<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period Ended June 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _____________ to _____________
COMMISSION FILE NUMBER: 0-20765
SUNRISE ASSISTED LIVING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1746596
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
9401 LEE HIGHWAY, SUITE 300
FAIRFAX, VIRGINIA 22031
(Address of principal executive offices)
(703) 273-7500
(Registrant's telephone number, including area code)
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 periods 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
----- -----
As of July 28, 1999, there were 21,933,794 shares of the Registrant's
Common Stock outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
SUNRISE ASSISTED LIVING, INC.
FORM 10-Q
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Operations for the three
months ended June 30, 1999 and 1998 and six months
ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk 30
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 33
</TABLE>
2
<PAGE> 3
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 71,439 $ 54,197
Accounts receivable, net 9,355 17,818
Notes receivable 662 754
Deferred income taxes 462 3,978
Assets held for sale 48,731 -
Prepaid expenses and other current assets 41,707 15,921
----------- ------------
Total current assets 172,356 92,668
Property and equipment, net 680,346 512,708
Notes receivable 49,138 34,919
Management contracts and leaseholds 34,828 -
Costs in excess of assets acquired 29,169 -
Investments in unconsolidated assisted living facilities 17,244 -
Investments 5,758 28,329
Other assets 15,058 14,787
----------- ------------
Total assets $ 1,003,897 $ 683,411
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,190 $ 3,556
Accrued expenses and other current liabilities 23,340 14,049
Deferred revenue 5,949 3,722
Current maturities of long-term debt 19,664 1,768
----------- ------------
Total current liabilities 53,143 23,095
Long-term debt, less current maturities 582,095 426,558
Investments in unconsolidated assisted living facilities - 1,003
Deferred income taxes 35,471 -
Other long-term liabilities 9,666 3,194
----------- ------------
Total liabilities 680,375 453,850
Minority interests 3,664 1,906
Preferred stock, $0.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.01 par value, 60,000,000 shares authorized,
21,927,851 and 19,446,427 shares issued and outstanding
in 1999 and 1998 219 194
Additional paid-in capital 296,319 216,783
Retained earnings 23,320 10,678
----------- ------------
Total stockholders' equity 319,858 227,655
----------- ------------
Total liabilities and stockholders' equity $ 1,003,897 $ 683,411
=========== ============
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE> 4
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenue:
Resident fees $ 52,357 $ 36,474 $ 96,675 $ 67,785
Management services income 6,108 3,980 11,066 7,092
Facility contract services 1,229 - 2,364 -
Realized gain on assisted living facilities 1,830 - 2,797 489
-------- -------- --------- ---------
Total operating revenue 61,524 40,454 112,902 75,366
-------- -------- --------- ---------
Operating expenses:
Facility operating 30,746 21,624 56,152 40,283
Facility contract services 1,108 - 2,136 -
Facility development and pre-rental 1,033 1,061 2,100 2,769
General and administrative 3,951 3,006 7,602 5,958
Depreciation and amortization 6,176 5,395 12,016 9,929
Facility lease 1,698 665 2,382 1,303
Restructuring charge 4,408 - 4,408 -
-------- -------- --------- ---------
Total operating expenses 49,120 31,751 86,796 60,242
-------- -------- --------- ---------
Income from operations 12,404 8,703 26,106 15,124
Other income (expense):
Interest income 3,175 1,211 5,761 2,944
Interest expense (7,723) (5,205) (14,429) (9,901)
-------- -------- --------- ---------
Total other expense (4,548) (3,994) (8,668) (6,957)
Equity in (losses) earnings of unconsolidated
assisted living facilities (236) (4) (242) 172
Minority interests (98) (119) (289) (130)
-------- -------- --------- ---------
Income before income taxes 7,522 4,586 16,907 8,209
Provision for income taxes 2,106 - 4,265 -
-------- -------- --------- ---------
Net income $ 5,416 $ 4,586 $ 12,642 $ 8,209
======== ======== ========= =========
Net income per common share:
- ----------------------------
Basic $ 0.26 $ 0.24 $ 0.63 $ 0.43
======== ======== ========= =========
Diluted $ 0.25 $ 0.23 $ 0.60 $ 0.40
======== ======== ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
SUNRISE ASSISTED LIVING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------------
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,642 $ 8,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in (losses) earnings of unconsolidated assisted living facilities 242 (172)
Minority interests 289 130
Provision for bad debts 320 111
Provision for deferred income taxes 3,516 -
Gain on sale of interests (70) (489)
Depreciation and amortization 12,016 9,929
Amortization of discount on investments (575) (150)
Amortization of premium on investments 9 -
Amortization of financing costs and discount on long-term debt 1,078 1,131
Restructuring charge 4,408 -
Changes in assets and liabilities:
(Increase) decrease:
Accounts receivable 8,366 (2,318)
Prepaid expenses and other current assets (21,162) (6,865)
Other assets (2,907) (934)
Increase (decrease):
Accounts payable and accrued expenses (9,837) 890
Deferred revenue (1,432) (159)
Other liabilities 330 149
--------- ---------
Net cash provided by operating activities 7,233 9,462
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of assets 26,923 -
Increase in restricted cash and cash equivalents (746) (670)
Investment in property and equipment, net of cash acquired (88,118) (67,385)
Increase in investment and notes receivable (29,506) (250)
Proceeds from investments and notes receivable 7,488 -
Contributions to investments in unconsolidated assisted living facilities (541) (344)
Distributions from investment in unconsolidated assisted living facilities 39 31
--------- ---------
Net cash used in investing activities (84,461) (68,618)
--------- ---------
FINANCING ACTIVITIES
Net proceeds from exercised options 3,408 4,267
Additional borrowings under long-term debt 200,116 32,937
Repayment of long-term debt (107,788) (20,709)
Financing costs paid (2,266) -
Capital contribution from minority interest 1,000 -
--------- ---------
Net cash provided by (used in) financing activities 94,470 16,495
--------- ---------
Net increase (decrease) in cash and cash equivalents 17,242 (42,661)
Cash and cash equivalents at beginning of period 54,197 82,643
--------- ---------
Cash and cash equivalents at end of period $ 71,439 $ 39,982
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Sunrise Assisted
Living, Inc. and subsidiaries (the "Company") are unaudited and include all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the three- and six-month periods
ended June 30, 1999 and 1998 pursuant to the instructions to Form 10-Q and
Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. These consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements and the
notes thereto for the year ended December 31, 1998 included in the Company's
1998 Annual Report to Shareholders. Operating results for the three- and
six-month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1999.
Certain 1998 balances have been reclassified to conform with the 1999
presentation.
2. LONG-TERM DEBT
Long-term debt was $601.8 million at June 30, 1999 compared to $428.3
million at December 31, 1998.
At June 30, 1999 a subsidiary of the Company had a syndicated revolving
credit facility for $250.0 million. The facility is 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 secured by
cross-collateralized first mortgages on the real property and improvements and
first liens on all other assets of the subsidiary. Advances under the facility
bear interest at LIBOR plus 1.00% to LIBOR plus 1.50%. There were $126.3 million
of advances outstanding under this credit facility as of June 30, 1999. In July
1999, Sunrise expanded the credit facility to $400.0 million at an interest rate
of LIBOR plus 1.50%. The credit facility expires in July 2002.
Other subsidiaries have revolving credit facilities totaling $59.4 million.
The repayments of the amounts outstanding under these credit facilities are also
guaranteed by the Company. The credit facilities are secured by real property
and first liens on other assets. Advances under these facilities totaled $22.8
million as of June 30, 1999 and bear interest at prime or rates ranging from
LIBOR plus 1.25% to LIBOR plus 2.35%.
The Company has outstanding $150.0 million aggregate principal amount of 5
1/2% convertible subordinated notes due 2002. The convertible notes bear
interest at 5 1/2% per annum, payable semiannually on June 15 and December 15 of
each year. The conversion price is $37.1875 (equivalent to a conversion rate of
26.89 shares per $1,000 principal amount of the Notes). The convertible notes
are redeemable at the option of the Company commencing June 15, 2000,
6
<PAGE> 7
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
at specified premiums. The holders of the convertible notes may require the
Company to repurchase the convertible notes upon a change of control of the
Company.
In May 1999, the Company entered into a loan agreement for $88.0 million
secured by eight assisted living properties. The loan accrues interest at 7.14%
and matures on June 1, 2009. The proceeds were used to reduce the balance of one
of the Company's credit facilities and, as a result, convert a portion of the
Company's variable rate debt into debt with a fixed rate. At June 30, 1999,
$87.9 million was outstanding.
The Company has an $85.8 million, excluding a $0.8 million discount,
multi-property mortgage, collateralized by a blanket first mortgage on all
assets of a subsidiary of the Company, consisting of 15 facilities. The
multi-property mortgage consists of two separate debt classes: Class A in the
amount of $65.0 million bears a fixed interest rate of 8.56% and is interest
only until the maturity date of May 31, 2001; and Class B in the amount of $20.8
million bears a variable interest rate of LIBOR plus 1.75% and is payable in
installments through May 2001.
As of June 30, 1999, the Company had various other debt outstanding
totaling approximately $129.8 million with interest rates ranging from 6.5% to
10.0%.
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 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%.
3. STOCK OPTION PLANS
The Company has stock option plans providing for the grant of incentive and
non-qualified stock options to employees, directors, consultants and advisors
for a fixed number of shares with an exercise price equal to the fair market
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.
A summary of the Company's stock option activity and related information as
of June 30, 1999, is presented below:
7
<PAGE> 8
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Shares Weighted - Average
Fixed Options (000) Exercise Price
------------------------------------------------------
<S> <C> <C>
Outstanding - January 1, 1999 4,170 $24.93
Granted 337 37.95
Exercised (202) 16.87
Forfeited (138) 30.53
--------------
Outstanding - June 30, 1999 4,167 26.14
==============
Exercisable - June 30, 1999 1,421
==============
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices (000) Contractual Life Price (000) Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 to 8.00 158 6.2 $ 4.95 158 $ 4.95
8.01 to 20.00 314 6.8 17.09 280 16.74
20.01 to 25.63 2,934 8.1 24.95 862 25.01
25.64 to 44.56 761 8.6 38.85 121 37.08
----------- -----------
4,167 1,421
=========== ===========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company has entered into contracts to purchase and lease properties for
development of additional assisted living facilities. Total contracted purchase
prices of these sites amount to $90.2 million. The Company is pursuing
additional development opportunities and also plans to acquire additional
facilities as market conditions warrant.
In June 1999, Sunrise completed the sale of two assisted living facilities
located in Columbia, Maryland and Norwood, Massachusetts for an aggregate sales
price of $27.9 million in cash. The transaction will result in the realization
of up to an $11.3 million gain over a maximum of 12 quarters. During the second
quarter of 1999, Sunrise recognized $0.9 million of the gain. Previously, in
September 1998, Sunrise completed the sale of two assisted living facilities
located in Maryland for an aggregate purchase price of $29.3 million in cash
that will result in the realization of up to a $6.4 million gain over a maximum
of 15 quarters. To date, Sunrise has recognized $3.3
8
<PAGE> 9
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
million of the gain. The remaining gain is deferred, the recognition of which is
contingent upon future events. The Company will continue operating the
facilities under long-term operating agreements.
5. NET INCOME PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income per share amounts presented in the accompanying consolidated statements
of operations (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------------
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted net income
per share $ 5,416 $ 4,586 $ 12,642 $ 8,209
======= ======= ======== ========
Denominator:
Denominator for basic net income per
common share-weighted average shares 20,779 19,251 20,135 19,180
Effect of dilutive securities:
Employee stock options 800 899 932 1,105
Warrants - - - 14
------- ------- -------- --------
Denominator for diluted net income per common
share-weighted average shares plus assumed
conversions 21,579 20,150 21,067 20,299
------- ------- -------- --------
Basic net income per common share $ 0.26 $ 0.24 $ 0.63 $ 0.43
======= ======= ======== ========
Diluted net income per common share $ 0.25 $ 0.23 $ 0.60 $ 0.40
======= ======= ======== ========
</TABLE>
Shares issuable upon the conversion of convertible subordinated notes have
been excluded from the computation because the effect of their inclusion would
be anti-dilutive.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Included in prepaid expenses and other current assets are net receivables
from unconsolidated partnerships or limited liability companies of $31.5 million
and $11.8 million as of June 30, 1999 and December 31, 1998, respectively, which
relate primarily to development activities.
9
<PAGE> 10
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
7. RELATED-PARTY TRANSACTIONS
The Company has entered into a joint venture arrangement with a third party
that is providing up to $55.3 million of the equity capital to develop up to 22
projects in the United Kingdom and Canada. A director of the Company is a
general partner in the third party that is providing such equity capital.
Currently, the joint venture has two properties under development in the United
Kingdom and six properties under development in Canada. The Company provides
management and development services to the joint venture on a contract-fee basis
with rights to acquire the assets in the future and has agreed to invest up to
$2.8 million of equity capital in the joint venture. As of June 30, 1999, the
third party has provided approximately $7.1 million and the Company has provided
$0.4 million of equity capital to the joint venture.
The Company has committed to provide a revolving credit arrangement of up
to approximately $3.4 million in principal to a subsidiary of the joint venture.
Interest on advances made under the credit arrangement accrues at 12%. The
outstanding principal and unpaid accrued interest are due on November 4, 2001.
At June 30, 1999, the outstanding principal balance and unpaid accrued interest
under the credit arrangement totaled approximately $3.6 million.
8. INFORMATION ABOUT THE COMPANY'S SEGMENTS
The Company primarily derives income from two types of services: (1)
resident services and (2) management services. Resident services are further
segmented into two stages of operations consisting of stabilized facilities and
lease-up facilities. Stabilized facilities represent owned facilities opened or
operated by the Company for at least 12 months, or that have achieved occupancy
percentages of 95% or above. Lease-up facilities represent those facilities
owned by the Company that are operating in their early stages but are not
considered stabilized. Management services include fees from long-term
management contracts or development contracts for facilities owned by
unconsolidated joint ventures and other third party owners.
10
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SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Segment information is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999 1998
-----------------------------------------------
<S> <C> <C>
Operating Revenue:
Resident Services:
Stabilized $ 36,643 $ 20,362
Lease-up 15,714 16,112
Management services:
Unconsolidated assisted living facilities 7,337 3,980
Consolidated assisted living facilities 2,927 1,857
Other 1,830 -
Elimination of intersegment revenue (2,927) (1,857)
-----------------------------------------------
Total operating revenue 61,524 40,454
Operating expenses:
Resident Services:
Stabilized 21,823 13,099
Lease-up 11,850 10,382
Management services 5,057 2,632
Elimination of intersegment expenses (2,927) (1,857)
-----------------------------------------------
Total operating expenses 35,803 24,256
-----------------------------------------------
Segment operating income 25,721 16,198
Reconciliation to income before income taxes:
Facility pre-rental 384 1,083
General and administrative 651 352
Depreciation and amortization 6,176 5,395
Facility lease 1,698 665
Restructuring charge 4,408 -
-----------------------------------------------
Income from operations 12,404 8,703
Interest expense, net (4,548) (3,994)
Equity in (losses) earnings of unconsolidated
Assisted living facilities (236) (4)
Minority interests (98) (119)
-----------------------------------------------
Income before income
Taxes $ 7,522 $ 4,586
===============================================
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
-----------------------------------------------
<S> <C> <C>
Operating Revenue:
Resident Services:
Stabilized $ 69,974 $ 40,573
Lease-up 26,701 27,212
Management services:
Unconsolidated assisted living facilities 13,430 7,092
Consolidated assisted living facilities 5,279 3,480
Other 2,797 489
Elimination of intersegment revenue (5,279) (3,480)
-----------------------------------------------
Total operating revenue 112,902 75,366
Operating expenses:
Resident Services:
Stabilized 42,945 26,279
Lease-up 18,486 17,484
Management services 9,913 5,889
Elimination of intersegment expenses (5,279) (3,480)
-----------------------------------------------
Total operating expenses 66,065 46,172
-----------------------------------------------
Segment operating income 46,837 29,194
Reconciliation to income before income taxes:
Facility pre-rental 794 2001
General and administrative 1,131 837
Depreciation and amortization 12,016 9,929
Facility lease 2,382 1,303
Restructuring charge 4,408 -
-----------------------------------------------
Income from operations 26,106 15,124
Interest expense, net (8,668) (6,957)
Equity in (losses) earnings of unconsolidated
Assisted living facilities (242) 172
Minority interests (289) (130)
-----------------------------------------------
Income before income
Taxes $ 16,907 $ 8,209
===============================================
</TABLE>
11
<PAGE> 12
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Other revenues for the three and six months ended June 30, 1999 and 1998
consist of realized gains on the sale of assisted living facilities.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
Assets: 1999 1998
- -------
-----------------------------------------------------
<S> <C> <C>
Stabilized facilities $ 404,801 $ 219,794
Lease-up facilities 184,027 89,552
Assets held for sale 48,731 -
Other segment assets 78,170 8,511
Corporate 288,168 365,554
-----------------------------------------------------
Total assets $1,003,897 $ 683,411
=====================================================
</TABLE>
9. ACQUISITIONS AND DISPOSITIONS
On May 14, 1999, the Company completed its acquisition of Karrington
Health, Inc. through a tax-free, stock-for-stock transaction in which it issued
2.2 million common shares in exchange for all the outstanding shares of
Karrington and Karrington became a wholly owned subsidiary of the Company. The
total transaction was valued at $85.5 million, including merger and stock
issuance costs of $8.4 million and the fair value of assumed employee stock
options of $1.9 million. Karrington provides assisted living services to the
elderly.
The acquisition was accounted for using the purchase method of accounting
and accordingly, the results of operation of Karrington for the period from May
14, 1999 are included in the accompanying consolidated financial statements. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values, which are subject to adjustment when
additional information concerning asset and liability valuations is finalized.
The costs in excess of assets acquired will be amortized on a straight-line
basis over 38 years. The purchase of Karrington was presented in the statement
of cash flows as a non-cash transaction, net of cash acquired.
The following unaudited pro forma information presents the results of
operations of the Company for the six months ended June 30, 1999 and 1998,
respectively, as if the acquisition of Karrington had taken place as of January
1, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
<S> <C> <C>
Revenue $125,291 $ 85,148
Net income 2,009 2,789
Basic earnings per share 0.09 0.13
Diluted earnings per share 0.08 0.12
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
12
<PAGE> 13
SUNRISE ASSISTED LIVING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
In August 1999, the Company entered into an agreement to acquire most of
the senior living assets of Constellation Health Services, Inc., a Columbia
Maryland-based assisted and independent living provider, for $72.2 million in
cash and the assumption of $16 million of debt. Under the terms of the
agreement, Sunrise will acquire 12 existing senior living communities located in
Maryland, Virginia and North Carolina, three senior living communities under
construction and several sites for future communities. The total resident
capacity of the 12 existing communities and the three properties under
construction is 1,058.
10. ASSETS HELD FOR SALE
The Company intends to sell 15 operating properties, 6 zoned development
sites and one non-operating property acquired from Karrington within 12 months.
The Company believes that these properties do not coincide with its strategy.
Specifically, the Company believes such properties are not located within its
target markets, cannot be repositioned easily as Sunrise facilities and would
not be able to achieve benefits of regional clustering. Consequently, these
assets are presented on the balance sheet as assets held for sale at their
estimated fair values less estimated costs to sell. The operating results of
these assets are not reflected in the Company's consolidated operating results.
The operating results of the properties since completion of the merger on
May 14, 1999 are as follows:
<TABLE>
<S> <C>
Revenue $ 1,631
Operating expenses 1,389
Interest expense 511
--------------
Net loss $ (269)
==============
</TABLE>
13
<PAGE> 14
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,
and other financial information appearing elsewhere in this Form 10-Q. This
management's discussion and analysis contains certain forward-looking statements
that involve risks and uncertainties. Sunrise's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including development and construction risks,
acquisition risks, licensing risks, business conditions, risks of downturns in
economic conditions generally, satisfaction of closing conditions and
availability of financing for development and acquisitions. Some of these
factors are discussed elsewhere in this Form 10-Q and in Sunrise's 1998 Annual
Report on Form 10-K. Unless the context suggests otherwise, references herein to
"Sunrise" mean Sunrise Assisted Living, Inc. and its subsidiaries.
OVERVIEW
Sunrise is a provider of assisted living services for seniors.
Sunrise currently operates 128 facilities in 22 states with a capacity of
approximately 9,900 residents, including 99 facilities owned by Sunrise or in
which it has ownership interests, 15 facilities owned by Sunrise and held for
sale following the acquisition of Karrington Health, Inc. and 14 facilities
managed for third parties. Sunrise also operates two skilled nursing
facilities owned by a third party.
Sunrise has continued to experience growth in operations over the 12
months ended June 30, 1999. During this period, Sunrise began operating an
additional 40 facilities owned by it (excluding facilities held for sale
following the acquisition of Karrington) and managing an additional seven
facilities for independent third parties. Since June 30, 1999, Sunrise opened
two additional facilities. Sunrise also entered into several new development
contracts during the 12 months ended June 30, 1999. As a result, operating
revenue increased substantially to $61.5 million for the three months ended
June 30, 1999 from $40.5 million for the three months ended June 30, 1998.
Net income increased by $0.8 million to $5.4 million for the three months
ended June 30, 1999, or $0.25 per share (diluted), including a one-time
restructuring charge of $4.4 million ($3.2 million net of taxes), or $0.15
per share (diluted), from $4.6 million for the three months ended June 30,
1998, or $0.23 per share (diluted). Without the one-time restructuring
charge, net income for the three months ended June 30, 1999 would have been
$8.6 million, or $0.40 per share (diluted).
Operating revenue increased to $112.9 million for the six months
ended June 30, 1999 from $75.4 million for the six months ended June 30,
1998. Net income increased by $4.4 million to $12.6 million for the six
months ended June 30, 1999, or $0.60 per share (diluted), including a
one-time restructuring charge of $4.4 million ($3.2 million net of taxes), or
$0.15 per share (diluted), from $8.2 million for the six months ended June
30, 1998, or $0.40 per share (diluted). Excluding the one-time restructuring
charge, net income for the six months ended June 30, 1999 would have been
$15.8 million, or $0.75 per share (diluted).
The increase in net income between the periods was attributable to
the additional facilities operated in the three and six months ended June 30,
1999, increases in development and management contracts with independent
third parties and Sunrise's ability to control operating expenses during the
expansion of operations. Excluding a $4.4 million restructuring charge,
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
operating expenses decreased as a percentage of operating revenue by 5.8%
between the three months ended June 30, 1999 and 1998 and 7.0% between the
six months ended June 30, 1999 and 1998. See "Results of Operations" for
further discussion.
Sunrise's growth objectives include developing new Sunrise model
assisted living facilities and selectively acquiring existing facilities.
Sunrise currently has 34 facilities under construction with a resident
capacity of over 3,000. Sunrise also has entered into contracts to purchase
59 additional development sites, 23 of which are zoned, and to lease 2
additional sites under long-term ground leases. Sunrise is pursuing
additional development opportunities and also plans to acquire additional
facilities as market conditions warrant.
On May 14, 1999, Sunrise completed its acquisition of Karrington
Health, Inc. through a tax-free, stock-for-stock transaction in which it
issued 2.2 million common shares in exchange for all the outstanding shares
of Karrington and Karrington became a wholly owned subsidiary of Sunrise. The
total transaction was valued at $85.5 million, including merger and stock
issuance costs of $8.4 million and the fair value of assumed employee stock
options of $1.9 million. Karrington provides assisted living services to the
elderly. The acquisition was accounted for using the purchase method of
accounting and accordingly, the results of operation of Karrington for the
period from May 14, 1999 are included in the accompanying consolidated
financial statements.
The acquisition was accounted for using the purchase method of
accounting and accordingly, the results of operation of Karrington for the
period from May 14, 1999 are included in the accompanying consolidated financial
statements. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values, which are subject to
adjustment when additional information concerning asset and liability valuations
is finalized. The $29.0 million of costs in excess of assets acquired will be
amortized on a straight-line basis over 38 years. The purchase of Karrington was
presented in the Statement of Cash Flows as a non-cash transaction, net of cash
acquired.
Sunrise intends to sell 15 Karrington operating facilities, six
zoned development sites and one non-operating property within 12 months
following the merger. Most of the facilities are Karrington Cottage prototype
models, which consist of 20 units or less These properties are classified as
assets held for sale on the accompanying balance sheet.
In August 1999, Sunrise entered into an agreement to acquire most of
the senior living assets of Constellation Health Services, Inc., a Columbia
Maryland-based assisted and independent living provider, for $72.2 million in
cash and the assumption of $16 million of debt. Under the terms of the
agreement, Sunrise will acquire 12 existing senior living communities located
in Maryland, Virginia and North Carolina, three senior living communities
under construction and several sites for future communities. The total
resident capacity of the 12 existing communities and the three properties
under construction is 1,058. The transaction is expected to close in the
third quarter of 1999, subject to normal and customary closing conditions.
Sunrise is continuing a previously-announced plan of selling
selected real estate assets, subject to market conditions, as a normal part
of its operations while retaining long-term management through operating
agreements. This strategy of selling selected real estate assets as a normal
part of operations
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
should enable Sunrise to reduce debt, redeploy its capital into new
development projects and recognize gains on appreciated real estate. In June
1999, Sunrise completed the sale of two assisted living facilities located in
Columbia, Maryland and Norwood, Massachusetts for an aggregate sales price of
$27.9 million in cash. The transaction will result in the realization of up
to an $11.3 million gain over the next 12 quarters. During the second quarter
of 1999, Sunrise recognized $0.9 million of the gain. Previously, in
September 1998, Sunrise completed the sale of two assisted living facilities
located in Maryland for an aggregate purchase price of $29.3 million in cash
that will result in the realization of up to a $6.4 million gain over a
maximum of 15 quarters. To date, Sunrise has recognized $3.3 million of the
gain. The remaining gain is deferred, the recognition of which is contingent
upon future events. For tax purposes, the transactions were set up as
tax-free exchanges. The Company will continue operating the facilities under
long-term operating agreements.
The Company has continued its efforts to explore international
development and acquisition possibilities in the United Kingdom and Canada
and has entered into a joint venture arrangement with a third party that is
providing up to $55.3 million of the equity capital to develop up to 22
projects. A director of the Company is a general partner in the third party
that is providing such equity capital. Currently, the joint venture has one
property under development in the United Kingdom and two properties under
development in Canada. Sunrise provides management and development services
to the joint venture on a contract-fee basis with rights to acquire the
assets in the future and has agreed to invest up to $2.8 million of equity
capital in the joint venture. As of June 30, 1999, the third party has
provided approximately $7.1 million and Sunrise has provided $0.4 million of
equity capital to the joint venture.
In connection with the implementation of its growth plans, Sunrise
made significant investments in its infrastructure through the addition of
information technology in 1998 and 1997, as well as additions to headquarters
and regional staff. During 1999, Sunrise expects to continue to invest in
these areas to support both the growth of Sunrise and to provide enhancement
to some of its existing computer systems to make them year 2000 compliant.
See "Year 2000 Issues" for further discussion.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998
Operating Revenue. Operating revenue for the three months ended June
30, 1999 increased 51.9% to $61.5 million from $40.5 million for the three
months ended June 30, 1998 due primarily to the growth in resident fees.
Resident fees, including community fees, for the three months ended June 30,
1999 increased $15.9 million, or 43.6%, to $52.4 million from $36.5 million
for the three months ended June 30, 1998. This increase was due primarily to
the inclusion for the three months ended June 30, 1999 of approximately $4.9
million from the Karrington properties acquired in May 1999 and $6.5 million
of resident fees generated from the operations of Sunrise developed assisted
living facilities open during the three months ended June 30, 1999 that were
not open during the three months ended June 30, 1998. The remaining increase
in resident fees was due primarily to an increase in the average daily
resident rate, excluding community fees.
Average resident occupancy for owned facilities operated by the
Company for at least 12 months or that have achieved stabilization of 95% or
above, was 94.5% for the three months ended June 30, 1999 and the three
months ended June 30, 1998. The occupancy rate excludes facilities with
temporary vacancies and resident relocations generally of between three to
six months due to renovations. The average daily resident fee, excluding
community fees, for these stabilized facilities increased to $97 for the
three months ended June 30, 1999 from $86 for the three months ended June 30,
1998. The increase is due to the inclusion of additional stabilized prototype
facilities which have higher basic care rates, a general increase in the
basic care rate at other facilities, and an increase in the number of
residents receiving plus care and reminiscence care services.
Resident fees for owned facilities in initial resident lease-up,
including the Karrington properties, decreased by $0.4 million between the
three months ended June 30, 1999 and 1998 due to facilities in lease up being
in different stages in the respective three month periods.
Management services income represents fees from long-term contracts
for facilities owned by unconsolidated joint ventures and other third party
owners and includes management fees, which are generally in the range of 5%
to 7% of a managed facility's total operating revenue, for homes in operation
and development fees for site acquisition, development services, facility
design and construction management services. Management services income for
the three months ended June 30, 1999 increased to $6.1 million from $4.0
million for the three months ended June 30, 1998. This increase resulted
primarily from a $2.3 million increase in development and management fees
relating to the development and management of facilities for unconsolidated
joint ventures and third party owners. This increase is primarily due to the
increase in the number of development and management contracts entered into
after the second quarter of 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the three months ended June 30, 1999, Sunrise recognized a
gain of $0.9 million on the June 1999 sale of two assisted living communities
and $0.9 million on the prior sale of two assisted living communities in
September 1998.
Operating Expenses. Operating expenses for the three months ended
June 30, 1999 increased by 54.7% to $49.1 million from $31.8 million for the
three months ended June 30, 1998. The increase in operating expenses for the
three months ended June 30, 1999 was attributable to increases in all of the
following expenses: facility operating, facility contract services, general
and administrative, depreciation and amortization, facility lease and
restructuring charge.
Facility operating expenses for the three months ended June 30,
1999, increased 42.1% to $30.7 million from $21.6 million for the three
months ended June 30, 1998. As a percentage of resident fees, facility
operating expenses for the three months ended June 30, 1999, decreased to
58.7% from 59.3% for the three months ended June 30, 1998. Of the $9.1
million increase, $3.6 million was attributable to expenses from operations
at the Karrington properties and $3.9 million from operations at new Sunrise
developed assisted living facilities open during the three months ended June
30, 1999 that were not open during the same period in 1998. The remaining
balance of the increase was primarily due to an increase in labor and general
and administrative expenses at facilities that were operational for a full
quarter in both periods.
General and administrative expenses for the three months ended June
30, 1999 increased 31.4% to $3.9 million from $3.0 million for the three
months ended June 30, 1998. As a percentage of operating revenue, general and
administrative expenses for the three months ended June 30, 1999 decreased to
6.4% from 7.4% for the three months ended June 30, 1998, reflecting the
higher operating revenue in the 1999 period. The $0.9 million increase in
general and administrative expenses for the three months ended June 30, 1999
was primarily related to labor costs, consisting of hiring and training
additional staff at the headquarters and regional offices.
Depreciation and amortization expenses for the three months ended
June 30, 1999 compared to the three months ended in June 30, 1998 increased
$0.8 million, or 14.5%, to $6.2 million from $5.4 million for the three
months ended June 30, 1998 primarily due to a $1.3 million increase in
depreciation expense partially offset by a $0.5 million decrease in
amortization. Of the increase in depreciation expense, $0.4 million related
to the acquisition of the Karrington properties and $0.7 million related to
new Sunrise developed facilities which were not open during the three months
ended June 30, 1998. The remaining increase was primarily due to additional
depreciation expense related to facilities opened during the three months
ended June 30, 1998.
Facility lease expenses increased $1.0 million to $1.7 million for
the three months ended June 30, 1999 from $0.7 million for the three months
ended June 30, 1998. Of the increase, $0.9 million was related to the
acquisition of 12 Karrington leased properties in May 1999.
Sunrise recorded a $4.4 million restructuring charge in the second
quarter of 1999 related to the consolidation and integration of the acquired
operations and development pipeline of Karrington.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other Income (Expense). Interest income increased to $3.2 million
for the three months ended June 30, 1999 compared to $1.2 million for the
three months ended June 30, 1998. This increase was primarily due to an
increase in interest income from long-term investments and notes receivable,
offset, in part, by a decrease in funds available for short-term investment.
Interest expense increased for the three months ended June 30, 1999 to $7.7
million from $5.2 million for the three months ended June 30, 1998. Of $2.5
million increase, $1.2 million was due to interest on additional borrowings
under one of Sunrise's credit facilities and $0.5 million was due to the debt
assumed through the acquisition of Karrington. The remaining increase was
primarily due to a decrease in capitalized interest for the three months
ended June 30, 1999 versus the three months ended June 30, 1998.
Provision for Income Taxes. The provision for income taxes was $2.1
million and zero for the three months ended June 30, 1999 and 1998,
respectively. Income tax for the three months ended June 30, 1999 includes
$2.9 million for federal and state income taxes. Utilization of
operations-related deferred tax benefits reduced Sunrise's federal and state
income taxes by $0.8 million for the three months ended June 30, 1999. As of
June 30, 1999, Sunrise had net operating loss carryforwards of approximately
$18.7 million available to offset future federal taxable income. This amount
includes approximately $10.0 million of net operating loss carryforwards
acquired from Karrington, which is subject to certain limitations on
utilization.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1998
Operating Revenue. Operating revenue for the six months ended June
30, 1999 increased 49.8% to $112.9 million from $75.4 million for the six
months ended June 30, 1998 due primarily to the growth in resident fees.
Resident fees, including community fees, for the six months ended June 30,
1999 increased $28.9 million, or 42.6%, to $96.7 million from $67.8 million
for the six months ended June 30, 1998. This increase was due primarily to
the inclusion for the six months ended June 30, 1999 of approximately $4.9
million from the Karrington properties acquired in May 1999 and $10.7 million
of resident fees generated from the operations of new Sunrise developed
assisted living facilities open during the six months ended June 30, 1999
that were not open during the six months ended June 30, 1998. The remaining
increase in resident fees was due primarily to an increase in the average
daily resident rate, excluding community fees, and the average resident
occupancy for facilities that were owned and operated by Sunrise during both
periods.
Average resident occupancy for owned facilities operated by the
Company for at least 12 months or that have achieved stabilization of 95% or
above, increased to 95.5% for the six months ended June 30, 1999 compared to
94.3% for the six months ended June 30, 1998. The occupancy rate excludes
facilities with temporary vacancies and resident relocations generally of
between three to six months due to renovations. The average daily resident
fee, excluding community fees, for these stabilized facilities increased to
$96 for the six months ended June 30, 1999 from $85 for the six months ended
June 30, 1998. The increase is due to the inclusion of additional stabilized
prototype facilities which have higher basic care rates, a general increase
in the basic care rate at
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
other facilities, and an increase in the number of residents receiving plus
care and reminiscence care services.
Resident fees for owned facilities in initial resident lease-up,
including the Karrington properties, decreased by $0.5 million between the
six months ended June 30, 1999 and 1998 due to the facilities in lease-up
being in different stages in the respective periods.
Management services income for the six months ended June 30, 1999
increased to $11.1 million from $7.1 million for the six months ended June
30, 1998. This increase resulted primarily from a $4.2 million increase in
development and management fees relating to the development and management of
facilities for unconsolidated joint ventures and third party owners. This
increase is primarily due to the increase in the number of development and
management contracts entered into after the second quarter of 1998.
During the six months ended June 30, 1999, Sunrise recognized a gain
of $0.9 million on the June 1999 sale of two assisted living communities and
$1.9 million on the September 1998 sale of two assisted living communities.
During the six months ended June 30, 1998, Sunrise recognized a gain of $0.5
million from the sale of its minority interest in a tenancy-in-common that
owned one facility.
Operating Expenses. Operating expenses for the six months ended June
30, 1999 increased by 44.1% to $86.8 million from $60.2 million for the six
months ended June 30, 1998. The increase in operating expenses for the six
months ended June 30, 1999 was attributable to increases in all of the
following expenses: facility operating, facility contract services, general
and administrative, depreciation and amortization, facility lease and
restructuring charge.
Facility operating expenses for the six months ended June 30, 1999,
increased 39.4% to $56.2 million from $40.3 million for the six months ended
June 30, 1998. As a percentage of resident fees, facility operating expenses
for the six months ended June 30, 1999, decreased to 58.1% from 59.4% for the
six months ended June 30, 1998. Of the $15.9 million increase, $3.6 million
was attributable to expenses from operations at the Karrington properties and
$6.7 million from operations at new Sunrise developed assisted living
facilities open during the six months ended June 30, 1999 that were not open
during the same period in 1998. The remaining balance of the increase was
primarily due to an increase in labor and general and administrative expense
at facilities that were operational for a full quarter in both periods.
Facility development and pre-rental expenses for the six months June
30, 1999, decreased 24.2% to $2.1 million from $2.8 million for the six
months ended June 30, 1998. The $0.7 million decrease in facility development
and pre-rental expenses for the six months ended June 30, 1999 was primarily
related to a decrease in start-up costs due to facilities being in earlier
stages of development during the six months ended June 30, 1999 as compared
to facilities under development during the six months ended June 30, 1998.
General and administrative expenses for the six months ended June
30, 1999 increased 27.6% to $7.6 million from $6.0 million for the six months
ended June 30, 1998. As a percentage
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of operating revenue, general and administrative expenses for the six months
ended June 30, 1999 decreased to 6.7% from 7.9% for the six months ended June
30, 1998, reflecting the higher operating revenue in the 1999 period. The
$1.6 million increase in general and administrative expenses for the six
months ended June 30, 1999 was primarily related to labor costs, consisting
of hiring and training additional staff at the headquarters and regional
offices.
Depreciation and amortization expenses for the six months ended June
30, 1999 compared to the six months ended in June 30, 1998 increased $2.1
million, or 21.0%, to $12.0 million from $9.9 million for the six months
ended June 30, 1998 primarily due to a $2.5 million increase in depreciation
expense, partially offset by a $0.4 million decrease in amortization expense.
Of the increase in depreciation expense, $0.4 million related to the
acquisition of the Karrington properties and $1.2 million related to new
Sunrise developed facilities that were not open during the six months ended
June 30, 1998. The remaining increase was primarily due to additional
depreciation expense related to facilities opened during the six months ended
June 30, 1998.
Facility lease expenses increased $1.1 million to $2.4 million for
the six months ended June 30, 1999 from $1.3 million for the six months ended
June 30, 1998. Of the increase, $0.9 million was related to the acquisition
of 12 Karrington leased properties in May 1999.
Sunrise recorded a $4.4 million restructuring charge in the second
quarter of 1999 related to the consolidation and integration of the acquired
operations and development pipeline of Karrington.
Other Income (Expense). Interest income increased to $5.8 million
for the six months ended June 30, 1999 compared to $2.9 million for the six
months ended June 30, 1998. This increase was primarily due to an increase in
interest income from long-term investments and notes receivable, offset, in
part, by a decrease in funds available for short-term investment. Interest
expense increased for the six months ended June 30, 1999 to $14.4 million
from $9.9 million for the six months ended June 30, 1998. Of the $4.5 million
increase, $2.9 million was due to interest on additional borrowings under one
of Sunrise's credit facilities and $0.5 million was due to the debt assumed
through the acquisition of Karrington. The remaining increase was primarily
due to a decrease in capitalized interest for the six months ended June 30,
1999 versus the six months ended June 30, 1998.
Provision for Income Taxes. The provision for income taxes was $4.3
million and zero for the six months ended June 30, 1999 and 1998,
respectively. Income tax for the six months ended June 30, 1999 includes $6.5
million for federal and state income taxes. Utilization of operations-related
deferred tax benefits reduced Sunrise's federal and state income taxes by
$2.2 million for the six months ended June 30, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
To date, Sunrise has financed its operations from long-term
borrowings, equity offerings and cash generated from operations. At June 30,
1999, Sunrise had $601.8 million of outstanding debt at a weighted average
interest rate of 6.9%. Of the amount of outstanding debt, Sunrise had $361.3
million of fixed-rate debt, excluding a $0.8 million loan discount, at a
weighted average interest rate of 6.9%, and $241.3 million of variable rate
debt at a weighted average interest rate of 7.0%.
At June 30, 1999, Sunrise had approximately $71.4 million in
unrestricted cash and cash equivalents, including $15.1 million in
high-quality short-term investments (A1/P1 rated) and $119.2 million in net
working capital and currently has $299.8 million of unused lines of credit.
At June 30, 1999, a subsidiary of Sunrise had a syndicated revolving
credit facility for $250.0 million. Sunrise guarantees the repayment of all
amounts outstanding under this credit facility. The credit facility is
secured by cross-collateralized first mortgages on the real property and
improvements and first liens on all other assets of the subsidiary. Advances
under the facility bear interest at LIBOR plus 1.00% to LIBOR plus 1.50%.
There were $126.3 million of advances outstanding under this credit facility
as of June 30, 1999. In July 1999, Sunrise expanded the credit facility to
$400.0 million at an interest rate of LIBOR plus 1.50%. The credit facility
expires on July 2002.
Other subsidiaries have revolving credit facilities totaling $59.4
million. The repayments of the amounts outstanding under these credit
facilities are also guaranteed by Sunrise. The credit facilities are secured
by real property and first liens on other assets. Advances under these
facilities totaled $22.8 million as of June 30, 1999 and bear interest at
Prime or rates ranging from LIBOR plus 1.25% to LIBOR plus 2.35%.
Sunrise has outstanding $150.0 million aggregate principal amount of
5 1/2% convertible subordinated notes due 2002. The convertible notes bear
interest at 5 1/2% per annum payable semiannually on June 15 and December 15
of each year. The conversion price is $37.1875, which is equivalent to a
conversion rate of 26.89 shares per $1,000 principal amount of the notes. The
convertible notes are redeemable at the option of Sunrise commencing June 15,
2000, at specified premiums. The holders of the convertible notes may require
Sunrise to repurchase the notes upon a change of control of Sunrise, as
defined in the convertible notes.
In May 1999, Sunrise entered into a loan agreement for $88.0 million
secured by eight assisted living properties. The loan accrues interest at
7.14% and matures on June 1, 2009. The proceeds were used to reduce the
balance of one of Sunrise's credit facilities and, as a result, convert a
portion of Sunrise's variable rate debt into debt with a fixed rate. At June
30, 1999, $87.9 million was outstanding.
Sunrise has an $85.8 million, excluding a $0.8 million discount,
multi-property mortgage, collateralized by a blanket first mortgage on all
assets of a subsidiary of Sunrise, consisting of 15 facilities. The
multi-property mortgage consists of two separate debt classes: Class A in the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
amount of $65.0 million bears a fixed interest rate of 8.56% and is interest
only until the maturity date of May 31, 2001; and Class B in the amount of
$20.8 million bears a variable interest rate of LIBOR plus 1.75% and is
payable in installments through May 2001.
As of June 30, 1999, Sunrise had various other debt outstanding
totaling approximately $129.8 million, including $76.9 million of debt
acquired through the acquisition of Karrington, with interest rates ranging
from 6.5% to 10.0%.
Sunrise has entered into a swap transaction whereby, effective
during the period June 18, 1998 through June 18, 2001, outstanding advances
of up to $19.0 million LIBOR floating rate debt bear interest at a fixed rate
based on a fixed LIBOR base rate of 7.30%. Sunrise has entered into another
swap transaction whereby, effective during the period August 20, 1997 through
April 1, 2003, outstanding advances of up to $7.0 million under LIBOR
floating rate debt bear interest at a fixed LIBOR base rate of 7.14%. Sunrise
recorded net interest expense for the three months ended June 30, 1999 and
1998 in the amounts of $152,000 and $13,000, respectively, for swap
transactions.
There are various financial covenants and other restrictions in
Sunrise's debt instruments, including provisions which:
- require it to meet specified financial tests. For example,
Sunrise's $86.0 million multi-property mortgage, which is
secured by 15 of its facilities, requires that these facilities
maintain a cash flow to interest expense coverage ratio of at
least 1.25 to 1. Sunrise's $400.0 million credit facility
requires Sunrise to have a consolidated tangible net worth of at
least $255.0 million, to maintain a consolidated minimum cash
liquidity balance of at least $25.0 million and to meet other
financial ratios. These tests are administered on a monthly or
quarterly basis, depending on the covenant;
- require consent for changes in management or control of Sunrise.
For example, Sunrise's $400.0 million revolving credit facility
requires the lender's consent for any merger where Paul Klaassen
or Teresa Klaassen does not remain chairman of the board and
chief executive officer of Sunrise;
- restrict the ability of Sunrise subsidiaries to borrow
additional funds, dispose of assets or engage in mergers or
other business combinations without lender consent; and
- require that Sunrise maintain minimum occupancy levels at its
facilities to maintain designated levels of borrowings. For
example, Sunrise's $400.0 million credit facility requires that
85% occupancy be achieved after 12 months for a newly opened
facility and, following this 12-month period, be maintained at
or above that level.
Working capital increased to $119.2 million at June 30, 1999 from
$69.6 million at December 31, 1998, primarily due to a net increase in
working capital resulting from the purchase of Karrington and an increase in
receivables from joint ventures.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sunrise has committed to provide a revolving credit arrangement of
up to approximately $3.4 million in principal to a subsidiary of a joint
venture in the United Kingdom. Interest on the outstanding principal amount
accrues at 12%. The arrangement expires on November 4, 2001. At June 30,
1999, the outstanding principal balance and unpaid accrued interest under
this credit arrangement totaled approximately $3.6 million.
Net cash provided by operating activities for the six months ended
June 30, 1999 and 1998 was approximately $7.2 million and $9.5 million,
respectively. Net cash provided by operating activities for the six months
ended June 30, 1999 reflects an increase in Sunrise's activities related to
the development of unconsolidated joint venture properties.
During the six months ended June 30, 1999 and 1998, Sunrise used
$84.5 million and $68.6 million, respectively, for investing activities.
Investing activities included investment in property and equipment in the
amounts of $88.1 million, which includes the purchase of one assisted living
facility, and $67.4 million for the six months ended June 31, 1999 and 1998,
respectively, related to the construction of assisted living facilities. For
the six months ended June 30, 1999, Sunrise also invested $29.5 million in
notes receivable to facilitate the development of assisted living facilities
with third parties, offset by $7.5 million of proceeds from investments and
notes receivable.
Net cash provided by financing activities was $94.5 million and
$16.5 million, respectively, for the six months ended June 30, 1999 and 1998.
Financing activities for the six months ended June 30, 1999 included
additional borrowings of $200.1 million, offset, in part, by debt repayments
of $107.8 million. Additional borrowings during the six months ended June 30,
1999 were primarily from the $88.0 million loan entered into in May 1999 and
one of Sunrise's credit facilities. The additional borrowings under Sunrise's
credit facility were used to fund Sunrise's continued development of assisted
living facilities. Debt repayments during the six months ended June 30, 1999
primarily related to the use of the proceeds from the $88.0 million loan to
reduce the outstanding balance on one of Sunrise's credit facilities. During
the six months ended June 30, 1998, additional borrowings were $32.9 million
and debt repayments were $20.7 million.
Sunrise currently estimates that the existing credit facilities,
together with existing working capital, financing commitments and financing
expected to be available, will be sufficient to fund facilities currently
under development. Additional financing will be required to complete
additional development and to refinance existing indebtedness. If the
acquisition of the Constellation facilities is completed, which includes
three development facilities, Sunrise estimates that it will cost between
$310.3 million and $457.8 million to complete the 40 facilities the Sunrise
would then have under development. Sunrise expects that the cash flow from
the combined companies operations, together with borrowings under existing
credit facilities, will be sufficient to fund Sunrise's needs for at least
the next six months. Sunrise expects from time to time to seek additional
funding through public or private financing sources, including equity or debt
financing. There can be no assurance that required financing and refinancing
will be available on acceptable terms.
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The ability of Sunrise to achieve its development plans will depend
upon a variety of factors, many of which will be outside the control of
Sunrise. These factors include:
- obtaining zoning, land use, building, occupancy, licensing and other
required governmental permits for the construction of new facilities
without experiencing significant delays;
- completing construction of new facilities on budget and on schedule;
- the ability to work with third-party contractors and subcontractors
who construct the facilities;
- shortages of labor or materials that could delay projects or make
them more expensive;
- adverse weather conditions that could delay projects;
- finding suitable sites for future development activities at
acceptable prices; and
- addressing changes in laws and regulations or how existing laws and
regulations are applied.
Sunrise cannot assure that it will not experience delays in
completing facilities under construction or in development or that it will be
able to identify suitable sites at acceptable prices for future development
activities. If it fails to achieve its development plans, its growth could
slow, which would adversely impact its revenues and results of operations.
Sunrise's growth plan includes the acquisition of assisted living
facilities or the companies operating assisted living facilities, such as
Karrington. The success of Sunrise's acquisitions will be determined by
numerous factors, including Sunrise's ability to identify suitable
acquisition candidates, competition for such acquisitions, the purchase
price, the financial performance of the facilities after acquisition and the
ability of Sunrise to integrate or operate acquired facilities effectively.
Any failure to do so may have a material adverse effect on Sunrise's
business, financial condition, revenues and earnings.
The long-term care industry is highly competitive and the assisted
living segment is becoming increasingly competitive. Sunrise competes with
numerous other companies that provide similar long-term care alternatives,
such as home health care agencies, facility-based service programs,
retirement communities, convalescent centers and other assisted living
providers. Although some competitors are significantly larger, there are no
dominant companies in the assisted living segment. In a recent industry
report, it is estimated that there are approximately 770,000 total assisted
living beds currently available, and that the 25 largest owners of assisted
living properties, which includes Sunrise, has 180,446 or only 23% of those
currently available. The largest individual owner has only 3% of the total
assisted living beds currently available. In general, regulatory and other
barriers to competitive entry in the assisted living industry are not
substantial. In pursuing its growth strategies, Sunrise has experienced and
expects to continue to experience increased competition in its efforts to
develop and acquire assisted living facilities. Some of the present and
potential competitors of Sunrise are significantly larger and have, or may
obtain, greater financial resources than Sunrise. Consequently, Sunrise
cannot assure that it will not encounter increased competition that could
limit its ability to attract residents or expand its business, which could
have a material adverse effect on its revenues and earnings.
25
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sunrise believes that some assisted living markets have become or
are on the verge of becoming overbuilt. As described above, regulation and
other barriers to entry into the assisted living industry are not
substantial. Consequently, the development of new assisted living facilities
could outpace demand. Overbuilding in Sunrise market areas could, therefore,
cause Sunrise to experience decreased occupancy, depressed margins or lower
operating results. Sunrise believes that each local market is different and
Sunrise is and will continue to react in a variety of ways, including
selective price discounting, to the specific competitive environment that
exists in each market.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, Reporting on the Costs of Start-up Activities,
which is effective for fiscal years beginning after December 15, 1998. SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. It is Sunrise's policy to capitalize
certain costs incurred to rent its facilities such as costs of model units,
their furnishings and "grand openings" in accordance with Statement of
Financial Accounting Standards No. 67, Accounting for Costs and Initial
Rental Operation of Real Estate Projects. Additionally, initial direct costs
associated with originating lease transactions are capitalized in accordance
with Statement of Financial Accounting Standards No. 91, Accounting for
Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases. Direct costs include employees'
compensation and payroll-related fringe benefits directly related to
acquiring leases. All costs of Sunrise's development and leasing activities
which are not considered to be within the scope of Statement 67 or Statement
91 are expensed as incurred. SOP 98-5 states that the guidance provided by
Statement 67 and Statement 91 is not affected by the provisions of SOP 98-5.
The adoption of SOP 98-5 in January 1999 did not affect results of operations
or the financial position of Sunrise.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June 1999, the Financial Accounting
Standards Board issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133. Statement 137 defers for one year the effective day of
Statement 133, which will apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. Statement 133 standardizes the accounting for
derivative instruments. Sunrise participates in interest rate swap
transactions, which would be considered derivatives under Statement 133.
Sunrise has not entered into any other derivative transactions. To date, the
net effect of the interest rate swaps to Sunrise's results of operations has
not been material. Therefore, Statement 133 is not anticipated to affect
results of operations or the financial position of Sunrise.
26
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF INFLATION
Resident fees from Company-owned assisted living facilities and
management services income from facilities operated by Sunrise for third
parties are the primary sources of revenue for Sunrise. 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
Sunrise's growth initiatives, have previously had a negative impact on
operating margins and may again do so in the foreseeable future.
Substantially all of Sunrise's resident agreements are for terms of
one year, but are terminable by the resident at any time upon 30 days'
notice, and allow, at the time of renewal, for adjustments in the daily fees
payable, and thus may enable Sunrise to seek increases in daily fees due to
inflation or other factors. Any increase would be subject to market and
competitive conditions and could result in a decrease in occupancy of
Sunrise's facilities. Sunrise believes, however, that the short-term nature
of its resident agreements generally serves to reduce the risk to Sunrise of
the adverse effect of inflation. There can be no assurance that resident fees
will increase or that costs will not increase due to inflation or other
causes.
YEAR 2000 ISSUES
Impact of Year 2000. Some of the older computer programs utilized by
Sunrise 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. This could cause a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
State of Readiness. Sunrise started to formulate a plan to address
the year 2000 issue in late 1996. Sunrise has given its vice president of
information technology specific responsibility for managing its year 2000
plan. This vice president leads a multi-disciplinary team to make Sunrise's
mission critical information technology systems and embedded systems year
2000 ready. Sunrise's plan for mission critical information technology
systems consists of four phases:
- inventory - identifying all mission critical information
technology systems and risk rating each according to its
potential business impact;
- assessment - identifying mission critical information
technology systems that use date functions and assessing them
for year 2000 functionality;
- remediation - reprogramming, or replacing where necessary,
inventoried items to ensure they are year 2000 ready; and
- testing - including date testing and performing quality
assurance testing to ensure successful operation in the
post-1999 environment.
27
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sunrise completed the inventory and assessment phases for
substantially all of its mission critical information technology systems by
year-end 1997. Sunrise's mission critical information technology systems are
currently in the remediation and testing phases. Mission critical information
technology 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;
- payroll and human resource system; and
- substantially all software residing on Sunrise's home office
and facility desk-top and lap-top computers.
Sunrise plans to complete the remediation and testing of
substantially all of its mission critical systems by September 1999.
Sunrise is approximately 75% complete in its assessment of embedded
systems and expects to complete its assessment in September 1999, which
includes the additional Karrington communities. Sunrise's remaining steps
will then include testing selected embedded systems and remediating and
testing systems that exhibit year 2000 issues. Sunrise intends to focus its
testing and remediation efforts on select embedded systems at Sunrise's
facilities, such as telephone, elevator, security, HVAC and similar systems.
Sunrise plans to complete the assessment, remediation and testing of these
systems by year-end 1999.
External Relationships. Sunrise also faces the risk that one or more
of its critical vendors will not be able to interact with Sunrise due to the
third party's inability to resolve its own year 2000 issues, including those
associated with its own external relationships. Sunrise has completed its
inventory of external relationships and is continuing its attempt to
determine the overall year 2000 readiness of its external relationships. In
the case of mission critical suppliers, such as banks, financial
intermediaries, including stock exchanges, telecommunications providers and
other utilities, Sunrise is engaged in discussions with the third parties and
is attempting to obtain detailed information as to those parties' year 2000
plans and state of readiness. Sunrise, however, does not have sufficient
information at the current time to predict whether its external relationships
with mission critical suppliers will be year 2000 ready.
Year 2000 Costs. Sunrise estimates on a preliminary basis that the
cost of assessment, remediation, testing and certification of its internal
systems will range from approximately $750,000 to $1,750,000. The major
components of these costs are: consultants, new software and hardware,
software upgrades and travel expenses. Sunrise expects that these costs will
be funded through operating cash flows. This estimate is based on currently
available information. Sunrise's year 2000 costs may increase once it has
determined the year 2000 readiness of its vendors,
28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
customers and other third parties. In addition, the availability and cost of
consultants and other personnel trained in this area and any future
acquisitions may materially affect the estimated costs.
No Assurance that Sunrise Can Fully Implement Its Year 2000 Plan.
Sunrise's year 2000 issue involves significant risks. There can be no
assurance that Sunrise will succeed in fully implementing its year 2000 plan.
The following describes Sunrise's most reasonably likely worst-case scenario,
given current uncertainties. If Sunrise's remediated internal mission
critical information technology systems fail upon testing, or any software
application or embedded microprocessors central to Sunrise's operations are
overlooked in the assessment or implementation phases, Sunrise may incur
significant problems, including delays in billing its residents. If Sunrise's
vendors or suppliers fail to provide its facilities with necessary power,
telecommunications, transportation and financial services, equipment and
services, Sunrise will be unable to provide services to its residents. If any
of these uncertainties were to occur, Sunrise's business, revenues and
results of operations would be adversely affected. Sunrise is unable at this
time to assess the likelihood of these events occurring or the extent of the
effect on Sunrise.
Year 2000 Forward-Looking Statements. The foregoing year 2000
discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements, including
anticipated costs and the dates by which Sunrise expects to complete actions,
are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of resources, representations received from third parties and
other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those
anticipated. Specific factors that might cause material differences include
the ability to identify and remediate all relevant mission critical
information technology and non-mission critical information technology
systems, results of year 2000 testing, adequate resolution of year 2000
issues by businesses and other third parties who are service providers and
suppliers of Sunrise, unanticipated system costs, the adequacy of and ability
to develop and implement contingency plans and similar uncertainties. The
"forward-looking statements" made in the previous year 2000 discussion speak
only as of the date on which the statements are made. Sunrise undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
29
<PAGE> 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Sunrise is exposed to market risks related to fluctuations in
interest rates on its notes receivable, investments and debt. The purpose of
the following analyses is to provide a framework to understand the Company's
sensitivity to hypothetical changes in interest rates as of June 30, 1999.
Sunrise has investments in notes receivable, bonds and mortgages
loans. Investments in notes receivable are primarily with joint venture
arrangements in which Sunrise has equity ownership percentages ranging from
9% to 15%. Investments in bonds and mortgage loans are secured by the
operating properties subject to the debt and are with properties that are
managed by Sunrise. The majority of the investments have fixed rates. One of
the notes has an adjustable rate. Sunrise utilizes a combination of debt and
equity financing to fund its development, construction and acquisition
activities. Sunrise seeks the financing at the most favorable terms available
at the time. When seeking debt financing, Sunrise uses a combination of
variable and fixed rate debt, which ever is more favorable, in management's
judgment at the time of financing.
Sunrise has used interest rate swaps to manage the interest rates on
some of its long-term borrowings. As of June 30, 1999, Sunrise had two
interest rate swap agreements which effectively establishes fixed rates of
7.3% on up to $19.0 million of long-term debt until June 2001 and 7.0% on up
to $7.0 million of long-term debt until April 2003. Sunrise does not utilize
forward or option contracts on foreign currencies or commodities, or other
types of derivative financial instruments.
For fixed rate debt, changes in interest rates generally affect the
fair market value, but not earnings or cash flows. Conversely, for variable
rate debt, changes in interest rates generally do not impact fair market
value, but do affect the future earnings and cash flows. Sunrise generally
cannot prepay fixed rate debt prior to maturity, therefore, interest rate
risk and changes in fair market value should not have a significant impact on
the fixed rate debt until Sunrise would be required to refinance such debt.
Holding the variable rate debt balance of $241.3 million at June 30, 1999
constant, each one percentage point increase in interest rates would result
in an increase in interest expense for the coming year of approximately $2.4
million.
The table below details by category the principal amount, the
average interest rates and the estimated fair market value. Some of the
mortgage loans receivable and some items in the various categories of debt,
excluding the convertible debentures, require periodic principal payments
prior to the final maturity date. The fair value estimates for the mortgage
loans receivable are based on the estimates of management and on rates
currently prevailing for comparable loans. The fair market value estimates
for debt securities are based on discounting future cash flows utilizing
current rates offered to Sunrise for debt of the same type and remaining
maturity. The fair market value estimate of the convertible notes is based on
the market value at June 30, 1999.
30
<PAGE> 31
<TABLE>
<CAPTION>
Estimated
Maturity Date Fair Market
2000 2001 2002 2003 2004 Thereafter Value
---- ---- ---- ---- ---- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Notes receivable
Fixed rate -- $ 3,715 $ 12,371 -- -- $ 9,429 $ 25,515
Average interest rate -- 12.0% 10.0% -- -- 10.0% --
Variable rate -- -- -- $23,623 -- -- $ 23,623
Average interest rate -- -- -- 10.0% -- -- --
Investments
Bonds -- -- -- -- -- $ 5,758 $ 5,758
Average interest rate -- -- -- -- -- 11.0% --
LIABILITIES
Debt
Fixed rate $ 4,114 $69,272 $ 25,325 $ 4,469 $ 4,881 $101,506 $211,036
Average interest rate 8.7% 8.6% 7.2% 8.7% 8.8% 7.4% --
Variable rate $36,271 $33,511 $131,113 $ 8,225 $12,595 $ 8,023 $229,738
Average interest rate 7.2% 7.1% 6.8% 8.1% 7.4% 7.5% --
Convertible notes -- -- $150,000 -- -- -- $161,250
Average interest rate -- -- 5.5% -- -- -- --
</TABLE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Name
----------- ------------
<S> <C>
10.1 Cross-Collateralization, Cross-Default, and Mortgage
Modification Agreement, dated as of May 20, 1999, by and
among Sunrise Borrowers (as defined in the agreement)
and GMAC Commercial Mortgage Corporation.
10.2 Form of Exceptions to Non-Recourse Guaranty
(Multistate), dated as of May 20, 1999, between Sunrise
Borrower (as defined in the guaranty) and GMAC
Commercial Mortgage Corporation.
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
10.3 Form of Multifamily Note (Multistate), dated as of
May20, 1999, between Sunrise Borrower (as defined in the
note) and GMAC Commercial Mortgage Corporation.
10.4 Form of Multifamily Mortgage, Assignment of Rents and
Security Agreement), dated as of May 20, 1999, between
Sunrise Borrower (as defined in the mortgage) and GMAC
Commercial Mortgage.
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed.
</TABLE>
(b) REPORTS ON FORM 8-K
On May 14, 1999, Sunrise filed a Form 8-K with the Securities and
Exchange commission announcing it had completed its acquisition of Karrington
Health, Inc., an Ohio corporation that also provides assisted living services to
seniors.
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements 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)
Date: August 12, 1999 /s/ Christian B. A. Slavin
------------------------------------ -----------------------------------
Christian B. A. Slavin
Chief Financial Officer
Date: August 12, 1999 /s/ Larry E. Hulse
------------------------------------ -----------------------------------
Larry E. Hulse
Chief Accounting Officer
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page (by
Sequential
Exhibit Numbering
Number Identity of Exhibit System)
- ------ ------------------- -------
<S> <C> <C>
10.1 Cross-Collateralization, Cross-Default, and Mortgage
Modification Agreement, dated as of May 20, 1999, by and
among Sunrise Borrowers (as defined in the agreeement) and
GMAC Commercial Mortgage Corporation.
10.2 Form of Exceptions to Non-Recourse Guaranty (Multistate),
dated as of May 20, 1999, between Sunrise Borrower (as
defined in the guaranty) and GMAC Commercial Mortgage
Corporation.
10.3 Form of Multifamily Note (Multistate), dated as of May20,
1999, between Sunrise Borrower (as defined in the note) and
GMAC Commercial Mortgage Corporation.
10.4 Form of Multifamily Mortgage, Assignment of Rents and
Security Agreement), dated as of May 20, 1999, between
Sunrise Borrower (as defined in the mortgage) and GMAC
Commercial Mortgage.
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and is not filed.
</TABLE>
<PAGE> 1
Exhibit 10.1
This instrument is a supplemental writing pursuant to Section 58.1-809 Code of
Virginia and modifies that certain Multifamily Deed of Trust, Assignment of
Rents and Security Agreement ("Deed of Trust") recorded immediately prior hereto
and on which recordation tax has been paid based on the amount of $9,903,000.
Pursuant to Section 58.1-803(B), Code of Virginia, the amount of $9,903,000 is
the allocable portion of the overall indebtedness set forth in this instrument
to the value of the property encumbered by the Deed of Trust and located in the
Commonwealth of Virginia, therefore no additional recordation tax is due upon
the recordation of this instrument.
[SUNRISE OF SPRINGFIELD]
CROSS-COLLATERALIZATION, CROSS-DEFAULT, AND MORTGAGE
MODIFICATION AGREEMENT
THIS CROSS-COLLATERALIZATION, CROSS-DEFAULT, AND MORTGAGE MODIFICATION
AGREEMENT (this "Agreement") is made as of the 20th day of May, 1999 by and
among GMAC Commercial Mortgage Corporation, a California corporation ("Lender")
and the following borrowers (each referred to individually as a "Borrower" and
all referred to collectively as the "Borrowers"):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Borrower Type of Entity
- ---------------------------------------------------------------------------------------------
<S> <C>
Sunrise Abington Assisted Living, L.L.C. a Pennsylvania limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Granite Run Assisted Living, L.L.C. a Pennsylvania limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Haverford Assisted Living, L.L.C. a Pennsylvania limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Morris Plains Assisted Living, L.L.C. a New Jersey limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Old Tappan Assisted Living, L.L.C. a New Jersey limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Springfield Assisted Living, L.L.C. a Virginia limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Wayne Assisted Living, L.L.C. a New Jersey limited liability company
- ---------------------------------------------------------------------------------------------
Sunrise Westfield Assisted Living, L.L.C. a New Jersey limited liability company
- ---------------------------------------------------------------------------------------------
</TABLE>
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC)
<PAGE> 2
RECITALS
The Lender has agreed to make a loan to each Borrower (each, a "Loan" and
collectively, the "Loans"), in the following amounts:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Borrower Amount
- -----------------------------------------------------------------
<S> <C>
Sunrise Abington Assisted Living, L.L.C. $ 14,468,000
- -----------------------------------------------------------------
Sunrise Granite Run Assisted Living, L.L.C. $ 9,219,000
- -----------------------------------------------------------------
Sunrise Haverford Assisted Living L.L.C. $ 8,850,000
- -----------------------------------------------------------------
Sunrise Morris Plains Assisted Living, L.L.C. $ 11,725,000
- -----------------------------------------------------------------
Sunrise Old Tappan Assisted Living, L.L.C. $ 11,725,000
- -----------------------------------------------------------------
Sunrise Springfield Assisted Living, L.L.C. $ 9,903,000
- -----------------------------------------------------------------
Sunrise Wayne Assisted Living, L.L.C. $ 10,385,000
- -----------------------------------------------------------------
Sunrise Westfield Assisted Living, L.L.C. $ 11,725,000
- -----------------------------------------------------------------
</TABLE>
The loans are collectively referred to as the "Loans" and individually as a
"Loan".
Each Borrower's Loan will be secured by a Mortgage (as defined below) on
real property identified in the following table, which is more particularly
described in the exhibit to this Agreement specified in the following table, and
on other property included within the definition of "Mortgaged Property" as
described in each such Mortgage:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
BORROWER PROPERTY NAME COUNTY AND STATE EXHIBIT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sunrise Abington Assisted Living, L.L.C Sunrise of Abington Montgomery County, Pennsylvania Exhibit A-1
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Granite Run Assisted Living, L.L.C. Sunrise of Granite Run Delaware County, Pennsylvania Exhibit A-2
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Haverford Assisted Living, L.L.C. Sunrise of Haverford Montgomery County, Pennsylvania Exhibit A-3
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Morris Plains Assisted Living, L.L.C. Sunrise of Morris Plains Morris County, New Jersey Exhibit A-4
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Old Tappan Assisted Living, L.L.C. Sunrise of Old Tappan Bergen County, New Jersey Exhibit A-5
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Springfield Assisted Living, L.L.C. Sunrise of Springfield Fairfax County, Virginia Exhibit A-6
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Wayne Assisted Living, L.L.C. Sunrise of Wayne Passaic County, New Jersey Exhibit A-7
- --------------------------------------------------------------------------------------------------------------------------------
Sunrise Westfield Assisted Living, L.L.C. Sunrise of Westfield Union County, New Jersey Exhibit A-8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC)
<PAGE> 3
Each Borrower is an affiliate of the other Borrowers and will receive a
direct and material benefit from the Loans to the other Borrowers. The Lender is
willing to make a Loan to each Borrower only if that Borrower agrees to pay and
perform all of the Indebtedness of the other Borrowers with respect to the other
Borrowers' respective Loans.
Each Borrower is executing this Agreement to evidence its agreement (a) to
pay and perform as and when due all of the Indebtedness of the other Borrowers
under the other Borrowers' Loan Documents, (b) that its obligations under this
Agreement shall be secured by the Mortgage encumbering that Borrower's Property
and (c) to bear joint and several liability for the Indebtedness of all other
Borrowers as set forth in this Agreement.
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings indicated:
"COMBINED OBLIGATIONS" means, with respect to each Borrower, that
Borrower's obligations (a) to pay its Indebtedness and (b) to pay all other
amounts payable under this Agreement and under the other Borrowers' Loan
Documents.
"EVENT OF DEFAULT" shall have the meaning set forth in Section 5.
"FORECLOSURE" means, with respect to any Mortgage, a foreclosure of the
Mortgage, a deed in lieu of such foreclosure, a sale of the Property pursuant to
lawful order of a court of competent jurisdiction in a bankruptcy case filed
under Title 11 of the United States Code, or any other similar disposition of
the Property encumbered by the Mortgage.
"FRAUDULENT TRANSFER LAWS" means Section 548 of Title 11 of the United
States Code or any applicable provisions of comparable state law, including any
provisions of the Uniform Fraudulent Conveyance Act or Uniform Fraudulent
Transfer Act, as adopted under applicable state law.
"INDEBTEDNESS" means, with respect to any Borrower, the "Indebtedness" as
defined in that Borrower's Mortgage, without regard to additional obligations of
that Borrower that are created by this Agreement.
"LOAN DOCUMENTS" means, with respect to each Borrower's Loan, the "Loan
Documents" as defined in that Borrower's Mortgage, including without limitation
the Mortgage and the related Note. "Loan Documents", when not used in reference
to a particular Loan, refers to the Loan Documents of all Borrowers relating to
all Loans.
"MORTGAGE" with respect to each Borrower means the Multifamily Mortgage,
Deed of Trust or Deed to Secure Debt that secures that Borrower's Loan.
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC)
<PAGE> 4
"NOTE" with respect to each Borrower means the Multifamily Note evidencing
that Borrower's obligation to repay its Loan.
"PROPERTY" means, with respect to a Borrower and its Mortgage, the
"Mortgaged Property" as defined in that Mortgage.
"TOTAL PROPERTY" means the aggregate of all the Properties.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in the Mortgages.
2. JOINT AND SEVERAL LIABILITY; INTEGRATION OF OBLIGATIONS.
(a) Notwithstanding anything to the contrary in this Agreement or any
Borrower's Loan Documents, each Borrower shall pay and perform the Indebtedness
of each other Borrower, as and when due. Accordingly, the Indebtedness of each
Borrower shall be the joint and several obligation of each other Borrower.
(b) While each Loan represents a separate and independent obligation of
each Borrower, the Borrowers acknowledge that, in requesting the Lender to make
the Loans, they intend:
i. that the Loans be treated as if they were a single, integrated
indebtedness of the Borrowers, and
ii. that the Total Property secures to the Lender the payment and
performance of all of the Borrowers' Combined Obligations.
Accordingly, if any Borrower fails to pay fully, when due, any amount payable to
the Lender under this Agreement or any Loan Document, then the Lender may elect,
in its discretion, to treat that amount as being due and owing by the other
Borrowers, on a joint and several basis, and such amount may be recovered from
the value of each of the Properties, on a pro rata basis or otherwise, as
determined by the Lender in its discretion.
3. AMENDMENT OF BORROWER MORTGAGE TO GRANT ADDITIONAL SECURITY. Each
Borrower's Mortgage is hereby amended to provide that:
(a) such Mortgage secures the Combined Obligations of that Borrower
under this Agreement as well as the Indebtedness of that Borrower
under its own Loan Documents, and
(b) the Total Property secures all Borrowers' Combined Obligations,
without apportionment or allocation of any Property or any
portion of any Property (except that the Combined Obligations may
be apportioned among the Properties for the sole and limited
purpose of determining the amount of
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 4
<PAGE> 5
transfer or recordation taxes or documentary stamps required in
connection with recordation of this Agreement and the Mortgages).
4. AMENDMENT OF MORTGAGE TO PROVIDE FOR CROSS-DEFAULT. Each Borrower's
Mortgage is hereby amended to provide that any Event of Default under this
Agreement shall constitute an Event of Default under that Mortgage.
5. EVENTS OF DEFAULT. Each of the following events shall constitute an
"Event of Default" under this Agreement:
(a) A default or breach by any Borrower of any provision of this
Agreement.
(b) A default or breach by any Borrower under any of its Loan Documents
beyond any notice, grace or cure period set forth in that Loan Document; or
(c) Any event or condition defined as an "Event of Default" under any Loan
Document.
6. REMEDIES. Upon the occurrence of an Event of Default, the Lender in
its discretion may, but shall not be obligated to, exercise any or all of the
following remedies:
(a) declare immediately due and payable the Indebtedness of any or all
Borrowers whether or not the Lender exercises its right to declare immediately
due and payable the Indebtedness related to a particular Mortgage under which
the Event of Default may have occurred; and
(b) exercise any or all of its rights and remedies under this Agreement,
any Loan Document or applicable law.
The Lender may exercise such remedies in one or more proceedings, whether
contemporaneous or consecutive or a combination of both, to be determined by
Lender in its sole discretion. The Lender may enforce its rights against any one
or more Properties or portions of Properties, in such order and manner as it may
elect in its sole discretion. The enforcement of any one Mortgage shall not
constitute an election of remedies, and shall not limit or preclude the
enforcement of any other Mortgage or Loan Document, through one or more
additional proceedings. The Lender may bring any action or proceeding, including
but not limited to judicial or non-judicial foreclosure proceedings, without
regard to the fact that one or more other proceedings may have been commenced
elsewhere with respect to the same Property or Properties or any portion of
them. Each Borrower waives any rights it may have, whether at law or in equity,
to require the Lender to enforce or exercise any of its rights or remedies under
this Agreement, under any Mortgage, or under any other Loan Document in any
particular manner or order or in any particular state or county.
No judgment obtained by Lender in any one or more enforcement proceedings
shall merge the related Indebtedness into that judgment, and all Indebtedness
which remains unpaid shall remain a continuing obligation of the Borrowers.
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 5
<PAGE> 6
7. APPLICATION OF PROCEEDS. Proceeds of the enforcement or foreclosure of
any Mortgage shall be applied first to the repayment of the "Indebtedness" as
defined in that Mortgage. Any funds remaining after such application shall be
applied to the payment of the other Combined Obligations in such order as the
Lender may determine in its sole discretion.
8. ADJUSTMENT OF COMBINED OBLIGATIONS. If the Combined Obligations of any
Borrower are otherwise subject to avoidance under any Fraudulent Transfer Law,
then the Combined Obligations of that Borrower shall be limited to the largest
amount that would not render its Combined Obligations subject to avoidance as a
fraudulent transfer or conveyance under that Fraudulent Transfer Law.
9. BORROWERS' RIGHTS OF SUBROGATION, ETC.
(a) Until the Combined Obligations have been paid and performed in full,
each Borrower shall withhold exercise of any right of subrogation, contribution,
reimbursement or indemnity (whether contractual, statutory, equitable, under
common law or otherwise) and any other rights to enforce any claims or remedies
which it has now or may have in the future against any other Borrower or any of
the Properties or against any guarantor or security for the Combined
Obligations.
(b) If a Borrower's agreement under Subsection (a) to withhold exercise of
rights of subrogation, contribution, reimbursement and indemnity is found by a
court of competent jurisdiction to be void or voidable for any reason, any such
rights a Borrower may have against another Borrower, any Properties or any
guarantor or security for the Combined Obligations shall be subordinate to any
rights the Lender may have against the other Borrower, such Properties, such
guarantor or such security.
10. SUBORDINATION OF OBLIGATIONS BETWEEN BORROWERS. Any indebtedness or
other obligation of a Borrower (a "Debtor Borrower") held by another Borrower (a
"Creditor Borrower") shall be subordinate to rights of the Lender against that
Debtor Borrower. If the Lender so requests at any time when an Event of Default
has occurred and is continuing, any Creditor Borrower shall enforce and collect
any such indebtedness or other obligation as trustee for the Lender and shall
pay over to the Lender any amount collected, on account of the Combined
Obligations of the Debtor Borrower.
11. RELEASE OF PROPERTIES. The Lender will release a Borrower's Property
(the "Released Property") from the liens created by this Agreement and by that
Borrower's Mortgage upon the satisfaction of all of the following conditions:
(a) The Lender has received from the applicable Borrower (the
"Requesting Borrower") at least thirty (30) days' prior written
notice of the date proposed for such release (the "Release
Date").
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 6
<PAGE> 7
(b) No Event of Default has occurred and is continuing as of the date
of the notice and as of the Release Date.
(c) The release will not cause the Combined Debt Service Coverage
Ratio of the remaining Properties to be less than 1.50 to 1.0. As
to any group of Properties, "Combined Debt Service Coverage
Ratio" means the ratio, as determined by the Lender in its
discretion, in which the first number is the aggregate net
operating income from the operations of those Properties that
during the last twelve full calendar months preceding the Release
Date was available for repayment of debt, after deducting
operating expenses, and the second number is the aggregate
principal and interest that will be payable under the Notes
related to those Properties during the twelve full calendar
months following the Release Date. The Borrowers shall provide
the Lender such financial statements and other information as the
Lender may require to make this determination, and a certificate
of the Chief Financial Officer (or comparable individual) of the
Borrower requesting the release stating that such statements are
true, correct and complete in all material respects and
certifying that all conditions precedent to the release of the
Released Property contained in this Section have been complied
with.
(d) The Borrowers shall have paid to the Lender all of the following:
(i) All amounts required to satisfy all Indebtedness of the
Requesting Borrower under its Loan, including but not
limited to principal, accrued and unpaid interest and any
prepayment premium.
(ii) A release price (the "Release Price") equal to one hundred
fifteen percent (115%) of the outstanding principal balance
of the Indebtedness of the Requesting Borrower, to be
applied by the Lender as a prepayment of one or more of the
Loans (each, a "Prepaid Loan") other than the Loan relating
to the Released Property, in such amount and allocation as
the Lender may determine in its discretion.
(iii) All accrued and unpaid interest and all other charges
payable in connection with each such prepayment of a Prepaid
Loan, including but not limited to any prepayment premiums.
(iv) All of the Lender's costs and expenses, including without
limitation reasonable attorneys' fees, in connection with
the release of the Released Property.
12. LENDER'S RIGHTS. Each Borrower agrees that the Lender may, without
demand and at any time and from time to time and without the consent of, or
notice to, the Borrower, without
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 7
<PAGE> 8
incurring responsibility to the Borrower, and without impairing or releasing the
Combined Obligations of any Borrower, upon or without any terms or conditions
and in whole or in part:
(a) change the manner, place or terms of payment, or change or extend the
time of payment of, renew, increase, accelerate or alter, any of the
Indebtedness or Combined Obligations of any of the other Borrowers,
any security for such Indebtedness or Combined Obligations, or any
liability incurred directly or indirectly with respect to such
Indebtedness or Combined Obligations;
(b) take and hold security for the payment of the Indebtedness or Combined
Obligations of any of the other Borrowers and sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner and in
any order any property pledged or mortgaged to secure such
Indebtedness or Combined Obligations;
(c) exercise or refrain from exercising any rights against any of the
other Borrowers or any Properties;
(d) release or substitute any one or more endorsers, guarantors, or other
obligors with respect to the Indebtedness or Combined Obligations of
any of the other Borrowers;
(e) settle or compromise any of the Indebtedness or Combined Obligations
of any of the other Borrowers (including but not limited to
obligations under this Agreement), any security for such Indebtedness
or Combined Obligations or any liability incurred directly or
indirectly with respect to such Indebtedness or Combined Obligations,
or subordinate the payment of all or any part of such Indebtedness or
Combined Obligations to the payment of any liability (whether due or
not) of any other Borrower to its creditors other than the Lender;
(f) apply any sums realized to any liability or liabilities of any other
Borrower to the Lender regardless of what liability or liabilities of
the Borrower to the Lender remain unpaid; and
(g) consent to or waive any breach by any other Borrower of, or any act,
omission or default by any other Borrower under, this Agreement or any
Loan Documents.
13. WAIVER OF PRESENTMENT, MARSHALLING, ETC.
(a) With respect to its obligations under this Agreement each Borrower and
each guarantor of such obligations waives presentment, demand, notice of
dishonor, protest, notice of acceleration, notice of intent to demand or
accelerate payment or maturity, presentment for payment, notice of nonpayment,
grace, and diligence in collecting such obligations.
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 8
<PAGE> 9
(b) Notwithstanding the existence of any other security interests in any
Property held by the Lender or by any other party, the Lender shall have the
right to determine in its discretion the order in which any or all of the
Properties or portions of any of the Properties shall be subjected to the
remedies provided in this Agreement and the Loan Documents or applicable law.
The Lender shall have the right to determine in its discretion the order in
which any or all portions of the Borrowers' Combined Obligations are satisfied
from the proceeds realized upon the exercise of such remedies. Each Borrower and
any party who now or in the future acquires a security interest in any of the
Properties and who has actual or constructive notice of this Agreement waives
any and all right to require the marshalling of assets or to require that any of
the Properties or portions of any of the Properties be sold in the inverse order
of alienation or in parcels or as an entirety in connection with the exercise of
any such remedies.
14. OBLIGATIONS ABSOLUTE. No invalidity, irregularity or unenforceability
of all or any part of the Combined Obligations of any Borrower shall affect,
impair or be a defense to the Indebtedness or Combined Obligations of any other
Borrower, and the liability of each Borrower under this Agreement and the Loan
Documents with respect to the Indebtedness of each other Borrower shall be
primary, absolute and unconditional notwithstanding the occurrence of any event
or the existence of any other circumstances which might constitute a legal or
equitable discharge of a surety or guarantor for the Indebtedness of any other
Borrower except payment and performance in full of that other Borrower's
Indebtedness.
15. NON-RECOURSE LIABILITY. The personal liability of each Borrower for
its Combined Obligations under this Agreement shall be limited to the same
extent as its personal liability with respect to its own Indebtedness, as set
forth in Paragraph 9 of its Note, and such limitation shall be subject to the
same exceptions as are set forth in Paragraph 9 of that Note.
16. NOTICES. All notices to each Borrower under this Agreement shall be in
writing and shall be given in the manner provided in that Borrower's Mortgage
for notices to that Borrower. All notices to the Lender by any Borrower under
this Agreement shall be in writing and shall be given in the manner in that
Borrower's Mortgage for notices to the Lender.
17. GOVERNING LAW. The parties intend that the Lender will assign the
Loans, the Mortgages and this Agreement to the Federal Home Loan Mortgage
Corporation, a congressionally-chartered government-sponsored enterprise having
its principal place of business in McLean, Virginia. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
18. CAPTIONS, CROSS REFERENCES AND EXHIBITS. The captions assigned to
provisions of this Agreement are for convenience only and shall be disregarded
in construing this Agreement. Any reference in this Agreement to a "Section", a
"Subsection" or an "Exhibit" shall, unless otherwise explicitly provided, be
construed as referring to a section of this Agreement, to a subsection of the
section of this Agreement in which the reference appears or to an Exhibit
attached to this Agreement. All Exhibits referred to in this Agreement are
hereby incorporated by reference.
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 9
<PAGE> 10
19. NUMBER AND GENDER. Use of the singular in this Agreement includes the
plural, use of the plural includes the singular, and use of one gender includes
all other genders, as the context may require.
20. STATUTES AND REGULATIONS. Any reference in this Agreement to a statute
or regulation shall include all amendments to and successors to such statute or
regulation, whether adopted before or after the date of this Agreement.
21. NO PARTNERSHIP. This Agreement is not intended to, and shall not,
create a partnership or joint venture among the parties, and no party to this
Agreement shall have the power or authority to bind any other party except as
explicitly provided in this Agreement.
22. SUCCESSORS AND ASSIGNS.
(a) Except as provided in Subsection (b), no party to this Agreement may
assign its rights or delegate its obligations under this Agreement without the
prior written consent of all other parties.
(b) The Borrowers hereby consent to the Lender's assignment of the Loans,
the Mortgages and this Agreement to the Federal Home Loan Mortgage Corporation.
(c) This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective heirs, successors, and permitted assigns.
23. SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity of any other provision, and all
other provisions shall remain in full force and effect.
24. ENTIRE AGREEMENT. This Agreement, together with the Note, Mortgage and
Loan Documents relating to each Loan, contains the entire agreement among the
parties as to the rights granted and the obligations assumed in this Agreement.
25. WAIVER; NO REMEDY EXCLUSIVE. Any forbearance by a party to this
Agreement in exercising any right or remedy given under this Agreement or
existing at law or in equity shall not constitute a waiver of or preclude the
exercise of that or any other right or remedy. Unless otherwise explicitly
provided, no remedy under this Agreement is intended to be exclusive of any
other available remedy, but each remedy shall be cumulative and shall be in
addition to other remedies given under this Agreement or existing at law or in
equity.
26. THIRD PARTY BENEFICIARIES. Neither any creditor of any party to this
Agreement, nor any other person, is intended to be a third party beneficiary of
this Agreement.
27. COURSE OF DEALING. No course of dealing among the parties to this
Agreement shall operate as a waiver of any rights of any party under this
Agreement.
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 10
<PAGE> 11
28. FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. To the extent permitted
by law, the parties shall, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, such supplements to this
Agreement and such further instruments as may reasonably be required for
carrying out the intention of or facilitating the performance of this Agreement.
29. NO PARTY DEEMED DRAFTER. No party shall be deemed the drafter of this
Agreement, and this Agreement shall not be construed against either party as the
drafter of the Agreement.
30. WAIVER OF TRIAL BY JURY. EACH BORROWER AND THE LENDER (A) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF
THIS AGREEMENT THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT
EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT
LEGAL COUNSEL.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 11
<PAGE> 12
SUNRISE ABINGTON ASSISTED LIVING, L.L.C.,
a Pennsylvania limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Abington Assisted Living, L.L.C., a Pennsylvania limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/ Marie B. Corpening
- --------------
Title: Notary Public
- ----------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 12
<PAGE> 13
SUNRISE GRANITE RUN ASSISTED
LIVING, L.L.C.,
a Pennsylvania limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
---------------------------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this
person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Granite Run Assisted Living, L.L.C., a Pennsylvania limited liability company,
and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/ Marie B. Corpening
- --------------
Title: Notary Public
- ---------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 13
<PAGE> 14
SUNRISE HAVERFORD ASSISTED LIVING,
L.L.C., a Pennsylvania limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Haverford Assisted Living, L.L.C., a Pennsylvania limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 14
<PAGE> 15
SUNRISE MORRIS PLAINS ASSISTED LIVING,
L.L.C., a New Jersey limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Morris Plains Assisted Living, L.L.C., a New Jersey limited liability company,
and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 15
<PAGE> 16
SUNRISE OLD TAPPAN ASSISTED LIVING,
L.L.C., a New Jersey limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise Old
Tappan Assisted Living, L.L.C., a New Jersey limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notrary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 16
<PAGE> 17
SUNRISE SPRINGFIELD ASSISTED LIVING,
L.L.C., a Virginia limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Springfield Assisted Living, L.L.C., a Virginia limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 17
<PAGE> 18
SUNRISE WAYNE ASSISTED LIVING, L.L.C., a
New Jersey limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Wayne Assisted Living, L.L.C., a New Jersey limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 18
<PAGE> 19
SUNRISE WESTFIELD ASSISTED LIVING,
L.L.C., a New Jersey limited liability company
By: Sunrise Assisted Living Investments, Inc., a
Virginia corporation, Managing Member
By: /s/ James S. Pope
--------------------
James S. Pope, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, James S. Pope personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of Sunrise Assisted
Living Investments, Inc., a Virginia corporation, Managing Member of Sunrise
Westfield Assisted Living, L.L.C., a New Jersey limited liability company, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument as the act of such corporation on
behalf of, and as the voluntary act of, such limited liability company.
Name: /s/Marie B. Corpening
- ---------------
Title: Notary Public
- --------------------
My commission expires: 5/14/2000
-- -----
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 19
<PAGE> 20
GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation
By: /s/ Philip A. Brooks
--------------------------------
Philip A. Brooks, Vice President
CITY OF WASHINGTON )
) SS:
DISTRICT OF COLUMBIA )
I certify that on May 20, 1999, Philip Brooks personally appeared before me
and this person acknowledged under oath, to my satisfaction, that this person:
(a) signed the attached instrument as Vice President of GMAC Commercial
Mortgage Corporation, a California corporation, and
(b) was authorized to execute the attached instrument on behalf of such
corporation; and
(c) executed the attached instrument on behalf of, and as the voluntary act
of, such corporation.
Name: /s/ Marie B. Corpening
-- -------
Title: Notary Public
-- ----------------
My commission expires: 5/14/2000
- --
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 20
<PAGE> 21
EXHIBIT A-1
[ABINGTON LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 21
<PAGE> 22
EXHIBIT A-2
[GRANITE RUN LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 22
<PAGE> 23
EXHIBIT A-3
[HAVERFORD LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 23
<PAGE> 24
EXHIBIT A-4
[MORRIS PLAINS LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 24
<PAGE> 25
EXHIBIT A-5
[OLD TAPPAN LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 25
<PAGE> 26
EXHIBIT A-6
[SPRINGFIELD LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 26
<PAGE> 27
EXHIBIT A-7
[WAYNE LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 27
<PAGE> 28
EXHIBIT A-8
[WESTFIELD LEGAL DESCRIPTION]
CROSS-COLLATERALIZATION AGREEMENT (FREDDIE MAC) PAGE 28
<PAGE> 1
Exhibit 10.2
Freddie Mac Loan No.: 002680246
EXCEPTIONS TO NON-RECOURSE GUARANTY
-----------------------------------
(MULTISTATE)
This Exceptions to Non-Recourse Guaranty ("GUARANTY") is entered
into as of May 20, 1999, by the undersigned person(s) (the "GUARANTOR" whether
one or more), for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a
California corporation, and/or any subsequent holder of the Note (the "LENDER").
RECITALS
A. SUNRISE HAVERFORD ASSISTED LIVING, L.L.C., a Pennsylvania limited
liability company (the "BORROWER") has requested that Lender make a loan to
Borrower in the amount of $8,850,000.00 (the "LOAN"). The Loan will be evidenced
by a Multifamily Note from Borrower to Lender dated as of the date of this
Guaranty (the "NOTE"). The Note will be secured by a Multifamily Mortgage, Deed
of Trust, or Deed to Secure Debt dated the same date as the Note (the "SECURITY
INSTRUMENT"), encumbering the real property described in the Security Instrument
(the "PROPERTY").
B. As a condition to making the Loan to Borrower, Lender requires
that the Guarantor execute this Guaranty.
NOW, THEREFORE, in order to induce Lender to make the Loan to
Borrower, and in consideration thereof, Guarantor agrees as follows:
1. "Indebtedness" and other capitalized terms used but not defined
in this Guaranty shall have the meanings assigned to them in the Security
Instrument.
2. Guarantor hereby absolutely, unconditionally and irrevocably
guarantees to Lender the full and prompt payment when due, whether at maturity
or earlier, by reason of acceleration or otherwise, and at all times thereafter,
and the full and prompt performance when due, of all of the following:
(a) All amounts for which Borrower is personally liable
under Paragraphs 9(c) through 9(f) of the Note.
(b) The payment and performance of all of Borrower's
obligations under Section 18 of the Security Instrument.
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 1
(FREDDIE MAC) -- MULTISTATE
<PAGE> 2
(c) The entire Indebtedness, in the event that (i) Borrower
voluntarily files for bankruptcy protection under the
United States Bankruptcy Code or voluntarily becomes
subject to any reorganization, receivership, insolvency
proceeding or other similar proceeding pursuant to any
other federal or state law affecting debtor and creditor
rights, or (ii) an order for relief is entered against
Borrower in any involuntary bankruptcy filing by any
creditor of Borrower (other than Lender) pursuant to the
United States Bankruptcy Code or other federal or state
law affecting debtor and creditor rights.
(d) All costs and expenses, including reasonable fees and
out of pocket expenses of attorneys and expert
witnesses, incurred by Lender in enforcing its rights
under this Guaranty.
For purposes of determining Guarantor's liability under this Guaranty, all
payments made by Borrower with respect to the Indebtedness and all amounts
received by Lender from the enforcement of its rights under the Security
Instrument shall be applied first to the portion of the Indebtedness for which
neither Borrower nor Guarantor has personal liability.
3. The obligations of Guarantor under this Guaranty shall survive
any foreclosure proceeding, any foreclosure sale, any delivery of any deed in
lieu of foreclosure, and any release of record of the Security Instrument, and,
in addition, the obligations of Guarantor relating to Borrower's obligations
under Section 18 of the Security Instrument shall survive any repayment or
discharge of the Indebtedness.
4. Guarantor's obligations under this Guaranty constitute an
unconditional guaranty of payment and not merely a guaranty of collection.
5. The obligations of Guarantor under this Guaranty shall be
performed without demand by Lender and shall be unconditional irrespective of
the genuineness, validity, regularity or enforceability of the Note, the
Security Instrument, or any other Loan Document, and without regard to any other
circumstance which might otherwise constitute a legal or equitable discharge of
a surety or a guarantor. Guarantor hereby waives the benefit of all principles
or provisions of law, statutory or otherwise, which are or might be in conflict
with the terms of this Guaranty and agrees that Guarantor's obligations shall
not be affected by any circumstances, whether or not referred to in this
Guaranty, which might otherwise constitute a legal or equitable discharge of a
surety or a guarantor. Guarantor hereby waives the benefits of any right of
discharge under any and all statutes or other laws relating to guarantors or
sureties and any other rights of sureties and guarantors thereunder. Without
limiting the generality of the foregoing, Guarantor hereby waives, to the
fullest extent permitted by law, diligence in collecting the Indebtedness,
presentment, demand for payment, protest, all notices with respect to the Note
and this Guaranty which may be required by statute, rule of law or otherwise to
preserve Lender's rights against Guarantor under this Guaranty, including, but
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 2
(FREDDIE MAC) -- MULTISTATE
<PAGE> 3
not limited to, notice of acceptance, notice of any amendment of the Loan
Documents, notice of the occurrence of any default or Event of Default, notice
of intent to accelerate, notice of acceleration, notice of dishonor, notice of
foreclosure, notice of protest, and notice of the incurring by Borrower of any
obligation or indebtedness. Guarantor also waives, to the fullest extent
permitted by law, all rights to require Lender to (a) proceed against Borrower
or any other guarantor of Borrower's payment or performance with respect to the
Indebtedness (an "OTHER GUARANTOR") (b) if Borrower or any Other Guarantor is a
partnership, proceed against any general partner of Borrower or the Other
Guarantor, (c) proceed against or exhaust any collateral held by Lender to
secure the repayment of the Indebtedness, or (d) pursue any other remedy it may
now or hereafter have against Borrower, or, if Borrower is a partnership, any
general partner of Borrower.
6. At any time or from time to time and any number of times, without
notice to Guarantor and without affecting the liability of Guarantor, (a) the
time for payment of the principal of or interest on the Indebtedness may be
extended or the Indebtedness may be renewed in whole or in part; (b) the time
for Borrower's performance of or compliance with any covenant or agreement
contained in the Note, the Security Instrument or any other Loan Document,
whether presently existing or hereinafter entered into, may be extended or such
performance or compliance may be waived; (c) the maturity of the Indebtedness
may be accelerated as provided in the Note, the Security Instrument, or any
other Loan Document; (d) the Note, the Security Instrument, or any other Loan
Document may be modified or amended by Lender and Borrower in any respect,
including, but not limited to, an increase in the principal amount; and (e) any
security for the Indebtedness may be modified, exchanged, surrendered or
otherwise dealt with or additional security may be pledged or mortgaged for the
Indebtedness.
7. If more than one person executes this Guaranty, the obligations
of those persons under this Guaranty shall be joint and several. Lender, in its
sole and absolute discretion, may (a) bring suit against Guarantor, or any one
or more of the persons constituting Guarantor, and any Other Guarantor, jointly
and severally, or against any one or more of them; (b) compromise or settle with
any one or more of the persons constituting Guarantor for such consideration as
Lender may deem proper; (c) release one or more of the persons constituting
Guarantor, or any Other Guarantor, from liability; and (d) otherwise deal with
Guarantor and any Other Guarantor, or any one or more of them, in any manner,
and no such action shall impair the rights of Lender to collect from Guarantor
any amount guaranteed by Guarantor under this Guaranty. Nothing contained in
this paragraph shall in any way affect or impair the rights or obligations of
Guarantor with respect to any Other Guarantor.
8. Any indebtedness of Borrower held by Guarantor now or in the
future is and shall be subordinated to the Indebtedness and any such
indebtedness of Borrower shall be collected, enforced and received by Guarantor,
as trustee for Lender, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
9. Guarantor shall have no right of, and hereby waives any claim
for, subrogation or
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 3
(FREDDIE MAC) -- MULTISTATE
<PAGE> 4
reimbursement against Borrower or any general partner of Borrower by reason of
any payment by Guarantor under this Guaranty, whether such right or claim arises
at law or in equity or under any contract or statute, until the Indebtedness has
been paid in full and there has expired the maximum possible period thereafter
during which any payment made by Borrower to Lender with respect to the
Indebtedness could be deemed a preference under the United States Bankruptcy
Code.
10. If any payment by Borrower is held to constitute a preference
under any applicable bankruptcy, insolvency, or similar laws, or if for any
other reason Lender is required to refund any sums to Borrower, such refund
shall not constitute a release of any liability of Guarantor under this
Guaranty. It is the intention of Lender and Guarantor that Guarantor's
obligations under this Guaranty shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such performance.
11. Guarantor shall from time to time, upon request by Lender,
deliver to Lender such financial statements as Lender may reasonably require.
12. Lender may assign its rights under this Guaranty in whole or in
part and upon any such assignment, all the terms and provisions of this Guaranty
shall inure to the benefit of such assignee to the extent so assigned. The terms
used to designate any of the parties herein shall be deemed to include the
heirs, legal representatives, successors and assigns of such parties; and the
term "LENDER" shall include, in addition to Lender, any lawful owner, holder or
pledgee of the Note.
13. This Guaranty and the other Loan Documents represent the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements. There are no unwritten oral
agreements between the parties. All prior or contemporaneous agreements,
understandings, representations, and statements, oral or written, are merged
into this Guaranty and the other Loan Documents. Guarantor acknowledges that it
has received copies of the Note and all other Loan Documents. Neither this
Guaranty nor any of its provisions may be waived, modified, amended, discharged,
or terminated except by an agreement in writing signed by the party against
which the enforcement of the waiver, modification, amendment, discharge, or
termination is sought, and then only to the extent set forth in that agreement.
14. Guarantor agrees that any controversy arising under or in
relation to this Guaranty shall be litigated exclusively in the jurisdiction
where the Land is located (the "PROPERTY JURISDICTION"). The state and federal
courts and authorities with jurisdiction in the Property Jurisdiction shall have
exclusive jurisdiction over all controversies which shall arise under or in
relation to this Guaranty, the Note, the Security Instrument or any other Loan
Document. Guarantor irrevocably consents to service, jurisdiction, and venue of
such courts for any such litigation and waives any other venue to which it might
be entitled by virtue of domicile, habitual residence or otherwise.
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 4
(FREDDIE MAC) -- MULTISTATE
<PAGE> 5
15. GUARANTOR AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY
JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS GUARANTY OR THE RELATIONSHIP
BETWEEN THE PARTIES AS GUARANTOR AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY
AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE
EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO
TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH
THE BENEFIT OF COMPETENT LEGAL COUNSEL.
ATTACHED EXHIBIT. The following Exhibit is attached to this
Guaranty:
|__| Exhibit A Modifications to Guaranty
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 5
(FREDDIE MAC) -- MULTISTATE
<PAGE> 6
IN WITNESS WHEREOF, Guarantor has signed and delivered this Guaranty
or has caused this Guaranty to be signed and delivered by its duly authorized
representative.
GUARANTOR:
SUNRISE ASSISTED LIVING, INC., a Delaware
corporation
By:____/s/ Thomas B. Newell_________(Seal)
Thomas B. Newell
Executive Vice President and Assistant
Secretary
By:____/s/ David W. Faeder_____________(Seal)
David W. Faeder
President
Address: __Sunrise Assisted Living
__9401 Lee Highway, Suite 300
__Fairfax, VA 22031_________
----------------------------
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 6
(FREDDIE MAC) -- MULTISTATE
<PAGE> 7
STATE OF ____Virginia__________ :
: ss:
COUNTY OF __Fairfax___________ :
ON THIS _10th day of May, 1999, before me, the undersigned officer,
personally appeared Thomas B. Newell, who acknowledged himself to be the
Executive Vice President and Assistant Secretary of SUNRISE ASSISTED LIVING,
INC., a Delaware corporation, and that he as such Executive Vice President and
Assistant Secretary, being authorized to do so, executed the foregoing
instrument for the purposes therein contained by signing the name of the
foregoing corporation by himself as such Executive Vice President and Assistant
Secretary.
____/s/ Susan L. Timoner__________________
Notary Public
My Commission Expires:
8/31/99
STATE OF __Virginia___________:
: ss:
COUNTY OF _Farifax____________ :
ON THIS 10th day of May, 1999, before me, the undersigned officer,
personally appeared David W. Faeder, who acknowledged himself to be the
President of SUNRISE ASSISTED LIVING, INC., a Delaware corporation, and that he
as such President, being authorized to do so, executed the foregoing instrument
for the purposes therein contained by signing the name of the foregoing
corporation by himself as such President.
___/s/ Susan L. Timoner___________________
Notary Public
My Commission Expires:
8/31/99
EXCEPTIONS TO NON-RECOURSE GUARANTY PAGE 7
(FREDDIE MAC) -- MULTISTATE
<PAGE> 1
Exhibit 10.3
Freddie Mac Loan No.: 002680246
MULTIFAMILY NOTE
----------------
(MULTISTATE)
US $8,850,000.00 May 20, 1999
FOR VALUE RECEIVED, the undersigned ("BORROWER") jointly and
severally (if more than one) promises to pay to the order of GMAC Commercial
Mortgage Corporation, a California corporation, the principal sum of Eight
Million Eight Hundred Fifty Thousand and 00/100 Dollars (US $8,850,000.00), with
interest on the unpaid principal balance at the annual rate of seven and one
hundred thirty-five thousandths percent (7.135%).
1. DEFINED TERMS. As used in this Note, (i) the term "LENDER" means
the holder of this Note, and (ii) the term "INDEBTEDNESS" means the principal
of, interest on, or any other amounts due at any time under, this Note, the
Security Instrument or any other Loan Document, including prepayment premiums,
late charges, default interest, and advances to protect the security of the
Security Instrument under Section 12 of the Security Instrument. "Event of
Default" and other capitalized terms used but not defined in this Note shall
have the meanings given to such terms in the Security Instrument.
2. ADDRESS FOR PAYMENT. All payments due under this Note shall be
payable at c/o GMAC Commercial Mortgage Corporation, 650 Dresher Road, P.O. Box
1015, Horsham, Pennsylvania 19044-8015, or such other place as may be designated
by written notice to Borrower from or on behalf of Lender.
3. PAYMENT OF PRINCIPAL AND INTEREST. Principal and interest shall
be paid as follows:
(a) Unless disbursement of principal is made by Lender to Borrower
on the first day of the month, interest for the period beginning on the date of
disbursement and ending on and including the last day of the month in which such
disbursement is made shall be payable simultaneously with the execution of this
Note. Interest under this Note shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
(b) Consecutive monthly installments of principal and interest, each
in the amount of Sixty-Three Thousand Three Hundred Fourteen and 18/100 Dollars
(US $63,314.18), shall be payable on the first day of each month beginning on
July 1, 1999, until the entire unpaid principal balance evidenced by this Note
is fully paid. Any accrued interest remaining past due for 30 days or more shall
be added to and become part of the unpaid principal balance and shall bear
interest at the rate or rates specified in this Note, and any reference below to
"accrued interest" shall refer to accrued interest which has not become part of
the unpaid principal balance. Any remaining principal
- --------------------------------------------------------------------------------
MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 1
<PAGE> 2
and interest shall be due and payable on June 1, 2009 or on any earlier date on
which the unpaid principal balance of this Note becomes due and payable, by
acceleration or otherwise (the "MATURITY DATE"). The unpaid principal balance
shall continue to bear interest after the Maturity Date at the Default Rate set
forth in this Note until and including the date on which it is paid in full.
(c) Any regularly scheduled monthly installment of principal and
interest that is received by Lender before the date it is due shall be deemed to
have been received on the due date solely for the purpose of calculating
interest due.
4. APPLICATION OF PAYMENTS. If at any time Lender receives, from
Borrower or otherwise, any amount applicable to the Indebtedness which is less
than all amounts due and payable at such time, Lender may apply that payment to
amounts then due and payable in any manner and in any order determined by
Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance
of a payment from Borrower in an amount that is less than all amounts then due
and payable nor Lender's application of such payment shall constitute or be
deemed to constitute either a waiver of the unpaid amounts or an accord and
satisfaction.
5. SECURITY. The Indebtedness is secured, among other things, by a
multifamily mortgage, deed to secure debt or deed of trust dated as of the date
of this Note (the "SECURITY INSTRUMENT"), and reference is made to the Security
Instrument for other rights of Lender as to collateral for the Indebtedness.
6. ACCELERATION. If an Event of Default has occurred and is
continuing, the entire unpaid principal balance, any accrued interest, the
prepayment premium payable under Paragraph 10, if any, and all other amounts
payable under this Note and any other Loan Document shall at once become due and
payable, at the option of Lender, without any prior notice to Borrower. Lender
may exercise this option to accelerate regardless of any prior forbearance.
7. LATE CHARGE. If any monthly amount payable under this Note or
under the Security Instrument or any other Loan Document is not received by
Lender within ten (10) days after the amount is due, Borrower shall pay to
Lender, immediately and without demand by Lender, a late charge equal to five
percent of such amount. Borrower acknowledges that its failure to make timely
payments will cause Lender to incur additional expenses in servicing and
processing the loan evidenced by this Note (the "LOAN"), and that it is
extremely difficult and impractical to determine those additional expenses.
Borrower agrees that the late charge payable pursuant to this Paragraph
represents a fair and reasonable estimate, taking into account all circumstances
existing on the date of this Note, of the additional expenses Lender will incur
by reason of such late payment. The late charge is payable in addition to, and
not in lieu of, any interest payable at the Default Rate pursuant to Paragraph
8.
8. DEFAULT RATE. So long as (a) any monthly installment under this
Note remains past due for 30 days or more, or (b) any other Event of Default has
occurred and is continuing, interest under this Note shall accrue on the unpaid
principal balance from the earlier of the due date of the
- --------------------------------------------------------------------------------
MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 2
<PAGE> 3
first unpaid monthly installment or the occurrence of such other Event of
Default, as applicable, at a rate (the "DEFAULT RATE") equal to the lesser of 4
percentage points above the rate stated in the first paragraph of this Note or
the maximum interest rate which may be collected from Borrower under applicable
law. If the unpaid principal balance and all accrued interest are not paid in
full on the Maturity Date, the unpaid principal balance and all accrued interest
shall bear interest from the Maturity Date at the Default Rate. Borrower also
acknowledges that its failure to make timely payments will cause Lender to incur
additional expenses in servicing and processing the Loan, that, during the time
that any monthly installment under this Note is delinquent for more than 30
days, Lender will incur additional costs and expenses arising from its loss of
the use of the money due and from the adverse impact on Lender's ability to meet
its other obligations and to take advantage of other investment opportunities,
and that it is extremely difficult and impractical to determine those additional
costs and expenses. Borrower also acknowledges that, during the time that any
monthly installment under this Note is delinquent for more than 30 days or any
other Event of Default has occurred and is continuing, Lender's risk of
nonpayment of this Note will be materially increased and Lender is entitled to
be compensated for such increased risk. Borrower agrees that the increase in the
rate of interest payable under this Note to the Default Rate represents a fair
and reasonable estimate, taking into account all circumstances existing on the
date of this Note, of the additional costs and expenses Lender will incur by
reason of the Borrower's delinquent payment and the additional compensation
Lender is entitled to receive for the increased risks of nonpayment associated
with a delinquent loan.
9. LIMITS ON PERSONAL LIABILITY.
(a) Except as otherwise provided in this Paragraph 9, Borrower shall
have no personal liability under this Note, the Security Instrument or any other
Loan Document for the repayment of the Indebtedness or for the performance of
any other obligations of Borrower under the Loan Documents, and Lender's only
recourse for the satisfaction of the Indebtedness and the performance of such
obligations shall be Lender's exercise of its rights and remedies with respect
to the Mortgaged Property and any other collateral held by Lender as security
for the Indebtedness. This limitation on Borrower's liability shall not limit or
impair Lender's enforcement of its rights against any guarantor of the
Indebtedness or any guarantor of any obligations of Borrower.
(b) Borrower shall be personally liable to Lender for the repayment
of a portion of the Indebtedness equal to zero percent (0%) of the unpaid
principal balance of this Note, plus any other amounts for which Borrower has
personal liability under this Paragraph 9.
(c) In addition to Borrower's personal liability under Paragraph
9(b), Borrower shall be personally liable to Lender for the repayment of a
further portion of the Indebtedness equal to any loss or damage suffered by
Lender as a result of (1) failure of Borrower to pay to Lender upon demand after
an Event of Default all Rents to which Lender is entitled under Section 3(a) of
the Security Instrument and the amount of all security deposits collected by
Borrower from tenants then in residence; (2) failure of Borrower to apply all
insurance proceeds and condemnation proceeds as required by the Security
Instrument; or (3) failure of Borrower to comply with Section 14(d) or (e)
- --------------------------------------------------------------------------------
MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 3
<PAGE> 4
of the Security Instrument relating to the delivery of books and records,
statements, schedules and reports.
(d) For purposes of determining Borrower's personal liability under
Paragraph 9(b) and Paragraph 9(c), all payments made by Borrower or any
guarantor of this Note with respect to the Indebtedness and all amounts received
by Lender from the enforcement of its rights under the Security Instrument shall
be applied first to the portion of the Indebtedness for which Borrower has no
personal liability.
(e) Borrower shall become personally liable to Lender for the
repayment of all of the Indebtedness upon the occurrence of any of the following
Events of Default: (1) Borrower's acquisition of any property or operation of
any business not permitted by Section 33 of the Security Instrument; (2) a
Transfer (including, but not limited to, a lien or encumbrance) that is an Event
of Default under Section 21 of the Security Instrument, other than a Transfer
consisting solely of the involuntary removal or involuntary withdrawal of a
general partner in a limited partnership or a manager in a limited liability
company; or (3) fraud or written material misrepresentation by Borrower or any
officer, director, partner, member or employee of Borrower in connection with
the application for or creation of the Indebtedness or any request for any
action or consent by Lender.
(f) In addition to any personal liability for the Indebtedness,
Borrower shall be personally liable to Lender for (1) the performance of all of
Borrower's obligations under Section 18 of the Security Instrument (relating to
environmental matters); (2) the costs of any audit under Section 14(d) of the
Security Instrument; and (3) any costs and expenses incurred by Lender in
connection with the collection of any amount for which Borrower is personally
liable under this Paragraph 9, including fees and out of pocket expenses of
attorneys and expert witnesses and the costs of conducting any independent audit
of Borrower's books and records to determine the amount for which Borrower has
personal liability.
(g) To the extent that Borrower has personal liability under this
Paragraph 9, Lender may exercise its rights against Borrower personally without
regard to whether Lender has exercised any rights against the Mortgaged Property
or any other security, or pursued any rights against any guarantor, or pursued
any other rights available to Lender under this Note, the Security Instrument,
any other Loan Document or applicable law. For purposes of this Paragraph 9, the
term "MORTGAGED PROPERTY" shall not include any funds that (1) have been applied
by Borrower as required or permitted by the Security Instrument prior to the
occurrence of an Event of Default or (2) Borrower was unable to apply as
required or permitted by the Security Instrument because of a bankruptcy,
receivership, or similar judicial proceeding.
10. VOLUNTARY AND INVOLUNTARY PREPAYMENTS.
(a) A prepayment premium shall be payable in connection with any
prepayment made under this Note as provided below:
- --------------------------------------------------------------------------------
MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 4
<PAGE> 5
(1) Borrower may voluntarily prepay all of the unpaid principal
balance of this Note on the last Business Day of a calendar month if Borrower
has given Lender at least 30 days prior notice of its intention to make such
prepayment. Such prepayment shall be made by paying (A) the amount of principal
being prepaid, (B) all accrued interest, (C) all other sums due Lender at the
time of such prepayment, and (D) the prepayment premium calculated pursuant to
Schedule A. For all purposes including the accrual of interest, any prepayment
received by Lender on any day other than the last calendar day of the month
shall be deemed to have been received on the last calendar day of such month.
For purposes of this Note, a "BUSINESS DAY" means any day other than a Saturday,
Sunday or any other day on which Lender is not open for business. Borrower shall
not have the option to voluntarily prepay less than all of the unpaid principal
balance.
(2) Upon Lender's exercise of any right of acceleration under
this Note, Borrower shall pay to Lender, in addition to the entire unpaid
principal balance of this Note outstanding at the time of the acceleration, (A)
all accrued interest and all other sums due Lender, and (B) the prepayment
premium calculated pursuant to Schedule A.
(3) Any application by Lender of any collateral or other
security to the repayment of any portion of the unpaid principal balance of this
Note prior to the Maturity Date and in the absence of acceleration shall be
deemed to be a partial prepayment by Borrower, requiring the payment to Lender
by Borrower of a prepayment premium. The amount of any such partial prepayment
shall be computed so as to provide to Lender a prepayment premium computed
pursuant to Schedule A without Borrower having to pay out-of-pocket any
additional amounts.
(b) Notwithstanding the provisions of Paragraph 10(a), no prepayment
premium shall be payable with respect to (A) any prepayment made no more than
180 days before the Maturity Date, or (B) any prepayment occurring as a result
of the application of any insurance proceeds or condemnation award under the
Security Instrument.
(c) Schedule A is hereby incorporated by reference into this Note.
(d) Any permitted or required prepayment of less than the unpaid
principal balance of this Note shall not extend or postpone the due date of any
subsequent monthly installments or change the amount of such installments,
unless Lender agrees otherwise in writing.
(e) Borrower recognizes that any prepayment of the unpaid principal
balance of this Note, whether voluntary or involuntary or resulting from a
default by Borrower, will result in Lender's incurring loss, including
reinvestment loss, additional expense and frustration or impairment of Lender's
ability to meet its commitments to third parties. Borrower agrees to pay to
Lender upon demand damages for the detriment caused by any prepayment, and
agrees that it is extremely difficult and impractical to ascertain the extent of
such damages. Borrower therefore acknowledges and agrees that the formula for
calculating prepayment premiums set forth on Schedule A represents a reasonable
estimate of the damages Lender will incur because of a prepayment.
- --------------------------------------------------------------------------------
MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 5
<PAGE> 6
(f) Borrower further acknowledges that the prepayment premium
provisions of this Note are a material part of the consideration for the Loan,
and acknowledges that the terms of this Note are in other respects more
favorable to Borrower as a result of the Borrower's voluntary agreement to the
prepayment premium provisions.
11. COSTS AND EXPENSES. Borrower shall pay all expenses and costs,
including fees and out-of-pocket expenses of attorneys and expert witnesses and
costs of investigation, incurred by Lender as a result of any default under this
Note or in connection with efforts to collect any amount due under this Note, or
to enforce the provisions of any of the other Loan Documents, including those
incurred in post-judgment collection efforts and in any bankruptcy proceeding
(including any action for relief from the automatic stay of any bankruptcy
proceeding) or judicial or non-judicial foreclosure proceeding.
12. FORBEARANCE. Any forbearance by Lender in exercising any right
or remedy under this Note, the Security Instrument, or any other Loan Document
or otherwise afforded by applicable law, shall not be a waiver of or preclude
the exercise of that or any other right or remedy. The acceptance by Lender of
any payment after the due date of such payment, or in an amount which is less
than the required payment, shall not be a waiver of Lender's right to require
prompt payment when due of all other payments or to exercise any right or remedy
with respect to any failure to make prompt payment. Enforcement by Lender of any
security for Borrower's obligations under this Note shall not constitute an
election by Lender of remedies so as to preclude the exercise of any other right
or remedy available to Lender.
13. WAIVERS. Presentment, demand, notice of dishonor, protest,
notice of acceleration, notice of intent to demand or accelerate payment or
maturity, presentment for payment, notice of nonpayment, grace, and diligence in
collecting the Indebtedness are waived by Borrower and all endorsers and
guarantors of this Note and all other third party obligors.
14. LOAN CHARGES. If any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower in connection
with the Loan is interpreted so that any interest or other charge provided for
in any Loan Document, whether considered separately or together with other
charges provided for in any other Loan Document, violates that law, and Borrower
is entitled to the benefit of that law, that interest or charge is hereby
reduced to the extent necessary to eliminate that violation. The amounts, if
any, previously paid to Lender in excess of the permitted amounts shall be
applied by Lender to reduce the unpaid principal balance of this Note. For the
purpose of determining whether any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower has been
violated, all Indebtedness that constitutes interest, as well as all other
charges made in connection with the Indebtedness that constitute interest, shall
be deemed to be allocated and spread ratably over the stated term of the Note.
Unless otherwise required by applicable law, such allocation and spreading shall
be effected in such a manner that the rate of interest so computed is uniform
throughout the stated term of the Note.
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 6
<PAGE> 7
15. COMMERCIAL PURPOSE. Borrower represents that the Indebtedness is
being incurred by Borrower solely for the purpose of carrying on a business or
commercial enterprise, and not for personal, family or household purposes.
16. COUNTING OF DAYS. Except where otherwise specifically provided,
any reference in this Note to a period of "days" means calendar days, not
Business Days.
17. GOVERNING LAW. This Note shall be governed by the law of the
jurisdiction in which the Land is located.
18. CAPTIONS. The captions of the paragraphs of this Note are for
convenience only and shall be disregarded in construing this Note.
19. NOTICES. All notices, demands and other communications required
or permitted to be given by Lender to Borrower pursuant to this Note shall be
given in accordance with Section 31 of the Security Instrument.
20. CONSENT TO JURISDICTION AND VENUE. Borrower agrees that any
controversy arising under or in relation to this Note shall be litigated
exclusively in the jurisdiction in which the Land is located (the "PROPERTY
JURISDICTION"). The state and federal courts and authorities with jurisdiction
in the Property Jurisdiction shall have exclusive jurisdiction over all
controversies which shall arise under or in relation to this Note. Borrower
irrevocably consents to service, jurisdiction, and venue of such courts for any
such litigation and waives any other venue to which it might be entitled by
virtue of domicile, habitual residence or otherwise.
21. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT
TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR
THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF
RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH
ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER
OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
ATTACHED SCHEDULES. THE FOLLOWING SCHEDULES ARE ATTACHED TO THIS
NOTE:
|X | SCHEDULE A PREPAYMENT PREMIUM (REQUIRED)
|X | SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 7
<PAGE> 8
IN WITNESS WHEREOF, Borrower has signed and delivered this Note or
has caused this Note to be signed and delivered by its duly authorized
representative.
BORROWER:
WITNESS:
SUNRISE HAVERFORD ASSISTED LIVING,
L.L.C., a Pennsylvania limited liability company
By: SUNRISE ASSISTED LIVING
INVESTMENTS, INC., a Virginia
corporation, Managing Member
By:___/s/ James S. Pope___________(SEAL)
James S. Pope
Vice President
Print Name
/s/ Wayne G. Tatusko
Wayne G. Tatusko
PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION, WITHOUT RECOURSE
This 20th day of May, 1999.
GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation
By: ____/s/ Philip Brooks_____(SEAL)
Philip Brooks
Vice President
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE 8
<PAGE> 9
SCHEDULE A
PREPAYMENT PREMIUM
Any prepayment premium payable under Paragraph 10 of this Note shall be computed
as follows:
(a) If the prepayment is made between the date of this Note and the
date that is 114 months after the first day of the first calendar month
following the date of this Note (the "YIELD MAINTENANCE PERIOD"), the prepayment
premium shall be the greater of:
(i) 1.0% of the unpaid principal balance of this Note; or
(ii) the product obtained by multiplying:
(A) the amount of principal being prepaid,
by
(B) the excess (if any) of the Monthly Note Rate
over the Assumed Reinvestment Rate,
by
(C) the Present Value Factor.
For purposes of subparagraph (ii), the following
definitions shall apply:
MONTHLY NOTE RATE: one-twelfth (1/12) of the annual
interest rate of the Note, expressed as a decimal
calculated to five digits.
PREPAYMENT DATE: in the case of a voluntary prepayment,
the date on which the prepayment is made; in any other
case, the date on which Lender accelerates the unpaid
principal balance of the Note.
ASSUMED REINVESTMENT RATE: one-twelfth (1/12) of the
yield rate as of the date 5 Business Days before the
Prepayment Date, on the 4.750 % U.S. Treasury Security
due 11/01/2008, as reported in The Wall Street Journal,
expressed as a decimal calculated to five digits. In the
event that no yield is published on the applicable date
for the Treasury Security used to determine the Assumed
Reinvestment Rate, Lender, in its discretion, shall
select the non-callable Treasury Security maturing in
the same year as the Treasury Security specified above
with the lowest yield published in The Wall Street
Journal as of the applicable date. If the publication of
such yield rates in The Wall Street Journal is
discontinued for any reason, Lender shall select a
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE A-1
<PAGE> 10
security with a comparable rate and term to the Treasury
Security used to determine the Assumed Reinvestment
Rate. The selection of an alternate security pursuant to
this Paragraph shall be made in Lender's discretion.
PRESENT VALUE FACTOR: the factor that discounts to
present value the costs resulting to Lender from the
difference in interest rates during the months remaining
in the Yield Maintenance Period, using the Assumed
Reinvestment Rate as the discount rate, with monthly
compounding, expressed numerically as follows:
Install Equation Editor and double-
click here to view equation
n = number of months remaining in Yield Maintenance
Period
ARR = Assumed Reinvestment Rate
(b) If the prepayment is made after the expiration of the
Yield Maintenance Period, the prepayment premium shall be zero percent (0%) of
the unpaid balance.
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE A-2
<PAGE> 11
SCHEDULE B
MODIFICATIONS TO MULTIFAMILY NOTE
1. Section 9(c) of the Multifamily Note is amended to add the
following Subsection (4):
(4) Failure by Borrower to pay the amount of any hazard or other
insurance premiums in accordance with the terms of the
Security Instrument.
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MULTIFAMILY NOTE (FREDDIE MAC) - MULTISTATE PAGE B-1
<PAGE> 1
Exhibit 10.4
MULTIFAMILY MORTGAGE,
ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT
THIS MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(the "INSTRUMENT") is made as of the 20th day of May, 1999, between SUNRISE
HAVERFORD ASSISTED LIVING, L.L.C., a limited liability company organized and
existing under the laws of Pennsylvania, whose address is c/o Sunrise Assisted
Living Investments, Inc., 9401 Lee Highway, Suite 300, Fairfax, Virginia 22031,
as mortgagor ("BORROWER"), and GMAC COMMERCIAL MORTGAGE CORPORATION, a
corporation organized and existing under the laws of California, whose address
is 650 Dresher Road, P.O. Box 1015, Horsham, Pennsylvania 19044-8015, as
mortgagee ("LENDER").
Borrower is indebted to Lender in the principal amount of
$8,850,000.00, as evidenced by Borrower's Multifamily Note payable to Lender,
dated as of the date of this Instrument, and maturing on June 1, 2009.
TO SECURE TO LENDER the repayment of the Indebtedness, and all
renewals, extensions and modifications of the Indebtedness, and the performance
of the covenants and agreements of Borrower contained in the Loan Documents,
Borrower mortgages, warrants, grants, conveys and assigns to Lender the
Mortgaged Property, including the Land located in Montgomery County,
Commonwealth of Pennsylvania and described in Exhibit A attached to this
Instrument.
Borrower represents and warrants that Borrower is lawfully seized of
the Mortgaged Property and has the right, power and authority to mortgage,
grant, convey and assign the Mortgaged Property, and that the Mortgaged
Property is unencumbered. Borrower covenants that Borrower will warrant and
defend generally the title to the Mortgaged Property against all claims and
demands, subject to any easements and restrictions listed in a schedule of
exceptions to coverage in any title insurance policy issued to Lender
contemporaneously with the execution and recordation of this Instrument and
insuring Lender's interest in the Mortgaged Property.
COVENANTS. Borrower and Lender covenant and agree as follows:
1. DEFINITIONS. The following terms, when used in this Instrument
(including when used in the above recitals), shall have the following meanings:
(a) "BORROWER" means all persons or entities identified as
"Borrower" in the first paragraph of this Instrument, together with their
successors and assigns.
(b) "COLLATERAL AGREEMENT" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for
the Mortgaged Property, establishing
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 1
<PAGE> 2
a fund to assure the completion of repairs or improvements specified in that
agreement, or assuring reduction of the outstanding principal balance of the
Indebtedness if the occupancy of or income from the Mortgaged Property does not
increase to a level specified in that agreement, or any other agreement or
agreements between Borrower and Lender which provide for the establishment of
any other fund, reserve or account.
(c) "CONTROLLING ENTITY" means an entity which owns, directly or
indirectly through one or more intermediaries, (A) a general partnership
interest or more than 50% of the limited partnership interests in Borrower (if
Borrower is a partnership or joint venture), (B) a manager's interest in
Borrower or more than 50% of the ownership or membership interests in Borrower
(if Borrower is a limited liability company), or (C) more than 50% of any class
of voting stock of Borrower (if Borrower is a corporation).
(d) "ENVIRONMENTAL PERMIT" means any permit, license, or other
authorization issued under any Hazardous Materials Law with respect to any
activities or businesses conducted on or in relation to the Mortgaged Property.
(e) "EVENT OF DEFAULT" means the occurrence of any event listed in
Section 22.
(f) "FIXTURES" means all property which is so attached to the Land
or the Improvements as to constitute a fixture under applicable law, including:
machinery, equipment, engines, boilers, incinerators, installed building
materials; systems and equipment for the purpose of supplying or distributing
heating, cooling, electricity, gas, water, air, or light; antennas, cable,
wiring and conduits used in connection with radio, television, security, fire
prevention, or fire detection or otherwise used to carry electronic signals;
telephone systems and equipment; elevators and related machinery and equipment;
fire detection, prevention and extinguishing systems and apparatus; security
and access control systems and apparatus; plumbing systems; water heaters,
ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage disposers,
washers, dryers and other appliances; light fixtures, awnings, storm windows
and storm doors; pictures, screens, blinds, shades, curtains and curtain rods;
mirrors; cabinets, paneling, rugs and floor and wall coverings; fences, trees
and plants; swimming pools; and exercise equipment.
(g) "GOVERNMENTAL AUTHORITY" means any board, commission,
department or body of any municipal, county, state or federal governmental
unit, or any subdivision of any of them, that has or acquires jurisdiction over
the Mortgaged Property or the use, operation or improvement of the Mortgaged
Property.
(h) "HAZARDOUS MATERIALS" means petroleum and petroleum products
and compounds containing them, including gasoline, diesel fuel and oil;
explosives; flammable materials; radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become
friable; underground or above-ground storage tanks, whether empty or containing
any substance; any substance the presence of which on the Mortgaged Property is
prohibited by any federal, state or local authority; any substance that
requires special handling; and any other material or substance
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 2
<PAGE> 3
now or in the future defined as a "hazardous substance," "hazardous material,"
"hazardous waste," "toxic substance," "toxic pollutant," "contaminant," or
"pollutant" within the meaning of any Hazardous Materials Law.
(i) "HAZARDOUS MATERIALS LAWS" means all federal, state, and local
laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that
relate to Hazardous Materials and apply to Borrower or to the Mortgaged
Property. Hazardous Materials Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the
Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, and their state
analogs.
(j) "IMPOSITIONS" and "IMPOSITION DEPOSITS" are defined in Section
7(a).
(k) "IMPROVEMENTS" means the buildings, structures, improvements,
and alterations now constructed or at any time in the future constructed or
placed upon the Land, including any future replacements and additions.
(l) "INDEBTEDNESS" means the principal of, interest on, and all
other amounts due at any time under, the Note, this Instrument or any other
Loan Document, including prepayment premiums, late charges, default interest,
and advances as provided in Section 12 to protect the security of this
Instrument.
(m) "INITIAL OWNERS" means, with respect to Borrower or any other
entity, the persons or entities who on the date of the Note own in the
aggregate 100% of the ownership interests in Borrower or that entity.
(n) "LAND" means the land described in Exhibit A.
(o) "LEASES" means all present and future leases, subleases,
licenses, concessions or grants or other possessory interests now or hereafter
in force, whether oral or written, covering or affecting the Mortgaged
Property, or any portion of the Mortgaged Property (including proprietary
leases or occupancy agreements if Borrower is a cooperative housing
corporation), and all modifications, extensions or renewals.
(p) "LENDER" means the entity identified as "Lender" in the first
paragraph of this Instrument, or any subsequent holder of the Note.
(q) "LOAN DOCUMENTS" means the Note, this Instrument, all
guaranties, all indemnity agreements, all Collateral Agreements, O&M Programs,
and any other documents now or in the future executed by Borrower, any
guarantor or any other person in connection with the loan evidenced by the
Note, as such documents may be amended from time to time.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 3
<PAGE> 4
(r) "LOAN SERVICER" means the entity that from time to time is
designated by Lender to collect payments and deposits and receive notices under
the Note, this Instrument and any other Loan Document, and otherwise to service
the loan evidenced by the Note for the benefit of Lender. Unless Borrower
receives notice to the contrary, the Loan Servicer is the entity identified as
"Lender" in the first paragraph of this Instrument.
(s) "MORTGAGED PROPERTY" means all of Borrower's present and
future right, title and interest in and to all of the following:
(1) the Land;
(2) the Improvements;
(3) the Fixtures;
(4) the Personalty;
(5) all current and future rights, including air rights,
development rights, zoning rights and other similar
rights or interests, easements, tenements,
rights-of-way, strips and gores of land, streets,
alleys, roads, sewer rights, waters, watercourses,
and appurtenances related to or benefitting the Land
or the Improvements, or both, and all rights-of-way,
streets, alleys and roads which may have been or may
in the future be vacated;
(6) all proceeds paid or to be paid by any insurer of the
Land, the Improvements, the Fixtures, the Personalty
or any other part of the Mortgaged Property, whether
or not Borrower obtained the insurance pursuant to
Lender's requirement;
(7) all awards, payments and other compensation made or
to be made by any municipal, state or federal
authority with respect to the Land, the Improvements,
the Fixtures, the Personalty or any other part of the
Mortgaged Property, including any awards or
settlements resulting from condemnation proceedings
or the total or partial taking of the Land, the
Improvements, the Fixtures, the Personalty or any
other part of the Mortgaged Property under the power
of eminent domain or otherwise and including any
conveyance in lieu thereof;
(8) all contracts, options and other agreements for the
sale of the Land, the Improvements, the Fixtures, the
Personalty or any other part of the Mortgaged
Property entered into by Borrower now or in the
future, including cash or securities deposited to
secure performance by parties of their obligations;
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 4
<PAGE> 5
(9) all proceeds from the conversion, voluntary or
involuntary, of any of the above into cash or
liquidated claims, and the right to collect such
proceeds;
(10) all Rents and Leases;
(11) all earnings, royalties, accounts receivable, issues
and profits from the Land, the Improvements or any
other part of the Mortgaged Property, and all
undisbursed proceeds of the loan secured by this
Instrument and, if Borrower is a cooperative housing
corporation, maintenance charges or assessments
payable by shareholders or residents;
(12) all Imposition Deposits;
(13) all refunds or rebates of Impositions by any
municipal, state or federal authority or insurance
company (other than refunds applicable to periods
before the real property tax year in which this
Instrument is dated);
(14) all tenant security deposits which have not been
forfeited by any tenant under any Lease; and
(15) all names under or by which any of the above
Mortgaged Property may be operated or known, and all
trademarks, trade names, and goodwill relating to any
of the Mortgaged Property.
(t) "NOTE" means the Multifamily Note described on page 1 of this
Instrument, including all schedules, riders, allonges and addenda, as such
Multifamily Note may be amended from time to time.
(u) "O&M PROGRAM" is defined in Section 18(a).
(v) "PERSONALTY" means all furniture, furnishings, equipment,
machinery, building materials, appliances, goods, supplies, tools, books,
records (whether in written or electronic form), computer equipment (hardware
and software) and other tangible personal property (other than Fixtures) which
are used now or in the future in connection with the ownership, management or
operation of the Land or the Improvements or are located on the Land or in the
Improvements, and any operating agreements relating to the Land or the
Improvements, and any surveys, plans and specifications and contracts for
architectural, engineering and construction services relating to the Land or
the Improvements and all other intangible property and rights relating to the
operation of, or used in connection with, the Land or the Improvements,
including all governmental permits relating to any activities on the Land.
(w) "PROPERTY JURISDICTION" is defined in Section 30(a).
(x) "RENTS" means all rents (whether from residential or
non-residential space), revenues
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 5
<PAGE> 6
and other income of the Land or the Improvements, including parking fees,
laundry and vending machine income and fees and charges for food, health care
and other services provided at the Mortgaged Property, whether now due, past
due, or to become due, and deposits forfeited by tenants.
(y) "TAXES" means all taxes, assessments, vault rentals and other
charges, if any, general, special or otherwise, including all assessments for
schools, public betterments and general or local improvements, which are
levied, assessed or imposed by any public authority or quasi-public authority,
and which, if not paid, will become a lien, on the Land or the Improvements.
(z) "TRANSFER" means (A) a sale, assignment, transfer or other
disposition (whether voluntary, involuntary or by operation of law); (B) the
granting, creating or attachment of a lien, encumbrance or security interest
(whether voluntary, involuntary or by operation of law); (C) the issuance or
other creation of an ownership interest in a legal entity, including a
partnership interest, interest in a limited liability company or corporate
stock; (D) the withdrawal, retirement, removal or involuntary resignation of a
partner in a partnership or a member or manager in a limited liability company;
or (E) the merger, dissolution, liquidation, or consolidation of a legal entity
or the reconstitution of one type of legal entity into another type of legal
entity. "Transfer" does not include (i) a conveyance of the Mortgaged Property
at a judicial or non-judicial foreclosure sale under this Instrument or (ii)
the Mortgaged Property becoming part of a bankruptcy estate by operation of law
under the United States Bankruptcy Code. For purposes of defining the term
"Transfer," the term "partnership" shall mean a general partnership, a limited
partnership, a joint venture and a limited liability partnership, and the term
"partner" shall mean a general partner, a limited partner and a joint venturer.
2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is
also a security agreement under the Uniform Commercial Code for any of the
Mortgaged Property which, under applicable law, may be subject to a security
interest under the Uniform Commercial Code, whether acquired now or in the
future, and all products and cash and non-cash proceeds thereof (collectively,
"UCC COLLATERAL"), and Borrower hereby grants to Lender a security interest in
the UCC Collateral. Borrower shall execute and deliver to Lender, upon
Lender's request, financing statements, continuation statements and amendments,
in such form as Lender may require to perfect or continue the perfection of
this security interest. Borrower shall pay all filing costs and all costs and
expenses of any record searches for financing statements that Lender may
require. Without the prior written consent of Lender, Borrower shall not
create or permit to exist any other lien or security interest in any of the UCC
Collateral. If an Event of Default has occurred and is continuing, Lender
shall have the remedies of a secured party under the Uniform Commercial Code,
in addition to all remedies provided by this Instrument or existing under
applicable law. In exercising any remedies, Lender may exercise its remedies
against the UCC Collateral separately or together, and in any order, without in
any way affecting the availability of Lender's other remedies. This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property which is or may become a Fixture.
3. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN
POSSESSION.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 6
<PAGE> 7
(a) As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all Rents. It is
the intention of Borrower to establish a present, absolute and irrevocable
transfer and assignment to Lender of all Rents and to authorize and empower
Lender to collect and receive all Rents without the necessity of further action
on the part of Borrower. Promptly upon request by Lender, Borrower agrees to
execute and deliver such further assignments as Lender may from time to time
require. Borrower and Lender intend this assignment of Rents to be immediately
effective and to constitute an absolute present assignment and not an
assignment for additional security only. For purposes of giving effect to this
absolute assignment of Rents, and for no other purpose, Rents shall not be
deemed to be a part of the "Mortgaged Property" as that term is defined in
Section 1(s). However, if this present, absolute and unconditional assignment
of Rents is not enforceable by its terms under the laws of the Property
Jurisdiction, then the Rents shall be included as a part of the Mortgaged
Property and it is the intention of the Borrower that in this circumstance this
Instrument create and perfect a lien on Rents in favor of Lender, which lien
shall be effective as of the date of this Instrument.
(b) After the occurrence of an Event of Default, Borrower
authorizes Lender to collect, sue for and compromise Rents and directs each
tenant of the Mortgaged Property to pay all Rents to, or as directed by,
Lender. However, until the occurrence of an Event of Default, Lender hereby
grants to Borrower a revocable license to collect and receive all Rents, to
hold all Rents in trust for the benefit of Lender and to apply all Rents to pay
the installments of interest and principal then due and payable under the Note
and the other amounts then due and payable under the other Loan Documents,
including Imposition Deposits, and to pay the current costs and expenses of
managing, operating and maintaining the Mortgaged Property, including
utilities, Taxes and insurance premiums (to the extent not included in
Imposition Deposits), tenant improvements and other capital expenditures. So
long as no Event of Default has occurred and is continuing, the Rents remaining
after application pursuant to the preceding sentence may be retained by
Borrower free and clear of, and released from, Lender's rights with respect to
Rents under this Instrument. From and after the occurrence of an Event of
Default, and without the necessity of Lender entering upon and taking and
maintaining control of the Mortgaged Property directly, or by a receiver,
Borrower's license to collect Rents shall automatically terminate and Lender
shall without notice be entitled to all Rents as they become due and payable,
including Rents then due and unpaid. Borrower shall pay to Lender upon demand
all Rents to which Lender is entitled. At any time on or after the date of
Lender's demand for Rents, Lender may give, and Borrower hereby irrevocably
authorizes Lender to give, notice to all tenants of the Mortgaged Property
instructing them to pay all Rents to Lender, no tenant shall be obligated to
inquire further as to the occurrence or continuance of an Event of Default, and
no tenant shall be obligated to pay to Borrower any amounts which are actually
paid to Lender in response to such a notice. Any such notice by Lender shall
be delivered to each tenant personally, by mail or by delivering such demand to
each rental unit. Borrower shall not interfere with and shall cooperate with
Lender's collection of such Rents.
(c) Borrower represents and warrants to Lender that Borrower has
not executed any prior assignment of Rents (other than an assignment of Rents
securing indebtedness that will be paid off and discharged with the proceeds of
the loan evidenced by the Note), that Borrower has not performed, and Borrower
covenants and agrees that it will not perform, any acts and has not
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 7
<PAGE> 8
executed, and shall not execute, any instrument which would prevent Lender from
exercising its rights under this Section 3, and that at the time of execution
of this Instrument there has been no anticipation or prepayment of any Rents
for more than two months prior to the due dates of such Rents. Borrower shall
not collect or accept payment of any Rents more than two months prior to the
due dates of such Rents.
(d) If an Event of Default has occurred and is continuing, Lender
may, regardless of the adequacy of Lender's security or the solvency of
Borrower and even in the absence of waste, enter upon and take and maintain
full control of the Mortgaged Property in order to perform all acts that Lender
in its discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3(a),
protecting the Mortgaged Property or the security of this Instrument, or for
such other purposes as Lender in its discretion may deem necessary or
desirable. Alternatively, if an Event of Default has occurred and is
continuing, regardless of the adequacy of Lender's security, without regard to
Borrower's solvency and without the necessity of giving prior notice (oral or
written) to Borrower, Lender may apply to any court having jurisdiction for the
appointment of a receiver for the Mortgaged Property to take any or all of the
actions set forth in the preceding sentence. If Lender elects to seek the
appointment of a receiver for the Mortgaged Property at any time after an Event
of Default has occurred and is continuing, Borrower, by its execution of this
Instrument, expressly consents to the appointment of such receiver, including
the appointment of a receiver ex parte if permitted by applicable law. Lender
or the receiver, as the case may be, shall be entitled to receive a reasonable
fee for managing the Mortgaged Property. Immediately upon appointment of a
receiver or immediately upon the Lender's entering upon and taking possession
and control of the Mortgaged Property, Borrower shall surrender possession of
the Mortgaged Property to Lender or the receiver, as the case may be, and shall
deliver to Lender or the receiver, as the case may be, all documents, records
(including records on electronic or magnetic media), accounts, surveys, plans,
and specifications relating to the Mortgaged Property and all security deposits
and prepaid Rents. In the event Lender takes possession and control of the
Mortgaged Property, Lender may exclude Borrower and its representatives from
the Mortgaged Property. Borrower acknowledges and agrees that the exercise by
Lender of any of the rights conferred under this Section 3 shall not be
construed to make Lender a mortgagee-in-possession of the Mortgaged Property so
long as Lender has not itself entered into actual possession of the Land and
Improvements.
(e) If Lender enters the Mortgaged Property, Lender shall be
liable to account only to Borrower and only for those Rents actually received.
Lender shall not be liable to Borrower, anyone claiming under or through
Borrower or anyone having an interest in the Mortgaged Property, by reason of
any act or omission of Lender under this Section 3, and Borrower hereby
releases and discharges Lender from any such liability to the fullest extent
permitted by law.
(f) If the Rents are not sufficient to meet the costs of taking
control of and managing the Mortgaged Property and collecting the Rents, any
funds expended by Lender for such purposes shall
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 8
<PAGE> 9
become an additional part of the Indebtedness as provided in Section 12.
(g) Any entering upon and taking of control of the Mortgaged
Property by Lender or the receiver, as the case may be, and any application of
Rents as provided in this Instrument shall not cure or waive any Event of
Default or invalidate any other right or remedy of Lender under applicable law
or provided for in this Instrument.
4. ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.
(a) As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all of
Borrower's right, title and interest in, to and under the Leases, including
Borrower's right, power and authority to modify the terms of any such Lease, or
extend or terminate any such Lease. It is the intention of Borrower to
establish a present, absolute and irrevocable transfer and assignment to Lender
of all of Borrower's right, title and interest in, to and under the Leases.
Borrower and Lender intend this assignment of the Leases to be immediately
effective and to constitute an absolute present assignment and not an
assignment for additional security only. For purposes of giving effect to this
absolute assignment of the Leases, and for no other purpose, the Leases shall
not be deemed to be a part of the "Mortgaged Property" as that term is defined
in Section 1(s). However, if this present, absolute and unconditional
assignment of the Leases is not enforceable by its terms under the laws of the
Property Jurisdiction, then the Leases shall be included as a part of the
Mortgaged Property and it is the intention of the Borrower that in this
circumstance this Instrument create and perfect a lien on the Leases in favor
of Lender, which lien shall be effective as of the date of this Instrument.
(b) Until Lender gives notice to Borrower of Lender's exercise of
its rights under this Section 4, Borrower shall have all rights, power and
authority granted to Borrower under any Lease (except as otherwise limited by
this Section or any other provision of this Instrument), including the right,
power and authority to modify the terms of any Lease or extend or terminate any
Lease. Upon the occurrence of an Event of Default, the permission given to
Borrower pursuant to the preceding sentence to exercise all rights, power and
authority under Leases shall automatically terminate. Borrower shall comply
with and observe Borrower's obligations under all Leases, including Borrower's
obligations pertaining to the maintenance and disposition of tenant security
deposits.
(c) Borrower acknowledges and agrees that the exercise by Lender,
either directly or by a receiver, of any of the rights conferred under this
Section 4 shall not be construed to make Lender a mortgagee-in-possession of
the Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements. The acceptance by Lender of the
assignment of the Leases pursuant to Section 4(a) shall not at any time or in
any event obligate Lender to take any action under this Instrument or to expend
any money or to incur any expenses. Lender shall not be liable in any way for
any injury or damage to person or property sustained by any person or persons,
firm or corporation in or about the Mortgaged Property. Prior to Lender's
actual entry into and taking possession of the Mortgaged Property, Lender
shall not (i) be obligated to perform any of the terms, covenants and
conditions contained in any Lease (or otherwise have any obligation with
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 9
<PAGE> 10
respect to any Lease); (ii) be obligated to appear in or defend any action or
proceeding relating to the Lease or the Mortgaged Property; or (iii) be
responsible for the operation, control, care, management or repair of the
Mortgaged Property or any portion of the Mortgaged Property. The execution of
this Instrument by Borrower shall constitute conclusive evidence that all
responsibility for the operation, control, care, management and repair of the
Mortgaged Property is and shall be that of Borrower, prior to such actual entry
and taking of possession.
(d) Upon delivery of notice by Lender to Borrower of Lender's
exercise of Lender's rights under this Section 4 at any time after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, by
a receiver, or by any other manner or proceeding permitted by the laws of the
Property Jurisdiction, Lender immediately shall have all rights, powers and
authority granted to Borrower under any Lease, including the right, power and
authority to modify the terms of any such Lease, or extend or terminate any
such Lease.
(e) Borrower shall, promptly upon Lender's request, deliver to
Lender an executed copy of each residential Lease then in effect. All Leases
for residential dwelling units shall be on forms approved by Lender, shall be
for initial terms of at least six months and not more than two years, and shall
not include options to purchase.
(f) Borrower shall not lease any portion of the Mortgaged Property
for non-residential use except with the prior written consent of Lender and
Lender's prior written approval of the Lease agreement. Borrower shall not
modify the terms of, or extend or terminate, any Lease for non-residential use
(including any Lease in existence on the date of this Instrument) without the
prior written consent of Lender. Borrower shall, without request by Lender,
deliver an executed copy of each non-residential Lease to Lender promptly after
such Lease is signed. All non-residential Leases, including renewals or
extensions of existing Leases, shall specifically provide that (1) such Leases
are subordinate to the lien of this Instrument; (2) the tenant shall attorn to
Lender and any purchaser at a foreclosure sale, such attornment to be
self-executing and effective upon acquisition of title to the Mortgaged
Property by any purchaser at a foreclosure sale or by Lender in any manner; (3)
the tenant agrees to execute such further evidences of attornment as Lender or
any purchaser at a foreclosure sale may from time to time request; (4) the
Lease shall not be terminated by foreclosure or any other transfer of the
Mortgaged Property; (5) after a foreclosure sale of the Mortgaged Property,
Lender or any other purchaser at such foreclosure sale may, at Lender's or such
purchaser's option, accept or terminate such Lease; and (6) the tenant shall,
upon receipt after the occurrence of an Event of Default of a written request
from Lender, pay all Rents payable under the Lease to Lender.
(g) Borrower shall not receive or accept Rent under any Lease
(whether residential or non-residential) for more than two months in advance.
5. PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS;
PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due in accordance
with the terms of the Note and the other Loan Documents and shall perform,
observe and comply with all other provisions of the Note and the other Loan
Documents. Borrower shall pay
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 10
<PAGE> 11
a prepayment premium in connection with certain prepayments of the
Indebtedness, including a payment made after Lender's exercise of any right of
acceleration of the Indebtedness, as provided in the Note.
6. EXCULPATION. Borrower's personal liability for payment of the
Indebtedness and for performance of the other obligations to be performed by it
under this Instrument is limited in the manner, and to the extent, provided in
the Note.
7. DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.
(a) Borrower shall deposit with Lender on the day monthly
installments of principal or interest, or both, are due under the Note (or on
another day designated in writing by Lender), until the Indebtedness is paid in
full, an additional amount sufficient to accumulate with Lender the entire sum
required to pay, when due (1) any water and sewer charges which, if not paid,
may result in a lien on all or any part of the Mortgaged Property, (2) the
premiums for fire and other hazard insurance, rent loss insurance and such
other insurance as Lender may require under Section 19, (3) Taxes, and (4)
amounts for other charges and expenses which Lender at any time reasonably
deems necessary to protect the Mortgaged Property, to prevent the imposition of
liens on the Mortgaged Property, or otherwise to protect Lender's interests,
all as reasonably estimated from time to time by Lender, plus one-sixth of such
estimate. The amounts deposited under the preceding sentence are collectively
referred to in this Instrument as the "IMPOSITION DEPOSITS". The obligations
of Borrower for which the Imposition Deposits are required are collectively
referred to in this Instrument as "IMPOSITIONS". The amount of the Imposition
Deposits shall be sufficient to enable Lender to pay each Imposition before the
last date upon which such payment may be made without any penalty or interest
charge being added. Lender shall maintain records indicating how much of the
monthly Imposition Deposits and how much of the aggregate Imposition Deposits
held by Lender are held for the purpose of paying Taxes, insurance premiums and
each other obligation of Borrower for which Imposition Deposits are required.
Any waiver by Lender of the requirement that Borrower remit Imposition Deposits
to Lender may be revoked by Lender, in Lender's discretion, at any time upon
notice to Borrower.
(b) Imposition Deposits shall be held in an institution (which may
be Lender, if Lender is such an institution) whose deposits or accounts are
insured or guaranteed by a federal agency. Lender shall not be obligated to
open additional accounts or deposit Imposition Deposits in additional
institutions when the amount of the Imposition Deposits exceeds the maximum
amount of the federal deposit insurance or guaranty. Lender shall apply the
Imposition Deposits to pay Impositions so long as no Event of Default has
occurred and is continuing. Unless applicable law requires, Lender shall not
be required to pay Borrower any interest, earnings or profits on the Imposition
Deposits. Borrower hereby pledges and grants to Lender a security interest in
the Imposition Deposits as additional security for all of Borrower's
obligations under this Instrument and the other Loan Documents. Any amounts
deposited with Lender under this Section 7 shall not be trust funds, nor shall
they operate to reduce the Indebtedness, unless applied by Lender for that
purpose under Section 7(e).
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 11
<PAGE> 12
(c) If Lender receives a bill or invoice for an Imposition, Lender
shall pay the Imposition from the Imposition Deposits held by Lender. Lender
shall have no obligation to pay any Imposition to the extent it exceeds
Imposition Deposits then held by Lender. Lender may pay an Imposition
according to any bill, statement or estimate from the appropriate public office
or insurance company without inquiring into the accuracy of the bill, statement
or estimate or into the validity of the Imposition.
(d) If at any time the amount of the Imposition Deposits held by
Lender for payment of a specific Imposition exceeds the amount reasonably
deemed necessary by Lender plus one-sixth of such estimate, the excess shall be
credited against future installments of Imposition Deposits. If at any time
the amount of the Imposition Deposits held by Lender for payment of a specific
Imposition is less than the amount reasonably estimated by Lender to be
necessary plus one-sixth of such estimate, Borrower shall pay to Lender the
amount of the deficiency within 15 days after notice from Lender.
(e) If an Event of Default has occurred and is continuing, Lender
may apply any Imposition Deposits, in any amounts and in any order as Lender
determines, in Lender's discretion, to pay any Impositions or as a credit
against the Indebtedness. Upon payment in full of the Indebtedness, Lender
shall refund to Borrower any Imposition Deposits held by Lender.
8. COLLATERAL AGREEMENTS. Borrower shall deposit with Lender
such amounts as may be required by any Collateral Agreement and shall perform
all other obligations of Borrower under each Collateral Agreement.
9. APPLICATION OF PAYMENTS. If at any time Lender receives, from
Borrower or otherwise, any amount applicable to the Indebtedness which is less
than all amounts due and payable at such time, then Lender may apply that
payment to amounts then due and payable in any manner and in any order
determined by Lender, in Lender's discretion. Neither Lender's acceptance of
an amount which is less than all amounts then due and payable nor Lender's
application of such payment in the manner authorized shall constitute or be
deemed to constitute either a waiver of the unpaid amounts or an accord and
satisfaction. Notwithstanding the application of any such amount to the
Indebtedness, Borrower's obligations under this Instrument and the Note shall
remain unchanged.
10. COMPLIANCE WITH LAWS. Borrower shall comply with all laws,
ordinances, regulations and requirements of any Governmental Authority and all
recorded lawful covenants and agreements relating to or affecting the Mortgaged
Property, including all laws, ordinances, regulations, requirements and
covenants pertaining to health and safety, construction of improvements on the
Mortgaged Property, fair housing, zoning and land use, and Leases. Borrower
also shall comply with all applicable laws that pertain to the maintenance and
disposition of tenant security deposits. Borrower shall at all times maintain
records sufficient to demonstrate compliance with the provisions of this
Section 10. Borrower shall take appropriate measures to prevent, and shall not
engage in or knowingly permit, any illegal activities at the Mortgaged Property
that could endanger tenants or visitors, result in damage to the Mortgaged
Property, result in forfeiture of the
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 12
<PAGE> 13
Mortgaged Property, or otherwise materially impair the lien created by this
Instrument or Lender's interest in the Mortgaged Property. Borrower represents
and warrants to Lender that no portion of the Mortgaged Property has been or
will be purchased with the proceeds of any illegal activity.
11. USE OF PROPERTY. Unless required by applicable law, Borrower
shall not (a) except for any change in use approved by Lender, allow changes in
the use for which all or any part of the Mortgaged Property is being used at
the time this Instrument was executed, (b) convert any individual dwelling
units or common areas to commercial use, (c) initiate or acquiesce in a change
in the zoning classification of the Mortgaged Property, or (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property.
12. PROTECTION OF LENDER'S SECURITY.
(a) If Borrower fails to perform any of its obligations under this
Instrument or any other Loan Document, or if any action or proceeding is
commenced which purports to affect the Mortgaged Property, Lender's security or
Lender's rights under this Instrument, including eminent domain, insolvency,
code enforcement, civil or criminal forfeiture, enforcement of Hazardous
Materials Laws, fraudulent conveyance or reorganizations or proceedings
involving a bankrupt or decedent, then Lender at Lender's option may make such
appearances, disburse such sums and take such actions as Lender reasonably
deems necessary to perform such obligations of Borrower and to protect Lender's
interest, including (1) payment of fees and out of pocket expenses of
attorneys, accountants, inspectors and consultants, (2) entry upon the
Mortgaged Property to make repairs or secure the Mortgaged Property, (3)
procurement of the insurance required by Section 19, and (4) payment of amounts
which Borrower has failed to pay under Sections 15 and 17.
(b) Any amounts disbursed by Lender under this Section 12, or
under any other provision of this Instrument that treats such disbursement as
being made under this Section 12, shall be added to, and become part of, the
principal component of the Indebtedness, shall be immediately due and payable
and shall bear interest from the date of disbursement until paid at the
"DEFAULT RATE", as defined in the Note.
(c) Nothing in this Section 12 shall require Lender to incur any
expense or take any action.
13. INSPECTION. Lender, its agents, representatives, and
designees may make or cause to be made entries upon and inspections of the
Mortgaged Property (including environmental inspections and tests) during
normal business hours, or at any other reasonable time.
14. BOOKS AND RECORDS; FINANCIAL REPORTING.
(a) Borrower shall keep and maintain at all times at the Mortgaged
Property or the management agent's offices, and upon Lender's request shall
make available at the Mortgaged Property, complete and accurate books of
account and records (including copies of supporting bills and invoices)
adequate to reflect correctly the operation of the Mortgaged Property, and
copies of
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 13
<PAGE> 14
all written contracts, Leases, and other instruments which affect the Mortgaged
Property. The books, records, contracts, Leases and other instruments shall be
subject to examination and inspection at any reasonable time by Lender.
(b) Borrower shall furnish to Lender all of the following:
(1) within 120 days after the end of each fiscal year of
Borrower, a statement of income and expenses for
Borrower's operation of the Mortgaged Property for
that fiscal year, a statement of changes in financial
position of Borrower relating to the Mortgaged
Property for that fiscal year and, when requested by
Lender, a balance sheet showing all assets and
liabilities of Borrower relating to the Mortgaged
Property as of the end of that fiscal year;
(2) within 120 days after the end of each fiscal year of
Borrower, and at any other time upon Lender's
request, a rent schedule for the Mortgaged Property
showing the name of each tenant, and for each tenant,
the space occupied, the lease expiration date, the
rent payable for the current month, the date through
which rent has been paid, and any related information
requested by Lender;
(3) within 120 days after the end of each fiscal year of
Borrower, and at any other time upon Lender's
request, an accounting of all security deposits held
pursuant to all Leases, including the name of the
institution (if any) and the names and identification
numbers of the accounts (if any) in which such
security deposits are held and the name of the person
to contact at such financial institution, along with
any authority or release necessary for Lender to
access information regarding such accounts;
(4) within 120 days after the end of each fiscal year of
Borrower, and at any other time upon Lender's
request, a statement that identifies all owners of
any interest in Borrower and any Controlling Entity
and the interest held by each, if Borrower or a
Controlling Entity is a corporation, all officers and
directors of Borrower and the Controlling Entity, and
if Borrower or a Controlling Entity is a limited
liability company, all managers who are not members;
(5) upon Lender's request, quarterly income and expense
statements for the Mortgaged Property;
(6) upon Lender's request at any time when an Event of
Default has occurred and is continuing, monthly
income and expense statements for the Mortgaged
Property;
(7) upon Lender's request, a monthly property management
report for the Mortgaged Property, showing the number
of inquiries made and rental applications received
from tenants or prospective tenants and deposits
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 14
<PAGE> 15
received from tenants and any other information
requested by Lender; and
(8) upon Lender's request, a balance sheet, a statement
of income and expenses for Borrower and a statement
of changes in financial position of Borrower for
Borrower's most recent fiscal year.
(c) Each of the statements, schedules and reports required by
Section 14(b) shall be certified to be complete and accurate by an individual
having authority to bind Borrower, and shall be in such form and contain such
detail as Lender may reasonably require. Lender also may require that any
statements, schedules or reports be audited at Borrower's expense by
independent certified public accountants acceptable to Lender.
(d) If Borrower fails to provide in a timely manner the
statements, schedules and reports required by Section 14(b), Lender shall have
the right to have Borrower's books and records audited, at Borrower's expense,
by independent certified public accountants selected by Lender in order to
obtain such statements, schedules and reports, and all related costs and
expenses of Lender shall become immediately due and payable and shall become an
additional part of the Indebtedness as provided in Section 12.
(e) If an Event of Default has occurred and is continuing,
Borrower shall deliver to Lender upon written demand all books and records
relating to the Mortgaged Property or its operation.
(f) Borrower authorizes Lender to obtain a credit report on
Borrower at any time.
15. TAXES; OPERATING EXPENSES.
(a) Subject to the provisions of Section 15(c) and Section 15(d),
Borrower shall pay, or cause to be paid, all Taxes when due and before the
addition of any interest, fine, penalty or cost for nonpayment.
(b) Subject to the provisions of Section 15(c), Borrower shall pay
the expenses of operating, managing, maintaining and repairing the Mortgaged
Property (including insurance premiums, utilities, repairs and replacements)
before the last date upon which each such payment may be made without any
penalty or interest charge being added.
(c) As long as no Event of Default exists and Borrower has timely
delivered to Lender any bills or premium notices that it has received, Borrower
shall not be obligated to pay Taxes, insurance premiums or any other individual
Imposition to the extent that sufficient Imposition Deposits are held by Lender
for the purpose of paying that specific Imposition. If an Event of Default
exists, Lender may exercise any rights Lender may have with respect to
Imposition Deposits without regard to whether Impositions are then due and
payable. Lender shall have no liability to Borrower for failing to pay any
Impositions to the extent that any Event of Default has occurred and is
continuing, insufficient Imposition Deposits are held by Lender at the time an
Imposition becomes
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 15
<PAGE> 16
due and payable or Borrower has failed to provide Lender with bills and premium
notices as provided above.
(d) Borrower, at its own expense, may contest by appropriate
legal proceedings, conducted diligently and in good faith, the amount or
validity of any Imposition other than insurance premiums, if (1) Borrower
notifies Lender of the commencement or expected commencement of such
proceedings, (2) the Mortgaged Property is not in danger of being sold or
forfeited, (3) Borrower deposits with Lender reserves sufficient to pay the
contested Imposition, if requested by Lender, and (4) Borrower furnishes
whatever additional security is required in the proceedings or is reasonably
requested by Lender, which may include the delivery to Lender of the reserves
established by Borrower to pay the contested Imposition.
(e) Borrower shall promptly deliver to Lender a copy of all
notices of, and invoices for, Impositions, and if Borrower pays any Imposition
directly, Borrower shall promptly furnish to Lender receipts evidencing such
payments.
16. LIENS; ENCUMBRANCES. Borrower acknowledges that, to the
extent provided in Section 21, the grant, creation or existence of any
mortgage, deed of trust, deed to secure debt, security interest or other lien
or encumbrance (a "LIEN") on the Mortgaged Property (other than the lien of
this Instrument) or on certain ownership interests in Borrower, whether
voluntary, involuntary or by operation of law, and whether or not such Lien has
priority over the lien of this Instrument, is a "TRANSFER" which constitutes an
Event of Default and subjects Borrower to personal liability under the Note.
17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED
PROPERTY. Borrower (a) shall not commit waste or permit impairment or
deterioration of the Mortgaged Property, (b) shall not abandon the Mortgaged
Property, (c) shall restore or repair promptly, in a good and workmanlike
manner, any damaged part of the Mortgaged Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing,
whether or not insurance proceeds or condemnation awards are available to cover
any costs of such restoration or repair, (d) shall keep the Mortgaged Property
in good repair, including the replacement of Personalty and Fixtures with items
of equal or better function and quality, (e) shall provide for professional
management of the Mortgaged Property by a residential rental property manager
satisfactory to Lender under a contract approved by Lender in writing, and (f)
shall give notice to Lender of and, unless otherwise directed in writing by
Lender, shall appear in and defend any action or proceeding purporting to
affect the Mortgaged Property, Lender's security or Lender's rights under this
Instrument. Borrower shall not (and shall not permit any tenant or other
person to) remove, demolish or alter the Mortgaged Property or any part of the
Mortgaged Property except in connection with the replacement of tangible
Personalty.
18. ENVIRONMENTAL HAZARDS.
(a) Except for matters covered by a written program of operations
and maintenance approved in writing by Lender (an "O&M PROGRAM") or matters
described in Section 18(b),
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 16
<PAGE> 17
Borrower shall not cause or permit any of the following:
(1) the presence, use, generation, release, treatment,
processing, storage (including storage in above
ground and underground storage tanks), handling, or
disposal of any Hazardous Materials on or under the
Mortgaged Property or any other property of Borrower
that is adjacent to the Mortgaged Property;
(2) the transportation of any Hazardous Materials to,
from, or across the Mortgaged Property;
(3) any occurrence or condition on the Mortgaged Property
or any other property of Borrower that is adjacent to
the Mortgaged Property, which occurrence or condition
is or may be in violation of Hazardous Materials
Laws; or
(4) any violation of or noncompliance with the terms of
any Environmental Permit with respect to the
Mortgaged Property or any property of Borrower that
is adjacent to the Mortgaged Property.
The matters described in clauses (1) through (4) above are referred to
collectively in this Section 18 as "PROHIBITED ACTIVITIES OR CONDITIONS".
(b) Prohibited Activities and Conditions shall not include the
safe and lawful use and storage of quantities of (1) pre-packaged supplies,
cleaning materials and petroleum products customarily used in the operation and
maintenance of comparable multifamily properties, (2) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by tenants and occupants of residential dwelling units in
the Mortgaged Property; and (3) petroleum products used in the operation and
maintenance of motor vehicles from time to time located on the Mortgaged
Property's parking areas, so long as all of the foregoing are used, stored,
handled, transported and disposed of in compliance with Hazardous Materials
Laws.
(c) Borrower shall take all commercially reasonable actions
(including the inclusion of appropriate provisions in any Leases executed after
the date of this Instrument) to prevent its employees, agents, and contractors,
and all tenants and other occupants from causing or permitting any Prohibited
Activities or Conditions. Borrower shall not lease or allow the sublease or
use of all or any portion of the Mortgaged Property to any tenant or subtenant
for nonresidential use by any user that, in the ordinary course of its
business, would cause or permit any Prohibited Activity or Condition.
(d) If an O&M Program has been established with respect to
Hazardous Materials, Borrower shall comply in a timely manner with, and cause
all employees, agents, and contractors of Borrower and any other persons
present on the Mortgaged Property to comply with the O&M Program. All costs of
performance of Borrower's obligations under any O&M Program shall be paid by
Borrower, and Lender's out-of-pocket costs incurred in connection with the
monitoring and
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 17
<PAGE> 18
review of the O&M Program and Borrower's performance shall be paid by Borrower
upon demand by Lender. Any such out-of-pocket costs of Lender which Borrower
fails to pay promptly shall become an additional part of the Indebtedness as
provided in Section 12.
(e) Borrower represents and warrants to Lender that, except as
previously disclosed by Borrower to Lender in writing:
(1) Borrower has not at any time engaged in, caused or
permitted any Prohibited Activities or Conditions;
(2) to the best of Borrower's knowledge after reasonable
and diligent inquiry, no Prohibited Activities or
Conditions exist or have existed;
(3) except to the extent previously disclosed by Borrower
to Lender in writing, the Mortgaged Property does not
now contain any underground storage tanks, and, to
the best of Borrower's knowledge after reasonable and
diligent inquiry, the Mortgaged Property has not
contained any underground storage tanks in the past.
If there is an underground storage tank located on
the Property which has been previously disclosed by
Borrower to Lender in writing, that tank complies
with all requirements of Hazardous Materials Laws;
(4) Borrower has complied with all Hazardous Materials
Laws, including all requirements for notification
regarding releases of Hazardous Materials. Without
limiting the generality of the foregoing, Borrower
has obtained all Environmental Permits required for
the operation of the Mortgaged Property in accordance
with Hazardous Materials Laws now in effect and all
such Environmental Permits are in full force and
effect;
(5) no event has occurred with respect to the Mortgaged
Property that constitutes, or with the passing of
time or the giving of notice would constitute,
noncompliance with the terms of any Environmental
Permit;
(6) there are no actions, suits, claims or proceedings
pending or, to the best of Borrower's knowledge after
reasonable and diligent inquiry, threatened that
involve the Mortgaged Property and allege, arise out
of, or relate to any Prohibited Activity or
Condition; and
(7) Borrower has not received any complaint, order,
notice of violation or other communication from any
Governmental Authority with regard to air emissions,
water discharges, noise emissions or Hazardous
Materials, or any other environmental, health or
safety matters affecting the Mortgaged Property or
any other property of Borrower that is adjacent to
the Mortgaged Property.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 18
<PAGE> 19
The representations and warranties in this Section 18 shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the loan evidenced by the Note, until the Indebtedness
has been paid in full.
(f) Borrower shall promptly notify Lender in writing upon the
occurrence of any of the following events:
(1) Borrower's discovery of any Prohibited Activity or
Condition;
(2) Borrower's receipt of or knowledge of any complaint,
order, notice of violation or other communication
from any Governmental Authority or other person with
regard to present or future alleged Prohibited
Activities or Conditions or any other environmental,
health or safety matters affecting the Mortgaged
Property or any other property of Borrower that is
adjacent to the Mortgaged Property; and
(3) any representation or warranty in this Section 18
becomes untrue after the date of this Agreement.
Any such notice given by Borrower shall not relieve Borrower of, or result in a
waiver of, any obligation under this Instrument, the Note, or any other Loan
Document.
(g) Borrower shall pay promptly the costs of any environmental
inspections, tests or audits ("ENVIRONMENTAL INSPECTIONS") required by Lender
in connection with any foreclosure or deed in lieu of foreclosure, or as a
condition of Lender's consent to any Transfer under Section 21, or required by
Lender following a reasonable determination by Lender that Prohibited
Activities or Conditions may exist. Any such costs incurred by Lender
(including the fees and out-of-pocket costs of attorneys and technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) which Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12. The results of
all Environmental Inspections made by Lender shall at all times remain the
property of Lender and Lender shall have no obligation to disclose or otherwise
make available to Borrower or any other party such results or any other
information obtained by Lender in connection with its Environmental
Inspections. Lender hereby reserves the right, and Borrower hereby expressly
authorizes Lender, to make available to any party, including any prospective
bidder at a foreclosure sale of the Mortgaged Property, the results of any
Environmental Inspections made by Lender with respect to the Mortgaged
Property. Borrower consents to Lender notifying any party (either as part of a
notice of sale or otherwise) of the results of any of Lender's Environmental
Inspections. Borrower acknowledges that Lender cannot control or otherwise
assure the truthfulness or accuracy of the results of any of its Environmental
Inspections and that the release of such results to prospective bidders at a
foreclosure sale of the Mortgaged Property may have a material and adverse
effect upon the amount which a party may bid at such sale. Borrower agrees
that Lender shall have no liability whatsoever as a result of delivering the
results of any of its Environmental Inspections to any third party, and
Borrower hereby releases and forever discharges Lender from any and all claims,
damages, or causes of action,
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 19
<PAGE> 20
arising out of, connected with or incidental to the results of, the delivery of
any of Lender's Environmental Inspections.
(h) If any investigation, site monitoring, containment, clean-up,
restoration or other remedial work ("REMEDIAL WORK") is necessary to comply
with any Hazardous Materials Law or order of any Governmental Authority that
has or acquires jurisdiction over the Mortgaged Property or the use, operation
or improvement of the Mortgaged Property under any Hazardous Materials Law,
Borrower shall, by the earlier of (1) the applicable deadline required by
Hazardous Materials Law or (2) 30 days after notice from Lender demanding such
action, begin performing the Remedial Work, and thereafter diligently prosecute
it to completion, and shall in any event complete the work by the time required
by applicable Hazardous Materials Law. If Borrower fails to begin on a timely
basis or diligently prosecute any required Remedial Work, Lender may, at its
option, cause the Remedial Work to be completed, in which case Borrower shall
reimburse Lender on demand for the cost of doing so. Any reimbursement due
from Borrower to Lender shall become part of the Indebtedness as provided in
Section 12.
(i) Borrower shall cooperate with any inquiry by any Governmental
Authority and shall comply with any governmental or judicial order which arises
from any alleged Prohibited Activity or Condition.
(j) Borrower shall indemnify, hold harmless and defend (i) Lender,
(ii) any prior owner or holder of the Note, (iii) the Loan Servicer, (iv) any
prior Loan Servicer, (v) the officers, directors, shareholders, partners,
employees and trustees of any of the foregoing, and (vi) the heirs, legal
representatives, successors and assigns of each of the foregoing (collectively,
the "INDEMNITEES") from and against all proceedings, claims, damages, penalties
and costs (whether initiated or sought by Governmental Authorities or private
parties), including fees and out of pocket expenses of attorneys and expert
witnesses, investigatory fees, and remediation costs, whether incurred in
connection with any judicial or administrative process or otherwise, arising
directly or indirectly from any of the following:
(1) any breach of any representation or warranty of
Borrower in this Section 18;
(2) any failure by Borrower to perform any of its
obligations under this Section 18;
(3) the existence or alleged existence of any Prohibited
Activity or Condition;
(4) the presence or alleged presence of Hazardous
Materials on or under the Mortgaged Property or any
property of Borrower that is adjacent to the
Mortgaged Property; and
(5) the actual or alleged violation of any Hazardous
Materials Law.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 20
<PAGE> 21
(k) Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. However, any Indemnitee may
elect to defend any claim or legal or administrative proceeding at the
Borrower's expense.
(l) Borrower shall not, without the prior written consent of those
Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "CLAIM"), settle or compromise the Claim if the settlement (1)
results in the entry of any judgment that does not include as an unconditional
term the delivery by the claimant or plaintiff to Lender of a written release
of those Indemnitees, satisfactory in form and substance to Lender; or (2) may
materially and adversely affect Lender, as determined by Lender in its
discretion.
(m) Borrower's obligation to indemnify the Indemnitees shall not
be limited or impaired by any of the following, or by any failure of Borrower
or any guarantor to receive notice of or consideration for any of the
following:
(1) any amendment or modification of any Loan Document;
(2) any extensions of time for performance required by
any Loan Document;
(3) any provision in any of the Loan Documents limiting
Lender's recourse to property securing the
Indebtedness, or limiting the personal liability of
Borrower or any other party for payment of all or any
part of the Indebtedness;
(4) the accuracy or inaccuracy of any representations and
warranties made by Borrower under this Instrument or
any other Loan Document;
(5) the release of Borrower or any other person, by
Lender or by operation of law, from performance of
any obligation under any Loan Document;
(6) the release or substitution in whole or in part of
any security for the Indebtedness; and
(7) Lender's failure to properly perfect any lien or
security interest given as security for the
Indebtedness.
(n) Borrower shall, at its own cost and expense, do all of the
following:
(1) pay or satisfy any judgment or decree that may be
entered against any Indemnitee or Indemnitees in any
legal or administrative proceeding incident to any
matters against which Indemnitees are entitled to be
indemnified under this Section 18;
(2) reimburse Indemnitees for any expenses paid or
incurred in connection with
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 21
<PAGE> 22
any matters against which Indemnitees are entitled to
be indemnified under this Section 18; and
(3) reimburse Indemnitees for any and all expenses,
including fees and out of pocket expenses of
attorneys and expert witnesses, paid or incurred in
connection with the enforcement by Indemnitees of
their rights under this Section 18, or in monitoring
and participating in any legal or administrative
proceeding.
(o) In any circumstances in which the indemnity under this Section
18 applies, Lender may employ its own legal counsel and consultants to
prosecute, defend or negotiate any claim or legal or administrative proceeding
and Lender, with the prior written consent of Borrower (which shall not be
unreasonably withheld, delayed or conditioned) may settle or compromise any
action or legal or administrative proceeding. Borrower shall reimburse Lender
upon demand for all costs and expenses incurred by Lender, including all costs
of settlements entered into in good faith, and the fees and out of pocket
expenses of such attorneys and consultants.
(p) The provisions of this Section 18 shall be in addition to any
and all other obligations and liabilities that Borrower may have under
applicable law or under other Loan Documents, and each Indemnitee shall be
entitled to indemnification under this Section 18 without regard to whether
Lender or that Indemnitee has exercised any rights against the Mortgaged
Property or any other security, pursued any rights against any guarantor, or
pursued any other rights available under the Loan Documents or applicable law.
If Borrower consists of more than one person or entity, the obligation of those
persons or entities to indemnify the Indemnitees under this Section 18 shall be
joint and several. The obligation of Borrower to indemnify the Indemnitees
under this Section 18 shall survive any repayment or discharge of the
Indebtedness, any foreclosure proceeding, any foreclosure sale, any delivery of
any deed in lieu of foreclosure, and any release of record of the lien of this
Instrument.
19. PROPERTY AND LIABILITY INSURANCE.
(a) Borrower shall keep the Improvements insured at all times
against such hazards as Lender may from time to time require, which insurance
shall include but not be limited to coverage against loss by fire and allied
perils, general boiler and machinery coverage, and business income coverage.
Lender's insurance requirements may change from time to time throughout the
term of the Indebtedness. If Lender so requires, such insurance shall also
include sinkhole insurance, mine subsidence insurance, earthquake insurance,
and, if the Mortgaged Property does not conform to applicable zoning or land
use laws, building ordinance or law coverage. If any of the Improvements is
located in an area identified by the Federal Emergency Management Agency (or
any successor to that agency) as an area having special flood hazards, and if
flood insurance is available in that area, Borrower shall insure such
Improvements against loss by flood.
(b) All premiums on insurance policies required under Section
19(a) shall be paid in the manner provided in Section 7, unless Lender has
designated in writing another method of payment.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 22
<PAGE> 23
All such policies shall also be in a form approved by Lender. All policies of
property damage insurance shall include a non-contributing, non-reporting
mortgage clause in favor of, and in a form approved by, Lender. Lender shall
have the right to hold the original policies or duplicate original policies of
all insurance required by Section 19(a). Borrower shall promptly deliver to
Lender a copy of all renewal and other notices received by Borrower with
respect to the policies and all receipts for paid premiums. At least 30 days
prior to the expiration date of a policy, Borrower shall deliver to Lender the
original (or a duplicate original) of a renewal policy in form satisfactory to
Lender.
(c) Borrower shall maintain at all times commercial general
liability insurance, workers' compensation insurance and such other liability,
errors and omissions and fidelity insurance coverages as Lender may from time
to time require.
(d) All insurance policies and renewals of insurance policies
required by this Section 19 shall be in such amounts and for such periods as
Lender may from time to time require, and shall be issued by insurance
companies satisfactory to Lender.
(e) Borrower shall comply with all insurance requirements and
shall not permit any condition to exist on the Mortgaged Property that would
invalidate any part of any insurance coverage that this Instrument requires
Borrower to maintain.
(f) In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to Lender. Borrower hereby authorizes and
appoints Lender as attorney-in-fact for Borrower to make proof of loss, to
adjust and compromise any claims under policies of property damage insurance, to
appear in and prosecute any action arising from such property damage insurance
policies, to collect and receive the proceeds of property damage insurance, and
to deduct from such proceeds Lender's expenses incurred in the collection of
such proceeds. This power of attorney is coupled with an interest and therefore
is irrevocable. However, nothing contained in this Section 19 shall require
Lender to incur any expense or take any action. Lender may, at Lender's option,
(1) hold the balance of such proceeds to be used to reimburse Borrower for the
cost of restoring and repairing the Mortgaged Property to the equivalent of its
original condition or to a condition approved by Lender (the "RESTORATION"), or
(2) apply the balance of such proceeds to the payment of the Indebtedness,
whether or not then due. To the extent Lender determines to apply insurance
proceeds to Restoration, Lender shall do so in accordance with Lender's
then-current policies relating to the restoration of casualty damage on similar
multifamily properties.
(g) Lender shall not exercise its option to apply insurance
proceeds to the payment of the Indebtedness if all of the following conditions
are met: (1) no Event of Default (or any event which, with the giving of
notice or the passage of time, or both, would constitute an Event of Default)
has occurred and is continuing; (2) Lender determines, in its discretion, that
there will be sufficient funds to complete the Restoration; (3) Lender
determines, in its discretion, that the rental income from the Mortgaged
Property after completion of the Restoration will be sufficient to meet all
operating costs and other expenses, Imposition Deposits, deposits to reserves
and loan repayment obligations relating to the Mortgaged Property; and (4)
Lender determines, in its discretion, that the Restoration
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 23
<PAGE> 24
will be completed before the earlier of (A) one year before the maturity date
of the Note or (B) one year after the date of the loss or casualty.
(h) If the Mortgaged Property is sold at a foreclosure sale or
Lender acquires title to the Mortgaged Property, Lender shall automatically
succeed to all rights of Borrower in and to any insurance policies and unearned
insurance premiums and in and to the proceeds resulting from any damage to the
Mortgaged Property prior to such sale or acquisition.
20. CONDEMNATION.
(a) Borrower shall promptly notify Lender of any action or
proceeding relating to any condemnation or other taking, or conveyance in lieu
thereof, of all or any part of the Mortgaged Property, whether direct or
indirect (a "CONDEMNATION"). Borrower shall appear in and prosecute or defend
any action or proceeding relating to any Condemnation unless otherwise directed
by Lender in writing. Borrower authorizes and appoints Lender as
attorney-in-fact for Borrower to commence, appear in and prosecute, in Lender's
or Borrower's name, any action or proceeding relating to any Condemnation and
to settle or compromise any claim in connection with any Condemnation. This
power of attorney is coupled with an interest and therefore is irrevocable.
However, nothing contained in this Section 20 shall require Lender to incur any
expense or take any action. Borrower hereby transfers and assigns to Lender
all right, title and interest of Borrower in and to any award or payment with
respect to (i) any Condemnation, or any conveyance in lieu of Condemnation,
and (ii) any damage to the Mortgaged Property caused by governmental action
that does not result in a Condemnation.
(b) Lender may apply such awards or proceeds, after the deduction
of Lender's expenses incurred in the collection of such amounts, at Lender's
option, to the restoration or repair of the Mortgaged Property or to the
payment of the Indebtedness, with the balance, if any, to Borrower. Unless
Lender otherwise agrees in writing, any application of any awards or proceeds
to the Indebtedness shall not extend or postpone the due date of any monthly
installments referred to in the Note, Section 7 of this Instrument or any
Collateral Agreement, or change the amount of such installments. Borrower
agrees to execute such further evidence of assignment of any awards or proceeds
as Lender may require.
21. TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.
[NO RIGHT TO TRANSFER]
(a) The occurrence of any of the following events shall constitute
an Event of Default under this Instrument:
(1) a Transfer of all or any part of the Mortgaged
Property or any interest in the Mortgaged Property;
(2) if Borrower is a limited partnership, a Transfer of
(A) any general partnership interest, or (B) limited
partnership interests in Borrower that would cause
the
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 24
<PAGE> 25
Initial Owners of Borrower to own less than 51% of
all limited partnership interests in Borrower;
(3) if Borrower is a general partnership or a joint
venture, a Transfer of any general partnership or
joint venture interest in Borrower;
(4) if Borrower is a limited liability company, a
Transfer of (A) any membership interest in Borrower
which would cause the Initial Owners to own less than
51% of all the membership interests in Borrower, or
(B) any membership or other interest of a manager in
Borrower;
(5) if Borrower is a corporation, (A) the Transfer of any
voting stock in Borrower which would cause the
Initial Owners to own less than 51% of any class of
voting stock in Borrower or (B) if the outstanding
voting stock in Borrower is held by 100 or more
shareholders, one or more transfers by a single
transferor within a 12-month period affecting an
aggregate of 5% or more of that stock;
(6) if Borrower is a trust, (A) a Transfer of any
beneficial interest in Borrower which would cause the
Initial Owners to own less than 51% of all the
beneficial interests in Borrower, or (B) the
termination or revocation of the trust, or (C) the
removal, appointment or substitution of a trustee of
Borrower; and
(7) a Transfer of any interest in a Controlling Entity
which, if such Controlling Entity were Borrower,
would result in an Event of Default under any of
Sections 21(a)(1) through (6) above.
Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default in order to exercise any of its
remedies with respect to an Event of Default under this Section 21.
(b) The occurrence of any of the following events shall not
constitute an Event of Default under this Instrument, notwithstanding any
provision of Section 21(a) to the contrary:
(1) a Transfer to which Lender has consented;
(2) a Transfer that occurs by devise, descent, or by
operation of law upon the death of a natural person;
(3) the grant of a leasehold interest in an individual
dwelling unit for a term of two years or less not
containing an option to purchase;
(4) a Transfer of obsolete or worn out Personalty or
Fixtures that are
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 25
<PAGE> 26
contemporaneously replaced by items of equal or
better function and quality, which are free of liens,
encumbrances and security interests other than those
created by the Loan Documents or consented to by
Lender;
(5) the grant of an easement, if before the grant Lender
determines that the easement will not materially
affect the operation or value of the Mortgaged
Property or Lender's interest in the Mortgaged
Property, and Borrower pays to Lender, upon demand,
all costs and expenses incurred by Lender in
connection with reviewing Borrower's request; and
(6) the creation of a mechanic's, materialman's, or
judgment lien against the Mortgaged Property which is
released of record or otherwise remedied to Lender's
satisfaction within 30 days of the date of creation.
(c) Lender may consent, in its discretion, to a Transfer that
would otherwise violate this Section 21 if, prior to the Transfer, Borrower has
satisfied each of the following requirements:
(1) the submission to Lender of all information required
by Lender to make the determination required by this
Section 21(c);
(2) the Mortgaged Property and the transferee meet all of
the eligibility, credit, management and other
standards (including but not limited to any standards
with respect to previous relationships between Lender
and the transferee and the organization of the
transferee) customarily applied by Lender to the
approval of borrowers and properties in connection
with the origination or purchase of similar mortgages
on multifamily properties;
(3) the absence of any Event of Default;
(4) the execution of an assumption agreement that is
acceptable to Lender and that, among other things,
requires the transferee to perform all obligations of
Borrower set forth in the Note, this Instrument and
any other Loan Documents, and may require that the
transferee comply with any provisions of this
Instrument or any other Loan Document which
previously may have been waived by Lender; and
(5) Lender's receipt of all of the following:
(A) a review fee in the amount of $2,000.00;
(B) a transfer fee in an amount equal to 1.0 % of
the unpaid principal balance of the
Indebtedness immediately before the Transfer;
and
(C) the amount of Lender's out-of-pocket costs
(including reasonable
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 26
<PAGE> 27
attorneys' fees) incurred in reviewing the
Transfer request.
22. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default under this Instrument:
(a) any failure by Borrower to pay or deposit when due any amount
required by the Note, this Instrument or any other Loan Document;
(b) any failure by Borrower to maintain the insurance coverage
required by Section 19;
(c) any failure by Borrower to comply with the provisions of
Section 33;
(d) fraud or material misrepresentation or material omission by
Borrower, any of its officers, directors, trustees, general partners or
managers or any guarantor in connection with (A) the application for or
creation of the Indebtedness, (B) any financial statement, rent roll, or other
report or information provided to Lender during the term of the Indebtedness,
or (C) any request for Lender's consent to any proposed action, including a
request for disbursement of funds under any Collateral Agreement;
(e) any Event of Default under Section 21;
(f) the commencement of a forfeiture action or proceeding, whether
civil or criminal, which, in Lender's reasonable judgment, could result in a
forfeiture of the Mortgaged Property or otherwise materially impair the lien
created by this Instrument or Lender's interest in the Mortgaged Property;
(g) any failure by Borrower to perform any of its obligations
under this Instrument (other than those specified in Sections 22(a) through
(f)), as and when required, which continues for a period of 30 days after
notice of such failure by Lender to Borrower. However, no such notice or grace
period shall apply in the case of any such failure which could, in Lender's
judgment, absent immediate exercise by Lender of a right or remedy under this
Instrument, result in harm to Lender, impairment of the Note or this Instrument
or any other security given under any other Loan Document;
(h) any failure by Borrower to perform any of its obligations as
and when required under any Loan Document other than this Instrument which
continues beyond the applicable cure period, if any, specified in that Loan
Document;
(i) any exercise by the holder of any debt instrument secured by a
mortgage, deed of trust or deed to secure debt on the Mortgaged Property of a
right to declare all amounts due under that debt instrument immediately due and
payable; and
(j) Borrower voluntarily files for bankruptcy protection under the
United States Bankruptcy Code or voluntarily becomes subject to any
reorganization, receivership, insolvency
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 27
<PAGE> 28
proceeding or other similar proceeding pursuant to any other federal or state
law affecting debtor and creditor rights, or an involuntary case is commenced
against Borrower by any creditor (other than Lender) of Borrower pursuant to
the United States Bankruptcy Code or other federal or state law affecting
debtor and creditor rights and is not dismissed or discharged within 60 days
after filing.
23. REMEDIES CUMULATIVE. Each right and remedy provided in this
Instrument is distinct from all other rights or remedies under this Instrument
or any other Loan Document or afforded by applicable law, and each shall be
cumulative and may be exercised concurrently, independently, or successively,
in any order.
24. FORBEARANCE.
(a) Lender may (but shall not be obligated to) agree with
Borrower, from time to time, and without giving notice to, or obtaining the
consent of, or having any effect upon the obligations of, any guarantor or
other third party obligor, to take any of the following actions: extend the
time for payment of all or any part of the Indebtedness; reduce the payments
due under this Instrument, the Note, or any other Loan Document; release anyone
liable for the payment of any amounts under this Instrument, the Note, or any
other Loan Document; accept a renewal of the Note; modify the terms and time of
payment of the Indebtedness; join in any extension or subordination agreement;
release any Mortgaged Property; take or release other or additional security;
modify the rate of interest or period of amortization of the Note or change the
amount of the monthly installments payable under the Note; and otherwise modify
this Instrument, the Note, or any other Loan Document.
(b) Any forbearance by Lender in exercising any right or remedy
under the Note, this Instrument, or any other Loan Document or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise
of any right or remedy. The acceptance by Lender of payment of all or any part
of the Indebtedness after the due date of such payment, or in an amount which
is less than the required payment, shall not be a waiver of Lender's right to
require prompt payment when due of all other payments on account of the
Indebtedness or to exercise any remedies for any failure to make prompt
payment. Enforcement by Lender of any security for the Indebtedness shall not
constitute an election by Lender of remedies so as to preclude the exercise of
any other right available to Lender. Lender's receipt of any awards or
proceeds under Sections 19 and 20 shall not operate to cure or waive any Event
of Default.
25. LOAN CHARGES. If any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower is
interpreted so that any charge provided for in any Loan Document, whether
considered separately or together with other charges levied in connection with
any other Loan Document, violates that law, and Borrower is entitled to the
benefit of that law, that charge is hereby reduced to the extent necessary to
eliminate that violation. The amounts, if any, previously paid to Lender in
excess of the permitted amounts shall be applied by Lender to reduce the
principal of the Indebtedness. For the purpose of determining whether any
applicable law limiting the amount of interest or other charges permitted to be
collected from Borrower has been violated, all Indebtedness which constitutes
interest, as well as all other charges levied in connection
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 28
<PAGE> 29
with the Indebtedness which constitute interest, shall be deemed to be
allocated and spread over the stated term of the Note. Unless otherwise
required by applicable law, such allocation and spreading shall be effected in
such a manner that the rate of interest so computed is uniform throughout the
stated term of the Note.
26. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the
right to assert any statute of limitations as a bar to the enforcement of the
lien of this Instrument or to any action brought to enforce any Loan Document.
27. WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interests in the Mortgaged Property held by Lender or by any
other party, Lender shall have the right to determine the order in which any or
all of the Mortgaged Property shall be subjected to the remedies provided in
this Instrument, the Note, any other Loan Document or applicable law. Lender
shall have the right to determine the order in which any or all portions of the
Indebtedness are satisfied from the proceeds realized upon the exercise of such
remedies. Borrower and any party who now or in the future acquires a security
interest in the Mortgaged Property and who has actual or constructive notice of
this Instrument waives any and all right to require the marshalling of assets
or to require that any of the Mortgaged Property be sold in the inverse order
of alienation or that any of the Mortgaged Property be sold in parcels or as an
entirety in connection with the exercise of any of the remedies permitted by
applicable law or provided in this Instrument.
28. FURTHER ASSURANCES. Borrower shall execute, acknowledge, and
deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements, transfers and
assurances as Lender may require from time to time in order to better assure,
grant, and convey to Lender the rights intended to be granted, now or in the
future, to Lender under this Instrument and the Loan Documents.
29. ESTOPPEL CERTIFICATE. Within 10 days after a request from
Lender, Borrower shall deliver to Lender a written statement, signed and
acknowledged by Borrower, certifying to Lender or any person designated by
Lender, as of the date of such statement, (i) that the Loan Documents are
unmodified and in full force and effect (or, if there have been modifications,
that the Loan Documents are in full force and effect as modified and setting
forth such modifications); (ii) the unpaid principal balance of the Note; (iii)
the date to which interest under the Note has been paid; (iv) that Borrower is
not in default in paying the Indebtedness or in performing or observing any of
the covenants or agreements contained in this Instrument or any of the other
Loan Documents (or, if the Borrower is in default, describing such default in
reasonable detail); (v) whether or not there are then existing any setoffs or
defenses known to Borrower against the enforcement of any right or remedy of
Lender under the Loan Documents; and (vi) any additional facts requested by
Lender.
30. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.
(a) This Instrument, and any Loan Document which does not itself
expressly identify the law that is to apply to it, shall be governed by the
laws of the jurisdiction in which the Land is
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 29
<PAGE> 30
located (the "PROPERTY JURISDICTION").
(b) Borrower agrees that any controversy arising under or in
relation to the Note, this Instrument, or any other Loan Document shall be
litigated exclusively in the Property Jurisdiction. The state and federal
courts and authorities with jurisdiction in the Property Jurisdiction shall
have exclusive jurisdiction over all controversies which shall arise under or
in relation to the Note, any security for the Indebtedness, or any other Loan
Document. Borrower irrevocably consents to service, jurisdiction, and venue of
such courts for any such litigation and waives any other venue to which it
might be entitled by virtue of domicile, habitual residence or otherwise.
31. NOTICE.
(a) All notices, demands and other communications ("NOTICE") under
or concerning this Instrument shall be in writing. Each notice shall be
addressed to the intended recipient at its address set forth in this
Instrument, and shall be deemed given on the earliest to occur of (1) the date
when the notice is received by the addressee; (2) the first Business Day after
the notice is delivered to a recognized overnight courier service, with
arrangements made for payment of charges for next Business Day delivery; or (3)
the third Business Day after the notice is deposited in the United States mail
with postage prepaid, certified mail, return receipt requested. As used in
this Section 31, the term "Business Day" means any day other than a Saturday, a
Sunday or any other day on which Lender is not open for business.
(b) Any party to this Instrument may change the address to which
notices intended for it are to be directed by means of notice given to the
other party in accordance with this Section 31. Each party agrees that it will
not refuse or reject delivery of any notice given in accordance with this
Section 31, that it will acknowledge, in writing, the receipt of any notice
upon request by the other party and that any notice rejected or refused by it
shall be deemed for purposes of this Section 31 to have been received by the
rejecting party on the date so refused or rejected, as conclusively established
by the records of the U.S. Postal Service or the courier service.
(c) Any notice under the Note and any other Loan Document which
does not specify how notices are to be given shall be given in accordance with
this Section 31.
32. SALE OF NOTE; CHANGE IN SERVICER. The Note or a partial
interest in the Note (together with this Instrument and the other Loan
Documents) may be sold one or more times without prior notice to Borrower. A
sale may result in a change of the Loan Servicer. There also may be one or
more changes of the Loan Servicer unrelated to a sale of the Note. If there is
a change of the Loan Servicer, Borrower will be given notice of the change.
33. SINGLE ASSET BORROWER. Until the Indebtedness is paid in
full, Borrower (a) shall not acquire any real or personal property other than
the Mortgaged Property and personal property related to the operation and
maintenance of the Mortgaged Property; (b) shall not operate any business
other than the management and operation of the Mortgaged Property; and (c)
shall not maintain its assets in a way difficult to segregate and identify.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 30
<PAGE> 31
34. SUCCESSORS AND ASSIGNS BOUND. This Instrument shall bind, and
the rights granted by this Instrument shall inure to, the respective successors
and assigns of Lender and Borrower. However, a Transfer not permitted by
Section 21 shall be an Event of Default.
35. JOINT AND SEVERAL LIABILITY. If more than one person or
entity signs this Instrument as Borrower, the obligations of such persons and
entities shall be joint and several.
36. RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.
(a) The relationship between Lender and Borrower shall be solely
that of creditor and debtor, respectively, and nothing contained in this
Instrument shall create any other relationship between Lender and Borrower.
(b) No creditor of any party to this Instrument and no other
person shall be a third party beneficiary of this Instrument or any other Loan
Document. Without limiting the generality of the preceding sentence, (1) any
arrangement (a "SERVICING ARRANGEMENT") between the Lender and any Loan
Servicer for loss sharing or interim advancement of funds shall constitute a
contractual obligation of such Loan Servicer that is independent of the
obligation of Borrower for the payment of the Indebtedness, (2) Borrower shall
not be a third party beneficiary of any Servicing Arrangement, and (3) no
payment by the Loan Servicer under any Servicing Arrangement will reduce the
amount of the Indebtedness.
37. SEVERABILITY; AMENDMENTS. The invalidity or unenforceability
of any provision of this Instrument shall not affect the validity or
enforceability of any other provision, and all other provisions shall remain in
full force and effect. This Instrument contains the entire agreement among the
parties as to the rights granted and the obligations assumed in this
Instrument. This Instrument may not be amended or modified except by a writing
signed by the party against whom enforcement is sought.
38. CONSTRUCTION. The captions and headings of the sections of
this Instrument are for convenience only and shall be disregarded in construing
this Instrument. Any reference in this Instrument to an "Exhibit" or a
"Section" shall, unless otherwise explicitly provided, be construed as
referring, respectively, to an Exhibit attached to this Instrument or to a
Section of this Instrument. All Exhibits attached to or referred to in this
Instrument are incorporated by reference into this Instrument. Any reference
in this Instrument to a statute or regulation shall be construed as referring
to that statute or regulation as amended from time to time. Use of the
singular in this Agreement includes the plural and use of the plural includes
the singular. As used in this Instrument, the term "including" means
"including, but not limited to."
39. LOAN SERVICING. All actions regarding the servicing of the
loan evidenced by the Note, including the collection of payments, the giving
and receipt of notice, inspections of the Property, inspections of books and
records, and the granting of consents and approvals, may be taken by the Loan
Servicer unless Borrower receives notice to the contrary. If Borrower receives
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 31
<PAGE> 32
conflicting notices regarding the identity of the Loan Servicer or any other
subject, any such notice from Lender shall govern.
40. DISCLOSURE OF INFORMATION. Lender may furnish information
regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including but not
limited to any right of privacy.
41. NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the
application for the loan submitted to Lender (the "LOAN APPLICATION") and in
all financial statements, rent rolls, reports, certificates and other documents
submitted in connection with the Loan Application are complete and accurate in
all material respects. There has been no material adverse change in any fact
or circumstance that would make any such information incomplete or inaccurate.
42. SUBROGATION. If, and to the extent that, the proceeds of the
loan evidenced by the Note are used to pay, satisfy or discharge any obligation
of Borrower for the payment of money that is secured by a pre-existing
mortgage, deed of trust or other lien encumbering the Mortgaged Property (a
"PRIOR LIEN"), such loan proceeds shall be deemed to have been advanced by
Lender at Borrower's request, and Lender shall automatically, and without
further action on its part, be subrogated to the rights, including lien
priority, of the owner or holder of the obligation secured by the Prior Lien,
whether or not the Prior Lien is released.
43. ACCELERATION; REMEDIES. At any time during the existence of
an Event of Default, Lender, at Lender's option, may declare the Indebtedness
to be immediately due and payable without further demand and may foreclose this
Instrument by judicial proceedings and may invoke any other remedies permitted
by Pennsylvania law or provided in this Instrument or in any other Loan
Document. Lender shall be entitled to collect all costs and expenses incurred
in pursuing such remedies, including attorneys' fees or 5% of the unpaid
balance of the sums secured by this Instrument, but not less than $5,000.00,
and costs of documentary evidence, abstracts and title reports.
44. RELEASE. Upon payment of the Indebtedness, this Instrument
shall become null and void and Lender shall discharge this Instrument.
Borrower shall pay Lender's reasonable costs incurred in discharging this
Instrument.
45. PURCHASE MONEY MORTGAGE. If the proceeds of the Indebtedness
are used by Borrower to pay all or a part of the purchase price of the
Mortgaged Property, this Instrument is declared to be a purchase money
mortgage.
46. CONFESSION OF JUDGMENT FOR POSSESSION. During the existence
of
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 32
<PAGE> 33
an Event of Default, Lender may enter into possession of the Mortgaged
Property, with or without legal action, and by force if necessary; collect all
Rent (which term shall also include sums payable for use and occupation) and,
after deducting all costs of collection and administration expenses, apply the
Rent in accordance with Section 9; and for that purpose Borrower hereby
confirms the assignment to Lender of all Rent due and to become due under all
Leases created after the date of this Instrument, as well as all rights and
remedies provided in such lease or leases or at law or in equity for the
collection of Rent. The taking of possession and collection of Rent by Lender
shall not be construed to be an affirmation of any Lease. FOR THE PURPOSE OF
OBTAINING POSSESSION OF THE MORTGAGED PROPERTY DURING THE EXISTENCE OF AN EVENT
OF DEFAULT, BORROWER AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF
RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, AS ATTORNEY FOR
BORROWER AND ALL PERSONS CLAIMING UNDER OR THROUGH BORROWER, TO APPEAR FOR AND
CONFESS JUDGMENT AGAINST BORROWER, AND AGAINST ALL PERSONS CLAIMING UNDER OR
THROUGH BORROWER, IN AN ACTION IN EJECTMENT FOR POSSESSION OF THE MORTGAGED
PROPERTY, IN FAVOR OF LENDER, FOR WHICH THIS INSTRUMENT, OR A COPY VERIFIED BY
AFFIDAVIT, SHALL BE A SUFFICIENT WARRANT; AND THEREUPON A WRIT OF POSSESSION
MAY IMMEDIATELY ISSUE FOR POSSESSION OF THE MORTGAGED PROPERTY, WITHOUT ANY
PRIOR WRIT OR PROCEEDING WHATSOEVER AND WITHOUT ANY STAY OF EXECUTION. IF FOR
ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED IT SHALL BE DISCONTINUED, OR
POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO
BORROWER, LENDER SHALL HAVE THE RIGHT FOR THE SAME DEFAULT OR ANY SUBSEQUENT
DEFAULT TO BRING ONE OR MORE FURTHER ACTIONS OF EJECTMENT TO RECOVER POSSESSION
OF THE MORTGAGED PROPERTY. LENDER MAY CONFESS JUDGMENT IN AN ACTION IN
EJECTMENT BEFORE OR AFTER THE INSTITUTION OF PROCEEDINGS TO FORECLOSE THIS
INSTRUMENT OR TO ENFORCE THE NOTE, OR AFTER ENTRY OF JUDGMENT IN THE ACTION OF
EJECTMENT OR ON THE NOTE, OR AFTER A SHERIFF'S SALE OR JUDICIAL SALE OR OTHER
FORECLOSURE SALE OF THE MORTGAGED PROPERTY IN WHICH LENDER IS THE SUCCESSFUL
BIDDER. THIS AUTHORIZATION TO PURSUE SUCH PROCEEDINGS FOR CONFESSION OF
JUDGMENT IS AN ESSENTIAL PART OF THE REMEDIES FOR ENFORCEMENT OF THIS
INSTRUMENT AND THE NOTE, AND SHALL SURVIVE ANY EXECUTION SALE TO LENDER.
47. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE
ARISING OUT OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS
BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT
EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF
COMPETENT LEGAL COUNSEL.
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 33
<PAGE> 34
ATTACHED EXHIBITS. The following Exhibits are attached to this Instrument:
|X| Exhibit A Description of the Land (required).
-
|X| Exhibit B Modifications to Instrument
-
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 34
<PAGE> 35
IN WITNESS WHEREOF, Borrower has signed and delivered this Instrument
or has caused this Instrument to be signed and delivered by its duly authorized
representative.
WITNESS: BORROWER:
SUNRISE HAVERFORD ASSISTED LIVING, L.L.C., a
Pennsylvania limited liability company
By: SUNRISE ASSISTED LIVING INVESTMENTS,
INC., a Virginia corporation,
Managing Member
By: /s/ James S. Pope
-----------------------
James S. Pope
Vice President
Print Name
/s/ Wayne G. Tatusko
Wayne Tatusko
The address of Lender is:
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
/s/ Philip Brooks
On behalf of Lender
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 35
<PAGE> 36
CITY OF _Washington_____________________ :
: ss:
DISTRICT OF _Columbia___________________ :
ON THIS _20th__ day of May, 1999, before me, the undersigned officer,
personally appeared James S. Pope, who acknowledged himself to be the Vice
President of SUNRISE ASSISTED LIVING INVESTMENTS, INC., a Virginia
corporation, managing member of SUNRISE HAVERFORD ASSISTED LIVING, L.L.C., a
Pennsylvania limited liability company, and that he as such Vice President,
being authorized to do so, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation as managing member of
the limited liability company, by himself as such officer.
__/s/ Lois J. Swanson_________________________________________
Notary Public
My Commission Expires: 11/30/2003
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SECURITY INSTRUMENT (FREDDIE MAC) - PENNSYLVANIA PAGE 36
<PAGE> 37
EXHIBIT A
[DESCRIPTION OF THE LAND]
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE A-1
<PAGE> 38
EXHIBIT B
MODIFICATIONS TO INSTRUMENT
The following modifications are made to the text of the Instrument that precedes
this Exhibit:
1. Item (15) in the definition of "MORTGAGED PROPERTY" in this Instrument is
deleted in its entirety and replaced with the following new Item (15) in
the definition of "MORTGAGED PROPERTY":
all names under or by which any of the above Mortgaged Property may be
operated or known, and all trademarks, trade names, and goodwill
relating to any of the Mortgaged Property; provided, however, that the
name "Sunrise" and/or associated trademark rights are not assigned to
Lender, subject to Section 50 hereof.
2. Subsection 4(f) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 4(f):
(f) Borrower shall not lease any portion of the Mortgaged Property
for non-residential use for a rental of more than $15,000 per
annum (a "Material Lease") except with the prior written consent
of Lender and Lender's prior written approval of the Lease
agreement. Borrower shall not modify the terms of, or extend or
terminate, any Material Lease for non-residential use (including
any Material Lease in existence on the date of this Instrument)
without the prior written consent of Lender. Borrower shall,
without request by Lender, deliver an executed copy of each
non-residential Lease to Lender promptly after such Lease is
signed. All non-residential Leases, including renewals or
extensions of existing Leases, shall specifically provide that
(1) such Leases are subordinate to the lien of this Instrument;
(2) the tenant shall attorn to Lender and any purchaser at a
foreclosure sale, such attornment to be self-executing and
effective upon acquisition of title to the Mortgaged
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-1
<PAGE> 39
Property by any purchaser at a foreclosure sale or by Lender in
any manner; (3) the tenant agrees to execute such further
evidences of attornment as Lender or any purchaser at a
foreclosure sale may from time to time request; (4) the Lease
shall not be terminated by foreclosure or any other transfer of
the Mortgaged Property; (5) after a foreclosure sale of the
Mortgaged Property, Lender or any other purchaser at such
foreclosure sale may, at Lender's or such purchaser's option,
accept or terminate such Lease; and (6) the tenant shall, upon
receipt after the occurrence of an Event of Default of a written
request from Lender, pay all Rents payable under the Lease to
Lender.
3. Subsection 4(g) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 4(g):
(g) Borrower shall not receive or accept Rent under any Lease
(whether residential or non-residential) for more than two months
in advance, except for Community Fees pursuant to the Resident
Agreement for units in the Improvements approved by Lender.
4. Section 7 of the Instrument is supplemented and modified by adding the
following new Subsection (f):
(f) Notwithstanding the provisions of Subparagraph 7(a), the Lender
will not require Borrower to deposit with Lender amounts sufficient to
accumulate with Lender the entire sum required to pay the hazard or other
insurance premiums. At least annually, the Borrower must provide Lender
with proof of payment of all such Impositions for which Lender is not
collecting Imposition Deposits. In the event that Borrower does not timely
pay any of the Impositions, or fails to provide Lender with proof of such
payment, or at the any other time in Lender's discretion, Lender may
require Borrower to deposit with Lender the Imposition Deposits as provided
in Subparagraph 7(a).
5. Subsection 18(b) of the Instrument is deleted in its entirety and replaced
with the following new Section 18(b):
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-2
<PAGE> 40
(b) Prohibited Activities and Conditions shall not include the safe
and lawful use and storage of quantities of (1) pre-packaged
supplies, cleaning materials and petroleum products customarily
used in the operation and maintenance of comparable multifamily
properties, (2) cleaning materials, personal grooming items and
other items sold in pre-packaged containers for consumer use and
used by tenants and occupants of residential dwelling units in
the Mortgaged Property; (3) petroleum products used in the
operation and maintenance of motor vehicles from time to time
located on the Mortgaged Property's parking areas, and (4)
medical products or devices or medical waste, so long as all of
the foregoing are used, stored, handled, transported and disposed
of in compliance with Hazardous Materials Laws.
6. Section 18(n) of the Instrument is amended by the addition of the following
language at the end of such Subsection:
Borrower shall not be obligated to indemnify Lender for any matter (i)
first occurring after Lender acquires the Mortgaged Property and (ii)
caused by the acts or omissions of the Lender.
7. Section 19(g) of the Instrument is amended by the addition of the following
language at the end of such Subsection:
Lender shall make such proceeds or awards available to Borrower for
repair and reconstruction of the Mortgaged Property if such proceeds
or awards are less than or equal to one hundred thousand dollars
($100,000.00) on a per occurrence basis unless an Event of Default has
occurred and is continuing.
8. Section 21(b) of the Instrument is supplemented and modified by adding the
following new Subsection (7):
(7) A Transfer of membership interests in
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-3
<PAGE> 41
the limited liability company constituting Borrower to an entity
in which Sunrise Assisted Living, Inc. holds an ownership
interest equal to or greater than eighty percent (80%), provided
the terms and conditions set forth in (A) - (C) have been
satisfied:
(A) Borrower must provide Lender with prior written notice of
the proposed Transfer.
(B) At the time of the proposed Transfer, there must not exist
any Event of Default.
(C) Lender shall not be entitled to collect a transfer fee,
review fee or expenses as a result of these transfers.
9. Section 21(b) of the Instrument is supplemented and modified by adding the
following new Subsection (8):
(8) The Transfer of shares in Sunrise Assisted Living, Inc., a
Delaware corporation, on any publicly traded exchange.
10. Section 21 of the Instrument is supplemented and modified by adding the
following new Subsection (d):
(d) Borrower shall be permitted to substitute collateral property
(the "Substituted Property") for the Mortgaged Property (the
"Substitution") no more than one time in every twelve month
period during the term of the loan evidenced by the Note (the
"Loan") so long as:
(1) At the time of Substitution, no Event of Default (which
remains uncured within any applicable cure period) shall
exist under the Loan Documents;
(2) Not less than sixty (60) days prior to the requested
Substitution, Borrower shall
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-4
<PAGE> 42
deliver to Lender written notice of the requested
Substitution, which shall include a detailed description of
the Substituted Property and a non-refundable application
fee in an amount equal to ten (10) basis points multiplied
by the unpaid principal balance of the Loan;
(3) The Substituted Property shall have been constructed and
completed no more than two years prior to the construction
and completion of the Mortgaged Property;
(4) The Substituted Property shall be one or two independent or
assisted living communities which together are comparable in
size and configuration to the Mortgaged Property;
(5) The loan to value ratio with respect to the Substituted
Property at the time of the proposed Substitution is not
greater than the lesser of (A) the loan to value ratio of
the Mortgaged Property which exists as of the date hereof,
or (B) the then current loan to value ratio of the Mortgaged
Property at the time of any such Substitution based on an
MAI appraisal (prepared by an appraiser acceptable to Lender
and paid for by Borrower) at the time of any such
Substitution. (As used herein, "loan to value ratio" means
the ratio of (1) the outstanding principal balance of the
Loan to (2) the value of the Substituted Property as
determined by Lender in its discretion, expressed as a
percentage);
(6) Lender shall have received an environmental report on the
Substituted Property showing that no Phase II environmental
report is required;
(7) Lender shall have received an engineering report on the
Substituted Property showing that there are at least thirty
(30) years of useful life remaining with respect to the
Substituted Property;
(8) Lender shall have received a new currently dated mortgagee's
title insurance policy in the form and containing the
exceptions and endorsements acceptable to Lender according
to its standards for title insurance policies in place at
the time of the Substitution, insuring the first lien
mortgage in favor of Lender and/or Freddie Mac encumbering
the Substituted Property;
(9) Lender shall have received a currently dated survey of the
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-5
<PAGE> 43
Substituted Property, acceptable to Lender in accordance
with its standards and requirements for surveys in place at
the time of the Substitution;
(10) The physical condition, location and other aspects of the
Substituted Property, including, but not limited to, the
market for the Substituted Property, shall be substantially
comparable to the Mortgaged Property as determined by Lender
in its commercially reasonable discretion;
(11) If the Substitution is approved, (A) Borrower shall have
executed and delivered to Lender for recordation an
amendment to the Mortgage in form and substance acceptable
to Lender in its discretion, substituting the Substituted
Property for the Mortgaged Property; and (B) Borrower shall
have executed and delivered such additional documentation,
including without limitation new Uniform Commercial Code
Financing Statements, as Lender may reasonably require to
grant Lender a perfected first lien and security interest in
the Substituted Property and to otherwise implement the
Substitution in accordance with the terms hereof;
(12) The appraised value of the Substituted Property shall be
equal to or greater than the greater of (A) the appraised
value of the Mortgaged Property which exists as of the date
of the closing of the Loan; or (B) the appraised value of
the Mortgaged Property at the time of the Substitution based
on the MAI appraisal described in Subsection 21(d)(5) above;
(13) The Debt Service Coverage Ratio (defined below), as
determined by Lender, for the Substituted Property shall not
be less than the greater of (A) the Debt Service Coverage
Ratio for the Mortgaged Property which exists as of the date
hereof or (B) the Debt Service Coverage for the Mortgaged
Property at the time of Substitution; and
(14) Lender shall have received the amount of Lender's actual
out-of-pocket costs (including, without limitation,
commercially reasonable attorneys' fees and actual
disbursements and the costs of engineering reports,
appraisals and environmental reports) incurred in reviewing
the Substitution request and implementing the Substitution.
In the event of a substitution of collateral pursuant to the
foregoing, no transfer fee shall be payable. Lender shall be
entitled to a review fee of
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SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-6
<PAGE> 44
$2,000.00, together with reimbursement of its reasonable costs
and expenses (including actual attorneys' fees) in connection
with such substitution of collateral. As used herein, "Debt
Service Coverage Ratio" means a ratio in which the first number
is the sum of net pre-tax income of the Borrower from normal
operations of the Mortgaged Property or the Substitute Collateral
(as the case may be) as set forth in the financial statements
provided to Lender (without deduction for actual management fees
or management expense incurred or paid in connection with the
operation of the Mortgaged Property), calculated based upon the
preceding twelve (12) months, plus interest expense or lease
expense to the extent deducted in determining net income and
non-cash expenses or allowances for depreciation and amortization
of the Mortgaged Property or the Substitute Collateral (as the
case may be) for said period, less an assumed 5% management fee
for said period, and the second number is the sum of the
principal amounts due (even if not paid) on the Loan (but which
shall not include that portion associated with the balloon
payment of the Loan) for the applicable period plus the interest
amount due on the Loan for the applicable period. In calculating
"net income", any extraordinary income and extraordinary expense
shall be excluded.
11. Section 33 of the Instrument is deleted in its entirety and replaced with
the following new Section 33:
33. SINGLE ASSET BORROWER AND LIMITATION ON UNSECURED INDEBTEDNESS.
Until the Indebtedness is paid in full,
Borrower (a) shall not acquire any real or personal property other than the
Mortgaged Property and personal property related to the operation and
maintenance of the Mortgaged Property; (b) shall not operate any business other
than the management and operation of the Mortgaged Property; and (c) shall not
maintain its assets in a way difficult to segregate and identify. Sunrise
Assisted Living, Inc., a Delaware corporation ("Guarantor") or an affiliate of
the Guarantor may provide unsecured financing to Borrower. The Borrower may
obtain purchase money financing in an amount not to exceed $75,000 for the
purpose of purchasing equipment for the Real Property and a vehicle to be used
solely in connection with the operation of the Mortgaged Property. Such
financing shall not result in any lien or encumbrance on the Mortgaged Property.
12. Section 14(b) of the Instrument is deleted in its entirety
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-7
<PAGE> 45
and replaced with the following new Subsection 14(b):
(b) Throughout the term of the Loan, Borrower shall provide
Lender or cause to be provided to Lender, the following
financial statements and information on a continuing basis
during the term of the Loan:
(1) Within one hundred twenty (120) days after the end of
the fiscal years of the Borrower, Sunrise Assisted
Living, Inc., a Delaware corporation ("Guarantor") and
Sunrise Assisted Living Management, Inc., a Virginia
corporation ("Manager"), unaudited (internally prepared
in accordance with GAAP) financial statements of
Borrower and Guarantor and financial statements of
Manager reviewed by a nationally recognized accounting
firm or independent certified public accountant
acceptable to Lender. All such statements shall be
prepared in accordance with GAAP. Borrower's,
Guarantor's and Manager's financial statements
hereunder shall include a balance sheet and a statement
of income and expenses for the year then ended,
certified by an officer of Borrower, Guarantor and
Manager, respectively, to be true and correct. As used
herein, the term "GAAP" means generally accepted
accounting principles, consistently applied, as
promulgated by the American Institute of Certified
Public Accountants.
(2) Within forty-five (45) days of the end of each calendar
quarter (other than fiscal year end), unaudited,
internally prepared financial statements of Guarantor
and of Manager, respectively, prepared in accordance
with GAAP and including a balance sheet and statement
of income and expenses for the quarter then ended,
certified by an officer of Guarantor and Manager,
respectively, to be true and correct.
(3) Within forty-five (45) days of the end of each calendar
quarter, quarterly financial operating statements of
the operations of the Mortgaged Property, prepared in
accordance with GAAP, which such statements shall
include a balance sheet and statement of income and
expenses for the quarter then ended, certified by an
officer of the Borrower or Manager to be true and
correct.
(4) Within five (5) days of receipt, any and all written
notices
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-8
<PAGE> 46
from any and all licensing and/or certifying agencies
that the applicable Mortgaged Property license and/or
permits are being downgraded to a substandard category,
revoked, or suspended or that any such action is
pending.
(5) Within forty-five (45) days of the end of each calendar
quarter, a certificate of an officer of the Borrower,
Guarantor and Manager, respectively, confirming
compliance with the covenants and requirements set
forth above.
13. Section 14(c) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 14(c):
(c) The Lender reserves the right to require that the annual
financial statements of the Borrower, Guarantor and Manager
be audited and prepared by a nationally recognized
accounting firm or independent certified public accountant
acceptable to Lender if (i) an Event of Default exists under
the Loan Documents or (ii) if Lender has reasonable grounds
to believe that the unaudited financial statements do not
accurately represent the financial condition of the
Borrower, Guarantor or Manager, as the case may be.
14. Section 14(d) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 14(d):
(d) In the event Lender in good faith believes that there has
been a material adverse change in Borrower, Guarantor or
Manager, the Lender shall have the right to require such
other financial information of Borrower, Guarantor, Manager
and/or the Mortgaged Property, as the case may be, in such
form and at such other times (including monthly or more
frequently) as Lender shall deem necessary, and Borrower
agrees promptly to provide or to cause to be provided, such
information to Lender. The content of such other financial
information shall not in any case be a cause to declare an
Event of Default under the Loan Documents in the absence of
any other Event of Default under the Loan Documents. Lender
may from time to time reasonably request such further
financial information as Lender deems advisable for
administration of the Loan.
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-9
<PAGE> 47
15. Section 14(e) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 14(e):
(e) Borrower shall furnish, together with the foregoing
financial statements and at any other time upon Lender's
request, (i) a current rent and/or resident contract roll
for the Mortgaged Property, and (ii) a monthly property
management report.
16. Section 14(f) of the Instrument is deleted in its entirety and replaced
with the following new Subsection 14(f):
(f) In addition, upon Lender's request, Lender shall receive
written authorization as necessary to obtain a credit report
for each principal whose ownership interest in Borrower is
10% or more. At Lender's request, such Borrower's principal
shall submit to Lender such financial statements and credit
report authorizations as Lender may reasonably require.
17. Section 14 of the Instrument is supplemented and modified by adding the
following new Subsection (g):
(g) Borrower shall keep full and accurate books and records and
permit Lender at all reasonable times and with reasonable
notice to inspect such books and records for the purpose of
determining the correctness of any statements delivered to
Lender.
18. Section 40 of the Instrument is deleted in its entirety and replaced with
the following new Subsection 40:
40. DISCLOSURE OF INFORMATION. Lender may furnish information regarding
Borrower or the Mortgaged Property to third parties with an existing or
prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including but not
limited to any right of privacy; provided, however, that Lender and any such
third parties shall continue to treat such information as confidential and shall
not make such information public or unnecessarily disseminate such
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-10
<PAGE> 48
information to parties without an existing or prospective interest in the
Indebtedness.
19. Section 43 of the Instrument is deleted in its entirety and replaced with
the following new Subsection 43:
43. ACCELERATION; REMEDIES. At any time during the existence of an Event
of Default, Lender, at Lender's option, may declare the Indebtedness to be
immediately due and payable without further demand and may foreclose this
Instrument by judicial proceedings and may invoke any other remedies permitted
by Pennsylvania law or provided in this Instrument or in any other Loan
Document. Lender shall be entitled to collect all costs and expenses incurred in
pursuing such remedies, including actual attorneys' fees computed on an hourly
basis, and costs of documentary evidence, abstracts and title reports.
20. Section 44 of the Instrument is deleted in its entirety and replaced with
the following new Subsection 44:
44. TERMINATION AND RELEASE. If Borrower shall promptly pay or cause to be
paid to Lender the Indebtedness, and shall perform or cause to be performed all
the other terms, conditions, agreements and provisions contained in this
Instrument, or any and all agreements entered into with respect to any
additional credits or financing, all without fraud or delay or deduction or
abatement of anything or for any reason, then this Instrument and the estate
hereby granted shall cease, terminate and become void. Upon such termination,
Lender shall cancel this Instrument and Borrower shall pay Lender's reasonable
costs incurred in canceling this Instrument.
21. A new Section 48 to the Instrument is added as follows:
48. SENIOR HOUSING.
(a) The Mortgaged Property will be used as an independent and assisted
living facility (the "Intended Use").
(b) ADDITIONAL DEFINITIONS.
(1) The term "Mortgaged Property" shall also include, where
applicable, payments received from occupants, payment of
second party charges added to base rental income, base
and/or additional meal sales, payments received from
commercial operations located on the Mortgaged Property or
provided as a service to the occupants of the Mortgaged
Property, rental from guest suites, seasonal lease charges,
rental payment under furniture leases, income from laundry
service, and fees from any and all other services provided
to third parties in
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-11
<PAGE> 49
connection with the Mortgaged Property, together with the
following items: licenses and contracts, all rights to
payments from Medicare or Medicaid programs or similar
federal, state or local programs or agencies and rights to
payment from residents or private insurers, arising from the
operation of the Mortgaged Property, whether as a community
residential, independent living, adult congregate care,
assisted living or skilled nursing care facility, all
personal property acquired by Borrower after the date of
this Instrument in connection with the ownership and
operation of the Mortgaged Property as such a facility,
utility deposits, unearned premiums, accrued, accruing or to
accrue under insurance policies obtained by the Borrower now
or in the future and all proceeds of any conversion of the
Mortgaged Property or any part of it including replacements
and additions thereto.
(2) The term "Lease" shall also include any occupancy agreements
pertaining to occupants of the Mortgaged Property, including
both residential and commercial agreements and patient
admission or resident care agreements.
(3) The term "Hazardous Materials" shall also include any
medical products or devices, including, those materials
defined as "medical waste" or "biological waste" under
relevant statutes or regulations pertaining to hazardous
materials law.
(c) In addition to those representations and warranties contained in the
Instrument, Borrower hereby represents and warrants to Lender as
follows:
(1) Borrower has obtained (in its own name and/or in the
relevant operator's or manager's name, if any, and in any
event in the name of the person(s) as required under all
applicable legal requirements) all licenses, permits,
certificates, approvals or authorizations necessary to use
and operate the Mortgaged Property for its Intended Use
(collectively, the "Licenses"), and all such Licenses are in
full force and effect. The use being made of the Mortgaged
Property is in conformity in all respects with the
certificate of occupancy and/or Licenses for such property
and any other restrictions, covenants or conditions
affecting such property. The Mortgaged Property contains all
equipment necessary to use and operate such property for its
Intended Use.
(2) Borrower and the Mortgaged Property (and its operation) are
in compliance in all material respects with the applicable
provisions of all laws, statutes, regulations, ordinances,
orders, standards,
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-12
<PAGE> 50
restrictions and rules of any federal, state or local
government or quasi-governmental body, agency, board or
authority having jurisdiction over the operation of the
Mortgaged Property, including: (A) health care and fire
safety codes; (B) laws regulating the handling and disposal
of medical or biological waste; (C) the applicable
provisions of all laws, rules, regulations and published
interpretations thereof to which the Borrower or the
Mortgaged Property is subject by virtue of its Intended Use;
and (D) all criteria established to classify the Mortgaged
Property as housing for older persons under Fair Housing
Amendments Act of 1988.
(3) Borrower does not currently participate in any Medicaid or
Medicare programs or any other third party payors' programs,
or other similar provider payment programs in connection
with the operation of the Mortgaged Property.
(4) Borrower and the Mortgaged Property are not subject to any
proceeding, suit or investigation by any federal, state or
local government or quasi-government body, or agency or any
other administrative or investigative body, and Borrower has
received no notice from any such agency which may result in
the imposition of a fine, or alternative, interim or final
sanction, would have a material adverse effect on Borrower
or the operation of the Mortgaged Property, would result in
the appointment of a receiver or manager, would affect
Borrower's ability to accept and/or retain residents, or
would result in the revocation, transfer, surrender,
suspension or other impairment of any License for the
Mortgaged Property.
(5) Neither the execution and delivery of the Note, the
Instrument or any other loan documents, Borrower's
performance thereunder, the recordation of the Instrument,
nor the exercise of any remedies by Lender, will adversely
affect the Licenses.
(6) Borrower is not a participant in any federal program whereby
any federal, state or local government or quasi-governmental
body or agency may have the right to recover funds by reason
of the advance of federal funds. Borrower has received no
notice of, and is not aware of, any violation of applicable
antitrust laws.
(7) In the event any existing management agreement is terminated
or Lender acquires the Mortgaged Property through
foreclosure or otherwise, neither Borrower, Lender, any
subsequent manager, nor any subsequent purchaser (through
foreclosure or otherwise) must obtain a certificate of need
from any applicable state health care
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-13
<PAGE> 51
regulatory authority or agency (other than giving such
notice required under the applicable state law or
regulation) prior to applying for any applicable License,
provided that no service or the unit compliment is changed.
(d) Borrower shall furnish to Lender, within ten (10) days after receipt
by Borrower, any operator or any manager, any and all notices from any
licensing and/or certifying agency that any License is being
downgraded to a substandard category, revoked, or suspended, or that
action is pending or being considered.
(e) Borrower shall furnish to Lender, within ten (10) days after receipt,
a copy of any licensing agency survey or report and any statement of
deficiencies, and within the time period required by the particular
agency for furnishing a plan of correction, shall furnish to Lender a
copy of the plan of correction. Borrower shall correct any deficiency,
the curing of which is a condition of continued licensure, by the date
required for cure by such agency.
(f) Upon Lender's request, Borrower shall furnish to Lender true and
correct copies of all residency and resident care agreements.
(g) Borrower shall operate in a manner such that all applicable Licenses
shall remain in full force and effect.
(h) Without the prior written consent of Lender, which may be granted or
withheld in its discretion, Borrower shall not, and shall not permit
any operator or manager at the Mortgaged Property to, participate in
Medicare and Medicaid, or any provider agreement under Medicare and
Medicaid, or accept any residents whose ability to reside in the
Mortgaged Property requires that Borrower, the Mortgaged Property or
any operator or manager participate in Medicare, Medicaid or any
similar provider program.
(i) Borrower shall not, and shall not allow any operator or manager to:
(A) transfer any License to any location other than the Mortgaged
Property, (B) pledge any License as collateral security for any other
loan or indebtedness; (C) rescind, withdraw, modify, or otherwise
alter any License if doing so would have a material affect on
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-14
<PAGE> 52
the Mortgaged Property; or (D) pledge any receivables as collateral
security for any other loan or indebtedness.
(j) The Mortgaged Property constitutes but one business enterprise and
shall be deemed to be "single asset real estate" for purposes of the
provisions of Section 362 of the U.S. Bankruptcy Code, 11 U.S.C.
Section 101 et seq. (the "Code").
22. A new Section 49 to the Instrument is added as follows:
49. ADDITIONAL DEFAULTS. The following shall also constitute an Event of
Default under the Instrument:
(a) Borrower's failure within the time deadlines set by any federal, state
or local licensing or similar agency, to correct any deficiency that
may cause any action by such agency with respect to the Mortgaged
Property that may have a material adverse affect on the income or
operation of the Mortgaged Property or on Borrower's interest in the
Mortgaged Property, including, a termination, revocation or suspension
of any applicable License, or a ban on new resident admissions.
(b) Borrower's failure to do any of the following without the prior
written consent of Lender, to be granted or withheld in its
discretion: (1) operate the Mortgaged Property as its Intended Use;
(2) provide facilities and services normally associated with its
Intended Use; (3) provide or contract for skilled nursing care for any
of the units other than that level of care which Borrower would be
permitted to provide or contract for at the Mortgaged Property given
its Intended Use, state or local statutes, regulations, orders,
standards, rules or restrictions.
(c) (1) non residential space in the Mortgaged Property exceeds ten
percent (10%) of the net rental area; (2) the Mortgaged Property is no
longer classified as housing for older persons pursuant to the Fair
Housing Amendments Act of 1988; (3) Borrower participates, or permits
the manager, operator or any resident at the Mortgaged Property to
participate in Medicare, Medicaid, or any similar or successor payment
provider plan; or (4) skilled nursing care (A) is provided in a number
of units exceeding twenty-five percent (25%) of the total number
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-15
<PAGE> 53
of units at the Mortgaged Property or (B) accounts for more than
twenty-five percent (25%) of the total annual gross income of the
Mortgaged Property.
(d) If Borrower fails to spend $750.00 per unit each three (3) year period
(commencing with the closing of the Loan) during the term of the Loan
for Capital Replacement (as hereinafter defined) or provide proof
thereof to Lender by the end of such three (3) year period, such
failure shall be an Event of Default under the Loan Documents.
"Capital Replacement" shall mean the replacement of furniture, carpet,
vinyl flooring, window treatments, roofs, furnace/boilers, air
conditioners, ovens/ranges, refrigerators, dishwashers, water heaters
and garbage disposals.
23. A new Section 50 to the Instrument is added as follows:
50. LENDER'S RIGHT TO USE TRADE NAME. Notwithstanding anything contained
herein, Borrower agrees that Lender shall have an irrevocable license,
coupled with an interest and for which consideration has been paid and
received, to use the name "Sunrise" and/or associated trademark rights
and trade names relating to any of the Mortgaged Property for a period
not to exceed 120 days after the date Lender acquires the Mortgaged
Property by foreclosure or deed-in-lieu of foreclosure.
- --------------------------------------------------------------------------------
SECURITY INSTRUMENT (FREDDIE MAC) -- PENNSYLVANIA PAGE B-16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 71,439
<SECURITIES> 0
<RECEIVABLES> 12,333
<ALLOWANCES> 2,978
<INVENTORY> 0
<CURRENT-ASSETS> 172,356
<PP&E> 725,013
<DEPRECIATION> 44,667
<TOTAL-ASSETS> 1,003,897
<CURRENT-LIABILITIES> 53,143
<BONDS> 582,095
0
0
<COMMON> 219
<OTHER-SE> 319,639
<TOTAL-LIABILITY-AND-EQUITY> 1,003,897
<SALES> 0
<TOTAL-REVENUES> 112,902
<CGS> 0
<TOTAL-COSTS> 86,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 320
<INTEREST-EXPENSE> 14,429
<INCOME-PRETAX> 16,907
<INCOME-TAX> 4,265
<INCOME-CONTINUING> 12,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,642
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.60
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