of the independent accountant and a Compliance Certificate in the form of Exhibit G attached to the Financing Agreement, (2) as soon as available, but in no event more than forty-five (45) days after the end of the Guarantor's fiscal quarters, provide the Administrative Agent with copies of internally prepared consolidated and consolidating financial statements of the Guarantor on a year-to-date basis and as of the close of such period which financial statements shall include a balance sheet and income and expense statements for the Guarantor for such period, each certified as to accuracy by the chief financial officer of Guarantor and a Compliance Certificate in the form of Exhibit G attached to the Financing Agreement; and (3) as soon as available but in no event more than thirty (30) days after the date of filing, provide the Administrative Agent with copies of the federal and state income tax returns for Guarantor for the year in question as well as any requests for extensions, schedules and exhibits filed in connection therewith; (iv) the Guarantor shall provide to the Administrative Agent copies of each 10K or 10Q report as soon as possible, but in no event more than thirty (30) days after filing such report with the Securities and Exchange Commission; (v) promptly deliver to the Administrative Agent such other information with respect to the financial statements of the Guarantor as the Lenders may from time to time require; and (vi) all required financial statements shall be accompanied by a certificate of compliance with the financial covenants set forth in this Agreement (and shall include the Guarantor's computation of such covenants) signed by the Guarantor's Chief Financial Officer and a representation whether or not there has occurred a Default or Event of Default under the Financing Documents and, if so, stating the facts with respect thereto. All financial statements will include the following certification: "The undersigned as ____________ of ____________ certifies that the financial information contained in the financial statement dated ________, is true and complete as of this date. This statement is provided to Bank of America, N.A. (the "Bank") as agent for the Lenders set forth in the Third Amended and Restated Agency Agreement dated March 14, 2000 as amended, restated or substituted from time to time for the purpose of obtaining credit or in fulfillment of the terms and conditions of credit already provided. Accordingly, it is intended that the Bank may rely on this information". (d) Estoppel Certificates. Within ten (10) days following any request of the Administrative Agent so to do, the Guarantor will furnish the Administrative Agent and such other persons as the Administrative Agent may direct with a written certificate, duly acknowledged stating in detail whether or not any credits, offsets or defenses exist with respect to this Agreement. 12 13 Section 3.2 Financial Covenants. Guarantor hereby covenants and agrees that, until the Loans and all of the other Obligations have been paid and performed in full, it will: (a) Minimum Tangible Net Worth. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending September 30, 1999, a minimum Tangible Net Worth of not less than the sum of $258,003,069 plus 75% of the Guarantor's net income (if positive) for each subsequent quarter, plus 85% of the net proceeds to the Guarantor of any equity capital transaction received during any subsequent quarter. "Tangible Net Worth" means, at any time, the sum at such time of Net Worth (as defined by GAAP) plus the dollar amount of the leasehold value associated with the properties which are the subject of the synthetic lease transactions (which leasehold value would otherwise be categorized as an intangible asset on the financial statements of the Guarantor), less the total of (aa) all assets which would be classified as intangible assets under GAAP, including goodwill (except for deferred taxes recorded as goodwill and except for the goodwill purchased in connection with the acquisition of Karrington Health, Inc. in the approximate amount of $32,000,000 (subject to adjustment for final audited calculations as of December 31, 1999 and as may be further adjusted as reported in future Form 10Q Reports of the Guarantor). which shall be included in Tangible Net Worth), trademarks, trademark applications, trade names, service marks, patent applications and licenses, and deferred charges, (bb) any revaluation or other write-up in book value of assets subsequent to the date of the most recent financial statements delivered to the Administrative Agent prior to the date of this Agreement, (cc) the amount of all loans and advances to, or investments in, any person or entity, excluding (x) cash equivalents and deposit accounts maintained by the Guarantor with any financial institution (y) certain mortgage revenue bonds issued by the Bucks County, Pennsylvania Industrial Development Authority and (z) investments of less than $2,500,000 individually (not to exceed $10,000,000 in the aggregate), and (dd) advances or loans made to or receivables from any unconsolidated affiliates (excluding subordinated debt or loans of unconsolidated subsidiaries and affiliates of Guarantor which are parties to development and management contracts with Sunrise Development, Inc. and Sunrise Assisted Living Management, Inc.) of which the Guarantor owns less than fifty percent (50%) or any stockholder of the Guarantor or any affiliate. (b) Minimum Liquidity. Maintain at all times, on an individual basis (i.e. parent company only), Liquid Assets (as defined in the Financing Agreement) at all times of the greater of $25,000,000 or ninety (90) days of Debt Service (as defined in the Financing Agreement) on all of the Guarantor's direct and contingent liabilities. The foregoing notwithstanding, Liquid Assets held by the Borrowers in order to satisfy the provisions of Section 8.14 of the Financing Agreement may be included to satisfy this minimum liquidity requirement. (c) Minimum Interest and Rent Coverage. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending December 31, 1999 as of the dates shown below, based on the trailing four quarters, a ratio of EBITDAR to Interest Expense plus Rent Expense of not less than that shown below: 13 14
- ----------------------------------------------- ----------------------------------------------- PERIOD ENDING MINIMUM RATIO - ----------------------------------------------- ----------------------------------------------- December 31, 1999 2.00 to 1.00 - ----------------------------------------------- ----------------------------------------------- March 31, 2000 2.00 to 1.00 - ----------------------------------------------- ----------------------------------------------- June 30, 2000 2.00 to 1.00 - ----------------------------------------------- ----------------------------------------------- September 30, 2000 2.00 to 1.00 - ----------------------------------------------- ----------------------------------------------- December 31, 2000 2.25 to 1.00 - ----------------------------------------------- ----------------------------------------------- March 31, 2001 2.25 to 1.00 - ----------------------------------------------- ----------------------------------------------- June 30, 2001 2.25 to 1.00 - ----------------------------------------------- ----------------------------------------------- September 30, 2001 2.25 to 1.00 - ----------------------------------------------- ----------------------------------------------- December 31, 2001 and thereafter 2.50 to 1.00 - ----------------------------------------------- -----------------------------------------------
"Interest Expense" shall mean the actual interest expense incurred by Guarantor or its subsidiaries with respect to all debt obligations owed to unaffiliated third parties (including the actual interest expense incurred by Guarantor with respect to its 5 1/2% convertible subordinated notes). "Rent Expense" shall mean the actual rent expense incurred by the Borrowers, the Guarantor or any Affiliate as a tenant under leases with respect to any senior living facility. (d) Maximum Funded Debt Ratio. Maintain, on a consolidated basis with all subsidiaries, at all times during the term of the Loan measured quarterly beginning with the quarter ending December 31, 1999 as of the dates shown below, based on the trailing four quarters, a ratio of Funded Debt to EBITDAR of not more than that shown below:
- ----------------------------------------------- ----------------------------------------------- PERIOD ENDING MAXIMUM RATIO - ----------------------------------------------- ----------------------------------------------- December 31, 1999 8.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- March 31, 2000 8.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- June 30, 2000 8.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- September 30, 2000 8.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- December 31, 2000 7.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- March 31, 2001 7.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- June 30, 2001 7.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- September 30, 2001 7.75 to 1.00 - ----------------------------------------------- ----------------------------------------------- December 31, 2001 and thereafter 7.00 to 1.00 - ----------------------------------------------- -----------------------------------------------
"Funded Debt" shall have the meaning provided for such term in the Financing Agreement except that the Guarantor's 5 1/2% convertible subordinated notes shall be included as Funded Debt. The foregoing notwithstanding, in the event that the Guarantor or any of its Affiliates sells more than ten (10) Facilities (other than Assets Held for Sale) during fiscal year 2000, the foregoing maximum ratio will be reduced to 7.75 to 1.00 effective as of the end of the fiscal quarter in which the closing of the sale of the tenth Facility occurred. 14 15 (e) Notification of Certain Events. Promptly notify the Administrative Agent upon obtaining knowledge of the occurrence of any of the following: (i) any Event of Default under the Financing Documents; (ii) any event, development or circumstance whereby the financial statements furnished under the Financing Documents fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of the Guarantor; (iii) any judicial, administrative or arbitral proceeding pending against the Guarantor in any judicial or administrative proceeding known by the Guarantor to have been threatened in a written communication against it which, if adversely decided, could materially adversely affect its financial condition or operations (present or prospective); (iv) (A) the revocation, suspension, probation, restriction, limitation or refusal to renew, or the pending, revocation, suspension, probation, restriction, limitation, or refusal to renew, of any License (as defined in the Financing Agreement) held by the Borrowers, the Guarantor or the Management Company (as defined in the Financing Agreement), or (B) the decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew, or the pending, decertification, revocation, suspension, probation, restriction, limitation, or refusal to renew any participation or eligibility in any third party payor program in which the Borrowers, the Guarantor or Management Company elects to participate which exceeds 10% of the gross revenue of a Facility, including, without limitation, Medicare, Medicaid, or private insurer, or any accreditation of the Guarantor or Management Company, or (C) the issuance or pending issuance of any License for a period of less than twelve (12) months, as a consequence of sanctions imposed by any governmental authority, or (D) the assessment or pending assessment, of any civil or criminal penalties by any government authority, any third party payor or any accreditation organization or Person, if any, which could materially adversely affect the financial condition or operations of the Guarantor or the Management Company; and (v) any other development in the business or affairs of the Guarantor or the Management Company which may be a Material Adverse Change; and (vi) any actual contingent liability or a potential contingent liability threatened or noticed in a written communication of the Borrowers of $1,000,000 or more, in each case described in (i) through (vi) above, such notification shall describe in detail satisfactory to the Administrative Agent the nature thereof and, in the case of notification under this clause (iii), the action the Guarantor or the Management Company proposes to take with respect thereto or a statement that the Guarantor or the Management Company intends to take no action and an explanation of the reasons for such inaction. In addition, the Guarantor or the Management Company will furnish to the Administrative Agent immediately after receipt thereof copies of all administrative notices material to the Guarantor's or the Management Company's business and operation of any Facility and all responses by or on behalf of the Guarantor or the Management Company with respect to such administrative notices. 15 16 Section 3.3 Negative Covenants. Until the Credit Facility is terminated and the Loans and the other Obligations have been paid or performed in full, the Guarantor will not, without the prior written consent of the Administrative Agent: (a) Mergers or Acquisitions. Enter into any merger or consolidation or amalgamation, wind up or dissolve itself (or suffer any liquidation or dissolution), or acquire all or substantially all of the assets of any person, firm, joint venture or corporation. The foregoing notwithstanding, the consent of the Administrative Agent shall not be required for any merger or consolidation or acquisition of the Guarantor pursuant to which the Guarantor retains its corporate identity and Paul J. Klaassen or Teresa M. Klaassen remains the Chairman of the Board and Chief Executive Officer with responsibility for managing the businesses of the Guarantor and which does not result in either a Material Adverse Change or a breach of any covenant under the Credit Facility. (b) Sale of Assets. Sell, lease, or otherwise dispose of any substantial portion of its assets (except for customary political and charitable contributions and assets disposed of in the ordinary course of business) unless such disposition is in exchange for not less than fair market value and does not result in either a Material Adverse Change or a breach of any covenant under the Credit Facility. Without limiting the generality of the foregoing, the Guarantor and its subsidiaries will not sell more than twenty (20) Facilities (excluding Facilities now classified as Assets Held for Sale) during any twelve (12) month period without the prior written consent of at least 51% of the Lenders (based on their pro rata share of the Loan) in their sole discretion. (c) Subsidiaries. Except for the purpose of acquiring real property to construct an assisted living facility or acquiring an existing assisted living facility, create or otherwise acquire any subsidiaries if such creation or acquisition will result in a Material Adverse Change. (d) Additional Stock and Transfers of Stock. The Guarantor may issue or grant options or rights to purchase its capital stock and there shall be no limitations on the right of shareholders of the Guarantor to pledge, assign, transfer or encumber any of their stock in the Guarantor provided, (1) the Guarantor is an entity whose common equity is registered under an applicable Federal Securities Act and is traded on a National Securities Exchange or NASDAQ national market, and (2) either Paul J. Klaassen or Teresa M. Klaassen is the Chief Executive Officer and Chairman of the Board with responsibility for managing the businesses of the Guarantor; and provided, that, the Guarantor shall provide written notice to Administrative Agent of transfers of stock in the Guarantor under such circumstances and in such manner as the Guarantor is required to give notice thereof to the Securities Exchange Commission. (e) ERISA Compliance. (A) Restate or amend any Plan established and maintained by the Guarantor or any Commonly Controlled Entity and subject to the requirements of ERISA, in a manner designed to disqualify such Plan and its related trusts under the applicable requirements of the Code; (B) permit any officer of the Guarantor or any Commonly 16 17 Controlled Entity to materially adversely affect the qualified tax-exempt status of any Plan or related trusts of the Guarantor or any Commonly Controlled Entity under the Code; (C) engage in or permit any Commonly Controlled Entity to engage in any Prohibited Transaction; (D) incur or permit any Commonly Controlled Entity to incur any Accumulated Funding Deficiency, whether or not waived, in connection with any Plan; (E) take or permit any Commonly Controlled Entity to take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Guarantor or any Commonly Controlled Entity pursuant to Section 4068 of ERISA; (F) fail to notify the Administrative Agent that notice has been received of a "termination" (as defined in ERISA) of any Multiemployer Plan to which the Guarantor or any Commonly Controlled Entity has an obligation to contribute; (G) incur or permit any Commonly Controlled Entity to incur a "complete withdrawal" or "partial withdrawal" (as defined in ERISA) from any Multiemployer Plan to which the Guarantor or any Commonly Controlled Entity has an obligation to contribute; or (H) fail to notify the Administrative Agent that notice has been received from the administrator of any Multiemployer Plan to which the Guarantor or any Commonly Controlled Entity has an obligation to contribute that any such Plan will be placed in "reorganization" (as defined in ERISA). (f) Amendments; Terminations. Amend or terminate or agree to amend or terminate any License, participation agreement, the Management Agreement, by the Guarantor with the Borrowers or except in the ordinary course of business, any other operating agreements which may be entered into by Guarantor with respect to the Facility, or consent to or waive any material provisions thereof. ARTICLE IV MISCELLANEOUS Section 4.1 Notices. All notices, requests and demands to or upon the parties to this Agreement shall be in writing and shall be deemed to have been given or made when delivered by hand on a Business Day, or three (3) days after the date when deposited in the mail, postage prepaid by registered or certified mail, return receipt requested, or when sent by overnight courier, on the Business Day next following the day on which the notice is delivered to such overnight courier, addressed as follows: Guarantor: Sunrise Assisted Living, Inc. 7902 Westpark Drive McLean, Virginia 22102 Attention: Thomas B. Newell, Esq. Sunrise Assisted Living, Inc. 7902 Westpark Drive McLean, Virginia 22102 Attention: David W. Faeder 17 18 Sunrise Assisted Living, Inc. 7902 Westpark Drive McLean, Virginia 22102 Attention: James S. Pope With a Courtesy Copy to: Wayne G. Tatusko, Esquire Watt, Tieder, Hoffar & Fitzgerald 7929 Westpark Drive McLean, Virginia 22102 Administrative Bank of America, N.A Agent: 10 Light Street, 20th Floor Baltimore, Maryland 21202 Attention: Leslie M. Zuga By written notice, each party to this Agreement may change the address to which notice is given to that party, provided that such changed notice shall include a street address to which notices may be delivered by overnight courier in the ordinary course on any Business Day. Section 4.2 Amendments; Waivers. This Agreement may not be amended, modified, or changed in any respect except by an agreement in writing signed by the Administrative Agent and the Guarantor. No waiver of any provision of this Agreement, nor consent to any departure by the Guarantor therefrom, shall in any event be effective unless the same shall be in writing. No course of dealing between the Guarantor and the Lenders and no act or failure to act from time to time on the part of the Lenders shall constitute a waiver, amendment or modification of any provision of this Agreement or any right or remedy under this Agreement or under applicable Laws. Without implying any limitation on the foregoing: (a) any waiver or consent shall be effective only in the specific instance, for the terms and purpose for which given, subject to such conditions as the Administrative Agent may specify in any such instrument. (b) no waiver of any Default or Event of Default shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereto. (c) no notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in the same, similar or other circumstance. (d) no failure or delay by the Lenders to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or of any of the other Financing 18 19 Documents, or to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver, amendment or modification of any such term, condition, covenant or agreement or of any such breach or preclude the Lenders from exercising any such right, power or remedy at any time or times. (e) by accepting payment after the due date of any amount payable under this Agreement or under any of the other Financing Documents, the Lenders shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any of the other Financing Documents, or to declare a default for failure to effect such prompt payment of any such other amount. Section 4.3 Cumulative Remedies. The rights, powers and remedies provided in this Agreement and in the other Financing Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to time and in such order as the Lenders shall determine and are in addition to, and not exclusive of, rights, powers and remedies provided by existing or future applicable Laws. In order to entitle the Lenders to exercise any remedy reserved to them in this Agreement, it shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Without limiting the generality of the foregoing, the Lenders may: (a) proceed against the Guarantor with or without proceeding against the Borrowers and any other guarantor or any other Person who may be liable for all or any part of the Obligations; (b) proceed against the Guarantor with or without proceeding under any of the other Financing Documents or against any Collateral or other collateral and security for all or any part of the Obligations; (c) without reducing or impairing the obligation of the Guarantor and without notice, release or compromise with any other Person liable for all or any part of the Obligations under the Financing Documents or otherwise; (d) without reducing or impairing the obligations of the Guarantor and without notice thereof: (a) fail to perfect the Lien in any or all Collateral or to release any or all the Collateral or to accept substitute Collateral, (b) approve the making of advances under the Loans under the Loan Agreement, (c) waive any provision of this Agreement or the other Financing Documents, (d) exercise or fail to exercise rights of set-off or other rights, or (e) accept partial payments or extend from time to time the maturity of all or any part of the Obligations. Section 4.4 Severability. In case one or more provisions, or part thereof, contained in this Agreement or in the other Financing Documents shall be invalid, illegal or unenforceable in any respect under any Law, then without need for any further agreement, notice or action: 19 20 (a) the validity, legality and enforceability of the remaining provisions shall remain effective and binding on the parties thereto and shall not be affected or impaired thereby; (b) the obligation to be fulfilled shall be reduced to the limit of such validity; (c) if such provision or part thereof pertains to repayment of the Obligations, then, at the sole and absolute discretion of the Lenders, all of the Obligations shall become immediately due and payable; and (d) if the affected provision or part thereof does not pertain to repayment of the Obligations, but operates or would prospectively operate to invalidate this Agreement in whole or in part, then such provision or part thereof only shall be void, and the remainder of this Agreement shall remain operative and in full force and effect. Section 4.5 Assignments by Lenders. The Lenders may, without notice to, or consent of, the Guarantor, sell, assign or transfer to or participate with any Person or Persons, including a Federal Reserve Bank, all or any part of the Obligations and the rights under this Agreement and the Note, and each such Person or Persons shall have the right to enforce the provisions of this Agreement and any of the other Financing Documents as fully as the Lenders, provided that the Lenders shall continue to have the unimpaired right to enforce the provisions of this Agreement and any of the other Financing Documents as to so much of the Obligations that such Lender has not sold, assigned or transferred. In connection with the foregoing, the Lenders shall have the right to disclose to any such actual or potential purchaser, assignee, transferee or participant all financial records, information, reports, financial statements and documents obtained in connection with this Agreement and any of the other Financing Documents or otherwise. In connection with any sale, assignment, transfer or participation to a Person who is an affiliate or successor of the Lenders, such Lender shall give notice to Borrowers of such transaction either before or after the transaction has occurred as such Lender shall determine; however, such Lender shall give notice to the Borrowers in advance of any such transaction with a non-affiliate. Section 4.6 Successors and Assigns. This Agreement shall be binding upon the Guarantor and its respective successors and assigns, and shall inure to the benefit of the Lenders and their respective successors and assigns. Section 4.7 Continuing Agreements. All covenants, agreements, representations and warranties made by the Guarantor in this Agreement and in any certificate delivered pursuant hereto shall survive the making by the Lenders of the Loans and the execution and delivery of the Note, shall be binding upon the Guarantor regardless of how long before or after the date hereof any of the Obligations were or are incurred, and shall continue in full force and effect so long as any of the Obligations are outstanding and unpaid. From time to time upon the Administrative Agent's request, and as a 20 21 condition of the release of any one or more of the Security Documents, the Guarantor and other Persons obligated with respect to the Obligations shall provide the Administrative Agent with such acknowledgments and agreements as the Administrative Agent may require to the effect that there exists no defenses, rights of setoff or recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against the Lenders, their respective agents and others, or to the extent there are, the same are waived and released. Section 4.8 Enforcement Costs. The Guarantor agrees to pay to the Lenders on demand all Enforcement Costs, together with interest thereon from the date incurred or advanced until paid in full at a per annum rate of interest equal at all times to the Post-Default Rate. Enforcement Costs shall be immediately due and payable at the time advanced or incurred, whichever is earlier. Without implying any limitation on the foregoing, the Guarantor agrees, as part of the Enforcement Costs, to pay upon demand any and all stamp and other Taxes and fees payable or determined to be payable in connection with the execution and delivery of this Agreement and to save the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay any Taxes or fees referred to in this Section. The provisions of this Section shall survive the execution and delivery of this Agreement, the repayment of the other Obligations and shall survive the termination of this Agreement. Section 4.9 Applicable Law. As a material inducement to the Lenders to enter into this Agreement, the Guarantor acknowledges and agrees that the Financing Documents, including, this Agreement, shall be governed by the Laws of the Commonwealth of Virginia as if each of the Financing Documents and this Agreement had each been executed, delivered, administered and performed solely within the Commonwealth of Virginia even though for the convenience and at the request of the Borrowers, one or more of the Financing Documents may be executed elsewhere. The Lenders acknowledge, however, that remedies under certain of the Financing Documents which relate to property outside the Commonwealth of Virginia may be subject to the laws of the state in which the property is located. Section 4.10 Duplicate Originals and Counterparts. This Agreement may be executed in any number of duplicate originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be an original and all taken together shall constitute but one and the same instrument. Section 4.11 Headings. The headings in this Agreement are included herein for convenience only, shall not constitute a part of this Agreement for any other purpose, and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 21 22 Section 4.12 No Partnership - Third Parties. Nothing contained in this Agreement shall be construed in a manner to create any relationship between the Guarantor and any of the Lenders other than the relationship of guarantor and lenders and the Guarantor and the Lenders shall not be considered partners or co-venturers for any purpose. The terms and provisions of this Agreement are for the benefit of the Lenders and their respective successors, assigns, endorsees and transferees and all persons claiming under or through it and no other person shall have any right or cause of action on account thereof. The Lenders have no obligation to make any advance of any Loans for the benefit of the Guarantor; the Guarantor has no beneficial interest in the proceeds of the Loans or rights or claims under the Financing Agreement or any of the other Financing Documents. The obligations and liabilities of the Guarantor shall in no manner be affected by the actual use of the proceeds of the Loans or whether the Lenders waive any or all of the conditions to advances set forth in the Financing Agreement. Section 4.13 Entire Agreement. The Financing Documents shall completely and fully supersede all prior agreements, both written and oral, between the Lenders and the Borrowers relating to the Loans. Neither the Lenders, the Borrowers nor the Guarantor shall hereafter have any rights under such prior agreements but shall look solely to the Financing Documents for definition and determination of all of their respective rights, liabilities and responsibilities relating to the Obligations. Section 4.14 Consent to Jurisdiction. The Guarantor irrevocably submits to the jurisdiction of any state or federal court sitting in the Commonwealth of Virginia over any suit, action, or proceeding arising out of or relating to this Agreement. The Guarantor irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to laying the venue of any such suit, action, or proceeding brought in any such court and any claim that any such suit, action, or proceeding brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action, or proceeding brought in any such court shall be conclusive and binding upon the Guarantor and may be enforced in any court to the jurisdiction of which the Guarantor is subject, by a suit upon such judgment provided that service of process is effected upon the Guarantor in a manner specified in this Agreement or as otherwise permitted by applicable law. Section 4.15 Service of Process. The Guarantor hereby consents to process being served in any suit, action, or proceeding instituted in connection with this Agreement by (a) the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to it at its address designated in Section 4.1 hereof and (b) serving a copy thereof upon Wayne G. Tatusko, Esquire, 7929 Westpark Drive, McLean, Virginia 22102, the agent hereby designated and appointed as its agent for service of process. The Guarantor irrevocably agrees that such service (i) shall be deemed in every respect to be effective service of process upon it in any such suit, action, or proceeding and (ii) shall, to 22 23 the fullest extent permitted by law, be taken and held to be valid personal service upon the Guarantor. Nothing in this Section shall affect the right of the Lenders to serve process in any manner otherwise permitted by law or limit the right of the Lenders otherwise to bring proceedings against the Guarantor in the courts of any other jurisdiction or jurisdictions. Section 4.16 WAIVER OF TRIAL BY JURY. THE GUARANTOR AND THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING NOT REQUIRED TO BE ARBITRATED PURSUANT TO THE TERMS HEREOF TO WHICH THE GUARANTOR AND THE LENDERS, OR ANY OF THEM, MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. This waiver is knowingly, willingly and voluntarily made by the Guarantor and the Lenders, and the Guarantor and the Lenders hereby represent that no representations of fact or opinion have been made by any individual to induce this waiver of trial by jury or to in any way modify or nullify its effect. The Guarantor and the Lenders further represent that they have been represented in the signing of this Agreement and in the making of this waiver by independent legal counsel, selected of their own free will, and that they have had the opportunity to discuss this waiver with counsel. Section 4.17 Liability of the Lenders. The Guarantor hereby agrees that the Lenders shall not be chargeable for any negligence, mistake, act or omission of any accountant, examiner, agency or attorney employed by the Lenders in making examinations, investigations or collections, or otherwise in perfecting, maintaining, protecting or realizing upon any lien or security interest or any other interest in the Collateral or other security for the Obligations. By inspecting the Collateral or any other properties of the Borrowers or by accepting or approving anything required to be observed, performed or fulfilled by the Borrowers or to be given to the Lenders pursuant to this Agreement or any of the other Financing Documents, the Lenders shall not be deemed to have warranted or represented the condition, sufficiency, legality, effectiveness or legal effect of the same, and such acceptance or approval shall not constitute any warranty or representation with respect thereto by the Lenders. Section 4.18 Reinstatement. If at any time any payment, or portion thereof, made by, or for the account of, the Borrowers or the Guarantor on account of any of the obligations and liabilities arising hereunder or under any of the Financing Documents is set aside by any court or trustee having jurisdiction 23 24 as a voidable preference or fraudulent conveyance or must otherwise be restored or returned by the Lenders to the Borrowers or to the Guarantor under any insolvency, bankruptcy or other federal and/or state laws or as a result of any dissolution, liquidation or reorganization of the Borrowers or upon, or as a result of, the appointment of any receiver, intervenor or conservator of, or trustee, or similar officer for, the Borrowers or any substantial part of its properties or assets, the Guarantor hereby agrees that this Agreement shall continue and remain in full force and effect or be reinstated, as the case may be, all as though such payment(s) had not been made. Section 4.19 Complete and Final Expression of Agreement. This Agreement is intended by the Lenders and the Guarantor to be a complete, exclusive and final expression of the agreements contained herein. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Agreement. The Lenders and the Guarantor further agrees that there are no conditions to the full effectiveness of this Agreement, unless otherwise expressly stated herein. The Guarantor has unconditionally delivered this Agreement to the Administrative Agent, and failure to sign this or any other guarantee by any other person shall not discharge the liability of the Guarantor hereunder. 24 25 WITNESS the signature and seal of the Guarantor as of the day and year first above written. WITNESS OR ATTEST: SUNRISE ASSISTED LIVING, INC. _________________________ By:/s/ David W. Faeder (SEAL) ------------------------- David W. Faeder President _________________________ By: /s/ Thomas B. Newell (SEAL) ------------------------- Thomas B. Newell Executive Vice President BANK OF AMERICA, N.A. _________________________ By:/s/ Leslie M. Zuga (SEAL) ------------------------- Leslie M. Zuga Senior Vice President 25 26 STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this ___ day of March, 2000, before me, the undersigned Notary Public of said Commonwealth, personally appeared David W. Faeder who acknowledged himself to be the President of Sunrise Assisted Living, Inc., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained as the duly authorized officer of said corporation by signing the name of the corporation by himself as President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this _____ day of March, 2000, before me, the undersigned Notary Public of said Commonwealth, personally appeared Thomas B. Newell who acknowledged himself to be the Executive Vice President of Sunrise Assisted Living, Inc., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained as the duly authorized officer of said corporation by signing the name of the corporation by himself as Executive Vice President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 26 27 STATE/COMMONWEALTH OF VIRGINIA, COUNTY/CITY OF ______________, TO WIT: I HEREBY CERTIFY, that on this ____ day of March, 2000, before me, the undersigned Notary Public of said Commonwealth, personally appeared Leslie M. Zuga, who acknowledged herself to be the Senior Vice President of Bank of America, N.A., known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that she executed the same for the purposes therein contained as the Senior Vice President of said bank by signing the name of the bank by herself as Senior Vice President. WITNESS my hand and Notarial Seal. ------------------------------ Notary Public My Commission Expires: 27 EX-10.55 9 AMENDMENT NO. 1 TO CERTAIN OPERATIVE AGREEMENTS 1 EXHIBIT 10.55 AMENDMENT NO. 1 TO CERTAIN OPERATIVE AGREEMENTS THIS AMENDMENT NO. 1 (this "Amendment") dated as of March 14, 2000, is by and among SUNRISE MIDWEST LEASING, L.L.C., a Virginia limited liability company (the "Lessee" or the "Construction Agent"); SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the "Guarantor"); FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually but solely as the Owner Trustee under the Sunrise Trust 1998-1 (the "Owner Trustee" or the "Lessor"); the various banks and other lending institutions listed on the signature pages hereto (subject to the definition of Lenders in Appendix A to the Participation Agreement referenced below, individually, a "Lender" and collectively, the "Lenders"); BANK OF AMERICA, N.A., a national banking association, which is the successor to NationsBank, N.A., as the agent for the Lenders and respecting the Security Documents, as the agent for the Lenders and the Holders, to the extent of their interests (in such capacity, the "Agent"); and the various banks and other lending institutions listed on the signature pages hereto as holders of certificates issued with respect to the Sunrise Trust 1998-1 (subject to the definition of Holders in Appendix A to the Participation Agreement referenced below, individually, a "Holder" and collectively, the "Holders"). Capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings set forth in Appendix A to the Participation Agreement (hereinafter defined). W I T N E S S E T H WHEREAS, the parties to this Amendment are parties to that certain Participation Agreement dated as of December 2, 1998 (the "Participation Agreement") and certain of the parties to this Amendment are parties to the other Operative Agreements relating to a $47 million tax retention operating lease facility that has been established in favor of the Lessee; WHEREAS, the Lessee has requested certain modifications to the Participation Agreement and the other Operative Agreements; WHEREAS, the Financing Parties have agreed to the requested modifications on the terms and conditions set forth herein; NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 2 PARTICIPATION AGREEMENT 1. Appendix A to the Participation Agreement is hereby amended to add or modify the following defined terms: "Adjusted Properties EBITDAR" means, for the Properties and each property comprising the Residual Payment Collateral for any period, earnings before interest, federal and state income taxes, depreciation, amortization and rent, but after an imputed replacement reserve of $250 per year per bed in each facility that is open for operation and a management fee equal to the greater of 5% for gross revenues or the actual management fee paid to the Management Company. "Assets Held for Sale" shall mean each of the properties listed on Schedule I attached hereto, which are currently being held by SALI (or an Affiliate of SALI) for resale. "Convertible Debt" shall mean the $150 million convertible subordinated notes of SALI due 2002. "EBITDAR" means earnings before interest, federal and state income taxes, depreciation, amortization, and any other non-cash and one-time, non-recurring charges consented to by the Agent in its sole discretion (provided that the consent of the Majority Secured Parties shall be required for adding back charges in excess of $5,000,000 in the aggregate in any one year, but after an imputed Replacement Reserve and a Management Fee equal to the greater of 5% of the gross revenues or the actual Management Fee paid to the Management Company, plus Rent Expense. Earnings shall include income from "Assets Held for Sale" through the date on which any such asset is actually sold and shall include the gain from any sale of an open operating Facility owned by SALI or an Affiliate of SALI up to but not exceeding an aggregate of twenty (20) of such sales in any twelve (12) month period; provided, however, that other one-time non-recurring gains including those from sales of Assets Held for Sale will not be included in EBITDAR. "Facility" shall mean, individually or collectively, an assisted living facility or independent living facility owned by the Lessee, SALI or any Affiliate of the Lessee or SALI. "Funded Debt" of SALI at any time means the sum at such time of (a) indebtedness for borrowed money (including specifically but without limiting the generality of the foregoing, the Convertible Debt), (b) any obligations in respect of letters of credit, banker's or other acceptances or similar obligations issued or created for the account of SALI, (c) lease obligations which have been or should be, in accordance with GAAP, capitalized on the books of SALI, (d) all liabilities secured by any property owned by SALI to the extent attached to SALI's interest in such property, even though SALI has not assumed or become liable for the payment thereof, and in the case of SALI, (e) (i) amounts payable by SALI under any terminated or defaulted interest rate protection products or which remain outstanding or (ii) take-out commitments (excluding a refinancing or a commitment of a third party) or purchase contracts including the deferred purchase price of property or services in each instance if SALI does not control the incurring obligation, (f) (i) the amount of any guaranty of indebtedness for borrowed money or (ii) other 2 3 debt owed by Persons other than SALI which is in default and for which the creditor is pursuing payment by SALI, (g) any obligation of SALI or a Commonly Controlled Entity to a Multiemployer Plan, (h) any synthetic lease obligations, (i) any other lease expenses for rented real property will be accounted for as debt based on eight times annualized lease payments (provided, however, that so long as SALI or any Affiliate of SALI shall continue to own a 50% interest in the Facility located in Severna Park, Maryland known as "Sunrise of Severna Park," lease expenses for Sunrise of Severna Park will be accounted for as debt based on four times the annualized lease payments rather than eight times the annualized lease payments and (j) other amounts considered to be debt by the Agent in a dollar amount to be mutually agreed upon by the Agent and SALI, but excluding trade and other accounts payable in the ordinary course of business in accordance with customary trade terms and which are not overdue (as determined in accordance with customary trade practices) or which are being disputed in good faith by SALI and for which adequate reserves are being provided on the books of SALI in accordance with GAAP, all of the above whether recourse or non-recourse, secured or unsecured. "Management Fees" shall mean any and all management fees under, or in connection with the Management Agreement. "Rent Expense" shall mean the actual rent expense incurred by the Lessee, SALI or any Affiliate of the Lessee or SALI as a tenant under leases with respect to any Facility. "Replacement Reserves" shall mean $250 per year per bed in each Facility (whether or not such Facility is stabilized). "Tangible Net Worth" means, at any time, the sum at such time of Net Worth (as defined by GAAP) plus the dollar amount of the leasehold value associated with the Properties (which leasehold value would otherwise be categorized as an intangible asset on the financial statements of SALI) less the total of (i) all assets which would be classified as intangible assets under GAAP, including goodwill (except for the goodwill purchased in connection with the acquisition of Karrington Health, Inc. in the approximate amount of $32,000,000 (subject to adjustment for final audited calculations as of December 31, 1999 and as may be further adjusted as reported in future Form 10Q Reports of SALI), which shall be included in Tangible Net Worth and except for deferred taxes recorded as goodwill), trademarks, trademark applications, trade names, service marks, patent applications and licenses, and deferred charges, (ii) any revaluation or other write-up in book value of assets subsequent to the date of the most recent financial statements delivered to the Agent, (iii) the amount of all loans and advances to, or investments in, any person of entity, excluding cash equivalents and deposit accounts maintained by SALI with any financial institution, (iv) advances or loans made to or receivables from any unconsolidated affiliates (excluding subordinated debt or loans of unconsolidated subsidiaries and affiliates of SALI which are parties to development and management contracts with Sunrise Development, Inc. and Sunrise Assisted Living Management, Inc.) of which SALI owns less than fifty percent (50%) or any stockholder of SALI or any affiliate and (v) the amount of all loans and advances to, or investments in, any person or entity, excluding loans to Karrington and its affiliates, cash equivalents and deposit accounts maintained by SALI with any financial institutions, certain mortgage revenue bonds issued by the Bucks County, Pennsylvania Industrial Development 3 4 Authority and investments of less than $2,500,000 individually (not to exceed $10,000,000 in the aggregate). 2. Section 8.3B.2(a) of the Participation Agreement is hereby amended to read as follows: (a) Minimum Tangible Net Worth. SALI shall maintain, on a consolidated basis with all Subsidiaries, at all times measured quarterly beginning with the quarter ending September 30, 1999, a minimum Tangible Net Worth of not less than the sum of a $258,003,069 plus 75% of SALI's net income (if positive) for each subsequent quarter, plus 85% of the net proceeds to SALI of any equity capital transaction received during any subsequent quarter. 3. Section 8.3B.2(c) of the Participation Agreement is hereby amended to read as follows: (c) Funded Debt to EBITDAR. SALI shall maintain as of the end of each fiscal quarter (beginning with the fiscal quarter ending December 31, 1999) a ratio of Funded Debt as of such date to EBITDAR for SALI on a consolidated basis for the period of four consecutive fiscal quarters listed below (each, a "Period"), of not more than:
Period 1 From December 31, 1999 to and including September 30, 2000 8.75:1.00 Period 2 From December 31, 2000 to and including September 30, 2001 7.75:1.00 Period 3 From December 31, 2001 and thereafter 7.00:1.00
Notwithstanding the foregoing, in the event that SALI or any of its Affiliates sells more than ten (10) Facilities (other than Assets Held for Sale) during fiscal year 2000, the foregoing maximum ratio will be reduced to 7.75 to 1.00 effective as of the end of the fiscal quarter in which the closing of the sale of the tenth Facility occurred. 4. Section 8.3B.2(e) of the Participation Agreement is hereby amended to read as follows: (e) Aggregate Adjusted EBITDAR to Debt Service for the Properties. Maintain as of the end of the fiscal quarters shown below a ratio (for all Properties and all properties comprising the Residual Payment Collateral in the aggregate) of (i) Adjusted Properties EBITDAR for the period of two (2) consecutive fiscal quarters then ended multiplied by two to (ii) Annual Properties Debt Service, of not less than:
Fiscal Quarter Ending --------------------- December 31, 1999 1.0:1.0 March 31, 2000 1.2:1.0 June 30, 2000 and each fiscal quarter thereafter 1.35:1:0
4 5 5. Section 8.3B.2(f) of the Participation Agreement is hereby deleted. 6. Section 8.9 of the Participation Agreement is hereby amended to read as follows: 8.9 RELEASE OF RESIDUAL PAYMENT COLLATERAL. The Residual Payment Collateral located in Raleigh, North Carolina identified on Exhibit N hereto (the "Raleigh Property") will be promptly released, at the request and expense of SALI, at any time after the ratio of Adjusted Properties EBITDAR (exclusive of the Adjusted Properties EBITDAR generated by the Raleigh Property) to Annual Properties Debt Service shall be equal to or greater than 1.60:1.0 as of the last day of at least two (2) consecutive fiscal quarters (such calculation to be made, for purposes of this section, by annualizing the results for the two quarter period ending of the last day of each such fiscal quarter), provided that no Default or Event of Default shall then exist and be continuing. The Agent is specifically authorized and directed by the Lenders and the Holders to take such action as is necessary or appropriate to give effect to such release. 7. The following sentence is hereby added at the end of Section 8.3B.3(b) of the Participation Agreement: "Without limiting the generality of the foregoing, SALI and its Subsidiaries will not sell more than twenty (20) Facilities (excluding Facilities now classified as Assets Held for Sale) during any twelve (12) month period without the prior written consent of the Majority Secured Parties." 8. The schedule of Residual Payment Collateral attached as Exhibit N to the Participation Agreement is hereby deleted and replaced with the following page: [Remainder of Page Intentionally Left Blank] 5 6 EXHIBIT N Residual Payment Collateral Montgomery County (Blue Bell), Pennsylvania Wake County (Raleigh), North Carolina [Remainder of Page Intentionally Left Blank] 6 7 MISCELLANEOUS 9. This Amendment shall be effective upon satisfaction of the following conditions: (a) execution and delivery of this Amendment by the parties hereto and execution and delivery of such other documents, agreements or instruments deemed necessary or advisable by the Agent; and (b) (i) receipt by the Agent of an officer's certificate of the Lessee and the Construction Agent (in form and in substance reasonably satisfactory to the Agent) certifying that a resolution has been adopted by Lessee's Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, specifying that no Default or Event of Default shall have occurred and be continuing, specifying that the representations and warranties of Lessee and the Guarantor set forth in the Participation Agreement are true and correct (except for any such representations and warranties which relate solely to an earlier time) and certifying as to the incumbency of the officer of Lessee executing this Amendment and (ii) receipt by the Agent of an officer's certificate of the Guarantor (in form and in substance reasonably satisfactory to the Agent) certifying that a resolution has been adopted by such Credit Party's Board of Directors approving and authorizing the execution, delivery and performance of this Amendment and certifying as to the incumbency of the officer of the Guarantor executing this Amendment; and (c) receipt by the Agent of legal opinions of counsel to the Lessee relating to this Amendment in form and substance reasonably satisfactory to the Agent; and (d) receipt by the Agent, on behalf of each Lender and each Holder, of an amendment fee equal to the product of one eighth of one percent (0.125%) multiplied by the sum of the aggregate Commitments and the aggregate Holder Commitments (after giving effect to the reduction in the aggregate Commitments and the aggregate Holder Commitments as a result of the purchase by Lessee of the Properties more particularly identified on Schedule II attached hereto pursuant to subsection (e) of this Section); and (e) receipt by the Agent of the Termination Value for each of the Properties more particularly identified on Schedule II attached hereto and conveyance by Lessor to Lessee (or Lessee's designee) of each such Property upon receipt of the Termination Value therefore, in accordance with Section 20.2 of the Lease. 10. Except as modified hereby, all of the terms and provisions of the Operative Agreements (including Schedules and Exhibits) shall remain in full force and effect. 11. The Lessee agrees to pay all reasonable costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable fees and expenses of Moore & Van Allen, PLLC. 7 8 12. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. 13. This Amendment shall be deemed to be a contract made under, and for all purposes shall be construed in accordance with the laws of the State of Virginia. [signature pages follow] 8 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. CONSTRUCTION AGENT AND LESSEE: SUNRISE MIDWEST LEASING, L.L.C., as the Construction Agent and as the Lessee by Sunrise Assisted Living Investments, Inc., as Sole Member By: /s/ James S. Pope ------------------------------------- Name: James S. Pope ---------------------------------- Title: Vice President ---------------------------------- GUARANTOR: SUNRISE ASSISTED LIVING, INC., as Guarantor By: /s/ Thomas B. Newell ------------------------------------- Name: Thomas B. Newell ------------------------------------- Title: Executive Vice President ------------------------------------- By: /s/ David W. Faeder ------------------------------------- Name: David W. Faeder ------------------------------------- Title: President ------------------------------------- OWNER TRUSTEE AND LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, except as expressly stated herein, but solely as the Owner Trustee under the Sunrise Trust 1998-1 By: /s/ Val T. Orton ------------------------------------------ Name: Val T. Orton ---------------------------------------- Title: Vice President --------------------------------------- [signature pages continued] 10 AGENT, LENDERS AND HOLDERS: BANK OF AMERICA, N.A., as successor to NationsBank, N.A., as a Lender, as a Holder and as the Agent By: /s/ Leslie M . Zuga ------------------------------------------- Name: Leslie M. Zuga ------------------------------------------ Title: Senior Vice President ----------------------------------------- FLEET NATIONAL BANK, as a Lender and as a Holder By: /s/ Patricia Marinilli ------------------------------------------- Name: Patricia Marinilli ----------------------------------------- Title: Vice President ---------------------------------------- PROVIDENT BANK OF MARYLAND, as a Lender and as a Holder By: /s/ Thomas C. Myers ------------------------------------------- Name: Thomas C. Myers ----------------------------------------- Title: Vice President ---------------------------------------- 11 SCHEDULE I [LIST OF ASSETS HELD FOR SALE AS OF FEBRUARY 22, 2000] Sunrise of Fremont, OH Sunrise of Shahawn (Tiffen), OH Sunrise of Rochester, MN Sunrise of Bismark Commons, ND Sunrise of Bismark Cottages, ND Sunrise of Buffalo Cottages, MN Sunrise of Waterloo, IA Sunrise of Mankato, MN Sunrise of Park Ridge, IL Sunrise Regional Office Building, Columbus, OH 12 SCHEDULE II [Identify Charlotte, NC and Poland, OH Properties] EX-21 10 LIST OF SUBSIDIARIES 1 EXHIBIT 21 Sunrise Assisted Living, Inc. List of Subsidiaries
Direct or Indirect Jurisdiction Subsidiaries Ownership of Incorporation - ---------------------- ------------------------------- -------------------------- Sunrise Assisted Living Management, Inc. 100% Virginia Sunrise Development, Inc. 100% Virginia Sunrise Assisted Living Investments, Inc. 100% Virginia Sunrise Assisted Living Limited Partnership 100% Virginia Martha Child, Inc. 100% Virginia Sunrise Partners, L. P. 100% Virginia Sunrise at Gardner Park Limited Partnership 50% Massachusetts Sunrise of Raleigh, LLC 100% North Carolina Sunrise Village House, LLC 100% Maryland Sunrise Assisted Living Limited Partnership II 100% Virginia Sunrise Assisted Living Limited Partnership III 100% Pennsylvania Sunrise Assisted Living Limited Partnership VII 100% Maryland Sunrise Assisted Living Limited Partnership VIII 100% California Independence Home Care Agency, Inc. 100% Washington Sunrise Homes of Towson, LLC 100% Maryland Sunrise East Assisted Living Limited Partnership 100% Virginia Sunrise of Alexandria Assisted Living, L.P. 100% Virginia Sunrise of Rockville Assisted Living Limited Partnership 100% Maryland Sunrise Huntcliff Assisted Living Limited Partnership 100% Georgia Sunrise Augusta Assisted Living Limited Partnership 100% Georgia Sunrise Columbus Assisted Living Limited Partnership 100% Georgia Sunrise Greenville Assisted Living Limited Partnership 100% South Carolina Sunrise Northshore Assisted Living Limited Partnership 100% Florida NAH/ Sunrise Severna Park, LLC 50% Maryland Sunrise Wayland Assisted Living Limited Partnership 100% Massachusetts Sunrise Norwood Assisted Living Limited Partnership 100% Massachusetts Sunrise Napa Assisted Living Limited Partnership 100% California Sunrise Walnut Creek Assisted Living Limited Partnership 100% California Sunrise West Assisted Living Limited Partnership 100% California Sunrise Sterling Canyon Assisted Living Limited Partnership 100% California Sunrise Decatur Assisted Living Limited Partnership 100% Georgia Sunrise Ivey Ridge Assisted Living Limited Partnership 100% Georgia Sunrise East Cobb Assisted Living Limited Partnership 100% Georgia
2 Sunrise Glen Cove Assisted Living Limited Partnership 100% New York Sunrise Pinehurst Assisted Living Limited Partnership 100% Colorado Sunrise Holly Assisted Living Limited Partnership 100% Colorado Sunrise Cohasset Assisted Living Limited Partnership 100% Pennsylvania Sunrise Oakland Assisted Living Limited Partnership 100% California Sunrise Scotch Plains Assisted Living, L.P. 100% New Jersey Sunrise Bellevue Assisted Living Limited Partnership 100% Washington Sunrise Chanate Assisted Living, L.P. 100% California Sunrise Dunwoody Assisted Living, L.P. 100% Georgia Sunrise Fairfield Assisted Living, L.P. 100% New Jersey Sunrise Weston Assisted Living, L.P. 100% Massachusetts AL Investments, L.L.C. 9% Virginia Sunrise Paramus Assisted Living Limited Partnership 100% New Jersey Sunrise Arlington Heights Assisted Living Limited Partnership 100% Illinois Sunrise SEAL, L.L.C. 100% Virginia Sunrise Riverside Assisted Living, L.P. 100% California Sunrise TFE Acquisitions, L.L.C. 100% Virginia Sunrise Midwest Mortgage, L.L.C. 100% Virginia Sunrise Midwest Leasing, L.L.C. 100% Virginia ADG on Sheepshead Bay, LLC 70% New York Sunrise Hermosa Beach Assisted Living, L.L.C. 100% California Sunrise Buffalo Grove Assisted Living, L.L.C. 100% Illinois AL II Investments, L.L.C. 9% Virginia Sunrise Assisted Living Limited 100% United Kingdom Sunrise Assisted Living Holdings (Jersey) Limited 14.5% States of Jersey, Channel Islands Sunrise at Frognal House Limited 14.5% States of Jersey, Channel Islands AL III Investments, L.L.C. 9% Virginia AL IV Investments, L.L.C. 9% Virginia Atlantic-Sunrise 70% New York Sunrise Mission Viejo Assisted Living, L.L.C. 100% Virginia Sunrise Baton Rouge Assisted Living, L.L.C. 100% Louisiana Sunrise Beverly Hills Assisted Living, L.L.C. 100% Virginia Sunrise Connecticut Avenue Assisted Living, L.L.C 100% Washington, D.C. Sunrise Edina Assisted Living, L.L.C. 100% Minnesota Sunrise Fall Creek Assisted Living, L.L.C. 100% Indiana Sunrise Farmington Hills Assisted Living, L.L.C. 100% Michigan Sunrise Fort Wayne Assisted Living, L.L.C. 100% Indiana Sunrise New Orleans Assisted Living, L.L.C. 100% Louisiana Sunrise North Tustin Assisted Living, L.L.C. 100% Virginia Sunrise Pacific Beach Assisted Living, L.L.C. 100% Virginia Sunrise Parma Assisted Living, L.L.C. 100% Ohio Sunrise Hamilton Assisted Living, L.L.C. 100% Ohio Sunrise Shaker Heights Assisted Living, L.L.C. 100% Ohio
3 Sunrise Rancho Cucamonga Assisted Living, L.L.C. 100% Virginia Sunrise Westminster Assisted Living, L.L.C. 100% Colorado Sunrise Willow Lake Assisted Living, L.L.C. 100% Indiana Sunrise Abington Assisted Living, L.L.C. 100% Pennsylvania Sunrise Granite Run Assisted Living, L.L.C. 100% Pennsylvania Sunrise Old Tappan Assisted Living, L.L.C. 100% New Jersey Sunrise Haverford Assisted Living, L.L.C. 100% Pennsylvania Sunrise West Field Assisted Living, L.L.C. 100% New Jersey Sunrise Morris Plains Assisted Living, L.L.C. 100% New Jersey Sunrise Springfield Assisted Living, L.L.C. 100% Virginia Sunrise Wayne Assisted Living, L. L.C. 100% New Jersey Sunrise Claremont Assisted Living, L.P. 100% California Sunrise Chesterfield Assisted Living, L.L.C. 100% Missouri AL V Assisted Living, L.L.C. 9% Virginia Sunrise Basking Ridge Assisted Living, L.L.C. 100% New Jersey Sunrise Arlington, MA Assisted Living, L.L.C. 100% Massachusetts Sunrise West Hartford Assisted Living, L.L.C. 100% Connecticut Sunrise Holbrook Assisted Living, L.L.C. 100% New York Sunrise Pacific Palisades Assisted Living, L.P. 100% California Sunrise Paoli Assisted Living, L.P. 100% Pennsylvania Sunrise Lafayette Hills Assisted Living, L.P. 100% Pennsylvania Sunrise Edgewater Assisted Living, L.L.C. 100% New Jersey Sunrise Eastover Assisted Living, L.L.C. 100% North Carolina Sunrise Poland Assisted Living, L.L.C. 100% Ohio Sunrise Troy Assisted Living, L.L.C. 100% Michigan Sunrise Aurora Assisted Living, L.L.C. 100% Colorado Sunrise Dix Hills Assisted Living, L.L.C. 100% New York Dignity Home Care, Inc. 100% New York S.A.L. Operations (Canada), Inc. 14.5% New Brunswick Sunrise North Assisted Living Ltd. 100% New Brunswick Sunrise of Markham Ltd. 14.5% States of Jersey, Channel Islands
EX-23 11 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements pertaining to: the 1995 Stock Option Plan as amended, 1996 Directors' Stock Option Plan, and the Stock Option Agreement entered into, effective January 4, 1995, by and between Surnsie Assisted Living, Inc. and David W. Faeder (Form S-8, No. 333-05257); Sunrise Assisted Living, Inc. 1996 Non-Incentive Stock Option Plan (Form S-8, No. 333-21817); 1997 Stock Option Plan (Form S-8, No. 333-26837); the $150 million of 5 1/2% Convertible Subordinated Notes due 2002 (Form S-3, No. 333-34365); the 1996 Directors' Stock Option Plan, as Amended (Form S-8, No. 333-57291); the 1998 Stock Option Plan (Form S-8, No. 333-57293); the 1999 Stock Option Plan (Form S-8, No. 333-78313); and the Karrington Health, Inc. 1996 Incentive Stock Plan (Form S-8, No. 333-78543), respectively, of our report dated March 8, 2000, with respect to the consolidated financial statements of Sunrise Assisted Living, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ Ernst & Young LLP McLean, VA March 28, 2000 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 DEC-31-1999 53,540 0 19,157 3,716 0 166,545 819,289 55,983 1,103,451 71,065 664,840 0 0 219 334,905 1,103,451 0 255,219 0 203,813 0 1,380 32,599 28,041 7,828 20,213 0 0 0 20,213 0.96 0.94
-----END PRIVACY-ENHANCED MESSAGE-----