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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 54-1746596
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Lee Highway, Suite 300
Fairfax, VA 22031
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(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
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(Title of class)
5 1/2% Convertible Subordinated Notes due 2002
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(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 16, 1998 was $330,863,008. */
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 16, 1998: 19,227,450 shares.
Documents Incorporated by Reference:
Part II: Portions of the Annual Report to Stockholders for the year ended
December 31, 1997.
Part III: Portions of the definitive proxy statement for the Annual Meeting of
Stockholders to be held on April 27, 1998.
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*/ 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.
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TABLE OF CONTENTS
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Page(s)
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PART I Item 1. Business........................................................... 3
Item 2. Properties......................................................... 17
Item 3. Legal Proceedings.................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders................ 17
PART II Item 5. Market for Registrant's Common Equity and
Related Stockholders Matters....................................... 17
Item 6. Selected Financial Data............................................ 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.......... 18
Item 8. Financial Statements and Supplementary Data........................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................ 18
PART III Item 10. Directors and Executive Officers of the Registrant................. 18
Item 11. Executive Compensation............................................. 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................................... 18
Item 13. Certain Relationships and Related Transactions..................... 18
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................................ 18
SIGNATURES.............................................................................. 20
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This Form 10-K contains certain forward-looking statements relating to the
Company's development and acquisition program that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under the captions "Item 1. Business -- Facility
Development," " -- Facility Acquisitions" and " -- Need for Additional
Financing." Unless the context suggests otherwise, references in this Form 10-K
to the "Company" or "Sunrise" mean Sunrise Assisted Living, Inc. and its
subsidiaries and predecessor entities.
PART I
ITEM 1. BUSINESS.
GENERAL
Sunrise Assisted Living, Inc. (the "Company" or "Sunrise") is a
leading provider of assisted living services for seniors. The Company currently
operates 66 facilities in 13 states with a capacity of approximately 5,750
residents, including 59 facilities owned by the Company or in which it has
ownership interests and seven facilities managed for third parties. The Company
had revenues of $89.9 million and net income of $4.0 million in 1997.
Approximately 99% of the Company's revenues were derived from private pay
sources.
The Company's previously announced three-year growth objectives
include developing at least 55 new Sunrise model assisted living facilities with
an additional resident capacity of more than 4,500 by the end of 1999. To date,
the Company has completed development of 27 such facilities with a resident
capacity of 2,400 and has 16 facilities currently under construction with a
resident capacity of 1,490. The Company has also entered into contracts to
purchase 33 additional sites and to lease two additional sites. During 1997, the
Company acquired four assisted living and independent living facilities with
resident capacity of 274. The Company is pursuing additional development
opportunities and also plans to acquire additional facilities as market
conditions warrant. See "--Facility Development" and "--Facility Acquisitions."
A subsidiary of the Company has obtained a syndicated revolving
credit facility for $250.0 million to be used for general corporate purposes,
including the continued construction and development of assisted living
facilities. The credit facility is for a term of three years with the right to
extend, and 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 rates from LIBOR plus 1.0% to LIBOR
plus 1.5%. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On June 6, 1997, the Company issued and sold $150.0 million aggregate
principal amount of 5 1/2% convertible subordinated notes due 2002 (the
"Notes"). The Notes bear interest at 5 1/2% per annum payable semiannually on
June 15 and December 15 of each year, beginning 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 Notes). The Notes are redeemable at the
option of the Company commencing June 15, 2000, at specified premiums. The net
proceeds to the Company from the sale of the Notes, after deducting underwriting
discounts and offering expenses, were approximately $145.6 million. On June 10,
1997, the Company used $57.7 million of the net proceeds to pay down floating
rate indebtedness from four financial institutions at a weighted average
interest rate of 8.4%. The balance of the net proceeds are being used to fund
continued development of new Sunrise model facilities and for possible
acquisitions, as well as for working capital and general corporate purposes. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
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On June 5, 1996, the Company completed its initial public offering
and on October 31, 1996 the Company completed a follow-on public offering. Net
proceeds to the Company from these two offerings totaled approximately $196.1
million.
The Company was incorporated in Delaware on December 14, 1994 in
order to combine various activities relating to the development, ownership and
operation of the Sunrise assisted living facilities held by predecessor
entities. The predecessor entities consisted of a management company, a
development company, and various entities that held 100% ownership interests in
15 facilities, 50% ownership interests in five facilities and minority ownership
interests in two facilities.
THE ASSISTED LIVING INDUSTRY
The Company 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 ("ADLs"), such as bathing,
eating, personal hygiene, grooming and dressing. Certain 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.
Annual expenditures in the assisted living industry have been estimated to be
approximately $12 billion, including facilities ranging from "board and care" to
full-service assisted living facilities such as those operated by the Company.
The Company believes that consumer preference and demographic trends will 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 only limited assistance with low-level care
activities. The Company 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, the Company'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." The Company believes that
its operating philosophy is one of its strengths. Furthermore, in implementing
its philosophy, the Company 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; the Company's proprietary training programs for its management,
Administrators and Care Managers; the Company's quality assurance programs; the
full range of assisted living services offered by the Company; and the
architecture and purpose-built design of Sunrise's "Victorian" model facilities.
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SERVICES
The Company offers a full range of assisted living services based
upon individual resident needs. Upon admission, the Company, the resident and
the resident's family assess the level of care required and jointly develop a
specific care plan. This care plan includes selection of resident accommodations
and determination of the appropriate level of care. The care plan is
periodically reviewed and updated by the Company, the resident and the
resident's family. By offering a full range of services, including Basic Care,
Assisted Living Plus Care ("Plus Care"), Medication Management and Alzheimer's
Care, the Company can accommodate residents with a broad range of service needs
and enable residents to age in place. In addition, upon admission the Company
generally charges each new resident a one-time community fee typically equal to
two months of daily resident fees, which is refundable on a prorated basis if
the resident leaves the facility during the first 90 days. Daily resident fees
are periodically revised based on increased care or modifications to a
resident's care plan.
The average daily resident fee for owned facilities operated by the
Company for at least 12 months, or that have achieved stabilization of 95%, was
approximately $78 for 1997 and $80 for 1996 and 1995. Excluding acquired
facilities, the average daily resident fee was approximately $84 for 1997 and
1996 and $80 for 1995.
BASIC CARE
The Company's Basic Care program is provided to all residents and
includes: assistance with ADLs, 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 physician
offices, stores and community services; assistance with coordination of
physician care, physical therapy and other medical services; health promotion
and related programs; personal laundry services; housekeeping services; and
social and recreational activities.
ASSISTED LIVING PLUS CARE
Through the Company's Plus Care program, residents who require more
frequent or intensive assistance or increased care or supervision are provided
extra care and supervision. The Company charges an additional daily fee based on
additional staff hours of care and services provided. The Plus Care program
allows the Company, 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, 1997, approximately 32% of the
Company's assisted living residents participated in the Plus Care program.
MEDICATION MANAGEMENT
Many of the Company'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. The Company
charges an additional fixed daily fee for this service. At December 31, 1997,
approximately 46% of the Company's assisted living residents participated in the
Medication Management program.
ALZHEIMER'S CARE
The Company believes its Alzheimer's Care called the Sunrise
Reminiscence Program distinguishes it from many other assisted living providers
who do not provide such specialized care. The Sunrise Reminiscence Program
provides the attention, care programs and services needed to help cognitively
impaired residents maintain a higher quality of life. Specially trained staff
provide Basic
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Care and other specifically designed care and services to cognitively impaired
residents in separate areas of facilities. The Company charges each cognitively
impaired resident a daily fee that includes one hour of additional staff time
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, 1997, approximately 21% of the Company's assisted
living residents participated in the Sunrise Reminiscence Program.
THE SUNRISE "VICTORIAN" MODEL FACILITY
The Company's signature Victorian model facility, first designed in
1985, is a freestanding, residential-style facility with a capacity of 70 to 110
residents. The building ranges in size from approximately 40,000 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. The
Company has four 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. The Company believes its model facility meets the desire of many
individuals to move to a new residence at least as comfortable as their former
home. The Company believes that its residential environments also accomplish
several other objectives, including: (i) lessening the trauma of change for
elderly residents and their families; (ii) achieving operational efficiencies
through proven designs; (iii) facilitating resident mobility and ease of access
by care givers; and (iv) differentiating the Company from other assisted living
and long-term care operators.
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:
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YEAR DEVELOPED, SUNRISE
OPENED BY ACQUIRED OR MODEL RESIDENT OWNERSHIP
FACILITY LOCATION SUNRISE CONST. STATUS FACILITY CAPACITY PERCENTAGE(1)
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Sunrise of Oakton Oakton, VA 1981 Acquired(2) 51 100.0%
Sunrise of Leesburg Leesburg, VA 1984 Acquired(2) 35 100.0
Sunrise of Warrenton Warrenton, VA 1986 Acquired(2) 37 100.0
Sunrise of Arlington Arlington, VA 1988 Developed X 58 100.0
Sunrise of Bluemont Park Arlington, VA 1990 100.0
Potomac Developed X 59
Shenandoah Developed X 77
</TABLE>
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James Developed X 59
Sunrise of Mercer Island Seattle, WA 1990 Developed X 59 100.0
Sunrise of Fairfax Fairfax, VA 1990 Developed X 59 100.0(3)
Sunrise of Queen Anne Seattle, WA 1991 Acquired 136 33.3(4)
Sunrise of Frederick Frederick, MD 1992 Developed X 86 100.0
Sunrise of Countryside Sterling, VA 1992 100.0
East Building Developed(5) X 66
West Building Developed(5) X 64
Sunrise of Gunston Lorton, VA 1992 Developed(5) X 67 100.0
Sunrise of Atrium Boca Raton, FL 1992 Acquired 210 100.0
Sunrise of Falls Church Falls Church, VA 1993 Developed X 66 100.0
Sunrise of Village House Gaithersburg, MD 1993 Acquired 155(6) 100.0
Sunrise of Towson Towson, MD 1994 Developed X 66 13.9(7)
Sunrise of Gardner Park Peabody, MA 1994 Developed X 59 50.0(7)(8)
Sunrise of Annapolis Annapolis, MD 1995 Developed X 88 100.0
Chanate Lodge Santa Rosa, CA 1996 Acquired 120 100.0
Sunrise of Raleigh Raleigh, NC 1996 Developed X 93 100.0
Sunrise of Pikesville Pikesville, MD 1996 Developed X 103 100.0
Huntcliff Summitt Atlanta, GA 1996 Acquired 254 100.0(9)
Sunrise of Northshore St. Petersburg, FL 1996 Acquired 157 100.0(10)
Sunrise of Augusta Augusta, GA 1996 Acquired 42 100.0
Sunrise of Columbus 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
Sunrise of Columbia Columbia, MD 1996 Developed X 96 100.0
Sunrise of Hunter Mill Oakton, VA 1997 Developed X 96 100.0
Sunrise of Sterling Canyon Valencia, CA 1997 Acquired 130 100.0
Sunrise of Napa Napa Valley, CA 1997 Acquired 83 100.0
Sunrise of Petaluma Petaluma, CA 1997 Developed 84 100.0(11)
Sunrise of Springfield Springfield, VA 1997 Developed X 98 100.0
Sunrise of Severna Park Building I Severna Park, MD 1997 Developed X 99 50.0(3)(7)
Sunrise of Severna Park Building II Severna Park, MD 1997 Developed X 74 50.0(3)(7)
Sunrise of Morris Plains Morris Plains, NJ 1997 Developed X 95 100.0
Sunrise of Old Tappan Old Tappan, NJ 1997 Developed X 95 100.0
Sunrise of Granite Run Granite Run, PA 1997 Developed X 95 100.0
Sunrise of Abington Building I Abington, PA 1997 Developed X 97 100.0
Sunrise of Abington Building II Abington, PA 1997 Developed X 71 100.0
Sunrise of Rockville Rockville, MD 1997 Developed X 86 100.0
Sunrise of Alexandria Alexandria, VA 1997 Developed X 92 100.0
Sunrise of Wayne Wayne, NJ 1997 Developed X 90 100.0
Sunrise of Norwood Norwood, MA 1997 Developed X 90 100.0
Sunrise of Wayland Wayland, MA 1997 Developed X 68 100.0
Sunrise of Westfield Westfield, NJ 1997 Developed X 95 100.0
Sunrise of East Cobb East Cobb, GA 1997 Developed X 96 100.0
Sunrise of Dunwoody Dunwoody, GA 1997 Acquired 30 100.0
Sunrise of Weston Weston, MA 1997 Acquired 31 100.0
Sunrise of Fresno Fresno, CA 1998 Developed 84 100.0(11)
Sunrise of Haverford Haverford, PA 1998 Developed X 73 100.0
Sunrise of Decatur Decatur, GA 1998 Developed X 96 100.0
Sunrise of Walnut Creek Walnut Creek, CA 1998 Developed X 85 100.0
Sunrise of Glen Cove Glen Cove, NY 1998 Developed X 83 100.0
Sunrise of Ivey Ridge Ivey Ridge, GA 1998 Developed X 97 100.0
Sunrise of Cohasset Cohasset, MA 1998 Developed X 71 100.0
Sunrise of Holly Orchard Denver, CO 1998 Developed X 97 100.0
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5,065
Sunrise of Pinehurst Denver, CO 2nd Q 1998 Construction X 100 100.0
</TABLE>
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<TABLE>
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Sunrise of Danville Danville, CA 2nd Q 1998 Construction 84 100.0(11)
Sunrise of Huntcliff Summit (Assisted
Living Expansion) Atlanta, GA 2nd Q 1998 Construction X 96 100.0
Sunrise of Bellevue Bellevue, WA 2nd Q 1998 Construction X 84 100.0
Sunrise of Paramus Paramus, NJ 2nd half 1998 Construction X 75 100.0
Sunrise of Lafayette Hill Philadelphia, PA
metro region 2nd half 1998 Construction X 86 100.0
Sunrise of Mission Viejo Mission Viejo, CA 2nd half 1998 Construction X 103 9.0
Sunrise of Fairfield Fairfield, NJ 2nd half 1998 Construction X 93 100.0
Sunrise of Oakland Hills Oakland Hills, CA 2nd half 1998 Construction X 102 100.0
Sunrise of Paoli Paoli, PA 2nd half 1998 Construction X 96 100.0
Sunrise of East Brunswick East Brunswick, NY 2nd half 1998 Construction X 94 9.0
Sunrise of Smithtown Smithtown, NY 1st half 1999 Construction X 90 100.0
Sunrise of Carlsbad Carlsbad, CA 1st half 1999 Construction X 102 9.0
Sunrise of Naperville Naperville IL 1st half 1999 Construction X 91 9.0
Sunrise of Rochester Hills Rochester, MI 1st half 1999 Construction X 101 9.0
Sunrise of Buffalo Grove Buffalo Grove, IL 1st half 1999 Construction X 93 100.0
Sunrise of Chanate II Santa Rosa, CA 2nd half 1998 Zoned X 49 100.0
Sunrise of Richmond Richmond, VA 1st half 1999 Zoned X 91 9.0
Sunrise of Charlotte Charlotte, NC 2nd half 1999 Zoned X 95 100.0
Sunrise of Farmington Hills Farmington
Hills, MI 2nd half 1999 Zoned X 90 100.0
Sunrise of Ann Arbor Ann Arbor, MI 2nd half 1999 Zoned X 85 100.0
Sunrise of Northville Northville, MI 2nd half 1999 Zoned X 91 100.0
Sunrise of Exton Exton, PA 2nd half 1999 Zoned X 78 100.0
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2,069 (12)
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Total 7,134
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</TABLE>
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(1) Fifteen of the wholly owned facilities (Oakton, Leesburg, Warrenton,
Arlington, Bluemont Park (three facilities), Mercer Island, Fairfax,
Frederick, Countryside (two facilities), Gunston, Atrium and Falls
Church) serve as collateral for a $86.7 million mortgage loan.
Nineteen other wholly owned facilities (Springfield, Morris Plains,
Old Tappan, Granite Run, Abington (two facilities), Wayne,
Westfields, Decatur, Walnut Creek, Haverford, Huntcliff Summit
(assisted living expansion), Lafayette Hill, Oakland Hills, Paramus,
Paoli, Fairfield, Smithtown, and Bellevue) serve as collateral for a
$250.0 million syndicated revolving credit facility. Sixteen other
owned facilities are subject to one or more mortgages or deeds of
trust that mature between 1998 and 2033 and bear interest at rates
ranging from 6.870% to 9.750% annually as of December 31, 1997. See
"Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and
Note 6 of Notes to Consolidated Financial Statements. All facilities
that are wholly owned by the Company are consolidated in the
Consolidated Financial Statements. The Gardner Park and Severna Park
facilities are held by limited liability companies or limited
partnerships in which the Company holds the ownership interests
indicated in the table. The Company is the general partner or
managing member of such entities and through the partnership or
operating agreements and the management agreements for the facilities
the Company controls their ordinary course business operations.
Therefore, the Gardner Park and Severna Park facilities are also
consolidated in the Consolidated Financial Statements. The ordinary
course business operations of the Queen Anne and Towson facilities
are not currently controlled by the Company and, therefore, are
accounted for under the equity method of accounting.
(2) Each of these facilities has been redeveloped in a manner consistent
with the Sunrise model.
(3) Subject to long-term ground lease.
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(4) This property is held as a tenancy-in-common. The remaining ownership
interests are owned by unaffiliated third parties. The Company
manages this facility pursuant to a management contract that is
subject to annual renewal at the option of the owners.
(5) These facilities were initially developed by the Company for third
parties and were subsequently acquired by the Company in 1992.
(6) This facility is licensed for 40 assisted living residents. The
remainder of the resident capacity is for independent living
residents.
(7) The remaining ownership interests are owned by third parties. Sunrise
manages each of these facilities.
(8) A current officer and a former employee of the Company 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.
(9) This facility is licensed for 24 assisted living residents. The
remainder of the resident capacity is for independent living
residents. Excludes 12 units owned by the occupants thereof. The
occupants can require the Company to repurchase the units for their
original purchase prices (aggregating approximately $1.9 million)
under certain circumstances. The Company has a right to purchase the
units at fair market value upon the happening of certain events and
has a right of first refusal on sales of the units.
(10) This facility is licensed for 26 skilled nursing residents. The
remainder of the resident capacity is for assisted living residents.
(11) These are not Sunrise model facilities. Sunrise has entered into
operating leases with a third-party owner/developer who completed the
facilities under a design reviewed and approved by Sunrise. These
facilities are operated under 15-year operating leases, with two
10-year extension options.
(12) There can be no assurance that construction delays will not be
experienced.
FACILITY DEVELOPMENT
The Company targets sites for development located in major
metropolitan areas and their surrounding suburban communities. In evaluating a
prospective market, the Company 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.
The Company continues to develop its Victorian model facilities in
major metropolitan markets. The Company's previously announced three-year
growth objectives include developing at least 55 new Sunrise model assisted
living facilities with an additional resident capacity of more than 4,500 by
the end of 1999. To date, the Company has completed development of 27 such new
model facilities with a resident capacity of 2,400 (East Cobb, GA, Fresno, CA,
Haverford, PA, Decatur, GA, Walnut Creek, CA, Glen Cove, NY, Ivey Ridge, GA,
Cohasset, MA, Denver, CO, Alexandria, VA, Norwood, MA, Wayne, NJ, Wayland, MA,
Westfield, NJ, Rockville, MD, Philadelphia, PA (3), Old Tappan, NJ, Morris
Plains, NJ, Severna Park, MD (2), Springfield, VA, Oakton, VA, Petaluma, CA,
Blue Bell, PA, and Columbia, MD) and has 16 facilities under construction with
resident capacity of 1,490. The Company has also entered into contracts to
purchase 33 additional sites and to lease two additional sites, and is
negotiating purchase terms for the remaining sites. These sites are located in
Pennsylvania, Massachusetts, New Jersey, Connecticut, New York, Illinois,
California, Missouri, Kansas, and Virginia. The Company is pursuing additional
development opportunities as market conditions warrant. Historically, the
Company has completed all but one of the facilities for
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which it has obtained zoning approval. The Company bases its development 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 the Company
to control development costs, maintain facility consistency and improve
operational efficiency. Use of the Sunrise model also creates "brand" awareness
in the Company's markets.
The primary milestones in the development process are (i) site
selection and contract signing, (ii) zoning and site plan approval and (iii)
completion of construction. Once a market has been identified, site selection
and contract signing typically take approximately one to three 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 the Company's selection of
sites in established communities which usually require site rezoning. Facility
construction normally takes 10 to 12 months. The Company 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 $12.0 million. The cost of any particular facility may vary
considerably based on a variety of site-specific factors.
The Company's development activities are coordinated by its
experienced 30-person development staff, which has extensive real estate
acquisition, engineering, general construction and project management
experience. Architectural design and hands-on construction functions are usually
contracted to experienced outside architects and contractors.
The Company's ability to achieve its development plans will depend
upon a variety of factors, many of which are beyond the Company's control. There
can be no assurance that the Company will not suffer delays in its development
program, which could slow the Company's growth. The successful development of
additional assisted living facilities will involve a number of risks, including
the possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates, may not complete construction
projects on schedule and may experience competition in the search for suitable
development sites. The Company relies on third-party general contractors to
construct its new assisted living facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractors to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. Accordingly, if the Company is unable to achieve its development
plans, its business, financial condition and results of operations could be
adversely affected.
FACILITY ACQUISITIONS
The Company's previously announced growth plan included the
acquisition of up to 15 facilities by the end of 1999, of which nine have been
acquired. In evaluating possible acquisitions, the Company considers, among
other factors, (i) location, construction quality, condition and design of the
facility, (ii) current and projected facility cash flow, (iii) the ability to
increase revenue, occupancy and cash flow by
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<PAGE> 11
providing a full range of assisted living services, (iv) costs of facility
repositioning (including renovations, if any) and (v) the extent to which the
acquisition will complement the Company's development plans.
There can be no assurance that the Company's acquisition of assisted
living facilities will be completed at the rate currently expected, if at all.
The success of the Company's acquisitions will be determined by numerous
factors, including the Company'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 the Company
to integrate effectively the operations of acquired facilities. Any failure by
the Company to integrate or operate acquired facilities effectively may have a
material adverse effect on the Company's business, financial condition and
results of operations.
NEED FOR ADDITIONAL FINANCING
To achieve its growth objectives, the Company 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." The Company expects that the
number of owned and operated facilities will increase substantially as it
pursues its development and acquisition programs for new assisted living
facilities. This rapid growth will place significant demands on the Company's
management resources. The Company'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 the Company is unable to manage its growth effectively,
its business, financial condition and results of operations could be adversely
affected.
MANAGED FACILITIES
The Company also manages for third-party owners seven operating
facilities and one facility under construction with total resident capacity of
756, including, four in Massachusetts, two in New Jersey, one in Pennsylvania,
and one in Virginia. The two facilities in New Jersey are Sunrise model
facilities. The management contract expiration dates range from October 1998 to
January 2002. The Company owns $5.4 million carrying value of tax exempt
mortgage bonds on the Pennsylvania facility. One of the Massachusetts facilities
is licensed for 139 continuing care retirement community residents. Pursuant to
the management agreement with one of the New Jersey facilities, the company 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.
The Company does not provide financial or accounting services to the Virginia
facility.
The Company also manages two skilled nursing facilities, Pembrook and
Prospect Park, located in West Chester and Prospect Park, Pennsylvania,
respectively. The Pembrook facility has 240 beds and the Prospect Park facility
has 180 beds. Both of these facilities are owned by a single unaffiliated
nonprofit corporation. The management contracts for these facilities were
initially entered into in May 1994 and expire in April 1999. The Company
received management fee revenues of approximately $0.4 million in 1997 for these
two facilities. The Company is entitled to receive a deferred management fee of
approximately $0.7 million, as of December 31, 1997, if the owners terminate the
management agreement or sell the properties. The Company does not provide
financial or accounting services for these facilities.
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<PAGE> 12
COMPANY OPERATIONS
OPERATING STRUCTURE
The Company 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 the
Company's operating philosophy. Headquarters staff members in Fairfax, Virginia
are responsible for: the establishment of Company-wide policies and procedures
relating to, among other things, resident care, facility design and facility
operations; billing and collection; accounts payable; finance and accounting;
management of the Company's development and acquisition activities; development
of employee training materials and programs; and providing overall strategic
direction to the Company. Regional staff are responsible for: overseeing all
aspects of facility-based operations, including marketing activities; resident
care; the hiring of Administrators, Care Managers and other facility-based
personnel; compliance with applicable local and state regulatory requirements;
and implementation of the Company's development and acquisition plans within a
given geographic region.
The Company is currently organized into several regions. Each of the
regions is headed by a Regional Senior Vice President or Vice President with
extensive experience in the long-term care and assisted living industries. The
regional staff typically consists of a Marketing Specialist, a Resident Care
Specialist and a Human Resources Specialist. The Company's largest region also
has separate Marketing Specialists for existing facilities and those in
development, an Activities Specialist, a Regulatory Specialist, a Dietary
Specialist and a Maintenance Specialist. The Company expects that all regions
will create similar staff positions as the number of facilities in those regions
increases.
FACILITY STAFFING
Each of the Company's facilities has an Administrator responsible for
the day-to-day operations of the facility, including quality of care, social
services and financial performance. Each Administrator receives specialized
training from the Company. The Company believes that the quality and size of its
facilities, coupled with its competitive compensation philosophy, have enabled
it to attract high-quality, professional Administrators. The Administrator is
supported by the Director of Resident Care, a nurse who oversees the Care
Managers and is directly responsible for day-to-day care of the residents, and
by the Director of Community Relations, who oversees marketing and outreach
programs. Other key positions include the Director of Dining Services, the
Activities Director, and in certain 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). To the extent 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.
The Company 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.
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<PAGE> 13
The Company has attracted, and continues to seek, highly dedicated,
experienced personnel. The Company has adopted formal training procedures and
review and evaluation procedures to help ensure quality care for its residents.
The Company believes that education, training and development enhance the
effectiveness of its employees. All employees are required to complete the
Company's training program, which centers around its proprietary "Five-Star
Educational Program." This program includes a core curriculum consisting of care
basics, Alzheimer's care, resident care procedures and communication skills. For
Care Managers who desire to advance into facility management, the Five-Star
Education Program provides additional training in medical awareness and
management skills. There are also leadership certifications in areas such as
community relations, facility management, recruiting, staffing, human resources
and regulations. Sunrise also has developed an "Administrator-in-Training
("AIT") Program" that places an Administrator trainee in an existing facility to
learn the position based on hands-on experience and direct supervision from a
current Administrator. The AIT Program is intended to ensure that enough
Sunrise-trained professionals will be available to manage acquired and newly
developed facilities.
QUALITY ASSURANCE
The Company coordinates quality assurance programs at each of its
facilities through its corporate headquarters staff and through its regional
offices. The Company'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 the Company. In addition to ongoing training and
performance reviews of Care Managers and other employees, the Company's quality
control measures include:
Family and Resident Feedback. The Company surveys residents and
family members on a regular basis to monitor the quality of services provided to
residents. Approximately 30 days after moving into a facility, a resident or
family member is surveyed by a Sunrise representative to inquire about their
initial level of satisfaction. Thereafter, 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
regional vice presidents and other regional staff on at least a monthly 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.
Third-Party Reviews. To further evaluate customer service, the
Company engages an independent service evaluation company to "mystery shop" the
Company's facilities. These professionals assess the Company'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.
MARKETING AND SALES
The Company's marketing strategy is intended to create awareness of
the Company 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. A central marketing staff develops overall strategies for
promoting the Company throughout its markets and monitors the success of the
Company's marketing efforts. Each regional office generally has at least one
Marketing Specialist and each facility typically has a Director of Community
Relations who oversees marketing and outreach programs. In addition to direct
contacts
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<PAGE> 14
with prospective referral sources, the Company also relies on print
advertising, yellow pages advertising, direct mail, signage and special events,
such as grand openings for new facilities, health fairs and community
receptions.
THIRD-PARTY RESIDENT SERVICES
While the Company serves the vast majority of a resident's needs with
its own staff, certain 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, the Company entered into an affiliation agreement with Jefferson
Health System ("JHS"), an integrated health care system located in Philadelphia,
Pennsylvania, pursuant to which JHS has agreed to provide residents of Sunrise
facilities located in the Philadelphia metropolitan region, on a preferred (but
non-exclusive) basis, with access to certain health care services offered by
JHS. Such health care services may include hospital services, physician
services, rehabilitation services, home health services and products and mental
health services.
COMPETITION
The long-term care industry is highly competitive and the Company
believes that the assisted living segment, in particular, will become even more
competitive in the future. The Company will be competing with numerous other
companies providing similar long-term care alternatives such as home health care
agencies, facility-based service programs, retirement communities and
convalescent centers. In general, regulatory and other barriers to competitive
entry in the assisted living industry are not substantial. In pursuing its
growth strategy, the Company expects to face competition in its efforts to
develop and acquire assisted living facilities. Some of the Company's present
and potential competitors are significantly larger and have, or may obtain,
greater financial resources than the Company. Consequently, there can be no
assurance that the Company will not encounter increased competition that could
limit its ability to attract residents or expand its business and that could
have a material adverse effect on its business, financial condition and results
of operations. Moreover, if the development of new assisted living facilities
outpaces demand for those facilities in certain markets, such markets may become
saturated. Such an oversupply of facilities could cause the Company to
experience decreased occupancy, depressed margins and lower operating results.
Providers of assisted living and related services compete for residents
primarily on the basis of quality of care, price, reputation, physical
appearance of the facilities, services offered, family and physician preferences
and location. As assisted living receives increased attention, the Company
believes that competition will grow from new local and regional companies that
operate, manage and develop assisted living facilities within the same
geographic areas as the Company.
STAFFING AND LABOR COSTS
The Company competes with various health care services providers,
including other elderly care providers, in attracting and retaining qualified or
skilled personnel. A shortage of nurses or other trained personnel or general
inflationary pressures may require the Company to enhance its wage and benefits
package to compete effectively for personnel. The Company's general and
administrative expenses (which consist primarily of staffing and labor expenses,
including hiring additional staff and increasing the salary and benefits of
existing staff) as a percentage of operating revenue were 11.6% for 1997, 21.2%
for 1996, and 18.5% for 1995. The reduction of general and administrative
expenses as a percentage of operating revenue decreased in 1997 as compared to
1996 primarily because operating revenue increased at a much faster rate than
general and administrative expenses. There can be no assurance that the
Company's labor costs will not increase as a percentage of operating revenue.
Any significant failure by the Company to attract and retain qualified
employees, to control its labor costs or
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<PAGE> 15
STAFF EDUCATION AND TRAINING
to match increases in its labor expenses with corresponding increases in
revenues could have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The Company's facilities 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, among other things: 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; furnishing of resident
units; food and housekeeping services; emergency evacuation plans; and resident
rights and responsibilities, including in some states the right to receive
certain health care services from providers of a resident's choice. Certain of
the Company's facilities are also licensed to provide independent living
services which generally involve lower levels of resident assistance. In several
states in which the Company 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 also are subject to state or local
building code, fire code and food service licensure or certification
requirements. Like other health care facilities, assisted living facilities are
subject to periodic survey or inspection by governmental authorities. From time
to time in the ordinary course of business, the Company receives deficiency
reports. The Company reviews such reports and seeks 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 where deficiencies are noted in the inspection
process. Such action may include imposition of fines, imposition of a
provisional or conditional license or suspension or revocation of a license or
other sanctions.
Any failure by the Company to comply with applicable requirements
could have a material and adverse effect on the Company's business, financial
condition and results of operations. Regulation of the assisted living industry
is evolving and the Company's operations could also be adversely affected by,
among other things, future regulatory developments such as mandatory increases
in scope and quality of care to be afforded residents and revisions to licensing
and certification standards. Increased regulatory requirements could increase
costs of compliance with such requirements.
The Company also is subject to Federal and state anti-remuneration
laws, such as the Medicare/ Medicaid anti-kickback law which govern certain
financial arrangements among health care providers and others who may be in a
position to refer or recommend patients to such providers. These laws prohibit,
among other things, certain direct and indirect payments that are intended to
induce the referral of patients to, the arranging for services by, or the
recommending of, a particular provider of health care items or services. The
Medicare/Medicaid anti-kickback law has been broadly interpreted to apply to
certain contractual relationships between health care providers and sources of
patient referral. Similar state laws vary from state to state, are sometimes
vague and seldom have been interpreted by courts or regulatory agencies.
Violation of these laws can result in loss of licensure, civil and criminal
penalties, and exclusion of health care providers or suppliers from
participation in (i.e., furnishing covered items or services to beneficiaries
of) the Medicare and Medicaid programs. There can be no assurance that such laws
will be interpreted in a manner consistent with the practices of the Company.
Management is not aware of any non-compliance by the Company with
applicable regulatory requirements that would have a material adverse effect on
the Company's financial condition or results of operations.
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<PAGE> 16
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 cost of removal or remediation of certain hazardous or toxic
substances, including, without limitation, asbestos-containing materials, that
could be located on, in or under such property. Such laws and regulations often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner, operator or
an entity that arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site may also be liable for the
costs of any required remediation or removal of the hazardous or toxic
substances at the disposal site. In connection with the ownership or operation
of its properties, the Company could be liable for these costs, as well as
certain other costs, including governmental fines and injuries to persons or
properties. As a result, the presence, with or without the Company's knowledge,
of hazardous or toxic substances at any property held or operated by the
Company, or acquired or operated by the Company in the future, could have an
adverse effect on the Company's business, financial condition and results of
operations. Environmental audits performed on the Company's properties have not
revealed any significant environmental liability that management believes would
have a material adverse effect on the Company's business, financial condition or
results of operations. No assurance can be given that existing environmental
audits with respect to any of the Company's properties reveal all environmental
liabilities.
LIABILITY AND INSURANCE
The Company's business entails an inherent risk of liability. In
recent years, participants in the long-term care industry, including the
Company, 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. The Company is from time to time subject to such suits
as a result of the nature of its business. The Company currently maintains
insurance policies in amounts and with such coverage and deductibles as it
believes are adequate, based on the nature and risks of its business, historical
experience and industry standards. The Company also currently maintains
professional liability insurance and general liability insurance. The Company's
medical professional liability coverage is limited to $1,000,000 per occurrence
and $3,000,000 in the aggregate for all claims per annual policy period. The
non-medical professional liability insurance coverage is limited to $5,000,000
per wrongful act and $7,000,000 in the aggregate. The general liability
insurance is limited to $1,000,000 per facility/per event, with additional
specific limitations of $100,000 per event (premises damage), $5,000 per event
(medical expenses) and $1,000 per event (resident's property damage). The
Company also has an umbrella excess liability protection policy in the total
amount of $25,000,000. There can be no assurance that claims will not arise
which are in excess of the Company's insurance coverage or are not covered by
the Company's insurance coverage. A successful claim against the Company not
covered by, or in excess of, the Company's insurance could have a material
adverse effect on the Company's financial condition and results of operations.
Claims against the Company, regardless of their merit or eventual outcome, may
also have a material adverse effect on the Company's ability to attract
residents or expand its business and would require management to devote time to
matters unrelated to the operation of the Company's business. In addition, the
Company's insurance policies must be renewed annually and there can be no
assurance that the Company will be able to continue to obtain liability
insurance coverage in the future or, if available, that such coverage will be
available on acceptable terms.
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<PAGE> 17
EMPLOYEES
At December 31, 1997, the Company had 3,377 employees, including
2,060 full-time employees, of which 105 were employed at the Company's
headquarters. The Company believes employee relations are good.
ITEM 2. PROPERTIES.
The Company leases its corporate office, regional offices, and
warehouse space under various leases. The leases have terms of five to seven
years. The corporate lease has an option to terminate after twelve months from
the most recent expansion commencement. The initial annual lease payments of the
corporate leases amount to $258,000, 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. Various other leases expire during 1998 and 1999.
The Company also has entered into operating leases for five
facilities and three long-term ground leases related to other facilities. The
operating lease terms vary from fifteen years, with two ten-year extension
options. The ground leases have terms of seventy-five years to ninety-nine
years. For information regarding facilities owned by the Company or in which it
holds interests, see "Item 1. Business -- Owned Facilities" and "-- Facility
Development."
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company, although
the outcomes of these suits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SNRZ." Other information set forth under the caption
"Corporate Information" on page 40 of the Company's 1997 Annual Report to
Stockholders is incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Selected Financial and
Operating Data" on page 17 of the Company's 1997 Annual Report to Stockholders
is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 18 to 24
of the Company's 1997 Annual Report to Stockholders is incorporated by reference
herein.
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<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements set forth on pages 26 to 37 of
the Company's 1997 Annual Report to Stockholders are incorporated by reference
herein.
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 forth under the captions "Election of Directors
- -- Information as to Nominees and Other Directors," "-- Other Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's 1998 Annual Meeting Proxy Statement, which the Company intends to file
within 120 days after its fiscal year-end, is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the captions "Compensation of
Directors" and "Executive Compensation and Other Information" in the Company's
1998 Annual Meeting Proxy Statement, which the Company intends to file within
120 days after its fiscal year-end, is incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Stock Owned by
Management" and "Principal Holders of Voting Securities" in the Company's 1998
Annual Meeting Proxy Statement, which the Company 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 forth under the caption "Certain Transactions" in
the Company's 1998 Annual Meeting Proxy Statement, which the Company 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.
(1) Financial Statements:
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Changes in Stockholders'
(Deficit) Equity.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
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<PAGE> 19
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
The remaining information appearing in the Company's 1997
Annual Report to Stockholders is not deemed to be filed as
part of this Report, except as expressly provided herein.
(2) Financial Statements Schedules:
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions
or are inapplicable or are included in the consolidated
financial statements.
(3) Exhibits:
The Exhibits filed as part of this Annual Report on Form
10-K are listed on the Index to Exhibits on pages 23 to 28
and are incorporated by reference herein.
(b) Reports on Form 8-K.
None.
(c) Exhibits.
The Company 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.
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<PAGE> 20
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
3/26/98
---------------------------------------
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.
<TABLE>
<S> <C>
By: /s/ Paul J. Klaassen 3/26/98
---------------------------------- ------------------------------------
Paul J. Klaassen Date
Chairman of the Board, and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ David W. Faeder 3/24/98
---------------------------------- ------------------------------------
David W. Faeder Date
President, Chief Financial
Officer and Director
(Principal Financial Officer)
By: /s/ Larry E. Hulse 3/26/98
---------------------------------- ------------------------------------
Larry E. Hulse Date
Controller
(Principal Accounting Officer)
By: /s/ Ronald V. Aprahamian 3/24/98
---------------------------------- ------------------------------------
Ronald V. Aprahamian Date
Director
By:
---------------------------------- ------------------------------------
David G. Bradley Date
Director
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C>
By: /s/ Thomas J. Donohue 3/29/98
---------------------------------- ------------------------------------
Thomas J. Donohue Date
Director
By:
---------------------------------- ------------------------------------
Richard A. Doppelt Date
Director
By: /s/ Teresa M. Klaassen 3/24/98
---------------------------------- ------------------------------------
Teresa M. Klaassen Date
Executive Vice President,
Secretary and Director
By:
---------------------------------- ------------------------------------
Scott F. Meadow Date
Director
</TABLE>
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<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page (by
Sequential
Exhibit Numbering
Number Identity of Exhibit System)
- ------ ------------------- ---------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company (Exhibit 3.1 to
the Company's Form S-1 Registration Statement No. 333- 13731).
3.2 Amended and Restated Bylaws of the Company, as amended (Exhibit 3 to
the Company's Form 10-Q for the quarter ended September 30, 1997).
4.1 Form of Common Stock certificate (Exhibit 4.1 to the Company's Form
S-1 Registration Statement No. 333-13731).
4.2 Stockholder Rights Agreement (Exhibit 4.2 to the Company's Form S-1
Registration Statement No. 333-13731).
10.1 Assignment and Contribution Agreement, effective as of January 4,
1995, by and between Paul and Teresa Klaassen and the Company
(Exhibit 10.1.1 to the Company'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 the Company'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
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10.19 to the Company's Form S-1 Registration Statement No. 33-2852).
10.4 Registration Agreement, dated January 4, 1995, by and among the
Company, the Investors (as defined therein) and Paul and Teresa
Klaassen (Exhibit 10.3 to the Company'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 the Company'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 the Company'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 the Company'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 the Company's Form S-1
Registration Statement No. 333-2582).
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 the Company'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 the Company's 1996 Form 10-K).
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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.
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 the Company'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 the Company'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 the Company'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 the Company'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 the
Company'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 the Company's Form S-1
Registration Statement No. 333-2582).
10.18 First Deed of Trust and Security Agreement, Assignment of Leases and
Rents, Fixture Filing and
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Financing Statement, dated as of June 8, 1994 (Frederick) (Exhibit
10.11 to the Company'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 the Company's Form S-1
Registration Statement No. 333-2582).
10.20 1995 Stock Option Plan, as amended.
10.21 1996 Directors' Stock Option Plan, as amended.
10.22 Stock Option Agreement, entered into, effective as of January 4,
1995, by and between the Company and David W. Faeder (Exhibit 10.14
to the Company's Form S-1 Registration Statement No. 333-2582).
10.23 Amendment No. 1 to Stock Option Agreement by and between the Company
and David W. Faeder (Exhibit 10.14.1 to the Company's Form S-1
Registration Statement No. 333-13731).
10.24 1996 Non-Incentive Stock Option Plan, as amended.
10.25 1997 Stock Option Plan, as amended.
10.26 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
the Company's Form S-1 Registration Statement No. 333-2582).
10.27 Ground Lease, dated June 7, 1994, by and between Sunrise Assisted
Living Limited Partnership and Paul J. Klaassen and Teresa M.
Klaassen (Exhibit 10.16 to the Company's Form S-1 Registration
Statement No. 333-2582).
10.28 Amended and Restated Agreement of Sublease, Indemnification and
Easements dated February 5,
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1995 by and between Assisted Living Group -- Fairfax Associates and
Sunrise Foundation, as amended (Exhibit 10.17 to the Company's Form
S-1 Registration Statement No. 333-2582).
10.29 Loan Agreement, dated as of March 19, 1996, between the Company and
Creditanstalt-Bankverein (Exhibit 10.20 to the Company's Form S-1
Registration Statement No. 333-2582).
10.30 Warrant Agreement, dated as of March 19, 1996, between the Company
and Creditanstalt-Bankverein (Exhibit 10.21 to the Company's Form S-1
Registration Statement No. 333-2582).
10.31.1 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.
10.31.2 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 Limited
Partnership.
10.31.3 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.
10.31.4 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.
10.31.5 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.
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10.31.6 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.
10.31.7 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.
10.31.8 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.
10.31.9 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.
10.32 Form of Indemnification Agreement (Exhibit 10.24 to the Company's
Form S-1 Registration Statement No. 333-2582).
13 1997 Annual Report to Stockholders (which is not deemed to be "filed"
except to the extent that portions thereof are expressly incorporated
by reference in this Annual Report on Form 10-K).
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule as of and for the year ended December
31, 1997.
27.2 Restated Financial Data Schedule as of and for the nine months ended
September 30, 1997, as of and for the six months ended June 30,
1997, and as of and for the three months ended March 31, 1997.
27.3 Restated Financial Data Schedule as of and for the year ended
December 31, 1996, as of and for the nine months ended September
30, 1996, and as of and for the six months ended June 30, 1996.
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<PAGE> 1
EXHIBIT 10.20
SUNRISE ASSISTED LIVING, INC.
1995 STOCK OPTION PLAN, AS AMENDED
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1995 Stock Option Plan, as
amended (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation
and any subsidiary thereof within the meaning of Rule 405 of Regulation C under
the Securities Act of 1933, as amended (with the term "person" as used in such
Rule 405 being defined as in Section 2(2) of such Act) (a "Subsidiary"), by
providing eligible individuals (as designated pursuant to Section 4 below) with
incentives to improve business results, by providing an opportunity to acquire
or increase a proprietary interest in the Corporation, which thereby will
create a stronger incentive to expend maximum effort for the growth and success
of the Corporation and its Subsidiaries, and will encourage such eligible
individuals to continue to serve the Corporation and its Subsidiaries, whether
as an employee, as a director, as a consultant or advisor or in some other
capacity. To this end, the Plan provides for the grant of stock options, as
set out herein.
This Plan provides for the grant of stock options (each of which
is an "Option") in accordance with the terms of the Plan. An Option may be an
incentive stock option (an "ISO") intended to satisfy the applicable
requirements under Section 422 of the Internal Revenue Code of 1986, as amended
from time to time, or the corresponding provision of any subsequently-enacted
tax statute (the "Code"), or a nonqualified stock option (an "NSO"). An Option
is an NSO to the extent that the Option would exceed the limitations set forth
in Section 7 below. An Option is also an NSO if either (i) the Option is
specifically designated at the time of grant as an NSO or not being an ISO or
(ii) the Option does not otherwise satisfy the requirements of Code Section 422
at the time of grant. Each Option shall be evidenced by a written agreement
between the Corporation and the recipient individual that sets out the terms
and conditions of the grant as further described in Section 8.
2. ADMINISTRATION
(a) BOARD
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for under
the Plan or any Option granted or Option Agreement (as defined in Section 8
below)
<PAGE> 2
entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. The interpretation
and construction by the Board of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final, binding and
conclusive.
(b) ACTION BY COMMITTEE
The Board from time to time may appoint a Stock Option Committee
consisting of two or more members of the Board of Directors who, in the sole
discretion of the Board, may be the same Directors who serve on the
Compensation Committee, subject to Section 2(d), or may appoint the
Compensation Committee to serve as the Stock Option Committee (the
"Committee"), subject to Section 2(d). The Board, in its sole discretion, may
provide that the role of the Committee shall be limited to making
recommendations to the Board concerning any determinations to be made and
actions to be taken by the Board pursuant to or with respect to the Plan, or
the Board may delegate to the Committee such powers and authorities related to
the administration of the Plan, as set forth in Section 2(a) above, as the
Board shall determine, consistent with the Certificate of Incorporation and
By-laws of the Corporation and applicable law. In the event that the Plan or
any Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in this Section. Unless otherwise expressly determined by the Board, any
such action or determination by the Committee shall be final and conclusive.
(c) NO LIABILITY
No member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
(d) APPLICABILITY OF RULE 16b-3
Those provisions of the Plan that make express reference to Rule
16b-3 shall apply to the Corporation only at such time as the Corporation's
Stock (as defined in Section 3) or any other equity security of the Corporation
is registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and then only to such persons as are required to file reports
under Section 16(a) of the Exchange Act (each of whom is a "Reporting Person").
Unless not required by Rule 16b-3, from and after such time as the
Corporation's Stock or any other equity security of the Corporation is
registered
2
<PAGE> 3
under the Exchange Act (the "Registration Date"), the Board may act under the
Plan (i) only if all members of the Board are "disinterested persons" as
defined in Rule 16b-3 or (ii) by the determination of the Committee constituted
as set forth in the following sentence. From and after the Registration Date,
unless not required by Rule 16b-3, the Committee appointed pursuant to Section
2(b) shall consist of not fewer than two members of the Board each of whom
shall qualify (at the time of appointment to the Committee and during all
periods of service on the Committee) in all respects as a "disinterested
person" as defined in Rule 16b-3.
3. STOCK
The stock that may be issued pursuant to Options under the Plan
shall be shares of common stock, par value $.01 per share, of the Corporation
(the "Stock"), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
under the Plan shall not exceed, in the aggregate, one million two hundred
ninety eight thousand and sixty-five (1,298,065) shares. If any Option
expires, terminates, or is terminated or canceled for any reason prior to
exercise, the shares of Stock that were subject to the unexercised, forfeited,
terminated or canceled portion of such Option shall be available immediately
for future grants of Options under the Plan; provided, however, shares of Stock
that were subject to an Option that has been purchased pursuant to Section
11(c) shall not be available for future grants of Options under the Plan.
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Subject to the next sentence, Options may be granted under the
Plan to (i) any full-time employee of the Corporation or any Subsidiary
(including any such individual who is an officer or director of the Corporation
or any Subsidiary) as the Board shall determine and designate from time to time
or (ii) any other individual (including a non-employee director of, or
consultant or advisor providing bona fide services to, the Corporation or any
Subsidiary provided that such services must not be in connection with the offer
or sale of securities in a capital-raising transaction) whose participation in
the Plan is determined by the Board to be in the best interests of the
Corporation and is so designated by the Board. Options granted to a full-time
employee of the Corporation or a "subsidiary corporation" thereof within the
meaning of Section 424(f) of the Code shall be either ISOs or NSOs, as
determined in the sole discretion of the Board, and Options granted to any
other individual shall be NSOs.
3
<PAGE> 4
(b) SUCCESSIVE GRANTS
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE
The Plan shall be effective as of the date of adoption by the
Board, subject to approval of the Plan within one year of such effective date
by the affirmative vote of stockholders who hold more than fifty percent (50%)
of the combined voting power of the outstanding shares of voting stock of the
Corporation present or represented, and entitled to vote thereon at a duly
constituted stockholders' meeting, or by consent as permitted by law and in a
manner that satisfies applicable requirements of Rule 16b-3(b) of the Exchange
Act. Upon approval of the Plan by the stockholders of the Corporation as set
forth above, however, all Options granted under the Plan on or after the
effective date shall be fully effective as if the stockholders of the
Corporation had approved the Plan on the Plan's effective date. If the
stockholders fail to approve the Plan within one year of such effective date,
any Options granted hereunder shall be null and void and of no effect.
(b) TERM
The Plan shall have no termination date, but no grant of an ISO
may occur after the date that is ten years after the effective date.
6. GRANT OF OPTIONS
(a) GENERAL
Subject to the terms and conditions of the Plan, the Board may,
at any time and from time to time, grant to such eligible individuals as the
Board may determine (each of the whom is an "Optionee"), Options to purchase
such number of shares of Stock on such terms and conditions as the Board may
determine, including any terms or conditions that may be necessary to qualify
such Options as ISOs under Section 422 of the Code. Such authority
specifically includes the authority, in order to effectuate the purposes of the
Plan but without amending the Plan, to modify grants to eligible individuals
who are foreign nationals or are individuals who are employed outside the
United States to recognize differences in local law, tax policy, or custom.
4
<PAGE> 5
(b) LIMITATION ON GRANTS OF OPTIONS
The maximum number of shares subject to Options that can be
granted under the Plan to any executive officer of the Company or a Subsidiary,
or to any other person eligible for a grant of an Option under Section 4, is
250,000 shares during the first ten years after the effective date of the Plan
and 50,000 shares per year thereafter (in each case, subject to adjustment as
provided in Section 16(a) hereof).
7. LIMITATIONS ON INCENTIVE STOCK OPTIONS
(a) PRICE AND DOLLAR LIMITATIONS
An Option that is designated as being one that is intended to
qualify as an ISO shall qualify for treatment as an ISO only to the extent that
the aggregate fair market value (determined at the time the Option is granted)
of the Stock with respect to which all options that are intended to constitute
"incentive stock options," within the meaning of Code Section 422, are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee's employer corporation and its
parent and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000.
(b) PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by
the Optionee with the Corporation, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Optionee (including groups or classes of
participants or beneficiaries of which the Optionee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Code, any
Option held by that Optionee and any right to receive any payment or other
benefit under this Plan shall not become exercisable or vested (i) to the
extent that such right to exercise, vesting, payment, or benefit, taking into
account all other rights, payments, or benefits to or for the Optionee under
this Plan, all Other Agreements, and all Benefit Arrangements, would cause any
payment or benefit to the Optionee under this Plan to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code as
then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a
Parachute Payment, the
5
<PAGE> 6
aggregate after-tax amounts received by the Optionee from the Corporation under
this Plan, all Other Agreements, and all Benefit Arrangements would be less
than the maximum after-tax amount that could be received by him without causing
any such payment or benefit to be considered a Parachute Payment. In the event
that the receipt of any such right to exercise, vesting, payment, or benefit
under this Plan, in conjunction with all other rights, payments, or benefits to
or for the Optionee under any Other Agreement or any Benefit Arrangement would
cause the Optionee to be considered to have received a Parachute Payment under
this Plan that would have the effect of decreasing the after-tax amount
received by the Optionee as described in clause (ii) of the preceding sentence,
then the Optionee shall have the right, in the Optionee's sole discretion, to
designate those rights, payments, or benefits under this Plan, any Other
Agreements, and any Benefit Arrangements that should be reduced or eliminated
so as to avoid having the payment or benefit to the Optionee under this Plan be
deemed to be a Parachute Payment.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same
time need not contain similar provisions; provided, however, that all such
Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Option Agreement. The Option Price shall be not less than the greater of par
value or 100 percent of the fair market value of a share of Stock on the date
on which the Option is granted (as determined in good faith by the Board);
provided, however, that in the event the Optionee would otherwise be ineligible
to receive an ISO by reason of the provisions of Sections 422(b)(6) and 424(d)
of the Code (relating to stock ownership of more than ten percent), the Option
Price of an Option that is intended to be an ISO shall not be less than the
greater of par value or 110 percent of the fair market value of a share of
Stock at the time such Option is granted. In the event that the Stock is
listed on an established national or regional stock exchange or The Nasdaq
Stock Market, is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System, or is publicly traded in an
established securities market, in determining the fair market value of the
Stock, the Board shall use the closing price of the Stock on such exchange or
system or in such market (the highest such closing price if there is more than
one such exchange or market) on the trading date immediately before the Option
is granted (or, if there is no such
6
<PAGE> 7
closing price, then the Board shall use the mean between the highest bid and
lowest asked prices or between the high and low prices on such date), or, if no
sale of the Stock has been made on such day, on the next preceding day on which
any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) TERM
Upon the expiration of ten years from the date on which an ISO
is granted or on such date prior thereto as may be fixed by the Board and
stated in the Option Agreement relating to such Option, that ISO shall be
ineligible for treatment as an "incentive stock option," as defined in Section
422 of the Code, and shall be exercisable only as an NSO. In the event the
Optionee otherwise would be ineligible to receive an "incentive stock option"
by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code
(relating to stock ownership of more than 10 percent), such ten year
restriction on exercisability as an ISO shall be read to impose a five year
restriction on such exercisability. If an Optionee shall terminate employment
prior to the ten-year or five-year limitation described in the immediately
preceding sentences, any outstanding ISO shall be ineligible for treatment as
an "incentive stock option," as defined in Section 422 of the Code, and shall
be exercisable only as an NSO, unless exercised within three months after such
termination or, in the case of termination on account of "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code), within one
year after such termination.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable, in
whole or in part, at any time and from time to time, over a period commencing
on or after the date of grant and, to the extent that the Board determines and
sets forth a termination date for such Option in the Option Agreement
(including any amendment thereto), ending upon the stated expiration or
termination date. The Board in its sole discretion may specify events or
circumstances, including the giving of notice, which will cause an Option to
terminate as set forth in the Option Agreement or in this Plan. No Option
granted to a Reporting Person shall be exercisable during the first six months
after the date of grant. Without limiting the foregoing but subject to the
terms and conditions of the Plan, the Board may in its sole discretion provide
that an Option may not be exercised in whole or in part for any period or
periods of time during which such Option is outstanding and may condition
exercisability (or vesting) of an Option upon the attainment of performance
objectives, upon continued service, upon certain events or transactions, or a
combination of one or more of such factors, or otherwise, as set forth in the
Option Agreement. Subject to the parachute payment restrictions under Section
7(b), however, the Board, in its
7
<PAGE> 8
sole discretion, may rescind, modify, or waive any such limitation or condition
on the exercise of an Option contained in any Option Agreement, so as to
accelerate the time at which the Option may be exercised or extend the period
during which the Option may be exercised. Notwithstanding any other provisions
of the Plan, no Option granted to an Optionee under the Plan shall be
exercisable in whole or in part prior to the date on which the stockholders of
the Corporation approve the Plan, as provided in Section 5 above.
(c) METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at the Corporation's principal
office, addressed to the attention of the President, of written notice of
exercise, which notice shall specify the number of shares with respect to which
the Option is being exercised and shall be accompanied by payment in full of
the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Option Agreement and
(ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares of Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) to the extent permitted by applicable law and under the
terms of the Option Agreement with respect to such Option, through the tender
to the Corporation of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value (determined in accordance with Section 9)
on the date of exercise; (iii) to the extent permitted by applicable law and
under the terms of the Option Agreement with respect to such Option, by the
delivery of a promissory note of the person exercising the Option to the
Corporation on such terms as shall be set out in such Option Agreement; (iv) to
the extent permitted by applicable law and under the terms of the Option
Agreement with respect to such Option, by causing the Corporation to withhold
shares of Stock otherwise issuable pursuant to the exercise of an Option equal
in value to the Option Price or portion thereof to be satisfied pursuant to
this clause (iv); or (v) by a combination of the methods described in (i),
(ii), (iii), and (iv). An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Payment in full of the Option Price need not accompany the written notice of
exercise provided the notice directs that the Stock certificate or certificates
for the shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the individual exercising
the Option and, at the time such Stock certificate or certificates are
delivered, the broker tenders to the Corporation cash (or cash equivalents
acceptable to the Corporation) equal to the Option Price. Promptly after the
exercise of an Option and the payment in full of the Option Price of the
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<PAGE> 9
shares of Stock covered thereby, the individual exercising the Option shall be
entitled to the issuance of a Stock certificate or Stock certificates
evidencing his ownership of such shares. A separate Stock certificate or
separate Stock certificates shall be issued for any shares purchased pursuant
to the exercise of an Option that is an ISO, which certificate or certificates
shall not include any shares that were purchased pursuant to the exercise of an
Option that is an NSO. Unless otherwise stated in the applicable Option
Agreement, an individual holding or exercising an Option shall have none of the
rights of a stockholder (for example, the right to receive cash or stock
dividend payments attributable to the subject shares or to direct the voting of
the subject shares) until the shares of Stock covered thereby are fully paid
and issued to him. Except as provided in Section 16 below, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date of such issuance. Shares issued pursuant to the exercise of any Option
shall be subject to the applicable restrictions set out in Section 11 hereof.
(d) DATE OF GRANT
The date of grant of an Option under this Plan shall be the date
as of which the Board approves the grant.
11. TRANSFERABILITY OF STOCK AND OPTIONS
(a) LIMITATIONS ON TRANSFER
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetency, the guardian or legal
representative of the Optionee) may exercise the Option, except as otherwise
specifically permitted by this Section 11(a). No Option shall be assignable or
transferable other than by will or in accordance with the laws of descent and
distribution; provided, however, subject to the terms of the applicable Option
Agreement, and to the extent the transfer is in compliance with any applicable
restrictions on transfers, an Optionee (other than, unless permissible under
Rule 16b-3, an Optionee who is, or during the preceding six months has been, a
Reporting Person) may transfer an NSO to a family member of the Optionee
(defined as an individual who is related to the Optionee by blood or adoption)
or to a trust established and maintained for the benefit of the Optionee or a
family member of the Optionee (as determined under applicable state law and the
Code).
(b) REPURCHASE RIGHTS
In the Board's sole discretion, the Board may provide in an
Option Agreement that upon the termination of an Optionee's employment or other
relationship with the Corporation or a Subsidiary (whether as an employee, a
director, a consultant or advisor providing bona fide services to the
Corporation or any Subsidiary, or otherwise), the Corporation shall have the
right, for a
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period of up to twelve months following such termination, to repurchase any or
all of the shares acquired by the individual pursuant to this Plan under an
Option (including shares that were previously transferred pursuant to Section
11(d) below, unless otherwise specified in the Option Agreement), at a price
equal to the fair market value of such shares on the date of termination (or at
such other price or the fair market value on such other date as shall have been
specified by the Board at the time of grant and set out in the appropriate
Option Agreement with respect to the grant). In the Board's sole discretion
and pursuant to the terms of Section 12, the Board may also provide in an
Option Agreement that upon the exercise of an Option following termination of
an Optionee's employment or other relationship with the Corporation or a
Subsidiary (whether as an employee, a director, a consultant or advisor
providing bona fide services to Corporation or any Subsidiary, or otherwise),
the Corporation shall have the right, for a period of up to twelve months
following such exercise, to repurchase any or all such shares of Stock acquired
by the Optionee pursuant to such exercise of such Option at a price that is
equal to the fair market value of such shares (including shares that were
previously transferred pursuant to Section 11(d) below, unless otherwise
specified in the Option Agreement) on the date of exercise (or at such other
price or the fair market value on such other date as shall have been specified
by the Board at the time of grant and set out in the appropriate Option
Agreement with respect to the grant). In the event that the Corporation
determines that it cannot or will not exercise its rights to purchase Stock
under this Section 11(b) and the applicable Option Agreement, in whole or in
part, the Corporation may assign its rights, in whole or in part, to (i) any
holder of stock or securities of the Corporation (a "Stockholder"), (ii) any
employee benefit plan (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) maintained by the
Corporation or a Subsidiary for the benefit of employees of the Corporation or
a Subsidiary (a "Benefit Plan"), or (iii) any corporation or other trade or
business that is controlled by or under common control with the Corporation
(determined in accordance with the principles of Sections 414(b) and (c) of the
Code and regulations thereunder) (an "Affiliate"). The Corporation shall give
reasonable written notice to the individual of any assignment of its rights.
"Fair market value," for purposes of this Section 11(b), shall be determined by
the Board in the same manner used by it in good faith to determine fair market
value for purposes of determining the Option Price pursuant to Section 9.
(c) PURCHASE OF OPTIONS
In the Board's sole discretion, the Board may provide in an
Option Agreement that upon or after the termination of an Optionee's employment
or other relationship with the Corporation or a Subsidiary (whether as an
employee, a director, a consultant or advisor providing bona fide services to
the Corporation or a Subsidiary, or otherwise), the Corporation shall have the
right,
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at all times before the Option is exercised, to purchase in whole or in part
each Option held by the Optionee (and each Option transferred by the Optionee
pursuant to Section 11(a) above unless otherwise specified in the Option
Agreement), at a price equal to the value of such Option on the date such
purchase right is exercised, provided the Corporation delivers to the Optionee
a notice that it is exercising such purchase right within 10 business days of
such date. For this purpose, the value of the Option (or portion thereof being
purchased) is equal to the excess (if any) of the fair market value of the
shares of Stock that are subject to the Option, (determined by the Board in the
same manner used by it in good faith to determine fair market value for
purposes of determining the Option Price pursuant to Section 9) as of the date
of the exercise of such right, over the aggregate Option Price of such shares.
Upon payment (or tender of payment) of the applicable amount to the Optionee
(or transferee of the Option), the Option shall be terminated and, if payment
has been tendered but not made, shall only represent the right to receive such
payment without interest.
(d) NONTRANSFERABILITY OF SHARES
In the Board's sole discretion, the Board may provide in an
Option Agreement that an Optionee (or such other individual who is entitled to
exercise an Option) shall not sell, pledge, assign, gift, transfer, or
otherwise dispose of any shares of Stock acquired pursuant to an Option to
anyone without first offering such shares to the Corporation for purchase on
the same terms and conditions as those offered the proposed transferee. If
such a restriction applies to an individual pursuant to an Option Agreement, an
individual who proposes such a transfer (the "Transferor") shall notify the
Corporation, in writing, of the identity of the proposed transferee and the
terms and conditions of such proposed transfer. The Corporation may exercise
its right of first refusal within 90 days after receiving such notice of the
proposed transfer. The Corporation may assign its right of first refusal under
this Section 11(d), in whole or in part, to a Stockholder, a Benefit Plan, or
an Affiliate. The Corporation shall give reasonable written notice to the
Transferor of any such assignment of its rights. If the Corporation (or its
permitted assignee) fails to exercise such right of first refusal during this
90-day period, the Transferor may proceed with the proposed transfer at any
time within the next 45 days, and if he does not do so, the restrictions of
this Section 11(d) shall re-apply. The Option Agreement may provide that the
restrictions of this Section 11(d) re-apply to any person to whom Stock that
was originally acquired pursuant to an Option is sold, pledged, assigned,
bequeathed, gifted, transferred or otherwise disposed of, without regard to the
number of such subsequent 1transferees or the manner in which they acquire the
Stock, but the Option Agreement may provide that the restrictions of this
Section 11(d) do not apply to a transfer of Stock that occurs as a result of
the death of the Transferor or of any subsequent transferee (but
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shall apply to the executor, the administrator or personal representative, the
estate, and the legatees, beneficiaries and assigns thereof).
(e) LEGEND
In order to enforce the restrictions imposed upon shares of
Stock under this Plan or as provided in an Option Agreement, the Board may
cause a legend or legends to be placed on any certificate representing shares
issued pursuant to this Plan that complies with the applicable securities laws
and regulations and makes appropriate reference to the restrictions imposed
under it.
(f) PUT RIGHTS
The Board, by inclusion of appropriate language in the Option
Agreement, may grant the person acquiring shares of Stock thereunder the right
to put such shares to the Corporation at the fair market value of such shares
(as determined hereunder) at the time of exercise of such put, or at such other
value as shall be specified in the Option Agreement, subject to such further
terms and conditions as the Board shall include in the Option Agreement.
(g) TERMINATION OF SECTIONS 11(b) THROUGH 11(f)
Sections 11(b) through 11(f) shall terminate, and shall be of no
further force and effect, from and after the Registration Date.
12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE
In the Board's sole discretion, the Board may include language
in an Option Agreement providing for the termination of any unexercised Option
in whole or in part upon or at any time after the termination of employment or
other relationship of the Optionee with the Corporation or a Subsidiary
(whether as an employee, a director, a consultant or advisor providing bona
fide services to the Corporation or a Subsidiary, or otherwise). Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary for purposes of the Plan shall be determined by the
Board, which determination shall be final and conclusive.
13. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to the exercise of Options granted under the Plan shall constitute
general funds of the Corporation.
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14. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the Optionee, the individual exercising the Option,
or the Corporation of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Corporation shall
determine, in its discretion, that the listing, registration, or qualification
of any shares subject to the Option upon any securities exchange or under any
state or federal law, or the consent or approval of any government regulatory
or self-regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation, and any delay caused thereby
shall in no way affect the date of termination of the Option. Specifically in
connection with the Securities Act of 1933 (as now in effect or as hereafter
amended), upon the exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered
thereby, the Corporation shall not be required to sell or issue such shares
unless the Board has received evidence satisfactory to it that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended) or to register its
common stock pursuant to the Securities Exchange Act of 1934 (as now in effect
or as hereafter amended). The Corporation shall not be obligated to take any
affirmative action in order to cause the exercisability or vesting of an Option
or to cause the exercise of an Option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority. As
to any jurisdiction that expressly imposes the requirement that an Option shall
not be exercisable unless and until the shares of Stock covered by such Option
are registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
15. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend, or terminate the Plan as to any shares of Stock as to which Options
have not been granted; provided, however, that any amendment by the Board
which, if not approved by the Corporation's stockholders in accordance with
applicable requirements of Rule 16b-3, would cause the Plan to not comply with
Rule 16b-3
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(or any successor rule or other regulatory requirements) or the Code shall not
be effective unless approved by the affirmative vote of stockholders who hold
more than fifty percent (50%) of the combined voting power of the outstanding
shares of voting stock of the Corporation present or represented, and entitled
to vote thereon at a duly constituted stockholders' meeting, or by consent as
permitted by law. The Corporation, however, may retain the right in an Option
Agreement to convert an ISO into an NSO. The Corporation may also retain the
right in an Option Agreement to cause a forfeiture of the shares of Stock or
gain realized by a holder of an Option (a) if the holder violates any agreement
covering non-competition with the Corporation or any Subsidiary or
nondisclosure of confidential information of the Corporation or any Subsidiary,
(b) if the holder's employment is terminated for cause or (c) if the Board
determines that the holder committed acts or omissions which would have been
the basis for a termination of holder's employment for cause had such acts or
omissions been discovered prior to termination of holder's employment.
Furthermore, the Corporation may, in the Option Agreement, retain the right to
annul the grant of an Option, if the holder of such grant was an employee of
the Corporation or a Subsidiary and the holder's employment is terminated for
cause, as defined in the applicable Option Agreement. Except as permitted
under this Section 15 or Section 16 hereof, no amendment, suspension, or
termination of the Plan shall, without the consent of the holder of the Option,
alter or impair rights or obligations under any Option theretofore granted
under the Plan.
16. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK
If the number of outstanding shares of Stock is increased or
decreased or the shares of Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation on account of
any recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective date of the
Plan, the number and kind of shares for the acquisition of which Options may be
granted under the Plan, and the limitations on the maximum number of shares
subject to Options that can be granted to any individual under the Plan as set
forth in Section 6(b) hereof, shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which
Options are outstanding shall be adjusted proportionately and accordingly so
that the proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares that
are subject to the
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unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE
SURVIVING CORPORATION
Subject to Subsection (c)(iv) hereof, if the Corporation shall
be the surviving corporation in any reorganization, merger, or consolidation of
the Corporation with one or more other corporations, any Option theretofore
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to such Option would
have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the same
as the aggregate Option Price of the shares remaining subject to the Option
immediately prior to such reorganization, merger, or consolidation.
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS,
REORGANIZATION IN WHICH THE CORPORATION IS NOT THE SURVIVING
CORPORATION, ETC.
The Plan and all Options outstanding hereunder shall terminate
(i) upon the dissolution or liquidation of the Corporation, or (ii) upon a
merger, consolidation, or reorganization of the Corporation with one or more
other corporations in which the Corporation is not the surviving corporation,
or (iii) upon a sale of substantially all of the assets of the Corporation to
another person or entity, or (iv) upon a merger, consolidation or
reorganization (or other transaction if so determined by the Board in its sole
discretion) in which the Corporation is the surviving corporation, that is
approved by the Board and that results in any person or entity (other than
persons who are holders of Stock of the Corporation at the time the Plan is
approved by the stockholders and other than an Affiliate) owning 80 percent or
more of the combined voting power of all classes of stock of the Corporation,
except to the extent provision is made in writing in connection with any such
transaction covered by clauses (i) through (iv) for the continuation of the
Plan or the assumption of such Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and exercise prices, in which event the Plan
and Options theretofore granted shall continue in the manner and under the
terms so provided. In the event of any such termination of the Plan, each
individual holding an Option shall have the right (subject to the general
limitations on exercise set forth in Section 10(b) above), during such period
occurring before such termination as the Board in its sole discretion shall
determine and designate, and in any event immediately before the occurrence of
such termination, to exercise such Option in whole or in part, to the extent
that such Option was otherwise exercisable at the time such
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termination occurs, except that, by inclusion of appropriate language in an
Option Agreement, the Board may provide that the Option may be exercised before
termination without regard to any installment limitation or other condition on
exercise imposed pursuant to Section 10(b) above. The Corporation shall send
written notice of a transaction or event that will result in such a termination
to all individuals who hold Options not later than the time at which the
Corporation gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 16 related to stock or securities
of the Corporation shall be made by the Board, whose determination in that
respect shall be final, binding, and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and any fractions resulting from any such adjustment shall be eliminated in
each case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other
relationship between any individual and the Corporation or any Subsidiary. The
obligation of the Corporation to pay any benefits pursuant to this Plan shall
be interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Corporation to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any participant or beneficiary under the terms of the
Plan.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan
to the stockholders of the Corporation for approval shall be construed as
creating
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any limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
19. CAPTIONS
The use of captions in this Plan or any Option Agreement is for
the convenience of reference only and shall not affect the meaning of any
provision of the Plan or such Option Agreement.
20. DISQUALIFYING DISPOSITIONS
If Stock acquired by exercise of an ISO granted under this Plan
is disposed of within two years following the date of grant of the ISO or one
year following the transfer of the subject Stock to the Optionee (a
"disqualifying disposition"), the holder of the Stock shall, immediately prior
to such disqualifying disposition, notify the Corporation in writing of the
date and terms of such disposition and provide such other information regarding
the disposition as the Corporation may reasonably require.
21. WITHHOLDING TAXES
(a) The Corporation shall have the right to deduct from
payments of any kind otherwise due to an Optionee any Federal, state, or local
taxes of any kind required by law to be withheld with respect to any shares
issued upon the exercise of an Option under the Plan or in connection with the
purchase of an Option by the Corporation. At the time of exercise, the
Optionee shall pay to the Corporation any amount that the Corporation may
reasonably determine to be necessary to satisfy such withholding obligation.
The Board in its sole discretion may provide in the Option Agreement that,
subject to the prior approval of the Corporation, which may be withheld by the
Corporation in its sole discretion, the Optionee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Corporation to withhold
shares of Stock otherwise issuable pursuant to the exercise of an Option or
(ii) by delivering to the Corporation shares of Stock already owned by the
Optionee. The shares so delivered or withheld shall have a fair market value
equal to such withholding obligations. The fair market value of the shares
used to satisfy such withholding obligation shall be determined by the
Corporation as of the date that the amount of tax to be withheld is to be
determined. An Optionee who has made an election pursuant to this Section 21(a)
may only satisfy his or her withholding obligation with shares of Stock that
are not subject to any repurchase, forfeiture, unfulfilled vesting, or other
similar requirements.
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(b) Notwithstanding the foregoing, in the case of a
Reporting Person, no election to use shares for the payment of withholding
taxes shall be effective unless made in compliance with any applicable
requirements under Rule 16b-3(e) or any successor rule under the Exchange Act.
22. OTHER PROVISIONS
Each Option granted under the Plan may be subject to, and the
Option Agreement relating to such Option may contain, such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion. Notwithstanding the foregoing, each ISO granted under the
Plan shall include those terms and conditions that are necessary to qualify the
ISO as an "incentive stock option" within the meaning of the Section 422 of the
Code or the regulations thereunder and shall not include any terms or
conditions that are inconsistent therewith.
23. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, etc., as the context requires.
24. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable
and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
25. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware (excluding its choice of law rules).
* * *
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EXHIBIT 10.21
SUNRISE ASSISTED LIVING, INC.
1996 DIRECTORS' STOCK OPTION PLAN, AS AMENDED
1. NAME AND PURPOSE.
1.1 This plan is the SUNRISE ASSISTED LIVING, INC. 1996
DIRECTORS' STOCK OPTION PLAN (the "Plan").
1.2 The purposes of the Plan are to enhance the Company's
ability to attract and retain highly qualified individuals to serve as members
of the Company's Board of Directors and to provide additional incentives to
Directors to promote the success of the Company. The Plan provides Directors
of the Company an opportunity to purchase shares of the Stock of the Company
pursuant to Options. Options granted under the Plan shall not constitute
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
1.3 This Plan is intended to constitute a "formula plan"
and the Directors are intended to be "disinterested administrators" of Other
Plans for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2. DEFINITIONS.
For purposes of interpreting the Plan and related documents
(including Stock Option Agreements), the following definitions shall apply:
2.1 "Additional Option" means any Option other than an
Initial Option.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Commencement of Service" means the date of election
of the Director to his or her first term as a Director.
2.4 "Company" means Sunrise Assisted Living, Inc., a
Delaware corporation.
2.5 "Director" means a member of the Company's Board who
is not an officer or employee of the Company or any of its subsidiaries and was
not serving as a Series A Director (as defined in that certain Stockholders'
Agreement dated as of January 4, 1995) on the Effective Date.
2.6 "Effective Date" means the date the Plan was adopted
by the Board.
2.7 "Exercise Price" means the Option Price multiplied by
the number of shares of Stock purchased pursuant to exercise of an Option.
2.8 "Expiration Date" means the tenth anniversary of the
Grant Date, or, if earlier, the termination of the Option pursuant to Section
4.2(c).
<PAGE> 2
2.9 "Fair Market Value" means the value of each share of
Stock subject to this Plan determined as follows: If on the Grant Date or
other determination date the Stock is listed on an established national or
regional stock exchange, is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System, or is publicly traded on an
established securities market, the Fair Market Value of the Stock shall be the
closing price of the Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the trading
day immediately preceding the Grant Date or other determination date (or, if
there is no such reported closing price, the Fair Market Value shall be the
mean between the highest bid and lowest asked prices or between the high and
low sale prices on such trading day), or, if no sale of the Stock is reported
for such trading day, on the next preceding day on which any sale shall have
been reported. If the Stock is not listed on such an exchange, quoted on such
System or traded on such a market, Fair Market Value shall be determined by the
Board in good faith.
2.10 "Grant Date" means the date on which an Option takes
effect pursuant to Section 7 of this Plan.
2.11 "Initial Option" means an Option received by each
Director as of the Director's Commencement of Service.
2.12 "Option" means any option to purchase one or more
shares of Stock pursuant to this Plan including both Initial Options and
Additional Options.
2.13 "Optionee" means a person who holds an Option under
this Plan.
2.14 "Option Period" means the period during which Options
may be exercised as defined in Section 9.
2.15 "Option Price" means the purchase price for each
share of Stock subject to an Option.
2.16 "Other Plan" means the Sunrise Assisted Living, Inc.
1995 Stock Option Plan and any other stock option plan adopted by the Company
or any of its subsidiaries other than the Plan.
2.17 "1933 Act" means the Securities Act of 1933, as now
in effect or as hereafter amended.
2.18 "Stock" means the Common Stock, par value $.01 per
share, of the Company.
2.19 "Stock Option Agreement" means the written agreement
evidencing the grant of an Option hereunder.
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3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board. The Board's
responsibilities under the Plan shall be limited to taking all legal actions
necessary to document the Options provided herein, to maintain appropriate
records and reports regarding those Options, and to take all acts authorized by
this Plan.
4. STOCK SUBJECT TO THE PLAN.
4.1 Subject to adjustments made pursuant to Section 4.2,
the maximum number of shares of Stock which may be issued pursuant to the Plan
shall not exceed 100,000. If any Option expires, terminates or is canceled for
any reason before it is exercised in full, the shares of Stock that were
subject to the unexercised portion of the Option shall be available for future
Options granted under the Plan.
4.2 (a) If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable on capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Company, occurring after the effective date of the Plan,
the number and kinds of shares for the purchase of which Options may be granted
under the Plan shall be adjusted proportionately and accordingly by the
Company. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately prior to
such event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares subject to the
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) Subject to Subsection (c) hereof, if the
Company shall be the surviving corporation in any reorganization, merger or
consolidation of the Company with one or more other corporations, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
(c) Upon the dissolution or liquidation of the
Company, or upon a merger, consolidation or reorganization of the Company with
one or more other corporations in which the Company is not the surviving
corporation, or upon a sale of all or substantially all of the assets of the
Company to another corporation, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
corporation) approved by the Board which results in any person
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or entity owning 80 percent or more of the combined voting power of all classes
of stock of the Company, the Plan and all Options outstanding hereunder shall
terminate, except to the extent provision is made in writing in connection with
such transaction for the continuation of the Plan, the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares and exercise prices, in which event the Plan (if applicable) and Options
theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan and Options, each
individual holding an Option shall have the right immediately prior to the
occurrence of such termination and during such period occurring prior to such
termination as the Board in its sole discretion shall determine and designate,
to exercise such Option to the extent that such Option was otherwise
exercisable at the time such termination occurs. The Board shall send written
notice of an event that will result in such a termination to all individuals
who hold Options not later than the time at which the Company gives notice
thereof to its stockholders.
(d) Adjustments under this Section 4.2 related to
stock or securities of the Company shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive. No
fractional shares of Stock or units of other securities shall be issued
pursuant to any such adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding downward to the nearest
whole share or unit.
(e) The grant of an Option pursuant to the Plan
shall not affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
5. ELIGIBILITY.
Eligibility under this Plan is limited to Directors of the
Company.
6. THE OPTION PRICE.
The Option Price of the Stock covered by each Option granted
under this Plan shall be the greater of the Fair Market Value or the par value
of such Stock on the Grant Date. The Option Price shall be subject to
adjustment as provided in Section 4.2 hereof.
7. NUMBER OF SHARES AND GRANT DATES.
Each Director whose Commencement of Service is after the
Effective Date and before termination of the Plan shall be granted an Initial
Option, as of the date of the Director's Commencement of Service, to purchase
10,000 shares of Stock. An Additional
4
<PAGE> 5
Option to purchase 5,000 shares of Stock shall be granted immediately after
each subsequent annual meeting of the Company's stockholders (commencing with
the 1997 annual meeting) occurring before the Plan terminates to each Director
who is then serving on the Board. Notwithstanding the foregoing, no Director
shall be eligible to receive an Additional Option grant if on the Grant Date
such individual also is an officer or employee of the Company or any of its
subsidiaries.
8. VESTING OF OPTIONS.
Subject to the provisions of Section 9, the Initial and
Additional Options shall be vested upon the respective Grant Date (but shall
not be exercisable before approval of the Plan by stockholders).
9. OPTION PERIOD.
An Option shall be exercisable only during the Option Period.
The Option Period shall commence six months after the later of (i) the Grant
Date or (ii) the date on which the Plan is approved by the stockholders of the
Company (or, if a six-month delay on the sale of stock acquired pursuant to the
exercise of an Option is no longer necessary to satisfy the requirements of
Rule 16b-3 under the Exchange Act, upon the later of such dates), and shall end
at the close of business on the Expiration Date. Termination of the Optionee's
status as a Director for any reason shall not cause an Option to terminate.
10. TIMING AND METHOD OF EXERCISE.
Subject to the limitations of Sections 8 and 9, an Optionee
may, at any time, exercise an Option with respect to all or any part of the
shares of Stock then subject to such Option by giving the Company written
notice of exercise, specifying the number of shares as to which the Option is
being exercised. Such notice shall be addressed to the Secretary of the
Company at its principal office, and shall be effective when actually received
(by personal delivery, fax or other delivery) by the Secretary of the Company.
Such notice shall be accompanied by an amount equal to the Exercise Price of
such shares, in the form of any one or combination of the following: cash or
cash equivalents, or shares of Stock valued at Fair Market Value in accordance
with the Plan. If shares of Stock that are acquired by the Optionee through
exercise of an Option or an option issued under an Other Plan are surrendered
in payment of the Exercise Price of Options, the Stock surrendered in payment
must have been (i) held by the Optionee for more than six months at the time of
surrender, or (ii) acquired under an Option granted not less than six months
prior to the time of surrender. However, payment in full of the Exercise Price
need not accompany the written notice of exercise provided the notice of
exercise directs that the Stock certificate or certificates for the shares for
which the Option is exercised be delivered to a licensed broker acceptable to
the Company as the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the broker tenders
to the Company cash (or cash equivalents acceptable to the Company) equal to
the Exercise Price.
5
<PAGE> 6
11. NO STOCKHOLDER RIGHTS UNDER OPTION.
No Optionee shall have any of the rights of a stockholder with
respect to the shares of Stock subject to an Option except to the extent the
certificates for such shares shall have been issued upon the exercise of the
Option.
12. CONTINUATION OF SERVICE.
Nothing in the Plan shall confer upon any person any right to
continue to serve as a Director.
13. STOCK OPTION AGREEMENT.
Each Option granted pursuant to the Plan shall be evidenced by
a written Stock Option Agreement notifying the Optionee of the grant and
incorporating the terms of this Plan. The Stock Option Agreement shall be
executed by the Company and the Optionee.
14. WITHHOLDING.
The Company shall have the right to withhold, or require an
Optionee to remit to the Company, an amount sufficient to satisfy any
applicable federal, state, local or foreign withholding tax requirements
imposed with respect to exercise of Options. To the extent permissible under
applicable tax, securities, and other laws, the Optionee may satisfy a tax
withholding requirement by directing the Company to apply shares of Stock to
which the Optionee is entitled as a result of the exercise of an Option to
satisfy withholding requirements under this Section 14.
15. NON-TRANSFERABILITY OF OPTIONS.
Each Option granted pursuant to this Plan shall, during
Optionee's lifetime, be exercisable only by Optionee, and neither the Option
nor any right thereunder shall be transferable by the Optionee by operation of
law or otherwise other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in Section
414(p)(1)(B) of the Internal Revenue Code of 1986, as amended and shall not be
pledged or hypothecated (by operation of law or otherwise) or subject to
execution, attachment or similar processes.
16. USE OF PROCEEDS.
Cash proceeds realized from the sale of Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.
6
<PAGE> 7
17. ADOPTION, AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN.
17.1 The Plan shall be effective as of the date of
adoption by the Board, subject to approval of the Plan within one year of its
adoption by the Board by the affirmative votes of the holders of a majority of
the Stock of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with applicable laws of the state of Delaware,
or by consent as permitted by law, provided, that upon approval of the Plan by
the stockholders of the Company, all Options granted under the Plan on or after
the Effective Date shall be fully effective as if the stockholders had approved
the Plan on the Effective Date.
17.2 Subject to the limitation of Section 17.4, the Board
may at any time suspend or terminate the Plan, and may amend it from time to
time in such respects as the Board may deem advisable; provided, however, to
the extent required under Rule 16b-3 under the Exchange Act as in effect at the
time of such amendment, the Board shall not amend the Plan in the following
respects without the approval of stockholders then sufficient to approve the
Plan in the first instance:
(a) To materially increase the benefits accruing
to participants under the Plan (for example, to increase the number of Options
that may be granted to any Director);
(b) To materially increase the maximum number of
shares of Stock that may be issued under the Plan; or
(c) To materially modify the requirements as to
eligibility for participation in the Plan.
17.3 No Option may be granted during any suspension or
after the termination of the Plan, and no amendment, suspension or termination
of the Plan shall, without the Optionee's consent, alter or impair any rights
or obligations under any Stock Option Agreement previously entered into under
the Plan. This Plan shall terminate ten years after the Effective Date unless
previously terminated pursuant to Section 4.2 or by the Board pursuant to this
Section 17.
17.4 Notwithstanding the provisions of Section 17.2,
except to the extent permissible under Rule 16b-3 under the Exchange Act, the
formula provisions of this Plan shall not be amended more than once in any
six-month period other than to comport with changes in the Internal Revenue
Code of 1986, the Employee Retirement Income Security Act of 1974, or the rules
promulgated thereunder.
18. REQUIREMENTS OF LAW.
18.1 The Company shall not be required to sell or issue
any shares of Stock under any Option if the sale or issuance of such shares
would constitute a violation by the individual exercising the Option or the
Company of any provisions of any law or
7
<PAGE> 8
regulation of any governmental authority, including without limitation any
federal or state securities laws or regulations. Specifically in connection
with the 1933 Act, upon exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered by such
Option, the Company shall not be required to sell or issue such shares unless
the Board has received evidence satisfactory to the Board that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Company may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the 1933 Act.
The Company shall not be obligated to take any affirmative action in order to
cause the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option shall not be
exercisable unless and until the shares of Stock covered by such Option are
registered or are subject to an available exemption from registration, the
exercise of such Option (under circumstances in which the laws of such
jurisdiction apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
18.2 The intent of this Plan is to qualify for the
exemption provided by Rule 16b-3 under the Exchange Act. To the extent any
provision of the Plan or action by the Plan administrators does not comply with
the requirements of Rule 16b-3, it shall be deemed inoperative, to the extent
permitted by law and deemed advisable by the Plan administrators, and shall not
affect the validity of the Plan. In the event Rule 16b-3 is revised or
replaced, the Board may exercise discretion to modify this Plan in any respect
necessary to satisfy the requirements of the revised exemption or its
replacement.
19. GOVERNING LAW.
The validity, interpretation and effect of this Plan, and the
rights of all persons hereunder, shall be governed by and determined in
accordance with the laws of Delaware, other than the choice of law rules
thereof.
* * * * *
8
<PAGE> 1
EXHIBIT 10.24
SUNRISE ASSISTED LIVING, INC.
1996 NON-INCENTIVE STOCK OPTION PLAN, AS AMENDED
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1996 Non-Incentive Stock
Option Plan, as amended (the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation
and any subsidiary thereof within the meaning of Rule 405 of Regulation C under
the Securities Act of 1933, as amended (with the term "person" as used in such
Rule 405 being defined as in Section 2(2) of such Act) (a "Subsidiary"), by
providing eligible individuals (as designated pursuant to Section 4 below) with
incentives to improve business results, by providing an opportunity to acquire
or increase a proprietary interest in the Corporation, which thereby will
create a stronger incentive to expend maximum effort for the growth and success
of the Corporation and its Subsidiaries, and will encourage such eligible
individuals to continue to serve the Corporation and its Subsidiaries, whether
as an employee, as a director, as a consultant or advisor or in some other
capacity. To this end, the Plan provides for the grant of stock options, as
set out herein.
This Plan provides for the grant of stock options (each of which
is an "Option") in accordance with the terms of the Plan. An Option will be a
non-incentive stock option (an "NSO"). Each Option shall be evidenced by a
written agreement between the Corporation and the recipient individual that
sets out the terms and conditions of the grant as further described in Section
8.
2. ADMINISTRATION
(a) BOARD
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for under
the Plan or any Option granted or Option Agreement (as defined in Section 8
below) entered into hereunder and all such other actions and determinations not
inconsistent with the specific terms and provisions of the Plan deemed by the
Board to be necessary or appropriate to the administration of the Plan or any
Option granted or Option Agreement entered into hereunder. The interpretation
and construction by the Board of any provision of the Plan or of any Option
granted or Option Agreement entered into hereunder shall be final, binding and
conclusive.
<PAGE> 2
(b) ACTION BY COMMITTEE
The Board from time to time may appoint a Stock Option Committee
consisting of two or more members of the Board of Directors who, in the sole
discretion of the Board, may be the same Directors who serve on the
Compensation Committee, or may appoint the Compensation Committee to serve as
the Stock Option Committee (the "Committee"). The Board, in its sole
discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made
and actions to be taken by the Board pursuant to or with respect to the Plan,
or the Board may delegate to the Committee such powers and authorities related
to the administration of the Plan, as set forth in Section 2(a) above, as the
Board shall determine, consistent with the Restated Certificate of
Incorporation and By-Laws of the Corporation and applicable law. In the event
that the Plan or any Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be made by the
Board, such action may be taken by or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.
(c) NO LIABILITY
No member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
3. STOCK
The stock that may be issued pursuant to Options under the Plan
shall be shares of common stock, par value $.01 per share, of the Corporation
(the "Stock"), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
under the Plan shall not exceed, in the aggregate, one million one hundred
thousand (1,100,000) shares. If any Option expires, terminates, or is
terminated or canceled for any reason prior to exercise, the shares of Stock
that were subject to the unexercised, forfeited, terminated or canceled portion
of such Option shall be available immediately for future grants of Options
under the Plan.
<PAGE> 3
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Options may be granted under the Plan to (i) any employee of the
Corporation or any Subsidiary (including any such individual who is an officer
or director of the Corporation or any Subsidiary) as the Board shall determine
and designate from time to time or (ii) any consultant or advisor providing
bona fide services to the Corporation or any Subsidiary (provided that such
services must not be in connection with the offer or sale of securities in a
capital-raising transaction) whose participation in the Plan is determined by
the Board to be in the best interests of the Corporation and is so designated
by the Board.
(b) SUCCESSIVE GRANTS
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE
The Plan shall be effective as of the date of adoption by the
Board.
(b) TERM
The Plan shall have no termination date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may,
at any time and from time to time, grant to such eligible individuals as the
Board may determine (each of the whom is an "Optionee"), Options to purchase
such number of shares of Stock on such terms and conditions as the Board may
determine. Such authority specifically includes the authority, in order to
effectuate the purposes of the Plan but without amending the Plan, to modify
grants to eligible individuals who are foreign nationals or are individuals who
are employed outside the United States to recognize differences in local law,
tax policy, or custom.
7. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any
other agreement, contract, or understanding heretofore or hereafter entered
into by the Optionee with the Corporation, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
<PAGE> 4
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Optionee (including groups or classes of
participants or beneficiaries of which the Optionee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), any Option held by that Optionee
and any right to receive any payment or other benefit under this Plan shall not
become exercisable or vested (i) to the extent that such right to exercise,
vesting, payment, or benefit, taking into account all other rights, payments,
or benefits to or for the Optionee under this Plan, all Other Agreements, and
all Benefit Arrangements, would cause any payment or benefit to the Optionee
under this Plan to be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and
(ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax
amounts received by the Optionee from the Corporation under this Plan, all
Other Agreements, and all Benefit Arrangements would be less than the maximum
after-tax amount that could be received by him without causing any such payment
or benefit to be considered a Parachute Payment. In the event that the receipt
of any such right to exercise, vesting, payment, or benefit under this Plan, in
conjunction with all other rights, payments, or benefits to or for the Optionee
under any Other Agreement or any Benefit Arrangement would cause the Optionee
to be considered to have received a Parachute Payment under this Plan that
would have the effect of decreasing the after-tax amount received by the
Optionee as described in clause (ii) of the preceding sentence, then the
Optionee shall have the right, in the Optionee's sole discretion, to designate
those rights, payments, or benefits under this Plan, any Other Agreements, and
any Benefit Arrangements that should be reduced or eliminated so as to avoid
having the payment or benefit to the Optionee under this Plan be deemed to be a
Parachute Payment.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same
time need not contain similar provisions; provided, however, that all such
Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Option Agreement.
<PAGE> 5
The Option Price shall be not less than the greater of par value or 100 percent
of the fair market value of a share of Stock on the date on which the Option is
granted (as determined in good faith by the Board). In the event that the
Stock is listed on an established national or regional stock exchange or The
Nasdaq Stock Market, is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System, or is publicly traded in an
established securities market, in determining the fair market value of the
Stock, the Board shall use the closing price of the Stock on such exchange or
system or in such market (the highest such closing price if there is more than
one such exchange or market) on the trading date immediately before the Option
is granted (or, if there is no such closing price, then the Board shall use the
mean between the highest bid and lowest asked prices or between the high and
low prices on such date), or, if no sale of the Stock has been made on such
day, on the next preceding day on which any such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable, in
whole or in part, at any time and from time to time, over a period commencing
on or after the date of grant and, to the extent that the Board determines and
sets forth a termination date for such Option in the Option Agreement
(including any amendment thereto), ending upon the stated expiration or
termination date. The Board in its sole discretion may specify events or
circumstances, including the giving of notice, which will cause an Option to
terminate as set forth in the Option Agreement or in this Plan. No Option
granted to a person who is required to file reports under Section 16(a) of the
Securities Exchange Act of 1934 (as now in effect or as hereafter amended)
shall be exercisable during the first six months after the date of grant.
Without limiting the foregoing but subject to the terms and conditions of the
Plan, the Board may in its sole discretion provide that an Option may not be
exercised in whole or in part for any period or periods of time during which
such Option is outstanding and may condition exercisability (or vesting) of an
Option upon the attainment of performance objectives, upon continued service,
upon certain events or transactions, or a combination of one or more of such
factors, or otherwise, as set forth in the Option Agreement. Subject to the
parachute payment restrictions under Section 7, however, the Board, in its sole
discretion, may rescind, modify, or waive any such limitation or condition on
the exercise of an Option contained in any Option Agreement, so as to
accelerate the time at which the Option may be exercised or extend the period
during which the Option may be exercised.
<PAGE> 6
(b) METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at the Corporation's principal
office, addressed to the attention of the President, of written notice of
exercise, which notice shall specify the number of shares with respect to which
the Option is being exercised and shall be accompanied by payment in full of
the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Option Agreement and
(ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares of Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) to the extent permitted by applicable law and under the
terms of the Option Agreement with respect to such Option, through the tender
to the Corporation of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value on the date of exercise; (iii) to the
extent permitted by applicable law and under the terms of the Option Agreement
with respect to such Option, by the delivery of a promissory note of the person
exercising the Option to the Corporation on such terms as shall be set out in
such Option Agreement; (iv) to the extent permitted by applicable law and under
the terms of the Option Agreement with respect to such Option, by causing the
Corporation to withhold shares of Stock otherwise issuable pursuant to the
exercise of an Option equal in value to the Option Price or portion thereof to
be satisfied pursuant to this clause (iv); or (v) by a combination of the
methods described in (i), (ii), (iii), and (iv). An attempt to exercise any
Option granted hereunder other than as set forth above shall be invalid and of
no force and effect. Payment in full of the Option Price need not accompany
the written notice of exercise provided the notice directs that the Stock
certificate or certificates for the shares for which the Option is exercised be
delivered to a licensed broker acceptable to the Corporation as the agent for
the individual exercising the Option and, at the time such Stock certificate or
certificates are delivered, the broker tenders to the Corporation cash (or cash
equivalents acceptable to the Corporation) equal to the Option Price. Promptly
after the exercise of an Option and the payment in full of the Option Price of
the shares of Stock covered thereby, the individual exercising the Option shall
be entitled to the issuance of a Stock certificate or Stock certificates
evidencing his ownership of such shares. Unless otherwise stated in the
applicable Option Agreement, an individual holding or exercising an Option
shall have none of the rights of a stockholder (for example, the right to
receive cash or stock dividend payments attributable to the subject shares or
to direct the voting of the subject shares) until the shares of Stock covered
thereby are fully paid and issued to him. Except as provided in Section 16
below, no adjustment shall be made for
<PAGE> 7
dividends or other rights for which the record date is prior to the date of
such issuance.
(c) DATE OF GRANT
The date of grant of an Option under this Plan shall be the date
as of which the Board approves the grant.
11. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetency, the guardian or legal
representative of the Optionee) may exercise the Option, except as otherwise
specifically permitted by this Section 11. No Option shall be assignable or
transferable other than by will or in accordance with the laws of descent and
distribution; provided, however, subject to the terms of the applicable Option
Agreement, and to the extent the transfer is in compliance with any applicable
restrictions on transfers, an Optionee may transfer an Option to a family
member of the Optionee (defined as an individual who is related to the Optionee
by blood or adoption) or to a trust established and maintained for the benefit
of the Optionee or a family member of the Optionee (as determined under
applicable state law and the Code).
12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE
In the Board's sole discretion, the Board may include language
in an Option Agreement providing for the termination of any unexercised Option
in whole or in part upon or at any time after the termination of employment or
other relationship of the Optionee with the Corporation or a Subsidiary
(whether as an employee, a director, a consultant or advisor providing bona
fide services to the Corporation or a Subsidiary, or otherwise). Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary for purposes of the Plan shall be determined by the
Board, which determination shall be final and conclusive.
13. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to the exercise of Options granted under the Plan shall constitute
general funds of the Corporation.
<PAGE> 8
14. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the Optionee, the individual exercising the Option,
or the Corporation of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Corporation shall
determine, in its discretion, that the listing, registration, or qualification
of any shares subject to the Option upon any securities exchange or under any
state or federal law, or the consent or approval of any government regulatory
or self-regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation, and any delay caused thereby
shall in no way affect the date of termination of the Option. Specifically in
connection with the Securities Act of 1933 (as now in effect or as hereafter
amended), upon the exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered
thereby, the Corporation shall not be required to sell or issue such shares
unless the Board has received evidence satisfactory to it that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended). The Corporation shall
not be obligated to take any affirmative action in order to cause the
exercisability or vesting of an Option or to cause the exercise of an Option or
the issuance of shares pursuant thereto to comply with any law or regulation of
any governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances
in which the laws of such jurisdiction apply) shall be deemed conditioned upon
the effectiveness of such registration or the availability of such an
exemption.
15. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend, or terminate the Plan as to any shares of Stock as to which Options
have not been granted. The Corporation may also retain the right in an Option
Agreement to cause a forfeiture of the shares of Stock or gain realized by a
holder of an Option (a) if the holder violates any agreement covering
non-competition with the Corporation or any Subsidiary or nondisclosure of
confidential information of the Corporation or any Subsidiary, (b) if the
holder's
<PAGE> 9
employment is terminated for cause or (c) if the Board determines that the
holder committed acts or omissions which would have been the basis for a
termination of holder's employment for cause had such acts or omissions been
discovered prior to termination of holder's employment. Furthermore, the
Corporation may, in the Option Agreement, retain the right to annul the grant
of an Option, if the holder of such grant was an employee of the Corporation or
a Subsidiary and the holder's employment is terminated for cause, as defined in
the applicable Option Agreement. Except as permitted under this Section 15 or
Section 16 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the holder of the Option, alter or impair rights or
obligations under any Option theretofore granted under the Plan.
16. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK
If the number of outstanding shares of Stock is increased or
decreased or the shares of Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation on account of
any recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective date of the
Plan, the number and kind of shares for the acquisition of which Options may be
granted under the Plan shall be adjusted proportionately and accordingly by the
Corporation. In addition, the number and kind of shares for which Options are
outstanding shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately following such
event shall, to the extent practicable, be the same as immediately before such
event. Any such adjustment in outstanding Options shall not change the
aggregate Option Price payable with respect to shares that are subject to the
unexercised portion of the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE
SURVIVING CORPORATION
Subject to Subsection (c)(iv) hereof, if the Corporation shall
be the surviving corporation in any reorganization, merger, or consolidation of
the Corporation with one or more other corporations, any Option theretofore
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to such Option would
have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the same
<PAGE> 10
as the aggregate Option Price of the shares remaining subject to the Option
immediately prior to such reorganization, merger, or consolidation.
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS,
REORGANIZATION IN WHICH THE CORPORATION IS NOT THE SURVIVING
CORPORATION, ETC.
The Plan and all Options outstanding hereunder shall terminate
(i) upon the dissolution or liquidation of the Corporation, or (ii) upon a
merger, consolidation, or reorganization of the Corporation with one or more
other corporations in which the Corporation is not the surviving corporation,
or (iii) upon a sale of substantially all of the assets of the Corporation to
another person or entity, or (iv) upon a merger, consolidation or
reorganization (or other transaction if so determined by the Board in its sole
discretion) in which the Corporation is the surviving corporation, that is
approved by the Board and that results in any person or entity (other than
persons who are holders of Stock of the Corporation at the time the Plan is
approved by the stockholders and other than an Affiliate) owning 80 percent or
more of the combined voting power of all classes of stock of the Corporation,
except to the extent provision is made in writing in connection with any such
transaction covered by clauses (i) through (iv) for the continuation of the
Plan or the assumption of such Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and exercise prices, in which event the Plan
and Options theretofore granted shall continue in the manner and under the
terms so provided. In the event of any such termination of the Plan, each
individual holding an Option shall have the right (subject to the general
limitations on exercise set forth in Section 10(a) above), during such period
occurring before such termination as the Board in its sole discretion shall
determine and designate, and in any event immediately before the occurrence of
such termination, to exercise such Option in whole or in part, to the extent
that such Option was otherwise exercisable at the time such termination occurs,
except that, by inclusion of appropriate language in an Option Agreement, the
Board may provide that the Option may be exercised before termination without
regard to any installment limitation or other condition on exercise imposed
pursuant to Section 10(a) above. The Corporation shall send written notice of
a transaction or event that will result in such a termination to all
individuals who hold Options not later than the time at which the Corporation
gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 16 related to stock or securities
of the Corporation shall be made by the Board, whose determination in that
respect shall be final, binding, and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and
<PAGE> 11
any fractions resulting from any such adjustment shall be eliminated in each
case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any employment or other
relationship between any individual and the Corporation or any Subsidiary. The
obligation of the Corporation to pay any benefits pursuant to this Plan shall
be interpreted as a contractual obligation to pay only those amounts described
herein, in the manner and under the conditions prescribed herein. The Plan
shall in no way be interpreted to require the Corporation to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any participant or beneficiary under the terms of the
Plan.
18. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion
determines desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
19. CAPTIONS
The use of captions in this Plan or any Option Agreement is for
the convenience of reference only and shall not affect the meaning of any
provision of the Plan or such Option Agreement.
<PAGE> 12
20. WITHHOLDING TAXES
The Corporation shall have the right to deduct from payments
of any kind otherwise due to an Optionee any Federal, state, or local taxes of
any kind required by law to be withheld with respect to any shares issued upon
the exercise of an Option under the Plan or in connection with the purchase of
an Option by the Corporation. At the time of exercise, the Optionee shall pay
to the Corporation any amount that the Corporation may reasonably determine to
be necessary to satisfy such withholding obligation. The Board in its sole
discretion may provide in the Option Agreement that, subject to the prior
approval of the Corporation, which may be withheld by the Corporation in its
sole discretion, the Optionee may elect to satisfy such obligations, in whole
or in part, (i) by causing the Corporation to withhold shares of Stock
otherwise issuable pursuant to the exercise of an Option or (ii) by delivering
to the Corporation shares of Stock already owned by the Optionee. The shares
so delivered or withheld shall have a fair market value equal to such
withholding obligations. The fair market value of the shares used to satisfy
such withholding obligation shall be determined by the Corporation as of the
date that the amount of tax to be withheld is to be determined. An Optionee
who has made an election pursuant to this Section 20 may only satisfy his or
her withholding obligation with shares of Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
21. OTHER PROVISIONS
Each Option granted under the Plan may be subject to, and the
Option Agreement relating to such Option may contain, such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
22. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, etc., as the context requires.
23. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable
and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
<PAGE> 13
24. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware (excluding its choice of law rules).
* * *
<PAGE> 1
EXHIBIT 10.25
SUNRISE ASSISTED LIVING, INC.
1997 STOCK OPTION PLAN, AS AMENDED
SUNRISE ASSISTED LIVING, INC., a Delaware corporation (the
"Corporation"), sets forth herein the terms of this 1997 Stock Option Plan (the
"Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation
and any subsidiary thereof within the meaning of Rule 405 of Regulation C under
the Securities Act of 1933, as amended (with the term "person" as used in such
Rule 405 being defined as in Section 2(2) of such Act) (a "Subsidiary"), by
providing eligible individuals (as designated pursuant to Section 4 below) with
incentives to improve business results, by providing an opportunity to acquire
or increase a proprietary interest in the Corporation, which thereby will
create a stronger incentive to expend maximum effort for the growth and success
of the Corporation and its Subsidiaries, and will encourage such eligible
individuals to continue to serve the Corporation and its Subsidiaries, whether
as an employee, as a director, as a consultant or advisor or in some other
capacity. To this end, the Plan provides for the grant of stock options, as
set out herein.
This Plan provides for the grant of stock options (each of which
is an "Option") in accordance with the terms of the Plan. An Option may be an
incentive stock option (an "ISO") intended to satisfy the applicable
requirements under Section 422 of the Internal Revenue Code of 1986, as amended
from time to time, or the corresponding provision of any subsequently-enacted
tax statute (the "Code"), or a nonqualified stock option (an "NSO"). An Option
is an NSO to the extent that the Option would exceed the limitations set forth
in Section 7 below. An Option is also an NSO if either (i) the Option is
specifically designated at the time of grant as an NSO or not being an ISO or
(ii) the Option does not otherwise satisfy the requirements of Code Section 422
at the time of grant. Each Option shall be evidenced by a written agreement
between the Corporation and the recipient individual that sets out the terms
and conditions of the grant as further described in Section 8.
2. ADMINISTRATION
(a) BOARD
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for under
the Plan or any Option granted or Option
<PAGE> 2
Agreement (as defined in Section 8 below) entered into hereunder and all such
other actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Board to be necessary or appropriate to
the administration of the Plan or any Option granted or Option Agreement
entered into hereunder. The interpretation and construction by the Board of
any provision of the Plan or of any Option granted or Option Agreement entered
into hereunder shall be final, binding and conclusive.
(b) ACTION BY COMMITTEE
The Board from time to time may appoint a Stock Option Committee
consisting of two or more members of the Board of Directors who, in the sole
discretion of the Board, may be the same Directors who serve on the
Compensation Committee, or may appoint the Compensation Committee to serve as
the Stock Option Committee (the "Committee"). The Board, in its sole
discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made
and actions to be taken by the Board pursuant to or with respect to the Plan,
or the Board may delegate to the Committee such powers and authorities related
to the administration of the Plan, as set forth in Section 2(a) above, as the
Board shall determine, consistent with the Restated Certificate of
Incorporation and By-Laws of the Corporation and applicable law. In the event
that the Plan or any Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be made by the
Board, such action may be taken by or such determination may be made by the
Committee if the power and authority to do so has been delegated to the
Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final and conclusive.
(c) NO LIABILITY
No member of the Board or of the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted or Option Agreement entered into hereunder.
3. STOCK
The stock that may be issued pursuant to Options under the Plan
shall be shares of common stock, par value $.01 per share, of the Corporation
(the "Stock"), which shares may be treasury shares or authorized but unissued
shares. The number of shares of Stock that may be issued pursuant to Options
under the Plan shall not exceed, in the aggregate, one million eight hundred
thousand (1,800,000) shares. If any Option expires, terminates, or is
terminated or canceled for any reason prior to exercise, the shares of Stock
that were subject to the unexercised, forfeited, terminated or canceled portion
of such Option shall be available immediately for future grants of Options
under the Plan.
4. ELIGIBILITY
(a) DESIGNATED RECIPIENTS
Subject to the next sentence, Options may be granted under the
Plan to (i) any employee of the Corporation or any Subsidiary (including any
such individual
<PAGE> 3
who is an officer or director of the Corporation or any Subsidiary) as the
Board shall determine and designate from time to time or (ii) any consultant or
advisor providing bona fide services to the Corporation or any Subsidiary
(provided that such services must not be in connection with the offer or sale
of securities in a capital-raising transaction) whose participation in the Plan
is determined by the Board to be in the best interests of the Corporation and
is so designated by the Board. Options granted to a full-time employee of the
Corporation or a "subsidiary corporation" thereof within the meaning of Section
424(f) of the Code shall be either ISOs or NSOs, as determined in the sole
discretion of the Board, and Options granted to any other eligible individual
shall be NSOs.
(b) SUCCESSIVE GRANTS
An individual may hold more than one Option, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE
The Plan shall be effective as of the date of adoption by the
Board, subject to approval of the Plan within one year of such effective date
by the affirmative vote of stockholders who hold more than fifty percent (50%)
of the combined voting power of the outstanding shares of voting stock of the
Corporation present or represented, and entitled to vote thereon at a duly
constituted stockholders' meeting, or by consent as permitted by law. Upon
approval of the Plan by the stockholders of the Corporation as set forth above,
however, all Options granted under the Plan on or after the effective date
shall be fully effective as if the stockholders of the Corporation had approved
the Plan on the Plan's effective date. If the stockholders fail to approve the
Plan within one year of such effective date, any Options granted hereunder
shall be null and void and of no effect.
(b) TERM
The Plan shall have no termination date, but no grant of an ISO
may occur after the date that is ten years after the effective date.
6. GRANT OF OPTIONS
(a) GENERAL
Subject to the terms and conditions of the Plan, the Board may,
at any time and from time to time, grant to such eligible individuals as the
Board may determine (each of the whom is an "Optionee"), Options to purchase
such number of shares of Stock on such terms and conditions as the Board may
determine, including any terms or conditions that may be necessary to qualify
such Options as ISOs under Section 422 of the Code. Such authority
specifically includes the authority, in order to effectuate the purposes of the
Plan but without amending the Plan, to modify grants to
<PAGE> 4
<PAGE> 5
eligible individuals who are foreign nationals or are individuals who are
employed outside the United States to recognize differences in local law, tax
policy, or custom.
(b) LIMITATION ON GRANTS OF OPTIONS
The maximum number of shares subject to Options that can be
granted under the Plan to any executive officer of the Company or a Subsidiary,
or to any other person eligible for a grant of an Option under Section 4, is
500,000 shares during the first ten years after the effective date of the Plan
and 200,000 shares per year thereafter (in each case, subject to adjustment as
provided in Section 16(a) hereof).
7. LIMITATIONS ON INCENTIVE STOCK OPTIONS
(a) PRICE AND DOLLAR LIMITATIONS
An Option that is designated as being one that is intended to
qualify as an ISO shall qualify for treatment as an ISO only to the extent that
the aggregate fair market value (determined at the time the Option is granted)
of the Stock with respect to which all options that are intended to constitute
"incentive stock options," within the meaning of Code Section 422, are
exercisable for the first time by any Optionee during any calendar year (under
the Plan and all other plans of the Optionee's employer corporation and its
parent and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000.
(b) PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by
the Optionee with the Corporation, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Optionee (including groups or classes of
participants or beneficiaries of which the Optionee is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Code, any
Option held by that Optionee and any right to receive any payment or other
benefit under this Plan shall not become exercisable or vested (i) to the
extent that such right to exercise, vesting, payment, or benefit, taking into
account all other rights, payments, or benefits to or for the Optionee under
this Plan, all Other Agreements, and all Benefit Arrangements, would cause any
payment or benefit to the Optionee under this Plan to be considered a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code as
then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a
Parachute Payment, the aggregate after-tax amounts received by the Optionee
from the Corporation under this Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by him without causing any such payment or benefit to be considered a
Parachute Payment.
<PAGE> 6
In the event that the receipt of any such right to exercise, vesting, payment,
or benefit under this Plan, in conjunction with all other rights, payments, or
benefits to or for the Optionee under any Other Agreement or any Benefit
Arrangement would cause the Optionee to be considered to have received a
Parachute Payment under this Plan that would have the effect of decreasing the
after-tax amount received by the Optionee as described in clause (ii) of the
preceding sentence, then the Optionee shall have the right, in the Optionee's
sole discretion, to designate those rights, payments, or benefits under this
Plan, any Other Agreements, and any Benefit Arrangements that should be reduced
or eliminated so as to avoid having the payment or benefit to the Optionee
under this Plan be deemed to be a Parachute Payment.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
agreements ("Option Agreements"), to be executed by the Corporation and by the
Optionee, in such form or forms as the Board shall from time to time determine.
Option Agreements covering Options granted from time to time or at the same
time need not contain similar provisions; provided, however, that all such
Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Option Agreement. The Option Price shall be not less than the greater of par
value or 100 percent of the fair market value of a share of Stock on the date
on which the Option is granted (as determined in good faith by the Board);
provided, however, that in the event the Optionee would otherwise be ineligible
to receive an ISO by reason of the provisions of Sections 422(b)(6) and 424(d)
of the Code (relating to stock ownership of more than ten percent), the Option
Price of an Option that is intended to be an ISO shall not be less than the
greater of par value or 110 percent of the fair market value of a share of
Stock at the time such Option is granted. In the event that the Stock is
listed on an established national or regional stock exchange or The Nasdaq
Stock Market, is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System, or is publicly traded in an
established securities market, in determining the fair market value of the
Stock, the Board shall use the closing price of the Stock on such exchange or
system or in such market (the highest such closing price if there is more than
one such exchange or market) on the trading date immediately before the Option
is granted (or, if there is no such closing price, then the Board shall use the
mean between the highest bid and lowest asked prices or between the high and
low prices on such date), or, if no sale of the Stock has been made on such
day, on the next preceding day on which any such sale shall have been made.
<PAGE> 7
10. TERM AND EXERCISE OF OPTIONS
(a) TERM
Upon the expiration of ten years from the date on which an ISO
is granted or on such date prior thereto as may be fixed by the Board and
stated in the Option Agreement relating to such Option, that ISO shall be
ineligible for treatment as an "incentive stock option," as defined in Section
422 of the Code, and shall be exercisable only as an NSO. In the event the
Optionee otherwise would be ineligible to receive an "incentive stock option"
by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code
(relating to stock ownership of more than 10 percent), such ten year
restriction on exercisability as an ISO shall be read to impose a five year
restriction on such exercisability. If an Optionee shall terminate employment
prior to the ten-year or five-year limitation described in the immediately
preceding sentences, any outstanding ISO shall be ineligible for treatment as
an "incentive stock option," as defined in Section 422 of the Code, and shall
be exercisable only as an NSO, unless exercised within three months after such
termination or, in the case of termination on account of "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code), within one
year after such termination.
(b) OPTION PERIOD AND LIMITATIONS ON EXERCISE
Each Option granted under the Plan shall be exercisable, in
whole or in part, at any time and from time to time, over a period commencing
on or after the date of grant and, to the extent that the Board determines and
sets forth a termination date for such Option in the Option Agreement
(including any amendment thereto), ending upon the stated expiration or
termination date. The Board in its sole discretion may specify events or
circumstances, including the giving of notice, which will cause an Option to
terminate as set forth in the Option Agreement or in this Plan. No Option
granted to a person who is required to file reports under Section 16(a) of the
Securities Exchange Act of 1934 (as now in effect or as hereafter amended)
shall be exercisable during the first six months after the date of grant.
Without limiting the foregoing but subject to the terms and conditions of the
Plan, the Board may in its sole discretion provide that an Option may not be
exercised in whole or in part for any period or periods of time during which
such Option is outstanding and may condition exercisability (or vesting) of an
Option upon the attainment of performance objectives, upon continued service,
upon certain events or transactions, or a combination of one or more of such
factors, or otherwise, as set forth in the Option Agreement. Subject to the
parachute payment restrictions under Section 7(b), however, the Board, in its
sole discretion, may rescind, modify, or waive any such limitation or condition
on the exercise of an Option contained in any Option Agreement, so as to
accelerate the time at which the Option may be exercised or extend the period
during which the Option may be exercised. Notwithstanding any other provisions
of the Plan, no Option granted to an Optionee under the Plan shall be
exercisable in whole or in part prior to the date on which the stockholders of
the Corporation approve the Plan, as provided in Section 5 above.
<PAGE> 8
(c) METHOD OF EXERCISE
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at the Corporation's principal
office, addressed to the attention of the President, of written notice of
exercise, which notice shall specify the number of shares with respect to which
the Option is being exercised and shall be accompanied by payment in full of
the Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Option Agreement and
(ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares of Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) to the extent permitted by applicable law and under the
terms of the Option Agreement with respect to such Option, through the tender
to the Corporation of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value (determined in accordance with Section 9)
on the date of exercise; (iii) to the extent permitted by applicable law and
under the terms of the Option Agreement with respect to such Option, by the
delivery of a promissory note of the person exercising the Option to the
Corporation on such terms as shall be set out in such Option Agreement; (iv) to
the extent permitted by applicable law and under the terms of the Option
Agreement with respect to such Option, by causing the Corporation to withhold
shares of Stock otherwise issuable pursuant to the exercise of an Option equal
in value to the Option Price or portion thereof to be satisfied pursuant to
this clause (iv); or (v) by a combination of the methods described in (i),
(ii), (iii), and (iv). An attempt to exercise any Option granted hereunder
other than as set forth above shall be invalid and of no force and effect.
Payment in full of the Option Price need not accompany the written notice of
exercise provided the notice directs that the Stock certificate or certificates
for the shares for which the Option is exercised be delivered to a licensed
broker acceptable to the Corporation as the agent for the individual exercising
the Option and, at the time such Stock certificate or certificates are
delivered, the broker tenders to the Corporation cash (or cash equivalents
acceptable to the Corporation) equal to the Option Price. Promptly after the
exercise of an Option and the payment in full of the Option Price of the shares
of Stock covered thereby, the individual exercising the Option shall be
entitled to the issuance of a Stock certificate or Stock certificates
evidencing his ownership of such shares. A separate Stock certificate or
separate Stock certificates shall be issued for any shares purchased pursuant
to the exercise of an Option that is an ISO, which certificate or certificates
shall not include any shares that were purchased pursuant to the exercise of an
Option that is an NSO. Unless otherwise stated in the applicable Option
Agreement, an individual holding or exercising an Option shall have none of the
rights of a stockholder (for example, the right to receive cash or stock
dividend payments attributable to the subject shares or to direct the voting of
the subject shares) until the shares of Stock covered thereby are fully paid
and issued to him. Except as provided in Section 16 below, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date of such issuance.
<PAGE> 9
(d) DATE OF GRANT
The date of grant of an Option under this Plan shall be the date
as of which the Board approves the grant.
11. TRANSFERABILITY OF OPTIONS
During the lifetime of an Optionee, only such Optionee (or, in
the event of legal incapacity or incompetency, the guardian or legal
representative of the Optionee) may exercise the Option, except as otherwise
specifically permitted by this Section 11. No Option shall be assignable or
transferable other than by will or in accordance with the laws of descent and
distribution; provided, however, subject to the terms of the applicable Option
Agreement, and to the extent the transfer is in compliance with any applicable
restrictions on transfers, an Optionee may transfer an NSO to a family member
of the Optionee (defined as an individual who is related to the Optionee by
blood or adoption) or to a trust established and maintained for the benefit of
the Optionee or a family member of the Optionee (as determined under applicable
state law and the Code).
12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE
In the Board's sole discretion, the Board may include language
in an Option Agreement providing for the termination of any unexercised Option
in whole or in part upon or at any time after the termination of employment or
other relationship of the Optionee with the Corporation or a Subsidiary
(whether as an employee, a director, a consultant or advisor providing bona
fide services to the Corporation or a Subsidiary, or otherwise). Whether a
leave of absence or leave on military or government service shall constitute a
termination of employment or other relationship of the Optionee with the
Corporation or a Subsidiary for purposes of the Plan shall be determined by the
Board, which determination shall be final and conclusive.
13. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to the exercise of Options granted under the Plan shall constitute
general funds of the Corporation.
14. REQUIREMENTS OF LAW
The Corporation shall not be required to sell or issue any
shares of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the Optionee, the individual exercising the Option,
or the Corporation of any provisions of any law or regulation of any
governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Corporation shall
determine, in its discretion, that the listing, registration, or qualification
of any shares subject to the Option upon any securities exchange or under any
state or federal law, or the consent or approval of any government regulatory
or
<PAGE> 10
self-regulatory body is necessary or desirable as a condition of, or in
connection with, the issuance or purchase of shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any
conditions not acceptable to the Corporation, and any delay caused thereby
shall in no way affect the date of termination of the Option. Specifically in
connection with the Securities Act of 1933 (as now in effect or as hereafter
amended), upon the exercise of any Option, unless a registration statement
under such Act is in effect with respect to the shares of Stock covered
thereby, the Corporation shall not be required to sell or issue such shares
unless the Board has received evidence satisfactory to it that the holder of
such Option may acquire such shares pursuant to an exemption from registration
under such Act. Any determination in this connection by the Board shall be
final, binding, and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended). The Corporation shall
not be obligated to take any affirmative action in order to cause the
exercisability or vesting of an Option or to cause the exercise of an Option or
the issuance of shares pursuant thereto to comply with any law or regulation of
any governmental authority. As to any jurisdiction that expressly imposes the
requirement that an Option shall not be exercisable unless and until the shares
of Stock covered by such Option are registered or are subject to an available
exemption from registration, the exercise of such Option (under circumstances
in which the laws of such jurisdiction apply) shall be deemed conditioned upon
the effectiveness of such registration or the availability of such an
exemption.
15. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend, or terminate the Plan as to any shares of Stock as to which Options
have not been granted; provided, however, that any amendment by the Board
which, if not approved by the Corporation's stockholders, would cause the Plan
to not comply with Sections 162(m) or 422 of the Code shall not be effective
unless approved by the affirmative vote of stockholders who hold more than
fifty percent (50%) of the combined voting power of the outstanding shares of
voting stock of the Corporation present or represented, and entitled to vote
thereon at a duly constituted stockholders' meeting, or by consent as permitted
by law. The Corporation, however, may retain the right in an Option Agreement
to convert an ISO into an NSO. The Corporation may also retain the right in an
Option Agreement to cause a forfeiture of the shares of Stock or gain realized
by a holder of an Option (a) if the holder violates any agreement covering
non-competition with the Corporation or any Subsidiary or nondisclosure of
confidential information of the Corporation or any Subsidiary, (b) if the
holder's employment is terminated for cause or (c) if the Board determines that
the holder committed acts or omissions which would have been the basis for a
termination of holder's employment for cause had such acts or omissions been
discovered prior to termination of holder's employment. Furthermore, the
Corporation may, in the Option Agreement, retain the right to annul the grant
of an Option, if the holder of such grant was an employee of the Corporation or
a Subsidiary and the holder's employment is terminated for cause, as defined in
the applicable Option Agreement. Except as permitted under this Section 15 or
Section 16 hereof, no amendment, suspension, or termination of the Plan shall,
without the
<PAGE> 11
consent of the holder of the Option, alter or impair rights or obligations
under any Option theretofore granted under the Plan.
16. EFFECT OF CHANGES IN CAPITALIZATION
(a) CHANGES IN STOCK
If the number of outstanding shares of Stock is increased or
decreased or the shares of Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Corporation on account of
any recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective date of the
Plan, the number and kind of shares for the acquisition of which Options may be
granted under the Plan, and the limitations on the maximum number of shares
subject to Options that can be granted to any individual under the Plan as set
forth in Section 6(b) hereof, shall be adjusted proportionately and accordingly
by the Corporation. In addition, the number and kind of shares for which
Options are outstanding shall be adjusted proportionately and accordingly so
that the proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options
shall not change the aggregate Option Price payable with respect to shares that
are subject to the unexercised portion of the Option outstanding but shall
include a corresponding proportionate adjustment in the Option Price per share.
(b) REORGANIZATION IN WHICH THE CORPORATION IS THE
SURVIVING CORPORATION
Subject to Subsection (c)(iv) hereof, if the Corporation shall
be the surviving corporation in any reorganization, merger, or consolidation of
the Corporation with one or more other corporations, any Option theretofore
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to such Option would
have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the same
as the aggregate Option Price of the shares remaining subject to the Option
immediately prior to such reorganization, merger, or consolidation.
(c) DISSOLUTION, LIQUIDATION, SALE OF ASSETS,
REORGANIZATION IN WHICH THE CORPORATION IS NOT THE
SURVIVING CORPORATION, ETC.
The Plan and all Options outstanding hereunder shall terminate
(i) upon the dissolution or liquidation of the Corporation, or (ii) upon a
merger, consolidation, or reorganization of the Corporation with one or more
other corporations in which the Corporation is not the surviving corporation,
or (iii) upon a sale of substantially all of the assets of the Corporation to
another person or entity, or (iv) upon a merger,
<PAGE> 12
consolidation or reorganization (or other transaction if so determined by the
Board in its sole discretion) in which the Corporation is the surviving
corporation, that is approved by the Board and that results in any person or
entity (other than persons who are holders of Stock of the Corporation at the
time the Plan is approved by the stockholders and other than an Affiliate)
owning 80 percent or more of the combined voting power of all classes of stock
of the Corporation, except to the extent provision is made in writing in
connection with any such transaction covered by clauses (i) through (iv) for
the continuation of the Plan or the assumption of such Options theretofore
granted, or for the substitution for such Options of new options covering the
stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, each individual holding an Option shall have the right
(subject to the general limitations on exercise set forth in Section 10(b)
above), during such period occurring before such termination as the Board in
its sole discretion shall determine and designate, and in any event immediately
before the occurrence of such termination, to exercise such Option in whole or
in part, to the extent that such Option was otherwise exercisable at the time
such termination occurs, except that, by inclusion of appropriate language in
an Option Agreement, the Board may provide that the Option may be exercised
before termination without regard to any installment limitation or other
condition on exercise imposed pursuant to Section 10(b) above. The Corporation
shall send written notice of a transaction or event that will result in such a
termination to all individuals who hold Options not later than the time at
which the Corporation gives notice thereof to its stockholders.
(d) ADJUSTMENTS
Adjustments under this Section 16 related to stock or securities
of the Corporation shall be made by the Board, whose determination in that
respect shall be final, binding, and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such adjustment,
and any fractions resulting from any such adjustment shall be eliminated in
each case by rounding downward to the nearest whole share or unit.
(e) NO LIMITATIONS ON CORPORATION
The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.
17. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer upon
any individual the right to remain in the employ or service of or to maintain a
relationship with the Corporation or any Subsidiary, or to interfere in any way
with any contractual or other right or authority of the Corporation or any
Subsidiary either to increase or decrease the compensation or other payments to
any individual at any time, or to terminate any
<PAGE> 13
employment or other relationship between any individual and the Corporation or
any Subsidiary. The obligation of the Corporation to pay any benefits pursuant
to this Plan shall be interpreted as a contractual obligation to pay only those
amounts described herein, in the manner and under the conditions prescribed
herein. The Plan shall in no way be interpreted to require the Corporation to
transfer any amounts to a third party trustee or otherwise hold any amounts in
trust or escrow for payment to any participant or beneficiary under the terms
of the Plan.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan
to the stockholders of the Corporation for approval shall be construed as
creating any limitations upon the right and authority of the Board to adopt
such other incentive compensation arrangements (which arrangements may be
applicable either generally to a class or classes of individuals or
specifically to a particular individual or particular individuals) as the Board
in its discretion determines desirable, including, without limitation, the
granting of stock options otherwise than under the Plan.
19. CAPTIONS
The use of captions in this Plan or any Option Agreement is for
the convenience of reference only and shall not affect the meaning of any
provision of the Plan or such Option Agreement.
20. DISQUALIFYING DISPOSITIONS
If Stock acquired by exercise of an ISO granted under this Plan
is disposed of within two years following the date of grant of the ISO or one
year following the transfer of the subject Stock to the Optionee (a
"disqualifying disposition"), the holder of the Stock shall, immediately prior
to such disqualifying disposition, notify the Corporation in writing of the
date and terms of such disposition and provide such other information regarding
the disposition as the Corporation may reasonably require.
21. WITHHOLDING TAXES
The Corporation shall have the right to deduct from payments
of any kind otherwise due to an Optionee any Federal, state, or local taxes of
any kind required by law to be withheld with respect to any shares issued upon
the exercise of an Option under the Plan or in connection with the purchase of
an Option by the Corporation. At the time of exercise, the Optionee shall pay
to the Corporation any amount that the Corporation may reasonably determine to
be necessary to satisfy such withholding obligation. The Board in its sole
discretion may provide in the Option Agreement that, subject to the prior
approval of the Corporation, which may be withheld by the Corporation in its
sole discretion, the Optionee may elect to satisfy such obligations, in whole
or in part, (i) by causing the Corporation to withhold shares of Stock
otherwise issuable pursuant to the exercise of an Option or (ii) by delivering
to the Corporation shares of Stock already owned by the Optionee. The shares
so delivered or withheld shall have a fair market value equal to such
withholding
<PAGE> 14
obligations. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Corporation as of the date
that the amount of tax to be withheld is to be determined. An Optionee who has
made an election pursuant to this Section 21 may only satisfy his or her
withholding obligation with shares of Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
22. OTHER PROVISIONS
Each Option granted under the Plan may be subject to, and the
Option Agreement relating to such Option may contain, such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion. Notwithstanding the foregoing, each ISO granted under the
Plan shall include those terms and conditions that are necessary to qualify the
ISO as an "incentive stock option" within the meaning of Section 422 of the
Code or the regulations thereunder and shall not include any terms or
conditions that are inconsistent therewith.
23. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, etc., as the context requires.
24. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable
and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
25. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware (excluding its choice of law rules).
* * *
<PAGE> 1
EXHIBIT 10.31.1
AMENDED, RESTATED, CONSOLIDATED
AND INCREASED MASTER PROMISSORY NOTE
THIS AMENDED, RESTATED, CONSOLIDATED AND INCREASED MASTER PROMISSORY
NOTE is made this 23rd, day of December, 1997, by SUNRISE EAST ASSISTED LIVING
LIMITED PARTNERSHIP, a limited partnership organized and existing under the
laws of the Commonwealth of Virginia (the "Borrower") and NATIONSBANK, N.A. as
agent (the "Agent") for itself and for certain additional lenders (collectively
with the Agent, the "Lenders") who are participating in a bank group pursuant
to an Amended and Restated Agency Agreement of even date herewith (as amended,
restated or substituted from time to time, the "Agency Agreement").
RECITALS
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. As of the date hereof, seven (7) Facility Loans have been made
under the Original Credit Facility evidenced by eight (8) notes as hereinafter
described. The assisted or independent living facilities for which Facility
Loans were obtained is
<PAGE> 2
referred to herein by its location and word "Facility."
C. The Borrower obtained a construction/interim loan for the
Franconia Facility evidenced by a Note dated June 13, 1996 in the maximum
principal sum of $7,940,400 (the "Franconia Note") which is secured by, among
other things a Credit Line Deed of Trust, Assignment and Security Agreement
also dated June 13, 1996 (the "Franconia Deed of Trust") in favor of trustees
designated by the Agent and recorded in the Land Records of Fairfax County,
Virginia in Deed Book 9749, Page 1562. A principal balance of $100,000 remains
outstanding under the Franconia Note.
D. The Borrower obtained a construction/interim loan for the
Granite Run Facility evidenced by a Note dated June 13, 1996 in the maximum
principal sum of $7,688,000 (the "Granite Run Note") which is secured by, among
other things an Open-End Mortgage, Assignment and Security Agreement also dated
June 13, 1996 (the "Granite Run Deed of Trust") and recorded in the Land
Records of Delaware County, Pennsylvania in Volume 1500, Page 1704 and
re-recorded in Volume 1526, Page 977. A principal balance of $100,000 remains
outstanding under the Granite Run Note.
E. The Borrower obtained a construction/interim loan for the
Abington Assisted Living Facility evidenced by a Note dated June 13, 1996 in
the maximum principal sum of $8,995,000 (the "Abington Assisted Note") which is
secured by, among other things an Open-End Mortgage, Assignment and Security
Agreement also dated June 13, 1996 (the "Abington Deed of Trust") and recorded
in the Land Records of Montgomery County, Pennsylvania in Deed Book 7783, Page
849. A principal balance of $100,000 remains outstanding under the Abington
Assisted Note.
F. The Borrower obtained a construction/interim loan for the
Abington Independent Living Facility evidenced by a Note dated June 13, 1996 in
the maximum principal sum of $4,430,000 (the "Abington Independent Note") which
is also secured by, among other things the Abington Deed of Trust. A principal
balance of $100,000 remains outstanding under the Abington Independent Note.
The Loans evidenced by the Abington Assisted Note and the Abington Independent
Note are treated as one Loan.
G. The Borrower obtained a construction/interim loan for the
Morris Plains Facility evidenced by a Note dated September 5, 1996 in the
maximum principal sum of $7,993,000 (the "Morris Plains Note") which is secured
by, among other things a Mortgage, Assignment and Security Agreement also dated
September 5, 1996 (the "Morris Plains Deed of Trust") and recorded in the Land
Records of Morris County, New Jersey in Deed Book 6632, Page 58. A principal
balance of $100,000 remains outstanding under the Morris Plains Note.
2
<PAGE> 3
H. The Borrower obtained a construction/interim loan for the
Wayne Facility evidenced by a Note dated September 5, 1996 in the maximum
principal sum of $8,020,000 (the "Wayne Note") which is secured by, among other
things a Mortgage, Assignment and Security Agreement also dated September 5,
1996 (the "Wayne Deed of Trust") and recorded in the Land Records of Passaic
County, New Jersey in Mortgage Book 0-164, Page 17. A principal balance of
$100,000 remains outstanding under the Wayne Note.
I. The Borrower obtained a loan for the Old Tappan Facility
evidenced by a Note dated September 5, 1996 in the maximum principal sum of
$8,300,000 (the "Old Tappan Note") which is secured by, among other things a
Mortgage, Assignment and Security Agreement also dated September 5, 1996 (the
"Old Tappan Deed of Trust") and recorded in the Land Records of Bergen County,
New Jersey in Mortgage Book 9272, Page 700. A principal balance of $100,000
remains outstanding under the Old Tappan Note.
J. The Borrower obtained a loan for the Westfield Facility
evidenced by a Note dated May 12, 1997 in the maximum principal sum of
$8,388,000 (the "Westfield Note") which is secured by, among other things a
Mortgage, Assignment and Security Agreement also dated May 12, 1997 (the
"Westfield Deed of Trust") and recorded in the Land Records of Union County,
New Jersey in Deed Book 6259, Page 141. A principal balance of $100,000
remains outstanding under the Westfield Note.
K. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 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") and to provide
that the Credit Facility will be revolving. 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 the same date as this Agreement
by and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Financing Agreement") and that certain Amended and
Restated Master Construction Loan Agreement dated the same as this Agreement by
and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Construction Agreement").
L. The Borrower and the Lenders have agreed to (1) the
consolidation of the indebtedness evidenced by the Facility Notes with the
Master Note which will continue to be secured by, among other things, the
Franconia Deed of Trust, the Granite Run Deed of Trust, the Abington Deed of
Trust, the Morris Plains Deed of
3
<PAGE> 4
Trust, the Wayne Deed of Trust, the Old Tappan Deed of Trust and the Westfield
Deed of Trust, (collectively, the "Existing Deeds of Trust") and (2)
modification of the terms or repayment of the indebtedness evidenced by the
Master Note and the Facility Notes.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Agent and the Borrower covenant and agree as follows:
1. The above Recitals are incorporated herein by reference.
2. The Facility Notes are hereby consolidated with the Master
Note and the Master Note is hereby amended and restated in its entirety as
follows:
$250,000,000 December 23, 1997
FOR VALUE RECEIVED, SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP,
a Virginia limited partnership (the "Borrower"), promises to pay to the order
of NATIONSBANK, N.A., its successors and assigns (the "Agent") as agent for
itself and the other lenders who are or shall be from time to time
participating as lenders (collectively with the Agent, the "Lenders") hereunder
pursuant to the 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 TWO HUNDRED FIFTY MILLION AND NO/100 DOLLARS
($250,000,000) (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) and the Construction 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 or the Construction 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 equal to
the Eurodollar Rate (as defined in the Financing Agreement), which rate shall
be
4
<PAGE> 5
adjusted for any Federal Reserve Board reserve requirements imposed upon the
Agent or any of the Lenders from time to time plus that certain number of basis
points per annum 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.
<TABLE>
<CAPTION>
PRE-CONDITIONS RATE
-------------- ----
<S> <C> <C>
(a) if the aggregate Asset Value Eurodollar Rate
(as defined in the Financing plus 150 basis
Agreement) of the Facilities points
on which liens are granted in
in favor of the Lenders as
Optional Collateral (if any)
is less than $50,000,000, the
rate shall be as follows.
(b) If the aggregate Asset Value Eurodollar Rate
of the Facilities on which plus 125 basis
liens are granted in favor of points
the Lenders as Optional
Collateral is greater than or
equal to $50,000,000 but less
than $100,000,000, the rate
shall be as follows:
(c) If the aggregate Asset Value Eurodollar Rate
of the Facilities on which plus 100 basis
liens are granted in favor of points
the Lenders as Optional
Collateral is equal to or
greater than $100,000,000,
the rate shall be as follows:
</TABLE>
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 Credit Facility Closing (as
hereinafter defined) 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
5
<PAGE> 6
Agreement; and
(b) Principal sums repaid prior to the Maturity Date 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.
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 Agent within fifteen (15) days of the date such payment is
due (inclusive of the date when due), the Borrower shall pay to the 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 first to the payment of any
prepayment penalty due under Section 4.5 of the Financing Agreement, second to
any late charge then due hereunder, third to the payment of accrued and unpaid
interest then due hereunder, and the remainder, if any, shall be applied to the
unpaid Principal Sum. The application of payments after an Event of Default
shall be determined by the 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 Agent at its principal
office in Baltimore, Maryland or at such other times and places as the Agent
may at any time and from time to time designate in writing to the Borrower.
Any payment received after 1:00 p.m. (Baltimore Time) shall be deemed to have
been received on the
6
<PAGE> 7
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 4.5 of the Financing Agreement. Sums repaid may be
reborrowed.
7. Financing Agreement and Other Financing Documents. This Note
is the Note described in the Amended and Restated Financing and Security
Agreement of even date herewith executed by and between the Borrower and the
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, the Master Construction Loan
Agreement of even date herewith (the "Construction Agreement"), the Amended and
Restated Master Guaranty of Payment Agreement of even date herewith, the Master
Guaranty of Performance of even date herewith, the Existing Deeds of Trust, any
other Deeds of Trust (as defined in the Construction Agreement), the Security
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 or one or more of the
Borrower's subsidiaries 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 Existing Deeds of Trust or any other 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 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 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
7
<PAGE> 8
(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. 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 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.
8
<PAGE> 9
(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 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 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 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 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 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
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
9
<PAGE> 10
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,
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 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
10
<PAGE> 11
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 Agent on demand
by the 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
11
<PAGE> 12
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 Master Note and the Facility Notes has not been extinguished
or discharged hereby and is consolidated herein. The Borrower and/or the Agent
agree that the execution of this Note is not intended and shall not cause or
result in a novation with regard to the Master Note or the Notes.
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.
12
<PAGE> 13
IN WITNESS WHEREOF, the Borrower and the Agent have caused this
Amended, Restated, Consolidated and Increased Master Promissory Note to be
executed, under seal, by their duly authorized representatives, as of the date
first written above.
WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED
PARTNERSHIP,
a Virginia limited partnership
By: Sunrise Assisted Living
Investments, Inc., general partner
/s/ Wayne G. Tatusko By:/s/ James S. Pope (SEAL)
- -------------------- -------------
James S. Pope
Vice President
WITNESS: NATIONSBANK, N.A., as Agent for itself
and the Other Lenders
/s/ Wayne G. Tatusko By: /s/ Robert J. Montanari (SEAL)
- -------------------- ------------------------
Robert J. Montanari
Vice President
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF Fairfax, TO WIT:
I, Dawn A. Washington , 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.
/s/ Dawn A. Washington
--------------------------
Notary Public
My Commission Expires:
13
<PAGE> 14
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF Fairfax, TO WIT:
I, Dawn A. Washington, a Notary Public in and for the jurisdiction
aforesaid, do hereby certify that Robert J. Montanari, a Vice President of
NationsBank, N.A., 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.
/s/ Dawn A. Washington
-------------------------
Notary Public
My Commission Expires:
14
<PAGE> 1
EXHIBIT 10.31.2
AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
(MASTER AGREEMENT)
SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP
AS BORROWER
NATIONSBANK, N.A.
AS AGENT
December 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------
Section 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------------------
Section 1.2. Accounting Terms and Other Definitional
----------------------------------------
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------
II. BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
Section 2.1. The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------
Section 2.2. Procedure for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------
Section 2.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----
Section 2.4. Interest Rate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------
Section 2.5. Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------
III. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------
Section 3.1. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------
Section 3.2. Eligible Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-----------------
Section 3.3. Optional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------------------
Section 3.4. Assignment of Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------------------------------
Section 3.5. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------
Section 3.6. Collateral for Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------------------
Section 3.7. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----
IV. GENERAL FINANCING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
----------------------------
Section 4.1. Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------------------------------
Section 4.2. Liens; Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------
Section 4.3. Payment and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------------------------------------
Section 4.4. Payments to Others for the Account of the Borrower . . . . . . . . . . . . . . . . . . . . 31
--------------------------------------------------
Section 4.5. Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------
V. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
------------------------------
Section 5.1. Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
Section 5.2. Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
Section 5.3. Binding Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
------------------
Section 5.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
----------
Section 5.5. No Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------------------
Section 5.6. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------------
Section 5.7. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
----------
Section 5.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----
Section 5.9. Place(s) of Business and Location of Collateral . . . . . . . . . . . . . . . . . . . . . . 34
-----------------------------------------------
Section 5.10. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------
Section 5.11. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
------------
Section 5.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-----
Section 5.13. Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
--------------------
Section 5.14. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
---------------
Section 5.15. Business Names and Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------------------
Section 5.16. Licenses and Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------------
Section 5.17. Operating Agreements and Management Contracts . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------------------------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 5.18. Participation Agreements and Resident
--------------------------------------
Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
----------
Section 5.19. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
--------------------
Section 5.20. Presence of Hazardous Materials or
------------------------------------
Hazardous Materials Contamination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------------------------------
Section 5.21. Nature of Credit Facility; Usury; Disclosures . . . . . . . . . . . . . . . . . . . . . . . 38
---------------------------------------------
Section 5.22. Survival; Updates of Representations and
-----------------------------------------
Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
----------
Section 5.23. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------
VI. CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
---------------------
Section 6.1. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------
Section 6.2. Opinion of Counsel for the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------------------------
Section 6.3. Approval of Counsel for the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------------------------
Section 6.4. Supporting Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
--------------------
Section 6.5. Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-------------------
Section 6.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
---------
Section 6.7. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
------------------
Section 6.8. Joinder Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-----------------
VII. AFFIRMATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------------------------------
Section 7.1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
--------------------
Section 7.2. Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
----------------
Section 7.3. Legal Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
---------------
Section 7.4. Conduct of Business and Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 43
---------------------------------------------
Section 7.5. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------
Section 7.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------
Section 7.7. Flood Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
---------------
Section 7.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-------------------------
Section 7.9. Maintenance of the Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-----------------------------
Section 7.10. Other Liens, Security Interests, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-------------------------------------
Section 7.11. Defense of Title and Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 47
---------------------------------------
Section 7.12. Subsequent Opinion of Counsel as to Recording
---------------------------------------------
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
------------
Section 7.13. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------------
Section 7.14. Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-----------
Section 7.15. Notice to Account Debtors and Escrow Account . . . . . . . . . . . . . . . . . . . . . . . 49
--------------------------------------------
Section 7.16. Business Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
--------------
Section 7.17. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----
Section 7.18. Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
--------------------
Section 7.19. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
----------
Section 7.20. Fees and Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
----------------------------
Section 7.21. Governmental Surveys or Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----------------------------------
Section 7.22. Cost Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
------------
Section 7.23. Updated Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
------------------
Section 7.24. Notification of Certain Events, Events
---------------------------------------
of Default and Adverse Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-----------------------------------
Section 7.25. Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
----------------------------------
Section 7.26. Hazardous Materials; Contamination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
----------------------------------
Section 7.27. Participation in Reimbursement Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 53
---------------------------------------
Section 7.28. Minimum Pool A Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
-----------------------
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 7.29. Subordination of Distributions and Management Fees . . . . . . . . . . . . . . . . . . . . 54
--------------------------------------------------
Section 7.30. Depository Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
---------------
VIII. NEGATIVE COVENANTS OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
------------------------------
Section 8.1. Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
----------
Section 8.2. Deeds of Trust and Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------------------------
Section 8.3. Sale or Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------------------------
Section 8.4. Advances and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
------------------
Section 8.5. Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
----------------------
Section 8.6. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------
Section 8.7. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
----------------
Section 8.8. Transfer of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
----------------------
Section 8.9. Sale of Accounts or Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
-------------------------------
Section 8.10. Amendments; Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
------------------------
Section 8.11. Prohibition on Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
----------------------------------
Section 8.12. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
------------
Section 8.13. Distributions to Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-------------------------
Section 8.14. Mergers or Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-----------------------
Section 8.15. Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
---------------------
IX. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
-----------------
Section 9.1. Failure to Pay and/or Perform the Obligations . . . . . . . . . . . . . . . . . . . . . . . 58
---------------------------------------------
Section 9.2. Breach of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 58
----------------------------------------
Section 9.3. Failure to Comply with Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
--------------------------------
Section 9.4. Failure to Comply with Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 58
----------------------------------------
Section 9.5. Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
--------------
Section 9.6. Default Under Other Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 59
---------------------------------------
Section 9.7. Receiver; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
--------------------
Section 9.8. Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
--------
Section 9.9. Execution; Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
---------------------
Section 9.10. Default Under Other Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
------------------------------
Section 9.11. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-----------------------
Section 9.12. Impairment of Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
----------------------
Section 9.13. Change in Status or Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-----------------------------
Section 9.14. Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------
Section 9.15. Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------------------
Section 9.16. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
Section 9.17. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-------------------
X. RIGHTS AND REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
--------------------------------
Section 10.1. DEMAND; ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
--------------------
Section 10.2. Further Advances; Immediate Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . 61
----------------------------------------
Section 10.3. Specific Rights With Regard to Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 61
-----------------------------------------
Section 10.4. Performance by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
----------------------
Section 10.5. Uniform Commercial Code and Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . 63
------------------------------------------
Section 10.6. Receiver or Other Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-----------------------------
XI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-------------
Section 11.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-------
Section 11.2. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
----------------------
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 11.3. Remedies, etc. Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------------------------
Section 11.4. No Waiver of Rights by the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------------------------------
Section 11.5. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------------
Section 11.6. Survival of Agreement; Successors and
--------------------------------------
Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
-------
Section 11.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
--------
Section 11.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
------------
Section 11.9. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------------
Section 11.10. Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------------
Section 11.11. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
----------
Section 11.12. Gender, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------
Section 11.13. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
--------
Section 11.14. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
-----------------------
Section 11.15. Liability of the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
------------------------
Section 11.16. License of Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
--------------------
</TABLE>
EXHIBITS:
A Form of Note
B Form of Borrowing Base Report
C Initial Borrowing Base Report
D Places of Business
E List of Optional Collateral
F Form of Subsidiary Joinder Agreement
<PAGE> 6
AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
(MASTER AGREEMENT)
THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (the
"Agreement") is made this 23rd day of December, 1997, by and between SUNRISE
EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia limited partnership (the
"Borrower"), and NATIONSBANK, N.A., as agent (the "Agent") for itself and for
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 Agent, the "Lenders").
RECITALS
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. As of the date hereof, seven (7) Facility Loans have been made
under the Original Credit Facility as hereinafter described. The assisted or
independent living facilities for which Facility Loans were obtained is
referred to herein by its location and word "Facility."
C. The Borrower obtained a construction/interim loan for the
Franconia Facility evidenced by a Note dated June 13, 1996 in the maximum
principal sum of $7,940,400 (the "Franconia Note") which is secured by, among
other things a Credit Line Deed of Trust, Assignment and Security Agreement
also dated June 13, 1996 (the "Franconia Deed of Trust") in favor of trustees
designated by the Agent and recorded in the Land Records of Fairfax County,
Virginia in Deed Book 9749, Page 1562. A principal balance of $100,000 remains
outstanding under the Franconia Note.
D. The Borrower obtained a construction/interim loan for
<PAGE> 7
the Granite Run Facility evidenced by a Note dated June 13, 1996 in the maximum
principal sum of $7,688,000 (the "Granite Run Note") which is secured by, among
other things an Open-End Mortgage, Assignment and Security Agreement also dated
June 13, 1996 (the "Granite Run Deed of Trust") and recorded in the Land
Records of Delaware County, Pennsylvania in Volume 1500, Page 1704 and
re-recorded in Volume 1526, Page 977. A principal balance of $100,000 remains
outstanding under the Granite Run Note.
E. The Borrower obtained a construction/interim loan for the
Abington Assisted Living Facility evidenced by a Note dated June 13, 1996 in
the maximum principal sum of $8,995,000 (the "Abington Assisted Note") which is
secured by, among other things an Open-End Mortgage, Assignment and Security
Agreement also dated June 13, 1996 (the "Abington Deed of Trust") and recorded
in the Land Records of Montgomery County, Pennsylvania in Deed Book 7783, Page
849. A principal balance of $100,000 remains outstanding under the Abington
Assisted Note.
F. The Borrower obtained a construction/interim loan for the
Abington Independent Living Facility evidenced by a Note dated June 13, 1996 in
the maximum principal sum of $4,430,000 (the "Abington Independent Note") which
is also secured by, among other things the Abington Deed of Trust. A principal
balance of $100,000 remains outstanding under the Abington Independent Note.
The Facility Loans evidenced by the Abington Assisted Note and the Abington
Independent Note are treated as one Loan.
G. The Borrower obtained a construction/interim loan for the
Morris Plains Facility evidenced by a Note dated September 5, 1996 in the
maximum principal sum of $7,993,000 (the "Morris Plains Note") which is secured
by, among other things a Mortgage, Assignment and Security Agreement also dated
September 5, 1996 (the "Morris Plains Deed of Trust") and recorded in the Land
Records of Morris County, New Jersey in Deed Book 6632, Page 58. A principal
balance of $100,000 remains outstanding under the Morris Plains Note.
H. The Borrower obtained a construction/interim loan for the
Wayne Facility evidenced by a Note dated September 5, 1996 in the maximum
principal sum of $8,020,000 (the "Wayne Note") which is secured by, among other
things a Mortgage, Assignment and Security Agreement also dated September 5,
1996 (the "Wayne Deed of Trust") and recorded in the Land Records of Passaic
County, New Jersey in Mortgage Book 0-164, Page 17. A principal balance of
$100,000 remains outstanding under the Wayne Note.
I. The Borrower obtained a loan for the Old Tappan Facility
evidenced by a Note dated September 5, 1996 in the maximum principal sum of
$8,300,000 (the "Old Tappan Note") which
2
<PAGE> 8
is secured by, among other things a Mortgage, Assignment and Security Agreement
also dated September 5, 1996 (the "Old Tappan Deed of Trust") and recorded in
the Land Records of Bergen County, New Jersey in Mortgage Book 9272, Page 700.
A principal balance of $100,000 remains outstanding under the Old Tappan Note.
J. The Borrower obtained a loan for the Westfield Facility
evidenced by a Note dated May 12, 1997 in the maximum principal sum of
$8,388,000 (the "Westfield Note") which is secured by, among other things a
Mortgage, Assignment and Security Agreement also dated May 12, 1997 (the
"Westfield Deed of Trust") and recorded in the Land Records of Union County,
New Jersey in Deed Book 6259, Page 141. A principal balance of $100,000
remains outstanding under the Westfield Note.
K. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 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") and to provide
that the Credit Facility will be revolving. Advances or readvances are to be
made pursuant to the provisions of this Agreement and that certain Amended and
Restated Master Construction Loan Agreement dated the same as this Agreement by
and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Construction Loan Agreement").
L. Except as otherwise set forth herein, advances of the Loan may
be made to the Borrower for the general business purposes of the Borrower or
its Wholly Owned Subsidiaries which are Guarantor Subsidiaries (as hereinafter
defined), including, but not limited to, financing the construction or purchase
of assisted living facilities or independent living facilities.
M. The Borrower and the Lenders have agreed to (1) the
consolidation of the indebtedness evidenced by the Facility Notes with the
Master Note which will continue to be secured by, among other things, the
Franconia Deed of Trust, the Granite Run Deed of Trust, the Abington Deed of
Trust, the Morris Plains Deed of Trust, the Wayne Deed of Trust, the Old Tappan
Deed of Trust and the Westfield Deed of Trust, (collectively, the "Existing
Deeds of Trust") and (2) modification of the terms or repayment of the
indebtedness evidenced by the Master Note and the Facility Notes.
N. The Loan is evidenced by that certain Amended, Restated,
Consolidated and Increased Master Promissory Note of even date herewith payable
by the Borrower to Agent on behalf of the Lenders (as amended, restated,
renewed or substituted from time to time, the "Note").
3
<PAGE> 9
O. 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 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 Borrower and the
Agent, on behalf of the Lenders, hereby agree as follows:
I. DEFINITIONS
Section I.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
4
<PAGE> 10
(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.
"Adjusted EBITDA" shall have the meaning set forth in Section 8.13
hereof.
"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 Amended and Restated Agency
Agreement of even date herewith by and among the Agent and the other Lenders,
as the same may be amended, restated or substituted from time to time.
"Agent" means NationsBank, N.A., its successors and assigns.
"Agreement" means this 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 0 hereof.
"Asset Value" means for any Facility included in Optional Collateral
the greater of (a) such Facility's Total Project Costs Incurred or (b) its Net
Operating Income for the immediately prior twelve (12) consecutive months
capitalized at the rate of 10.5%
"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.
"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
5
<PAGE> 11
an appraisal is obtained pursuant to Section 7.23 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 Report" shall have the meaning set forth in Section 0
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 Borrower's and any Guarantor
Subsidiary's Accounts, Equipment, General Intangibles, documents, Chattel
Paper, Instruments and Inventory, all right, title and interest of the Borrower
and any Guarantor Subsidiary 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 or the Optional Collateral as
those terms are 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 Borrower and any Guarantor Subsidiary 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 Borrower
and any Guarantor Subsidiary 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 Borrower and any Guarantor Subsidiary wherever located, and (vi) all
proceeds (cash and non-cash, including, without limitation, insurance
proceeds), of the foregoing.
6
<PAGE> 12
"Collateral Assignments" means collectively the Amended and Restated
Collateral Assignment of Licenses, Participation Agreements and Resident
Agreements of even date herewith between the Borrower and the Agent and the
Amended and Restated Collateral Assignment of Operating Agreements and
Management Contracts of even date herewith among the Borrower, the Management
Company and the Agent.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Borrower 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 2.06 of the Construction Loan Agreement.
"Completion Guaranty" means that certain Amended and Restated Guaranty
of Completion of even date herewith executed by the Guarantor in favor of the
Lenders.
"Construction Loan Agreement" means that certain Amended and Restated
Master Construction Loan Agreement of even date herewith between the Borrower
and the Agent on behalf of the Lenders.
"Costs Incurred to Date" means as to an Eligible Project actual costs
expended by the Borrower or a Guarantor Subsidiary under a Total Development
Budget and reported to the Agent through the requisition process as verified by
the Agent pursuant to the provisions of the Construction Loan 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 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.
"Credit Facility Closing" shall mean the date on which the documents
evidencing and initially securing the Credit Facility, are executed and
delivered to the Agent.
"Credit Facility Committed Amount" means $250,000,000 or such larger
amount which the Lenders may from time to time severally commit to lend to the
Borrower pursuant to the terms of Agency Agreement and the Note.
"Debt Service" means for any period of determination an
7
<PAGE> 13
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, restated, or replaced.
"Deed of Trust Lien Amount" means the dollar amount of the Lien
created by a Deed of Trust on the Borrower's or a Guarantor Subsidiary's fee
simple interest in an Eligible Project, the lien amount being the lesser of (i)
75% of such Eligible Project's appraised value at stabilization, 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.
"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.
"Eligible Project" means any location in the United States where (a)
the Borrower or a Guarantor Subsidiary proposes to construct or has constructed
a Facility (unless the Lenders also authorize inclusion of one or more
Facilities acquired by the Borrower or a Guarantor Subsidiary); (b) the Agent
has received and reviewed an appraisal and a Phase I Environmental Assessment
of the property where the proposed Facility is to be located and found them
acceptable; (c) using the services of a consulting engineer selected by the
Agent, the Agent has received, reviewed and found to be acceptable the plans
and specifications and the Total Development Budget for the proposed Facility;
(d) the Agent has received a pro forma operating budget acceptable to the
Agent; (e) a 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 Agent and recorded, if required;
and (g) construction has commenced and 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 can satisfy the criteria for a Pool A Project.
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<PAGE> 14
"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 Construction Loan
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 Sections 0
and 0, (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 the Borrower, any
Guarantor Subsidiary 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 Eurodollar 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 Eurodollar 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
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<PAGE> 15
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 Part 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 Part IX.
"Expense Payments" shall have the meaning set forth in Section 0
hereof.
"Facility" and "Facilities" mean, individually or collectively, an
assisted living facility or independent living facility owned by the Borrower
or a Guarantor Subsidiary.
"Financing Documents" means at any time collectively and includes this
Agreement, the Note, the Deeds of Trust, the Construction Loan Agreement, the
Guaranty Agreement, the Performance Guaranty, any Joinder Agreements, the
Management Fee Subordination Agreement, the Security Documents, the Interest
Rate Protection Documents and any other instrument, agreement or document
previously, simultaneously or hereafter executed and delivered by the Borrower
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 the
Borrower's performance of an obligation; provided, however, that the Borrower
must give Notice to the Agent within ten (10) days after the Borrower knew of
or should have known of the occurrence of an event which it believes to
constitute an event of Force Majeure.
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<PAGE> 16
"Funded Debt" of the Guarantor, at any time means the sum at such time
of (a) indebtedness for borrowed money or for the deferred purchase price of
property or services, (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) any obligation of the Guarantor or a Commonly
Controlled Entity to a Multiemployer Plan; 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.
"GAAP" shall mean generally accepted accounting principles in effect
in the United States of America from time to time.
"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 Borrower or any Guarantor Subsidiary, claims (including without
limitation all claims for income tax and other refunds), choses in action,
judgments, patents, patent licenses, trademarks (excluding the "Sunrise"
trademark or tradename), trademark licenses (excluding any license to the
Borrower or any Guarantor Subsidiary for the "Sunrise" or "Reminiscence"
trademarks or tradenames), licensing agreements, rights in intellectual
property, goodwill, as that term is defined in accordance with GAAP (including
all goodwill of the Borrower's 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
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<PAGE> 17
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.
"Guarantor Subsidiary" means any Wholly Owned Subsidiary of the
Borrower which provides a Joinder Agreement and a Deed of Trust for the benefit
of the Lenders as an Eligible Project or as Optional Collateral.
"Guaranty Agreement" means the 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 the Borrower 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 the Borrower, or for which the Borrower, has responsibility,
including, without limitation, improvements, facilities, soil,
12
<PAGE> 18
ground water, air or other elements on, or of, any property now or hereafter
owned, operated or acquired by the Borrower, and any other contamination by
Hazardous Materials for which the Borrower is, or is claimed to be,
responsible.
"Improvements" shall have the meaning given to that term in each Deed
of Trust.
"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 Borrower and the 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.
"Inventory" means any and all inventory of the Borrower or any
Guarantor Subsidiary and all right, title and interest of the Borrower or any
Guarantor Subsidiary 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 Borrower's or any Guarantor
Subsidiary's 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 a Guarantor Subsidiary to acknowledge its
joinder as a party to this Agreement, the Collateral Assignments and the
Management Fee Subordination Agreements and to guaranty payment 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.
"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
13
<PAGE> 19
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.
"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 pro grams to the extent the Borrower
or any Guarantor Subsidiary is 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 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.
"Liquidation Costs" shall have the meaning set forth in Section 0
hereof.
"Loan" shall have the meaning set forth in Section 0 hereof.
"Managed Care Plans" shall mean any health maintenance organization,
preferred provider organization, individual
14
<PAGE> 20
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 the Borrower or any Guarantor
Subsidiary 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 Fee Subordination Agreement" shall have the meaning set
forth in Section 0 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 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.
"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 Borrower.
"Net Operating Income Margin" means Net Operating Income divided by
total revenues.
"Note" shall have the meaning set forth in Section 0 hereof.
"Obligations" means all present and future debts, obligations, and
liabilities, whether now existing or contemplated or hereafter arising, of the
Borrower to the Agent
15
<PAGE> 21
or any Lender under, arising pursuant to, in connection with and/or on account
of the provisions of this Agreement, the Construction Loan Agreement, the Note,
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 Agent or other Lender who makes
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 Borrower to the
Lenders 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 Month" means a full calendar month after the issuance of a
certificate of occupancy for any Facility.
"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 the Borrower or any Guarantor Subsidiary 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.
"Optional Collateral" means individually or collectively, a Facility
which meets and at all times continues to meet all of the following criteria:
(a) a certificate of occupancy (or equivalent permit or
certificate) has been issued by the appropriate governmental authorities for
such Facility;
(b) an operating license and/or a certificate of need (if
either is applicable in the jurisdiction where the Facility
16
<PAGE> 22
is located) has been obtained;
(c) the Facility has maintained a minimum Resident
Occupancy of not less than 75% for the preceding three (3) consecutive months;
and
(d) the Facility has maintained a Net Operating Income
Margin of not less than thirty percent (30%) for the preceding three (3)
consecutive months.
"Participation Agreements" means any and all third party payor
participation or reimbursement agreements now or at any time hereafter existing
for the benefit of the Borrower or any Guarantor Subsidiary 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 the Guaranty of Performance by SALI of
even date herewith.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent
or which the 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 Borrower has the financial ability to pay, with all
penalties and interest, at all times without materially and adversely affecting
the 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 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.
"Pledge, Assignment and Security Agreement" means the
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<PAGE> 23
Amended and Restated Pledge Assignment and Security Agreement of even date
herewith executed by the partners of the Borrower in favor of the 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.
"Property" shall mean collectively the "Property" as that term is
defined in each of the Deeds of Trust.
"Receivables" means all of the Borrower's or any Guarantor
Subsidiary's 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.
"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.
"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 the Borrower or any Guarantor Subsidiary pursuant
to which the Borrower or any Guarantor Subsidiary 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
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<PAGE> 24
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 or an operating budget
for a Facility included in Optional Collateral.
"Revolving Credit Expiration Date" means December 22, 2000 or any date
to which it may be extended from time to time pursuant to the terms of Section
0 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 X 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.
"Security Documents" shall mean, collectively, any assignment,
including, without limitation, the 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.
"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 the
Borrower or any of its
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<PAGE> 25
properties or assets or any part thereof or in respect of any of its
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 Agent.
"Total Project Costs Incurred" means as to Optional Collateral all
costs incurred through completion of construction and commencement of operation
of the Facility or the purchase price of an acquisition from an unrelated third
party, each as verified by the Agent in its reasonable discretion.
"Unused Commitment Amount" shall have the meaning set forth in Section
0 hereof.
"Unused Line Fee" shall have the meaning set forth in Section 0
hereof.
"Wholly Owned Subsidiary" or "Wholly Owned Subsidiaries" means one or
more subsidiaries 100% owned by the Borrower which is or has been created for
the sole purpose of acquiring or constructing and owning and operating a
Facility.
Section I.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.
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II. BORROWING
Section II.1. The Loan. (a) The Lenders agree to lend to the
Borrower pursuant to the terms and conditions of this Agreement and the
Construction Loan Agreement, and the Borrower agrees 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.
(b) The obligation of the Borrower to repay the Loan
shall be evidenced by the 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
Agent in the form attached hereto as EXHIBIT A. The Note shall bear interest
and shall be repaid by the Borrower 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 and the Construction Loan
Agreement. Sums borrowed and repaid may be readvanced under the terms and
conditions of this Agreement and the Construction Loan Agreement.
(d) No advances may be made or be outstanding under the
Credit Facility until and during such times as there are at least five (5) Pool
A Projects in the Borrowing Base. The 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 Borrower 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 Borrower's fiscal quarters. The Borrowing Base Report will be based on the
outcome of the requisition procedures hereinafter described, appraisals
obtained by the Agent and other information on the Eligible Projects provided
by the Borrower or obtained by the Agent. The Borrowing Base shall be computed
based on the Borrowing Base Report most recently prepared by the Agent. In the
event the Borrower shall fail to furnish other current reports or information
as reasonably required by the Agent pursuant to the Financing Documents, or in
the event the Agent believes that a Borrowing Base Report is no longer
accurate, the 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 Borrower 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
21
<PAGE> 27
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 Agent quarterly, or (iii) the
change in appraised value of an Eligible Project pursuant to Section 0. 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 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 Agent quarterly. The Borrower 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 the Borrower or a Guarantor
Subsidiary has acquired which meets both the requirements for Optional
Collateral and the other conditions precedent to including a Facility as an
Eligible Project.
(e) The Borrower shall furnish to the Agent such
schedules, certificates, lists, records, reports, information and documents as
required by the Agent from time to time so that the Agent may, in its
reasonable discretion, determine the Borrowing Base.
(f) If at any time the aggregate principal amount of the
Loan outstanding exceeds the Borrowing Base, a borrowing base deficiency
("Borrowing Base Deficiency") shall exist. Each time a Borrowing Base
Deficiency exists, the Borrower shall within three (3) banking days of notice
thereof from the 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.
(g) The initial Borrowing Base Report is attached hereto
as EXHIBIT C.
Section II.2. Procedure for Advances. (a) The Agent will make
advances from time to time upon receipt of written request from the Borrower in
the form designated by the Agent, provided that after giving effect to the
Borrower's request, the outstanding principal balance of the Loan would not
exceed the lesser of the Credit Facility Committed Amount or the Borrowing
Base. 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 Borrower 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 Borrower shall advise the
Agent at the time of such notice which Eurodollar Period it is selecting. The
Agent shall have no obligation to make any
22
<PAGE> 28
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 Borrower fails to advise the 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 Agent that the Eurodollar Period is to be renewed.
(b) In addition, if the Agent has reason to believe a
Default or an Event of Default has occurred, the Borrower hereby irrevocably
authorizes the Lenders to make advances of the Loan at any time and from time
to time, without further request from or notice to the Borrower, which the
Lenders, in their sole and absolute discretion, deems 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 II.3. Fees. The Borrower shall pay to the Agent the
following fees:
(a) Commitment Fee. The Borrower shall have paid as of
the date hereof a non-refundable commitment fee in the amount of $825,000.
(b) Unused Line Fee. The Borrower shall pay to the 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 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 Agent on the first day of each fiscal
quarter commencing October 1, 1998 and on the Revolving Credit Termination
Date.
<TABLE>
<CAPTION>
Period Unused Commitment Amount
------ ------------------------
<S> <C>
Quarter ending 9/30/98 $65,000,000 less the
average daily principal
</TABLE>
23
<PAGE> 29
<TABLE>
<S> <C>
amount outstanding for
the quarter then ended
Quarter ending 12/31/98 $115,000,000 less the
average daily principal
amount outstanding for
the quarter then ended
Quarter ending 3/31/99 $155,000,000 less the
average daily principal
amount outstanding for
the quarter then ended
Quarter ending 6/30/99 $180,000,000 less the
average daily principal
amount outstanding for
the quarter then ended
Quarter ending 9/30/99 and Credit Facility Committed
each fiscal quarter there- Amount less the average
after daily principal amount
outstanding for the
quarter then ended
</TABLE>
(c) Loan Administration Fee. Simultaneously with the
addition of each Eligible Project to the Borrowing Base, the Borrower shall pay
a loan administration fee related to such Eligible Project to the Agent only in
the amount of $4,000.
(d) Other Fees. The Borrower shall pay to the Agent
certain other fees as more fully set forth in a letter from the Agent to the
Borrower.
(e) Appraisal Fees. Upon the receipt of an appraiser's
invoice from the Agent, the Borrower shall pay the fee of the appraiser for an
Eligible Project.
(f) 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 0 hereof, the Borrower shall pay to the Agent
for the benefit of the Lenders, an extension fee for each such extension of
fifteen (15) basis points of the Credit Facility Committed Amount.
Section II.4. Interest Rate Matters. (a) Lender Tax Adjustment.
Each payment made by the Borrower 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 Borrower of such amount as may be necessary so
that the net amount received by each Lender (after
24
<PAGE> 30
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 Borrower, the Borrower shall promptly (and in any event
within 30 days) furnish to the Agent and applicable Lender such tax receipts,
certificates an other evidence of such payment as the Borrower may have or the
Agent or the applicable Lender may reasonably request.
(b) Inability to Determine Eurodollar Rate. In the event
that the 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
Agent will give notice of such determination to the Borrower 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 Agent or the date when the Lenders and the Borrower have
mutually agreed upon an alternate method of determining the rates of interest
payable on the Loan, as the case may be, the Borrower 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 Borrower 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 Borrower and to the 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 Borrower 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
25
<PAGE> 31
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, 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,
Borrower hereby agrees 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 0(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 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 Borrower hereby agrees 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 Borrower pursuant to this Section 0 or
under Section 0, it shall notify the Borrower and the Agent of the amount
payable by the Borrower 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
26
<PAGE> 32
error, as to the amounts owned. The Borrower's 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
Optional Collateral pursuant to the terms of Section 3.3 shall take effect one
(1) Banking Day following notice by the Agent to the Lenders of such rate
change.
Section II.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 Borrower
may request that the 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.
III. COLLATERAL
Section III.1. Collateral. As security for the payment of any and
all of the Obligations and for the Borrower's performance of, and compliance
with, all of the terms, covenants, conditions, stipulations and agreements
contained in the Financing Documents, the Borrower hereby assigns, grants and
conveys to the Lenders, and agrees that the Lenders shall have, to the extent
permitted by law a perfected, continuing security interest in, all of the
Collateral. The Borrower further agrees 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
Borrower covenants and agrees to execute and deliver such financing statements
and other instruments and filings as are necessary in the opinion of the Agent
to perfect such security interest. Notwithstanding the fact that the proceeds
of the Collateral constitute a part of the Collateral, the Borrower may not
dispose of the Collateral, or any part thereof, other than in the ordinary
course of its business or as otherwise may be permitted by this Agreement or
other Security Agreements.
Section III.2. Eligible Projects. The Borrower shall from time to
time designate Facilities owned by the Borrower or a Guarantor Subsidiary as
Eligible Projects included in the Borrowing Base pursuant to the terms hereof.
The Facilities which are 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
27
<PAGE> 33
the Borrower or the Guarantor Subsidiaries in the Eligible Projects, (b) a
first lien security interest in all fixtures, building materials and all other
machinery, equipment and other personalty used or installed by the Borrower or
Guarantor Subsidiary 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 Borrower 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 five (5) Pool A Projects
remain in the Borrowing Base.
Section III.3. Optional Collateral. The Borrower or a Guarantor
Subsidiary may at its sole option grant to the Agent for the benefit of the
Lenders a first lien Deed of Trust on a Facility as Optional Collateral and
pledge the related Collateral and a first lien security interest in all
fixtures, building materials and all other machinery, equipment and other
personalty used or installed by the Borrower or Guarantor Subsidiary on each of
the Premises of the Optional Collateral or the Improvements constructed thereon
in connection with that Facility as security for the Credit Facility if each of
the conditions for Optional Collateral is met and continues to be maintained.
The Optional Collateral will not be included in the Borrowing Base. It will
only be referred to by the Agent in calculating the interest rate applicable to
the Credit Facility pursuant to the terms of the Note and this Agreement.
Provided no Event of Default has occurred under the Financing Documents and is
continuing, the Borrower may in its sole discretion add, substitute or remove
Facilities from the Optional Collateral; provided, however, that any change in
the Optional Collateral may only become effective at the end of a fiscal
quarter. The Borrower shall notify the Agent in writing of its intent to
release Optional Collateral. The Facilities included in Optional Collateral as
of the date hereof, if any, are listed on EXHIBIT E attached hereto and
incorporated herein by reference. Additions or deletions from the Facilities
included in Optional Collateral shall be set forth on lists issued from time to
time by the Agent and certified by the Borrower. The foregoing
notwithstanding, the Borrower may in the future elect to include in Optional
Collateral the Facilities referred to as Franconia, Morris Plains, Old Tappan,
Granite Run, Wayne, Abington (Assisted Living) and Abington (Independent
Living) regardless of whether they meet the conditions set forth in Sub-parts
(c) and (d) of the definition of Optional Collateral; provided, however, that
each such Facility must meet such conditions within twelve (12) months from the
issuance of its certificate of occupancy in order to continue to be included in
Optional Collateral.
Section III.4. Assignment of Partnership Interests. The Obligations
are further secured by the Pledge, Assignment and
28
<PAGE> 34
Security Agreement, pursuant to which the partners of the Borrower have
assigned to the Agent for the benefit of the Lenders one hundred percent (100%)
of all partnership interests in the Borrower.
Section III.5. Guaranties. The Obligations are the subject of the
Guaranty Agreement and the Completion Guaranty executed and delivered by the
Guarantor in favor of the Lenders. Payment of the Obligations will also be
guaranteed by any Guarantor Subsidiary pursuant to a Joinder Agreement in form
attached hereto as EXHIBIT F executed as of the same date as the Deed of Trust
from such Guarantor Subsidiary.
Section III.6. Collateral for Obligations. The Borrower
acknowledges that it is the intention of the Borrower 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 Borrower and/or the Lenders on or about the date hereof.
Section III.7. Costs. The Borrower agrees 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 Borrower
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.
IV. GENERAL FINANCING PROVISIONS
Section IV.1. 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 each Note and
interest shall be payable monthly in arrears.
Section IV.2. Liens; Setoff. The Borrower hereby grants to the
Lenders a continuing lien and security interest for all the Obligations upon
any and all monies, securities, and other property of the Borrower 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 the Borrower, and
also upon any and all deposits (general or special) and credits of the Borrower
with any of the Lenders, if any, at any time existing. During the continuance
of any Event of Default under
29
<PAGE> 35
this Agreement, each Lender is hereby authorized by the Borrower at any time
and from time to time, without notice to the Borrower, to set off, appropriate
and apply any or all items hereinabove referred to against all Obligations then
outstanding.
Section IV.3. Payment and Performance of Obligations. The payment
and performance by the Borrower 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 Borrower 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 Borrower: (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 Agent, and (c)
will not terminate or attempt to terminate this Agreement or any of the other
Financing Documents to which the Borrower is a party for any cause.
Section IV.4. Payments to Others for the Account of the Borrower.
At the option of the Lenders and without any request from the Borrower, and
without waiving any of its rights hereunder, the Lenders may elect to cure or
avoid any default by the Borrower 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 Agent agrees to endeavor to give the Borrower 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, the Construction Loan Agreement or the Deeds of
Trust, including (without limitation) the right of the Lenders to repayment of
the amount of such payment.
Section IV.5. Prepayment. The Borrower shall have the right to
prepay the Loan in full or in part, at any time and from time to time, upon ten
(10) days' prior written notice to the 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 Borrower shall pay to the Agent upon request by the 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
30
<PAGE> 36
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 Borrower's
obligations under this Section shall survive the termination of this Agreement
and the repayment of the Obligations.
V. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to make available the Credit Facility, the
Borrower represents and warrants to the Lenders that:
Section V.1. Good Standing. The Borrower (a) is a limited
partnership duly organized and existing and in good standing under the laws of
the Commonwealth of Virginia, (b) has the power to own its property and to
carry on its business as now being conducted, and (c) is duly qualified to do
business and is in good standing in each jurisdiction in which each Facility 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 V.2. Power and Authority. The 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 of, or
lenders to, the Borrower, and no consent or approval of any Governmental
Authority or any third party payor on the part of the Borrower, is required as
a condition to the validity or enforceability of this Agreement or any of the
other Financing Documents executed and delivered by the Borrower or to the
payment or performance by the Borrower of the Obligations.
Section V.3. Binding Agreements. This Agreement and each of the
other Financing Documents executed and delivered by the Borrower have been
properly executed by the Borrower, constitute valid and legally binding
obligations of the Borrower, and are fully enforceable against the Borrower in
accordance with their respective terms.
Section V.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 the
Borrower or affect the authority of the Borrower to enter into this Agreement
or any of the other Financing Documents executed and delivered by the Borrower.
31
<PAGE> 37
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 the Borrower, could result in a Material Adverse Change in the
Borrower. The Borrower does 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
the Borrower, could result in a Material Adverse Change in the Borrower. There
are no Medicare or Medicaid recoupments or recoupments of any other third party
payor being sought, requested or claimed, against the Borrower, the outcome of
which, if determined adversely to the Borrower could materially impair the
Borrower's ability to pay the Obligations, except as otherwise disclosed in
writing to, and approved by, the Agent.
Section V.5. No Conflicting Agreements. There is (a) no provision
of the Borrower's partnership agreement and no provision of any existing
mortgage, indenture, contract or agreement binding on the Borrower or affecting
its property, and (b) to the knowledge of the Borrower no provision of law or
order of court binding upon the Borrower, 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
the Borrower, or which would be violated as a result of such execution,
delivery or performance, or, if so, all necessary consents have been obtained.
Section V.6. Financial Information. All financial statements or
information hereto furnished to the Lenders with respect to the Borrower, each
Facility, the Guarantor and any Guarantor Subsidiaries is complete and correct
in all material respects and fairly presents the financial position of the
Borrower and the financial condition of the Facilities. There are no
liabilities, direct or indirect, fixed or contingent, of the Borrower,
Guarantor or any Guarantor Subsidiaries 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 the
Guarantor since the financial statements dated December 31, 1996 (and to the
Borrower's and Guarantor's knowledge, no such Material Adverse Change is
pending), and neither the Borrower nor the Guarantor
32
<PAGE> 38
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 V.7. No Default. The Borrower is not in default under or
with respect to any obligation under any agreement to which the Borrower is a
party in any respect which could result in a Material Adverse Change. There is
no Event of Default hereunder.
Section V.8. Taxes. The Borrower has filed or has 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 it, 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 Borrower and adequate reserves therefor have been established as required
under GAAP.
Section V.9. Place(s) of Business and Location of Collateral. The
Borrower warrants that the address of the Borrower's 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 the Borrower, if any, is 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 Borrower will immediately advise the Agent in writing of the opening of
any new place of business or the closing of any existing place of business of
the Borrower, 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 V.10. Title to Properties. The Borrower and any Guarantor
Subsidiaries have good and marketable title to all of their properties,
including, without limitation, the Property, the Collateral and the Optional
Collateral, and the Property, the Collateral and the Optional Collateral are
free and clear of mortgages, pledges, liens, charges and other encumbrances
other than the Permitted Liens.
Section V.11. Margin Stock. None of the proceeds of the Loan will
be used, directly or indirectly, by the Borrower 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" within the
meaning of Regulation G (12 CFR Part 207), or "margin stock"
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within the meaning of Regulation U (12 CFR Part 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 V.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 the Borrower 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 the Borrower nor any Commonly Controlled
Entity has incurred a "complete withdrawal" within the meaning of ERISA Section
4203 from any multiemployer plan; (e) neither the Borrower 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 the Borrower 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 the Borrower or any Commonly Controlled Entity
that such a multiemployer plan will be placed in "reorganization".
Section V.13. Governmental Consent. Neither the nature of the
Borrower or of its business or properties, nor any relationship between the
Borrower 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 the Borrower,
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 V.14. Full Disclosure. The financial statements referred
to in this Part V do not, nor does this Agreement, nor do any written
statements furnished by the Borrower to the 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 Borrower has not failed to
disclose any fact to the Agent in writing which materially
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adversely affects or, will or could prove to materially adversely affect the
properties, business, prospects, profits or condition (financial or otherwise)
of the Borrower or the ability of the Borrower to perform this Agreement or any
of the other Financing Documents.
Section V.15. Business Names and Addresses. The Borrower has not
conducted business under any name other than its current name, and has not
conducted its business in any jurisdiction other than those listed on EXHIBIT
D. The Borrower intends to operate the Facilities under the names set forth on
EXHIBIT D. The Borrower shall promptly notify the Agent of any change in the
name of any Facility.
Section V.16. Licenses and Certifications. The Borrower further
represents and warrants to the Lenders that, with respect to any License it
possesses or has 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
Borrower has 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 Borrower has 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 Agent, (d) the Borrower has 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
Borrower is 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, in the case of one of
the two Abington, Pennsylvania Facilities, 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 V.17. Operating Agreements and Management Contracts. The
Borrower has furnished to the 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 limita-
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tion, the Management Agreement. The Borrower further represents and warrants
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 Borrower has 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 V.18. Participation Agreements and Resident Agreements.
The Borrower has furnished to the Agent, on or before the Facility Closing, the
Borrower's form of Resident Agreement used with respect to all Facilities and,
if requested by the Agent, copies of all current, executed Resident Agreements.
(a) The Borrower further covenants to the Lenders that,
with respect to the Participation Agreements, if any, (i) to the best of its
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
Borrower for services rendered to residents. The Borrower represents and
warrants that as of the date hereof it has not entered into any Participation
Agreement for any Facility.
(b) To the extent the Borrower participates or will
participate in Medicare or Medicaid payment and reimbursement programs, the
Borrower has complied and will comply with all notice and other requirements
under Title XVIII and Title XIX of the Social Security Act to enable the
Borrower to participate in the Medicare and Medicaid payment and reimbursement
programs.
Section V.19. Compliance with Laws. The Borrower is not 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 the Borrower. The Borrower is in compliance with all
accreditation standards and requirements to which it is subject. The Borrower
has 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 the Borrower to conduct its
activities of operating each Facility
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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 the
Borrower.
Section V.20. Presence of Hazardous Materials or Hazardous
Materials Contamination. The Borrower has not placed Hazardous Materials on
any real property owned, controlled or operated by the Borrower or for which
the Borrower is responsible. To the best of the Borrower's knowledge, no
Hazardous Materials are located on any real property owned, controlled or
operated by the Borrower or for which the Borrower is responsible, except for
reasonable quantities of necessary supplies for use by the Borrower 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 the Borrower has ever been used as a manufacturing, storage, or
dump site for Hazardous Materials nor is such property affected by Hazardous
Materials Contamination.
Section V.21. Nature of Credit Facility; Usury; Disclosures. The
Borrower 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 V.22. 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 Borrower 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 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.
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Section V.23. Accounts. With respect to all of the Borrower's
Accounts and to the best of the Borrower's 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 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 Borrower's books and records, with respect thereto are actually
and absolutely owing to the Borrower and are not contingent for any reason; (e)
there are no set-offs, counterclaims or disputes known by the Borrower or
asserted with respect thereto, and the Borrower has made no agreement with any
Account Debtor thereof for any deduction or discount of the sum payable
thereunder except regular discounts allowed by the Borrower in the ordinary
course of its business for prompt payment; (f) there are no facts, events or
occurrences known to the Borrower 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 Borrower has 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
the Borrower which are pending against any Account Debtor which might result in
any material adverse change in its financial condition.
VI. CONDITIONS OF LENDING
The making of any advance under the Loan is subject to the conditions
set forth in the Construction Loan Agreement and the following conditions
precedent:
Section VI.1. No Default. No Event of Default and no event which
with the giving of notice or the passage of time would become an Event of
Default has occurred and is existing and all representations and warranties set
forth herein or in the other Financing Documents are true and correct.
Section VI.2. Opinion of Counsel for the Borrower. At the Facility
Closing and when a lien on an Eligible Project or Optional Collateral is
subsequently granted by the Borrower or a Guarantor Subsidiary, the Lenders
shall receive a written opinion of counsel for the Borrower and the Guarantor
and, if applicable, the Guarantor Subsidiary, satisfactory in all respects to
the
38
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Agent.
Section VI.3. Approval of Counsel for the Lenders. All legal
matters incident to the Loan and all documents necessary in the opinion of the
Agent to make the Loan or the addition of either an Eligible Project to the
Borrowing Base or Optional Collateral or add such Deeds of Trust and related
Collateral shall be satisfactory in all material respects to counsel for the
Lenders.
Section VI.4. Supporting Documents. The Agent shall receive at the
Facility Closing and in connection with the subsequent granting of a Lien on an
Eligible Project or Optional Collateral: (a) a certificate of the general
partner of the Borrower, in a form acceptable to the 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 of the
Borrower authorizing the execution and delivery of this Agreement, the
Construction Loan 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 of the Borrower executing this Agreement, the Note and the other
Financing Documents; (b) such other documents as the Agent may reasonably
require the Borrower and/or the partners of the Borrower to execute, in form
and substance acceptable to the Agent; and (c) such additional information,
instruments, opinions, documents, certificates and reports as the Agent may
reasonably deem necessary.
Section VI.5. Financing Documents. All of the Financing Documents
required by the Agent whether at the Facility Closing or any subsequent
addition of a Deed of Trust and related Collateral shall be executed, delivered
and, if deemed necessary by the Agent, recorded, all at the sole expense of the
Borrower.
Section VI.6. Insurance. The Borrower shall have satisfied the
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 VI.7. Security Documents. In order to perfect the lien and
security interest created by this Agreement, the Borrower shall have executed
and delivered to the Agent all Security Documents (in form and substance
acceptable to the Agent in its sole discretion) deemed necessary by the Agent,
in a sufficient number of counterparts for recordation, and, at the Borrower's
sole expense, shall record all such financing statements and Security
Documents, or cause them to be recorded, in all public
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offices deemed necessary by the Agent.
Section VI.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 a
Guarantor Subsidiary, such Guarantor Subsidiary shall execute and deliver to
the Agent, a Joinder Agreement joining in such assignments of Collateral and
such other Security Documents as the Agent may require and in sufficient number
of counterparts for recordation, and, at the Borrower's sole expense shall
record all such financing agreements and other Security Documents, or cause
them to be recorded, in all public offices deemed necessary to the Agent.
VII. AFFIRMATIVE COVENANTS OF BORROWER
Until payment in full and the performance of all of the Obligations
hereunder, the Borrower shall:
Section VII.1. Financial Statements. Furnish to the Agent:
(a) as soon as available but in no event more than
forty-five (45) days after the close of each of the Borrower's fiscal quarters
internally prepared, consolidated and consolidating financial statements of the
Borrower and its Subsidiaries 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, certified by the chief financial officer of the Borrower's general
partner unless such report is included in the quarterly report of the
Guarantor; and
(b) as soon as available but in no event more than one
hundred twenty (120) days after the close of each of the Borrower's fiscal
years, (i) a copy of the consolidated annual financial statement of the
Borrower and its Wholly Owned Subsidiaries in reasonable detail satisfactory to
the Agent, prepared in accordance with GAAP and audited by an independent
certified public accountant satisfactory to the Agent, which financial
statement shall include a balance sheet of the Borrower 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 Agent, (ii) an unqualified letter or opinion of
the accountant who examined and audited the Borrower's 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
Agent a copy of the Management Letter
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prepared by the auditor, and (iv) the related statements of operations and
retained earnings and cash flows in a format acceptable to the Agent; and
(c) beginning with the first Operating Month (as
hereinafter defined), as soon as available but in no event more 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) as soon as available, but in no event more than
thirty (30) days after the end of each of the Borrower's fiscal quarters,
operating statements for each Facility included in Optional Collateral for such
period; including an income and expense statement for such period and census
and billing reports with respect to each Facility which is Optional Collateral
during such period.
(e) as soon as available but in no event more 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
(f) with reasonable promptness such additional
information, reports or statements as the Agent may from time to time
reasonably request.
(g) 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 Amended and Restated Agency Agreement
dated December ___, 1997 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 VII.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
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unpaid, might become a lien or charge upon any of its properties; provided,
however, the Borrower 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 VII.3. Legal Existence. Maintain its existence as a limited
partnership in good standing in the Commonwealth of Virginia and in each
jurisdiction where it is required to register or qualify to do business.
Section VII.4. Conduct of Business and Compliance with Laws. (a) 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 Borrower, (b) 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 (c) 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 Borrower covenants and agrees
that it will:
(i) 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 Borrower, the
maintenance of cafeteria and other food and beverage facilities or
services;
(ii) 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);
(iii) to the extent the Borrower participates in
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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 Borrower to participate in, and
provide services in connection with, recognized medical and healthcare
insurance programs;
(iv) 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
(v) to the extent the Borrower presently
participates 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
Borrower meets all conditions for participation in the Medicare and
Medicaid programs.
Section VII.5. Use of Proceeds. Use the proceeds of the Loan for
the purpose or purposes set forth in Recital L above and Sections 8.01 and
8.13(b) herein, and Section 2.02 of the Construction Loan Agreement and,
without the prior written consent of the Agent for no other purpose or
purposes.
Section VII.6. Insurance. Provide or cause to be provided to the
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 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
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
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Property, or as the 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 Agent on behalf of
the Lenders as loss payee in the mortgagee clause thereof;
(c) Evidence that the same insurance described in
sub-paragraph (b) is in effect for each Facility included in the Optional
Collateral and naming the Agent on behalf of all the Lenders as a certificate
holder for such insurance. Upon the occurrence of an Event of Default, the
Borrower (i) shall take all steps necessary to list the Lender as an additional
insured for such policies covering the Optional Collateral and (ii) shall
surrender any proceeds of claims under such insurance;
(d) 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 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;
(e) Workers' compensation insurance in accordance with
the requirements of applicable law or regulation naming the Agent on behalf of
the Lenders as loss payee thereunder;
(f) 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
(g) To the extent that healthcare professionals are
employed by the Borrower, medical liability, malpractice and other healthcare
professional liability insurance protecting the Borrower and its employees
against claims arising from the professional services performed by the Borrower
and its employees with limits of (i) not less than One Million Dollars
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($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 Borrower shall ensure that all healthcare
providers with whom the Borrower 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 Borrower shall file with the 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 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 Agent, and (D) provide that any loss otherwise payable thereunder shall
be payable notwithstanding any act or negligence of the Borrower 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 Borrower 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 Borrower will
deliver to the Agent a renewal policy or policies marked "premium paid" or
other evidence of payment satisfactory to the Agent. The Borrower will
immediately give the 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 VII.7. Flood Insurance. If required by applicable law or
regulation, provide or cause to be provided to the 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 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
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law or regulation to be provided in connection with the applicable Loan or is
not otherwise available with respect to the Property, the Borrower shall supply
the Agent with written evidence, in form and substance satisfactory to the
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 VII.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 VII.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 the Borrower 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 Borrower hereby releases 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 VII.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.
Section VII.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 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 Borrower shall pay to the 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
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or instrument.
Section VII.12. Subsequent Opinion of Counsel as to Recording
Requirements. Provide to the Agent a subsequent opinion of counsel as to the
filing, recording and other requirements with which the Borrower or any
Guarantor Subsidiary has complied to maintain the liens and security interests
in favor of the Lenders in the Collateral in the event that the Borrower or any
Guarantor Subsidiary shall transfer its principal place of business or the
office where it keeps its records pertaining to the Accounts and Receivables.
Section VII.13. Books and Records. (a) Keep and maintain accurate
books and records, (b) make entries on such books and records in form
reasonably satisfactory to the Agent disclosing the Lenders' assignment of, and
security interest in and lien on, the Collateral and all collections received
by the Borrower on its Accounts, (c) furnish to the 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 Borrower's Accounts and Inventory and all contracts and
collection(s) relating thereto as the Agent may from time to time specify, (d)
unless the 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 (e) permit any person designated by any of the Lenders to enter
the premises of the Borrower and examine, audit and inspect the books and
records at any reasonable time and from time to time.
Section VII.14. Collections. Until such time as the Agent shall
notify the Borrower of the revocation of such privilege following an Event of
Default, (a) 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 Agent may reasonably request or in the absence of such request,
as the Borrower may deem advisable; and (b) 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 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 Borrower herein by either giving notice of its
assignment of, and lien on the Collateral, subject to the provisions of Section
0 hereof, to the Account
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Debtors or giving notice of such revocation to the Borrower.
Section VII.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 Agent
in such form and at such times as reasonably specified by the 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 Agent.
Section VII.16. Business Names. Immediately notify the Agent of any
change in the name under which it conducts its business.
Section VII.17. ERISA. With respect to any pension plan which the
Borrower 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 the Borrower or any Commonly Controlled Entity knows or
has reason to know that a "reportable event" has occurred or is likely to
occur, the Borrower will deliver to the Agent a certificate signed by its chief
financial officer setting forth the details of such "reportable event"; (c)
neither the Borrower 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 Borrower 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 the Borrower 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 Borrower will notify the Agent to that effect. Upon the
Agent's request, the Borrower will deliver to the 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 VII.18. Change in Management. Notify the Agent in advance of
any change of the Management Company for any Facility.
Section VII.19. Management. (a) Subject to the terms of that certain
Management Fee Subordination Agreement by and among the Borrower, SALMI and the
Agent of even date herewith, the
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Borrower shall cause SALMI 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 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 Agent, and (b) terminate the Management Agreement
upon receipt of notice from the Agent directing the Borrower to terminate the
Management Agreement after the occurrence of an Event of Default, and, if
requested to do so by the 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 Agent prior to execution. A
fully executed copy of the Management Agreement shall be delivered to the Agent
by the Borrower promptly after it is signed.
Section VII.20. Fees and Expenses; Indemnity. Pay all reasonable
fees, charges, costs and expenses required to satisfy the conditions of the
Financing Documents. The Borrower 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 VII.21. Governmental Surveys or Inspections. Furnish to the
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 VII.22. 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 Agent of
any settlement of any cost report disclosed to the 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 Borrower.
Section VII.23. Updated Appraisals. In addition, the 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 Agent and shall be in all
respects reasonably acceptable to the Agent which appraisals shall include, if
deemed necessary by the Agent, in its reasonable discretion, updated discounted
cash flow analysis, inspections of and commentary on the physical status of the
applicable Facility
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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 Agent in all material respects. The release of such
appraisal reports by the Agent to the Borrower shall be at the Agent's sole
option if the Borrower has not paid the cost of such appraisal. If the Borrower
has paid the cost of the appraisal, a copy of the appraisal will be provided to
the Borrower upon its signing of the Agent's standard appraisal release letter.
The Borrower shall reimburse the 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 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 VII.24. Notification of Certain Events, Events of Default and
Adverse Developments. Promptly give written notice to the 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 Borrower;
(c) any judicial, administrative or arbitral proceeding
pending against the Borrower or any judicial or administrative proceeding known
by the Borrower to have been threatened against it in a written communication
which threatened proceeding, if adversely decided, could cause a Material
Adverse Change in the Borrower;
(d) (i) 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 (ii) 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 the
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Borrower elects to participate, including, without limitation, Medicare,
Medicaid or other private insurer programs or any accreditation of the
Borrower, or (iii) 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 (iv) 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 the Borrower or an Affiliate
(present or prospective) as determined by the 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 the Borrower 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 of the
Borrower or its Subsidiaries 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
in each case listed in clauses (a) through (g), inclusive, of this Section 0
describing in detail satisfactory to the Agent the nature thereof and, in the
case, if any, of notification under clause (a), the action the Borrower
proposes to take with respect thereto or a statement that the Borrower intends
to take no action and an explanation of the reasons for such inaction. In
addition, the Borrower will furnish to the Agent immediately after receipt
thereof copies of all administrative notices material to Borrower's business
and operation of any Facility and all responses by or on behalf of the Borrower
with respect to such administrative notices.
Section VII.25. Compliance with Environmental Laws. If any Hazardous
Materials are used, present or generated on any real property owned or
controlled by the Borrower or for which the Borrower is responsible, 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, underground storage tanks, radon and medical
waste tracking, as well as any laws that are enacted after the date of this
Agreement.
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Section VII.26. Hazardous Materials; Contamination. (a) Give notice
to the Agent within five (5) Banking Days of the Borrower's acquiring knowledge
of the presence of any Hazardous Materials on any property owned or controlled
by the Borrower or for which the Borrower is responsible or of any Hazardous
Materials Contamination with a full description thereof, except for reasonable
quantities of necessary supplies for use by the Borrower in the ordinary course
of its 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 Agent upon
request with satisfactory evidence of such compliance; (c) provide the Agent,
within thirty (30) days after a demand by the Agent, with a bond, letter of
credit or similar financial assurance evidencing to the 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 the Borrower or for which the
Borrower is 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 the Borrower for which the Borrower is responsible for any Hazardous
Materials Contamination.
Section VII.27. Participation in Reimbursement Programs. In the event
the Borrower 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, 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 Borrower in the
good faith exercise of its prudent and commercially reasonable business
judgment). While participating in such plans, the Borrower shall comply with
any and all rules, regulations, standards, procedures and decrees necessary to
maintain the Borrower's participation in any such third party payment or
reimbursement program or plan.
Section VII.28. Minimum Pool A Projects. At least 83% of the number
of Eligible Projects in the Borrowing Base and in
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no event fewer than five (5) of the Eligible Projects in the Borrowing Base at
any one time shall qualify as Pool A Projects.
Section VII.29. Subordination of Distributions and Management Fees.
Subordinate, and cause the partners of the Borrower to subordinate, all
distributions of the Borrower to principal and interest payments on the Loan;
provided, however, that the Borrower may pay distributions to partners of the
Borrower in accordance with Section 0 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 that certain
Management Fee Subordination Agreement of even date herewith (as the same may
be modified from time to time) by and among the Borrower, the Agent and the
Management Company.
Section VII.30. Depository Bank. The Borrower shall maintain its
primary operating accounts, including those accounts containing the Liquid
Assets, if any required pursuant to Section 0 with the 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 prior to applying
them to any other indebtedness owed to such Lender and provided such Agent or
other Lender pays commercially competitive rates on the Borrower's funds.
VIII. NEGATIVE COVENANTS OF BORROWER
Until payment in full and the performance of all of the Obligations,
without the prior written consent of the Agent as permitted pursuant to the
Agency Agreement, the Borrower will not directly or indirectly:
Section VIII.1. Borrowings. Create, incur, assume or suffer to exist
any liability for borrowed money other than the Credit Facility 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
Borrower may make scheduled payments of interest on such debt and may, with the
prior written consent of the Agent, use proceeds of the Loan to make payments
on such loans from Affiliates if the loans were for the purpose of acquiring or
constructing an Eligible Project.
Section VIII.2. Deeds of Trust and Pledges. Create, incur, assume or
suffer to exist any deed of trust, mortgage,
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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 VIII.3. Sale or Transfer of Assets. Directly or indirectly
enter into any arrangement whereby the Borrower shall sell, lease, transfer,
assign or otherwise dispose of more than $250,000 of its assets in any one year
or $750,000 in the aggregate during the term of the Credit Facility 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 VIII.4. Advances and Loans. Make loans or advances to any
Person, including, without limitation, Affiliates, partners and employees of
the Borrower with the exception of loans or advances to Guarantor Subsidiaries.
Section VIII.5. 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 VIII.6. 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 VIII.7. ERISA Compliance. (A) Restate or amend any Plan
established and maintained by the Borrower 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 Borrower or any Commonly Controlled Entity to
materially adversely affect the qualified tax-exempt status of any Plan or
related trusts of the Borrower 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
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Borrower or any Commonly Controlled Entity pursuant to Section 4068 of ERISA;
(F) fail to notify the 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 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 VIII.8. 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 Borrower may
transfer the Collateral or the books and records related thereto to another
location if the Borrower shall have provided to the Agent prior to such
transfer an opinion of counsel addressed to the 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 Borrower at its expense.
Section VIII.9. 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 VIII.10. 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 Borrower with respect to any Facility and which exceeds 10% of its gross
revenue, or consent to or waive any material provisions thereof.
Section VIII.11. 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
Borrower or any Wholly Owned Subsidiary or for which the Borrower or any Wholly
Owned Subsidiary is responsible, except for reasonable quantities of
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necessary supplies for use by the Borrower 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 VIII.12. Subsidiaries. Create or otherwise acquire
any subsidiaries other than Wholly Owned Subsidiaries.
Section VIII.13. Distributions to Partners. (a) Make any
distributions of net operating income to partners of the Borrower unless no
Event of Default exists, and at such time or times as the Borrower has, both
before and after the distribution, at least $2,000,000 plus, for each Facility
which is not a Stabilized Facility, $500,000 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
Borrower's 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 of the Borrower from
proceeds of the Loan as a repayment of equity in an Eligible Project unless the
Borrower gives advance written notice to the Agent of the amount of such
proposed distribution and the Agent acknowledges in writing the availability of
equity to make such a distribution.
Section VIII.14. 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 VIII.15. Partnership Interests. Repurchase, redeem or
retire any partnership interest in the Borrower.
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 IX.1. Failure to Pay and/or Perform the Obligations. The
Borrower shall fail to (a) make any payment of
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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
Agent, except with regard to payment of (a) any Borrowing Base Deficiency which
shall be due as provided in Section 0 hereof, and (b) amounts due at maturity
for which no notice or cure period shall be required to be given.
Section IX.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 Borrower),
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 IX.3. Failure to Comply with Covenants. Default shall be
made by the Borrower in the due observance and perfor mance of any covenant,
condition or agreement contained in Part VII hereof (except for Sections 0, 0,
0, and 0) or in Part VIII hereof.
Section IX.4. Failure to Comply with Books and Records. Default
shall be made by the Borrower in the due observance or performance of Section
0, which default shall remain unremedied, and the Borrower shall cure such
default promptly, but in no event more than ten (10) days after written notice
thereof to the Borrower by the Agent.
Section IX.5. Other Defaults. Default shall be made by the
Borrower 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 Borrower by the Agent, unless the nature of the failure is such that (a)
it cannot be cured within the thirty (30) day period, and (b) the Borrower
institutes corrective action within the thirty (30) day period and (c) the
Borrower diligently pursues such action and completes the cure within ninety
(90) days.
Section IX.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 IX.7. Receiver; Bankruptcy. An Act of Bankruptcy occurs
with respect to the Borrower or the Borrower 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 the Borrower, the same
shall not
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constitute an Event of Default if such proceeding is dismissed within sixty
(60) days from the date of such Act of Bankruptcy.
Section IX.8. Judgment. Any judgment against the Borrower of
$250,000 or more or any attachment or other levy against the property of the
Borrower remains unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of thirty (30) days.
Section IX.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 IX.10. Default Under Other Borrowings. (a) Default
which continues beyond any applicable grace period shall be made under any
obligation of or guaranteed by the Borrower or any Guarantor Subsidiary 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 Borrower or any Guarantor Subsidiary, if the holder or
obligee of such obligation has commenced action on any of the remedies
available to it under the obligation.
Section IX.11. Material Adverse Change. If the Agent in its
reasonable discretion determines that a Material Adverse Change has occurred in
the financial condition of the Borrower.
Section IX.12. Impairment of Position. If the 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 IX.13. Change in Status or Ownership. The Borrower is
dissolved, merged, consolidated or reorganized, or any change occurs in the
ownership without the prior written consent of the Agent.
Section IX.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.
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<PAGE> 64
Section IX.15. Change in Management. The Management Agreement is
terminated without the prior written consent of the Agent.
Section IX.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 Borrower or a Guarantor Subsidiary deems
such action to be, in the exercise of prudent business judgment, in the best
interest of Borrower or a Guarantor Subsidiary, 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 Borrower or a Guarantor
Subsidiary elects 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 Borrower or a Guarantor
Subsidiary to obtain an operating license for any Facility within sixty (60)
days of the issuance of the certificate of occupancy for such Facility.
Section IX.17. Compliance with Law. The Borrower or a Guarantor
Subsidiary fails 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.
X. RIGHTS AND REMEDIES UPON DEFAULT
Section X.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 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
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<PAGE> 65
the other Financing Documents to the contrary notwithstanding.
Section X.2. Further Advances; Immediate Acceleration. Following
an Event of Default the Agent may from time to time without notice to the
Borrower 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 0 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 Borrower.
Section X.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 Agent
may, without notice to the Borrower or any Guarantor Subsidiary 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 Agent, and/or exercise all
rights and privileges of the Borrower or Guarantor Subsidiary 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 Borrower to engage, contract with, and/or
hire qualified service, billing, collection and other such agents,
organizations and companies acceptable to the Agent to collect and/or realize
upon any or all of the Collateral and to remit the proceeds to the 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 Agent to the
extent permitted by applicable law, with the Agent taking control of the cash
and non-cash proceeds thereof and/or direct the Borrower to (and the Borrower
shall) turn over to the 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;
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<PAGE> 66
(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 Borrower's 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 Borrower's 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 the Borrower 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 Borrower to such address or Post Office
Box as the Agent may designate and receive and open all mail addressed to the
Borrower.
In addition, the Borrower shall, following an Event of Default
promptly, upon request, execute and deliver to the Agent written assignments,
to the extent permitted by applicable law, in form and content acceptable to
the 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
Borrower or a Guarantor Subsidiary 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.
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<PAGE> 67
Section X.4. Performance by Lenders. Following an Event of
Default, the Agent without the necessity of prior notice to or demand upon the
Borrower or any Guarantor Subsidiary 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 Borrower, and may enter upon the premises of
the Borrower or any Guarantor Subsidiary for that purpose and take all such
action thereon as the Agent may consider necessary or appropriate for such
purpose. The Agent will give the Borrower notice at least subsequently of any
such performance by the Agent. All sums so paid or advanced by the 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 Borrower to
the Agent on demand and shall constitute and become a part of the Obligations.
Section X.5. 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 Borrower 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 Agent, the Borrower
shall assemble the Collateral and make it available to the Lenders, at a place
designated by the Agent; and the Lenders or their agents may enter upon the
Borrower's or a Guarantor Subsidiary's 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 Borrower or the Guarantor Subsidiaries at the address
set forth in Part XI hereof, or such other address of the Borrower or the
Guarantor Subsidiaries 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 Borrower or the Guarantor
Subsidiaries. The Borrower or the Guarantor Subsidiaries 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,
62
<PAGE> 68
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
Borrower or the Guarantor Subsidiaries to the 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 Borrower or the Guarantor Subsidiaries or to any
other party entitled thereto.
Section X.6. 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 Borrower
and any Guarantor Subsidiaries 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 Borrower will pay
to the Beneficiary, upon demand, all expenses, including receiver's fees,
attorney's fees, costs and agents compensation, advanced by the Borrower and
incurred pursuant to the provisions contained in this Section.
XI. MISCELLANEOUS
Section XI.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 Agent
or the Lenders: NATIONSBANK, N.A.
10 Light Street
Baltimore, Maryland 21202
Attn: Robert J. Montanari
Vice President
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<PAGE> 69
if to the Borrower: SUNRISE EAST ASSISTED LIVING LIMITED
or any Guarantor PARTNERSHIP
Subsidiaries c/o Sunrise Assisted Living Investments,
Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
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
7929 Westpark Drive
McLean, Virginia 22102
Section XI.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 Borrower and any Guarantor Subsidiaries
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 XI.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 XI.4. No Waiver of Rights by the Lenders. No failure or
delay by the 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 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 Agent
nor the Lenders
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<PAGE> 70
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 XI.5. Entire Agreement. The Financing Documents shall
completely and fully supersede all other agreements, both written and oral,
between the Lenders and the Borrower relating to the Obligations. Neither the
Lenders nor the Borrower 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 XI.6. Survival of Agreement; Successors and Assigns. All
covenants, agreements, representations and warranties made by the Borrower
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 Borrower and/or the Guarantor Subsidiaries, 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
Borrower and/or the Guarantor Subsidiaries, but this Agreement may not be
assigned by the Borrower without the prior written consent of the Lenders.
Section XI.7. Expenses. The Borrower agrees to pay all reasonable
out-of-pocket expenses of the Lenders and NationsBanc Montgomery Securities,
Inc. (excluding travel expenses but including the reasonable fees and expenses
of the legal counsel of the 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 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 Borrower), any
future modification of the Financing Documents, the addition of Eligible
Projects to the Borrowing Base or the addition of Optional Collateral, or the
enforcement of any provision of this Agreement and the collection of the
Obligations. The Borrower agrees to indemnify and save harmless the Lenders
from any liability resulting from the failure to pay
65
<PAGE> 71
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 Borrower further agrees 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 XI.8. Counterparts. This Agreement may be executed in any
number of counterparts all of which together shall constitute a single
instrument.
Section XI.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 XI.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 Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the 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 Borrower in any
case shall entitle the Borrower to any other or further notice or demand in the
same, similar or other circumstance.
Section XI.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 Borrower to the Lenders shall
become immediately due and payable.
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<PAGE> 72
Section XI.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 XI.13. Headings. The headings in this Agreement are for
convenience only and shall not limit or otherwise affect any of the terms
hereof.
Section XI.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
Borrower and the Lenders, and the Borrower 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 Borrower 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 XI.15. 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 Borrower 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 Borrower 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, 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
Borrower shall indemnify, defend and hold the Lenders and their successors and
assigns harmless from and against any and all claims, demands,
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<PAGE> 73
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 XI.16. License of Tradename. The Borrower and any Guarantor
Subsidiaries 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 Borrower's name, the names of any Guarantor Subsidiaries and the name
"Sunrise" 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 Borrower further agrees that a third-party purchaser of a Facility may
continue to operate the Facility under the Borrower's name unless the Borrower
objects in writing thereto.
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<PAGE> 74
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement on the day and year first above written.
<TABLE>
<S> <C>
WITNESS/ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED
PARTNERSHIP,
a Virginia limited partnership
By: Sunrise Assisted Living
Investments, Inc., General
Partner
/s/ Wayne G. Tatusko By: /s/ James S. Pope (SEAL)
- --------------------------- --------------------------
Name: James S. Pope
Title: Vice President
WITNESS: NATIONSBANK, N.A., as Agent for the
Lenders
/s/ Wayne G. Tatusko By: /s/ Robert J. Montanari (SEAL)
- ------------------------- ------------------------
Robert J. Montanari
Vice President
</TABLE>
69
<PAGE> 75
LIST OF EXHIBITS
A Form of Note
B Form of Borrowing Base Report
C Initial Borrowing Base Report
D Places of Business
E List of Optional Collateral
F Form of Subsidiary Joinder Agreement
70
<PAGE> 76
EXHIBIT A
FORM OF NOTE
See Exhibit 10.31.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
<PAGE> 77
EXHIBIT B
FORM OF BORROWING BASE REPORT
See Exhibit C.
<PAGE> 78
EXHIBIT C
INITIAL BORROWING BASE REPORT
BORROWING BASE REPORT
<TABLE>
<CAPTION>
Total Appraised Deed of Trust
Development Value @ Lien
Budget 80% of Stabilization 75% of Amount
(000's) Costs (000's) Value (000's)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Abington, PA $ 17,900 $ 14,320 $ 17,900 $ 13,425 $ 13,425
(6/6/96) (5/96)
Morris Plains, NJ $ 9,764 $ 7,811 $ 11,450 $ 8,588 $ 7,811
(6/10/96) (6/96)
Franconia, VA $ 9,925 $ 7,940 $ 10,775 $ 8,081 $ 7,940
(3/05/96) (4/96)
Wayne, NJ $ 9,705 $ 7,764 $ 10,725 $ 8,044 $ 7,764
(6/4/96) (4/96)
Old Tappan, NJ $ 10,375 $ 8,300 $ 11,750 $ 8,813 $ 8,300
(6/4/96) (7/96)
Granite Run, PA $ 9,717 $ 7,774 $ 10,250 $ 7,688 $ 7,688
(5/28/96) (5/96)
Westfield, NJ $ 10,485 $ 8,388 $ 11,425 $ 8,569 $ 8,388
(9/22/96) (4/96)
------------------------------------------------------------------------------------------------------
TOTAL $ 77,871 $ 62,297 $ 84,275 $ 63,206 $ 61,316
<CAPTION>
Costs
Most Recent Incurred
Verified % To Date Project Availablility
Requisition Complete (000's) Status (000's)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Abington, PA Jul-97 100% $ 15,093 a $ 12,075
Morris Plains, NJ 10/6/97 99% $ 9,229 a $ 7,383
Franconia, VA 9/1/97 100% $ 9,435 a $ 7,548
Wayne, NJ 10/24/97 100% $ 8,468 a $ 7,014
Old Tappan, NJ 10/6/97 99% $ 9,895 a $ 7,916
Granite Run, PA 10/6/97 99% $ 9,242 a $ 7,393
Westfield, NJ 10/6/97 99% $ 8,226 a $ 6,581
----------------------------------------------------------------------------------------------
TOTAL $ 69,888 $ 55,910
</TABLE>
Acknowledge and Agree
Sunrise East Assisted Living, LP
By:
----------------------------
Vice President
Date:
--------------------------
<PAGE> 79
EXHIBIT D
PLACES OF BUSINESS
AS OF DECEMBER 23, 1997
The Borrower's Chief Executive
Office is:
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Locations of Collateral:
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Sunrise of Franconia
6541 Franconia Road
Springfield, Virginia 22150
Sunrise of Abington
1801 Susquehana Road
Abington, Pennsylvania 19001
Sunrise of Granite Run
Route 352 and Barren Road
Middletown Township, Pennsylvania 19063
Sunrise of Morris Plains
209 Littleton Road
Morris Plains, New Jersey 07950
Sunrise of Old Tappan
195 Old Tappan Road
Old Tappan, New Jersey 07675
Sunrise of Wayne
184 Berdan Avenue
Wayne, New Jersey 07470
Sunrise of Westfield
240 Springfield Avenue
Westfield, New Jersey 07090
<PAGE> 80
EXHIBIT E
LIST OF OPTIONAL COLLATERAL AS OF THE FACILITY CLOSING
None.
<PAGE> 81
EXHIBIT F
FORM OF SUBSIDIARY JOINDER AGREEMENT
SUBSIDIARY JOINDER AGREEMENT
THIS SUBSIDIARY JOINDER AGREEMENT (this "Agreement") is made this ___
day of _________, 199_, by __________________, a corporation/limited
partnership/limited liability company organized under the laws of the
State/Commonwealth of _______ ("Subsidiary") in favor of each of the Lenders
under the Agency Agreement (as hereinafter defined) and NATIONSBANK, N. A., a
national banking association (the "Agent").
NOW, THEREFORE, for value received the undersigned agree as follows:
1. Reference is hereby made to the Amended and Restated Financing
and Security Agreement dated December 23, 1997 (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, a limited partnership organized and existing under the laws of the
Commonwealth of Virginia (the "Borrower"), the Agent and certain additional
lenders (collectively with the Agent, the "Lenders") who are participating in a
bank group pursuant to the Amended and Restated Agency Agreement by and among
the Lenders party thereto dated December 23, 1997 (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 aggregate principal
amount of $250,000,000 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 shall be evidenced by the Amended,
Restated, Consolidated and Increased Master Promissory Note dated December 23,
1997 made by the Borrower to the Agent in the maximum principal amount of
$250,000,000 (as amended, restated or substituted from time to time, the
"Note"). The Credit Facility will be subject to the terms and conditions of
the Financing Agreement and the Amended and Restated Master Construction Loan
Agreement (as amended, restated or substituted from time to time, the
"Construction Agreement") dated December 23, 1997 by and between the Borrower
and the Agent.
3. As a condition precedent to extending the Credit Facility to
the Borrower, the Lenders required that any Wholly Owned Subsidiary 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. The Subsidiary is a Wholly Owned Subsidiary of the
Borrower.
1
<PAGE> 82
4. The Subsidiary and the Borrower hereby acknowledge, confirm
and agree that on and as of the date of this Agreement Subsidiary has received
the benefit of advances made under the Loan and granted a first lien
Mortgage/Deed of Trust, Assignment and Security Agreement covering its Facility
located in _____________, __________ and known as "Sunrise ________" (the
"Property") to secure the Obligations, and as such shall be jointly and
severally liable, as provided in the Financing Documents, for all Obligations
thereunder (whether incurred or arising prior to, on, or subsequent to the date
hereof) and otherwise bound by all of the terms, provisions and conditions
thereof.
5. The Subsidiary hereby represents and warrants to the 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 comprised of the Borrower and the Guarantor
Subsidiaries and that the successful operation of the integrated group is
dependent upon the continued successful performance of the functions of the
integrated group as a whole. Subsidiary 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 Subsidiary
individually, and the Subsidiary'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 Subsidiary of the financing.
6. For administrative convenience, the Subsidiary hereby
irrevocably appoints the Borrower as the Subsidiary's attorney-in-fact, with
power of substitution (with the prior written consent of the Agent in the
exercise of its sole and absolute discretion), in the name of the Borrower or
in the name of the Subsidiary 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
the Borrower may so elect from time to time, including, without limitation,
actions to (a) request advances under the Credit Facility and direct the Agent
to disburse or credit the proceeds of any Loan directly to an account of the
Borrower, any one or more of the Guarantor Subsidiaries, the Subsidiary or
otherwise, which direction shall evidence the making of such Loan and shall
constitute the acknowledgement by each of the Borrower and the Guarantor
Subsidiaries 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 Subsidiary or
in the name of the Borrower. The foregoing appointment is coupled with an
interest, cannot be revoked without the prior written consent of the Agent, and
may be exercised from time to time through the Borrower's duly authorized
officer, officers or other Person or Persons designated by the Borrower to act
from time to time on behalf of the Borrower.
2
<PAGE> 83
7. The Subsidiary hereby irrevocably authorizes each of the
Lenders to make Loans to any one or more all of the Borrower and the Guarantor
Subsidiaries 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 the Borrower under the provisions of the
most recent certificate of corporate resolutions and/or incumbency of the
Borrower on file with the Agent.
8. Neither the 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 Agent and the Borrower or the
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
Borrower and the Guarantor Subsidiaries have agreed among themselves, and the
Agent and the Lenders consent to that agreement, that each Borrower and
Guarantor Subsidiary shall have rights of contribution from all of the other of
them to the extent the Borrower or such Guarantor Subsidiary incurs Obligations
in excess of the proceeds of the Loans received by, or allocated to purposes
for the direct benefit of, the Borrower or such Guarantor Subsidiary. All such
indebtedness and rights shall be, and are hereby agreed by the Borrower and the
Guarantor Subsidiaries to be, subordinate in priority and payment to the
indefeasible repayment in full in cash of the Obligations, and, unless the
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 Subsidiary agrees that all of such inter-company indebtedness and
rights of contribution are part of the Collateral and secure the Obligations.
The Subsidiary hereby waives all rights of counterclaim, recoupment and offset
between or among the Borrower and the other Guarantor Subsidiaries arising on
account of that indebtedness and otherwise. The Subsidiary 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 Subsidiary hereby assigns, pledges and grants to the
Agent, for the ratable benefit of the Lenders as security for the Obligations,
and agrees that the Agent, for the ratable benefit of the Lenders, shall have a
perfected and continuing security interest in, and Lien on, (a) all of the
Subsidiary's Accounts, Equipment, General Intangibles, documents, Chattel
Paper, Instruments and Inventory, all right title and interest of the
Subsidiary 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, and shall also
cover, without limitation, (a) any and all property specifically included in
those
3
<PAGE> 84
respective terms in the Financing Agreement or in the Financing Documents, (b)
all right, title and interest of the Subsidiary 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, (c)
all right, title and interest of the Subsidiary under all construction,
architectural and design contracts and plans and specifications, (d) any and
all property and/or collateral described in any of the Security Documents,
including, without limitation, the Financing Agreement, the Deed of Trust
[MORTGAGE] and the Pledge, Assignment and Security Agreement, (e) any and all
bank accounts or other deposit accounts of the Subsidiary wherever located, and
(f) all proceeds (cash and non-cash, including, without limitation, insurance
proceeds), of the foregoing. The Subsidiary further agrees that the 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.
In addition to the foregoing provision and 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, by its execution of this
Agreement, the Subsidiary specifically joins in each of the following documents
as they relate to the Property, as if the Subsidiary had been a party thereto
as of the date originally executed: the Management Fee Subordination Agreement,
the Amended and Restated Collateral Assignment of Licenses, Participation
Agreements and Resident Agreements and the Amended and Restated Collateral
Assignment of Operating Agreements and Management Contracts, each dated
December 23, 1997 by and between the Borrower and the Agent.
1. Without in any way implying any limitation on any of the
provisions of this Agreement, the Subsidiary agrees to execute such financing
statements, instruments, and other documents as the Agent may require.
2. Subsidiary hereby covenants and agrees with the 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.
3. Guaranty.
(a) Subsidiary hereby unconditionally and irrevocably,
guarantees to the 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;
4
<PAGE> 85
(ii) the due and punctual payment in full (and not
merely the 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 Subsidiary
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. The Subsidiary expressly agrees that the Agent may, in its sole and
absolute discretion, without notice to or further assent of the Subsidiary
without in any way releasing, affecting or in any way impairing the obligations
and liabilities of the Subsidiary hereunder:
(v) waive compliance with, or any defaults under,
or grant any other indulgences under or with respect to any of the
Financing Documents;
(vi) modify, amend, change or terminate any
provisions of any of the Financing Documents;
(vii) grant extensions or renewals of or with
respect to the Credit Facilities, the Note or any of the other
Financing Documents;
(viii) effect any release, subordination, compromise
or settlement in connection with this Agreement, the Note or any of
the other Financing Documents;
(ix) 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;
(x) 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;
5
<PAGE> 86
(xi) make future advances pursuant to the
Financing Agreement or any of the other Financing Documents;
(xii) 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;
(xiii) deal in all respects with the Borrower or
any other Guarantor Subsidiary as if this paragraph Guaranty. were not
in effect;
(xiv) effect any release, compromise or settlement
with the Borrower or any other Guarantor Subsidiary, whether in
their capacity as a Borrower or as a guarantor under this paragraph
Guaranty. or any other guarantor; and
(xv) provide debtor-in-possession financing or
allow use of cash collateral in proceedings under the Bankruptcy Code,
it being expressly agreed by the Borrower and the Subsidiary that any
such financing and/or use would be part of the Obligations.
(c) The obligations and liabilities of the Subsidiary,
as guarantor under this paragraph Guaranty. shall be primary, direct and
immediate, shall not be subject to any counterclaim, recoupment, set off,
reduction or defense based upon any claim that Subsidiary may have against any
one or more of the Borrower or any other Guarantor Subsidiary that has executed
a Subsidiary Joinder Agreement, the Agent, and of the Lenders and/or any other
guarantor and shall not be conditional or contingent upon pursuit or
enforcement by the 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 Agent shall not be required to make any
demand upon the Borrower or any Guarantor Subsidiary that has executed a
Subsidiary Joinder Agreement, or to sell the Collateral or otherwise pursue,
enforce or exhaust its remedies against the Borrower, any Guarantor Subsidiary
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 Borrower and any
Guarantor Subsidiary under this paragraph Guaranty., either in the same action,
if any, brought against the Borrower or any Guarantor Subsidiary or in separate
actions or proceedings, as often as the 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 Borrowers, any Guarantor Subsidiary, 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 the Borrower or any Guarantor Subsidiary, in their respective
capacities as
6
<PAGE> 87
borrowers and guarantors under this paragraph Guaranty., or under any of the
Financing Documents shall not modify, limit, lessen reduce, impair, discharge,
or otherwise affect the liability of the Borrower and each Guarantor Subsidiary
under this paragraph Guaranty. in any manner whatsoever, and this paragraph
Guaranty. shall remain and continue in full force and effect. It is the
intent and purpose of this paragraph Guaranty. that the Borrower shall and
does hereby waive all rights and benefits which might accrue to any Guarantor
Subsidiary or any other guarantor by reason of any such proceeding, and the
Borrower agrees that it shall be liable for the full amount of the obligations
and liabilities under this paragraph Guaranty. regardless of, and irrespective
to, any modification, limitation or discharge of the liability of any Guarantor
Subsidiary, any other guarantor or any obligor under any of the Financing
Documents, that may result from any such proceedings.
(d) The Subisidiary, as guarantor under this paragraph
Guaranty., hereby unconditionally, irrevocably and expressly waives:
(xvi) presentment and demand for payment of the
Obligations and protest of non-payment;
(xvii) notice of acceptance of this paragraph
Guaranty. and of presentment, demand and protest thereof;
(xviii) notice of any default hereunder or under the
Note or any of the other Financing Documents and notice of all
indulgences;
(xix) notice of any increase in the amount of any
portion of or all of the indebtedness guaranteed by this paragraph
Guaranty.;
(xx) demand for observance, performance or
enforcement of any of the terms or provisions of this paragraph
Guaranty., the Note or any of the other Financing Documents;
(xxi) all errors and omissions in connection with
the Agent's administration of all indebtedness guaranteed by this
paragraph Guaranty.;
(xxii) any right or claim of right to cause a
marshalling of the assets of any one or more of the Borrower or any
other Guarantor Subsidiary;
(xxiii) any act or omission of the Agent which changes
the scope of the risk as guarantor hereunder; and
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<PAGE> 88
(xxiv) all other notices and demands otherwise
required by law which Subsidiary may lawfully waive.
(e) Within ten (10) days following any request of the
Agent so to do, the Subsidiary will furnish the Agent and such other
persons as the 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 paragraph Guaranty.
1. 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.
WITNESS the due execution hereof as of the day and year first
written above.
WITNESS OR ATTEST:
---------------------------
By: (SEAL)
- ------------------------ ----------------------
Name:
Title:
WITNESS: NATIONSBANK, N. A., as Agent
By: (SEAL)
- ------------------------ ------------------------
Robert J. Montanari
Vice President
8
<PAGE> 1
EXHIBIT 10.31.3
AMENDED AND RESTATED MASTER CONSTRUCTION LOAN AGREEMENT
SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP
as BORROWER
NATIONSBANK, N.A.
as AGENT
December 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS; RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.01. Incorporation of Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------------------
Section 1.02. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------
Section 1.03. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
ARTICLE II. AVAILABILITY UNDER THE LOAN AND VERIFYING REQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.01. The Loan and Procedures for Adding a Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . 7
--------------------------------------------------
Section 2.02. Permitted Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------
Section 2.03. Requisitions Demonstrating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----------------------------------
Section 2.04. Conditions Precedent to Facility Closing and Addition of Deeds of Trust . . . . . . . . . . . . . 9
-----------------------------------------------------------------------
Section 2.05. Conditions Precedent to Determining Availability Under Borrowing Base . . . . . . . . . . . . . . 14
---------------------------------------------------------------------
Section 2.06. Conditions Under Which an Eligible Project is a Completed Facility . . . . . . . . . . . . . . . 16
------------------------------------------------------------------
Section 2.07. Advances to Others for the Account of the Borrower . . . . . . . . . . . . . . . . . . . . . . . 16
--------------------------------------------------
Section 2.08. Requisitions for the Operating Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------------------------------------
Section 2.09. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----------
Section 2.10. Liability of the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------------------
Section 2.11. Stored Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------------
Section 2.12. Limitations on Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-----------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.01. Compliance in Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------------------
Section 3.02. Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------------
Section 3.03. Building Permits; Other Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------------
Section 3.04. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------
Section 3.05. Access; Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------
Section 3.06. Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------
Section 3.07. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------
Section 3.08. Affirmation of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------------------------------
ARTICLE IV. AFFIRMATIVE COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.01. Compliance with Laws; Encroachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------------------
Section 4.02. Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
Section 4.03. Inspections; Cooperation; Payment of Inspecting Engineer . . . . . . . . . . . . . . . . . . . . 20
--------------------------------------------------------
Section 4.04. Vouchers and Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------------
Section 4.05. Payments for Labor and Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
--------------------------------
Section 4.06. Correction of Construction Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------------------------------
Section 4.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------
Section 4.08. Fees and Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------------------
Section 4.09. Copies of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.01. Other Liens; Transfers; "Due-on-Sale"; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------------------
Section 5.02. Impairment of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------------
Section 5.03. Conditional Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
Section 5.04. Changes to Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------------------------
Section 5.05. Construction Contract; Construction Management . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------------------------------
ARTICLE VI. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.01. Defaults Under Other Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------------------------
Section 6.02. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------------------
Section 6.03. Compliance with Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------------------------
Section 6.04. Damage to Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
----------------------
Section 6.05. Disclosure of Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------
Section 6.06. Mechanic's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------
Section 6.07. Survey Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------
Section 6.08. General Contractor Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------------------
ARTICLE VII. REMEDIES ON DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.01. Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------
Section 7.02. No Conditions Precedent to Exercise of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 25
-----------------------------------------------
Section 7.03. Remedies Cumulative and Concurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------------------
Section 7.04. Strict Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------------
ARTICLE VIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.01. No Warranty by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------
Section 8.02. Liability of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------
Section 8.03. No Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------
Section 8.04. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------
Section 8.05. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------
Section 8.06. Modification; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------
Section 8.07. Third Parties; Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------------
Section 8.08. Conditions; Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------------------
Section 8.09. Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------------
Section 8.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------
Section 8.11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------
Section 8.12. Signs; Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------
Section 8.13. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------
Section 8.14. Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------------
</TABLE>
<PAGE> 4
AMENDED AND RESTATED MASTER CONSTRUCTION LOAN AGREEMENT
THIS AMENDED AND RESTATED MASTER CONSTRUCTION LOAN AGREEMENT (this
"Agreement"), made as of the 23rd day of December, 1997, by and between SUNRISE
EAST ASSISTED LIVING LIMITED PARTNERSHIP, a limited partnership organized and
existing under the laws of the Commonwealth of Virginia (the "Borrower") and
NATIONSBANK, N.A., as agent (the "Agent") for itself and for certain additional
lenders (collectively with the Agent, the "Lenders"), who are or shall be from
time to time participating as lenders hereunder pursuant to the Agency
Agreement.
RECITALS
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the Borrower
executed a promissory note in the maximum principal sum of each Facility Loan
(each a "Facility Note" and collectively, the "Facility Notes"). Availability
under the Master Note was reduced by the principal sum of each Facility Note.
As of the date hereof, seven (7) Facility Loans have been made under the
Original Credit Facility as hereinafter described. The assisted or independent
living facilities for which Facility Loans were obtained is referred to herein
by its location and word "Facility." Advances under the Notes were made
pursuant to the terms of a Master Construction Loan Agreement by and between
the Borrower and the Agent dated June 13, 1996 (the "Original Construction
Agreement")
C. The Borrower obtained a construction/interim loan for the Franconia
Facility evidenced by a Note dated June 13, 1996 in the maximum principal sum
of $7,940,400 (the "Franconia Note") which is secured by, among other things a
Credit Line Deed of Trust, Assignment and Security Agreement also dated June
13, 1996 (the "Franconia Deed of Trust") in favor of trustees designated
<PAGE> 5
by the Agent and recorded in the Land Records of Fairfax County, Virginia in
Deed Book 9749, Page 1562. A principal balance of $100,000 remains outstanding
under the Franconia Note.
D. The Borrower obtained a construction/interim loan for the Granite
Run Facility evidenced by a Note dated June 13, 1996 in the maximum principal
sum of $7,688,000 (the "Granite Run Note") which is secured by, among other
things an Open-End Mortgage, Assignment and Security Agreement also dated June
13, 1996 (the "Granite Run Deed of Trust") and recorded in the Land Records of
Delaware County, Pennsylvania in Volume 1500, Page 1704 and re-recorded in
Volume 1526, Page 977. A principal balance of $100,000 remains outstanding
under the Granite Run Note.
E. The Borrower obtained a construction/interim loan for the Abington
Assisted Living Facility evidenced by a Note dated June 13, 1996 in the maximum
principal sum of $8,995,000 (the "Abington Assisted Note") which is secured by,
among other things an Open-End Mortgage, Assignment and Security Agreement also
dated June 13, 1996 (the "Abington Deed of Trust") and recorded in the Land
Records of Montgomery County, Pennsylvania in Deed Book 7783, Page 849. A
principal balance of $100,000 remains outstanding under the Abington Assisted
Note.
F. The Borrower obtained a construction/interim loan for the Abington
Independent Living Facility evidenced by a Note dated June 13, 1996 in the
maximum principal sum of $4,430,000 (the "Abington Independent Note") which is
also secured by, among other things the Abington Deed of Trust. A principal
balance of $100,000 remains outstanding under the Abington Independent Note.
The Loans evidenced by the Abington Assisted Note and the Abington Independent
Note are treated as one Loan.
G. The Borrower obtained a construction/interim loan for the Morris
Plains Facility evidenced by a Note dated September 5, 1996 in the maximum
principal sum of $7,993,000 (the "Morris Plains Note") which is secured by,
among other things a Mortgage, Assignment and Security Agreement also dated
September 5, 1996 (the "Morris Plains Deed of Trust") and recorded in the Land
Records of Morris County, New Jersey in Deed Book 6632, Page 58. A principal
balance of $100,000 remains outstanding under the Morris Plains Note.
H. The Borrower obtained a construction/interim loan for the Wayne
Facility evidenced by a Note dated September 5, 1996 in the maximum principal
sum of $8,020,000 (the "Wayne Note") which is secured by, among other things a
Mortgage, Assignment and Security Agreement also dated September 5, 1996 (the
"Wayne Deed of Trust") and recorded in the Land Records of Passaic County, New
Jersey in Mortgage Book 0-164, Page 17. A principal balance
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<PAGE> 6
of $100,000 remains outstanding under the Wayne Note.
I. The Borrower obtained a loan for the Old Tappan Facility evidenced
by a Note dated September 5, 1996 in the maximum principal sum of $8,300,000
(the "Old Tappan Note") which is secured by, among other things a Mortgage,
Assignment and Security Agreement also dated September 5, 1996 (the "Old Tappan
Deed of Trust") and recorded in the Land Records of Bergen County, New Jersey
in Mortgage Book 9272, Page 700. A principal balance of $100,000 remains
outstanding under the Old Tappan Note.
J. The Borrower obtained a loan for the Westfield Facility evidenced by
a Note dated May 12, 1997 in the maximum principal sum of $8,388,000 (the
"Westfield Note") which is secured by, among other things a Mortgage,
Assignment and Security Agreement also dated May 12, 1997 (the "Westfield Deed
of Trust") and recorded in the Land Records of Union County, New Jersey in Deed
Book 6259, Page 141. A principal balance of $100,000 remains outstanding under
the Westfield Note.
K. The Borrower has applied to the Lenders to increase the maximum
principal sum of the Original Credit Facility to $250,000,000 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") and to provide that the
Credit Facility will be revolving. 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 the same date as this Agreement
by and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Financing Agreement") and this Agreement.
L. Advances of the Loan may be made to the Borrower for the general
business purposes of the Borrower or its Wholly Owned Subsidiaries which are
Guarantor Subsidiaries, including, but not limited to, financing the
construction or purchase of assisted living facilities or independent living
facilities.
M. The Borrower and the Lenders have agreed to (1) the consolidation of
the indebtedness evidenced by the Facility Notes with the Master Note which
will continue to be secured by, among other things, the Franconia Deed of
Trust, the Granite Run Deed of Trust, the Abington Deed of Trust, the Morris
Plains Deed of Trust, the Wayne Deed of Trust, the Old Tappan Deed of Trust and
the Westfield Deed of Trust, (collectively, the "Existing Deeds of Trust") and
(2) modification of the terms or repayment of the indebtedness evidenced by the
Master Note and the Facility Notes pursuant to the terms of the Amended,
Restated, Increased and Consolidated Master Promissory Note of even date
herewith (as
- 3 -
<PAGE> 7
amended, restated, renewed or substituted from time to time, the "Note") and
pursuant to the terms of the Amended and Restated Financing and Security
Agreement of even date herewith (as amended, restated or substituted from time
to time, the Financing Agreement.
N. The Loan will be evidenced by the Amended, Restated and Increased
Master Promissory Note of even date herewith (as amended, restated, renewed or
substituted from time to time, the "Note").
O. The Lenders have agreed to make available the Credit Facility upon
the conditions that this Agreement amending and restating the Original
Construction Agreement in its entirety be executed and delivered to the Agent.
NOW, THEREFORE, and in consideration of these presents, and in further
consideration of the mutual covenants and agreements herein set forth and of
the sum of Ten Dollars ($10.00) lawful money of the United States of America by
each of the parties to the other paid, receipt of which is hereby acknowledged,
the parties hereto do hereby covenant and agree as follows:
ARTICLE I. DEFINITIONS; RULES OF CONSTRUCTION.
Section I.01. Incorporation of Recitals. The Recitals set forth
hereinabove are incorporated herein by reference.
Section I.02. Definitions. The Borrower and the Agent hereby agrees
that, unless the context otherwise specifies or requires, the following terms
shall have the meanings herein specified, such definitions to be applicable
equally to the singular and the plural forms of such terms and to all genders
and that other capitalized terms used but not defined herein shall have the
meaning set forth in the Financing Agreement:
"Architect" shall mean the architect named in the Architect's
Contract, if any, and his or its successors and permitted assigns.
"Architect's Contract" shall mean the architect's agreement by and
between the Borrower, 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 the Borrower and an architect and approved in writing by
the Agent, as the same may be amended from time to time with the prior written
approval of the Agent.
"Completion Date" shall mean the date which is fifteen
- 4 -
<PAGE> 8
(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
the Borrower or any Guarantor Subsidiary, 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 Agent, as the same may be amended
from time to time with the prior written approval of the Agent.
"Default" shall mean an event which, with the giving of Notice or
lapse of time, or both, would constitute an Event of Default under the
provisions of this Agreement.
"Development Fee" shall have the meaning set forth in Section
2.01(c) hereof.
"Event(s) of Default" shall mean the occurrence of any one or more
of the events specified in Article VI of this Agreement and the continuance of
such event beyond the applicable grace and/or cure periods therefor, if any,
set forth in Article VI or in another Financing Document.
"Financing Agreement" shall mean the Amended and Restated Financing
and Security Agreement between the Borrower and the Agent of even date herewith
as the same may from time to time be extended, amended, restated, supplemented
or otherwise modified.
"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.
"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).
"Inspecting Engineer" shall mean such person or firm as the 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 Agent
may from time to time deem appropriate or as may be required by the terms of
this Agreement.
- 5 -
<PAGE> 9
"Interest Reserve" shall have the meaning set forth in Section 2.01
hereof.
"Land" shall mean the land described in the applicable Deed of
Trust.
"Major Subcontractor" shall mean a subcontractor under a subcontract
in an amount of $100,000 or more pertaining to any Facility.
"Material Lease" shall mean a lease of a portion of a Facility to a
party other than a resident which exceeds 1,000 square feet of space or $15,000
per annum in rent.
"Notice" shall mean a written communication delivered as specified
in Section 11.1 of the Financing Agreement.
"Operating Reserve" shall mean a reserve in an amount approved by
the Agent included in each Total Development Budget to cover the costs of
leasing up a Facility and initial operating deficits.
"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 Facility for which a Loan is made
and which are approved in writing by the Agent, as the same may from time to
time be amended with the prior written approval of the Agent, including but not
limited to, the plans and specifications prepared by the Architect, a copy of
which have been initialed by the Borrower and the Agent for identification and
delivered to the Agent.
"Requisition" or "Requisitions" shall have the meaning set forth in
Section 2.03 hereof.
"Stored Materials" shall have the meaning set forth in Section 2.11
hereof.
"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
- 6 -
<PAGE> 10
American Congress on Surveying and Mapping (1992 Edition).
"Total Development Budget" or "Total Development Budgets" shall mean
individually or collectively the budget for the construction of the
Improvements for and the initial operating phase of a Facility as such Total
Development Budget is approved by the Agent (as amended from time to time with
the approval of the Agent).
Section I.03. Rules of Construction. The words "hereof", "herein",
"hereunder", "hereto", and other words of similar import refer to this
Agreement in its entirety. The terms "agree" and "agreements" mean and include
"covenant" and "covenants". The headings of this Agreement are for convenience
only and shall not define or limit the provisions hereof. All references (a)
made in the neuter, masculine or feminine gender shall be deemed to have been
made in all such genders, (b) made in the singular or plural number shall be
deemed to have been made, respectively, in the plural or singular number as
well, (c) to the Land, the Improvements or the Property shall mean all or any
portion of each of the foregoing, respectively unless the context indicates
that such terms refer to an individual Facility, and (d) to Section numbers are
to the respective Sections contained in this Agreement unless expressly
indicated otherwise.
ARTICLE II. AVAILABILITY UNDER THE LOAN AND VERIFYING REQUISITIONS.
Section II.01. The Loan and Procedures for Adding a Deed of Trust.
(a) Pursuant to the terms of the Note and the Financing Agreement, the
Borrower may obtain advances from time to time under the Loan on a revolving
basis not to exceed at any time outstanding the lesser of the (i) the Credit
Facility Committed Amount or (ii) the Borrowing Base. 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 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.
(b) Also pursuant to the terms of the Note and the Financing
Agreement, the Borrower may designate and the Lenders may accept certain
Facilities which are not designated as Eligible Facilities as Optional
Collateral. This Agreement will govern the terms, conditions and procedures
under which the Total Project Costs for the Optional Collateral is determined
and under which Optional Collateral may be added.
- 7 -
<PAGE> 11
(c) The Borrower will give notice to the 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"), an
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 the Borrower (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.
(d) The Borrower will give notice to the Agent in writing in
advance of its intention to add a particular Facility as Optional Collateral.
Section II.02. Permitted Costs. (a) Advances under the Borrowing
Base shall be made available by the Lenders pursuant to a Borrowing Base Report
issued quarterly by the Agent and certified by the Borrower in accordance with
the terms of the Financing 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
Borrower 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 Agent and to the
extent specifically permitted by the Agent, the process of verification of
Requisitions shall confirm the payment by the Borrower 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 Borrower; (ii) the actual cost of the Land and all labor, services,
materials, supervision, construction fees and the like reasonably incurred by
the Borrower 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 II.03. Requisitions Demonstrating Expenses.
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<PAGE> 12
Verification of the Borrower's Costs Incurred to Date will be administered by
the Agent's Real Estate Loan Administration Group. Requisitions for each
Eligible Project shall be submitted by the Borrower from time to time setting
forth costs incurred by the Borrower or a Guarantor Subsidiary shall be in the
form approved by the Agent (each a "Requisition" collectively, the
"Requisitions") signed by James S. Pope, Larry Hulse or David W. Faeder on
behalf of the Borrower 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 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
Borrower's cost breakdown approved by the Agent. The Borrower 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 Borrower, the Borrower shall furnish to the Agent such additional
information (such as paid receipts, invoices, statements of accounts, etc.) as
the Agent may reasonably require to assure that amounts shown in the
Requisition have been paid by the Borrower. 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 II.04. Conditions Precedent to Facility Closing and Addition
of Deeds of Trust.
(a) Conditions Precedent to Facility Closing. The following shall
be conditions precedent to the Facility Closing or to the addition of a
Guarantor Subsidiary:
(i) The Note, the Deeds of Trust and Security Documents and
the other Financing Documents in connection with the Loan shall have been
properly executed and delivered to the Agent, the applicable 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 Agent shall have received and approved a copy of the
Borrower's fully executed Partnership Agreement and a certified copy of the
recorded Certificate of Limited Partnership or a certificate of no changes
therein since the closing of the Original Credit Facility. In connection with
the provision of a Deed of Trust by a Guarantor Subsidiary, the Agent shall
have received and approved copies of all organizational documents,
- 9 -
<PAGE> 13
including certified copies of all documents on record with the State in which
such entity is organized.
(iii) The Agent shall have received and approved a
certificate executed by all of the general and limited partners of the Borrower
authorizing the execution and delivery of the Financing Documents and
consenting to the Loan and similar authority certificates or resolutions of any
Guarantor Subsidiary.
(iv) The Agent shall have received and approved a current
certificate of fact from the Commonwealth of Virginia for the Borrower and a
certificate of good standing or certificate of fact from the State in which any
Guarantor Subsidiary is formed.
(v) The Agent shall have received and approved an opinion of
counsel for the Borrower as to the Borrower's good standing, form, powers and
authority and as to the validity, binding effect and enforceability of the
Financing Documents.
(vi) The Agent shall have received and properly executed a
Subsidiary Guaranty and a Joinder Agreement.
(b) Conditions Precedent to Accepting an Eligible Project:
(i) The Facility Closing shall have been completed.
(ii) The Agent shall have received a certificate of authority
to do business for the Borrower in each other jurisdiction where a Facility is
located.
(iii) The Total Development Budget for such Eligible Project
shall have been reviewed and approved in writing by the Agent consistent with
the provision of Section 2.01.
(iv) The 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 Agent and/or endorsements to policies
issued to the Agent in connection with the Original Credit Facility, in the
amount agreed upon by the Agent from a company satisfactory to the 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 Agent and its
- 10 -
<PAGE> 14
counsel shall have approved but without a creditor's rights exception and
(unless otherwise agreed by the Agent) containing affirmative insurance against
mechanics liens.
(v) The Agent shall have received advice, in form and
substance and from a source satisfactory to the 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 Agent shall have approved.
(vi) The 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
Agent, including without limitation, flood insurance (in the amount or evidence
that flood insurance is not available or otherwise required with respect to the
Property), together with written evidence, in form and substance satisfactory
to the Agent, that all fees and premiums due on account thereof have been paid
in full.
(vii) The Agent shall have received and accepted an appraisal
of the Facility.
(viii) The Agent shall have received from the Borrower 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 Agent, to the effect that the Plans and Specifications are satisfactory
to the Borrower, 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 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 Agent
has requested.
(x) The Agent shall have received and approved a copy of a
current Survey of the Land certified to the Agent and to the title insurance
company and any recorded subdivision plat of the Land.
(xi) The Agent shall have received and approved a site plan
for the Improvements approved by all appropriate Governmental Authorities.
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<PAGE> 15
(xii) The Agent shall have received from the Borrower written
evidence, in form and substance satisfactory to the 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 Agent shall have received and approved a report
setting forth a construction progress schedule in form and substance
satisfactory to the 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, the same shall be fully insured against by the title insurance
company.
(xv) The 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 Agent.
(xvi) The Agent shall have received and accepted a Phase I
environmental audit of the applicable Facility prepared by a person or firm
acceptable to the Agent.
(xvii) The Agent shall have received evidence acceptable in
all respects through certification by the Architect or other source acceptable
to the 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 Agent shall have received and approved soil
reports which shall (i) demonstrate that the soil
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<PAGE> 16
conditions of the Land for the applicable Facility are suitable for the
construction of the Improvements and (ii) evidence to the Agent's satisfaction
that there are no Hydric Soils on the Land.
(xix) The Agent shall have received and approved copies of
any executed Material Leases of the applicable Property or of any portion
thereof.
(xx) The Agent shall have received and approved an opinion of
local counsel in the jurisdiction where the applicable Facility is located that
the Financing Documents applicable to that Facility are enforceable and for the
Borrower 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 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 following a sale at foreclosure.
(xxi) With regard to any Deed of Trust for a Facility located
in any state having such requirement, the Agent shall have received evidence
satisfactory to the Agent that a Certificate of Need has been issued for such
Facility.
(c) Conditions Precedent to Accepting a Facility as Optional
Collateral:
(i) The Facility Closing shall have been completed.
(ii) The Agent shall have received a certificate of authority
to do business for the Borrower in each other jurisdiction where a Facility is
located.
(iii) The Agent shall have received a copy of the Borrower's
paid policy of owner's title insurance and a current title report covering the
Facility.
(iv) The Agent shall have received advice, in form and
substance and from a source satisfactory to the 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 Agent shall have approved.
(v) The Agent shall have received all policies of
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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 Agent, including without limitation, flood insurance (in the amount or
evidence that flood insurance is not available or otherwise required with
respect to the Property), together with written evidence, in form and substance
satisfactory to the Agent, that all fees and premiums due on account thereof
have been paid in full.
(vi) The Agent shall have received and accepted a Phase I
environmental audit of the applicable Facility prepared by a person or firm
acceptable to the Agent.
(vii) The Agent shall have received and approved copies of
any executed Material Leases of the applicable Property or of any portion
thereof.
(viii) The Agent shall have received and approved an opinion
of local counsel in the jurisdiction where the applicable Facility is located
that the Financing Documents applicable to that Facility are enforceable and
for the Borrower 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 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 following a sale at foreclosure.
(ix) With regard to any Deed of Trust for a Facility located
in any state having such requirement, the Agent shall have received evidence
satisfactory to the Agent that a Certificate of Need has been issued for such
Facility.
(x) For each Facility in the Optional Collateral, the Agent
shall have received copies of all applicable Licenses and the certificate of
occupancy.
Section II.05. Conditions Precedent to Determining Availability
Under Borrowing Base. The Lenders shall not be obligated to include any
Requisition for an Eligible Facility in the calculation of the Borrowing Base
unless the conditions described in Section 2.04(b) and the following additional
conditions shall have been satisfied to the Agent's satisfaction:
(a) The 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
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last preceding report, there has been no change in the status of title and no
other exceptions not theretofore approved by the Agent, if required by the
terms of the existing title insurance policy, the 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 Agent shall have received proceeds of
insurance sufficient in the judgment of the Agent to effect a satisfactory
restoration of such Improvements in accordance with the terms of the Deed of
Trust.
(d) The Agent shall have received written evidence, in form and
substance satisfactory to the 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 the Financing 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 Agent.
(g) In the reasonable judgment of the 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 Borrower.
(h) There shall be at least five (5) Pool A Projects in the
Borrowing Base. The Agent shall have determined whether each Eligible Project
is a Pool A, Pool B or Pool C Project.
(i) Before verifying any Requisition, the Agent shall require the
Borrower to obtain from the applicable General Contractor and if required by
the applicable title insurance
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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 Agent's Inspecting Engineer will inspect work performed
which is covered by each Requisition being verified.
Section II.06. Conditions Under Which an Eligible Project is a
Completed Facility. The Agent shall verify that an Eligible Project is a
Completed Facility based on the satisfaction of the following additional
conditions:
(a) The Agent shall have received the final "as built" Survey for
the applicable Property.
(b) The Agent shall have received written evidence from a
qualified third party, in form and substance satisfactory to the Agent, to the
effect that the applicable Improvements have been substantially completed in
accordance with their Plans and Specifications.
(c) The Agent shall have received written evidence, in form and
substance satisfactory to the 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 Agent or, as to any disputed
lien or claim of lien, a bond in form and substance acceptable to the Agent has
been provided or other arrangements satisfactory to the Agent have been made.
(e) The Agent shall have received a copy of an operating License
for the Facility or other evidence satisfactory to the Agent that the Facility
may be lawfully operated as contemplated by the Financing Documents.
Section II.07. Advances to Others for the Account of the Borrower.
At the option of the Agent, the Agent may apply amounts due hereunder 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 Deed of Trust.
At the option of the Agent, and without limiting the generality of the
foregoing, the Agent may pay directly from the Loan proceeds all interest bills
rendered by the Agent in connection with the Loan, and following the occurrence
of an Event of Default may make advances directly to the General Contractor,
the title insurance
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company, any subcontractor or materialman, or to any of them jointly, and the
execution hereof by the Borrower shall, and hereby does, constitute an
irrevocable authorization to so advance the proceeds of the Loan. No further
direction or authorization from the Borrower shall be necessary to warrant such
direct advances and all such advances shall satisfy pro tanto the obligations
of the Lenders hereunder and shall be secured by the Deeds of Trust and other
Collateral as fully as if made to the Borrower, regardless of the disposition
thereof by the party or parties to whom such advance is made.
Section II.08. 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 the
Financing Agreement, and certified by the Chief Financial Officer of the
Guarantor.
Section II.09. Assignments. The Borrower agrees 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 Agent. Any assignment made or
attempted by the Borrower without the prior written consent of the Agent shall
be void and of no effect. No consent by the Agent to an assignment by the
Borrower shall release the Borrower as the party primarily obligated and liable
under the terms of this Agreement unless the Borrower shall be released
specifically by the Agent in writing. No consent by the Agent to an assignment
shall be deemed to be a waiver of the requirement of prior written consent by
the Agent with respect to each and every further assignment and as a condition
precedent to the effectiveness of such assignment.
Section II.10. Liability of the Lenders. The Lenders shall in no
event be responsible or liable to any person other than the Borrower 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.
Section II.11. Stored Materials. The Agent will permit inclusion of
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 Borrower. The Borrower
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shall securely store of cause to be securely stored any stored materials.
Section II.12. Limitations on Advances. The following additional
limitations on certain advances shall apply to each of the Loans:
(a) Interest Reserve. Except as provided in Section 2.02 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 the Financing Agreement, and certified by
the chief Financial Officer of the Guarantor.
ARTICLE III. REPRESENTATIONS AND WARRANTIES.
Section III.01. Compliance in Zoning. The Borrower represents and
warrants that the anticipated use of each Eligible Project and any Optional
Collateral 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 III.02. Plans and Specifications. The Borrower represents
and warrants that, to the extent required by applicable law or any effective
restrictive covenant, the Plans and Specifications for each Eligible Project
and any Optional Collateral have been approved by all Governmental Authorities
having or claiming jurisdiction and by any beneficiary of any such restrictive
covenant.
Section III.03. Building Permits; Other Permits. The Borrower
represents and warrants that all building, construction and other permits
necessary or required in connection with the development of the Land and the
construction of the Improvements
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have been or, prior to any advance under the applicable Loan, will be, unless
otherwise agreed to by the Agent, validly issued and all fees and bonds
required in connection therewith have been paid or posted, as the circumstances
may require.
Section III.04. Utilities. The Borrower represents and warrants 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 III.05. Access; Roads. The Borrower represents and warrants
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 Borrower 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.
Section III.06. Other Liens. The Borrower represents and warrants
that except as otherwise provided in the Financing Documents, the Borrower has
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 or
Optional Collateral.
Section III.07. Defaults. The Borrower represents and warrants that
there is no default on the part of the Borrower 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 III.08. Affirmation of Representations and Warranties. Each
Requisition, and any request for an advance under the Loan shall constitute an
affirmation that the foregoing representations and warranties of the Borrower
and those set forth in the other Financing Documents are true and correct as of
the date thereof and, unless the Agent is notified to the contrary prior to the
disbursement of the advance Requisitioned, will be so on the date thereof.
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<PAGE> 23
ARTICLE IV. AFFIRMATIVE COVENANTS AND AGREEMENTS.
Section IV.01. Compliance with Laws; Encroachments. The
Improvements shall be constructed in accordance with all applicable (whether
present or future) laws, ordinances, rules, regulations, requirements and
orders of any Governmental Authority having or claiming jurisdiction. The
Improvements shall be constructed entirely on the Land and shall not encroach
upon any easement or right-of-way, or upon the land of others. Construction of
the Improvements shall occur wholly within all applicable building restriction
lines and set-backs, however established, and shall be in strict compliance
with all applicable use or other restrictions and the provisions of any prior
agreements, declarations, covenants and all applicable zoning and subdivision
ordinances and regulations unless a variance shall have been obtained.
Section IV.02. Surveys. Upon the Agent's request from time to time
as construction of a Facility progresses and upon the completion of the
construction of the Improvements, the Borrower shall furnish the Agent with a
Survey with a current certification to the Agent by a registered land surveyor
of the jurisdiction in which the Land is located. At any time the Borrower is
required to furnish a Survey to the 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 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 Agent and its
counsel shall approve.
Section IV.03. Inspections; Cooperation; Payment of Inspecting
Engineer. The Borrower 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 Borrower relating thereto and to discuss the
affairs, finances and accounts pertaining to any Facility and any of the
Improvements with representatives of the Borrower. The Borrower 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 Agent's or
Lenders' functions
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under this Agreement. The reasonable fees of any Inspecting Engineer engaged
or employed by the Agent in connection with or in aid of the performance of the
Agent's or the Lenders' functions under this Agreement shall be paid by the
Borrower.
Section IV.04. Vouchers and Receipts. The Borrower shall furnish to
the Agent, promptly on demand, any contracts, bills of sale, statements,
receipted vouchers or agreements pursuant to which the Borrower 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 Borrower shall furnish to the Agent, promptly on demand, a
verified written statement, in such form and detail as the 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 IV.05. Payments for Labor and Materials. The Borrower 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 Agent in each instance, the Borrower covenants and agrees that,
within twenty (20) days after the filing of such lien, the Borrower will
promptly discharge the same by payment or filing bond or otherwise as permitted
by law; and if the Borrower fails to do so, the Agent may, at its option, in
addition to, and not in limitation of, all other rights and remedies of the
Agent in the Event of Default by the Borrower, and without regard to the
priority of said mechanics' lien or other lien or encumbrance, pay the same,
and all amounts expended by the Agent for such purpose shall constitute loans
to the Borrower and shall be secured by the Deed of Trust and the other
Financing Documents, and be due and payable forthwith by the Borrower to the
Agent with interest thereon at the Reimbursement Rate provided for in the Deed
of Trust.
Section IV.06. Correction of Construction Defects. Promptly
following any demand by the Agent, the Borrower 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 Agent in its sole but reasonable discretion, not approved in writing by the
Agent.
Section IV.07. Insurance. The Borrower shall provide or cause to be
provided to the Agent, and shall 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 Plans and Specifications, the Financing Agreement, the Deeds
of
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Trust and the Financing Documents from a company or companies, and in form and
amounts satisfactory to the Agent.
Section IV.08. Fees and Expenses; Indemnity. The Borrower shall pay
all fees, charges, costs and expenses required to satisfy the conditions of the
Financing Documents. The Borrower 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. Neither party is aware of
any broker having a claim for payment.
Section IV.09. Copies of Notices. Promptly following the giving or
receipt by the Borrower 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 Agent's or the Lenders' approval under this
Agreement, the Borrower shall forward to the Agent copies of any such notice.
ARTICLE V. NEGATIVE COVENANTS.
Section V.01. Other Liens; Transfers; "Due-on-Sale"; etc. The
Borrower shall not, without the prior written consent of the 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 Borrower's 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 Borrower shall not,
without the prior written consent of the 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 V.02. Impairment of Security. The Borrower 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 V.03. Conditional Sales. The Borrower shall not
incorporate in the Improvements any property acquired under a
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conditional sales contract, or lease, or as to which the vendor retains title
or a security interest, without the prior written consent of the Agent.
Section V.04. Changes to Plans and Specifications. After
review and approval of a Total Development Budget by the Agent, the Borrower
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 Agent which consent will not be unreasonably
withheld.
Section V.05. Construction Contract; Construction Management. The
Borrower 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 Agent.
ARTICLE VI. EVENTS OF DEFAULT.
The terms "Event(s) of Default", as used in this Agreement shall mean the
occurrence or happening, from time to time, of any one or more of the
following:
Section VI.01. Defaults Under Other Financing Documents. Any
default or event of default (as defined therein) shall occur under the Master
Note, any Note or any of the other Financing Documents.
Section VI.02. Representations and Warranties. Any representation
or warranty contained in this Agreement, or in any other document, certificate
or opinion delivered to the Agent in connection with the Credit Facility, shall
prove at any time to be incorrect or misleading in any material respect either
on the date when made or on the date when reaffirmed pursuant to Article III of
this Agreement.
Section VI.03. Compliance with Covenants. The Borrower shall fail
to comply with the terms of any covenant or agreement contained in this
Agreement and such failure shall continue uncured for a period of thirty (30)
days after Notice from the Agent to the Borrower, unless the nature of the
failure is such that (a) it cannot be cured within the thirty (30) day period,
and (b) the Borrower institutes corrective action within the thirty (30) day
period and (c) the Borrower diligently pursues such action and completes the
cure within ninety (90) days.
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Section VI.04. 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 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.
Section VI.05. Disclosure of Contractors. The Borrower shall fail
to disclose to the Agent, upon demand, the names of all persons with whom the
Borrower has contracted or intends to contract for the construction of the
Improvements or for the furnishing of labor or materials therefor.
Section VI.06. 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
Agent have been made for a period of twenty (20) days after the date of
perfection.
Section VI.07. Survey Matters. Any Survey required by the Lenders
during the period of construction shows any matters not approved by the Agent
and such matters not approved are not removed within 30 days after Notice
thereof by the Agent to the Borrower.
Section VI.08. General Contractor Default. The General Contractor
shall have defaulted under any Construction Contract, which default the Agent,
in its sole discretion, shall deem substantial, and the Borrower, after thirty
(30) days Notice from the 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.
ARTICLE VII. REMEDIES ON DEFAULT.
Section VII.01. Remedies on Default. The Agent shall have the right,
upon the happening of any Event of Default, to terminate this Agreement by
Notice from the Agent to the Borrower 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 Borrower under
the applicable Note and shall be secured by the Deed of Trust. For
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this purpose, the Borrower hereby constitutes and appoints the Lenders, or the
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 Borrower, and hereby empowers said attorney or attorneys as follows:
(a) To use any funds of the Borrower 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 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 the Borrower; and
(f) To do any and every act with respect to the development of the
Land and the construction of the Improvements which the Borrower 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 VII.02. No Conditions Precedent to Exercise of Remedies. The
Borrower shall not be relieved of any obligation by reason of the failure of
the Lenders to comply with any request of the Borrower 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
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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 Borrower; and in the latter event, the Borrower 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 VII.03. Remedies Cumulative and Concurrent. No remedy herein
conferred upon or reserved to the Lenders or the 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 Agent shall be
concurrent and may be pursued separately, successively or together against the
Borrower 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 Agent.
Section VII.04. Strict Performance. No delay or omission of the
Lenders or the 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
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 VIII. MISCELLANEOUS.
Section VIII.01. No Warranty by Lenders. By accepting or approving
anything required to be observed, performed or fulfilled by the Borrower or to
be given to the 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
- 26 -
<PAGE> 30
thereof and any such acceptance or approval thereof shall not be or constitute
any warranty or representation with respect thereto by the Lenders.
Section VIII.02. Liability of Lenders. The Lenders shall not be
liable for any act or omission by them pursuant to the provisions of this
Agreement in the absence of fraud, willful misconduct or gross negligence. The
Lenders shall incur no liability to the Borrower or any other party in
connection with the acts or omissions of the Lenders or the Agent in reliance
upon any certificate or other paper believed by the Lenders or the Agent to be
genuine or with respect to any other thing which the Lenders or the Agent may
do or refrain from doing, unless such act or omission amounts to fraud or gross
negligence. In connection with the performance of their duties pursuant to
this Agreement, the Lenders may consult with counsel of their own selection,
and anything which the Lenders may do or refrain from doing, in good faith, in
reliance upon the opinion of such counsel shall be full justification and
protection to the Lenders.
Section VIII.03. No Partnership. Nothing contained in this Agreement
shall be construed in a manner to create any relationship between the Borrower
and the Lenders other than the relationship of borrower and lender and the
Borrower and the Lenders shall not be considered partners or co-venturers for
any purpose on account of this Agreement.
Section VIII.04. Severability. In the event any one or more of the
provisions of this Agreement shall for any reason be held to be invalid,
illegal or unenforceable, in whole or in part or in any other respect, or in
the event any one or more of the provisions of any of the Financing Documents
operates or would prospectively operate to invalidate this Agreement, then and
in either of those events, at the option of the Lenders, such provision or
provisions only shall be held for naught and shall not affect any other
provision of the Note or of any of the other Financing Documents or the
validity of the remaining Obligations and the remaining provisions of the Note
and the Financing Documents shall remain operative and in full force and effect
and shall in no way be affected, prejudiced or disturbed thereby.
Section VIII.05. Successors and Assigns. Each and every one of the
covenants, terms, provisions and conditions of this Agreement and the Financing
Documents shall apply to, bind and inure to the benefit of the Borrower, its
successors and those assigns of the Borrower consented to in writing by the
Lenders, and shall apply to, bind and inure to the benefit of the Lenders and
the endorsees, transferees, successors and assigns of each of the Lenders, and
all persons claiming under or through any of them.
- 27 -
<PAGE> 31
Section VIII.06. Modification; Waiver. None of the terms or
provisions of this Agreement may be changed, waived, modified, discharged or
terminated except by instrument in writing executed by the party or parties
against whom enforcement of the change, waiver, modification, discharge or
termination is asserted. None of the terms or provisions of this Agreement
shall be deemed to have been abrogated or waived by reason of any failure or
failures to enforce the same.
Section VIII.07. 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 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 VIII.08. 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 VIII.09. Captions and Headings. The captions and headings
contained in this Agreement are included herein for convenience of reference
only and shall not be considered a part hereof and are not in any way intended
to limit or enlarge the terms hereof.
Section VIII.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be considered an original for all
purposes; provided, however, that all such counterparts shall together
constitute one and the same instrument.
Section VIII.11. Notices. All Notices shall be deemed to have been
received when delivered by hand, when delivered by an overnight courier, or
when deposited in the mail in the manner provided for the giving of Notice
except in any case where it is
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<PAGE> 32
expressly provided in this Agreement that a Notice is not effective until
actually received by the party to whom it is addressed.
Section VIII.12. Signs; Publicity. At the Agent's request, but at the
expense of the Agent, the Borrower shall place a sign acceptable to the
Borrower at a location on each of the Eligible Projects satisfactory to the
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 Borrower expressly authorizes the 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 Agent's and the Lenders' involvement with
the Credit Facility and the financing of any Eligible Project, all subject to
prior review by the Borrower.
Section VIII.13. Applicable Law. This Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia.
Section VIII.14. Time of Essence. Time shall be of the essence for
each and every provision of this Agreement of which time is an element.
Section 8.15 Document Controlling. In the event of any conflict
between this Agreement and the Financing Agreement, the Financing Agreement
shall control.
IN WITNESS WHEREOF, the Borrower and the Agent have caused this Agreement
to be executed under seal as of the day and year first above written.
WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP,
a Virginia limited partnership
/s/ Wayne G. Tatusko By: Sunrise Assisted Living
- ---------------------
Name: Investments, Inc., general partner
Title:
By: /s/ James S. Pope (SEAL)
-----------------------
James S. Pope
Vice President
WITNESS: NATIONSBANK, N.A., as Agent for the Lenders
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<PAGE> 33
_/s/ Wayne G. Tatusko__ By: _/s/ Robert J. Montanari_(SEAL)
-------------------- -----------------------
Robert J. Montanari
Vice President
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF _Fairfax_, TO WIT:
I HEREBY CERTIFY, that on this 23rd day of December, 1997, before me, the
undersigned Notary Public of said State/Commonwealth, personally appeared James
S. Pope, who acknowledged himself to be a Vice President of Sunrise Assisted
Living Investment, 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 duly authorized
officer of said corporation by signing the name of the corporation by himself
as vice president.
WITNESS my hand and Notarial Seal.
_/S/ Dawn A. Washington_____
----------------------
Notary Public
My Commission Expires:
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF Fairfax_ , TO WIT:
I HEREBY CERTIFY, that on this 23rd day of December,1997, before me, the
undersigned Notary Public of said State/Commonwealth, personally appeared
Robert J. Montanari, who acknowledged himself to be a vice president of
NationsBank, N.A., as Agent for the Lenders, 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 Bank by signing the name of the Bank by
himself as vice president.
WITNESS my hand and Notarial Seal.
_/S/ Dawn A. Washington______
----------------------
Notary Public
My Commission Expires:
- 30 -
<PAGE> 1
EXHIBIT 10.31.4
MANAGEMENT FEE SUBORDINATION AGREEMENT
THIS MANAGEMENT FEE SUBORDINATION AGREEMENT (this "Agreement") is made
as of the 23rd day of December, 1997, in favor of NATIONSBANK, N.A. as agent
("Agent") for itself and for certain additional lenders (collectively with the
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") by SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a
Virginia limited partnership (the "Borrower"), and SUNRISE ASSISTED LIVING
MANAGEMENT, INC., a corporation organized and existing under the laws of the
Commonwealth of Virginia, formerly known as Sunrise Terrace, Inc. (the
"Management Company").
RECITALS
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. In connection with the Original Credit Facility, the Management
Company executed a Management Fee Subordination Agreement dated June 13, 1996
for the benefit of the Original Lenders.
C. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 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") and to provide
that the Credit Facility will be revolving. Advances or readvances are to be
made pursuant to, and secured by, the provisions of
<PAGE> 2
that certain Amended and Restated Financing and Security Agreement dated the
same date as this Agreement by and between the Agent and the Borrower (as
amended, restated or substituted from time to time, the "Financing Agreement")
and that certain Amended and Restated Master Construction Loan Agreement dated
the same as this Agreement by and between the Agent and the Borrower (as
amended, restated or substituted from time to time, the "Construction
Agreement").
D. The Loan is evidenced by that certain Amended, Restated,
Consolidated and Increased Master Promissory Note of even date herewith payable
by the Borrower to Agent on behalf of the Lenders (as amended, restated,
renewed or substituted from time to time, the "Note").
E. In accordance with, and pursuant to, that certain management
agreement by and between the Management Company and the Borrower dated
September 5, 1996 covering Facilities (as hereinafter defined) known as Sunrise
of Morris Plains, Sunrise of Old Tappan and Sunrise of Wayne and other
management agreements to be executed by the Borrower or Guarantor Subsidiaries
for other Facilities, the Management Company has agreed or will agree to manage
and operate those assisted living and independent living facilities
(collectively, the "Facilities") owned by the Borrower or the Guarantor
Subsidiaries (the management agreements, together with any and all amendments
thereto, extensions thereof and substitutions therefor are herein collectively
referred to as the "Management Agreement").
F. The Management Company and the Borrower have requested that
the Agent enter into the Financing Agreement with the Borrower and have
requested that the Lenders make the Loan to the Borrower pursuant thereto.
G. The Lenders have required, as a condition precedent to the
execution and delivery of the Financing Agreement and the making of the Loan
thereunder, the execution and delivery of this Agreement by both the Management
Company and the Borrower.
H. All capitalized terms used in this Agreement and not defined
herein shall have the meaning given to such terms in the Financing Agreement.
AGREEMENTS
NOW, THEREFORE, in order to induce the Agent to enter into the
Financing Agreement and the Construction Agreement whereby the Lenders shall
make advances under the Loan to the Borrower thereunder and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Management Company and the Borrower hereby covenants and
agrees
2
<PAGE> 3
with the Agent as follows:
1. Recitals. The Recitals set forth above are incorporated into
this Agreement by reference.
2. Subordination. (a) To the extent provided herein, the
Management Company hereby subordinates and postpones the payment and the time
of payment of any and all compensatory payments, whether direct or indirect,
due and payable to the Management Company by, or on behalf of, the Borrower or
any Guarantor Subsidiary under, and in connection with, services rendered or to
be rendered by the Management Company under the Management Agreement,
including, without limitation, any and all fees, salaries, compensation,
commissions, bonuses and other payments and distributions due and payable
under, and in connection with, the Management Agreement, to, or for the account
or benefit of, the Management Company, but excluding, however, any and all
payments to the Management Company by the Borrower or any Guarantor Subsidiary
as reimbursement for any and all necessary and out-of-pocket reasonable costs
and expenses incurred and paid by the Management Company in connection with the
Management Company's management and operation of the Facilities to the extent
such payments are properly reimbursable in accordance with the terms and
conditions of the Management Agreement (collectively, the "Subordinated
Management Fees"), to, and in favor of, the payment and the time of payment of
all of the "Obligations" (as hereinafter defined). As used in this Agreement,
the term "Obligations" shall mean all present and future debts, obligations and
liabilities of the Borrower or any Guarantor Subsidiary to the Lenders arising
pursuant to, and/or on account of, the provisions of the Financing Agreement,
the Construction Agreement, the Note, and any of the other Financing Documents,
including, without limitation, the obligation (i) to pay all principal
(including, without limitation, any principal advanced after the date of the
Financing Agreement and any principal that is repaid and readvanced), interest,
late charges and prepayment premiums (if any) due at any time under the Note;
(ii) to pay all Expenses (as defined in the Financing Agreement),
indemnification payments and other sums due at any time under the Financing
Documents, together with interest thereon as may be provided in the Financing
Documents; and (iii) to perform, observe and comply with all of the terms,
covenants and conditions, expressed or implied, which the Borrower or any
Guarantor Subsidiary is required to perform, observe or comply with pursuant to
the terms of the Financing Documents.
(b) So long as all or any part of the Obligations remain
unpaid, the Management Company shall not, without the prior written consent of
the Agent ask, demand, sue for, set off, accept or receive any payment of all
or any part of the Subordinated Management Fees, except as provided herein.
Any and
3
<PAGE> 4
all amounts paid by the Borrower to the Management Company in accordance with,
and subject to, the terms and conditions of the Management Agreement, shall be
and remain the property of the Management Company; provided, that any such
payments are paid and received in compliance with the terms and conditions of
this Agreement. Prior to the occurrence of an Event of Default under the
Financing Documents or a default by the Management Company under the Management
Agreement, the Management Company shall be entitled to collect the Subordinated
Management Fees, as and when the same become due and payable pursuant to the
terms of the Management Agreement.
For purposes of this Agreement only, the term "Event of Default" shall mean
that one of the following events has occurred: (i) the Borrower and the
Guarantor Subsidiary do not have sufficient net cash flow from its operations
or the operating reserves contained in the Total Development Budget to pay the
Subordinated Management Fees, (ii) the Borrower has failed to satisfy one or
more of the financial covenants set forth in the Financing Agreement, and/or
(iii) the Agent has exercised its right to accelerate payment of the Loan.
(c) The Management Company agrees that the failure of the
Borrower to pay any or all of the Subordinated Management Fees as and when
required because of the provisions of this Agreement shall not in any respect
relieve or excuse the Management Company for the prompt and proper performance
and discharge of any of its duties, obligations or responsibilities under the
Management Agreement; and the failure of the Management Company to continue to
perform its duties, obligations and responsibilities under the Management
Agreement in accordance with the terms and conditions of the Management
Agreement shall constitute a default by the Management Company under the
Management Agreement. The terms and conditions of this Agreement are
incorporated in, and made a part of, the Management Agreement. In addition,
the Borrower and the Management Company agree not to amend, modify, supplement,
restate, rescind, terminate, waive, or otherwise change any of the terms or
conditions of the Management Agreement without the prior written consent of the
Agent, which consent shall not be unreasonably withheld.
(d) The Management Company agrees not to subordinate,
assign or transfer all or any part of the Subordinated Management Fees or any
of the other rights of the Management Company under, and in connection with,
the Management Agreement, to any other person without the prior written consent
of the Agent, which consent shall not be unreasonably withheld.
3. Distributions, etc. In the event of any distribution,
division or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part
4
<PAGE> 5
of the assets of the Borrower or the proceeds thereof to creditors of the
Borrower or to any indebtedness, liabilities and obligations of the Borrower,
by reason of the liquidation, dissolution or other winding up of the Borrower
or the Borrower's business, or 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 Borrower 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
Subordinated Management Fees shall be paid or delivered directly to the Agent
for application to the Obligations (in such order and manner as the Agent may
elect in its sole and absolute discretion; and including, without limitation
any interest accruing subsequent to the commencement of any such event or
proceeding) until the Obligations shall have been fully paid and satisfied. In
the event the Management Company defaults in the performance of any of the
terms and conditions of this Agreement, the Management Company hereby
irrevocably authorizes and empowers the Agent, and irrevocably appoints the
Agent as the Management Company's attorney-in-fact to demand, sue for, collect
and receive every such payment or distribution and give acquittance therefor
and to file claims and take such other proceedings in the name of the Agent or
in the name of the Management Company or otherwise, as the Agent may deem
necessary or advisable to carry out the provisions of this Agreement. The
Management Company hereby agrees to execute and deliver to the Agent such
powers of attorney, assignments, endorsements or other instruments as may be
requested by the Agent in order to enable the Agent to enforce any and all
claims upon or with respect to the Subordinated Management Fees, and to collect
and receive any and all payments or distributions which may be payable or
deliverable at any time upon or with respect to any of the Subordinated
Management Fees.
4. Receipt of Payments by Management Company. Should any payment
or distribution not permitted by the provisions of this Agreement or security
or proceeds thereof be received by the Management Company upon or with respect
to all or any part of the Subordinated Management Fees prior to the full
payment and satisfaction of the Obligations, the Management Company will
deliver the same to the Agent in precisely the form received (except for the
endorsement or assignment of the Management Company where necessary), for
application to the Obligations, first, to the payment of those Obligations
which are due and payable, second to any and all unpaid and accrued interest on
the Obligations, and then to such other Obligations which may be outstanding,
and, until so delivered, the same shall be held in
5
<PAGE> 6
trust by the Management Company as property of the Agent. In the event of the
failure of the Management Company to make any such endorsement or assignment,
the Agent, or any of its officers or employees on behalf of the Agent, is
hereby irrevocably authorized in its own name or in the name of the Management
Company to make the same, and is hereby appointed the Management Company's
attorney-in-fact for those purposes, that appointment being coupled with an
interest and irrevocable.
5. Consents, Waivers, etc. The Management Company hereby
consents that at any time and from time to time and with or without
consideration, the Agent may, without further consent of or notice to the
Management Company and without in any manner affecting, impairing, lessening or
releasing any of the provisions of this Agreement, renew, extend, change the
manner, time, place and terms of payment of, sell, exchange, release,
substitute, surrender, realize upon, modify, waive, grant indulgences with
respect to and otherwise deal with in any manner: (a) all or any part of the
Obligations; (b) all or any of the Financing Documents; (c) all or any part of
any property at any time securing all or any part of the Obligations; and (d)
any person at any time primarily or secondarily liable for all or any part of
the Obligations and/or any collateral and security therefor, all as if this
Agreement did not exist. The Management Company hereby waives demand,
presentment for payment, protest, notice of dishonor and of protest with
respect to the Obligations, notice of acceptance of this Agreement, notice of
the making of any of the Obligations and notice of default under any of the
Financing Documents.
6. Continuing Agreement. This is a continuing Agreement and
shall remain in full force and effect until (a) all of the Obligations have
been performed and satisfied, (b) the Lenders have no obligation or outstanding
agreement to allow further advances or additional loans to the Borrower, and
(c) the Financing Agreement has been terminated by the Agent, or has otherwise
expired; at which time this Agreement shall automatically terminate without
further action of any kind.
7. Transfer or Assignment of Obligations. If any of the
Obligations should be transferred or assigned by the Agent, this Agreement will
inure to the benefit of the respective transferee or assignee to the extent of
such transfer or assignment, provided that the Agent shall continue to have the
unimpaired right to enforce this Agreement as to any of the Obligations not so
transferred or assigned.
8. Further Agreements. (a) If the Management Company, contrary
to this Agreement, commences or participates in any action or proceeding
against the Borrower, the Borrower may interpose as a defense or dilatory plea
the making of this
6
<PAGE> 7
Agreement, and the Agent may intervene and interpose such defense or plea in
the name of the Agent or in the name of the Borrower. Should the Management
Company, contrary to this Agreement, in any way attempt to enforce payment of
the Subordinated Management Fees or any part thereof, the Agent in its own name
or in the name of the Borrower, may restrain the Management Company from so
doing, it being understood and agreed by the Management Company that (i) the
damages of the Borrower, and the Agent from its actions may at that time be
difficult to ascertain and may be irreparable, and (ii) the Management Company
waives any defense that the Borrower or the Agent cannot demonstrate damage
and/or can be made whole by the awarding of damages.
(b) If the Management Company, the Borrower or both
contrary to this Agreement, make, attempt to or threaten to make any payment or
take any action contrary to this Agreement, the Agent may restrain the
Management Company and the Borrower from so doing, it being understood and
agreed by the Management Company and the Borrower that (i) the damages of the
Agent from their actions may at that time be difficult to ascertain and may be
irreparable and (ii) the Management Company and the Borrower waive any defense
or claim that the Agent cannot demonstrate damage and/or cannot be made whole
by the awarding of damages.
(c) The Management Company and the Borrower agrees to
indemnify the Lenders and to hold the Lenders harmless for any and all expenses
and obligations, including attorney's fees, as they arise, relating to actions
of the Management Company, the Borrower or both taken contrary to this
Agreement.
(d) Nothing herein contained shall obligate the Lenders
to grant credit to, or continue financing arrangements with, the Borrower,
except as otherwise provided in any of the Financing Documents.
(e) The provisions of this Agreement are solely for the
benefit of the Lenders and their successors and assigns and there are no other
parties, persons or entities whatsoever (including, without limitation, the
Management Company, its successors and assigns and the Borrower, its successors
and assigns) who are intended to be benefitted in any manner whatsoever by this
Agreement.
(f) No delay or failure on the part of the Agent to
exercise any of its rights and remedies or the rights or remedies of the
Lenders hereunder or now or hereafter existing at law or in equity or by
statute or otherwise, or any partial or single exercise thereof, shall
constitute a waiver thereof. All such rights and remedies are cumulative and
may be exercised singly or concurrently and the exercise of any one or more of
them will not be a waiver of any other. No waiver of any of its rights and
7
<PAGE> 8
remedies hereunder, and no modification or amendment of this Agreement shall be
deemed to be made by the Lenders unless the same shall be in writing, duly
signed on behalf of the Agent, and each such waiver, if any, shall apply only
with respect to the specific instance involved and shall in no way impair the
rights and remedies of the Lenders hereunder in any other respect at any other
time.
(g) This Agreement shall be binding upon the Borrower and
the Management Company and the respective successors and assigns of the
Management Company and Borrower and shall inure to the benefit of the Lenders
and their respective successors and assigns.
(h) As used herein, the singular number shall include the
plural and the plural shall include the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may
require. As used herein, the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, an organization and any
other entity.
(i) The paragraph headings of this Agreement are for
convenience only, and shall not limit or otherwise affect any of the terms
hereof.
(j) This Agreement shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia and shall be deemed to
have been executed, delivered and accepted in the Commonwealth of Virginia.
IN WITNESS THEREOF, the Management Company has caused this Management
Fee Subordination Agreement to be executed by its duly authorized officer and
the Borrower has caused this Management Fee Subordination Agreement to be
executed by its duly authorized general partner under seal as of the date first
written above.
ATTEST: SUNRISE ASSISTED LIVING MANAGEMENT, INC.
a Virginia corporation, as the Management Company
_/s/ Wayne G. Tatusko__ By:__/s/ James s. Pope___(SEAL)
-------------------- -----------------
James S. Pope
Vice President
8
<PAGE> 9
WITNESS: SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP,
a Virginia limited partnership, as
the Borrower
By: Sunrise Assisted Living Investments, Inc.,
its general partner
__/s/ Wayne G. Tatusko__ By: _/s/ James s. Pope____(SEAL)
-------------------- -----------------
James S. Pope
Vice President
9
<PAGE> 1
EXHIBIT 10.31.5
AMENDED AND RESTATED PLEDGE,
ASSIGNMENT AND SECURITY AGREEMENT
(MASTER)
THIS AMENDED AND RESTATED PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
(this "Agreement") is made this 23rd day of December, 1997, by SUNRISE ASSISTED
LIVING, INC., a Delaware Corporation ("SALI") and SUNRISE ASSISTED LIVING
INVESTMENTS, INC., a Virginia Corporation ("SALII;" SALI and SALII are
collectively referred to herein as the "Assignor"), in favor of NATIONSBANK,
N.A. as agent (the "Agent") for itself and for certain additional lenders
(collectively with the Agent, the "Lenders") who are participating in a bank
group pursuant to an Agency Agreement of even date herewith (as amended,
restated or substituted from time to time, the "Agency Agreement").
R E C I T A L S
A. SALII is the general partner of and SALI is the limited
partner of Sunrise East Assisted Living Limited Partnership, a limited
partnership organized and existing under the laws of the Commonwealth of
Virginia (the "Borrower"). The Borrower had obtained from the Agent and
certain other Lenders a credit facility for the making of certain
construction/interim loans in the aggregate principal amount of $90,000,000
(the "Original Credit Facility"). In connection with the Original Credit
Facility, the Assignor executed a Pledge, Assignment and Security Agreement in
favor of the Agent dated June 13, 1996 granting a lien on the collateral
described therein (the "Pledge Agreement").
B. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Credit Facility to $250,000,000 or such greater
amount as the Lenders may from time to time commit to lend pursuant to the
Amended and Restated Agency Agreement and to provide that the Credit Facility
will be revolving. 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 the same date as this Agreement by and between the
Agent and the Borrower (as amended, restated or substituted from time to time,
the "Financing Agreement") and that certain Amended and Restated Master
Construction Loan Agreement dated the same date as this Agreement by and
between the Agent and the Borrower (as amended, restated or substituted from
time to time, the "Construction Agreement"). The Loan is evidenced by that
certain Amended, Restated, Consolidated and Increased Master Promissory Note
dated the same date as this Agreement from the Borrower, as maker, payable to
the order of the Lenders (as amended, restated and substituted at any time and
<PAGE> 2
from time to time, the "Master Note").
C. It is a condition precedent, among others, to the Agent's
agreement to enter into the Financing Agreement and for the Lenders to make the
Loan to the Borrower that the Assignor enter into this Agreement in order to
secure the full and prompt payment and performance of all of the "Obligations"
(as defined in Financing Agreement).
D. All defined terms used in this Agreement and not defined in
this Agreement shall have the meaning given to such terms in the Financing
Agreement. 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.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Assignor and the Agent hereby amend and
restate the Pledge Agreement in its entirety as follows:
ARTICLE _._.1
SECURITY
SECTION _.1.1 Collateral. As security for the prompt and full
payment and performance of all of the Obligations, and as security for the
prompt and full performance of all of the obligations of the Assignor under
this Agreement and all of the Obligations of the Assignor, the Borrower, any
Facility Owner and/or any other Person under the Financing Agreement and all of
the other Financing Documents, whether now in existence or hereafter created
and whether joint, several, or both, primary, secondary, direct, contingent or
otherwise, the Assignor hereby pledges, assigns and grants to the Lenders a
first priority security interest in, assignment of, and Lien on, the following
property of the Assignor (collectively, the "Collateral"), whether now existing
or hereafter created or arising:
_.1.1.1 all rights, title and interest in and to and
as a general and limited partner of the Borrower under the Borrower's
partnership agreement dated June 6, 1996, as the same may have been or may be
amended, supplemented, restated, or otherwise modified at any time and from
time to time (the "Partnership Agreement");
_.1.1.2 all rights to receive any and all cash and
non-cash distributions (regardless of how such distributions are classified and
including any and all distributions-in-kind
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and liquidating distributions), profits, losses, income, revenue, returns of
capital, repayments of any loans made by either Assignor to the Borrower
(including interest and fees with respect to such loans), and any and all
development, management and similar fees payable by the Borrower to either
Assignor of any kind or nature whatsoever, together with any and all other
rights and property interests including, but not limited to, accounts, contract
rights, instruments and general intangibles arising out of, under or relating
to the Borrower and/or the Partnership Agreement;
_.1.1.3 all other or additional equity or debt
interests, other securities or property (including cash) paid or distributed in
respect of the Borrower by way of any spin-off, merger, consolidation,
dissolution, combination, reclassification or exchange of equity interests,
asset sales, or similar rearrangement or reorganization; and
_.1.1.4 all proceeds and products (both cash and
non-cash) of the foregoing, whether now or hereafter arising under any of the
foregoing.
SECTION _.1.2 Rights of the Lenders in the Collateral. The Assignor
agrees that with respect to the Collateral the Lenders shall have all the
rights and remedies of a secured party under the Uniform Commercial Code, as
well as those provided by law and/or in this Agreement. Notwithstanding the
fact that the proceeds of the Collateral constitute part of the Collateral, the
Assignor may not dispose of the Collateral, or any part thereof, without the
prior written consent of the Agent.
SECTION _.1.3 Registration of Pledge. If and to the extent
requested by the Agent, the Assignor agrees, to notify the Borrower immediately
of the pledge, assignment and security agreement under this Agreement and to
request that the Borrower acknowledge the Lender's Lien in writing. The
Assignor hereby authorizes and directs the Borrower to register the Assignor's
pledge to the Lenders of the Collateral on the Borrower's books and, following
written notice to do so by the Agent, to make direct payment to the Agent of
any amounts due or to become due to the Assignor with respect to the
Collateral.
SECTION _.1.4 Rights of the Assignor in the Collateral. Until the
occurrence of an Event of Default (as hereinafter defined), the Assignor shall
be entitled (i) to vote all ownership or equity interests, (ii) to give
consents, waivers and ratification to any and all actions of the Borrower
requiring partner approval, and (iii) to receive all cash and non-cash
distributions which may be paid on account of the Collateral and which are not
otherwise prohibited by the Financing Agreement, this Agreement or any of the
other Financing Documents. Any
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<PAGE> 4
cash distribution payable in respect of the Collateral which represents, in
whole or in part, a return of capital or is paid in violation of this
Agreement, the Financing Agreement or any of the other Financing Documents
shall be received by the Assignor in trust for the Lenders, shall be paid
immediately to the Lenders and shall be retained by the Lenders as part of the
Collateral.
The Assignor covenants and agrees that no distribution or other
benefit with respect to the Collateral shall be received by or for the benefit
of the Assignor, and no vote shall be cast or partner's consent, waiver or
ratification given or action taken by the Assignor in its capacity as a partner
of the Borrower, which would violate or be inconsistent with any of the terms
and provisions of this Agreement or the Financing Agreement or which would
materially impair the position or interest of the Lenders in the Collateral or
dilute the percentage of the equity interests in the Borrower pledged to the
Lenders.
SECTION _.1.5 Pledge Unconditional. The obligations and liabilities
of the Assignor under, and in connection with, this Agreement shall be absolute
and unconditional. The Assignor expressly agrees that the Lenders may, in
their sole and absolute discretion, without notice to, or further assent of,
the Assignor and without in any way releasing, affecting or in any way
impairing the obligations and liabilities of the Assignor hereunder:
_.1.5.1 agree to the substitution, exchange, release
or other disposition of any collateral or security for any or all of the
Obligations, or to the subordination of any Lien or security interest therein;
_.1.5.2 assign, pledge, participate, mortgage,
hypothecate or otherwise transfer this Agreement, the Note, the Financing
Agreement or all or any of the Obligations, or any interest therein or rights
thereunder; and
_.1.5.3 effect any release, compromise or settlement
with the Borrower, any guarantor of, or other obligor with respect to, all or
any part of the Obligations.
SECTION _.1.6 Obligations Hereunder Primary. The obligations and
liabilities of the Assignor 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 Assignor may have against
the Lenders or any other obligor and shall not be conditional or contingent
upon pursuit or enforcement by the Lenders of any remedies they may have
against any other person with respect to the Obligations.
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<PAGE> 5
SECTION _.1.7 Certain Waivers by the Assignor. The Assignor hereby
unconditionally, irrevocably and expressly waives:
_.1.7.1 presentment and demand for payment of the
Obligations and protest of non-payment;
_.1.7.2 notice of acceptance of this Agreement and of
presentment, demand and protest thereof;
_.1.7.3 notice of any default hereunder and notice of
all indulgences;
_.1.7.4 demand for observance, performance or
enforcement of any of the terms or provisions of this Agreement; and
_.1.7.5 all other notices and demands otherwise
required by law which the Assignor may lawfully waive.
SECTION _.1.8 Waiver of Restrictions on Transfer of Collateral.
The Assignor hereby unconditionally, irrevocably and expressly waives any
restrictions to the transfer or assignment of the Collateral as set forth in
Section 17 of the Partnership Agreement as well as any other provisions therein
which may limit or restrict the assignment as set forth in this Agreement.
ARTICLE _.2
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to make the Loan to the Borrower under the
Financing Agreement, the Assignor represents and warrants to the Lenders, as
follows:
SECTION _.2.1 Percentage Ownership. The partnership interests
assigned as part of the Collateral represent in the aggregate one hundred
percent (100%) of the partnership interests of the Borrower. Each Assignor's
partnership interest in the Borrower is as follows:
<TABLE>
<CAPTION>
Interest in % of
Partner's Name Partnership Partnership
-------------- ----------- -----------
<S> <C> <C>
SALII General Partner 1%
SALI Limited Partner 99%
</TABLE>
SECTION _.2.2 No Amendments. The Partnership Agreement has not been
amended, modified, restated, substituted, extended or renewed, except as
expressly described in Section 0 of this
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<PAGE> 6
Agreement.
SECTION _.2.3 Partnership Agreement. The Assignor has furnished the
Agent with a true and complete copy of the executed Partnership Agreement.
SECTION _.2.4 Good Standing of Assignor. Each Assignor (a) is a
corporation duly organized, existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the power to own its property and to
carry on its business as now being conducted, and (c) 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.
SECTION _.2.5 Power and Authority. Each Assignor has full power and
authority to execute and deliver this Agreement and the other Financing
Documents to which it is a party, to assign and pledge the Collateral and
perform all other obligations required under this Agreement with respect to the
Collateral, and to incur and perform its 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
any shareholders or creditors of either Assignor, the Borrower, or partners of
the Borrower, and no consent, approval, filing or registration with or notice
to any Governmental Authority (as that term is defined in the Financing
Agreement) on the part of the Assignor, is required as a condition to the
execution, delivery, validity or enforceability of this Agreement or the other
Financing Documents or the performance of the Obligations, including, without
limitation, the right of the Lenders to dispose of the Collateral following an
Event of Default. The Assignor has full right, power and authority and has all
voting rights in any matters as may be represented by the Collateral.
SECTION _.2.6 Good Standing of Borrower. The Borrower (a) is a
Virginia limited partnership duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia, and is duly qualified
to do business and in good standing in each other jurisdiction in which the
character of its properties or the transaction of its business makes such
qualification necessary and (ii) has the power, authority and legal right to
own its property and to conduct its business as now owned and conducted.
SECTION _.2.7 Binding Agreements. This Agreement and the other
Financing Documents executed and delivered by the Assignor have been properly
executed and delivered and constitute the valid and legally binding obligations
of the Assignor and are fully enforceable against the Assignor in accordance
with their
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<PAGE> 7
respective terms.
SECTION _.2.8 No Conflicts. Neither the execution, delivery and
performance of the terms of this Agreement or of any of the other Financing
Documents executed and delivered by the Assignor nor the consummation of the
transactions contemplated by this Agreement will conflict with, violate or be
prevented by (a) the Assignor's partnership agreement, (b) any existing
mortgage, indenture, contract or agreement binding on the Assignor or affecting
its property, or (c) any Laws.
SECTION _.2.9 Compliance with Laws. The Assignor 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 Assignor or any of its
properties, the violation of which could adversely affect the authority of the
Assignor to enter into, or the ability of the Assignor to perform under, this
Agreement or any of the other Financing Documents executed by the Assignor.
SECTION _.2.10 Litigation. There are no proceedings, actions or
investigations pending or, so far as the Assignor knows, threatened before or
by any court, arbitrator any Governmental Authority which could adversely
affect the authority of the Assignor to enter into, or the ability of the
Assignor to perform under, this Agreement or any of the other Financing
Documents executed and delivered by the Assignor.
SECTION _.2.11 Title to Properties. The Assignor has good and
marketable title to the Collateral. The Assignor has legal, enforceable and
uncontested rights to use freely such property and assets. The Assignor is the
sole owner of all of the Collateral, free and clear of all security interests,
pledges, voting trusts, agreements, Liens, claims and encumbrances whatsoever,
other than the security interest, assignment and Lien granted under this
Agreement. The ownership interests assigned as Collateral are subject to no
outstanding options or other requirements with respect to such interests.
SECTION _.2.12 Perfection and Priority of Collateral. The Lenders
have, or upon execution and delivery of this Agreement and recording of the
financing statements executed by the Assignor as part of the Security
Documents, will have, and will continue to have as security for the
Obligations, a valid and perfected, first priority, Lien on and security
interest in all of the Collateral, free of all other Liens, claims and rights
of third parties whatsoever.
SECTION _.2.13 Business Information. The information
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<PAGE> 8
contained in EXHIBIT A, which is attached to and a part of this Agreement, is
complete and correct in all material respects.
SECTION _.2.14 Taxes. Each Assignor has filed or caused to be filed
all federal, state and local tax returns, and have paid or caused to be paid
all taxes required in connection therewith, to the extent such taxes have
become due and payable.
ARTICLE _.3
COVENANTS
Until payment in full and the performance of all of the Obligations
and all of the obligations of the Assignor hereunder or secured hereby, the
Assignor covenants and agrees with the Lenders as follows:
SECTION _.3.1 Organizational Existence. Each Assignor shall maintain
its organizational 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 Assignor to perform its
obligations under this Agreement, on the conduct of the Assignor's operations,
on the Assignor's financial condition, or on the value of, or the ability of
the Lenders to realize upon, the Collateral.
SECTION _.3.2 Delivery of Collateral. The Assignor shall deliver
immediately to the Agent any certificates representing ownership interests in
the Borrower, and all instruments, items of payment and other Collateral
received by the Assignor. All Collateral at any time received or held by the
Assignor shall be received and held by the Assignor in trust for the benefit of
the Lenders, and shall be kept separate and apart from, and not commingled
with, the Assignor's other assets.
SECTION _.3.3 Defense of Title and Further Assurances. The Assignor
will do or cause to be done all things necessary to preserve and to keep in
full force and effect its interests in the Collateral, and shall defend, at its
sole expense, the title to the Collateral and any part thereof. Further, the
Assignor shall promptly, upon request by the Agent, execute, acknowledge and
deliver any financing statement, endorsement, renewal, affidavit, deed,
assignment, continuation statement, security agreement, certificate or other
document as the Agent may require in order to perfect, preserve, maintain,
protect, continue, realize upon, and/or extend the Lien and security interest
of the Lenders under this Agreement and the priority thereof. The Assignor
shall pay to the Agent upon demand all taxes, costs and
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<PAGE> 9
expenses (including but not limited to reasonable attorney's fees) incurred by
the Agent in connection with the preparation, execution, recording and filing
of any such document or instrument mentioned aforesaid. Each Assignor hereby
irrevocably appoints the Agent as its attorney-in-fact, with power of
substitution from time to time, to take such actions as are described in this
Section as well as any other action which Assignor is required to take under
this Agreement or under any of the other Financing Documents.
SECTION _.3.4 Compliance with Laws. The Assignor shall comply with
all applicable Laws and observe the valid requirements of Governmental
Authorities, the noncompliance with or the nonobservance of which might have a
material adverse effect on the ability of the Assignor to perform its
obligations under this Agreement or any of the Financing Documents to which the
Assignor is a party or on the conduct of the Assignor's operations, on the
Assignor's financial condition, or on the value of, or the ability of the
Lenders to realize upon, the Collateral.
SECTION _.3.5 Protection of Collateral. The Assignor agrees that the
Lenders may at any time take such steps as the Lenders deem reasonably
necessary to protect the Lenders' interest in, and to preserve the Collateral.
The Assignor agrees to cooperate fully with the Lenders' efforts to preserve
the Collateral and will take such actions to preserve the Collateral as the
Agent may in good faith direct. All of the Lenders' expenses of preserving the
Collateral, including, without limitation, reasonable attorneys fees, shall be
part of the Enforcement Costs.
SECTION _.3.6 Certain Notices. The Assignor will promptly notify
the Agent in writing of any Event of Default and of any litigation, regulatory
proceeding, or other event which materially and adversely affects the value of
the Collateral, the ability of the Assignor or the Lenders to dispose of the
Collateral, or the rights and remedies of the Lenders in relation thereto.
SECTION _.3.7 Locations. The Assignor shall give the Agent
not less than thirty (30) days' prior written notice of any change to the
information set forth on EXHIBIT A.
SECTION _.3.8 Books and Records; Information.
_.3.8.1 The Assignor shall maintain proper books and
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to the Collateral and which reflect the
Lien of the Lenders thereon.
_.3.8.2 The Assignor agrees that the Agent may
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<PAGE> 10
from time to time and at its option (a) require the Assignor to, and the
Assignor shall, periodically deliver to the Agent records and schedules, which
show the status of the Collateral and such other matters which affect the
Collateral, as well as copies of each Assignor's tax returns and filings; (b)
verify the Collateral and inspect the books and records of the Assignor and
make copies thereof or extracts therefrom; (c) notify any prospective buyers or
transferees of the Collateral or any other Persons (as that term is defined in
the Financing Agreement) of the Lenders' interest in the Collateral; and (d)
disclose to prospective buyers or transferees from the Lenders any and all
information regarding the Borrower, the Collateral and/or the Assignor.
SECTION _.3.9 Disposition of Collateral. The Assignor will not sell,
discount, allow credits or allowances, assign, extend the time for payment on,
convey, lease, assign, transfer or otherwise dispose of the Collateral or any
part thereof.
SECTION _.3.10 Distributions. Subject to Section 7.30 of the
Financing Agreement, the Assignor shall receive no dividend or distribution or
other benefit with respect to the Borrower, and shall not vote, consent, waive
or ratify any action taken, which would violate or be inconsistent with any of
the terms and provisions of this Agreement, the Financing Agreement or any of
the other Financing Documents. The Assignor authorizes and directs the
Borrower to make all distributions and other payments constituting a part of
the Collateral directly to the Agent upon written request of the Agent, without
any additional authorization by the Assignor, after the occurrence of an Event
of Default (as hereinafter defined). In the event any distribution or other
payment constituting a part of the Collateral is received by the Assignor after
the occurrence of an Event of Default, the Assignor shall immediately remit
such distribution or payment to the Agent, together with any necessary
endorsement or assignment. All amounts received by the Agent in accordance
with this Section 3.10 shall, at the Lenders' option, be held as additional
collateral for the Obligations or applied to the repayment of the Obligations,
in such order and manner as the Agent may determine and without regard to the
existence of an Event of Default.
SECTION _.3.11 Liens. The Assignor will not create, incur, assume or
suffer to exist any Lien upon any of the Collateral, other than Liens in favor
of the Lenders.
SECTION _.3.12 Taxes. Each Assignor shall pay all taxes and similar
charges imposed upon or assessed against such Assignor or any of such
Assignor's property prior to the date on which penalties are attached thereto.
The Assignor shall cause the Borrower to pay all taxes and similar charges
imposed upon or
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assessed against the Borrower or any of the Borrower's property prior to the
date on which penalties are attached thereto.
SECTION _.3.13 Insurance. The Assignor shall maintain and shall
cause the Borrower to maintain adequate insurance with respect to the
Assignor's and the Borrower's respective operations and property, including
without limitation, insurance against loss, damage or destruction by fire or
other similar casualties and public liability and property damage insurance,
all in conformity with prudent business practices.
ARTICLE _.4
DEFAULT AND RIGHTS AND REMEDIES
SECTION _.4.1 Events of Default. The occurrence of any one or more
of the following events which continues beyond any applicable cure period shall
constitute an "Event of Default" under the provisions of this Agreement:
_.4.1.1 Default under Financing Agreement. An Event
of Default (as that term is defined in the Financing Agreement) shall occur
under the Financing Agreement.
_.4.1.2 Default under this Agreement. If either
Assignor shall fail to duly perform, comply with or observe any of the terms,
conditions or covenants of this Agreement; or
_.4.1.3 Breach of Representations and Warranties.
Any representation or warranty made in this Agreement or in any report,
statement, schedule, certificate, opinion (including any opinion of counsel for
either Assignor), financial statement or other document furnished by either
Assignor or its agents or representatives in connection with this Agreement,
any of the other Financing Documents, or the Obligations or the other
obligations secured by this Agreement, shall prove to have been false or
misleading when made (or, if applicable, when reaffirmed) in any material
respect.
_.4.1.4 Failure to Comply with Covenants. The
failure of either Assignor to perform, observe or comply with any covenant,
condition or agreement contained in this Agreement.
_.4.1.5 Receiver; Bankruptcy. Either Assignor shall
(a) apply for or consent to the appointment of a receiver, trustee or
liquidator of itself or any of its property, (b) admit in writing its inability
to pay its debts as they mature, (c) make a general assignment for the benefit
of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary
petition in bankruptcy or a petition or an answer seeking or
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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 any action for the purposes of effecting any of the foregoing, or
(f) 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 (g) 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
Assignor's business or the use or disposition of a material portion of the
Assignor's assets.
_.4.1.6 Involuntary Bankruptcy, etc. (a) An order
for relief shall be entered in any involuntary case brought against either
Assignor under the United States Bankruptcy Code, or (b) any such case shall be
commenced against either Assignor and shall not be dismissed within sixty (60)
days after the filing of the petition, or (c) 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 either Assignor (i) adjudicating either Assignor
bankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator of
either Assignor, or of a material portion of either Assignor's assets, or (iii)
enjoining, prohibiting or otherwise limiting the operation of a material
portion of either Assignor's business or the use or disposition of a material
portion of either Assignor's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.
_.4.1.7 Liquidation, Termination, Dissolution of
Assignor. If either Assignor shall liquidate, dissolve or terminate its
existence.
_.4.1.8 Judgment. Unless adequately covered by
insurance in the opinion of the Agent, the entry of a final judgment for the
payment of money involving more than $100,000 against either Assignor and the
failure by such Assignor to discharge the same, or cause it to be discharged,
or bonded off to the Agent's satisfaction, within thirty (30) days from the
date of the order, decree or process under which or pursuant to which such
judgment was entered.
_.4.1.9 Execution; Attachment. Any execution,
attachment or charging order is levied against the Collateral,
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and such execution, attachment or charging order is not set aside, discharged
or stayed within thirty (30) days after the same is levied.
_.4.1.10 Default Under the Master Note. An Event of
Default shall occur under any of the promissory notes issued under the Master
Note.
_.4.1.11 Liquidation, Termination, Dissolution of
Borrower. The Borrower is dissolved either pursuant to the provisions of
its Partnership Agreement, by operation of law, or in any other manner,
voluntarily or otherwise; the Partnership Agreement of the Borrower is
terminated pursuant to any of its provisions or by operation of law, or amended
or modified in any manner; partner of the Borrower sells, assigns, mortgages,
pledges, hypothecates, transfers, encumbers, permits to be encumbered or
otherwise disposes of any or all of his, her or its interest in the Borrower or
withdraws voluntarily or involuntarily (by operation of law or otherwise) from
the Borrower; any new general or limited partner is admitted to the Borrower.
SECTION _.4.2 Remedies. Upon the occurrence of any Default or Event
of Default, the Agent may at any time thereafter exercise any one or more of
the following rights, powers or remedies:
_.4.2.1 Accelerate Obligations. The Agent may
declare all or any portion of the Obligations to be immediately due and
payable, without notice to Assignor and without demand, protest or notice of
protest or dishonor.
_.4.2.2 Legal Proceedings. The Agent may proceed to
protect or enforce the Lenders' rights by an action or actions at law or in
equity or by any other appropriate proceeding, whether for the specific
performance of any of the covenants herein contained or of any other agreement
contained herein, or for an injunction against the violation of any of the
terms hereof, or in aid of the exercise or execution of any right, remedy or
power granted herein or by law.
_.4.2.3 Uniform Commercial Code. The Lenders shall
have all of the rights and remedies of a secured party under Title 9 of the
Virginia Uniform Commercial Code and other applicable Laws and in connection
therewith may exercise all or any of the rights, powers and remedies of a
secured party under Title 9 of the Virginia Uniform Commercial Code. Any
notification of a sale or other disposition of all or any part of the
Collateral required pursuant to Section 9-504 of Title 9 of the Virginia
Uniform Commercial Code shall be deemed commercially reasonable if sent in
accordance with Section 5.1 of this
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Agreement at least ten (10) days prior to the sale or other disposition. Upon
demand by the Agent, the Assignor shall assemble the Collateral and all books
and records and make it available to the Agent, at a place designated by the
Agent. The Agent or its agents may without notice from time to time enter upon
the Assignor's premises to take possession of the Collateral and all books and
records, to remove it, or otherwise to prepare it for sale, or to sell or
otherwise dispose of it.
_.4.2.4 Sale or Other Disposition of Collateral. The
Agent may sell or redeem the Collateral, or any part thereof, in one or more
sales, at public or private sale, conduct by any officer or agent of, or
auctioneer or attorney for, the Lenders, at the Agent's place of business or
elsewhere, for cash, upon credit or future delivery, and at such price or
prices as the Agent shall, in its sole discretion, determine, and the Lenders
may be the purchaser of any or all of the Collateral so sold. Further:
(a) Each purchaser of all or any portion
of the Collateral (including the Lenders) at any such sale shall hold the
Collateral so sold, absolutely free from any claim or right of whatsoever kind,
including, without limitation, any equity or right of redemption, of the
Assignor, which the Assignor hereby specifically waives, to the extent it may
lawfully do so, all rights of redemption, stay or appraisal which the Assignor
has or may have under any rule of law or statute now existing or hereafter
adopted.
(b) Any written notice required by law
of any sale, public or private, of all or any part of the Collateral shall be
deemed in all circumstances to have been given in a commercially reasonable
manner if sent at least ten (10) days prior to such sale by mail to the
Assignor at the address for the Assignor set forth in Section 5.1. At any such
sale the Collateral may be sold in one lot as an entirety or in separate
parcels. The Agent shall not be obligated to make any sale pursuant to any
such notice. In case of any sale of all or any part of the Collateral or
credit or for future delivery, the Collateral so sold may be retained by the
Agent until the selling price is paid by the purchaser thereof, but the Lenders
shall not incur any liability in case of the failure of such purchaser to take
up and pay for the Collateral so sold, and in case of any such failure, such
Collateral may again be sold under and pursuant to the provisions hereof. The
Agent, as attorney-in-fact, pursuant to Section 3.3 hereof, may, in the name
and stead of the Assignor, make and execute all conveyances, assignments and
transfers of the Collateral sold pursuant to this Section. The Assignor shall,
if so requested by the Agent, ratify and confirm any sale or sales by executing
and delivering to the Agent, or to such purchaser or purchasers, all such
documents as may, in the
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<PAGE> 15
judgment of the Agent, be advisable for the purpose.
(c) If any consent, approval, or
authorization of any Governmental Authority or any Person having any interest
therein, should be necessary to effectuate any sale or other disposition of the
Collateral, the Assignor agrees 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.
(d) The Assignor recognizes that the
Lenders may be unable to effect a public sale of all or a part of the
Collateral consisting of "securities" by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and other applicable
federal and state Laws. The Agent may, therefore, in its discretion, take such
steps as it may deem appropriate to comply with such Laws and may, for example,
at any sale of the Collateral consisting of securities restrict the prospective
bidders or purchasers as to their number, nature of business and investment
intention, including, without limitation, a requirement that the Persons making
such purchases represent and agree to the satisfaction of the Agent that they
are purchasing such securities for their account, for investment, and not with
a view to the distribution or resale of any thereof. The Assignor covenants and
agrees to do or cause to be done promptly all such acts and things as the Agent
may request from time to time and as may be necessary to offer and/or sell the
securities or any part thereof in a manner which is valid and binding and in
conformance with all applicable Laws.
_.4.2.5 Specific Rights With Regard to Collateral.
In addition to all other rights and remedies provided hereunder or as shall
exist at law or in equity from time to time, the Agent may (but shall be under
no obligation to), without notice to the Assignor, and the Assignor hereby
irrevocably appoints the Agent as its attorney-in-fact, with power of
substitution, in the name of the Lenders or in the name of the Assignor or
otherwise, for the use and benefit of the Lenders, but at the cost and expense
of the Assignor and without notice to the Assignor:
(a) direct any person or entity obligated to
make payments or distributions directly to the Agent;
(b) compromise, extend or renew any of the
Collateral or deal with the same as it may deem advisable;
(c) make exchanges, substitutions or
surrenders of all or any part of the Collateral;
(d) copy, transcribe, or remove from any
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<PAGE> 16
place of business of the Assignor 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
Assignor's places of business as may be reasonably necessary to administer,
control and collect the Collateral;
(e) demand, collect, receipt for and give
renewals, extensions, discharges and releases of any of the Collateral;
(f) institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon, any of the
Collateral;
(g) settle, renew, extend, compromise,
compound, exchange or adjust claims in respect of any of the Collateral or any
legal proceedings brought in respect thereof;
(h) endorse or sign the name of the Assignor
upon any items of payment, certificates of title, instruments, securities,
powers, documents, documents of title, or other writing relating to or part of
the Collateral and on any proof of claim in bankruptcy against an account
debtor;
(i) take any action and execute any
instruments which such attorney-in-fact may deem necessary or advisable to
accomplish the purposes of this Agreement;
(j) take control in any manner of any cash
or non-cash items of payments comprising the Collateral;
(k) subject to obtaining all necessary
consents, approvals, and authorizations, if any, required by applicable laws,
cause the Collateral to be transferred to the Lenders or to the name of one or
more of the Lenders' nominees and thereafter exercise as to such Collateral all
rights, powers and remedies of owners;
(l) collect by legal proceedings or
otherwise all distributions, interest, principal payments, and other sums now
or hereafter payable on account of the Collateral, and hold the same as
Collateral, or apply the same to the expenses incurred by the Lenders in such
legal proceedings or to the Obligations, the manner and distribution of the
application to be determined by the Agent in its sole and absolute discretion;
(m) enter into any extension, subordination,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral and
16
<PAGE> 17
in connection therewith deposit or surrender control of such Collateral
thereunder, and accept other property in exchange therefor and hold or apply
such property or money so received in accordance with the provisions hereof;
(n) take any other action necessary or
beneficial to realize upon or dispose of the Collateral.
(o) upon written instructions to the
Borrower, the Lenders or their designees shall be entitled to become either a
general and/or limited partner in the Borrower in the place and stead of the
Assignor and shall be entitled to exercise and enjoy all rights and privileges
pertaining thereto, including without limitation, the right to (i) participate
in the management and administration of the Borrower's business and affairs,
(ii) require information regarding or an accounting of Borrower transactions
and (iii) inspect the Borrower's books.
_.4.2.6 Application of Proceeds. Any proceeds of
sale or other disposition of the Collateral will be applied by the Agent to the
payment of the Enforcement Costs, and any balance of such proceeds will be
applied by the Agent to the payment of the Obligations and the other
obligations secured by this Agreement in such order and manner of application
as the Agent may from time to time in its sole and absolute discretion
determine. If the sale or other disposition of the Collateral fails to fully
satisfy the Obligations and the other obligations secured by this Agreement,
the Assignor shall remain liable to the Lenders for any deficiency, if and to
the extent the Assignor is liable for the payment or performance of the
Obligations under the provisions of any of the Financing Documents.
_.4.2.7 Performance by Lenders. If the Assignor
shall fail to perform, observe or comply with any of the conditions, covenants,
terms, stipulations or agreements contained in this Agreement or any of the
other Financing Documents, the Agent without notice to or demand upon the
Assignor 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
Assignor, and may enter upon the premises of the Assignor for that purpose and
take all such action thereon as the Agent may consider necessary or appropriate
for such purpose and the Assignor hereby irrevocably appoints the Agent as its
attorney-in-fact to do so, with power of substitution, in the name of the
Lenders or in the name of the Assignor or otherwise, for the use and benefit of
the Lenders, but at the cost and expense of the Assignor and without notice to
the Assignor. All sums so paid or advanced by the Lenders together with
interest thereon from the date of payment, advance or incurring until paid in
full at the highest rate of interest
17
<PAGE> 18
charged under the Note and all costs and expenses, shall be deemed part of the
Enforcement Costs, shall be paid by the Assignor to the Agent on demand, and
shall constitute and become a part of the Obligations.
_.4.2.8 Other Remedies. The Lenders may from time to
time proceed to protect or enforce its rights by an action or actions at law or
in equity or by any other appropriate proceeding, whether for the specific
performance of any of the covenants contained in this Agreement or in any of
the other Financing Documents, or for an injunction against the violation of
any of the terms of this Agreement or any of the other Financing Documents, or
in aid of the exercise or execution of any right, remedy or power granted in
this Agreement, the Financing Documents, and/or applicable Laws.
SECTION _.4.3 Costs and Expenses. The Assignor shall pay on demand
all reasonable costs and expenses (including reasonable attorney's fees), all
of which shall be deemed part of the Obligations, incurred by and on behalf of
the Lenders incident to the preparation of and in connection with this
Agreement, any collection, servicing, sale, disposition or other action taken
by the Lenders with respect to the Collateral or any portion thereof. Such
costs and expenses shall become part of the Obligations.
SECTION _.4.4 Receipt Sufficient Discharge to Purchaser. Upon any
sale or other disposition of the Collateral or any part thereof, the receipt of
purchase money by the Lenders or other Person making the sale or disposition
shall be a sufficient discharge to the purchaser for the purchase money, and
such purchaser shall not be obligated to see to the application thereof.
SECTION _.4.5 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 in any related instrument or agreement or now or
thereafter 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 the other Financing Documents or
in any related document, instrument or agreement or now or hereafter existing
at law or in equity or 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.
SECTION _.4.6 No Waiver, etc. No failure or delay by the Agent to
insist upon the strict performance of any term, condition, covenant or
agreement of this Agreement or of any of the
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<PAGE> 19
other Financing Documents or of any related documents, instruments or
agreements, 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 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 or under any related document, instrument or
agreement, 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 other of the Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.
ARTICLE _.5
MISCELLANEOUS
SECTION _.5.1 Notices. All notices, requests or demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing, hand delivered, sent by nationally
recognized overnight courier or mailed, addressed as follows::
the Lender: NationsBank, N.A.
10 Light Street, 20th Floor
Baltimore, Maryland 21202
Attn: Robert J. Montanari
Vice President
the Assignor: Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell, Esquire
Sunrise Assisted Living Investments, Inc.
c/o Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: James S. Pope
with a copy Wayne G. Tatusko, Esquire
to: Watt, Tieder & Hoffar
7929 Westpark Drive
McLean, Virginia 22102
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<PAGE> 20
or to such other address as any party may designate by written notice to the
other party.
SECTION _.5.2 Amendments; Waivers. This Agreement and the other
Financing Documents may not be amended, modified, or changed in any respect
except by an agreement in writing signed by the Agent and the Assignor. No
waiver of any provision of this Agreement or of any of the other Financing
Documents, nor consent to any departure by the Assignor therefrom, shall in any
event be effective unless the same shall be in writing. No course of dealing
between the Assignor 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 of the other Financing
Documents or any right or remedy under this Agreement, under any of the other
Financing Documents or under applicable Laws.
SECTION _.5.3 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 Agent 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 Agent to exercise any remedy reserved
to it 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 Agent may:
(a) proceed against the Assignor with or
without proceeding against the Borrower or any other Person who may be liable
for all or any part of the Obligations;
(b) proceed against the Assignor 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 notice, release or compromise
with any guarantor or other Person liable for all or any part of the
Obligations under the Financing Documents or otherwise; and
(d) without reducing or impairing the
obligations of the Assignor and without notice thereof: (i) fail to perfect the
Lien in any or all Collateral or to release any or all the Collateral or to
accept substitute collateral, (ii) waive any provision of this Agreement or the
other Financing Documents, (iii) exercise or fail to exercise rights of set-off
or other rights, or (iv) accept partial payments or extend from time to time
the maturity of all or any part of the Obligations.
20
<PAGE> 21
SECTION _.5.4 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
Agent, all of the Obligations of the Assignor to the Lenders shall become
immediately due and payable; and
(d) if 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 _.5.5 Assignments by Lenders. The Lenders may, without
notice to, or consent of, the Assignor, sell, assign or transfer to or
participate with any Person or Persons all or any part of the Obligations, 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 the Lenders 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.
SECTION _.5.6 Successors and Assigns. This Agreement and all other
Financing Documents shall be binding upon and inure to the benefit of the
Assignor and the Lenders and their respective heirs, personal representatives,
successors and assigns, except that the Assignor shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Agent.
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<PAGE> 22
SECTION _.5.7 Applicable Law. 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.
SECTION _.5.8 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 _.5.9 Entire Agreement. This Agreement is intended by the
Lenders and the Assignor to be a complete, exclusive and final expression of
the agreements contained herein. Neither the Lenders nor the Assignor shall
hereafter have any rights under any prior agreements but shall look solely to
this Agreement for definition and determination of all of their respective
rights, liabilities and responsibilities under this Agreement.
SECTION _.5.10 Counterparts. This Agreement may be executed in any
number of duplicate originals, each of which shall be an original but all of
which together shall constitute one and the same institute.
SECTION _.5.11 Waiver of Trial by Jury. EACH ASSIGNOR AND EACH OF
THE LENDERS HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH EITHER ASSIGNOR AND ANY OF THE LENDERS 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
each Assignor and each of the Lenders, and each Assignor and each of 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. Each Assignor and each of 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 _.5.12 Service of Process.
_.5.12.1 (i) The Assignor hereby irrevocable
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designates and appoints Wayne G. Tatusko, Esquire of Watt, Tieder & Hoffar,
7929 Westpark Drive, McLean, Virginia 22102, as their authorized agent to
receive on their behalf service of any and all process that may be served in
any suit, action, or proceeding instituted in connection with this Agreement in
any state or federal court sitting in the Commonwealth of Virginia. If such
agent shall cease so to act, the Assignor shall irrevocably designate and
appoint without delay another such agent in the Commonwealth of Virginia
reasonably satisfactory to the Agent and shall promptly deliver to the Agent
evidence in writing of such agent's acceptance of such appointment and its
agreement that such appointment shall be irrevocable.
(ii) The Assignor 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 them at their address designated above,
and (B) serving a copy thereof upon the agent hereinabove designated and
appointed by the Assignor as the Assignor's agent for service of process. The
Assignor irrevocably agrees that such service shall be deemed in every respect
to be effective service of process upon each of them in any such suit, action,
or proceeding. Nothing in this Section shall affect the right of the Lenders
to serve process in any manner otherwise permitted by law and nothing in this
Section will limit the right of the Lenders otherwise to bring proceedings
against the Assignor in the courts of any other appropriate jurisdiction or
jurisdictions.
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<PAGE> 24
SECTION _.5.13 Liability of the Lenders. The Assignor 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. Except for willful misconduct or gross negligence, the Lenders
shall be under no liability for, and the Assignor hereby releases the Lenders
from, all claims for loss or damage caused by (a) the Lenders' failure to
perform or collect any of the Collateral, or (b) the Lenders' failure to
preserve or protect any rights of the Assignor under the Collateral. The
Assignor agrees that the duties of the Lenders with respect to the Collateral
shall be solely to use reasonable care in the custody and preservation of the
Collateral in Agent's possession, which shall not include any steps necessary
to preserve rights against prior parties. In the event the Agent enforces or
seeks to enforce any of the rights of an owner of the Borrower under any of the
Collateral, the Assignor shall immediately reimburse the Lenders for such costs
and expenses (including actual attorney's fees reasonably incurred) so incurred
and payment of such sums shall be secured by this Agreement.
IN WITNESS WHEREOF, the Assignor has caused this Agreement to be
executed, sealed and delivered, as of the day and year first written above.
WITNESS/ATTEST: SUNRISE ASSISTED LIVING, INC.
__/s/ Wayne G. Tatusko By: _/S/ David W. Faeder___(SEAL)
--------------------- -------------------
David W. Faeder
President and Chief Financial
Officer
__/s/ Wayne G. Tatusko By: _/s/ Thomas B. Newell _(SEAL)
--------------------- ---------------------
Thomas B. Newell
Executive Vice President
24
<PAGE> 25
WITNESS/ATTEST: SUNRISE ASSISTED LIVING
INVESTMENTS, INC.
__/s/ Wayne G. Tatusko By: _/s/ James S. Pope_(SEAL)
--------------------- -----------------
James S. Pope
Vice President
25
<PAGE> 26
EXHIBIT A TO PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT
Each Assignor further represent and warrant to the Lenders as follows:
1. The exact legal name of each Assignor is as stated in the initial
paragraph to this Agreement.
2. SALI's Federal Tax Identification Number is: 54-1746596
2. SALII's Federal Tax Identification Number is: 54-1674683
3. (a) Each Assignor's chief executive office is:
c/o Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
(b) Each Assignor in fact manages the main part of its business
operations from that address; and
(c) Each Assignor is at that address that persons dealing with such
Assignor would normally look for credit information.
4. The mailing address of each Assignor to be inserted on financing
statements covering the Collateral is:
c/o Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell, Esquire
5. In the twelve years preceding the date hereof, neither Assignor has
changed its name, identity or organizational structure, has conducted
business under any name other than its current name, and has conducted
its business in any jurisdiction other than the jurisdiction in which
its chief executive office is currently located, except as follows:
NONE
<PAGE> 1
EXHIBIT 10.31.6
MASTER GUARANTY OF PERFORMANCE
THIS MASTER GUARANTY OF PERFORMANCE (the "Agreement") is made this
23rd day of December, 1997, by SUNRISE ASSISTED LIVING, INC., a Delaware
corporation (the "Guarantor") in favor of NATIONSBANK, N.A., as agent ("Agent")
for itself and for certain additional lenders (collectively with the 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, extended or substituted from time to time, the "Agency
Agreement").
RECITALS
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. As of the date hereof, seven (7) Facility Loans have been made
under the Original Credit Facility evidenced by eight (8) Notes.
C. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 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") and to provide
that the Credit Facility will be revolving. 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 the same date as this Agreement
by and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Financing Agreement") and that certain
<PAGE> 2
Amended and Restated Master Construction Loan Agreement of even date herewith
by and between the Agent and the Borrower (as amended, restated or substituted
from time to time, the "Construction Agreement").
D. The Loan is evidenced by that certain Amended, Restated,
Consolidated and Increased Master Promissory Note of even date herewith payable
by the Borrower to Agent on behalf of the Lenders (as amended, restated,
renewed or substituted from time to time, the "Note")
E. The Credit Facility shall be secured by among other things
certain Deeds of Trust (as defined in the Financing Agreement) (individually, a
"Deed of Trust," collectively, the "Deeds of Trust") from the Borrower and any
Guarantor Subsidiaries in favor of the Lenders each covering the Borrower's or
Guarantor Subsidiary's interest in certain Land (as defined in each of the
Deeds of Trust) and the Improvements (as defined in each of the Deeds of Trust)
thereon and such other real and personal property as therein more particularly
set forth (collectively, the "Property").
F. On the Land secured by each of the Deeds of Trust, the
Borrower has agreed to construct certain Improvements as more particularly
described in the Amended and Restated Financing and Security Agreement of even
date herewith by and between the Borrower and the Agent (as amended, extended
or substituted from time to time, the "Financing Agreement") and an Amended and
Restated Construction Loan Agreement of even date herewith by and between the
Borrower and the Agent (as amended, extended or substituted from time to time,
the "Construction Agreement") in accordance with plans, drawings and
specifications (the "Plans and Specifications") heretofore submitted by the
Borrower to the Agent for the Agent's approval.
G. The Note, the Deeds of Trust, this Agreement, the Financing
Agreement, the Construction Agreement, and all other documents evidencing or
securing the Loan are hereinafter referred to collectively as the "Financing
Documents."
H. It is a condition of making available the Credit Facility by
the Lenders to the Borrower that the Guarantor executes and delivers this
Agreement to the Agent.
NOW, THEREFORE, IN CONSIDERATION of the agreement by the Lenders to
make the Credit Facility available to the Borrower and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees with the Lenders as follows:
1. If the Borrower or any Guarantor Subsidiary shall,
- 2 -
<PAGE> 3
subject to any applicable cure periods and the other terms of the Financing
Agreement and the Construction Agreement,
a. fail to complete any of the Improvements free
of liens and within the period or periods required by the
Financing Agreement or the Construction Agreement in
accordance with the Plans and Specifications with only such
material amendments thereto as shall be approved by the
Lenders, and in accordance with all laws, rules, regulations
and requirements of all governmental authorities having
jurisdiction, or
b. fail to keep any of the Property free from
all liens and claims which may be filed or made for performing
work and labor thereon or furnishing materials therefor in
connection with the construction thereof or fail to bond off
such liens or make other arrangements therefor satisfactory to
the Agent, or both,
then the Guarantor hereby guarantees to the Lenders that it shall, provided
that advances of the Loan are thereafter advanced in the manner provided in the
Financing Agreement and the Construction Agreement:
(1) cause the Improvements to be completed free and clear of
mechanics' and materialmens' liens in the manner and within
the period of time required by the Construction Agreement, in
accordance with the Plans and Specifications, amended only as
aforesaid, and in accordance with all laws, rules, regulations
and requirements of all governmental authorities having
jurisdiction,
(2) cause any such mechanics' or materialmens' liens and claims to
be removed or bonded off or make other arrangements therefor
satisfactory to the Agent and thereafter keep the Property
thereon free from all such liens and claims,
(3) make payment in full to all laborers, subcontractors and
materialmen on or before the date of completion for the costs
of the Improvements and related costs, and
(4) pay all costs and expenses incurred in doing (l), (2) and (3)
of this Section l and pay to or reimburse the Lenders for all
expenses incurred by, or other moneys due, the Lenders
pursuant to
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<PAGE> 4
the Financing Documents.
The Guarantor further agrees to indemnify and hold harmless the Lenders from
any loss (including reasonable attorney's fees) resulting from any default by
the Guarantor under the terms of this Agreement.
2. The Guarantor hereby waives notice of acceptance of this
Agreement by the Agent and any and all notices and demands of every kind and
description which may be required to be given by any statute or rule or law,
and agrees that the liability of the Guarantor hereunder shall in no way be
affected, diminished or released (a) by any forbearance which may be granted to
the Borrower or any Guarantor Subsidiary (or to any successor to it or to any
person or entity which shall have assumed the obligations of the Borrower under
the Note or any Subsidiary Guaranty), (b) by any waiver by the Agent of any
term, covenant or condition in any of the Financing Documents, (c) by reason of
any change or modification in any of the Financing Documents (provided such
change or modification does not materially affect the amount of the funds
budgeted for the costs of any of the Improvements or the manner in which the
same are to be advanced under the Construction Agreement), or (d) by the
acceptance of additional security for the Obligations (as defined in the
Financing Agreement) or the release by the Agent of any security or of any
party primarily or secondarily liable for the Obligations, including one or
more of the undersigned.
3. The Guarantor hereby agrees that the Plans and Specifications
for any Facility, and any other terms, covenants and conditions contained in
the Construction Agreement, the construction contract with any contractor or
any of the Financing Documents may be altered, extended, changed, modified or
released by the Borrower or an applicable Guarantor Subsidiary, with the
approval of the Agent, and without notice to or the consent of the Guarantor,
without in any manner affecting the obligations of the Guarantor under this
Agreement or releasing the Guarantor therefrom. The Guarantor specifically
acknowledges and agrees that change orders approved by the Borrower or an
applicable Guarantor Subsidiary shall in no manner release the Guarantor from
the obligations evidenced by this Agreement.
4. The Guarantor agrees that this Agreement may be enforced by
the Lenders without the necessity at any time of resorting to or exhausting any
other security or collateral and without the necessity at any time of having
recourse to the Note, any Subsidiary Guaranty or any of the Property through
foreclosure proceedings or otherwise. The Guarantor further agrees that
nothing herein contained shall prevent the Agent from suing on the Note or
foreclosing any of the Deeds of Trust or from exercising any other right
available to it under any of the
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<PAGE> 5
Financing Documents, and the exercise of any of the aforementioned rights shall
not constitute a legal or equitable discharge of the Guarantor, it being the
purpose and intent of the Guarantor that its obligations under this Agreement
be released therefrom upon payment of all sums due hereunder and completion of
the Improvements in accordance with the Financing Documents and this Agreement.
5. Nothing herein contained shall operate as a release or
discharge in whole or in part, of any claim of the Guarantor against the
Borrower or any Guarantor Subsidiary by subrogation or otherwise, by reason of
any act done or any payment made by the Guarantor pursuant to the provisions of
this Agreement; provided, however, all such claims shall be subordinate to the
lien of the Deeds of Trust and to the claims of the Lenders and the Guarantor
assigns all of its right, title and interest in all claims of the Guarantor as
security for the fulfillment of all of the Guarantor's obligations under this
Agreement.
6. The Guarantor hereby acknowledges, consents and agrees (a)
that the provisions of this Agreement and the rights of all parties mentioned
herein shall be governed by the laws of the Commonwealth of Virginia and
interpreted and construed in accordance with such laws and (b) that any court
of competent jurisdiction of the Commonwealth of Virginia shall have
jurisdiction in any proceeding instituted to enforce this Agreement and any
objections to venue are hereby waived.
7. THE GUARANTOR HEREBY WAIVES TRIAL BY JURY in any action or
proceeding not required to be arbitrated pursuant to the Financing Documents to
which the Guarantor and any of the Lenders may be parties, arising out of or in
any way pertaining to (a) this Agreement, (b) the Loan or (c) the Financing
Documents. 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
Agreement. This waiver is knowingly, willingly and voluntarily made by the
Guarantor, and the Guarantor 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 Guarantor further
represents that it has been represented in the signing of this Agreement 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.
8. The rights, powers, privileges and discretions (the "Rights")
to which the Lenders may be entitled hereunder shall inure to the benefit of
their successors and assigns. All the Rights of the Lenders are cumulative and
not alternative and may be enforced successively or concurrently. Failure of
the Agent
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<PAGE> 6
or the Lenders to exercise any of the Rights shall not be deemed a waiver
thereof and no waiver of any of their Rights shall be effective unless in
writing and signed by the Agent or the Lenders. The terms, covenants and
conditions of or imposed upon the Guarantor herein shall be binding upon its
respective heirs, personal representatives, successors and assigns.
9. The Guarantor represents and warrants that it has examined or
has had an opportunity to examine the Financing Documents, and that it has full
power, authority and legal right to execute and deliver this Agreement, and
that this Agreement is a binding legal obligation of the Guarantor.
10. In case any provision contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
WITNESS the signature and seal of the Guarantor as of the day and year
first above written.
WITNESS/ATTEST: SUNRISE ASSISTED LIVING, INC.
_/s/ Wayne G. Tatusko_ By: _/s/ David W. Faeder________(SEAL)
-------------------- -------------------
David W. Faeder
President and Chief Financial Officer
_/s/ Wayne G. Tatusko_ By: _/s/ Thomas B. Newell______(SEAL)
-------------------- --------------------
Thomas B. Newell
Executive Vice President
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<PAGE> 7
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF __Fairfax_ , TO WIT:
I, __Dawn A. Washington_ , a Notary Public in and for the jurisdiction
aforesaid, do hereby certify that David W. Faeder as President and Chief
Financial Officer and Thomas B. Newell as Executive Vice President of Sunrise
Assisted Living, Inc., 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.
Date: December 23, 1997 __/s/Dawn A. Washington
-----------------------
Notary Public
My Commission Expires:
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<PAGE> 1
EXHIBIT 10.31.7
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT OF OPERATING
AGREEMENTS AND MANAGEMENT CONTRACTS
(MASTER)
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT OF OPERATING
AGREEMENTS AND MANAGEMENT CONTRACTS (this "Collateral Assignment") is made this
23rd day of December, 1997, by SUNRISE EAST ASSISTED LIVING LIMITED
PARTNERSHIP, a Virginia limited partnership (the "Borrower"), and SUNRISE
ASSISTED LIVING MANAGEMENT, INC., a Virginia corporation, formerly known as
Sunrise Terrace, Inc. (the "Management Company"; the Borrower and the
Management Company being hereinafter referred to collectively and individually
as the "Assignor"), to NATIONSBANK, N.A. as agent (the "Agent") for itself and
for certain additional lenders (collectively with the Agent, the "Lenders") who
are participating in a bank group pursuant to an Amended and Restated Agency
Agreement of even date herewith (as amended, restated or substituted from time
to time, the "Agency Agreement").
R E C I T A L S
A. The Borrower obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. In connection with the Original Credit Facility, the Management
Company executed a Collateral Assignment of Operating Agreements and Management
Contracts dated June 13, 1996 for the benefit of the Original Lenders (the
"Original Collateral Assignment").
C. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 or such
greater amount as the Lenders may from time to time commit to lend pursuant to
the Agency Agreement (such
<PAGE> 2
increased and modified credit facility being hereinafter referred to as the
"Credit Facility" or the "Loan") and to provide that the Credit Facility will
be revolving. 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 the same date as this Agreement by and between the Agent and
the Borrower (as amended, restated or substituted from time to time, the
"Financing Agreement") and that certain Amended and Restated Master
Construction Loan Agreement dated the same as this Agreement by and between the
Agent and the Borrower (as amended, restated or substituted from time to time,
the "Construction Agreement").
D. The Loan will be evidenced by an Amended, Restated and
Increased Master Promissory Note (as amended, restated, renewed or
resubstituted from time to time, the "Note"). The Note will be secured by,
among other things, certain Deeds of Trust (as defined in the Financing
Agreement) from the Borrower or a Guarantor Subsidiary in favor of the Lenders
covering the Borrower's or the Guarantor Subsidiary's interest in the Land and
the Improvements for the applicable Facility (as defined hereinafter) and such
other real and personal property as shall be therein more particularly set
forth (collectively, the "Property"). The Credit Facility is evidenced,
secured and guaranteed by certain Financing Documents (as defined in the
Financing Agreement).
E. The Management Company is one hundred percent (100%) owned by
Sunrise Assisted Living, Inc., a Delaware corporation.
F. The Lenders have agreed to make the Loan to the Borrower with
the condition precedent that, to the extent permitted by Laws (as hereinafter
defined) and the applicable Operating Agreements (as hereinafter defined) and
Contracts (as hereinafter defined), the Assignor collaterally assigns to the
Agent on behalf of the Lenders and their respective successors and assigns, all
of their right, title and interest in, under and to any and all contracts and
agreements previously, now or hereafter at any time executed and delivered by
the Assignor with respect to the acquisition, operation, maintenance, and
management of and employment of those assisted living facilities and/or
independent living facilities owned by the Borrower or a Guarantor Subsidiary
which are encumbered by a Deed of Trust (individually, the "Facility",
collectively, the "Facilities"), or otherwise concerning the operations and
business of the Facilities, including, without limitation: (i) any and all
agreements entered into by the Assignor in connection with the operation of the
Facilities (hereinafter collectively referred to as the "Operating Agreements")
and (ii) any and all service and maintenance contracts, any and all employment
contracts, any and all management contracts, consulting agreements, medical
service agreements, transfer agreements, laboratory servicing agreements,
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<PAGE> 3
physician, other clinician or other professional services provider contracts,
resident agreements, food and beverage service contracts, pharmaceutical
contracts and all other contracts for the maintenance of, or provision of
services to the Facilities, and including, but not limited to, the Management
Agreement to be entered into on or before the issuance of the first certificate
of occupancy for the Facilities (the "Management Agreement"), by and between
the Borrower and the Management Company (all as amended, restated, supplemented
or modified, collectively the "Contracts" and singularly, a "Contract"), and
collaterally assigns and grants to the Lenders a security interest in, and lien
on, all right, title and interest of the Assignor in, to, and under such
Operating Agreements and Contracts as collateral and security for the Loan and
other Obligations.
G. In accordance with, and pursuant to, that certain management
agreement by and between the Management Company and the Borrower dated
September 5, 1996 pertaining to the Facilities known as Sunrise of Morris
Plains, Sunrise of Old Tappan and Sunrise of Wayne and pursuant to other
agreements to be executed for other Facilities, the Management Company has
agreed or will agree to manage and operate each of the Facilities (all of such
management agreements, together with any and all amendments thereto, extensions
thereof and substitutions therefor are herein collectively referred to as the
"Management Agreement").
H. The Management Company and the Borrower have requested that
the Agent enter into the Financing Agreement with the Borrower and have
requested that the Lenders make the Loan to the Borrower pursuant thereto.
I. The Lenders have required, as a condition precedent to the
execution and delivery of the Financing Agreement and the making of the Loan
thereunder, the execution and delivery of this Agreement by both the Management
Company and the Borrower.
J. All capitalized terms used in this Agreement and not defined
herein shall have the meaning given to such terms in the Financing Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, of the respective
representations, covenants and agreements hereinafter contained, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make the Loan to the
Borrower and as security for the Obligations, the Assignor hereby covenants and
agrees with the Agent and amends and restates the Original Collateral
Assignment in its entirety as follows:
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<PAGE> 4
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
SECTION 1.1 Recitals. The Recitals set forth hereinabove are
incorporated herein by reference.
SECTION 1.2 Definitions. All capitalized terms used in this
Collateral Assignment shall have the respective meanings specified in the
Financing Agreement, unless the context clearly indicates otherwise.
SECTION 1.3 Rules of Construction. (a) The words "hereof",
"herein", "hereunder" "hereto", and other words of similar import refer to this
Collateral Assignment in its entirety.
(b) The terms "agree" and "agreements" contained herein are
intended to include and mean "covenant" and "covenants".
(c) References to Articles, Sections, and other subdivisions of
this Collateral Assignment are to the designated Articles, Sections, and other
subdivisions of this Collateral Assignment as originally executed.
(d) The headings of this Collateral Assignment are for convenience
only and shall not define or limit the provisions hereof.
(e) All references made (i) in the neuter, masculine or feminine
gender shall be deemed to have been made in all such genders, and (ii) in the
singular or plural number shall be deemed to have been made, respectively, in
the plural or singular number as well.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Operating Agreements and Contracts. The Assignor
represents and warrants to the Lenders that (a) the Operating Agreements and
Contracts will be at the time of execution and delivery thereof valid and
binding on the parties thereto, will be at the time of execution and delivery
thereof in full force and effect, and will not be evidenced by any chattel
paper or instrument, (b) the Assignor has not made any previous collateral
assignment of the Operating Agreements or Contracts to any person except for
collateral assignments which have been terminated prior to or as of the date
hereof, and (c) no financing statement covering any of the Operating Agreements
or Contracts is on file in any public office except financing statements in
favor of the Lenders and except those which have
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<PAGE> 5
been terminated prior to or as of the date hereof.
ARTICLE III
COLLATERAL ASSIGNMENT
SECTION 3.1. Collateral Assignment. As security and collateral for
the payment and performance of, and compliance with, all of the Obligations,
and to the extent permitted under Laws or by the applicable Operating
Agreements or Contracts, the Assignor hereby collaterally assigns to the
Lenders, and grants to the Lenders, a lien on, and security interest in, all
right, title and interest of the Assignor in, to, and under the Operating
Agreements and Contracts (as Operating Agreements and Contracts are defined in
Recital F of this Collateral Assignment, which Operating Agreements and
Contracts shall specifically include, but shall not be limited to, the
Management Agreement), together with all cash and non-cash proceeds thereof;
provided, however, that nothing contained herein shall impose upon the Lenders
any of the obligations or liabilities of the Assignor under any of the
Operating Agreements or Contracts and provided further that the Lenders shall
not exercise any rights under such Operating Agreements or Contracts unless and
until an Event of Default under the Financing Documents has occurred. The
Lenders also acknowledge that, in connection with any exercise of such of the
security interests or other rights created herein, it may be necessary to
obtain approvals of, consents from, or new agreements with, various third
parties.
ARTICLE IV
COVENANTS
Until payment and performance in full of all of the Obligations, the
Assignor hereby covenants and agrees as follows:
SECTION 4.1. Further Assurances. The Assignor shall promptly upon
request execute, acknowledge and deliver any financing statement, renewal,
affidavit, deed, collateral assignment, continuation statement, security
agreement, certificate or other document as the Agent may reasonably require in
order to perfect, preserve, maintain, protect, continue and/or extend the
collateral assignment, lien or security interest of the Lenders under this
Collateral Assignment and its priority. The Assignor shall pay to the Agent on
demand all taxes, costs and expenses incurred by the Lenders in connection with
the preparation, execution, recording and filing of any such document or
instrument mentioned aforesaid. Such taxes, costs and expenses shall
constitute and become a part of the Obligations.
SECTION 4.2. Performance under and Amendments to Operating Agreements
and Contracts. The Assignor shall fully, promptly and
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<PAGE> 6
faithfully comply with and perform all of its obligations and duties under all
terms of the Operating Agreements and Contracts in accordance with the terms
thereof, and will make no changes or amendments to the Operating Agreements and
Contracts which are not customarily made in the ordinary course of business and
which result in a material adverse effect on the financial condition or
operations of the Assignor, or terminate or cancel any of the Operating
Agreements and Contracts, other than in the ordinary course of business.
Copies of all amendments to the Operating Agreements and Contracts will be
delivered by the Assignor to the Agent.
SECTION 4.3. Information and Notifications. The Assignor shall
promptly notify the Agent in writing of the modification of any of the material
provisions of any of the Operating Agreements or Contracts which would result
in a materially adverse change in the financial condition or operations of the
Assignor.
SECTION 4.4. Books and Records; Inspections. The Assignor shall at
all times keep accurate and complete records of performance by the Assignor
under the Operating Agreements and Contracts, and the Agent, or any of its
respective agents, shall have the right to call at the place or places of
business of the Assignor at reasonable intervals to be determined by the Agent,
during normal business hours, and without hindrance or delay, to inspect,
audit, check and make extracts from the books, records, journals, orders,
receipts, correspondence and other data relating to the Operating Agreements
and Contracts.
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.1. Remedies upon Default. Subject to the provisions and
understandings of Section 3.1 of this Collateral Assignment, upon or at any
time after the occurrence and during the continuance of an Event of Default,
the Agent may, without notice, without regard to the adequacy of security for
the Obligations and in addition to any other remedy which the Lenders may have
at law or in equity under the Financing Documents, either in person or by agent
with or without bringing any action or proceeding, or by a receiver to be
appointed by a court, enforcing any and all rights and remedies of the Assignor
under and in connection with any of the Operating Agreements or Contracts, to
the extent permitted by Law, and subject to the provisions of the Financing
Agreement, Section 3.1 of this Collateral Assignment, the Operating Agreements
and the Contracts, make, cancel, enforce or modify any of the Operating
Agreements or the Contracts and do any acts which the Agent deems proper to
protect the security hereof, including, without limitation, the collateral
assignment of any such Operating Agreements or Contracts to third parties, and
either with or
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<PAGE> 7
without taking possession of the Facilities, in its own name as agent for the
Lenders sue for or otherwise collect and receive such fees, issues and profits,
including those past due and unpaid, and apply the same, less costs and
expenses of operation and collection, including just and reasonable
compensation for all of its employees and other agents, to the Obligations.
The Assignor agrees that the failure of the Assignor to comply with any of the
covenants contained herein for a period of thirty (30) days after the date the
Agent notifies the Assignor in writing shall constitute an immediate Default
under the Financing Agreement.
SECTION 5.2. Indemnification. The Assignor shall and does hereby
agree to indemnify and to hold the Lenders harmless of and from any and all
liability, loss or damage which it may or might incur under any of the
Operating Agreements or the Contracts or by reason of this Collateral
Assignment, except those arising from any fraud, willful misconduct or gross
negligence of the Lenders, and of and from any and all claims and demands
whatsoever which may be asserted against the Lenders, by reason of any alleged
obligations or undertaking on its part to perform or discharge any of the
terms, covenants or conditions contained in any of the Operating Agreements or
the Contracts, except those claims arising by reason of any such alleged
obligations or undertakings on the part of the Lenders subsequent to the date
on which the Borrower has no legal title or any other interest in the
Facilities. Should the Lenders incur any such liability, loss or damage under
any of the Operating Agreements or the Contracts or under or by reason of this
Collateral Assignment, or in the defense of any such claims or demands, the
amount thereof, including costs, expenses and attorneys' fees, shall be secured
hereby, and the Assignor shall reimburse the Lenders therefor immediately upon
demand, with interest at the Post-Default Rate.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Continuation of Collateral Assignment. Upon the payment
and performance in full of all of the Obligations, this Collateral Assignment
shall become and be void and of no effect, but the affidavit of any officer of
the Agent showing any part of the Obligations to remain unpaid or unperformed,
shall be and constitute conclusive evidence of the validity, effectiveness and
continuing force of this Collateral Assignment, and any Person may and is
hereby authorized to rely thereon. A demand on any party under any of the
Operating Agreements or Contracts by the Agent for the payment of any moneys to
be paid to the Assignor in connection with or under any one of the Operating
Agreements or Contracts, upon any Event of Default claimed by the Agent shall
be sufficient to warrant such party to make future payments of such moneys to
the Agent without the necessity for
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<PAGE> 8
further consent by the Assignor.
SECTION 6.2. Successors and Assigns. The rights, powers, privileges
and discretions (hereinafter collectively called the "rights") specifically
granted to the Lenders are not in limitation of, but in addition to, those to
which the Lenders are entitled under any general or local law relating to such
collateral assignments. The rights to which the Lenders may be entitled shall
inure to the benefit of their successors and assigns. All the rights of the
Lenders are cumulative and not alternative and may be enforced successfully or
concurrently. Failure of the Lenders to exercise any of their rights shall not
impair any of their rights nor be deemed a waiver thereof and no waiver of any
of their rights shall be deemed to apply to any other such rights nor shall it
be effective unless in writing and signed by the Agent.
The terms and conditions agreed to by the Assignor and the covenants
of the Assignor shall be binding upon its successors and assigns, but this
provision does not waive any prohibition of assignment or any requirement of
consent to an assignment.
SECTION 6.3. Waiver of Acceptance by Assignor. The Assignor hereby
waives acceptance of this Collateral Assignment by the Lenders.
SECTION 6.4. Illegality; Severability. If fulfillment of any
provision hereof or any transaction related hereto, at the time 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
provision herein contained operates or would prospectively operate to
invalidate this Collateral Assignment in whole or part, then such clause or
provision only shall be void as though not herein contained, and the remainder
of this Collateral Assignment shall remain operative and in full force and
effect.
SECTION 6.5. Amendments. Neither this Collateral Assignment nor any
term, condition, representation, warranty, covenant or agreement hereof may be
changed, waived, discharged or terminated orally, but, rather, only by an
instrument in writing by the party against whom such change, waiver, discharge
or termination is sought.
SECTION 6.6. Governing Law. This Collateral Assignment shall be
governed and construed in accordance with the laws of the Commonwealth of
Virginia.
SECTION 6.7. Duplicate Originals. This Collateral Assignment may be
executed in any number of duplicate originals, each of which shall be an
original but all of which together shall constitute one and the same
instrument.
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<PAGE> 9
IN WITNESS WHEREOF, each Assignor has executed this Collateral
Assignment by its duly authorized partner or officer, under seal, as of the day
and year first above written.
ASSIGNOR:
BORROWER:
WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED
PARTNERSHIP, a Virginia limited partnership
__/s/ Wayne G. Tatusko _ By: Sunrise Assisted Living
--------------------- Investments, Inc., general partner
By: /S/ James S. Pope (SEAL)
------------------
James S. Pope
Vice President
MANAGEMENT COMPANY:
WITNESS OR ATTEST: SUNRISE ASSISTED LIVING MANAGEMENT, INC.,
a Virginia corporation
__/s/ Wayne G. Tatusko By: /S/ James S. Pope (SEAL)
-------------------- ----------------------------
James S. Pope
Vice President
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<PAGE> 1
Exhibit 10.31.8
AMENDED AND RESTATED COLLATERAL ASSIGNMENT OF LICENSES,
PARTICIPATION AGREEMENTS AND RESIDENT AGREEMENTS
(MASTER)
THIS AMENDED AND RESTATED COLLATERAL ASSIGNMENT OF LICENSES,
PARTICIPATION AGREEMENTS AND RESIDENT AGREEMENTS (this "Collateral Assignment")
is made as of this 23rd day of December, 1997, by SUNRISE EAST ASSISTED LIVING
LIMITED PARTNERSHIP, a limited partnership organized and existing under the
laws of the Commonwealth of Virginia (the "Assignor") for the benefit of
NATIONSBANK, N.A. (the "Agent") as agent for itself and for certain additional
lenders (collectively with the Agent, the "Lenders") who are participating as
lenders in a bank group pursuant to an Agency Agreement of even date (as
amended, restated or substituted from time to time, the "Agency Agreement").
RECITALS
A. The Assignor obtained from the Agent and certain other lenders
(collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Assignor could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Assignor executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. As of the date hereof, seven (7) Facility Loans have been made
under the Original Credit Facility evidenced by eight (8) Notes. In connection
with the Original Credit Facility, the Assignor executed a Collateral
Assignment of Licenses, Participation Agreements and Resident Agreements in
favor of the Original Lenders dated June 13, 1996 (the "Original Collateral
Assignment").
C. The Assignor has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 or such
greater amount as the Lenders may from time to time commit to lend pursuant to
the Agency Agreement (such
<PAGE> 2
increased and modified credit facility being hereinafter referred to as the
"Credit Facility" or the "Loan") and to provide that the Credit Facility will
be revolving. 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 the same date as this Agreement by and between the Agent and
the Assignor (as amended, restated or substituted from time to time, the
"Financing Agreement") and that certain Amended and Restated Master
Construction Loan Agreement dated the same as this Agreement by and between the
Agent and the Assignor (as amended, restated or substituted from time to time,
the "Construction Agreement").
D. The Loan will be evidenced by an Amended, Restated and
Increased Master Promissory Note (as amended, restated, renewed or substituted
from time to time, the "Note"). The Note will be secured by, among other
things, certain Deeds of Trust (as defined in the Financing Agreement) from the
Borrower or a Guarantor Subsidiary in favor of the Lenders covering the
Borrower's or the Guarantor Subsidiary's interest in the Land and the
Improvements for the applicable Facility (as defined hereinafter) and such
other real and personal property as shall be therein more particularly set
forth (collectively, the "Property"). The Credit Facility is evidenced,
secured and guaranteed by certain Financing Documents (as defined in the
Financing Agreement).
E. The Note, the Deeds of Trust, this Agreement, this Collateral
Assignment, Financing Agreement, the Construction Agreement, and all other
documents evidencing or securing the Loan are hereinafter referred to
collectively as the "Financing Documents."
F. It is a condition of the making available of the Credit
Facility by the Lenders to the Assignor that the Guarantor executes and
delivers this Agreement to the Agent.
G. The Lenders have agreed to make the Loan on the condition,
among others, that the Assignor execute and deliver this Agreement and that any
Guarantor Subsidiaries join in this Collateral Assignment pursuant to a Joinder
Agreement and related Security Documents at such time as the Guarantor
Subsidiary executes a Deed of Trust.
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<PAGE> 3
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, of the respective
representations, covenants and agreements hereinafter contained, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make the Loan to the
Assignor and as additional security for payment and performance of the
Obligations, the Assignor hereby covenants and agrees with the Agent and amends
and restates the Original Collateral Assignment in its entirety as follows:
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
SECTION 1.1 Recitals. The Recitals set forth hereinabove are
incorporated herein by reference.
SECTION 1.2 Definitions. All capitalized terms used in this
Collateral Assignment and not otherwise defined herein shall have the
respective meanings specified in the Financing Agreement, unless the context
clearly indicates otherwise. The following terms shall have the following
meanings:
"Agreements" means collectively the Licenses, Participation
Agreements and Resident Agreements.
"Collateral" means (a) all of the Licenses, Participation
Agreements and Resident Agreements, whether now owned or existing or hereafter
acquired or arising, (b) all books and records in whatever media (paper,
electronic or otherwise) recorded or stored, with respect to the foregoing and
all equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and (c)
all cash and non-cash proceeds and products of the foregoing.
"Governmental Authority" or "Governmental Authorities" means
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.
"Licenses" means any and all licenses, certificates of need,
operating permits, operating rights, franchises, and other licenses,
governmental authorizations, certifications, permits and approvals issued by,
or on behalf of, any Governmental Authority, now or hereafter existing with
respect to the acquisition, construction, renovation, expansion, leasing,
ownership and/or operation by the Assignor of assisted living facilities and/or
independent living facilities (within the
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<PAGE> 4
meaning of the applicable law in which the applicable Property is located)
(individually, the "Facility"; collectively, the "Facilities"), including
(without limitation) if and as required by any Governmental Authority any and
all operating licenses, pharmaceutical licenses and other licenses related to
the purchase, dispensing, storage, prescription and/or use of drugs,
medications and other "controlled substances", and any and all licenses issued
by any Governmental Authority relating to the operation of food and beverage
facilities and/or other amenities.
"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,
including, without limitation, any conditional sale or other title retention
agreement, 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.
"Participation Agreements" means any and all third party payor
participation and/or reimbursement agreements relating to the care of patients
located at and the operation of the Facilities previously, now or hereafter, at
any time existing relating to rights to payment and/or reimbursement from, and
claims against, governmental and private insurers, including rights to payment
and/or reimbursement from, and claims against, federal, state and local
Governmental Authorities, and/or private or quasi-public insurers, including,
without limitation, rights and claims relating to Medicare, Medicaid, Veterans
Administration, or other private insurers, as the same may from time to time be
amended, restated, extended, supplemented or modified.
"Resident Agreement" or "Resident Agreements" means one or
more agreements for resident services between the Assignor and each resident of
the Facilities in which the Assignor has agreed and will agree to provide
certain assisted living services, independent living services and other related
services at the Facilities, for which each Resident will pay certain Service
Charges for professional services rendered by the Assignor (collectively, the
"Service Charges") in accordance with, and subject to the terms and conditions
of, a Resident Agreement.
Unless otherwise defined in this Collateral Assignment, all terms used in this
Collateral Assignment which are defined by the applicable Uniform Commercial
Code shall have the same meanings as assigned to them by the applicable Uniform
Commercial Code unless and to the extent varied by this Collateral Assignment.
The words "hereof", "herein" and "hereunder" and words of similar import when
used in this Collateral Assignment shall refer to this Collateral Assignment as
a whole and not to any particular provision of this Collateral Assignment, and
section, subsection,
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<PAGE> 5
schedule and exhibit references are references to sections or subsections of,
or schedules or exhibits to, as the case may be, this Collateral Assignment
unless otherwise specified. As used in this Collateral Assignment, 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.
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<PAGE> 6
ARTICLE 2
COLLATERAL ASSIGNMENT
SECTION 2.1 Collateral Assignment. As security and collateral
for the payment of all of the Obligations, and for performance of, and
compliance with, by the Assignor, all of the terms, covenants, conditions,
stipulations and agreements contained in this Collateral Assignment, the
Financing Agreement and each of the other Financing Documents, and to the
extent permitted under Laws and the Agreements, as applicable, the Assignor
hereby transfers, pledges, sets over and collaterally assigns to the Agent, for
itself and for the ratable benefit of the Lenders, and grants to the Agent, for
itself and for the ratable benefit of the Lenders, a lien on, and security
interest in, all right, title and interest of the Assignor in, to, and under
the Agreements, together with all rights, privileges and entitlements
thereunder and all cash and non-cash proceeds thereof including, among other
things, all of the Assignor's rights to the payment of Service Charges and all
other rights and remedies under, and in connection with, any and all Resident
Agreements, hereafter executed and delivered to the Assignor, including,
without limitation, the rights to enforce, collect and liquidate any such
Service Charges. The Agent expressly acknowledges that the collateral
assignment, grant and exercise of security interests as are created hereby are
subject to Laws applicable to health care providers and health care facilities
such as those operated by the Assignor, including, Laws protecting the
confidentiality of patient information. The Agent also acknowledges that, in
connection with any exercise of any of the security interests or other rights
created herein, it may be necessary to obtain approvals of, consents from, or
new agreements with, various third parties, including third party payors such
as Medicare, Medicaid, Veterans Administration, and other private insurance
carriers, and from relevant health care regulatory authorities and agencies.
Notwithstanding anything to the contrary contained herein, the Agent
acknowledges and agrees that, except to the extent permitted by applicable
Laws, none of the receivables which arise out of accounts payable by Medicare
and/or Medicaid to Assignor, including, without limitation, any and all
depository accounts into which the proceeds of all or any such receivables may
at any time hereafter be deposited are intended to be absolutely or
collaterally assigned to the Lenders by this Collateral Assignment unless
payments on such Receivables have been first paid to and deposited with the
Assignor; the Assignor acknowledges and agrees, however, that this Collateral
Assignment is intended to grant to the Lenders a security interest in any and
all receivables which arise out of accounts payable by Medicare and/or
Medicaid.
The Assignor makes no representations regarding whether this
assignment of Licenses will be accepted by applicable
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<PAGE> 7
Governmental Authorities.
Notwithstanding anything herein to the contrary, nothing
contained herein shall impose upon the Agent any of the obligations or
liabilities of the Assignor under the Agreements and provided further that the
Agent shall not exercise any rights under such Agreements unless and until an
Event of Default has occurred and continues beyond the expiration of any
applicable grace and/or notice and cure periods, under the Financing Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Licenses. The Assignor represents and warrants to
the Lenders that (a) to its best knowledge, information and belief no event has
occurred which, with the giving of notice or the lapse of time, or both, would
constitute a material breach of any condition to issuance, maintenance, renewal
and/or continuance of any License, (b) the Assignor has paid or will pay when
necessary to obtain a License all fees, charges and other expenses to the
extent due and payable, and has provided all information and otherwise complied
with all material conditions precedent, to the extent feasible, to the
issuance, maintenance, renewal, and continuance of all material Licenses and
(c) no License has been or is expected to be issued for a period of less than
twelve (12) months from the date of issuance as a consequence of any sanctions
imposed by any Governmental Authority.
SECTION 3.2 Participation Agreements. The Assignor represents
and warrants to the Lenders that (a) the Participation Agreements, if any, to
which the Assignor will be a party will be valid and binding on the Assignor
and, to the best knowledge of the Assignor, on the other parties thereto, and
will be at the time of execution and delivery thereof in full force and effect,
and will not be evidenced by any chattel paper or instrument, (b) the Assignor
is eligible for third party payments under, and in connection with, any and all
Participation Agreements to which it is presently a party, and (c) the Assignor
is currently not a party to any Participation Agreement.
SECTION 3.3 Resident Agreements. The Resident Agreements will be
valid and binding on the Assignor, and to the best of the Assignor's knowledge,
on the other parties thereto, will be, at the time of execution and delivery
thereof in full force and effect. All Resident Agreements will be entered into
on the Assignor's standard form, pre-approved by the Agent.
SECTION 3.4 Places of Business, Location of Collateral, Names and
Addresses. The Assignor warrants that the address of the Assignor's chief
executive office and each other place of
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<PAGE> 8
business of the Assignor is or will be as specified on Exhibit A attached to
and made a part of this Collateral Assignment. The Collateral and all books
and records pertaining to the Collateral are and will be located at the address
or addresses indicated on Exhibit A as may be modified from time to time. The
Assignor will immediately advise the Agent in writing of the opening of any new
place of business or the closing of any of its existing places of business, 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.
SECTION 3.5 Title to Collateral. The Assignor has or will have
good and marketable title to all of the Collateral, and the Collateral is or
will be free and clear of any and all Liens other than Liens in favor of the
Lenders and Permitted Liens.
SECTION 3.6 Perfection of Security Interest. The Lenders will
have and will continue to have as security for the Obligations a first
priority, valid and perfected security interest in, and Lien on, all of the
Collateral.
SECTION 3.7 Accuracy of Information The information contained in
Exhibit A attached to and a part of this Collateral Assignment, is true,
complete and correct in all respects.
ARTICLE 4
COVENANTS
Until payment in full of the Loan and the other Obligations, the
Assignor hereby covenants and agrees as follows:
SECTION 4.1 Defense of Title and Further Assurances. To promptly
upon request, execute, acknowledge and deliver any financing statement,
renewal, affidavit, deed, collateral assignment, continuation statement,
security agreement, certificate or other document the Agent may reasonably
require in order to perfect, preserve, maintain, protect, continue and/or
extend the collateral assignment, lien or security interest granted to the
Lenders under this Collateral Assignment and its priority. The Assignor shall
pay to the Agent on demand all taxes, costs and expenses incurred by the Agent
in connection with the preparation, execution, recording and filing of any such
document or instrument. Such taxes, costs and expenses shall constitute and
become a part of the Obligations. A copy of a fully executed financing
statement shall be sufficient to satisfy for all purposes the requirements of a
financing statement as set forth in Article 9 of the applicable Uniform
Commercial Code. The Assignor will from time to time do whatever the Agent may
request by way of obtaining, executing, delivering, and/or filing financing
statements, landlords' or mortgagees' waivers, and other
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<PAGE> 9
notices and amendments and renewals thereof and the Assignor will take any and
all steps and observe such formalities as the Agent may request, in order to
create and maintain a valid Lien upon, pledge of, or paramount security
interest in, the Collateral, subject to the Permitted Liens. The Assignor
shall pay to the Agent on demand all taxes, costs and expenses incurred by the
Agent in connection with the preparation, execution, recording and filing of
any such document or instrument. To the extent that the proceeds of any of the
Accounts are expected to become subject to the control of, or in the possession
of, a party other than the Assignor, the Assignor shall cause all such parties
to execute and deliver such security documents, financing statements or other
documents as requested by the Agent and as may be necessary to evidence and/or
perfect the security interest and Lien of the Lenders in those proceeds. The
Assignor hereby irrevocably appoints the Agent as its attorney-in-fact, with
power of substitution from time to time, to take such actions as are described
in this Section as well as any other action which the Assignor is required to
take under this Collateral Assignment or under any of the other Financing
Documents.
SECTION 4.2 Performance under Licenses; Amendments to Licenses.
To promptly and faithfully comply with and perform in all material respects its
obligations and duties under all terms of all Licenses in accordance with the
terms thereof, including, without limitation, the payment of any and all
issuance, renewal or other fees, charges, assessments and other expenses
assessed by any issuing Governmental Authority in connection with any of the
Licenses, and including, further, the filing of any and all reports, surveys,
schedules, certificates, applications and other items required by any issuing
authority as a condition precedent to any renewal, issuance, or continuance of
any of the Licenses. The Assignor will not request any changes or amendments
to any of the Licenses which are not customarily made in the ordinary course of
business and which would result in a material adverse change in the financial
condition or operations of the Assignor, or terminate, restrict, or cancel any
of the Licenses, to the extent any such termination, restriction or
cancellation would have a materially adverse effect on the financial condition
or operations of the Assignor. If requested by the Agent, copies of all
Licenses, together with any amendments to, or renewals of, the Licenses, will
be delivered by the Assignor to the Agent. If the Assignor fails to make or
cause to be made any payment of any fee, charge, expense or other assessment
necessary to the issuance, renewal or continuance of any License, or otherwise
fails to perform any condition to the issuance, renewal, maintenance or
issuance of any License, or the preservation of any License from any
restriction or limitation, the Agent may, without notice to the Assignor and
without waiving any default or releasing the Assignor from any of the
Obligations, and without being under any obligation to do so, make such payment
or perform such condition, for the account of the Assignor. All amounts so
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<PAGE> 10
paid by the Agent and all reasonable costs, fees and expenses incurred by the
Agent in connection with such payment or performance (including, without
limitation, reasonable attorney's fees and expenses) shall be immediately due
and payable by the Assignor as part of the Obligations, together with interest
at the default rate of interest charged under the Note, until the same are paid
in full by the Assignor. The Assignor will take any and all steps necessary to
renew the Licenses in accordance with all Laws, except to the extent that the
Assignor deems such renewal to be, in the exercise of prudent business
judgment, contrary to its best interests.
SECTION 4.3 Performance under Resident Agreements. To faithfully
abide by, perform and fulfill in all material respects each and every term,
covenant and condition of each Resident Agreement binding on the Assignor; and,
unless, and until such time as the Agent notifies the Assignor to the contrary
after the occurrence and during the continuance of an Event of Default, to use
its best efforts to enforce or secure the performance of each and every term,
covenant and condition of each such Resident Agreement by the patients to be
performed or fulfilled, unless the Assignor elects otherwise in the exercise of
its good faith, commercially reasonable, and prudent business judgment.
SECTION 4.4 Performance under Contracts; Amendments to
Participation Agreements. To promptly and faithfully comply with and perform
in all material respects all of its obligations and duties under all terms of
the Participation Agreements in accordance with the terms thereof, and will
make no changes or amendments to the Participation Agreements which are not
customarily made in the ordinary course of business and which result in a
material adverse effect on the financial condition or operations of the
Assignor, or terminate or cancel any of the Participation Agreements, other
than in the ordinary course of business, or to the extent the Assignor deems
such termination or cancellation to be, in the exercise of prudent business
judgment, in the best interests of the Assignor. If requested by the Agent,
copies of all amendments to the Participation Agreements will be delivered by
the Assignor to the Agent. The Assignor will take any and all steps necessary
to renew the Participation Agreements to which it is a party, except to the
extent that the Assignor deems such renewal to be, in the exercise of prudent
business judgment, contrary to its best interests.
SECTION 4.5 Information and Notifications. To promptly (i)
furnish to the Agent to the extent reasonably requested by the Agent, evidence
of the issuance, renewal or continuance of any License, and compliance with all
conditions under which such License exists, (ii) inform the Agent of any
written notices received relating to the threatened or actual revocation,
restriction, suspension or expiration of any License, and (iii) notify the
Agent in writing of the happening of any of the
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<PAGE> 11
following events: (a) any modification of any of the provisions of any of such
Licenses which substantially affect any of such Licenses, (b) failure or
inability of the Assignor to comply in all material respects with any
conditions of such Licenses, (c) any revocation, suspension, probation,
expiration, amendment, or rescission of any of the Licenses or pending or
threatened revocation, suspension, probation, expiration, amendment, or
rescission of any of the Licenses (d) as a consequence of any sanction of a
Governmental Authority, the issuance or threatened issuance of any License for
a period of less than twelve (12) months from the date of issuance, and (e) any
modification of any of the provisions of any of the Participation Agreements to
which it is a party which substantially affect any of the Participation
Agreements and which would result in a materially adverse change in the
financial condition or operations of the Assignor; and (f) any voluntary,
involuntary, pending or threatened decertification or declared ineligibility of
any of the Assignor's rights to participate under any of the Participation
Agreements.
SECTION 4.6 Maintenance of the Collateral. The Assignor shall
not permit anything to be done to the Collateral which may impair the value
thereof. The Agent, or an agent designated by the Agent, shall be permitted to
enter the premises of the Assignor and examine, audit and inspect the
Collateral at any reasonable time and from time to time without notice. The
Agent shall not have any duty to, and the Assignor hereby releases the Agent
from all claims of loss or damage caused by the delay or failure to collect or
enforce any of the Accounts or to preserve any rights against any other party
with an interest in the Collateral.
SECTION 4.7 Business Names; Locations. The Assignor will notify
the Agent not less than thirty (30) days prior to (a) any change in the name
under which the Assignor conducts its business, (b) any change of the location
of the chief executive office of the Assignor or of its general partner, and
(c) the opening of any new place of business or the closing of any existing
place of business, and any change in the location of the places where the
Collateral, or any part thereof, or the books and records, or any part thereof,
are kept.
SECTION 4.8 Liens. The Assignor will not create, incur, assume
or suffer to exist any Lien upon any of the Collateral, except for Liens
securing the Obligations and Permitted Liens.
SECTION 4.9 Transfer of Collateral. The Assignor will not
transfer, or permit the transfer, to another location of any of the books and
records related to any of the Collateral, without the prior written consent of
the Agent.
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<PAGE> 12
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.1 Remedies Upon Default. Subject to the provisions and
understandings of Section 2.1 of this Collateral Assignment and to the extent
permitted by applicable Laws, upon or at any time after the occurrence and
during the continuance of an Event of Default, the Agent may, without notice
and without regard to the adequacy of security for the obligations and in
addition to any other remedy which the Agent may have at law or in equity under
the Financing Documents, either in person or by agent with or without bringing
any action or proceeding, or by a receiver to be appointed by a court:
(a) enforce any and all rights and remedies of the
Assignor under and in connection with any of the Licenses, to the extent
permitted by Law, and subject to the provisions of the Financing Agreement and
Section 2.1 of this Collateral Assignment,
(b) make, cancel, enforce or modify any of the Licenses,
(c) enforce any and all rights and remedies of the
Assignor under and in connection with any of the Participation Agreements, to
the extent permitted by Law, and subject to the provisions of the Financing
Agreement, Section 2.1 of this Collateral Assignment and the Participation
Agreements,
(d) make, cancel, enforce or modify any of the
Participation Agreements, including, without limitation, the collateral
assignment of any such Participation Agreements to third parties, contacting
Governmental Authorities, seeking approvals and consents of any and all
Governmental Authorities to the transfer of any of the Participation
Agreements,
(e) make, cancel, enforce or modify any of the Resident
Agreements, fix or modify fees,
(f) either with or without taking possession of any of
the Facilities, in its own name sue for or otherwise collect and receive such
fees, issues and profits, including those past due and unpaid, and apply the
same, less costs and expenses of operation and collection, including just and
reasonable compensation for all its employees and other agents (including,
without limitation, reasonable attorneys' fees and management commissions) upon
any indebtedness secured hereby, in such order and manner as the Agent may
determine in its reasonable discretion; provided, however, that the Agent shall
at all times act in accordance with Section 2.1 of this Collateral Assignment,
the provisions of the Financing Agreement, the Financing
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<PAGE> 13
Documents, and each of the Agreements.
The Agent may act upon any notice, request, consent, demand,
statement, note or other paper or document believed by it to be genuine and to
have been signed by the party or parties purporting to sign the same. The
Lenders shall not be liable to the Assignor for any error of judgment, or for
any act done or step taken or omitted, or for any mistake of law or fact, or
for anything which it may do or refrain from doing in good faith, and generally
shall not have any accountability hereunder except for fraud, gross negligence
or willful misconduct.
Any default by the Assignor in the performance of any term,
covenant or condition herein contained which shall continue uncured for a
period of thirty (30) days after the date of written notice thereof to the
Assignor shall constitute and be deemed to be an immediate Event of Default
under the terms of the Construction Agreement, entitling the Lenders, without
additional notice or cure periods, to every and all rights, privileges and
remedies contained in this Collateral Assignment, the Financing Agreement and
the other Financing Documents.
Except as provided in the Financing Agreement or any of the
other Financing Documents, the entering upon and taking possession of any or
all of the Facilities, the collection of such fees, issues and profits and the
application thereof as aforesaid, shall not cure or waive any Event of Default
or waive, modify or affect notice of an Event of Default under the Financing
Agreement or any of the other Financing Documents or invalidate any act done
pursuant to such notice. The Lenders may exercise their rights and privileges
under this Collateral Assignment as often as any default shall occur and
continue under this Collateral Assignment.
ARTICLE 6
REMEDIES
Upon the occurrence of an Event of Default, the Lenders shall be
entitled, at their option, to exercise the following rights and remedies:
SECTION 6.1 Costs. The Assignor agrees to pay to Agent as part
of the Obligations all reasonable expenses, charges, costs, taxes, and fees
(including, without limitation, reasonable attorneys' fees and expenses,
whether incurred prior to the institution of any suit or other proceeding or
otherwise) of any nature whatsoever paid or incurred by or on behalf of Agent
in connection with the perfection, collection, maintenance, inspection,
preservation, insuring, defense, protection, realization upon, disposition,
sale or enforcement of all or any part of the Collateral or the enforcement or
collection of the
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<PAGE> 14
Obligations.
SECTION 6.2 Remedies Cumulative. The rights, powers and remedies
provided in this Collateral Assignment are cumulative, may be exercised
concurrently or separately, may be exercised from time to time and in such
order as the Agent shall determine, and are in addition to, and not exclusive
of, rights, powers and remedies provided by applicable Laws. Without limiting
the generality of the foregoing, the Agent may:
(a) proceed against the Assignor and/or the Collateral
with or without proceeding against any person obligated under any of the
Obligations;
(b) proceed against the Assignor with or without
proceeding under the other documents or agreements;
(c) without reducing or impairing the Obligations of the
Assignor and without notice, release or compromise with any guarantor or other
person liable for all or any part of the Obligations;
(d) without reducing or impairing the Obligations of the
Assignor and without notice thereof: (i) fail to perfect the security
interests and/or other interests of the Lenders in any or all Collateral or to
release any or all the Collateral or to accept substitute Collateral, (ii)
allow all or any Obligations to arise after the date of this Collateral
Assignment, (iii) waive any provision of this Collateral Assignment, (iv)
exercise or fail to exercise rights of set-off or other rights, (v) accept
partial payments or extend from time to time the maturity of all or any part of
the Obligations, and (vi) take or fail to take any action under this Collateral
Assignment or against any one or more persons obligated under the Obligations.
The Assignor hereby waives and releases all claims and defenses against the
Lenders and/or with respect to the payment or the enforcement of the
Obligations and the Lenders' rights in the Collateral on account of any of the
foregoing.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Indemnification. The Lenders shall not be obligated to
perform or fulfill, nor do they hereby undertake to perform or fulfill, any
term, condition or covenant under any of the Agreements, or
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by reason of this Collateral Assignment. The Assignor shall and does hereby
agree to indemnify and to hold the Lenders harmless of and from any and all
liability, loss or damage which it may or might incur under any of the
Agreements or by reason of this Collateral Assignment, including, without
limitation, any amounts claimed or asserted by any parties under the
Agreements, except those arising from any fraud, gross negligence or willful
misconduct of the Lenders, and of and from any and all claims and demands
whatsoever which may be asserted against the Lenders, by reason of any alleged
obligation or undertaking on its part to perform or discharge any of the terms,
covenants or conditions contained in the Agreements. Should the Lenders incur
any such liability, loss or damage under any of the Agreements or under or by
reason of this Collateral Assignment, or in the defense of any such claims or
demands, the amount thereof, including Enforcement Costs, shall be secured
hereby, and the Assignor shall reimburse the Lenders therefor immediately upon
demand, with interest at the default rate of interest charged under the Note.
SECTION 7.2 Continuation of this Collateral Assignment. Upon the
payment and performance in full of all of the Obligations, this Collateral
Assignment shall become and be void and of no effect, but the affidavit of any
officer of the Agent showing any part of the Obligations remaining unpaid or
the continuing effect of the Financing Agreement, shall be and constitute
conclusive evidence of the validity, effectiveness and continuing force of this
Collateral Assignment, and any Person may and is hereby authorized to rely
thereon. A demand on any patient under any of the Resident Agreements by the
Agent for the payment of Service Charges or any other fees due under, or in
connection with, any Resident Agreement or upon the occurrence of any Event of
Default claimed by the Agent shall be sufficient to warrant such patient to
make future payments of such fees to the Agent without the necessity for
further consent by the Assignor.
SECTION 7.3 Successors and Assigns. The rights, powers, privileges
and discretions (hereinafter collectively called the "rights") specifically
granted to the Lenders herein are not in limitation of, but in addition to,
those to which the Lenders are entitled under any general or local law relating
to security interests and Liens. The rights to which the Lenders may be
entitled shall inure to the benefit of their successors and assigns. All the
rights of the Lenders are cumulative and not alternative and may be enforced
successfully or concurrently. Failure of the Lenders to exercise any of its
rights shall not impair any of their rights nor be deemed a waiver thereof and
no waiver of any of its rights shall be deemed to apply to any other such
rights nor shall any waiver be effective unless in writing and signed by the
Lenders. The terms and conditions agreed to by the Assignor and the covenants
of the Assignor shall be binding upon the successors and assigns of the
Assignor, but this provision does not waive any prohibition of assignment or
any requirement of consent to an assignment.
SECTION 7.4 Illegality. If fulfillment of any provision
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<PAGE> 16
hereof or any transaction related hereto, at the time 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 provision
herein contained operates or would prospectively operate to invalidate this
Collateral Assignment in whole or part, then such clause or provision only
shall be void, as though not herein contained, and the remainder of this
Collateral Assignment shall remain operative and in full force and effect.
SECTION 7.5 Waiver of Acceptance by Assignor. The Assignor hereby
waives acceptance of this Collateral Assignment by the Lenders.
SECTION 7.6 Counterparts. This Collateral Assignment may be
executed in any number of duplicate originals, each of which shall be an
original but all of which together shall constitute one and the same
instrument.
SECTION 7.7 Amendments. Neither this Collateral Assignment nor
any term, condition, representation, warranty, covenant or agreement hereof may
be changed, waived, discharged or terminated orally, but, rather, only by an
instrument in writing by the party against whom such change, waiver, discharge
or termination is sought.
Section 7.8 Assignments by Lenders. The Lenders may, without notice
to, or consent of, the Assignor, sell, assign or transfer to or participate
with any Person or Persons all or any part of the Obligations, and each such
Person or Persons shall have the right to enforce the provisions of this
Collateral Assignment 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 Collateral Assignment and any of the other
Financing Documents as to so much of the Obligations that the Lenders have not
sold, assigned or transferred.
SECTION 7.9 Governing Law. This Collateral Assignment shall be
governed and construed in accordance with the laws of the Commonwealth of
Virginia.
IN WITNESS WHEREOF, the Assignor has executed and delivered this
Collateral Assignment under seal as of the day and year first written above.
WITNESS OR ATTEST: SUNRISE EAST ASSISTED LIVING LIMITED
PARTNERSHIP, a Virginia limited partnership
By: Sunrise Assisted Living
Investments, Inc., general partner
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<PAGE> 17
__/s/ Wayne G. Tatusko By: __/s/ James S. Pope__(SEAL)
--------------------- -----------------
James S. Pope
Vice President
STATE/COMMONWEALTH OF VIRGINIA,
CITY/COUNTY OF __Fairfax__, TO WIT:
I, _Dawn A. Washington_, a Notary Public in and for the jurisdiction
aforesaid, do hereby certify on this 23rd day of December, 1997, 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.
__/s/ Dawn A. Washington___
----------------------
Notary Public
My Commission Expires:
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<PAGE> 18
EXHIBIT A TO COLLATERAL ASSIGNMENT
AS OF DECEMBER 23, 1997
The Assignor further represents and warrants to the Lenders as
follows:
1. The exact legal name of Assignor is as stated in the initial paragraph
to this Collateral Assignment.
2. The Assignor's Federal Tax Identification Number is:
__________54-1746596_________
3. (a) The Assignor's chief executive office is:
c/o Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
(b) The Assignor in fact manages the main part of its business
operations from that address; and
(c) It is at that address that persons dealing with the Assignor
would normally look for credit information.
4. Location of Books and Records
Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Sunrise of Franconia
6541 Franconia Road
Springfield, Virginia 22150
Fairfax County
Sunrise of Abington
1801 Susquehana Road
Abington, Pennsylvania 19001
Montgomery County
Sunrise of Granite Run
Rte. 352 and Barren Road
Middletown Township, Pennsylvania 19063
Delaware County
Sunrise of Morris Plains
209 Littleton Road
Morris Plains, New Jersey 07950
<PAGE> 19
PG. 2 - EXHIBIT A
Sunrise of Old Tappan
195 Old Tappan Road
Old Tappan, New Jersey 07675
Sunrise of Wayne
184 Berdan Avenue
Wayne, New Jersey 07470
Sunrise of Westfield
240 Springfield Avenue
Westfield, New Jersey 07090
5. The mailing address of the Assignor to be inserted on financing
statements covering the Collateral is:
c/o Sunrise Assisted Living Investments, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
Attn: Thomas B. Newell, Esquire
6. In the twelve years preceding the date hereof, the Assignor has not
changed its name, identity or structure, has not conducted business
under any name other than its current name, and has not conducted its
business in any jurisdiction other than the jurisdiction in which its
chief executive office is currently located, except as follows:
<PAGE> 1
EXHIBIT 10.31.9
AMENDED AND RESTATED MASTER
GUARANTY OF PAYMENT AGREEMENT
THIS AMENDED AND RESTATED MASTER GUARANTY OF PAYMENT AGREEMENT (this
"Agreement") is made this 23rd day of December, 1997, by SUNRISE ASSISTED
LIVING, INC., a Delaware corporation (the "Guarantor") for the benefit of
NATIONSBANK, N.A., as agent ("Agent") for itself and for certain additional
lenders (collectively with the 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. SUNRISE EAST ASSISTED LIVING LIMITED PARTNERSHIP, a Virginia
limited partnership (the "Borrower"), obtained from the Agent and certain other
lenders (collectively, the "Original Lenders") a credit facility in the maximum
principal sum of $90,000,000 (the "Original Credit Facility") which was a
non-revolving line of credit pursuant to which the Borrower could obtain
certain construction/interim loans (each a "Facility Loan;" collectively, the
"Facility Loans") for assisted living facilities and independent living
facilities. The Original Credit Facility has been evidenced by a Master
Promissory Note dated June 13, 1996 as amended pursuant to a First Amendment to
Master Promissory Note dated September 5, 1996 and by a Second Amendment to
Master Promissory Note dated March 31, 1997 (collectively, the "Master Note").
B. In connection with the making of each Facility Loan, the
Borrower executed a promissory note in the maximum principal sum of each
Facility Loan (each a "Facility Note" and collectively, the "Facility Notes").
Availability under the Master Note was reduced by the principal sum of each
Facility Note. As of the date hereof, seven (7) Facility Loans have been made
under the Original Credit Facility evidenced by eight (8) Notes.
C. The Borrower has applied to the Lenders to increase the
maximum principal sum of the Original Credit Facility to $250,000,000 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") and to provide
that the Credit Facility will be revolving. Advances or readvances are to be
made pursuant to, and secured by, the provisions of that certain Amended and
Restated Financing and Security
<PAGE> 2
Agreement dated the same date as this Agreement by and between the Agent and
the Borrower (as amended, restated or substituted from time to time, the
"Financing Agreement") and that certain Amended and Restated Master
Construction Loan Agreement dated the same as this Agreement by and between the
Agent and the Borrower (as amended, restated or substituted from time to time,
the "Construction Agreement").
D. The Loan is evidenced by that certain Amended, Restated,
Consolidated and Increased Master Promissory Note of even date herewith payable
by the Borrower to Agent on behalf of the Lenders (as amended, restated,
renewed or substituted from time to time, the "Note").
E. The Guarantor has requested the Lenders to enter into the
Financing Agreement with the Borrower and to make the Loan to the Borrower
pursuant thereto.
F. The Note, the Deeds of Trust (as defined in the Financing
Agreement), this Agreement, the Financing Agreement, the Construction Agreement
(as defined in the Financing Agreement), and all other documents evidencing or
securing the Loan are hereinafter referred to collectively as the "Financing
Documents."
G. The Lenders have required, as a condition to the making of the
Loan, that the Guarantor execute and deliver this Agreement to the Agent.
E. All defined 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 Loans to
the Borrower, the Guarantor covenants and agrees with the Lenders as follows:
ARTICLE 1
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
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<PAGE> 3
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 Borrower 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 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;
3
<PAGE> 4
(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 Borrower shall then be in default;
(g) make future advances to the Borrower 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 Borrower 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 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 Borrower,
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 Borrower 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 Borrower, or to sell the Collateral or
otherwise pursue, enforce or exhaust their remedies against the Borrower 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 Borrower 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 Borrower 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 Borrower 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
4
<PAGE> 5
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 Borrower, 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 Borrower;
(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
5
<PAGE> 6
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 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
3.1.3 hereof which default shall remain unremedied for ten (10) days after
written notice thereof to the Guarantor by the 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
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 bank-
6
<PAGE> 7
ruptcy, 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 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
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<PAGE> 8
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 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 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 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 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 Borrower, or in the event the Borrower
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 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 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
Agent. The Guarantor shall assign, transfer, hypothecate or
8
<PAGE> 9
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
Borrower 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 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 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 Agent
such powers of attorney, assignments, endorsements or other instruments as may
be requested by the 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 Agent, the Guarantor shall endorse, assign and deliver to the
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 Borrower, or any other guarantor, then the Guarantor irrevocably
and absolutely waives any and all rights of contribution, indemnification,
reimbursement or any similar rights against the Borrower 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
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<PAGE> 10
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 Borrower, or any such
guarantor, by reason of the existence of this Agreement in the event that the
Borrower 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 Borrower.
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 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 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
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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 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 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 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 The Guarantor represents and warrants to the Lenders
as follows:
2.1.1 Good Standing. The Guarantor (a) is duly
organized, existing and in good standing under the laws of the jurisdiction of
its organization, (b) has the power to own its property and to carry on its
business as now being conducted, and (c) is duly qualified to do business and
is in good standing
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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.
2.1.2 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.
2.1.3 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.
2.1.4 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.
2.1.5 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
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prospective, of the Guarantor.
2.1.6 Financial Condition. The financial
statements of the Guarantor dated December 31, 1996, 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 Agent pursuant to
Section 0 of this Agreement.
2.1.7 Full Disclosure. The financial statements
referred to in Section 0 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 (a) do not contain any untrue statement of a material fact and (b)
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.
2.1.8 Financial Interest. The Guarantor has a
financial interest in the Borrower 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.
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ARTICLE 3
COVENANTS
SECTION 3.1 The Guarantor hereby covenants and agrees as follows:
3.1.1 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.
3.1.2 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.
3.1.3 Financial Records - Inspection. The
Guarantor will (a) 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; (b) 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; (c) (i) 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 Agent with copies of (1) the
Guarantor's consolidated financial statements for the year in question, in form
and detail satisfactory to the Agent, prepared in accordance with generally
accepted accounting principles, consistently applied, and audited by an
independent certified public accountant satisfactory to the Agent, which
financial statements shall include a balance sheet as of the end of such fiscal
year, (2) the related statements of operations and retained earnings and cash
statements for such fiscal year in a format acceptable to the Agent, and (3) an
unqualified letter or opinion of the independent accountant, (ii) 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 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 and income and
expense statements for the Guarantor for such period, each certified as to
accuracy by the chief financial officer of Guarantor; and (iii) as soon as
available but in no event more than thirty (30) days after the
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date of filing, provide the 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; (d) the
Guarantor shall provide to the Agent copies of each 10K or 10Q reports as soon
as possible, but in no event more than thirty (30) days after filing such
report with the Securities and Exchange Commission; (e) promptly deliver to the
Agent such other information with respect to the financial statements of the
Guarantor as the Lenders may from time to time require; and (f) 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 Amended
and Restated Agency Agreement dated December ___, 1997 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".
3.1.4 Estoppel Certificates. Within ten (10) days
following any request of the Agent so to do, the Guarantor will furnish the
Agent and such other persons as the 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 September 30, 1997, a
minimum Tangible Net Worth of not less than the sum of a $175,202,000 as of
June 30, 1997 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 such quarter.
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"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, 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 Agent, (cc) the amount of all loans and advances to, or investments in,
any person or entity, excluding cash equivalents and deposit accounts
maintained by the Guarantor with any financial institution; certain mortgage
revenue bonds issued by the Bucks County, Pennsylvania Industrial Development
Authority and 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 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), Minimum 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.
(c) Notification of Certain Events. Promptly notify the
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 Borrower, the
Guarantor or the Management
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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 Borrower, 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 Borrower of $1,000,000 or more,
in each case described in (i) through (vi) above, such notification shall
describe in detail satisfactory to the 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 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
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
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consent of the 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.
(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 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
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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 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 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 Borrower 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 4
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
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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
7929 Westpark Drive
McLean, Virginia 22102
Agent: NationsBank, N.A.
10 Light Street, 20th Floor
Baltimore, Maryland 21202
Attention: Robert J. Montanari
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 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 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.
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(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.
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 Borrower 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: 4.3.0(d)(i) fail to perfect the Lien in
any or all Collateral or to release any or all the Collateral or to accept
substitute Collateral, 4.3.0(d)(ii) approve the making of advances under the
Loans under the Loan Agreement, 4.3.0(d)(iii) waive any provision of this
Agreement or the other Financing Documents, 4.3.0(d)(iv) exercise
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or fail to exercise rights of set-off or other rights, or 4.3.0(d)(v) 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 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 all or any part of the Obligations, 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 Borrower of such
transaction either before or after the transaction has occurred as such Lender
shall determine; however, such Lender shall give notice to the Borrower in
advance of any such transaction with a non-affiliate.
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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 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 Agent with such
acknowledgments and agreements as the 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 Borrower, one or
23
<PAGE> 24
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 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 Borrower relating to the Loans. Neither the
Lenders, the Borrower 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
24
<PAGE> 25
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 0 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 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
25
<PAGE> 26
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 Borrower
or by accepting or approving anything required to be observed, performed or
fulfilled by the Borrower 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 Borrower 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 Borrower 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
Borrower or upon, or as a result of, the appointment of any receiver,
intervenor or conservator of, or trustee, or similar officer for, the Borrower
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 Agent, and
failure to sign this or any other guarantee by any other person shall not
discharge the liability of the Guarantor hereunder.
26
<PAGE> 27
WITNESS the signature and seal of the Guarantor as of the day and year
first above written.
WITNESS OR ATTEST: SUNRISE ASSISTED LIVING, INC.
_/s/ Wayne G. Tatusko___ By: _/s/ David W. Faeder____(SEAL)
-------------------- -------------------
David W. Faeder
President and Chief Financial Officer
_/s/ Wayne G. Tatusko___ By: _/s/ Thomas B. Newell___(SEAL)
-------------------- --------------------
Thomas B. Newell
Executive Vice President
<PAGE> 28
STATE/COMMONWEALTH OF VIRGINIA,
COUNTY/CITY OF _Fairfax_, TO WIT:
I HEREBY CERTIFY, that on this 23rd day of December, 1997, before me,
the undersigned Notary Public of said Commonwealth, personally appeared David
W. Faeder who acknowledged himself to be the President and Chief Financial
Officer 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 and Chief Financial Officer.
WITNESS my hand and Notarial Seal.
_/s/ Dawn A. Washington____
----------------------
Notary Public
My Commission Expires:
STATE/COMMONWEALTH OF VIRGINIA,
COUNTY/CITY OF _Fairfax_, TO WIT:
I HEREBY CERTIFY, that on this 23rd day of December, 1997, 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.
_/s/ Dawn A. Washington_____
----------------------
Notary Public
My Commission Expires:
<PAGE> 1
Sunrise Assisted Living, Inc.
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OPERATING DATA
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
(in thousands, except operating and other data) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:(1)
<S> <C> <C> <C> <C> <C>
Operating revenue $ 89,884 $ 47,345 $ 37,258 $ 33,969 $25,598
Facility operating expenses 53,286 28,274 20,882 17,983 17,761
Facility development and pre-rental expenses 5,586 2,420 1,172 263 474
General and administrative expenses 10,454 10,042 6,875 4,183 2,034
Depreciation and amortization 10,592 4,048 3,009 3,160 2,799
Interest expense, net 4,613 6,425 15,327 8,023 3,491
Income (loss) before extraordinary item 4,001 (4,760) (10,137) 562 (637)
Extraordinary item -- -- -- 850 --
Net income (loss)(2) (3) 4,001 (4,760) (10,137) 1,412 (637)
Cash provided by operating activities 8,264 758 944 2,736 3,070
EBITDA(4) 19,206 5,713 8,199 11,745 5,653
BALANCE SHEET DATA:(1)
Cash and cash equivalents $ 82,643 $101,811 $ 6,253 $ 8,089 $ 3,268
Working capital (deficit) 70,340 102,822 2,051 (7,305) 1,288
Total assets 556,260 342,839 123,321 109,003 61,159
Total debt 340,987 145,511 122,289 110,029 55,207
Series A convertible preferred stock -- -- 23,964 -- --
Stockholders' equity (deficit) 195,340 185,824 (31,774) (16,391) (2,925)
OPERATING AND OTHER DATA:
Facilities (at end of period):
Owned(5) 54 30 20 19 16
Managed 7 5 8 9 7
- ---------------------------------------------------------------------------------------------------------------------
Total 61 35 28 28 23
=====================================================================================================================
Resident capacity (at end of period):
Owned(5) 4,632 2,584 1,557 1,473 1,289
Managed 683 528 712 772 652
- ---------------------------------------------------------------------------------------------------------------------
Total 5,315 3,112 2,269 2,245 1,941
=====================================================================================================================
Occupancy rate(6) 94% 94% 92% 95% 95%
</TABLE>
(1) See Notes 2 and 10 of Notes to Consolidated Financial Statements. The
historical financial data for years prior to 1995 represent combined
historical financial data for Sunrise Entities.
(2) Basic net income (loss) per share was $0.21 and $(0.52), while diluted net
income (loss) per share was $0.20 and $(0.51) for the years ended December
31, 1997 and 1996, respectively. In 1997, the Company adopted the provisions
of Financial Accounting Standards No. 128 "Earnings Per Share," ("Statement
128"). Statement 128 replaces the presentation of primary and fully diluted
earnings per share with a presentation of basic and diluted earnings per
share. The Company has restated its results for the year ended December 31,
1996, to conform to the provisions of Statement 128.
(3) Net loss for 1996 includes a one-time unusual charge of $981,000. See Note
16 of Notes to Consolidated Financial Statements.
(4) Earnings before interest, taxes, depreciation and amortization expense. The
Company has included information concerning EBITDA because it understands
that such information is used by certain investors as one measure of a
company's operating performance. EBITDA is not determined in accordance with
GAAP, is not indicative of cash provided by operating activities and should
not be considered in isolation or as a substitute for measures of
performance determined in accordance with GAAP.
(5) Includes all facilities wholly owned by the Company or in which it owns
interests. Prior to 1994, several of the owned facilities were leased from
predecessor entities.
(6) Based on monthly occupancy for owned facilities operated for at least 12
months or that have achieved stabilization of 95%, excluding facilities with
temporary vacancies due to renovations or resident relocation.
Financials 17
<PAGE> 2
Sunrise Assisted Living, Inc.
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
relating to the Company's development and acquisition programs that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth elsewhere herein under "Liquidity and
Capital Resources." Unless the context suggest otherwise, references herein to
the "Company" or "Sunrise" mean Sunrise Assisted Living, Inc. and its
subsidiaries and predecessor entities.
OVERVIEW
The Company is a leading provider of assisted living services for seniors. The
Company currently operates 66 facilities in 13 states with a capacity of
approximately 5,750 residents, including 59 facilities owned by the Company or
in which it has ownership interests and seven facilities managed for third
parties. The Company also operates two skilled nursing facilities owned by a
third party. The Company provides assistance with the activities of daily living
and other personalized support services ("Basic Care") 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. The Company also
provides additional specialized care and services to residents with certain low
acuity medical needs--Assisted Living Plus Care ("Plus Care") and residents with
Alzheimer's disease or other forms of dementia ("Alzheimer's Care"). By offering
this full range of services, the Company is able to accommodate the changing
needs of residents as they age and develop further physical or cognitive
frailties.
The Company reported net income of $4.0 million, or $0.20 per share
(diluted), on revenue of $89.9 million for 1997, compared to a loss of $4.8
million, or $0.51 per share (diluted), on revenue of $47.3 million for 1996,
including an unusual charge of $1.0 million. Without the one-time unusual
charge, the Company's net loss for 1996 would have been $3.8 million. The
Company had a net loss of $10.1 million for 1995.
A subsidiary of the Company has obtained a syndicated revolving credit
facility for $250.0 million to be used for general corporate purposes, including
the continued construction and development of assisted living facilities. The
Company guarantees the repayment of all amounts outstanding under this credit
facility. The credit facility is for a term of three years with the right to
extend, and 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 rates from LIBOR plus 1.0% to LIBOR
plus 1.5%.
On June 6, 1997, the Company issued and sold $150.0 million aggregate
principal amount of 51/2% convertible subordinated notes due 2002 (the "Notes").
The Notes bear interest at 51/2% per annum payable semiannually on June 15 and
December 15 of each year, beginning 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 Notes). The Notes are redeemable at the option of the Company
commencing June 15, 2000, at specified premiums. The holders of the Notes may
require the Company to repurchase the Notes upon a Change of Control (as
defined) of the Company. The net proceeds to the Company from the sale of the
Notes, after deducting underwriting discounts and offering expenses, were
approximately $145.6 million. On June 10, 1997, the Company used $57.7 million
of the net proceeds to pay down floating rate indebtedness from four financial
institutions at a weighted average interest rate of 8.4%. The balance of the net
proceeds are being used to fund continued development of new Sunrise model
facilities and for possible acquisitions, as well as for working capital and
general corporate purposes.
On February 5, 1997, the Company acquired a 120-unit assisted and
independent living facility in Valencia, California and on August 19, 1997, the
Company purchased a 76-unit assisted living facility in Napa, California. The
Company had initially leased the Napa facility on April 1, 1997. On December 24,
1997, the Company acquired a 30-unit assisted and independent living facility in
Dunwoody, Georgia and on December 31, 1997, the Company purchased a 29-unit
assisted living facility located in Weston, Massachusetts. The combined
acquisition price for all four facilities totaled $27.1 million.
On May 1, 1997, the Company purchased the minority 50% interest held by an
unrelated third party in a facility located in Raleigh, North Carolina. The
purchase price of approximately $1.0 million was based on a buy-out schedule
specified in the operating agreement of the limited liability company that holds
title to the property. On October 1, 1997, the Company purchased each of the
remaining 49% interests held by an unrelated third party in facilities located
in Annapolis and Pikesville, Maryland for a purchase price of $3.1 million and
$2.9 million, respectively. Each of these facilities are currently 100% owned by
the Company.
During 1997, the Company completed 20 facilities. Between December 31,
1997, and March 4, 1998, the Company completed construction of five additional
facilities.
Financials 18
<PAGE> 3
The Company's previously announced growth objectives include developing at
least 55 new Sunrise model assisted living facilities with an additional
resident capacity of more than 4,500 by the end of 1999. To date, the Company
has completed development of 27 such facilities with a resident capacity of
2,400 and has 16 facilities currently under construction with a resident
capacity of 1,490. The Company has also entered into contracts to purchase 33
additional sites and to lease two additional sites. The Company is pursuing
additional development opportunities and also plans to acquire additional
facilities as market conditions warrant. In order to achieve its growth plans,
the Company will be required to obtain a substantial amount of additional
financing. The Company currently estimates that the net proceeds to the Company
of the Notes, together with existing working capital, financing commitments and
financing expected to be available, will be sufficient to fund its development
and acquisition programs for at least the next 18 months. See "--Liquidity and
Capital Resources."
The Company derives its revenues from two primary sources: (i) resident
fees for the delivery of assisted living services and (ii) management services
income for management and development of facilities owned by third parties.
Historically, most of the Company's operating revenue has come from resident
fees, which in 1997 and 1996 comprised 95.3% and 93.3% of total operating
revenues, respectively. Resident fees typically are paid monthly by residents,
their families or other responsible parties. In 1997 and 1996, approximately 99%
of the Company's revenue was derived from private pay sources. Resident fees
include revenue derived from Basic Care, community fees, Plus Care, Alzheimer's
Care and other sources. Community fees are one-time fees generally equal to 60
times the daily resident fee payable by a resident upon admission. Plus Care and
Alzheimer's Care fees are paid by residents who require personal care in excess
of services provided under the Basic Care program. Management services income,
which in 1997 and 1996 accounted for the remaining 4.7% and 6.7% of revenues,
consists of management fees which are generally in the range of 5% to 7% of a
managed facility's total operating revenues and development fees for site
acquisition, development services, facility design and construction management
services.
The Company classifies its operating expenses into the following
categories: (i) facility operating, which includes labor, food, marketing and
other direct facility expenses; (ii) facility development and pre-rental, which
include non-capitalized development expenses and pre-opening labor and marketing
expenses; (iii) general and administrative, which primarily include headquarters
and regional staff expenses and other overhead costs; (iv) depreciation and
amortization; and (v) facility lease, which represents rental expenses for
facilities not owned by the Company. In connection with implementation of of its
growth plans, the Company made significant investments in its infrastructure
through the addition of information technology in 1997, as well as continued
additions to headquarters and regional staff.
RESULTS OF OPERATIONS
The following table sets forth certain data expressed as a percentage of
operating revenue:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses:
Facility operating 59.3 59.7 56.0
Facility development
and pre-rental 6.2 5.1 3.1
General and administrative 11.6 21.2 18.5
Depreciation and amortization 11.8 8.6 8.1
Facility lease 1.7 0.3 0.4
- ----------------------------------------------------------------------------
Income from operations 9.4 5.1 13.9
Other income (expense):
Interest income 7.6 7.0 3.3
Interest expense (12.8) (20.6) (44.4)
Equity in earnings of
unconsolidated partnerships 0.1 -- --
Minority interests 0.2 0.5 --
Unusual charge -- (2.1) --
- ----------------------------------------------------------------------------
Net income (loss) 4.5% (10.1)% (27.2)%
============================================================================
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Operating Revenue. Operating revenue for 1997 increased 89.8% to $89.9 million
from $47.3 million in 1996 due primarily to the growth in resident fees.
Resident fees (including community fees and fees for Basic Care, Plus Care,
Alzheimer's Care and other services) for 1997 increased 93.9% to $85.6 million
from $44.2 million in 1996. This increase was due primarily to the inclusion, in
1997, of additional total revenue of $23.1 million generated from 23 Sunrise
developed facilities opened in late 1996 and throughout 1997, and $16.1 million
generated from the operations of 9 acquired facilities. Other increases in
revenue were due primarily to increases in average resident occupancy and
management services income.
Average resident occupancy for owned facilities operated by the Company
for at least 12 months, or that have achieved stabilization of 95% ("Stabilized
Facilities"), remained unchanged in 1997 at 94% compared to 1996. The average
daily resident fee (excluding community fees) for Stabilized Facilities
decreased to $78 for 1997 from $80 for 1996. Excluding acquired facilities, the
average daily resident fee (excluding community fees) remained unchanged at $84
in 1997 compared to 1996.
Financials 19
<PAGE> 4
Management services income for 1997 increased by $1.1 million, or 33.6%,
to $4.2 million from $3.2 million in 1996 due to an increase in fees for
management and development services relating to the development of facilities
for joint ventures and third party owners.
Operating Expenses. Operating expenses for 1997 increased 81.3% to $81.5
million from $44.9 million in 1996. The increase in operating expenses in 1997
is attributable to increases in all of the following areas: facility operating,
facility development and pre-rental, depreciation and amortization, and facility
lease expenses.
Facility operating expenses for 1997 increased 88.5% to $53.3 million from
$28.3 million in 1996. As a percentage of operating revenue, facility operating
expenses in 1997 decreased to 59.3% from 59.7% in 1996 as revenues increased at
a faster rate than facility operating expenses. The $25.0 million increase was
primarily related to expenses from the operations of 9 acquired and 23 developed
facilities during 1996 and 1997.
Facility development and pre-rental expenses for 1997 increased by 130.8%
to $5.6 million from $2.4 million in 1996. As a percentage of operating revenue,
facility development and pre-rental expenses increased to 6.2% from 5.1%. This
increase was due to a $1.0 million increase in non-capitalized labor and related
development costs, and a $2.2 million increase in start up costs relating to 20
new facilities opened during 1997.
General and administrative expenses in 1997 increased 4.1% to $10.5
million from $10.0 million in 1996. As a percentage of operating revenue,
general and administrative expenses decreased to 11.6% in 1997 from 21.2% in
1996. The $0.4 million increase was due to a $1.0 million increase in labor
costs, offset, in part, by a $0.6 million decrease attributable to various other
corporate and regional expenses. The provision for bad debts was $0.9 million in
1997 and $0.7 million in 1996, respectively. Of the 1997 provision, $0.4 million
relates to certain subordinated management fees, $0.1 million relates to
one-time consulting fees and the remainder relates to resident services revenue.
Depreciation and amortization in 1997 increased 161.7% to $10.6 million
from $4.0 million in 1996 primarily due to the opening of 23 developed
facilities and the acquisition of 9 other facilities during 1996 and 1997.
Other Income (Expense). Interest income for 1997 increased 108.1% to $6.9
million from $3.3 million in 1996. This increase was primarily due to the
investment of funds received from the Company's initial public offering (the
"Initial Offering") and follow-on offering (the "Second Offering") completed
during 1996, as well as net proceeds received from the issuance and sale of the
Notes in June 1997. Interest expense for 1997 increased 18.0% to $11.5 million
from $9.7 million in 1996. This increase was due to $4.7 million of interest on
$150.0 million aggregate principal amount of the Notes and an increase of $1.6
million of interest for other borrowings, net of interest rate reductions
described below, offset, in part, by an increase in capitalized interest of $4.5
million. Interest rate reductions include the following: (i) a lender agreeing
(effective March 4, 1997) to reduce the interest rate applicable to the $22.0
million outstanding portion of variable rate indebtedness from LIBOR plus 3.75%
to LIBOR plus 1.75%; (ii) the Company renegotiating interest rate reductions
from LIBOR plus 2.75% to corresponding U.S. Treasuries plus 1.00% on $15.7
million of credit facilities; (iii) the Company renegotiating interest rate
reductions from LIBOR plus 2.95% to corresponding U.S. Treasuries plus 1.10% on
a $7.4 million credit facility; and (iv) the Company entering into a swap
transaction (effective August 20, 1997) whereby outstanding advances of up to
$7.0 million under LIBOR floating rate debt bear interest at a fixed LIBOR base
rate of 7.14%.
Net Income (loss). The Company had net income of $4.0 million in 1997,
compared to a net loss of $4.8 million in 1996. The net income for 1997 resulted
primarily from a $42.6 million increase in operating revenue coupled with a $1.8
million decrease in net interest expense and a $1.0 million decrease from a one
time unusual charge in 1996 offset, in part, by a $36.6 million increase in
operating expenses. The Company did not recognize any Federal income tax expense
in 1997 because tax deductions generated from the exercise of employee stock
options exceeded pretax income. At December 31, 1997, the Company had net
operating loss carryforwards for income tax purposes of approximately $19.2
million which expire in years 2010 and 2012. See Note 12 of Notes to
Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Operating Revenue. Operating revenue for 1996 increased 27.1% to $47.3 million
from $37.3 million in 1995 due primarily to the growth in resident fees.
Resident fees (including community fees and fees for Basic Care, Plus Care,
Alzheimer's Care and other services) for 1996 increased 27.1% to $44.2 million
from $34.8 million in 1995. This increase was due primarily to the inclusion, in
1996, of six acquired facilities with total revenue of $4.5 million, three newly
developed facilities with revenue totaling $2.2 million and additional revenue
generated by increases in the average resident occupancy and average daily rate
for owned facilities operated by the Company for at least 12 months, totaling
$1.1 million and $1.3 million, respectively. Average resident occupancy for
Stabilized Facilities was 93.6% in 1996 compared to 91.7% in 1995. Resident
occupancy, including vacancies attributable to renovations at two facilities in
order to meet requirements for accepting non-ambulatory residents and the
relocation of non-ambulatory residents at a third facility, was 89.6% for 1995.
The average daily resident fee (excluding community fees) for Stabilized
Facilities remained unchanged in 1996 at $80 compared to 1995. Excluding
acquired facilities, the average daily resident fee (excluding community fees)
increased to $84 in 1996.
Management services income for 1996 increased by $0.7 million, or 26.7%,
to $3.2 million from $2.5 million in 1995 due to an increase in management fees
and one-time consulting fees.
Financials 20
<PAGE> 5
Operating Expenses. Operating expenses for 1996 increased 40.1% to $44.9
million from $32.1 million in 1995. The increase in operating expenses in 1996
is attributable primarily to growth in facility operating and general and
administrative expenses.
Facility operating expenses for 1996 increased 35.4% to $28.3 million from
$20.9 million in 1995. As a percentage of operating revenue, facility operating
expenses in 1996 increased to 59.7% from 56.0% in 1995. Of the $7.4 million
increase in facility operating expenses, $5.0 million was attributable to the
opening in 1996 of three newly developed facilities as well as the acquisition
of six facilities. The remaining $2.4 million was due to an increase in
salaries, benefits, training, marketing and other general expenses at existing
facilities.
Facility development and pre-rental expenses for 1996 increased by 106.5%
to $2.4 million from $1.2 million in 1995. This increase was due to a $0.7
million increase in non-capitalized labor and related development costs, a $0.7
increase in start up costs offset, in part, by a $0.2 increase in other
capitalized costs. There were 20 facilities under construction at December 31,
1996, compared to 6 facilities at December 31, 1995.
General and administrative expenses in 1996 increased 46.1% to $10.0
million from $6.9 million in 1995. As a percentage of operating revenue, general
and administrative expenses increased to 21.2% in 1996 from 18.5% in 1995. Of
the $3.2 million increase in general and administrative expenses in 1996,
approximately 47.3% was related to labor costs. The remaining increase of $1.7
million was attributable to marketing, consulting, taxes, travel and other
general expenses.
The provision for bad debts was $0.7 million in 1996 and $0.2 million in
1995, respectively. Of the $0.5 million increase, $0.2 million relates to a
one-time consulting fee and $0.3 million relates to certain subordinated
management fees.
Depreciation and amortization in 1996 increased 34.5% to $4.0 million from
$3.0 million in 1995 primarily due to the opening of three developed facilities
and the acquisition of six other facilities and amortization of $0.3 million of
capitalized pre-rental costs over 12 months.
Other Income (Expense). Interest income for 1996 increased 168.3% to $3.3
million from $1.2 million in 1995 primarily due to a $1.7 million increase from
the investment of funds received from the Initial and Second Offerings and
interest earned on $5.8 million of revenue bonds purchased in March 1995 (the
Company has an option to purchase the facility subject to the revenue bonds, at
any time, for fair market value). Interest expense for 1996 decreased 41.3% to
$9.7 million from $16.6 million in 1995. In June 1996, the Company paid
approximately $8.6 million to a lender as payment in full of a 25% participation
interest. During 1995, the Company recorded $5.4 million of expense related to
such participation Interest. In addition, the Company paid $8.0 million to
prepay a portion of the variable rate indebtedness. The lender reduced the
interest rate applicable to the $22.0 million outstanding portion of variable
rate indebtedness from LIBOR plus 5.75% to LIBOR plus 3.75%. On March 4, 1997,
the Company entered into an agreement with the lender reducing further the
interest rate from LIBOR plus 3.75% down to LIBOR plus 1.75%.
Unusual Charge. In order to avoid a possible change in the Company's
ability to continue to manage two facilities resulting from the reduction in
Paul and Teresa Klaassen's (the "Founders") ownership interest in the Company
following completion of the Company's Initial Offering in June 1996, the Company
made a $1.0 million cash payment to the third-party limited partner in these two
facilities in exchange for the transfer to the Company by the third party of
additional 1% partnership interests in each facility (with a total book value of
$18,700) and the elimination of any requirement for the Founders to maintain a
specified ownership interest in the Company. This was reflected as an unusual
charge during 1996.
Net Loss. The Company incurred a net loss of $4.8 million in 1996,
compared to a net loss of $10.1 million in 1995. The reduction in the net loss
for 1996 resulted primarily from a $10.1 million increase in operating revenue
coupled with a $6.8 million decrease in interest expense and a $2.0 million
increase in interest income offset , in part, by a $12.8 million increase in
operating expenses and a $1.0 million unusual charge. The Company did not
recognize any Federal income tax expense in 1996 because of such net loss. At
December 31, 1996, the Company had net operating loss carryforwards for income
tax purposes of approximately $15.7 million which expire in years 2010 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations from long-term borrowings,
equity offerings and cash generated from operations. At December 31, 1997, the
Company had $341.0 million of outstanding debt at a weighted average interest
rate of 6.72%. Of such amount, the Company had $260.8 million of fixed-rate debt
(excluding a $1.4 million loan discount) at a weighted average interest rate of
6.5%, and $81.6 million of variable-rate debt at a weighted average interest
rate of 7.4%. Increases in prevailing interest rates could increase the
Company's interest payment obligations relating to variable-rate debt. See Note
6 of Notes to Consolidated Financial Statements.
A subsidiary of the Company has obtained a syndicated revolving credit
facility for $250.0 million to be used for general corporate purposes, including
the continued construction and development of assisted living facilities. The
Company guarantees the repayment of all amounts outstanding under this credit
facility. The credit facility is for a term of three years with the right to
extend, and 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 rates from LIBOR plus 1.0% to LIBOR
plus 1.5%. At December 31, 1997, there were $51.0 million of advances
outstanding under this facility and available credit remaining of $199.0
million.
Financials 21
<PAGE> 6
On June 6, 1997, the Company issued and sold $150.0 million aggregate
principal amount of 51/2% convertible subordinated notes due 2002. The Notes
bear interest at 51/2% per annum payable semiannually on June 15 and December 15
of each year, beginning 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 Notes). The Notes are redeemable at the option of the Company commencing
June 15, 2000, at specified premiums. The holders of the Notes may require the
Company to repurchase the Notes upon a Change of Control (as defined) of the
Company. The net proceeds to the Company from the sale of the Notes, after
deducting underwriting discounts and offering expenses, were approximately
$145.6 million. On June 10, 1997, the Company used $57.7 million of the net
proceeds to pay down floating rate indebtedness from four financial institutions
with a combined weighted average interest rate of 8.4%. The Company expects to
use the balance of the net proceeds and the recent expansion of an existing
syndicated revolving credit facility to fund continued development of new
Sunrise model facilities and for possible acquisitions as well as for working
capital and general corporate purposes.
A subsidiary of the Company has received a commitment for a $51.0 million
revolving construction credit facility. The credit facility provides for
construction and interim loans to finance the development of up to seven
assisted living facilities. As of December 31, 1997, the Company had closed
$32.1 million of the total commitment. The Company has agreed to guarantee the
repayment of all amounts outstanding under this credit facility. The credit
facility is for a term of five years and is secured by cross-collateralized
first mortgages on the real property and liens on receivables. Advances under
the credit facility bear variable interest rates based upon LIBOR plus 2.25% to
LIBOR plus 2.60%. As of December 31, 1997, there were $4.7 million of advances
outstanding under this facility.
The Company has received a commitment for a $15.7 million revolving
construction credit facility. As of December 31, 1997, the Company has closed on
the total commitment amount. The credit facility provides for construction and
interim loans to finance the development of up to two assisted living
facilities. The Company guarantees the repayment of all amounts outstanding
under this credit facility. The credit facility is for a term of three years and
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 credit facility bear variable interest rates based upon LIBOR plus
1.25% to LIBOR plus 1.75%. There were no advances outstanding under this
facility as of December 31, 1997.
Effective March 4, 1997, a lender agreed to reduce the interest rate
applicable to the $22.0 million outstanding portion of variable rate
indebtedness from LIBOR plus 3.75% to LIBOR plus 1.75%. The Company also has
renegotiated interest rate reductions from LIBOR plus 2.75% to corresponding
U.S. Treasuries plus 1.00% on $15.7 million of credit facilities. In addition,
the Company has renegotiated an interest rate reduction from LIBOR plus 2.95% to
U.S. Treasuries plus 1.10% on a $7.4 million credit facility.
The Company 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 7.3%. The Company has 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%. During 1997, the Company
paid $17,000 pursuant to the swap transaction applicable to $7.0 million of
outstanding advances under LIBOR floating rate.
Pursuant to an acquisition in 1994 of certain assets, the Company had
unconditionally guaranteed any amounts required by three related limited
partnerships (the "LPs") to honor the LP's commitments in 1997, to provide a
guaranteed 9% return to the limited partners and to repurchase the limited
partnership interests of the limited partners. During 1997, the Company paid
$2.6 million to satisfy and complete its guarantee. The guarantees were
considered to be contingent acquisition costs. As such, the carrying value of
the assets acquired in the exchange were increased by the amount.
Working capital decreased to $70.3 million at December 31, 1997, compared
to $102.8 million as of December 31, 1996, primarily due to the Company's
continued investment in the development of Sunrise model facilities.
Cash provided by operating activities increased to $8.3 million for 1997
as compared to $0.8 million for 1996, including a $1.0 million payment to a
third-party limited partner which was charged to expense, and $0.9 million for
1995. The continued increase reflects the operational stabilization of new
Sunrise facilities and the additional operations of acquired facilities.
Unrestricted cash balances were $82.6 million and $101.8 million at December 31,
1997 and 1996, respectively.
Net cash used in investing activities totaled $221.8 million, $112.5
million and $17.9 million in 1997, 1996 and 1995, respectively. The Company's
investing activities included $213.6 million, $103.7 million and $12.6 million
in 1997, 1996 and 1995, respectively, related to the Company's development
activities. Investing activities in 1997 include net purchases of investments
and notes receivable of $16.9 million and proceeds from maturities of marketable
securities of $8.3 million. Investing activities in 1996 included the purchase
of $8.1 million of marketable securities. Investing activities in 1995 included
the purchase of $5.4 million of tax exempt mortgage revenue bonds.
During 1997, the Company's financing activities provided net cash of
$194.4 million compared to $207.3 million and $15.1 million provided in 1996 and
1995, respectively. Cash was provided by additional borrowings of $255.6 million
which includes the Notes.
Financials 22
<PAGE> 7
During 1997, the Company made repayments of debt amounting to $59.4 million,
including $57.7 million used from net proceeds received from the Notes.
Additionally, $1.4 million was used to repay notes payable to affiliated
partnerships. The Company also paid $6.5 million in financing costs during 1997
related to additional borrowings and available credit facilities. In 1996, cash
was provided by the Company's Initial and Second Offerings, as well as, $28.9
million provided by additional borrowings. Also during 1996, the Company paid
$8.6 million as payment in full of the 25% participating interest in cash flow
and appreciation in the value of certain properties. In addition, in 1996, the
Company prepaid $8.0 million of its variable rate debt, paid $0.3 million in
dividends to holders of Series B Exchangeable Preferred Stock and $1.4 million
in various financing costs. In 1995, $9.3 million was provided by additional
borrowings relating primarily to the construction of facilities, and $20.2
million in net proceeds was provided by the issuance of Series A Convertible
Preferred Stock. In addition, $9.6 million in cash distributions were made in
1995.
The Company's previously announced three-year growth objectives include
developing at least 55 new Sunrise model assisted living facilities with an
additional resident capacity of more than 4,500 by the end of 1999. To date, the
Company has completed development of 27 such facilities with a resident capacity
of 2,400 (East Cobb, GA, Fresno, CA, Haverford, PA, Decatur, GA, Walnut Creek,
CA, Glen Cove, NY, Ivey Ridge, GA, Cohasset, MA, Denver, CO, Alexandria, VA,
Norwood, MA, Wayne, NJ, Wayland, MA, Westfield, NJ, Rockville, MD, Philadelphia,
PA (3), Old Tappan, NJ, Morris Plains, NJ, Severna Park, MD (2), Springfield,
VA, Oakton, VA, Petaluma, CA, Blue Bell, PA, and Columbia, MD) and has 16
facilities currently under construction with a resident capacity of 1,490. The
Company has also entered into contracts to purchase 33 additional sites and to
lease two additional sites. The Company is pursuing additional development
opportunities and also plans to acquire additional facilities as market
conditions warrant.
The Company currently estimates that the net proceeds to the Company from
the sale of the Notes, the recent expansion of an existing credit facility,
together with existing working capital, financing commitments and financing
expected to be available, will be sufficient to fund its development and
acquisition programs for at least the next 18 months. The estimated cost to
complete and lease up the 28 remaining new Sunrise model facilities targeted for
completion by the end of 1999 is between $238 million and $336 million.
Additional financing will be required to complete the Company's growth plans and
to refinance existing indebtedness if cash flows from operations do not increase
as a result of planned growth. There can be no assurance that such financing
will be available on acceptable terms.
The Company's ability to achieve its development plans will depend upon a
variety of factors, many of which are beyond the Company's control. There can be
no assurance that the Company will not suffer delays in its development program,
which could slow the Company's growth. The successful development of additional
assisted living facilities will involve a number of risks, including the
possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and other
required governmental permits and authorizations. The Company may also incur
construction costs that exceed original estimates, may not complete construction
projects on schedule and may experience competition in the search for suitable
development sites. The Company relies on third-party general contractors to
construct its new assisted living facilities. There can be no assurance that the
Company will not experience difficulties in working with general contractors and
subcontractors, which could result in increased construction costs and delays.
Further, facility development is subject to a number of contingencies over which
the Company will have little control and that may adversely affect project cost
and completion time, including shortages of, or the inability to obtain, labor
or materials, the inability of the general contractor or subcontractor to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. Accordingly, if the Company is unable to achieve its development
plans, its business, financial condition and results of operations could be
adversely affected.
The Company's previously announced growth plan included the acquisition of
up to 15 facilities by the end of 1999, of which nine have been acquired. There
can be no assurance that the Company will be able to complete the acquisition of
additional assisted living facilities. The success of the Company's acquisitions
will be determined by numerous factors, including the Company'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 the Company to integrate or operate acquired facilities
effectively may have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's financing documents contain financial covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain escrows of funds, (ii) require that one of the Company's
Founders serve as Chairman of the Board and Chief Executive Officer of the
Company, (iii) require consent for changes in management or control of the
Company, (iv) limit, among other things, the ability of the Company and certain
of its subsidiaries to borrow additional funds, dispose of assets and engage in
mergers or other business combinations, and (v) prohibit the Company from
operating competing facilities within certain distances from mortgaged
facilities.
At December 31, 1997, the Company had stockholders' equity of $195.3
million compared to a stockholders' equity of $185.8 million at December 31,
1996. The change resulted from adding the receipt of $5.5 million from the
exercise of employee options for common stock and net income for 1997 of $4.0
million.
Financials 23
<PAGE> 8
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
fiscal years beginning after December 15, 1997. Statement 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. The Company will adopt the new
requirements in 1998. Management has not completed its review of Statement 131;
however, the adoption of Statement 131 is not anticipated to affect results of
operations or financial position, but could add to the Company's current
operating disclosures.
IMPACT OF INFLATION
Resident fees from Company-owned assisted living facilities and management
services income from facilities operated by the Company for third parties are
the primary sources of revenue for the Company. These revenues are affected by
daily resident fee rates and facility occupancy rates. The rates charged for the
delivery of assisted living services are 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 the Company's growth initiatives, have
previously had a negative impact on operating margins and may again do so in the
foreseeable future.
Substantially all of the Company'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
thereunder, and thus may enable the Company to seek increases in daily fees due
to inflation or other factors. Any such increase would be subject to market and
competitive conditions and could result in a decrease in occupancy of the
Company's facilities. The Company believes, however, that the short-term nature
of its resident agreements generally serves to reduce the risk to the Company 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.
IMPACT OF YEAR 2000
Some of the older computer programs utilized by the Company were written using
two digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000 ("Year 2000 Issue"). This could cause
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
During the past year, the Company has continued to invest resources
developing the needed infrastructure to support current and anticipated growth.
In most cases, the Company has implemented financial and accounting systems that
will support its development plans, which includes year 2000 compliant software.
To date, financial and accounting systems implemented or updated that are year
2000 compliant include the accounting general ledger system, the resident
billing system, the cash disbursement or accounts payable system, the
development or project cost system, the fixed asset system, the employee stock
option system and substantially all software residing on the Company's home
office and facility desk-top and lap-top computers.
The Company recently selected for implementation during 1998 a payroll
system with expanded functionality. Included among the requirements for
selection is that the payroll system be year 2000 compliant. The project is
estimated to be completed not later than December 31, 1998, which is prior to
any anticipated impact of the Year 2000 Issue on its operations. The Company
will continue to assess its software to determine whether additional portions
will have to be modified or replaced so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company
believes that with modifications to existing software and conversions to new
software, planned and completed, the Year 2000 Issue will not pose significant
operational problems or costs. However, if such modifications and conversions
are not made or are not completed timely, the Year 2000 Issue could have a
material impact on the operations of the Company.
The costs of the payroll system conversion and the date on which the
Company believes it will complete the year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties
Financials 24
<PAGE> 9
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. (the "Company") as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Washington, D.C.
March 4, 1998
Financials 25
<PAGE> 10
Sunrise Assisted Living, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 82,643 $ 101,811
Accounts receivable, net 5,849 1,522
Marketable securities -- 8,322
Prepaid expenses and other current assets 6,081 2,394
- ----------------------------------------------------------------------------------------------------------
Total current assets 94,573 114,049
Property and equipment, net 423,615 216,711
Investment and notes receivable 22,998 5,750
Restricted cash and cash equivalents 1,573 1,720
Deferred financing costs, net 7,459 3,100
Other assets 6,042 1,509
- ----------------------------------------------------------------------------------------------------------
Total assets $556,260 $342,839
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,303 $ 6,321
Accrued expenses 8,317 2,010
Deferred revenue 1,482 2,021
Other current liabilities 669 103
Current maturities of long-term debt 5,462 772
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 24,233 11,227
Long-term debt, less current maturities 335,485 143,318
Notes payable to affiliated partnerships 40 1,421
Interests in unconsolidated partnerships 445 822
Other long-term liabilities 319 --
- ----------------------------------------------------------------------------------------------------------
Total liabilities 360,522 156,788
Minority interests 398 227
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,
19,028,040 and 18,529,869 shares issued and outstanding 1997 and 1996 190 185
Additional paid-in capital 206,784 201,274
Accumulated deficit (11,634) (15,635)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 195,340 185,824
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $556,260 $342,839
==========================================================================================================
</TABLE>
See accompanying notes.
Financials 26
<PAGE> 11
Sunrise Assisted Living, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $89,884 $47,345 $ 37,258
Operating expenses:
Facility operating 53,286 28,274 20,882
Facility development and pre-rental 5,586 2,420 1,172
General and administrative 10,454 10,042 6,875
Depreciation and amortization 10,592 4,048 3,009
Facility lease 1,532 130 128
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 81,450 44,914 32,066
Income from operations 8,434 2,431 5,192
Other income (expense):
Interest income 6,862 3,297 1,229
Interest expense (11,475) (9,722) (16,556)
- -----------------------------------------------------------------------------------------------------------------
Total other expense (4,613) (6,425) (15,327)
Equity in earnings (losses) of unconsolidated partnerships 88 (12) (9)
Minority interests 92 227 7
Unusual charge -- (981) --
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,001 $ (4,760) $(10,137)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) per common share data:
Basic net income (loss) per common share $0.21 $(0.52)
- ----------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per common share $0.20 $(0.51)
================================================================================================================
</TABLE>
See accompanying notes.
Financials 27
<PAGE> 12
Sunrise Assisted Living, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Accumulated
Common Paid-in Owners'
Stock of Capital of Deficit of Shares of Common Additional
Sunrise Sunrise Sunrise Common Stock Paid-in Capital
(in thousands) Entities Entities Entities Stock Amount (Deficiency)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 11 $ 852 $(17,063) -- $ -- $--
Issuance of common stock for
the net assets of Sunrise Entities (11) (852) 17,063 6,019 60 (16,451)
Liability of stockholder assumed
at formation (1,448)
Cost of issuance of Series A
convertible preferred stock (1,834)
Net loss
Preferred return on Series A
convertible preferred stock
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 -- -- -- 6,019 60 (19,733)
Issuance of common stock warrants 135
Preferred return on Series A
convertible preferred stock
Distributions to stockholders
Issuance of common stock--Initial Offering 5,700 57 104,237
Conversion of Series A convertible
preferred stock to common stock 2,444 24 24,798
Forfeiture of preferred return on
Series A convertible preferred stock (2,822)
Dividends paid on Series B
exchangeable preferred stock
Issuance of common stock to acquire
interest in facility 53 945
Exercise of employee options for
common stock 259 3 1,964
Issuance of common stock--
Second Offering 4,055 41 91,750
Net loss
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 -- -- -- 18,530 185 201,274
Exercise of employee options for
common stock 498 5 5,510
Net income
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $-- $ -- $ -- 19,028 $190 $206,784
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
(in thousands) Deficit Total
- ----------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994 $ (191) $ (16,391)
Issuance of common stock for
the net assets of Sunrise Entities 191 --
Liability of stockholder assumed
at formation (1,448)
Cost of issuance of Series A
convertible preferred stock (1,834)
Net loss (10,137) (10,137)
Preferred return on Series A
convertible preferred stock (1,964) (1,964)
- ----------------------------------------------------------------------------
Balance at December 31, 1995 (12,101) (31,774)
Issuance of common stock warrants 135
Preferred return on Series A
convertible preferred stock (858) (858)
Distributions to stockholders (390) (390)
Issuance of common stock--Initial Offering 104,294
Conversion of Series A convertible
preferred stock to common stock 24,822
Forfeiture of preferred return on
Series A convertible preferred stock 2,822 --
Dividends paid on Series B
exchangeable preferred stock (348) (348)
Issuance of common stock to acquire
interest in facility 945
Exercise of employee options for
common stock 1,967
Issuance of common stock--
Second Offering 91,791
Net loss (4,760) (4,760)
- ----------------------------------------------------------------------------
Balance at December 31, 1996 (15,635) 185,824
Exercise of employee options for
common stock 5,515
Net income 4,001 4,001
- ----------------------------------------------------------------------------
Balance at December 31, 1997 $(11,634) $195,340
============================================================================
</TABLE>
See accompanying notes.
Financials 28
<PAGE> 13
Sunrise Assisted Living, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 4,001 $ (4,760) $(10,137)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in (earnings) losses of unconsolidated partnerships (88) 12 9
Minority interests (92) (227) (7)
Provision for bad debts 871 734 185
Accretion of interest on marketable securities -- (215) --
Depreciation and amortization 10,592 4,048 3,009
Amortization of financing costs and discount on long-term debt 1,268 714 457
Accrual of participation mortgage interest -- -- 5,400
Changes in assets and liabilities:
(Increase) decrease:
Accounts receivable (5,198) (1,250) (407)
Prepaid expenses and other current assets (3,687) 249 (238)
Other assets (8,146) (1,420) (855)
Increase (decrease):
Accounts payable and accrued expenses 8,289 1,784 3,539
Deferred revenue (539) 1,117 (47)
Other liabilities 993 (28) 36
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,264 758 944
INVESTING ACTIVITIES
Decrease (increase) in restricted cash and cash equivalents 147 (459) (85)
Investment in property and equipment (213,560) (103,667) (12,570)
Disposition of property and equipment -- -- 25
Increase in investment and notes receivable (16,856) (375) (5,375)
Net purchases of marketable securities -- (8,107) --
Proceeds from maturities of marketable securities 8,322 -- --
Distributions from investment in unconsolidated partnerships 101 113 98
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (221,846) (112,495) (17,907)
FINANCING ACTIVITIES
Net proceeds from sale of Series A convertible preferred stock -- -- 20,166
Net proceeds from sale of Series B exchangeable preferred stock -- 10,000 --
Redemption of Series B exchangeable preferred stock -- (10,000) --
Dividends paid on Series B exchangeable preferred stock -- (348) --
Net proceeds from Initial Offering of common stock -- 104,294 --
Net proceeds from Second Offering of common stock -- 91,791
Net proceeds from exercised options 5,515 1,967 --
Distributions to stockholders/partners -- (390) (9,646)
Net investment of minority interests 525 (41) (35)
Additional borrowings under long-term debt 255,643 28,870 9,326
Repayment of long-term debt (59,403) (17,165) (4,296)
Financing costs paid (6,485) (1,369) (313)
Repayment of notes payable to affiliated partnerships (1,381) (314) (75)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 194,414 207,295 15,127
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (19,168) 95,558 (1,836)
Cash and cash equivalents at beginning of year 101,811 6,253 8,089
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 82,643 $ 101,811 $ 6,253
===========================================================================================================================
</TABLE>
See accompanying notes.
Financials 29
<PAGE> 14
Sunrise Assisted Living, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND PRESENTATION
Sunrise Assisted Living, Inc. (the "Company") is a leading 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. The Company'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.
The Company was incorporated in Delaware on December 14, 1994. The
consolidated financial statements include the Company's wholly owned
subsidiaries that manage, own and develop assisted living facilities. The
consolidated financial statements also include subsidiaries that own facilities
in which the Company has equity interests ranging from 50% to 100%. It is the
Company'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, the Company holds unilateral ability to conduct the
ordinary course of business of the facility. All significant intercompany
transactions and accounts have been eliminated. The Company accounts for other
significant interests on the equity method, because the Company is able to
influence significantly both operating and financial decisions.
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.
REVENUE RECOGNITION
Operating revenue consists of resident fee revenue and management services
revenue. Resident fee revenue is recognized when services are rendered.
Generally, resident community fees approximating 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. 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 revenue from 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.
ALLOWANCES FOR DOUBTFUL ACCOUNTS
Details of the allowance for doubtful accounts receivable are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $ 927 $ 235
Provision for bad debts 893 734
Accounts written off (22) (42)
- ----------------------------------------------------------------------------
Ending balance $1,798 $ 927
============================================================================
</TABLE>
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.
Pre-rental costs and accumulated amortization included in other assets are
as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Pre-rental costs $ 9,393 $1,674
Accumulated amortization (3,973) (345)
- ----------------------------------------------------------------------------
$ 5,420 $1,329
============================================================================
</TABLE>
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 the Company 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. The Company 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 costs of the Company's development subsidiary. If a
project is abandoned, any costs previously capitalized are expensed.
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 using the effective interest method.
Deferred financing fees and accumulated amortization are as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred financing fees $ 9,394 $3,915
Accumulated amortization (1,935) (815)
- ----------------------------------------------------------------------------
$ 7,459 $3,100
============================================================================
</TABLE>
INCOME TAXES
Income taxes are provided using the liability method. Under the liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis (temporary differences).
CASH AND CASH EQUIVALENTS
The Company 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.
MARKETABLE SECURITIES
At December 31, 1996, marketable securities consisted of high-
quality commercial paper with maturities not greater than 182 days at date of
purchase. These securities were classified as available-for-sale. The carrying
amount of these investments approximated their market value at December 31,
1996.
Financials 30
<PAGE> 15
STOCK-BASED COMPENSATION
The Company 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.
The Company 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.
INTERESTS IN UNCONSOLIDATED PARTNERSHIPS
The Company's interest in accumulated losses of unconsolidated partnerships are
recorded below the Company's cost basis, which reflects the Company's
obligations as the general partner. The Company has no liability for any other
material commitments or contingencies of partnerships in which it is a general
partner.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
fiscal years beginning after December 15, 1997. Statement 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. The Company will adopt the new
requirements in 1998. Management has not completed its review of Statement 131;
however, the adoption of Statement 131 is not anticipated to affect results of
operations or financial position, but could add to the Company's current
operating disclosures.
RECLASSIFICATIONS
Certain 1996 and 1995 balances have been reclassified to conform with the 1997
presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) Asset Lives 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Land and land improvements 10-15 yrs. $ 56,624 $ 25,362
Building and building
improvements 40 yrs. 268,533 137,369
Furniture and equipment 3-10 yrs. 34,459 14,996
- ----------------------------------------------------------------------------
359,616 177,727
Less accumulated depreciation
and amortization (26,452) (18,609)
- ----------------------------------------------------------------------------
333,164 159,118
Construction in progress 90,451 57,593
- ----------------------------------------------------------------------------
$423,615 $216,711
============================================================================
</TABLE>
4. INVESTMENT AND NOTES RECEIVABLE
On March 1, 1995, the Company purchased all of the outstanding mortgage revenue
bonds used to finance a facility managed by the Company. 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 $5,000,000. The bonds
were in financial default when purchased.
On June 30, 1995, the bonds were restructured, at no gain or loss to the
Company, to reduce their face amount to $5,750,000 (Series A and C) and provide
the facility managed by the Company additional funding up to $750,000 for
renovations (Series B). Interest only is payable until maturity. The balances
outstanding are as follows:
<TABLE>
<CAPTION>
Face Amount
(in thousands) December 31,
- ---------------------------------------------------------------------------
Description 1997 1996 Interest Rate Maturity Date
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A $5,000 $5,000 11% July 1, 2025
Series B 750 750 11% July 1, 2015
Series C 750 750 20% subject to July 1, 2010
available cash
Bond discount (750) (750)
- ---------------------------------------------------------------------------
$5,750 $5,750
===========================================================================
</TABLE>
Subsequent to June 30, 1995, all interest payments on these bonds are
current. The Company recognized $783,000, $752,000 and $443,000 in interest
income during 1997, 1996 and 1995, respectively, on this investment. The bond
discount will be recognized as income over the life of the loan commencing when
realizable. These bonds are classified as available-for-sale. Management
believes the net carrying cost of the bonds approximates market value at
December 31, 1997 and 1996.
In October 1997, a wholly owned subsidiary of the Company jointly formed a
limited liability company ("LLC") with an unrelated third party in which the
Company's subsidiary owns a 9% minority interest. The purpose of the LLC is to
develop, construct and own assisted living facilities. The Company loaned the
LLC $15 million (the "note") to help finance initial development and
construction of six properties. The note is subordinated to other lenders of the
LLC.
In September 1997, a wholly owned subsidiary of the Company loaned $1.9
million ("promissory note") to owners of certain property ("owners") on which
the Company plans to develop an assisted living facility. The proceeds of the
promissory note were used by the owners to retire a note previously outstanding
and secured by the same property. Immediately following issuance of the
promissory note, the wholly owned subsidiary of the Company extended an existing
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: (i) 270 days following the termination of the purchase and
sale agreement by either the owners or the wholly owned subsidiary of the
Company; (ii) any breach of the purchase agreement by the owners; or (iii) the
closing date as defined in the purchase agreement.
Notes receivable plus accrued interest consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Promissory note, interest accrues at prime
(8.50% at December 31, 1997) $ 1,905 $ --
Note with an unconsolidated affiliate,
interest accrues at LIBOR (5.72% at
December 31, 1997) plus 5% principal
and interest due October 16, 2003 15,343 --
- ----------------------------------------------------------------------------
$17,248 $ --
============================================================================
</TABLE>
Management believes the net carrying cost of the notes approximates market
value at December 31, 1997.
5. TRANSACTIONS WITH AFFILIATES
Included in prepaid expenses and other current assets are net receivables from
unconsolidated partnerships or limited liability companies of $4.1 million and
$1.0 million as of December 31, 1997 and 1996, respectively. Included in other
current liabilities are payables to unconsolidated partnerships or limited
liability companies of $600,000 and $-0-as of December 31, 1997 and 1996,
respectively. Net receivables
Financials 31
<PAGE> 16
from and payables to unconsolidated partnerships or limited liability companies
relate primarily to development activities.
Notes payable to affiliated partnerships consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Notes to related limited partnerships,
principal and interest due December 31,
1999. Interest accrues at 8% annually $-- $1,381
Notes due to an employee and an entity
related to that employee. Interest accrues
at 18% annually, principal due June 5, 1999 40 40
- ---------------------------------------------------------------------------
$40 $1,421
===========================================================================
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
51/2% Convertible Subordinated
Notes due 2002 $150,000 $--
Multi-property/participating blanket
first mortgage (the "Multi-
Property Mortgage") 86,718 87,000
Other mortgages and notes 54,660 26,125
Outstanding draws on construction notes -- 32,815
Syndicated revolving credit facility 51,000 --
Discount on the Multi-Property
Mortgage long-term debt less
amortization of $1,769 and $1,350 (1,431) (1,850)
- ----------------------------------------------------------------------------
340,947 144,090
Current maturities (5,462) (772)
- ----------------------------------------------------------------------------
$335,485 $143,318
============================================================================
</TABLE>
On June 6, 1997, the Company issued and sold $150 million aggregate
principal amount of 51/2% convertible subordinated notes due 2002 (the "Notes").
The Notes bear interest at 51/2% 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 Notes). The Notes are redeemable at the option of the
Company commencing June 15, 2000, at specified premiums. The holders of the
Notes may require the Company to repurchase the Notes upon a Change of Control
(as defined) of the Company. The net proceeds to the Company from the sale of
the Notes, after deducting underwriting discounts and offering expenses, were
approximately $145.6 million.
The Multi-Property Mortgage is collateralized by a blanket first mortgage
on all assets of a subsidiary of the Company, consisting of 15 facilities which
had a book value of approximately $81.3 million as of December 31, 1997. 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 $21.7
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
twenty-year amortization schedule. In June 1996, the Company paid the lender
$8.6 million as payment in full of the lender's 25% participating interest in
cash flow and appreciation in the value of certain properties. The interest rate
applicable to the remaining balance of 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%. The lender received additional interest based on
25% of net cash flows as specified in the loan documents, which amounted to
$10,000 in 1996 and $347,000 in 1995.
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, $626,000 and $457,000 has been
included as interest expense in 1997, 1996 and 1995, respectively.
The other mortgages and notes payable relate primarily to 13 facilities
whereby outstanding balances are collateralized by the total assets of the
respective facility. The book value of such assets was $109.5 million as of
December 31, 1997. Payments of principal and interest are paid monthly. Interest
rates range from 6.87% to 9.0% with remaining maturities ranging from less than
one to thirty-five years. These other mortgages and notes payable have total
available borrowings of $73.2 million as of December 31, 1997.
A subsidiary of the Company has received a commitment for a $51.0 million
revolving construction credit facility. The credit facility provides for
construction and interim loans to finance the development of up to seven
assisted living facilities. As of December 31, 1997, the Company had closed
$32.1 million of the total commitment. The Company guarantees the repayment of
all amounts outstanding under this credit facility. The credit facility is for a
term of five years and is secured by cross-collateralized first mortgages on the
real property and liens on receivables. Advances under the credit facility bear
variable interest rates based upon LIBOR plus 2.25% to LIBOR plus 2.60%. There
were $4.7 million of advances outstanding under this facility as of December 31,
1997, which were included in other mortgages and notes.
The Company has received a commitment for a $15.7 million revolving
construction credit facility. As of December 31, 1997, the Company had closed on
the total commitment amount. The credit facility provides for construction and
interim loans to finance the development of up to two assisted living
facilities. The Company guarantees the repayment of all amounts outstanding
under this credit facility. The credit facility is for a term of three years and
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 credit facility bear variable interest rates based upon LIBOR plus
1.25% to LIBOR plus 1.75%. There were no advances outstanding under this
facility as of December 31, 1997.
A subsidiary of the Company has obtained a syndicated revolving credit
facility for $250.0 million to be used for general corporate purposes, including
the continued construction and development of assisted living facilities. The
Company guarantees the repayment of all amounts outstanding under this credit
facility. The credit facility is for a term of three years with the right to
extend, and 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 rates from LIBOR plus 1.0% to LIBOR
plus 1.5%. There were $51.0 million of advances outstanding under this credit
facility as of December 31, 1997.
The Company 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%. The Company has 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%.
Financials 32
<PAGE> 17
The Company's financing documents contain financial covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain escrows of funds, (ii) require that one of the Company's
founders, Paul Klaassen and Teresa Klaassen (the "Founders"), serve as Chairman
of the Board and Chief Executive Officer of the Company, (iii) require consent
for changes in management or control of the Company, (iv) limit, among other
things , the ability of the Company and certain of its subsidiaries to borrow
additional funds, dispose of assets and engage in mergers or other business
combinations, and (v) prohibit the Company from operating competing facilities
within certain distances from mortgaged facilities.
Principal maturities of long-term debt as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------
<S> <C>
1998 $ 5,462
1999 1,788
2000 52,645
2001 84,827
2002 163,279
Thereafter 32,946
- ---------------------------------------------------------------------------
$340,947
===========================================================================
</TABLE>
Interest paid totaled $16.9 million, $10.6 million and $10.2 million in
1997, 1996 and 1995, respectively, of which $7,200, $13,000 and $18,000 in 1997,
1996 and 1995, respectively, are related to notes payable to affiliated
partnerships. Interest capitalized was $7.0 million, $2.0 million, and $167,000
in 1997, 1996 and 1995, respectively.
Restricted cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Under the Multi-Property Mortgage,
real estate tax escrows, operating
and capital reserves $ 934 $ 769
Other mortgage related real estate tax
escrows and resident security deposits 639 951
- ---------------------------------------------------------------------------
$1,573 $1,720
===========================================================================
</TABLE>
7. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
On January 4, 1995, the Company issued 6,019,375 shares of Common Stock to the
majority stockholders in exchange for all of the equity interests in predecessor
entities (the "Sunrise Entities"). The equity interests were recorded at the
historical cost of the majority stockholders (i.e., a reorganization of entities
under common control). Simultaneously, the Company issued 2,444,444 shares of
Series A Convertible Preferred Stock (the "Series A Preferred Stock") at $9.00
per share net of issuance costs of $1.8 million. The Series A Preferred Stock
had a 9% preferred return, compounded annually, payable, together with the
stated value of $9.00 per share, upon redemption. The holders of Series A
Preferred Stock were entitled to vote on all matters submitted to a vote of the
stockholders of the Company and had the number of votes equal to the number of
whole shares of common stock into which each share of Series A Preferred Stock
was Convertible. Each Series A Preferred stockholder was obligated to purchase,
upon call by the Company, its pro rata portion of 1,000,000 shares of Series B
Exchangeable Preferred Stock for $10 per share, or $10,000,000. The Series B
Exchangeable Preferred Stock was nonvoting and had a 9% cumulative dividend
payable quarterly and no conversion rights. On January 19, 1996, the Company
exercised the call.
Concurrent with the January 4, 1995, transaction, the Company assumed
notes payable of $2.1 million and the Sunrise Entities distributed an aggregate
$9.6 million in cash to the majority stockholders, which was recognized as a
distribution payable in Sunrise Entities' December 31, 1994, combined financial
statements.
The Company effected a three-for-one stock split of the Company's Common
Stock and increased the number of authorized shares of Common Stock from
20,000,000 to 60,000,000, effective July 11, 1995. Pursuant to the authorization
of the Board of Directors and stockholders, the Company effected on March 20,
1996, a one-for-three reverse stock split. All share amounts reflected herein
reflect the one-for-three reverse stock split. Authorized shares of Common Stock
remain 60,000,000.
In May of 1996, the Company 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 is $17.00. The warrants expire March 19, 2006.
On June 5, 1996, the Company successfully completed an initial public
offering (the "Initial Offering") of its Common Stock. A total of 5,700,000
shares were sold by the Company in the Initial Offering at a price of $20 per
share for gross proceeds of $114.0 million. The net proceeds to the Company from
the Initial Offering, after deducting underwriting discount and offering
expenses, were approximately $104.3 million. Concurrently, all of the 2,444,444
outstanding shares of Series A Convertible Preferred Stock of the Company were
converted into an equal number of shares of Common Stock. Preferred return of
$2,821,500 through the conversion date was forfeited upon conversion.
Additionally, the Company redeemed all 1,000,000 shares of Series B Exchangeable
Preferred Stock at a redemption price of $10 per share plus accrued dividends of
$165,000.
On October 30, 1996, the Company successfully completed a second public
offering (the "Second Offering") of its Common Stock. A total of 4,055,241
shares were sold by the Company in the Second Offering at a price of $24 per
share for gross proceeds of approximately $97.3 million. The net proceeds to the
Company from the Second Offering, after deducting underwriting discount and
offering expenses, were approximately $91.8 million.
The Company has authorized 10,000,000 shares of $0.01 par value of
preferred stock.
8. STOCK OPTION PLANS AND STOCKHOLDER RIGHTS AGREEMENT
The Company has stock option plans providing for the grant of incentive and
nonqualified stock options to employees, directors, consultants and advisors.
These plans provide for the grant of options to purchase up to 4,748,065 shares
of Common Stock. The option exercise price and vesting provisions of such
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. The Company has a stock option agreement with
one of its senior executives. The agreement, as amended, is effective as of
January 4, 1995, and covers 450,000 shares of Common Stock that have been
reserved for issuance at an exercise price of $8.00. At December 31, 1997,
90,000 options were outstanding, all of which are exercisable and will expire in
seven years.
Financials 33
<PAGE> 18
A summary of the Company's stock option activity, and related information
for the years ended December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
Options (000) Exercise Price (000) Exercise Price (000) Exercise Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year 2,557 $ 17.79 952 $ 6.50 -- --
Granted 1,384 27.84 1,911 21.74 958 $ 6.50
Exercised (498) 11.16 (258) 7.64 -- --
Forfeited (287) 23.29 (48) 5.82 (6) 6.30
Expired -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding--end of year 3,156 $ 22.76 2,557 $17.79 952 $ 6.50
================================================================================================================================
Options exercisable at year-end 667 527 --
Weighted-average fair value of options
granted during the year $14.65 $13.36 $1.78
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices (000) Contractual Life Price (000) Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to 8.00 361 7.6 $ 5.92 183 $ 6.45
10.50 to 20.00 513 8.3 16.36 168 17.54
21.50 to 25.63 1,832 9.1 25.00 298 25.44
29.94 to 36.63 450 9.8 34.48 18 34.66
- ----------------------------------------------------------------------------------------------------------------
3,156 667
================================================================================================================
</TABLE>
On April 25, 1996, the Board of Directors adopted the 1996 Directors'
Stock Option Plan (the "Directors' Plan"). Any director who is a member of the
Board of Directors but not an officer or employee of the Company or any of its
subsidiaries (other than the persons elected as director representatives of the
holders of Series A Preferred Stock) is eligible to receive options under the
Directors' Plan. An aggregate of 100,000 shares of Common Stock are reserved for
issuance to participants under the Directors' Plan. The option exercise price
will not be less than the fair market value of a share of Common Stock on the
date the option is granted. The period for exercising an option begins six
months after the option is granted and generally ends ten years from the date
the option is granted. Options granted under the Directors' Plan vest
immediately. All options to be granted under the Directors' Plan will be
non-incentive stock options. As of December 31, 1997, 20,000 options have been
granted.
Pro forma information regarding net income and earnings (loss) per share
is required by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensations and has been determined as if the Company 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 1997, 1996 and 1995: risk-free interest rate of 5.8 to 6.5
percent; dividend yield of 0 percent; expected lives of 7 to 10 years; and
volatility of 36.8 percent.
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 the Company'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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
December 31,
(in thousands, except per share data) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss):
As reported $4,001 $(4,760) $(10,137)
Pro forma $4,019 $(9,551) $(10,377)
Diluted Net Income (Loss)
per share:
As reported $ 0.20 $ (0.51) --
Pro forma $ 0.21 $ (0.92) --
</TABLE>
The Board of Directors has adopted a Stockholders Rights Agreement
("Rights Agreement") effective April 25, 1996. All shares of Common Stock issued
by the Company 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 the Company.
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 (i) 10 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 (ii) 10
business days (or such later date as the Board of Directors
Financials 34
<PAGE> 19
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
outstanding at the time of completion of the Company's Initial 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 (i) the Company 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 (ii) 50% or more of the Company'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
the Company 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.
9. NET INCOME (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128 Earnings
Per Share (Statement 128). Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all applicable periods
have been presented, and where appropriate, restated to conform to the Statement
128 requirements. Pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, as amended by No. 98, options to
purchase Common Stock issued at prices below the initial public offering price
during the twelve months immediately preceding filing of the registration
statement relating to the Initial Offering, have been included in the
computation of net income (loss) per share as if they were outstanding through
the date of the Initial Offering (using the treasury method assuming repurchase
of common stock at the estimated Initial Offering price). Other shares issuable
upon the exercise of stock options or conversion of redeemable convertible
preferred stock or convertible subordinated notes have been excluded from the
computation because the effect of their inclusion would be anti-dilutive.
Subsequent to the Company's Initial Offering, options are included under the
treasury stock method to the extent they are dilutive.
The following table summarizes the computation of basic and diluted net
income (loss) per share amounts presented in the accompanying consolidated
statements of operations:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Numerator
Net income (loss) $ 4,001 $ (4,760)
Dividend preference attributable
to Series A Preferred Stock -- (858)
Dividends attributable to Series B
Exchangeable Preferred Stock -- (348)
- ----------------------------------------------------------------------------
Numerator for basic and diluted
net income (loss) per share $ 4,001 $ (5,966)
============================================================================
Denominator
Denominator for basic net income
(loss) per common share-
weighted average shares 18,722 11,474
Effect of dilutive securities:
Employee stock options issued
within one year of Initial Offering -- 215
Employee stock options 1,138 --
Warrants 23 --
- ----------------------------------------------------------------------------
Denominator for diluted net
income (loss) per common
share-weighted average shares
plus assumed conversions 19,883 11,689
============================================================================
Basic net income (loss) per
common share $ 0.21 $ (0.52)
============================================================================
Diluted net income (loss) per
common share $ 0.20 $ (0.51)
============================================================================
</TABLE>
10. ACQUISITIONS
On February 5, 1997, the Company acquired a 120-unit assisted and independent
living facility in Valencia, California and on August 19, 1997, the Company
purchased a 76-unit assisted living facility in Napa, California. The Company
had initially leased the Napa facility on April 1, 1997. On December 24, 1997,
the Company acquired a 30-unit assisted and independent living facility in
Dunwoody, Georgia and on December 31, 1997, the Company purchased a 29-unit
assisted living facility located in Weston, Massachusetts. The combined
acquisition price for all four facilities totaled $27.1 million.
On May 1, 1997, the Company purchased the minority 50% interest held by an
unrelated third party in a facility located in Raleigh, North Carolina. The
purchase price of approximately $1.0 million was based on a buy-out schedule
specified in the operating agreement of the limited liability company that holds
title to the property. On October 1, 1997, the Company purchased each of the
remaining 49% interests held by an unrelated third party in facilities located
in Annapolis and Pikesville, Maryland for a purchase price of $3.1 million and
$2.9 million, respectively. Each of these facilities is currently 100% owned by
the Company.
The pro forma unaudited results of operation assuming consummation of each
purchase as of January 1, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share data) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $97,190 $ 58,931
Net income (loss) $ 4,117 $ (3,587)
Diluted net income (loss)
per common share $ 0.21 $ (0.41)
</TABLE>
Financials 35
<PAGE> 20
11. COMMITMENTS
The Company leases its corporate office, regional offices, and warehouse space
under various leases. The corporate lease has a term of five years. It has an
option to terminate after twelve months from the most recent expansion
commencement, or January 1, 1997. The initial annual lease payments amount to
$258,000, and the base rent is subject to annual increases based on the Consumer
Price Index ("CPI") from a minimum of 2% to a maximum cap of 3% per year. The
warehouse lease has a term of seven years. The initial annual base rent payments
amount to $148,000, subject to annual increases of 3%. Various other leases
expire during 1998 and 1999.
The Company has also entered into operating leases relating to five newly
developed facilities. Three facilities commenced operations during 1997 and the
remaining two are currently under development. The operating lease terms are
generally for fifteen years, with extension options. The Company has also
entered into three ground leases related to two facilities in operation and one
under construction. Lease terms range from seventy-five to ninety-nine years and
are subject to annual increases based on the Consumer Price Index.
Future minimum lease payments under office, equipment, ground and other
operating leases as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------
<S> <C>
1998 $ 4,420
1999 5,731
2000 5,671
2001 5,275
2002 4,926
- ---------------------------------------------------------------------------
$26,023
===========================================================================
</TABLE>
The Company has entered into contracts to purchase and lease additional
sites. Total contracted purchase price of these sites amounts to $42.6 million.
The Company is pursuing additional development opportunities and also plans to
acquire additional facilities as market conditions warrant.
12. 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. Prior to formation of the
Company on January 4, 1995, (see Note 7) Sunrise Entities were held in
partnerships, limited liability companies, and subchapter S corporations, all of
which passed through tax liabilities and benefits to the owners. The transfer of
assets at the formation of the Company was taxable, in part to the owners.
Accordingly, the tax basis of a majority of the property and equipment of the
Company exceeds its respective book basis for financial reporting purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities recognized are
presented below:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Property and equipment $ 8,636 $ 6,409
Operating loss carryforward 7,921 6,452
Deferred revenue 379 1,485
Other 1,988 1,654
- ----------------------------------------------------------------------------
Total gross deferred tax assets 18,924 16,000
Less valuation allowance (18,334) (15,236)
Deferred tax liabilities (590) (764)
- ----------------------------------------------------------------------------
Net deferred tax amount $ -- $ --
============================================================================
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $19.2 million which expire from 2010
through 2012. A valuation allowance is provided when it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
Company is in a cumulative pretax loss for the latest three years for financial
reporting purposes. Recognition of deferred tax assets will require generation
of future taxable income. There can be no assurance that the Company will
generate any earnings or any specific level of earnings in future years.
Therefore, the Company established a valuation allowance on deferred tax assets
of approximately $18.3 million as of December 31, 1997.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ --
State -- -- --
- ----------------------------------------------------------------------------
Total current $ -- $ -- $ --
- ----------------------------------------------------------------------------
Deferred:
Federal $(2,553) $(3,348) $(3,524)
State (545) (722) (674)
Increase in valuation allowance 3,098 4,070 4,198
- ----------------------------------------------------------------------------
Total deferred $ -- $ -- $ --
============================================================================
</TABLE>
The effective tax rate on income before income taxes varies from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34% (34)% (34)%
State taxes 7 (7) (6)
Tax exempt interest (7) -- --
Stock options (96) -- --
Other 5 -- --
Valuation allowance 57 41 40
- ---------------------------------------------------------------------------
0% 0% 0%
===========================================================================
</TABLE>
Financials 36
<PAGE> 21
13. RELATED-PARTY TRANSACTIONS
SUNRISE FOUNDATION, INC.
The Company's Founders operate a school and a day care center through a
not-for-profit organization, Sunrise Foundation, Inc. ("SFI"). SFI reimbursed
the Company monthly for use of office facilities and support services in the
amounts of $68,000 in 1997 and $60,000 for 1996 and 1995. Such amounts are
included in operating revenue.
GROUND LEASE
The Company has a ninety-nine year ground lease with one of the Company's
Founders. The ground lease expires in May 2085. The basic monthly rent is
adjusted annually based on the CPI. Rent expense under this lease was $262,000,
$262,000 and $255,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company subleases one-half of this ground lease to SFI. The
sublease expires in May 2085 and requires payments equal to 50% of all payments
made by the Company under the ground lease. Sublease rental income was $131,000,
$132,000 and $127,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Lease expense is recorded net of the sublease income.
OTHER
The Founders lease certain real property located in Fairfax County, Virginia for
use as a residence pursuant to a ninety-nine year ground lease with the Company
dated June 7, 1994. The rent is $1.00 per month. This property is part of a
parcel, which includes a facility owned and operated by the Company.
A director of the Company made a capital contribution of $500,000 in
exchange for a 30% membership interest in a limited liability company which
operates one of the Company's facilities. On May 28, 1996, the Company purchased
the 30% interest in exchange for 52,500 shares of Common Stock. Distributions
made by the Company to the director in 1996 and 1995 aggregated $41,000 and
$40,000, respectively.
14. PROFIT-SHARING PLAN
The Company has a profit-sharing plan (the "Plan") under Internal Revenue Code
Section 401(k). All employees of the Company are covered by the Plan. The Plan
contains three elements--employee salary contributions, regular matching
employer contributions, and special discretionary employer contributions. All
full-time employees who have twelve months of employment are eligible to
participate in the Plan. Deferred salary contributions are made through pre-tax
salary deferrals of between 1% and 16%.
The Plan provides that the employer will contribute $0.25 for every dollar
the employee contributes, up to 7% of the employee's annual compensation. On
April 1, 1997, the Company amended the regular matching contributions to
discretionary matching contributions. Matching contributions made by the Company
totaled $121,000, $88,000 and $80,000 during 1997, 1996 and 1995, respectively.
No discretionary profit-sharing contributions were made during these same
periods.
15. 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 the Company 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
investment and notes receivable are discussed in Note 4.
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 $260.8 million
(excluding a $1.4 million loan discount) has an estimated aggregate fair value
of $289.7 million at December 31, 1997. Estimated fair value of fixed rate debt
is based on interest rates currently available to the Company for issuance of
debt with similar terms and remaining maturities. The estimated fair value of
the Company's variable rate debt is estimated to be approximately equal to its
carrying value of $81.6 million at December 31, 1997. The interest rate swaps
related to floating rate debt (see Note 6) has an estimated fair value of
$368,000 at December 31, 1997.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1997. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since December 31, 1997 and current estimates of
fair value may differ from the amounts presented herein.
16. UNUSUAL CHARGE
To avoid a possible change in the Company's ability to continue to manage two
facilities resulting from the reduction in the ownership interest in the Company
of Paul J. Klaassen, the Company's Chairman of the Board, Chief Executive
Officer and co-founder, and Teresa M. Klaassen, the Company's Executive Vice
President and co-founder following the Initial Offering, the Company made a
$1,000,000 cash payment to the third-party limited partner in these two
facilities in June 1996. The payment was made in exchange for the transfer to
the Company by the third-party of additional 1% partnership interests in each
facility with a total book value of $18,700 and the elimination of any
requirement for the Founders to maintain a specified ownership interest in the
Company.
17. QUARTERLY RESULT OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the fiscal
quarters since the consummation of the Initial Offering on June 5, 1996:
<TABLE>
<CAPTION>
Quarter Ended 1997
- ----------------------------------------------------------------------------
(in thousands, except
per share amounts) March 31, June 30, Sept. 30, Dec. 31,
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $16,544 $18,655 $24,264 $30,421
Net income $ 134 $ 376 $ 1,318 $ 2,173
Diluted net income
per share $ 0.01 $ 0.02 $ 0.07 $ 0.11
Quarter Ended 1996
- ----------------------------------------------------------------------------
(in thousands, except
per share amounts) June 30, Sept. 30, Dec. 31,
- ----------------------------------------------------------------------------
Operating revenues $11,262 $11,567 $14,778
Net loss $(2,379) $ (490) $ (182)
Diluted net loss
per share $ (0.33) $ (0.03) $ (.01)
</TABLE>
Financials 37
<PAGE> 22
Sunrise Assisted Living
Communities
[MAP]
- - 66 communities
currently operated
- - 16 communities
under construction
- - 35 other communities in
various stages of development
(1) Assisted Living Residence
(2) An Independent & Assisted Living Residence
(3) Opening in 1998
(4) Managed Facility
(5) Opening in 1999
CALIFORNIA
Sunrise at the Chanate (1)
3250 Chanate Road
Santa Rosa, California 95404
707.575.7503
Sunrise of Danville (1)(3)
1027 Diablo Road
Danville, California 94526
510.831.1740
Sunrise of Fresno (1)
7444 N. Cedar Avenue
Fresno, California 93720
209.325.8170
Sunrise of Mission Viejo (1)(3)
26151 Country Club Drive
Mission Viejo, California 92691
714.582.2010
Sunrise of Napa (1)
3700 Valle Verde Drive
Napa, California 94558
707.255.1100
Sunrise of Petaluma (1)
815 Wodd Sorrel Drive
Petaluma, California 91355
707.776.2885
Sunrise at Sterling Canyon (2)
25815 McBean Parkway
Valencia, California 91355
805.253.3551
Sunrise of Walnut Creek (1)(3)
2175 Ygnacio Valley Road
Walnut Creek, California 94598
510.932.3500
COLORADO
Sunrise at Orchard (1)
5975 South Holly Street
Littleton, Colorado 80121
303.773.1609
Sunrise at Pinehurst (1)(3)
5195 West Quincy Avenue
Denver, Colorado 80236
303.984.1431
FLORIDA
Sunrise Atrium of Boca Raton (1)
1080 Northwest 15th Street
Boca Raton, Florida 33486
407.750.7555
Sunrise at North Shore (2)
A Senior Living Community
939 Beach Drive N.E.
St. Petersburg, Florida 33701
813.823.1571
GEORGIA
Sunrise of Augusta (1)
366 Boy Scout Road
Augusta, Georgia 30909
706.738.6003
Sunrise at Brookside Glen (1)
400 Bradley
Columbus, Georgia 31909
706.322.3040
Sunrise of Decatur1
920 Clairemont Avenue
Decatur, Georgia 30030
404.377.6111
Sunrise of Dunwoody (1)
4821 N. Peachtree Road
Dunwoody, Georgia 30338
770.452.9558
Sunrise at East Cobb (1)
1551 Johnson Ferry Road
Marietta, Georgia 30062
770.509.0919
Huntcliff Summit (2)
A Senior Living Facility
8592 Roswell Road
Atlanta, Georgia 30350
770.552.3000
Sunrise at Huntcliff Summitt (1)(3)
8480 Roswell Road
Atlanta, Georgia 30350
770.649.1499
Sunrise at Ivey Ridge (1)(3)
2950 Old Alabama Road
Alpharetta, Georgia 30022
770.475.6622
ILLINOIS
Sunrise of Naperville (1)
960 East Chicago Avenue
Naperville, Illinois 60540
630.579.1400
Sunrise of Buffalo Grove (1)
180 West Half Day Road
Buffalo Grove, Illinois 60089
847.478.8484
MARYLAND
Sunrise of Annapolis (1)
800 Bestgate Road
Annapolis, Maryland 21401
410.266.1400
Sunrise of Columbia (1)
6500 Freetown Road
Columbia, Maryland 21094
410.531.1444
Sunrise of Frederick (1)
990 Waterford Drive
Frederick, Maryland 21702
301.663.9500
Sunrise at Montgomery Village (2)
19310 Club House Road
Gaithersburg, Maryland 20879
301.921.0445
Sunrise of Pikesville (1)
3800 Old Court Road
Pikesville, Maryland 21208
410.602.0033
Sunrise of Rockville (1)
8 Baltimore Road
Rockville, Maryland 21208
301.309.0500
Sunrise of Severna Park (2)
43 West McKinsey Road
Severna Park, Maryland 22146
Assisted Living
410.544.7200
Independent Living
410.544.7200 x122
Sunrise of Towson (1)
7925 York Road
Towson, Maryland 21264
410.296.8900
MASSACHUSETTS
Sunrise of Cohasset (1)(3)
125 King Street
Cohasset, Massachusetts 02025
781.383.6300
Sunrise at Gardner Park (1)
73 Margin Street
Peabody, Massachusetts 01960
508.532.3200
John Bertram House (1)
29 Washington Street
Salem, Massachusetts 01970
508.744.1002
John Bertram House of Swampscott (1)
565 Humphrey Street
Swampscott, Massachusetts 01907
781.595.1991
Sunrise Of Norwood (1)
86 Saunders Road
Norwood, Massachusetts 02062
617.762.1333
Ruth's House (1)(3)
29 Longmeadow Drive
Longmeadow, Massachusetts 01106
413.567.6212
Springhouse Inc. (2)
A Non-profit Continuing Care
Retirement Community
44 Allandale Street
Boston, Massachusetts 02130
617.522.0043
Sunrise of Wayland (1)
285 Commonwealth Road
Wayland, Massachusetts 01778
508.652.6300
Sunrise of Weston (1)
135 N. Avenue
Weston, Massachusetts 02193
781.893.2936
Financials 38
<PAGE> 23
[MAP]
MICHIGAN
Sunrise of Rochester (2)
University Drive
Rochester, Michigan 48307
NEW JERSEY
Sunrise of Fairfield (1)(3)
115 Greenbrook Blvd.
Caldwell, New Jersey 07006
973.228.7890
Sunrise of Morris Plains (1)
209 Littleton Road
Morris Plains, New Jersey 07950
973.538.7878
Sunrise of Mount Laurel (1)
400 Fernbrooke Lane
Mount Laurel, New Jersey 08054
609.222.1213
Sunrise of Old Tappan (1)
195 Old Tappan Road
Old Tappan, New Jersey 07675
201.750.1110
Sunrise of Paramus (1)(3)
571 Paramus Road
Paramus, New Jersey 06745
201.493.9889
Sunrise of Wayne (1)
184 Berdan Avenue
Wayne, New Jersey 07470
973.628.4900
Sunrise of Westfield (1)
240 Springfield Avenue
Westfield, New Jersey 07090
908.317.3030
Sunrise at Woodbury Lake (1)
752 Cooper Street
Woodbury, New Jersey 08096
609.848.8777
NEW YORK
Sunrise of Glen Cove (1)
39 Forest Avenue
Glen Cove, New York 11542
516.656.0575
Sunrise of Smithtown (1)(5)
30 Hauppauge, Route 111
Smithtown, New York 11787
NORTH CAROLINA
Sunrise of Raleigh (1)
4801 Edwards Mill Road
Raleigh, North Carolina 27612
919.787.0777
PENNSYLVANIA
Sunrise of Abington (2)
1801 Susquehanna Road
Abington, Pennsylvania 19001
Assisted Living
215.576.8899
Independent Living
215.576.8899 x101
Sunrise of Blue Bell (1)
795 Penllyn Pike
Blue Bell, Pennsylvania 19422
215.619.2777
Sunrise at Granite Run (1)
247 N. Middletown Road
Media, Pennsylvania 19063
610.566.3535
Sunrise of Haverford (1)
217 West Montgomery Avenue
Haverford, Pennsylvania 19041
610.896.9777
Sunrise of Lafayette Hill (1)(3)
429 Ridge Pike
Lafayette Hill, Pa 19444
610.940.3888
Mill Run (1)(4)
1201 Wilson Avenue
Bristol, Pennsylvania 19007
215.788.3310
Sunrise of Paoli (1)(3)
324 Lancaster Avenue
Malvern, Pennsylvania 19355
610.251.9994
SOUTH CAROLINA
Sunrise of Greenville (1)
1101 Garlington Road
Greenville, South Carolina 29615
864.627.8700
VIRGINIA
Sunrise of Alexandria (1)
3520 Duke Street
Alexandria, Virginia 22304
703.212.9192
Sunrise of Arlington (1)
2000 North Glebe Road
Arlington, Virginia 22207
703.524.5300
Sunrise at Bluemont Park (2)
Arlington, Virginia 22205
The James 703.536.1050
5920 Wilson Blvd.
The Shenandoah 703.536.1060
5910 Wilson Blvd.
The Potomac 703.536.1070
5900 Wilson Blvd.
Sunrise at Countryside (2)
45800 Jona Drive
Sterling, Virginia 20165
703.430.0681
Sunrise of Fairfax (1)
9207 Arlington Blvd.
Fairfax, Virginia 22031
703.691.0046
Sunrise of Falls Church (1)
330 North Washington Street
Falls Church, Virginia 22046
703.534.2700
Sunrise of Gunston (1)
7665 Lorton Road
Lorton, Virginia 22079
703.550.2400
Sunrise at Hunter Mill (1)
2863 Hunter Mill Road
Oakton, Virginia 22124
703.255.1006
Sunrise of Springfield (1)
6541 Franconia Road
Springfield, Virginia 22150
703.922.6800
Sunrise of Leesburg (1)
246 West Market Street
Leesburg, Virginia 20175
703.777.1971
Sunrise of Oakton (1)
10322 Blake Lane
Oakton, Virginia 22124
703.255.2050
Sunrise of Warrenton (1)
194 East Lee Street
Warrenton, Virginia 22186
540.349.9001
The Lincolnian (2)
4710 North Chamblis Street
Alexandria, Virginia 22312
703.914.0330
WASHINGTON
Sunrise of Bellevue (1)(3)
1 60th Street
Bellevue, Washington 98008
425.401.5152
Sunrise of Mercer Island (1)
2959 76th Avenue SE
Mercer Island, Washington 98040
206.232.6565
Sunrise of Queen Anne
An Independent Living Residence
2450 Aurora Avenue
Seattle, Washington 98109
206.282.5777
Financials 39
<PAGE> 24
BOARD OF DIRECTORS
PAUL J. KLAASSEN
Mr. Klaassen, 40, is chairman of the board and chief
executive officer.
TERESA M. KLAASSEN
Ms. Klaassen, 42, is executive vice president and secretary.
DAVID W. FAEDER
Mr. Faeder, 41, is president and chief financial officer.
RONALD V. APRAHAMIAN
Mr. Aprahamian, 51, is an independent investor and business consultant and a
director of Metrocall, Inc., a paging company. He was chairman of the board and
chief executive officer of the Compucare Company, a Reston, Va.-based health
care information technology company.
DAVID G. BRADLEY
Mr. Bradley, 45, is chairman and owner of the Advisory Board Company, a
750-person think tank and for-profit membership association in Washington, D.C.,
and owner of the National Journal, a Washington, D.C.-based public policy
magazine. He serves on the boards of Georgetown University, MD Anderson Cancer
Center, City of Hope National Medical Center and The Wolf Trap Foundation. Mr.
Bradley previously worked for the White House, the White House Conference on
Children and Youth and the Wall Street firm of Cravath, Swaine & Moore.
THOMAS J. DONOHUE
Mr. Donohue, 59, is president and chief executive officer of the U.S. Chamber
of Commerce.From 1984 to September 1997, he was president and chief executive
officer of the American Trucking Association, the national trade organization
of the trucking industry. He is a director of Marymount University; IPAC, an
international consulting firm; Newmyer Associates, a Washington, D.C. public
policy firm; and the Hudson Institute, a public policy think tank.
RICHARD A. DOPPELT
Mr. Doppelt, 42, is a director of Allstate Private Equity, a division of
Allstate Insurance Company, Factory Card Outlet and several private companies.
He was previously a corporate attorney with the law firm of Morrison & Foerster.
SCOTT F. MEADOW
Mr. Meadow, 44, is a general partner of Sprout Group, the venture capital
affiliate of Donaldson, Lufkin, Jenrette, an investment banking firm. He
previously served as a general partner with the venture capital firms of
Frontenac Company and William Blair & Company.
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Sunrise Assisted Living, Inc.
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
703.273.7500
TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina
1525 West W.T. Harris Boulevard 363
Charlotte, NC 28288
ANNUAL MEETING DATE
The Company will hold its annual meeting
of stockholders on Monday, April 27, 1998
at 9:00 a.m. at:
Ritz-Carlton, Tysons Corner
1700 Tysons Boulevard
McLean, Virginia 22102
703.506.4300
FORM 10-K AND ANNUAL REPORTS AVAILABLE
Copies of the Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, are available at no charge by calling (703) 273-7500 or
writing:
Sunrise Assisted Living, Inc.
Investor Relations
9401 Lee Highway, Suite 300
Fairfax, Virginia 22031
STOCK INFORMATION
The Company's common stock is listed and traded publicly on the Nasdaq National
Market under the symbol SNRZ. Trading of the common stock commenced May 31,
1996. As of March 10, 1998, there were 102 stockholders of record. No cash
dividends have been paid in the past, and none are expected in the foreseeable
future.
QUARTERLY MARKET PRICE RANGE
OF COMMON STOCK
<TABLE>
<CAPTION>
Quarter Ended High Low
- -------------------------------------------------------
<S> <C> <C>
June 30, 1996 $25.75 $23.00
September 30, 1996 30.00 21.50
December 31, 1996 28.75 23.00
Quarter Ended High Low
- -------------------------------------------------------
March 31, 1997 $30.00 $25.75
June 30, 1997 35.63 24.00
September 30, 1997 39.50 30.00
December 31, 1997 43.25 34.75
</TABLE>
INTERNET WEB SITE
To learn more about Sunrise Assisted Living, visit the Company's site on the
World Wide Web. The Sunrise address is:
http://www.Sunrise-al.com
Financials 40
<PAGE> 25
[PHOTO]
The depth, experience and commitment of the Sunrise management
team, pictured above, helped the Company achieve record results in 1997.
OFFICERS
PAUL J. KLAASSEN, Founder, Chairman of the Board and Chief Executive Officer
Mr. Klaassen, 40, was founding chairman of the Assisted Living Federation of
America (ALFA), the largest assisted living industry trade association. He is a
director of Acsys, Inc., an accounting and finance staffing firm; the Advisory
Board Company, a think tank and for-profit membership association in Washington,
D.C.; the U.S. Chamber of Commerce; and The National Chamber Foundation, an
independent, nonprofit, public policy research organization affiliated with the
U.S. Chamber of Commerce. He is also on the Board of Trustees of Marymount
University and The Hudson Institute, a public policy think tank, and the
Advisory Committee for the Department of Health Care Policy at Harvard
University Medical School. Mr. Klaassen also serves on the editorial advisory
boards of several long-term care publications.
TERESA M. KLAASSEN, Founder, Executive Vice President and Secretary
Ms. Klaassen, 42, was a founding member of ALFA. She is a member of the Board of
Trustees of the University of Maryland School of Nursing and a member of the
Washington, D.C.-based Women's Forum, and the Committee of 200.
DAVID W. FAEDER, President and Chief Financial Officer
Mr. Faeder, 41, was a vice president of CS First Boston Corporation from 1991 to
1993, serving in both the investment banking and fixed income departments. He
also was a vice president in the investment banking division of Morgan Stanley.
TIFFANY L. TOMASSO, Executive Vice President of Operations
Ms. Tomasso, 35, was vice president of operations for assisted living and
healthcare at Presbyterian Homes of New Jersey. She previously served in a
variety of long-term care administrator positions with facilities owned by HBA
Management, Inc.
THOMAS B. NEWELL, Executive Vice President, General Counsel and President
of Sunrise Development, Inc.
Mr. Newell, 40, was a partner with the law firm of Watt, Tieder & Hoffar from
1989 to January 1996. His practice concentrated on all aspects of commercial and
real estate development transactions. He represented Sunrise Assisted Living in
this capacity for more than five years.
BRIAN C. SWINTON, Executive Vice President
Mr. Swinton, 53, was a senior vice president of Forum Group, Inc., a developer
and operator of retirement and assisted living communities from 1994 to April
1996. He served as vice president of sales, marketing and product development in
the senior living division of Marriott International from 1986 to 1994.
OTHER SENIOR MANAGEMENT OF COMPANY OR SUBSIDIARIES
WILLIAM F. CARNEY
Senior Vice President of
Operations/Northeast Region
MARTHA L. CHILD
President, Martha Child Interiors, Inc.
HARLEY D. COOK
Senior Vice President of Development
KATHLEEN M. DEZIO
Senior Vice President of Corporate
Communications and Public Affairs
DANIEL B. GORHAM
Senior Vice President of Acquisitions
LARRY E. HULSE
Senior Vice President and
Chief Accounting Officer
JAMES S. POPE
Senior Vice President of Finance
RICHARD W. SLOSSON
Senior Vice President of Construction
Design: Financial Communications, Inc. Bethesda, MD www.fincominc.com
Photography: Craig Thompson, Jerry Staley, David Galen, Jonathan Hillyer, Nicole
Bengiveno, Michael Powell and Don Rank.
(C)Sunrise Assisted Living, Inc., 1998
<PAGE> 1
EXHIBIT 21
Sunrise Assisted Living, Inc.
List of Subsidiaries
<TABLE>
<CAPTION>
Direct or Indirect Jurisdiction
Subsidiaries Ownership of Incorporation
- --------------- ------------------- --------------------
<S> <C> <C>
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 Assisted Limited Partnership 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 IV 100% New Jersey
Sunrise Assisted Living Limited Partnership V 100% New Jersey
Sunrise Assisted Living Limited Partnership VI 100% New Jersey
Sunrise Assisted Living Limited Partnership VII 100% Maryland
Sunrise Assisted Living Limited Partnership VIII 100% California
Sunrise Assisted Living of Abington, L.P. 100% Pennsylvania
Sunrise Assisted Living of Granite Run, L.P. 100% Pennsylvania
Sunrise Assisted Living of Franconia, L.P. 100% Virginia
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
Sunrise of Westfield Assisted Living, L.P. 100% Maryland
NAH/ Sunrise Severna Park, LLC 50% Maryland
</TABLE>
-28-
<PAGE> 2
<TABLE>
<S> <C>
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
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
Sunrise Charlotte Assisted Living Limited Partnership 100% North Carolina
AL Investments, L.L.C. 9% Virginia
Sunrise Rochester Assisted Living Limited Partnership 100% Illinois
Sunrise Smithtown Assisted Living Limited Partnership 100% New York
Sunrise Mission Viejo Assisted Living Limited Partnership 100% California
Sunrise Paramus Assisted Living Limited Partnership 100% New Jersey
</TABLE>
-29-
<PAGE> 3
<TABLE>
<S> <C>
Sunrise Naperville Assisted Living, L.P. 100% Illinois
Sunrise Arlington Heights Assisted Living Limited Partnership 100% Illinois
</TABLE>
-30-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sunrise Assisted Living, Inc. of our report dated March 4, 1998, included in
the 1997 Annual Report to Stockholders of Sunrise Assisted Living, Inc.
We also 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 Sunrise Assisted Living, Inc. and Dave 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); and the Registration Statement pertaining to the $150 million of
5 1/2% Convertible Subordinated Notes due 2002 (Form S-3, No. 333-34365),
respectively, of our report dated March 4, 1998 with respect to the
consolidated financial statements of Sunrise Assisted Living, Inc. incorporated
by reference in this Annual Report (Form 10-K) for the year ended December 31,
1997.
/s/ Ernst & Young LLP
Washington, D.C.
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements as of and for the year ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 82,643
<SECURITIES> 0
<RECEIVABLES> 7,647
<ALLOWANCES> 1,798
<INVENTORY> 0
<CURRENT-ASSETS> 94,573
<PP&E> 450,067
<DEPRECIATION> 26,452
<TOTAL-ASSETS> 556,260
<CURRENT-LIABILITIES> 24,233
<BONDS> 335,485
0
0
<COMMON> 190
<OTHER-SE> 195,150
<TOTAL-LIABILITY-AND-EQUITY> 556,260
<SALES> 0
<TOTAL-REVENUES> 89,884
<CGS> 0
<TOTAL-COSTS> 81,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 871
<INTEREST-EXPENSE> 11,475
<INCOME-PRETAX> 4,001
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,001
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited consolidated financial statements, as restated, as of and
for the nine months ended September 30, 1997, as of and for the six months ended
June 30, 1997, and as of and for the three months ended March 31, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 112,582 150,231 80,664
<SECURITIES> 0 0 5,058
<RECEIVABLES> 5,020 3,448 2,273
<ALLOWANCES> 1,300 1,169 1,043
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 118,710 156,070 88,937
<PP&E> 377,037 323,204 282,147
<DEPRECIATION> 23,380 21,385 19,902
<TOTAL-ASSETS> 493,860 477,197 366,037
<CURRENT-LIABILITIES> 14,215 18,449 11,362
<BONDS> 288,416 270,032 166,418
0 0 0
0 0 0
<COMMON> 188 187 187
<OTHER-SE> 190,389 187,782 186,841
<TOTAL-LIABILITY-AND-EQUITY> 493,860 447,197 366,037
<SALES> 0 0 0
<TOTAL-REVENUES> 59,463 35,199 16,544
<CGS> 0 0 0
<TOTAL-COSTS> 55,467 33,437 16,260
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 373 242 116
<INTEREST-EXPENSE> 7,346 4,266 1,601
<INCOME-PRETAX> 1,828 510 134
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 1,828 510 134
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,828 510 134
<EPS-PRIMARY> 0.10 0.03 0.01
<EPS-DILUTED> 0.09 0.03 0.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements, as restated, as of and for the year
ended December 31, 1996 and the Company's unaudited financial statements, as
restated, as of and for the nine months ended September 30, 1996, and as of and
for the six months ended June 30, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996
<CASH> 101,811 26,527 22,713
<SECURITIES> 8,322 32,599 50,000
<RECEIVABLES> 2,449 3,003 2,074
<ALLOWANCES> 927 604 502
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 114,049 64,044 76,012
<PP&E> 235,320 173,155 154,244
<DEPRECIATION> 18,609 17,626 16,773
<TOTAL-ASSETS> 342,839 230,803 223,967
<CURRENT-LIABILITIES> 11,227 8,368 9,651
<BONDS> 143,318 127,302 118,696
0 0 0
0 0 0
<COMMON> 185 143 143
<OTHER-SE> 185,639 92,248 92,741
<TOTAL-LIABILITY-AND-EQUITY> 342,839 230,803 223,967
<SALES> 0 0 0
<TOTAL-REVENUES> 47,345 32,567 21,000
<CGS> 0 0 0
<TOTAL-COSTS> 44,914 30,733 19,474
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 727 369 267
<INTEREST-EXPENSE> 9,722 7,537 5,422
<INCOME-PRETAX> (4,760) (4,578) (4,088)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (4,760) (4,578) (4,088)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (4,760) (4,578) (4,088)
<EPS-PRIMARY> (0.41) (0.49) (0.57)
<EPS-DILUTED> (0.51) (0.59) (0.69)
</TABLE>
