Exhibit 10.1

 

 

EXECUTION COPY

 

 

 

 

 

 

 

CREDIT AND SECURITY AGREEMENT

 

Dated as of May 9, 2005

 

by and among

 

FIVE STAR QUALITY CARE, INC.,

as Borrower,

 

CERTAIN SUBSIDIARIES OF THE BORROWER,

as Guarantors,

 

and

 

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Lender

 

 

 

 

 

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TABLE OF CONTENTS

 

Article I. Definitions

1

 

 

Section 1.1. Definitions.

1

 

 

Section 1.2. General; References to Times.

24

 

Section 1.3. Financial Attributes of Non-Wholly Owned Subsidiaries.

24

 

Section 1.4. Terms Defined in New York Uniform Commercial Code.

24

Article II. Credit Facility

25

 

Section 2.1. Loans.

25

 

Section 2.2. Letters of Credit.

25

 

Section 2.3. Rates and Payment of Interest on Loans.

28

 

Section 2.4. Number of Interest Periods.

29

 

Section 2.5. Repayment of Loans.

29

 

Section 2.6. Prepayments.

29

 

Section 2.7. Continuation.

29

 

Section 2.8. Conversion.

30

 

Section 2.9. Note.

30

 

Section 2.10. Amount Limitations.

30

 

Section 2.11. Extension of Termination Date.

31

 

Section 2.12. Determination of Borrowing Base.

31

 

Section 2.13. Patriot Act.

31

 

Section 2.14. Voluntary Termination of the Commitment.

31

 

Section 2.15. Increase of Commitment.

32

Article III. Payments, Fees and Other General Provisions

32

 

Section 3.1. Payments.

32

 

Section 3.2. Minimum Amounts.

32

 

Section 3.3. Computations.

32

 

Section 3.4. Usury.

33

 

Section 3.5. Agreement Regarding Interest and Charges.

33

 

Section 3.6. Statements of Account.

33

 

Section 3.7. Taxes.

33

Article IV. Yield Protection, Etc.

35

 

Section 4.1. Additional Costs; Capital Adequacy.

35

 

Section 4.2. Suspension of LIBOR Loans.

36

 

Section 4.3. Illegality.

36

 

Section 4.4. Compensation.

37

 

Section 4.5. Treatment of Affected Loans.

37

 

Section 4.6. Change of Office.

37

 

Section 4.7. Assumptions Concerning Funding of LIBOR Loans.

38

Article V. Security and Accounts

38

 

Section 5.1. Grant of Security Interest.

38

 

Section 5.2. Endorsement; Notices.

39

 

 

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Section 5.3. Preservation of Collateral and Perfection of Security Interests.

39

 

 

Section 5.4. Loss of Value of Collateral.

39

 

 

Section 5.5. Special Collateral.

39

 

 

Section 5.6. Remittance of Proceeds to Lender.

39

 

 

Section 5.7. Safekeeping of Collateral.

40

 

 

Section 5.8. State of Incorporation; Name.

40

 

 

Section 5.9. Continuing Lien.

40

 

 

Section 5.10. Assignment of Security Interests.

40

 

 

Section 5.11. Possession; Sale of Collateral.

40

 

 

Section 5.12. Servicing.

42

 

 

Section 5.13. Payment Mechanics, Etc.

44

 

Article VI. Conditions Precedent

45

 

 

Section 6.1. Initial Conditions Precedent.

45

 

 

Section 6.2. Conditions Precedent to All Loans and Letters of Credit.

48

 

 

Section 6.3. Post-Closing Deliveries.

49

 

Article VII. Representations and Warranties

49

 

 

Section 7.1. Representations and Warranties.

49

 

 

Section 7.2. Survival of Representations and Warranties, Etc.

57

 

Article VIII. Affirmative Covenants

58

 

 

Section 8.1. Preservation of Existence and Similar Matters.

58

 

 

Section 8.2. Compliance with Applicable Law.

58

 

 

Section 8.3. Maintenance of Property.

58

 

 

Section 8.4. Conduct of Business.

58

 

 

Section 8.5. Insurance.

58

 

 

Section 8.6. Payment of Taxes and Claims.

59

 

 

Section 8.7. Visits and Inspections.

59

 

 

Section 8.8. Use of Proceeds.

59

 

 

Section 8.9. Environmental Matters.

60

 

 

Section 8.10. Books and Records.

60

 

 

Section 8.11. Further Assurances.

60

 

 

Section 8.12. New Subsidiaries/Guarantors; Release of Guarantors.

60

 

 

Section 8.13. Collection Accounts and Lockboxes.

62

 

 

Section 8.14. Account Covenants.

63

 

 

Section 8.15. Exchange Listing.

64

 

 

Section 8.16. New Leases.

64

 

 

Section 8.17. Zero Balance.

64

 

 

Section 8.18. Performance and Compliance With Contracts and Credit
          and Collection Policy.

64

 

 

Section 8.19. Dissolution of FSQC Funding.

64

 

Article IX. Information

64

 

 

Section 9.1. Quarterly Financial Statements.

64

 

 

Section 9.2. Year-End Statements.

65

 

 

Section 9.3. Compliance Certificate.

65

 

 

 

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Section 9.4. Other Information.

65

 

Article X. Negative Covenants

68

 

 

Section 10.1. Financial Covenants.

68

 

 

Section 10.2. Restricted Payments.

68

 

 

Section 10.3. Indebtedness.

68

 

 

Section 10.4. Liens; Negative Pledges; Other Matters.

69

 

 

Section 10.5. Merger, Consolidation, Sales of Assets and Other Arrangements.

71

 

 

Section 10.6. Fiscal Year.

71

 

 

Section 10.7. Modifications of Organizational Documents and Shared Services
Agreement.

71

 

 

Section 10.8. Transactions with Affiliates.

72

 

 

Section 10.9. ERISA Exemptions.

72

 

 

Section 10.10. Deposit Accounts.

72

 

 

Section 10.11. Collection of Accounts, Etc.

73

 

 

Section 10.12. Prepayment of Indebtedness.

73

 

Article XI. Default

73

 

 

Section 11.1. Events of Default.

73

 

 

Section 11.2. Remedies Upon Event of Default.

78

 

 

Section 11.3. Remedies Upon Default.

79

 

 

Section 11.4. Allocation of Proceeds.

79

 

 

Section 11.5. Collateral Account.

79

 

 

Section 11.6. Performance by Lender.

80

 

 

Section 11.7. Rights Cumulative.

80

 

Article XII. Guaranty

80

 

 

Section 12.1. Guaranty.

80

 

 

Section 12.2. Guaranty of Payment and Not of Collection.

81

 

 

Section 12.3. Guaranty Absolute.

81

 

 

Section 12.4. Action with Respect to Guarantied Obligations.

82

 

 

Section 12.5. Waiver.

83

 

 

Section 12.6. Inability to Accelerate.

83

 

 

Section 12.7. Reinstatement of Guarantied Obligations.

83

 

 

Section 12.8. Subrogation.

83

 

 

Section 12.9. Subordination.

84

 

 

Section 12.10. Avoidance Provisions.

84

 

 

Section 12.11. Information.

84

 

 

Section 12.12. Termination.

85

 

 

Section 12.13. Joint and Several Obligations.

85

 

Article XIII. Miscellaneous

85

 

 

Section 13.1. Notices.

85

 

 

Section 13.2. Expenses.

86

 

 

Section 13.3. Setoff.

86

 

 

Section 13.4. Litigation; Jurisdiction; Other Matters; Waivers.

87

 

 

 

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Section 13.5. Successors and Assigns.

88

Section 13.6. Amendments; Waivers.

89

Section 13.7. Nonliability of Lender.

89

Section 13.8. Confidentiality.

89

Section 13.9. Indemnification.

90

Section 13.10. Termination; Survival.

91

Section 13.11. Severability of Provisions.

92

Section 13.12. GOVERNING LAW.

92

Section 13.13. Counterparts.

92

Section 13.14. Limitation of Liability.

92

Section 13.15. Entire Agreement.

92

Section 13.16. Construction.

93

 

SCHEDULE 1.1.(b)

Material Providers

 

SCHEDULE 7.1.(b)

Ownership Structure

 

SCHEDULE 7.1.(f)

Leases

 

SCHEDULE 7.1.(g)

Existing Indebtedness

SCHEDULE 7.1.(h)

Litigation

 

SCHEDULE 7.1.(cc)

Deposit Accounts

 

 

EXHIBIT A

Form of Notice of Borrowing

 

EXHIBIT B

Form of Notice of Continuation

 

EXHIBIT C

Form of Notice of Conversion

 

EXHIBIT D

Form of Note

 

EXHIBIT E

Form of Opinion of Counsel

 

EXHIBIT F

Form of Compliance Certificate

 

EXHIBIT G

Form of Accession Agreement

 

EXHIBIT H

Form of Borrowing Base Certificate

 

EXHIBIT I

Form of Notice to Governmental Authority

 

EXHIBIT J

Form of Notice to Non-Governmental Authority

EXHIBIT K

Form of Depositary Agreement

 

EXHIBIT L

Form of Government Depositary Agreement

 

EXHIBIT M

Form of Collateral Assignment of Payments

 

 

 

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THIS CREDIT AND SECURITY AGREEMENT (this “Agreement”) dated as of May 9, 2005 by
and among FIVE STAR QUALITY CARE, INC., a corporation formed under the laws of
the State of Maryland (the “Borrower”), each of the undersigned parties
identified as “Guarantors” on the signature pages hereto and the other Persons
who may be come Guarantors hereunder pursuant to the execution and delivery of
an Accession Agreement (each a “Guarantor”) and WACHOVIA BANK, NATIONAL
ASSOCIATION (the “Lender”).

 

WHEREAS, the Lender desires to make available to the Borrower a revolving credit
facility in the initial amount of $25,000,000, which will provide for the
issuance of letters of credit, on the terms and conditions contained herein;

 

WHEREAS, the Borrower and each of the Guarantors, though separate legal
entities, are mutually dependent on each other in the conduct of their
respective businesses as an integrated operation and have determined it to be in
their mutual best interests to obtain financing from the Lender through their
collective efforts;

 

WHEREAS, each Guarantor acknowledges that it will receive direct and indirect
benefits from the Lender making such financial accommodations available to the
Borrower under this Agreement and, accordingly, each Guarantor is willing to
guarantee the Borrower’s obligations to the Lender on the terms and conditions
contained herein; and

 

WHEREAS, each Guarantor’s execution and delivery of this Agreement is a
condition to the Lender making, and continuing to make, such financial
accommodations to the Borrower.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the parties hereto, the parties hereto agree
as follows:

 

ARTICLE I. DEFINITIONS

Section 1.1. Definitions.

In addition to terms defined elsewhere herein, the following terms shall have
the following meanings for the purposes of this Agreement:

 

“Accession Agreement” means an Accession Agreement substantially in the form of
Exhibit G.

 

“Account Control Agreement” means: (a) the Depositary Agreement with respect to
the Primary Borrower Account and, if applicable, certain Provider Accounts;
(b) a Control Agreement with respect to a Local Borrower Account; (c) a
Government Depositary Agreement with respect to Provider Accounts; and (d) a
control agreement in form acceptable to the Lender in its sole discretion with
respect to any other deposit account.

 

“Account Debtor” shall mean any Person that is obligated on or under an Account.

 

 

 

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“Accounts” shall mean all present and future “accounts” and “payment
intangibles” (as each such term is defined in the UCC) and in any event shall
include any and all Health-Care-Insurance Receivables, Government Receivables
and Management Receivables.

 

“Additional Costs” has the meaning given that term in Section 4.1.

 

“Adjusted LIBOR” means, with respect to each Interest Period for any LIBOR Loan,
the rate obtained by dividing (a) LIBOR for such Interest Period by (b) a
percentage equal to 1 minus the stated maximum rate (stated as a decimal) of all
reserves, if any, required to be maintained with respect to Eurocurrency funding
(currently referred to as “Eurocurrency liabilities”) as specified in
Regulation D of the Board of Governors of the Federal Reserve System (or against
any other category of liabilities which includes deposits by reference to which
the interest rate on LIBOR Loans is determined or any applicable category of
extensions of credit or other assets which includes loans by an office of the
Lender outside of the United States of America to residents of the United States
of America). Any change in such maximum rate shall result in a change in
Adjusted LIBOR on the date on which such change in such maximum rate becomes
effective.

 

“Affiliate” means any Person (other than the Lender): (a) directly or indirectly
controlling, controlled by, or under common control with, the Borrower;
(b) directly or indirectly owning or holding ten percent (10.0%) or more of the
issued and outstanding Equity Interest of the Borrower; or (c) ten percent
(10.0%) or more of whose voting stock or other Equity Interests is directly or
indirectly owned or held by the Borrower. For purposes of this definition,
“control” (including with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”) means the possession directly
or indirectly of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
by contract or otherwise. The Affiliates of a Person shall include any officer
or director of such Person. In no event shall the Lender be deemed to be an
Affiliate of the Borrower. For purposes of this Agreement, the Borrower and its
Subsidiaries (including the Borrower) shall not be deemed to be Affiliates of
SNH and its Subsidiaries so long as each of the board of directors of the
Borrower and the board of trustees of SNH has at least one independent director
who does not serve as both a director of the Borrower and a trustee of SNH. The
term “independent director” has the meaning given such term under the listing
requirements of the New York Stock Exchange, in the case of SNH, and the
American Stock Exchange, in the case of the Borrower.

 

“Agreement Date” means the date as of which this Agreement is dated.

 

“Applicable Law” means all applicable provisions of constitutions, statutes,
rules, regulations and orders of all governmental bodies and all orders and
decrees of all courts, tribunals and arbitrators.

 

“Applicable Margin” has the meaning given such term in the Fee Letter.

 

“Assignee” has the meaning given that term in Section 13.5.(d).

 

 

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“Base Rate” means the per annum rate of interest equal to the greater of (a) the
Prime Rate or (b) the Federal Funds Rate plus one-half of one percent (0.5%).
Any change in the Base Rate resulting from a change in the Prime Rate or the
Federal Funds Rate shall become effective as of 12:01 a.m. on the Business Day
on which each such change occurs. The Base Rate is a reference rate used by the
Lender in determining interest rates on certain loans and is not intended to be
the lowest rate of interest charged by the Lender or any other Lender on any
extension of credit to any debtor.

 

“Base Rate Loan” means a Loan bearing interest at a rate based on the Base Rate.

 

“Benefit Arrangement” means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.

 

“Borrower” has the meaning set forth in the introductory paragraph hereof and
shall include the Borrower’s successors and permitted assigns.

 

“Borrower Accounts” means, collectively, the Primary Borrower Account and the
Local Borrower Accounts.

 

“Borrowing Base” means an amount equal to 75% of the amount Eligible Accounts,
as determined and adjusted pursuant to Section 2.12.

 

“Borrowing Base Certificate” shall mean a certificate in the form of Exhibit H
setting forth the amount of the Borrowing Base and otherwise in form and
substance reasonably satisfactory to the Lender.

 

“Business Day” means (a) any day other than a Saturday, Sunday or other day on
which banks in Charlotte, North Carolina are authorized or required to close and
(b) with reference to a LIBOR Loan, any such day that is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.

 

“Capital Expenditures” means, for any period, the greater of (i) an amount equal
to $500 per annum per bed for a skilled nursing facility, plus $150 per unit for
any Senior Housing Asset (other than a skilled nursing facility) or (ii) the
actual amount of capital expenditures required to be funded by the Borrower and
its Subsidiaries, on a consolidated basis, under the terms of any lease or
operating agreement to which it is a party or by which it or its assets is
bound; provided, however, (A) in the case of a Senior Housing Asset subject to a
Sunrise Operating Agreement the amount of capital expenditures for purposes of
this clause (ii) shall equal the excess, if any, of (x) the actual amount of
capital expenditures required to be funded into escrow under the applicable
Sunrise Operating Agreement for such period over (y) the amount actually on
deposit in the escrow account into which such amounts are to be funded on the
last day of such period and (B) in the case of a Senior Housing Asset leased by
the Borrower or a Subsidiary from SNH or a Subsidiary of SNH, to the extent the
applicable Lease obligates the landlord thereunder to fund capital expenditures
with respect to such Senior Housing Asset,

 

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then the amount of Capital Expenditures for such Senior Housing Asset shall be
$0 for purposes of this definition.

 

“Capitalized Lease Obligation” means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP. The amount of a Capitalized Lease Obligation is the capitalized amount of
such obligation as would be required to be reflected on a balance sheet prepared
in accordance with GAAP as of the applicable date.

 

“CHAMPUS” means the Civilian Health and Medical Program of the Uniformed
Service, a program of medical benefits covering former and active members of the
uniformed services and certain of their dependents, financed and administered by
the United States Departments of Defense, Health and Human Services and
Transportation and established pursuant to 10 USC §§ 1071-1106, and all
regulations promulgated thereunder including without limitation (a) all federal
statutes (whether set forth in 10 USC §§ 1071-1106 or elsewhere) affecting
CHAMPUS; and (b) all rules, regulations (including 32 CFR 199), manuals, orders
and administrative, reimbursement and other guidelines of all Governmental
Entities (including, without limitation, the Department of Health and Human
Services, the Department of Defense, the Department of Transportation, the
Assistant Secretary of Defense (Health Affairs), and the Office of CHAMPUS, or
any Person or entity succeeding to the functions of any of the foregoing)
promulgated pursuant to or in connection with any of the foregoing (whether or
not having the force of law) in each case as may be amended, supplemented or
otherwise modified from time to time.

 

“CMS” means the Centers for Medicare and Medicaid Services of the United States
Department of Health and Human Services.

 

“Collateral” means any real or personal property of any of the Loan Parties, now
owned or hereafter acquired, upon which a Lien is purported to be created by
this Agreement or any Security Document.

 

“Collateral Account” means a special non-interest bearing deposit account or
securities account maintained by, or on behalf of, the Lender and under its sole
dominion and control.

 

“Collateral Assignment of Payments” means a Collateral Assignment of Payments
executed by a Loan Party in favor of the Lender with respect to, among other
things, amounts payable to such Loan Party under a Sunrise Operating Agreement,
and substantially in the form of Exhibit M.

 

“Collateral Questionnaire” means the Collateral Questionnaire dated May 6, 2005
executed by the Borrower in favor of the Lender.

 

“Collections” means, with respect to any Account of a Loan Party, all cash
collections, wire transfers, electronic funds transfers and other cash proceeds
of such Account, required to be deposited in or transferred to the Primary
Borrower Account, including, without limitation, all cash proceeds thereof.

 

 

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“Commitment” means the Lender’s obligation to make Loans pursuant to
Section 2.1. and to issue Letters of Credit subject to Section 2.2. in an amount
up to, but not exceeding, the amount set forth as the Lender’s “Commitment
Amount” on its signature page hereto.

 

“Compliance Certificate” has the meaning given that term in Section 9.3.

 

“Continue”, “Continuation” and “Continued” each refers to the continuation of a
LIBOR Loan from one Interest Period to another Interest Period pursuant to
Section 2.7.

 

“Control Agreement” means each Control Agreement among the Borrower, the
Provider named therein, the Lender and the Local Bank named therein, relating to
a Local Borrower Account in such form as may be acceptable to the Lender.

 

“Convert”, “Conversion” and “Converted” each refers to the conversion of a Loan
of one Type into a Loan of another Type pursuant to Section 2.8.

 

“Credit and Collection Policy” means those receivables credit and collection
policies and practices of the Providers in effect on the Agreement Date, as
modified from time to time in accordance with the terms hereof.

 

“Credit Event” means any of the following: (a) the making (or deemed making) of
any Loan, (b) the Conversion of a Loan and (c) the issuance of a Letter of
Credit.

 

“Default” means any of the events specified in Section 11.1., whether or not
there has been satisfied any requirement for the giving of notice, the lapse of
time, or both.

 

“Defaulted Account” means an Account (a) as to which the Account Debtor therefor
or any other Person obligated thereon has taken any action, or suffered any
event to occur, of the type described in Section 11.1.(f) or (g) or (b) which,
consistent with the Credit and Collection Policy, would be written off the
applicable Provider’s books as uncollectible; provided, however, that an Account
as to which the Account Debtor therefor has suffered a temporary governmental
shutdown or delay shall not be a “Defaulted Account”.

 

“Depositary Agreement” means that certain Depositary Account Agreement among the
Borrower, the Providers, the Lender and the Lockbox Bank, in substantially the
form attached hereto as Exhibit K or such other form as may be acceptable to the
Lender.

 

“Derivatives Contract” means any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement. Not in

 

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limitation of the foregoing, the term “Derivatives Contract” includes any and
all transactions of any kind, and the related confirmations, which are subject
to the terms and conditions of, or governed by, any form of master agreement
published by the International Swaps and Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, or any other master agreement,
including any such obligations or liabilities under any such master agreement.

 

“Derivatives Termination Value” means, in respect of any one or more Derivatives
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Derivatives Contracts, (a) for any date on or
after the date such Derivatives Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and
(b) for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-market value(s) for such Derivatives Contracts, as
determined based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Derivatives Contracts
(which may include the Lender).

 

“Dollars” or “$” means the lawful currency of the United States of America.

 

“EBITDA” means, with respect to the Borrower and its consolidated Subsidiaries
for any period (without duplication): net income (loss) of such Persons for such
period determined on a consolidated basis, exclusive of the following (but only
to the extent included in determination of such net income (loss)):
(i) depreciation and amortization, including amortization of intangibles
pursuant to Statement of Financial Accounting Standards number 141 and the like;
(ii) Interest Expense; (iii) income tax expense; and (iv) extraordinary or
non-recurring gains and losses.

 

“EBITDAR” means, with respect to the Borrower and its consolidated Subsidiaries
for any period (without duplication): EBITDA for such period plus Rental Expense
for such period.

 

“Effective Date” means the later of: (a) the Agreement Date; and (b) the date on
which all of the conditions precedent set forth in Section 6.1. shall have been
fulfilled or waived in writing by the Lender.

 

“Eligible Accounts” means Accounts of the Borrower and each Provider other than
the following Accounts:

 

(a)             Accounts which (i) do not arise out of the delivery of Goods or
services by a Provider to a Patient or (ii) are not Management Receivables;

 

(b)             Accounts (other than Management Receivables or Unbilled
Receivables) which have not been billed by the Provider with respect thereto or
with respect to which the Provider with respect thereto has not delivered to the
Account Debtor in respect thereof supporting claim documents with respect to
such Account as have been requested by such Account Debtor;

 

(c)             Accounts that arise other than in the ordinary course of
business of any Provider;

 

 

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(d)             Healthcare Receivables which are not subject to a Patient
Consent Form executed by the Patient (or any other person legally empowered to
act on behalf of such Patient);

 

(e)             Accounts the obligations of the Account Debtor under which have
been Guaranteed by any other Person, are supported by any letter of credit or
are secured by a Lien on the assets of such guarantor or Account Debtor unless
such Guarantee, letter of credit or Lien has been validly assigned to the Lender
and no Person (other than the Lender) has any Lien on such Guarantee, letter of
credit or Lien;

 

(f)              Accounts that are outstanding for more than 90 days after the
original invoice date of the original invoice related thereto or, in the case of
Unbilled Receivables, 150 days after the most recent date the services or Goods
giving rise to such Account were provided to the Patient with respect to such
Account;

 

(g)              Accounts of an Account Debtor that is located outside the
United States;

 

(h)             Accounts that are the subject of any setoff or counterclaim
(except, in the case of Government Receivables, for statutory rights of
Governmental Authorities that are not pending or threatened), or are in dispute,
by the Account Debtor or with respect to which there are proceedings or audits
currently pending or, to the knowledge of the Loan Parties, threatened, by the
Account Debtor with respect to any Provider’s operations, including,
specifically, its billing practices;

 

(i)              Accounts in which Lender does not, for any reason, have a first
priority, perfected and enforceable Lien (subject to Applicable Laws restricting
the enforceability against a Governmental Authority of the assignment of
Accounts arising under Medicare and Medicaid);

 

(j)              Accounts which are subject to any Liens other than Permitted
Liens;

 

(k)             Accounts as to which the Borrower or a Provider is not able to
bring suit or otherwise enforce its remedies against the Account Debtor through
judicial process other than as a result of the Applicable Laws restricting the
enforceability against a Governmental Authority of the assignment of Accounts
arising under Medicare and Medicaid;

 

(l)              any Account that is not a true and correct statement of bona
fide debt incurred in the amount of the Account and that is not disputed by the
applicable Account Debtor;

 

(m)           Accounts as to which any of the representations or warranties with
respect to such Accounts contained in any of the Loan Documents or Provider
Documents are not true;

 

(n)             any Account to the extent such Account is evidenced by a
judgment, Instrument or Chattel Paper;

 

(o)             Accounts of any Account Debtor which (i) is subject to a case
under the Bankruptcy Code of 1978, as amended, or other federal bankruptcy laws
(as now or hereafter in effect); (ii) has filed a petition seeking to take
advantage of any other Applicable Laws, domestic

 

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or foreign, relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts; (iii) has applied for, consented to, or with
respect to which, a receiver, custodian, trustee, or liquidator to be, or has
been appointed of itself or of a substantial part of its property, domestic or
foreign; (iv) has made a general assignment for the benefit of creditors;
(v) has made a conveyance fraudulent as to creditors under any Applicable Law;
or (vi) has taken any corporate or partnership action for the purpose of
effecting any of the foregoing;

 

(p)             Accounts of any Account Debtor that is an Affiliate of the
Borrower, any Subsidiary or any Provider;

 

(q)             Accounts arising out of workers’ compensation or personal injury
claims;

 

(r)              Accounts the Account Debtor of which is a Sanctioned Person or
Sanctioned Entity;

 

(s)             Accounts originated by, or acquired from, a Provider that is not
a Loan Party;

 

(t)             Defaulted Accounts;

 

(u)             Accounts of Providers that are not Material Providers to the
extent such Accounts exceed 10% of all Eligible Accounts; or

 

(v)             Management Receivables to the extent such Accounts exceed 20% of
all Eligible Accounts.

 

For purposes of this definition the amount of Management Receivables at any time
shall be equal to the average amount of payments the Loan Parties received
during each calendar month with respect to Management Receivables for the
immediately preceding period of six consecutive calendar months.

 

“Environmental Laws” means any Applicable Law relating to environmental
protection or the manufacture, storage, remediation, disposal or clean-up of
Hazardous Materials including, without limitation, regulations of the
Environmental Protection Agency and any applicable rule of common law and any
judicial interpretation thereof relating primarily to the environment or
Hazardous Materials.

 

“EOB” means the explanation of benefit from an Obligor that identifies the
services rendered on account of the Account specified therein.

 

“Equity Interest” means, with respect to any Person, any share of capital stock
of (or other ownership or profit interests in) such Person, any warrant, option
or other right for the purchase or other acquisition from such Person of any
share of capital stock of (or other ownership or profit interests in) such
Person, any security convertible into or exchangeable for any share of capital
stock of (or other ownership or profit interests in) such Person or warrant,
right or option for the purchase or other acquisition from such Person of such
shares (or such other interests), and any other ownership or profit interest in
such Person, whether voting or

 

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nonvoting, and whether or not such share, warrant, option, right or other
interest is authorized or otherwise existing on any date of determination.

 

“Equity Issuance” means any issuance by a Person of any Equity Interest in such
Person and shall in any event include the issuance of any Equity Interest upon
the conversion or exchange of any security constituting Indebtedness that is
convertible or exchangeable, or is being converted or exchanged, for Equity
Interests.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as in effect
from time to time.

 

“ERISA Group” means the Borrower, any Subsidiary and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with the Borrower or any Subsidiary, are
treated as a single employer under Section 414 of the Internal Revenue Code.

 

“Event of Default” means any of the events specified in Section 11.1., provided
that any requirement for notice or lapse of time or any other condition has been
satisfied.

 

“Excluded Subsidiary” means (a) any Subsidiary (i) holding title to assets which
are or are to become collateral for any Secured Indebtedness of such Subsidiary
and (ii) which is prohibited from Guarantying the Indebtedness of any other
Person pursuant to (x) any document, instrument or agreement evidencing such
Secured Indebtedness or (y) a provision of such Subsidiary’s organizational
documents which provision was included in such Subsidiary’s organizational
documents as a condition to the extension of such Secured Indebtedness and
(b) the Insurance Subsidiaries.

 

“Existing Loan Agreement” means Loan and Security Agreement dated as of
October 24, 2002 by and among FSQC Funding, the Lenders party thereto, Dresdner
Kleinwort Wasserstein LLC, as Co-Program Manager, Healthcare Finance Group,
Inc., as Co-Program Manager and HFG Healthco-4 LLC, as Collateral Agent.

 

“Existing RPTA” means that certain Receivable Purchase and Transfer Agreement
dated as of October 24, 2002 by and among the Borrower, certain of its
Subsidiaries and FSQC Funding.

 

“Fair Market Value” means, with respect to (a) a security listed on a national
securities exchange or the NASDAQ National Market, the price of such security as
reported on such exchange or market by any widely recognized reporting method
customarily relied upon by financial institutions and (b) with respect to any
other property, the price which could be negotiated in an arm’s-length free
market transaction, for cash, between a willing seller and a willing buyer,
neither of which is under pressure or compulsion to complete the transaction.

 

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward to
the nearest 1/100th of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on

 

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such day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that (a) if such day is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day shall be
the average rate quoted to the Lender by federal funds dealers selected by the
Lender on such day on such transaction as determined by the Lender.

 

“Fee Letter” means that certain Fee Letter dated as of the Agreement Date
between the Borrower and the Lender.

 

“Fees” means the fees and commissions provided for or referred to in the Fee
Letter and any other fees payable by the Borrower hereunder or under any other
Loan Document.

 

“FF&E Account” means a deposit account establish by a Loan Party into which such
Loan Party only deposits amounts in respect of furniture, fixture and equipment
reserves as required by the terms of a Sunrise Operating Agreement.

 

“Fixed Charge Coverage Ratio” means, for the fiscal quarter most recently ending
prior to the date of determination, the ratio of (a) EBITDAR for such fiscal
quarter to (b) Fixed Charges for such fiscal quarter.

 

“Fixed Charges” means, for any period, the aggregate amount of the following of
the Borrower and its Subsidiaries determined on a consolidated basis for such
period: (a) interest expense, (b) all regularly scheduled principal payments
made with respect to Indebtedness of the Borrower and its Subsidiaries during
such period, (c) Preferred Dividends; (d) Capital Expenditures; and (e) Rental
Expense.

 

“FSQC Funding” means FSQC Funding Co., LLC, a limited liability company formed
under the laws of the State of Delaware.

 

“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination.

 

“Government Depositary Agreement” means each Depositary Account Agreement among
the Borrower, the Provider named therein, the Lender and the bank named therein,
in substantially the form attached hereto as Exhibit L or such other form as may
be acceptable to the Lender.

 

“Government Lockbox” means (a) each of the lockboxes identified on
Schedule 7.1.(cc) hereto as a Government Lockbox, established to receive checks
and EOB’s with respect to Accounts payable by Governmental Authorities to the
Providers listed on Schedule 7.1.(cc) and (b) each other lockbox established as
a Government Lockbox pursuant to Section 8.13.(b).

 

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“Government Lockbox Account” means (a) each of the accounts identified on
Schedule 7.1.(cc) as a Government Lockbox Account in the name of a Provider
listed on Schedule 7.1.(cc) and associated with the Government Lockbox
established and controlled by such Provider to deposit all cash collections,
wire transfers, electronic funds transfers and other cash proceeds of Accounts
from the applicable Governmental Authority listed on Schedule 7.1.(cc),
including collections received in the associated Government Lockbox and
collections received by wire transfer directly from applicable the Governmental
Authority, and (b) each other account established as a Government Lockbox
Account pursuant to Section 8.13.(b).

 

“Government Receivables” means, collectively, any and all Accounts owing by any
Governmental Authority and shall in any event include all (a) Medicare Accounts
or (b) Medicaid Accounts.

 

“Governmental Approvals” means all authorizations, consents, approvals, licenses
and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.

 

“Governmental Authority” means any national, state or local government (whether
domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau, commission, board, department or other entity
or any arbitrator with authority to bind a party at law.

 

“Guarantied Obligations” has the meaning given that term in Section 12.1.

 

“Guarantor” means each Provider and each Material Subsidiary (other than any
Provider or Material Subsidiary that is an Excluded Subsidiary) and any other
Person that is a party to this Agreement as a “Guarantor”.

 

“Guaranty”, “Guaranteed”, “Guarantying” or to “Guarantee” as applied to any
obligation means and includes: (a) a guaranty (other than by endorsement of
negotiable instruments for collection or deposit in the ordinary course of
business), directly or indirectly, in any manner, of any part or all of such
obligation, or (b) an agreement, direct or indirect, contingent or otherwise,
and whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation whether by: (i) the
purchase of securities or obligations, (ii) the purchase, sale or lease (as
lessee or lessor) of property or the purchase or sale of services primarily for
the purpose of enabling the obligor with respect to such obligation to make any
payment or performance (or payment of damages in the event of nonperformance) of
or on account of any part or all of such obligation, or to assure the owner of
such obligation against loss, (iii) the supplying of funds to or in any other
manner investing in the obligor with respect to such obligation, (iv) repayment
of amounts drawn down by beneficiaries of letters of credit, or (v) the
supplying of funds to or investing in a Person on account of all or any part of
such Person’s obligation under a Guaranty of any obligation or indemnifying or
holding harmless, in any way, such Person against any part or all of such
obligation.

 

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“Hazardous Materials” means all or any of the following: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable
Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous
wastes”, “toxic substances” or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, “TCLP” toxicity
or “EP toxicity” (b) oil, petroleum or petroleum derived substances, natural
gas, natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; (d) asbestos in any form; (e) toxic
mold; and (f) electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty parts per
million.

 

“Healthcare Laws” has the meaning given such term in Section 7.1.(e).

 

“Healthcare Receivables” means, collectively, (a) all Government Receivables,
(b) all Health-Care-Insurance Receivables and (c) all other Accounts to the
extent that the same arise out of healthcare goods or services, excluding
however any Management Receivables and any Accounts of which the Account Debtor
is not a Third Party Payor or a Patient arising out of goods or services
provided in connection with the operation of any independent living apartments
or congregate care community or assisted living community, or in connection with
pharmacy services.

 

“HIPAA” has the meaning given such term in Section 7.1.(e).

 

“Indebtedness” means, with respect to a Person, at the time of computation
thereof, all of the following (without duplication): (a) all obligations of such
Person in respect of money borrowed; (b) all obligations of such Person, whether
or not for money borrowed (1) represented by notes payable, or drafts accepted,
in each case representing extensions of credit, (2) evidenced by bonds,
debentures, notes or similar instruments, or (3) constituting purchase money
indebtedness, conditional sales contracts, title retention debt instruments or
other similar instruments, upon which interest charges are customarily paid or
that are issued or assumed as full or partial payment for property or services
rendered; (c) Capitalized Lease Obligations of such Person; (d) all
reimbursement obligations of such Person under any letters of credit or
acceptances (whether or not the same have been presented for payment); (e) all
obligations, contingent or otherwise, of such Person under any synthetic lease,
tax retention operating lease, off balance sheet loan or similar off balance
sheet financing arrangement if the transaction giving rise to such obligation
(1) is considered indebtedness for borrowed money for tax purposes but is
classified as an operating lease under GAAP and (2) does not (and is not
required pursuant to GAAP to) appear as a liability on the balance sheet of such
Person; (f) all obligations of such Person to purchase, redeem, retire, defease
or otherwise make any payment in respect of any Mandatorily Redeemable Stock
issued by such Person or any other Person, valued at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends; (g) all obligations of such Person in respect of any take-out
commitment or forward equity commitment (excluding, in the case of the Borrower
and its Subsidiaries, any such obligation that can be satisfied solely by the
issuance of Equity Interests (other than Mandatorily Redeemable Stock));

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(h) all Indebtedness of other Persons which such Person has Guaranteed or is
otherwise recourse to such Person (excluding guarantees required under
Applicable Laws, or by any Governmental Authority, as a condition to ownership
or operation of Senior Housing Assets); (i) all Indebtedness of another Person
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property or assets owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness or other payment obligation, valued, in the case of
any such Indebtedness as to which recourse for the payment thereof is expressly
limited to the property or assets on which such Lien is granted, at the lesser
of (1) the stated or determinable amount of the Indebtedness that is so secured
or, if not stated or determinable, the maximum reasonably anticipated liability
in respect thereof (assuming such Person is required to perform thereunder) and
(2) the Fair Market Value of such property or assets; and (j) such Person’s pro
rata share of the Indebtedness of any Unconsolidated Affiliate of such Person.

 

“Insurance Subsidiary” means any of Five Star Insurance, Inc., Senior Living
Insurance, Co., Ltd. and Affiliate Insurers, Limited.

 

“Insurer” means any Person (other than a Governmental Authority) which in the
ordinary course of its business or activities agrees to pay for healthcare goods
and services received by individuals, including commercial insurance companies,
nonprofit insurance companies (such as Blue Cross, Blue Shield entities),
employers or unions which self-insure for employee or member health insurance,
prepaid health care organizations, preferred provider organizations and health
maintenance organizations. “Insurer” includes insurance companies issuing
health, personal injury, workers’ compensation or other types of insurance but
does not include any individual guarantors.

 

“Interest Period” means, with respect to any LIBOR Loan, each period commencing
on the date such LIBOR Loan is made or the last day of the next preceding
Interest Period for such Loan and ending 1 week or 1, 3, 6 or, if available (as
reasonably determined by the Lender), 12 months thereafter, as the Borrower may
select in a Notice of Borrowing, Notice of Continuation or Notice of Conversion,
as the case may be, except that each Interest Period that commences on the last
Business Day of a calendar month shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any
Interest Period would otherwise end after the Termination Date, such Interest
Period shall end on the Termination Date; and (ii) each Interest Period that
would otherwise end on a day which is not a Business Day shall end on the
immediately following Business Day (or, if such immediately following Business
Day falls in the next calendar month, on the immediately preceding Business
Day).

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

 

“Lease” means any lease pursuant to which a Loan Party leases a Senior Housing
Asset from any other Person.

 

“Lender” means Wachovia Bank, National Association, together with its respective
successors and permitted assigns.

 

 

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“Letter of Credit” has the meaning given that term in Section 2.2.(a).

 

“Letter of Credit Documents” means, with respect to any Letter of Credit,
collectively, any application therefor, any certificate or other document
presented in connection with a drawing under such Letter of Credit and any other
agreement, instrument or other document governing or providing for (a) the
rights and obligations of the parties concerned or at risk with respect to such
Letter of Credit or (b) any collateral security for any of such obligations.

 

“Letter of Credit Liabilities” means, without duplication, at any time and in
respect of any Letter of Credit, the sum of (a) the Stated Amount of such Letter
of Credit plus (b) the aggregate unpaid principal amount of all Reimbursement
Obligations of the Borrower at such time due and payable in respect of all
drawings made under such Letter of Credit.

 

“LIBOR” means, for any LIBOR Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the term
“LIBOR” shall mean, for any LIBOR Loan for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on the Reuters Screen LIBO Page as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is specified on
the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean
of all such rates. If for any reason none of the foregoing rates is available,
LIBOR shall be, for any Interest Period, the rate per annum reasonably
determined by the Lender as the rate of interest at which Dollar deposits in the
approximate amount of the LIBOR Loan comprising part of such borrowing would be
offered by the Lender to major banks in the London interbank Eurodollar market
at their request at or about 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period.

 

“LIBOR Loan” means a Loan bearing interest at a rate based on LIBOR.

 

“Lien” as applied to the property of any Person means: (a) any security
interest, encumbrance, mortgage, deed to secure debt, deed of trust, assignment
of leases and rents, pledge, lien, charge or lease constituting a Capitalized
Lease Obligation, conditional sale or other title retention agreement, or other
security title or encumbrance of any kind in respect of any property of such
Person, or upon the income, rents or profits therefrom; (b) any arrangement,
express or implied, under which any property of such Person is transferred,
sequestered or otherwise identified for the purpose of subjecting the same to
the payment of Indebtedness or performance of any other obligation in priority
to the payment of the general, unsecured creditors of such Person; (c) the
filing of any financing statement under the Uniform Commercial Code or its
equivalent in any jurisdiction, other than any precautionary filing not
otherwise constituting or giving rise to a Lien; and (d) any agreement by such
Person to grant, give or otherwise convey any of the foregoing.

 

 

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“Loan” means a loan made by the Lender to the Borrower pursuant to
Section 2.1.(a).

 

“Loan Document” means this Agreement, each Letter of Credit Document, each
Security Document and each other document or instrument now or hereafter
executed and delivered by a Loan Party in connection with, pursuant to or
relating to this Agreement.

 

“Loan Party” means each of the Borrower and each Guarantor.

 

“Local Bank” means each bank at which a Local Borrower Account is located.

 

“Local Borrower Account” means (a) each of the accounts identified on
Schedule 7.1.(cc) as a Local Borrower Account established by the Borrower or a
Provider to deposit all cash collections, wire transfers, electronic funds
transfers and other cash proceeds of Accounts from non-Governmental Authorities,
including collections received in the form of a check and collections received
by wire transfer directly from non-Governmental Authorities and (b) each other
account established as a Local Borrower Account pursuant to Section 8.13.(b).

 

“Lockbox Bank” means the financial institution acting as lockbox bank under the
Depositary Agreement.

 

“Management Receivables” means, as to any Provider, any and all rights to
payment of such share of the “Gross Revenues” as defined in any Sunrise
Operating Agreement between such Provider and Sunrise Senior Living, Inc. and
its successors, to which such Provider may be entitled under such Sunrise
Operating Agreement.

 

“Mandatorily Redeemable Stock” means, with respect to any Person, any Equity
Interest of such Person which by the terms of such Equity Interest (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise
(a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise (other than an Equity Interest to the extent redeemable in exchange
for common stock or other equivalent common Equity Interests), (b) is
convertible into or exchangeable or exercisable for Indebtedness or Mandatorily
Redeemable Stock, or (c) is redeemable at the option of the holder thereof, in
whole or in part (other than an Equity Interest which is redeemable solely in
exchange for common stock or other equivalent common Equity Interests), in each
case on or prior to the Termination Date.

 

“Material Adverse Effect” means a materially adverse effect on (a) the business,
assets, liabilities, condition (financial or otherwise), results of operations
or business prospects of (i) the Borrower, (ii) the Providers that are Loan
Parties taken as a whole or (iii) the Borrower and its Subsidiaries taken as a
whole, (b) the ability of the Borrower or any other Loan Party to perform its
obligations under any Loan Document to which it is a party, (c) the validity or
enforceability of any of the Loan Documents, (d) the rights and remedies of the
Lender under any of the Loan Documents or (e) the timely payment of the
principal of or interest on the Loans or other amounts payable in connection
therewith or the timely payment of the Reimbursement Obligations.

 

 

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“Material Provider” means each of the Providers set forth on Schedule 1.1.(b).

 

“Material Subsidiary” means any Subsidiary to which 5% or more of EBITDA during
any fiscal quarter of the Borrower is, directly or indirectly, attributable.

 

“Medicaid” means, collectively, the health care assistance program established
by Title XIX of the Social Security Act (42 U.S.C. §§1396 et seq.) and any
statutes succeeding thereto, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statutes and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.

 

“Medicaid Accounts” means Accounts arising or reimbursable under Medicaid.

 

“Medicare” means, collectively, the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act (42 U.S.C. §§1395
et seq.) and any statutes succeeding thereto, and all laws, rules, regulations,
manuals, orders or guidelines pertaining to such program including (a) all
federal statutes (whether set forth in Title XVIII of the Social Security Act or
elsewhere) affecting such program; and (b) all applicable provisions of all
rules, regulations, manuals, orders and administrative, reimbursement,
guidelines and requirements of all governmental authorities promulgated in
connected with such program (whether or not having the force of law), in each
case as the same may be amended, supplemented or otherwise modified from time to
time.

 

“Medicare Accounts” means Accounts arising or reimbursable under Medicare.

 

“Misdirected Payment” means any form of payment in respect of an Account of a
Provider made by an Account Debtor in a manner other than as provided in the
Notice sent to such Account Debtor or other than as provided in Section 5.13.,
including, in the case of a check received by a Provider with respect to a
payment made by an Account Debtor that is not a Governmental Authority, the
failure to deposit such check in the applicable Local Borrower Account within
one Business Day of receipt of such check.

 

“Monthly Report” means a report prepared by the chief financial officer or chief
accounting officer of the Borrower regarding the Accounts of the Borrower and
the Guarantors setting for the agings of such Accounts and such other
information as the Lender may reasonably request, all in form and detail
reasonably satisfactory to the Lender.

 

“Multiemployer Plan” means at any time a multiemployer plan within the meaning
of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then
making or accruing an obligation to make contributions or has within the
preceding five plan years made

 

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contributions, including for these purposes any Person which ceased to be a
member of the ERISA Group during such five year period.

 

“Negative Pledge” means a provision of any agreement (other than this Agreement
or any other Loan Document) that prohibits or limits the creation or assumption
of any Lien on any assets of a Person or entitles another Person to obtain or
claim the benefit of a Lien on any assets of such Person; provided, however,
that an agreement that establishes a maximum ratio of unsecured debt to
unencumbered assets, or of secured debt to total assets, or that otherwise
conditions a Person’s ability to encumber its assets upon the maintenance of one
or more specified ratios that limit such Person’s ability to encumber its assets
but that do not generally prohibit the encumbrance of its assets, or the
encumbrance of specific assets or that limits the encumbrance of specific assets
or pools or assets in combination with other assets or pools of assets, shall
not constitute a Negative Pledge for purposes of this Agreement.

 

“Net Proceeds” means with respect to any Equity Issuance by a Person, the
aggregate amount of all cash and the Fair Market Value of all other property
(other than securities of such Person being converted or exchanged in connection
with such Equity Issuance) received by such Person in respect of such Equity
Issuance net of investment banking fees, legal fees, accountants’ fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred by such Person in connection with such Equity Issuance.

 

“Nonrecourse Indebtedness” means, with respect to a Person, Indebtedness for
borrowed money in respect of which recourse for payment (except for customary
exceptions for fraud, misapplication of funds, environmental indemnities, and
other similar exceptions to recourse liability (but not exceptions relating to
bankruptcy, insolvency, receivership or other similar events)) is contractually
limited to specific assets of such Person encumbered by a Lien securing such
Indebtedness.

 

“Note” has the meaning given that term in Section 2.9.

 

“Notice” means a Notice to Governmental Entities or Notice to non-Governmental
Entities, as applicable.

 

“Notice of Borrowing” means a notice in the form of Exhibit A to be delivered to
the Lender pursuant to Section 2.1.(b) evidencing the Borrower’s request for a
borrowing of Loans.

 

“Notice of Continuation” means a notice in the form of Exhibit B to be delivered
to the Lender pursuant to Section 2.7. evidencing the Borrower’s request for the
Continuation of a LIBOR Loan.

 

“Notice of Conversion” means a notice in the form of Exhibit C to be delivered
to the Lender pursuant to Section 2.8. evidencing the Borrower’s request for the
Conversion of a Loan from one Type to another Type.

 

“Notice to Governmental Authority” means a notice letter on a Provider’s
corporate letterhead in substantially the form attached hereto as Exhibit I.

 

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“Notice to non-Governmental Authority” means a notice letter on a Provider’s
corporate letterhead in substantially the form attached hereto as Exhibit J.

 

“OFAC” means U.S. Department of the Treasury’s Office of Foreign Assets Control
and any successor Governmental Authority.

 

“Obligations” means, individually and collectively: (a) the aggregate principal
balance of, and all accrued and unpaid interest on, all Loans; (b) all
Reimbursement Obligations and all other Letter of Credit Liabilities; and
(c) all other indebtedness, liabilities, obligations, covenants and duties of
the Borrower and the other Loan Parties owing to the Lender of every kind,
nature and description, under or in respect of this Agreement or any of the
other Loan Documents, including, without limitation, the Fees and
indemnification obligations, whether direct or indirect, absolute or contingent,
due or not due, contractual or tortious, liquidated or unliquidated, and whether
or not evidenced by any promissory note.

 

“Participant” has the meaning given that term in Section 13.5.(c).

 

“Patient” means any natural Person to whom Goods or services giving rise to an
Account are provided by a Provider.

 

“Patient Consent Form” means a consent form sufficient under Applicable Law to
permit the applicable Provider to disclose to the Lender information regarding
the patient which information is necessary to permit the Lender to collect any
Account owing in respect of such patient.

 

“PBGC” means the Pension Benefit Guaranty Corporation and any successor agency.

 

“Permitted LC Debt” means Indebtedness of the Borrower, any Subsidiary or other
Loan Party in respect of letters of credit (other than a Letter of Credit) so
long as (a) the outstanding amount of such Indebtedness does not exceed
$11,000,000 in the aggregate and (b) the reimbursement obligations of the
Borrower, any Subsidiary or other Loan Party in respect of such letters of
credit are fully secured by cash or Cash Equivalents.

 

“Permitted Liens” means, as to any Person: (a) Liens securing taxes, assessments
and other charges or levies imposed by any Governmental Authority (excluding any
Lien imposed pursuant to any of the provisions of ERISA or pursuant to any
Environmental Laws) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, which (i) are not at the time required to be
paid or discharged under Section 8.6. or (ii) if such Lien is the responsibility
of a financially responsible tenant, operator, mortgagor or manager to
discharge; (b) Liens consisting of deposits or pledges made, in the ordinary
course of business, in connection with, or to secure payment of, obligations
under workers’ compensation, unemployment insurance or similar Applicable Laws;
(c) Liens consisting of encumbrances in the nature of zoning restrictions,
easements, and rights or restrictions of record on the use of real property,
which do not materially detract from the value of such property or impair the
use thereof in the business of

 

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such Person; (d)  Liens in favor of the Lender; (e) deposits to secure trade
contracts (other than for Indebtedness), statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business; (f) the interests of tenants, subtenants,
operators or managers of Properties; (g) Liens required under Applicable Law, or
by any Governmental Authority, as a condition to ownership or operation of
Senior Housing Assets; and (h) Liens which are also secured by restricted cash
or Cash Equivalents of equal or greater value.

 

“Person” means an individual, corporation, partnership, limited liability
company, association, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.

 

“Plan” means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (a) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (b) has at any time within the
preceding five years been maintained, or contributed to, by any Person which was
at such time a member of the ERISA Group for employees of any Person which was
at such time a member of the ERISA Group.

 

“Post-Default Rate” means a rate per annum equal the Base Rate as in effect from
time to time plus four percent (4.0%).

 

“Preferred Dividends” means, for any given period and without duplication, all
Restricted Payments accrued or paid (and in the case of Restricted Payments
paid, which were not accrued during a prior period) during such period on
Preferred Stock issued by the Borrower or a Subsidiary. Preferred Dividends
shall not include dividends or distributions paid or payable (a) solely in
Equity Interests (other than Mandatorily Redeemable Stock) payable to holders of
such class of Equity Interests; (b) to the Borrower or a Subsidiary; or
(c) constituting or resulting in the redemption of Preferred Stock, other than
scheduled redemptions not constituting balloon, bullet or similar redemptions in
full.

 

“Preferred Stock” means, with respect to any Person, Equity Interests in such
Person which are entitled to preference or priority over any other Equity
Interest in such Person in respect of the payment of dividends or distribution
of assets upon liquidation or both.

 

“Primary Borrower Account” means the account identified on Schedule 7.1.(cc) as
the Primary Borrower Account, established by the Borrower to deposit all cash
collections, wire transfers, electronic funds transfers and other cash Proceeds
of Accounts from non-Governmental Authorities, including collections received in
the Local Borrower Accounts and collections received by wire transfer directly
from non-Governmental Authorities and any successor account established pursuant
to Section 8.13.(b).

 

“Primary Provider Account” means the account set forth on Schedule 7.1.(cc) in
the name of the Providers established and controlled by the Providers to deposit
all cash collections, wire transfers, electronic funds transfers and other cash
proceeds of Accounts from

 

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Governmental Authorities, collections received in the Government Lockbox
Accounts and collections received by wire transfer directly from Governmental
Authorities and any successor account established pursuant to Section 8.13.(b).

 

“Primary Servicer Responsibilities” has the meaning given such term in
Section 5.12.(a).

 

“Prime Rate” means the rate of interest per annum announced publicly by the
Lender as its prime rate from time to time. The Prime Rate is not necessarily
the best or the lowest rate of interest offered by the Lender.

 

“Principal Office” means the office of the Lender located at One Wachovia
Center, Charlotte, North Carolina, or such other office of the Lender as the
Lender may designate from time to time.

 

“Proceeding” means any of the following: (i) a voluntary or involuntary case
concerning any Guarantor shall be commenced under the Bankruptcy Code of 1978,
as amended; (ii) a custodian (as defined in such Bankruptcy Code or any other
applicable bankruptcy laws) is appointed for, or takes charge of, all or any
substantial part of the property of any Guarantor; (iii) any other proceeding
under any Applicable Law, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding-up or composition for adjustment of debts,
whether now or hereafter in effect, is commenced relating to any Guarantor;
(iv) any Guarantor is adjudicated insolvent or bankrupt; (v) any order of relief
or other order approving any such case or proceeding is entered by a court of
competent jurisdiction; (vi) any Guarantor makes a general assignment for the
benefit of creditors; (vii) any Guarantor shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; (viii) any Guarantor shall call a meeting of its creditors with a
view to arranging a composition or adjustment of its debts; (ix) any Guarantor
shall by any act or failure to act indicate its consent to, approval of or
acquiescence in any of the foregoing; or (x) any corporate action shall be taken
by any Guarantor for the purpose of effecting any of the foregoing.

 

“Property” means any parcel of real property and related personal property,
either owned or leased by the Borrower, any Provider or any other Subsidiary.

 

“Provider” means each Guarantor that operates a Senior Housing Asset and that is
identified as one of the “Providers” on the signature pages hereto or identified
as a “Provider” in an Accession Agreement, as applicable.

 

“Provider Account(s)” means, collectively, the Primary Provider Account and the
Government Lockbox Accounts.

 

“Regulatory Change” means, with respect to the Lender, any change effective
after the Agreement Date in Applicable Law (including without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or the
adoption or making after such date of any interpretation, directive or request
applying to a class of banks, including the Lender, of or under any Applicable
Law (whether or not having the force of law and whether or not failure to comply

 

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therewith would be unlawful) by any Governmental Authority or monetary authority
charged with the interpretation or administration thereof or compliance by the
Lender with any request or directive regarding capital adequacy.

 

“Reimbursement Obligation” means the absolute, unconditional and irrevocable
obligation of the Borrower to reimburse the Lender for any drawing honored by
the Lender under a Letter of Credit.

 

“Rental Expense” means, with respect to the Borrower and its Subsidiaries for
any period, the sum of (a) lease, rental and all other payments made in respect
of or in connection with the use of property (whether real, personal or mixed)
by the Borrower and its Subsidiaries with respect to such period other than
payments with respect to Capitalized Lease Obligations and (b) an amount equal
to (x) the product of (1) the weighted daily average during such period of all
capital expenditures by the Borrower and its Subsidiaries in respect of Senior
Housing Assets leased from SNH or a Subsidiary of SNH, which capital
expenditures have not yet been funded or reimbursed by the landlord under the
applicable Lease, multiplied by (2) 10.0%, multiplied by (3) the number of days
in the period, divided by (y) 360.

 

“Responsible Officer” means with respect to any Person, the chief executive
officer, the chief financial officer and treasurer of such Person.

 

“Restricted Payment” means: (a) any dividend or other distribution, direct or
indirect, on account of any Equity Interest of the Borrower or any Subsidiary
now or hereafter outstanding, except a dividend payable solely in Equity
Interests of identical class to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any Equity Interest of the
Borrower or any Subsidiary now or hereafter outstanding; and (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire any Equity Interests of the Borrower or any
Subsidiary now or hereafter outstanding.

 

“Sanctioned Entity” means (a) an agency of the government of, (b) an
organization directly or indirectly controlled by, or (c) a Person resident in,
in each case, a country that is subject to a sanctions program identified on the
list maintained by the OFAC and published from time to time, as such program may
be applicable to such agency, organization or Person.

 

“Sanctioned Person” means a Person named on the list of “Specially Designated
Nationals” or “Blocked Persons”, or any successor list, maintained by the OFAC
as published from time to time.

 

“Secured Indebtedness” means, with respect to a Person as of any given date, the
aggregate principal amount of all Indebtedness of such Person outstanding at
such date and that is secured in any manner by any Lien.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time,
together with all rules and regulations issued thereunder.

 

 

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“Securities Filing” has the meaning given that term in Section 9.4.(b).

 

“Security Document” means this Agreement, each Account Control Agreement, each
collateral assignment of leases referred to in Section 6.1.(a)(xx) or 8.16.,
each Collateral Assignment of Payments and any other security agreement,
financing statement, or other document, instrument or agreement creating,
evidencing or perfecting the Lender’s Liens in any of the Collateral.

 

“Senior Housing Asset” means any one or more of the following: (a) senior
residences, (b) independent living facilities, (c) congregate communities,
(d) assisted living facilities, (e) nursing homes, (f) hospitals, (g) pharmacies
and (h) other Property primarily used for senior citizen residences or health
care services, together with other improvements incidental thereto.

 

“Shared Services Agreement” means that certain Shared Services Agreement dated
as of January 2, 2002 by and between the Borrower and Reit Management & Research
LLC.

 

“SNH” means Senior Housing Properties Trust, a Maryland real estate investment
trust.

 

“Solvent” means, when used with respect to any Person, that (a) the fair value
and the fair salable value of its assets (excluding any Indebtedness due from
any affiliate of such Person) are each in excess of the fair valuation of its
total liabilities (including all contingent liabilities computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that could reasonably be expected to become an actual and
matured liability); (b) such Person is able to pay its debts or other
obligations in the ordinary course as they mature; and (c) such Person has
capital not unreasonably small to carry on its business and all business in
which it proposes to be engaged.

 

“SPC Debt” means indebtedness incurred by a Trust which limits such Trust’s
business to that of a “special purpose entity” or that otherwise is intended to
make such Trust a “bankruptcy remote” entity.

 

“Stated Amount” means the amount available to be drawn by a beneficiary under a
Letter of Credit from time to time, as such amount may be increased or reduced
from time to time in accordance with the terms of such Letter of Credit.

 

“Subsidiary” means, for any Person, any corporation, partnership or other entity
of which at least a majority of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such
corporation, partnership or other entity (without regard to the occurrence of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person, and shall include all Persons the accounts
of which are consolidated with those of such Person pursuant to GAAP.

 

“Sunrise Operating Agreement” means any of the Operating Agreements or
Management Agreements between a Provider and Sunrise Senior Living, Inc.
(successor to

 

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Marriott Senior Living Services, Inc.) and its successors, and as supplemented
by the related Pooling Agreements, Owner Agreements, Transition Agreements and
Estoppel, Consent, Amendment and Agreement, to the extent the same are
applicable to a Senior Housing Asset.

 

“Tangible Net Worth” means, as of a given date, (a) the stockholders’ equity of
the Borrower and its Subsidiaries determined on a consolidated basis, plus
(b) accumulated depreciation and amortization, minus (c) the following (to the
extent reflected in determining stockholders’ equity of the Borrower and its
Subsidiaries): (i) the amount of any write-up in the book value of any assets
contained in any balance sheet resulting from revaluation thereof or any
write-up in excess of the cost of such assets acquired, and (ii) all amounts
appearing on the assets side of any such balance sheet for assets which would be
classified as intangible assets under GAAP, all determined on a consolidated
basis.

 

“Taxes” has the meaning given that term in Section 3.7.

 

“Termination Date” means May 8, 2007, or such later date to which the
Termination Date may be extended pursuant to Section 2.11.

 

“Third Party Payor” means any Governmental Authority, insurance company, health
maintenance organization, preferred provider organization or similar entity that
is obligated to make payments with respect to an Account.

 

“Trust” means any of FS Leisure Park Tenant Trust, FS Lafayette Tenant Trust, FS
Lexington Tenant Trust, FS Tenant Pool I Trust, FS Tenant Pool II Trust, FS
Tenant Pool III Trust and FS Tenant Pool IV Trust.

 

“Type” with respect to any Loan, refers to whether such Loan is a LIBOR Loan or
Base Rate Loan.

 

“UCC” shall mean the Uniform Commercial Code of the State of New York or of any
other state the laws of which are required to be applied in connection with the
perfection of Liens in any of the Collateral.

 

“Unbilled Receivable” means an Account in respect of which the goods have been
shipped, or the services rendered, to the relevant customer or patient, and
rights to payment therefor have accrued, but the invoice has not been rendered
to the applicable Account Debtor.

 

“Unfunded Liabilities” means, with respect to any Plan at any time, the amount
(if any) by which (a) the value of all benefit liabilities under such Plan,
determined on a plan termination basis using the assumptions prescribed by the
PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market value of
all Plan assets allocable to such liabilities under Title IV of ERISA (excluding
any accrued but unpaid contributions), all determined as of the then most recent
valuation date for such Plan, but only to the extent that such excess represents
a potential liability of a member of the ERISA Group to the PBGC or any other
Person under Title IV of ERISA.

 

 

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“Wholly Owned Subsidiary” means any Subsidiary of a Person in respect of which
all of the equity securities or other ownership interests (other than, in the
case of a corporation, directors’ qualifying shares) are at the time directly or
indirectly owned or controlled by such Person or one or more other Subsidiaries
of such Person or by such Person and one or more other Subsidiaries of such
Person.

 

Section 1.2. General; References to Times.

Unless otherwise indicated, all accounting terms, ratios and measurements shall
be interpreted or determined in accordance with GAAP; provided that, if at any
time any change in GAAP would affect the computation of any financial ratio or
requirement set forth in any Loan Document, and either the Borrower or the
Lender shall so request, the Lender and the Borrower shall negotiate in good
faith to amend such ratio or requirement to preserve the original intent thereof
in light of such change in GAAP; provided further that, until so amended, (i)
such ratio or requirement shall continue to be computed in accordance with GAAP
prior to such change therein and (ii) the Borrower shall provide to the Lender
financial statements and other documents required under this Agreement or as
reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to
such change in GAAP. References in this Agreement to “Sections”, “Articles”,
“Exhibits” and “Schedules” are to sections, articles, exhibits and schedules
herein and hereto unless otherwise indicated. References in this Agreement to
any document, instrument or agreement (a) shall include all exhibits, schedules
and other attachments thereto, (b) shall include all documents, instruments or
agreements issued or executed in replacement thereof, to the extent permitted
hereby and (c) shall mean such document, instrument or agreement, or replacement
or predecessor thereto, as amended, supplemented, restated or otherwise modified
as of the date of this Agreement and from time to time thereafter to the extent
not prohibited hereby and in effect at any given time. Wherever from the context
it appears appropriate, each term stated in either the singular or plural shall
include the singular and plural, and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, the feminine and the neuter.
Unless explicitly set forth to the contrary, a reference to “Subsidiary” means a
Subsidiary of the Borrower or a Subsidiary of such Subsidiary and a reference to
an “Affiliate” means a reference to an Affiliate of the Borrower. Titles and
captions of Articles, Sections, subsections and clauses in this Agreement are
for convenience only, and neither limit nor amplify the provisions of this
Agreement. Unless otherwise indicated, all references to time are references to
Charlotte, North Carolina time.

 

Section 1.3. Financial Attributes of Non-Wholly Owned Subsidiaries.

When determining the Borrower’s compliance with any financial covenant contained
in any of the Loan Documents, only the Borrower’s pro rata share of the
financial attributes of a Subsidiary that is not a Wholly Owned Subsidiary shall
be included.

 

Section 1.4. Terms Defined in New York Uniform Commercial Code.

All other terms contained in this Agreement (which are not specifically defined
in this Agreement) shall have the meanings set forth in the UCC to the extent
the same are used or defined therein, specifically including, but not limited to
the following: Chattel Paper, Deposit

 

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Account, Health-Care-Insurance Receivable, Goods, Investment Property,
Instrument, Letter-of-Credit Rights, Money, Proceeds, Securities Account,
Supporting Obligation and Tangible Chattel Paper.

 

ARTICLE II. CREDIT FACILITY

Section 2.1. Loans.

(a)             Generally. Subject to the terms and conditions hereof, during
the period from the Effective Date to but excluding the Termination Date, the
Lender agrees to make Loans to the Borrower in an aggregate principal amount at
any one time outstanding up to, but not exceeding, the lesser of (i) the amount
of the Lender’s Commitment and (ii) the Borrowing Base. Subject to the terms and
conditions of this Agreement, during the period from the Effective Date to but
excluding the Termination Date, the Borrower may borrow, repay and reborrow
Loans hereunder.

 

(b)             Requesting Loans. The Borrower shall give the Lender notice
pursuant to a Notice of Borrowing or telephonic notice of each borrowing of a
Loan. Each Notice of Borrowing shall be delivered to the Lender before
11:00 a.m. (i) in the case of LIBOR Loans, on the date three Business Days prior
to the proposed date of such borrowing and (ii) in the case of Base Rate Loans,
on the date one Business Day prior to the proposed date of such borrowing. Any
such telephonic notice shall include all information to be specified in a
written Notice of Borrowing and shall be promptly confirmed in writing by the
Borrower pursuant to a Notice of Borrowing sent to the Lender by telecopy on the
same day of the giving of such telephonic notice. Each Notice of Borrowing or
telephonic notice of each borrowing shall be irrevocable once given and binding
on the Borrower.

 

(c)             Disbursements of Loan Proceeds. Subject to satisfaction of the
applicable conditions set forth in Article VI. for such borrowing, the Lender
will make the proceeds of such borrowing available to the Borrower no later than
2:00 p.m. on the date and at the account specified by the Borrower in such
Notice of Borrowing.

 

Section 2.2. Letters of Credit.

(a)             Letters of Credit. Subject to the terms and conditions of this
Agreement, the Lender agrees to issue for the account of the Borrower during the
period from and including the Effective Date to, but excluding, the date 30 days
prior to the Termination Date one or more letters of credit (each a “Letter of
Credit”).

 

(b)             Terms of Letters of Credit. At the time of issuance, the amount,
form, terms and conditions of each Letter of Credit, and of any drafts or
acceptances thereunder, shall be subject to approval by the Lender and the
Borrower. Notwithstanding the foregoing, in no event may the expiration date of
any Letter of Credit extend beyond the earlier of (i) the date one year from its
date of issuance or (ii) the Termination Date; provided, however, a Letter of
Credit may contain a provision providing for the automatic extension of the
expiration date in the absence of a notice of non-renewal from the Lender but in
no event shall any such provision permit the extension of the expiration date of
such Letter of Credit beyond the Termination Date.

 

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(c)             Requests for Issuance of Letters of Credit. The Borrower shall
give the Lender written notice (or telephonic notice promptly confirmed in
writing) at least 5 Business Days prior to the requested date of issuance of a
Letter of Credit, such notice to describe in reasonable detail the proposed
terms of such Letter of Credit and the nature of the transactions or obligations
proposed to be supported by such Letter of Credit, and in any event shall set
forth with respect to such Letter of Credit the proposed (i) Stated Amount,
(ii) beneficiary, and (iii) expiration date. The Borrower shall also execute and
deliver such customary letter of credit application forms as requested from time
to time by the Lender. Provided the Borrower has given the notice prescribed by
the first sentence of this subsection and subject to the other terms and
conditions of this Agreement, including the satisfaction of any applicable
conditions precedent set forth in Article VI., the Lender shall issue the
requested Letter of Credit on the requested date of issuance for the benefit of
the stipulated beneficiary. Upon the written request of the Borrower, the Lender
shall deliver to the Borrower a copy of each issued Letter of Credit within a
reasonable time after the date of issuance thereof. To the extent any term of a
Letter of Credit Document is inconsistent with a term of any Loan Document, the
term of such Loan Document shall control.

 

(d)             Reimbursement Obligations. Upon receipt by the Lender from the
beneficiary of a Letter of Credit of any demand for payment under such Letter of
Credit, the Lender shall promptly notify the Borrower of the amount to be paid
by the Lender as a result of such demand and the date on which payment is to be
made by the Lender to such beneficiary in respect of such demand; provided,
however, the Lender’s failure to give, or delay in giving, such notice shall not
discharge the Borrower in any respect from the applicable Reimbursement
Obligation. The Borrower hereby unconditionally and irrevocably agrees to pay
and reimburse the Lender for the amount of each demand for payment under such
Letter of Credit on or prior to the date on which payment is to be made by the
Lender to the beneficiary thereunder, without presentment, demand, protest or
other formalities of any kind (other than notice as provided in this
subsection).

 

(e)             Manner of Reimbursement. Upon its receipt of a notice referred
to in the immediately preceding subsection (d), the Borrower shall advise the
Lender whether or not the Borrower intends to borrow hereunder to finance its
obligation to reimburse the Lender for the amount of the related demand for
payment and, if it does, the Borrower shall submit a timely request for such
borrowing as provided in the applicable provisions of this Agreement. If the
Borrower fails to so advise the Lender, or if the Borrower fails to reimburse
the Lender for a demand for payment under a Letter of Credit by the date of such
payment, then if the applicable conditions contained in Article VI. would permit
the making of a Loan, the Borrower shall be deemed to have requested a Loan
(which shall be a Base Rate Loan) in an amount equal to the unpaid Reimbursement
Obligation and (ii) if such conditions would not permit the making of a Loan,
then such failure to reimburse shall constitute an Event of Default. The
limitations of Section 3.2. shall not apply to any borrowing of a Base Rate Loan
under this subsection.

 

(f)              Effect of Letters of Credit on Commitments. Upon the issuance
by the Lender of any Letter of Credit and until such Letter of Credit shall have
expired or been terminated, the Commitment of the Lender shall be deemed to be
utilized for all purposes of this Agreement in

 

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an amount equal to the sum of (i) the Stated Amount of such Letter of Credit
plus (ii) any related Reimbursement Obligations then outstanding.

 

(g)             Lender’s Duties Regarding Letters of Credit; Unconditional
Nature of Reimbursement Obligations. The Borrower assumes all risks of the acts
and omissions of, or misuse of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Lender shall not be responsible for, and the Borrower’s
obligations in respect of the Letters of Credit shall not be affected in any
manner by, (i) the form, validity, sufficiency, accuracy, genuineness or legal
effects of any document submitted by any party in connection with the
application for and issuance of or any drawing honored under any Letter of
Credit even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit, or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) failure of the beneficiary of any Letter of Credit to comply fully
with conditions required in order to draw upon such Letter of Credit;
(iv) errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telex, telecopy or otherwise, whether or not they
be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Letter of Credit, or of the proceeds thereof; (vii) the
misapplication by the beneficiary of the proceeds of any drawing under any
Letter of Credit; or (viii) any consequences arising from causes beyond the
control of the Lender. None of the above shall affect, impair or prevent the
vesting of any of the Lender’s rights or powers hereunder. Any action taken or
omitted to be taken by the Lender under or in connection with any Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct (as determined by a court of competent jurisdiction in a final,
non-appealable judgment), shall not create against the Lender any liability to
the Borrower. In this regard, the obligation of the Borrower to reimburse the
Lender for any drawing made under any Letter of Credit, and to repay any Loan
made pursuant to the second sentence of the immediately preceding
subsection (e), shall be absolute, unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement and any other
applicable Letter of Credit Document under all circumstances whatsoever,
including without limitation, the following circumstances: (A) any lack of
validity or enforceability of any Letter of Credit Document or any term or
provisions therein; (B) any amendment or waiver of or any consent to departure
from all or any of the Letter of Credit Documents; (C) the existence of any
claim, setoff, defense or other right which the Borrower may have at any time
against the Lender, any beneficiary of a Letter of Credit or any other Person,
whether in connection with this Agreement, the transactions contemplated hereby
or in the Letter of Credit Documents or any unrelated transaction; (D) any
breach of contract or dispute between the Borrower, the Lender or any other
Person; (E) any demand, statement or any other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein or made in connection therewith being untrue or
inaccurate in any respect whatsoever; (F) any non-application or misapplication
by the beneficiary of a Letter of Credit of the proceeds of any drawing under
such Letter of Credit; (G) payment by the Lender under any Letter of Credit
against presentation of a draft or certificate which does not strictly comply
with the terms of such Letter of Credit; and (H) any other act, omission to act,
delay or circumstance whatsoever that might, but for the provisions of

 

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this Section, constitute a legal or equitable defense to or discharge of the
Borrower’s Reimbursement Obligations. Notwithstanding anything to the contrary
contained in this Section or Section 13.9., but not in limitation of the
Borrower’s unconditional obligation to reimburse the Lender for any drawing made
under a Letter of Credit as provided in this Section and to repay any Loan made
pursuant to the second sentence of the immediately preceding subsection (e), the
Borrower shall have no obligation to indemnify the Lender in respect of any
liability incurred by the Lender arising solely out of the gross negligence or
willful misconduct of the Lender in respect of a Letter of Credit as determined
by a court of competent jurisdiction in a final, non-appealable judgment. Except
as otherwise provided in this Section, nothing in this Section shall affect any
rights the Borrower may have with respect to the gross negligence or willful
misconduct of the Lender with respect to any Letter of Credit.

 

(h)             Amendments, Etc. The issuance by the Lender of any amendment,
supplement or other modification to any Letter of Credit shall be subject to the
same conditions applicable under this Agreement to the issuance of new Letters
of Credit. In connection with any such amendment, supplement or other
modification, the Borrower shall pay the Fees, if any, payable under the Fee
Letter.

 

(i)              Expiration or Maturity Date of Letters of Credit Past
Termination Date. If on the date the Commitment is terminated or reduced to zero
(whether voluntarily, by reason of the occurrence of an Event of Default or
otherwise), there are any Letters of Credit outstanding hereunder, the Borrower
shall, on such date, pay to the Lender an amount of money equal to the Stated
Amount of such Letter(s) of Credit for deposit into the Collateral Account.

 

Section 2.3. Rates and Payment of Interest on Loans.

(a)             Rates. The Borrower promises to pay to the Lender interest on
the unpaid principal amount of each Loan for the period from and including the
date of the making of such Loan to but excluding the date such Loan shall be
paid in full, at the following per annum rates:

 

(i)              during such periods as such Loan is a Base Rate Loan, at the
Base Rate (as in effect from time to time) plus the Applicable Margin; and

 

(ii)             during such periods as such Loan is a LIBOR Loan, at Adjusted
LIBOR for such Loan for the Interest Period therefor plus the Applicable Margin.

 

Notwithstanding the foregoing, during the continuance of an Event of Default,
the Borrower shall pay to the Lender interest at the Post-Default Rate on the
outstanding principal amount of any Loan, on all Reimbursement Obligations and
on any other amount payable by the Borrower hereunder to or for the account of
the Lender (including without limitation, accrued but unpaid interest to the
extent permitted under Applicable Law).

 

(b)             Payment of Interest. Accrued and unpaid interest on each Loan
shall be payable (i) in the case of a Base Rate Loan, monthly in arrears on the
first day of each calendar month, (ii) in the case of a LIBOR Loan, in arrears
on the last day of each Interest Period therefor, and, if such Interest Period
is longer than three months, at three-month intervals following the first

 

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day of such Interest Period, and (iii) in the case of any Loan, in arrears upon
the payment, prepayment or Continuation thereof or the Conversion of such Loan
to a Loan of another Type (but only on the principal amount so paid, prepaid,
Continued or Converted). Interest payable at the Post-Default Rate shall be
payable from time to time on demand.

 

Section 2.4. Number of Interest Periods.

There may be no more than 6 different Interest Periods for LIBOR Loans,
collectively outstanding at the same time (for which purpose Interest Periods
described in different lettered clauses of the definition of the term “Interest
Period” shall be deemed to be different Interest Periods even if they are
coterminous).

 

Section 2.5. Repayment of Loans.

The Borrower shall repay the entire outstanding principal amount of, and all
accrued but unpaid interest on, the Loans on the Termination Date or upon
termination of the Commitment as provided in Section 2.14.

 

Section 2.6. Prepayments.

(a)             Optional. Subject to Section 4.4., the Borrower may prepay any
Loan at any time without premium or penalty. The Borrower shall give the Lender
at least one Business Day’s prior written notice of the prepayment of any Loan.

 

(b)             Mandatory. If at any time the aggregate principal amount of all
outstanding Loans, together with the aggregate amount of Letter of Credit
Liabilities, exceeds the lesser of (i) the amount of the Lender’s Commitment or
(ii) the Borrowing Base, the Borrower shall immediately pay to the Lender the
amount of such excess. Such payment shall be applied first to pay all amounts of
principal outstanding on the Loans and to any Reimbursement Obligations then
owing, and if any Letters of Credit are outstanding at such time the remainder,
if any, shall be deposited into the Collateral Account for application to any
Reimbursement Obligations. Such payment shall be applied to pay all amounts of
principal outstanding on the Loans. If the Borrower is required to pay any
outstanding LIBOR Loans by reason of this Section prior to the end of the
applicable Interest Period therefor, the Borrower shall pay all amounts due
under Section 4.4.

 

Section 2.7. Continuation.

So long as no Default or Event of Default shall exist, the Borrower may on any
Business Day, with respect to any LIBOR Loan, elect to maintain such LIBOR Loan
or any portion thereof as a LIBOR Loan by selecting a new Interest Period for
such LIBOR Loan. Each new Interest Period selected under this Section shall
commence on the last day of the immediately preceding Interest Period. Each
selection of a new Interest Period shall be made by the Borrower giving to the
Lender a Notice of Continuation not later than 11:00 a.m. on the third Business
Day prior to the date of any such Continuation. Such notice by the Borrower of a
Continuation shall be by telephone or telecopy, confirmed immediately in writing
if by telephone, in the form of a Notice of Continuation, specifying (a) the
proposed date of such Continuation, (b) the LIBOR

 

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Loans and portions thereof subject to such Continuation and (c) the duration of
the selected Interest Period, all of which shall be specified in such manner as
is necessary to comply with all limitations on Loans outstanding hereunder. Each
Notice of Continuation shall be irrevocable by and binding on the Borrower once
given. If the Borrower shall fail to select in a timely manner a new Interest
Period for any LIBOR Loan in accordance with this Section, such Loan will
automatically be continued on the last day of the current Interest Period
therefore as a LIBOR Loan with a one (1) month interest period, provided that if
a Default or Event of Default shall exist, such Loan will automatically, on the
last day of the current Interest Period therefor, Convert into a Base Rate Loan
notwithstanding the first sentence of Section 2.8. or the Borrower’s failure to
comply with any of the terms of such Section.

 

Section 2.8. Conversion.

The Borrower may on any Business Day, upon the Borrower’s giving of a Notice of
Conversion to the Lender, Convert all or a portion of a Loan of one Type into a
Loan of another Type; provided, however, a Base Rate Loan may not be Converted
to a LIBOR Loan if a Default or Event of Default shall exist. Any Conversion of
a LIBOR Loan into a Base Rate Loan shall be made on, and only on, the last day
of an Interest Period for such LIBOR Loan and, upon Conversion of a Base Rate
Loan into a LIBOR Loan, the Borrower shall pay accrued interest to the date of
Conversion on the principal amount so Converted. Each such Notice of Conversion
shall be given not later than 11:00 a.m. on the Business Day prior to the date
of any proposed Conversion into Base Rate Loans and on the third Business Day
prior to the date of any proposed Conversion into LIBOR Loans. Subject to the
restrictions specified above, each Notice of Conversion shall be by telephone
(confirmed immediately in writing) or telecopy in the form of a Notice of
Conversion specifying (a) the requested date of such Conversion, (b) the Type of
Loan to be Converted, (c) the portion of such Type of Loan to be Converted,
(d) the Type of Loan such Loan is to be Converted into and (e) if such
Conversion is into a LIBOR Loan, the requested duration of the Interest Period
of such Loan. Each Notice of Conversion shall be irrevocable by and binding on
the Borrower once given.

 

Section 2.9. Note.

The Loans shall, in addition to this Agreement, also be evidenced by a
promissory note of the Borrower substantially in the form of Exhibit D (the
“Note”), payable to the order of the Lender in a principal amount equal to the
amount of the Commitment as originally in effect and otherwise duly completed.
The date, amount, interest rate, Type and duration of Interest Periods (if
applicable) of each Loan, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and such entries shall be
binding on the Borrower, absent manifest error; provided, however, that the
failure of the Lender to make any such record shall not affect the obligations
of the Borrower under any of the Loan Documents.

 

Section 2.10. Amount Limitations.

Notwithstanding any other term of this Agreement or any other Loan Document, the
Lender shall not be required to make a Loan or issue a Letter of Credit, if
immediately after the making of such Loan or issuance of such Letter of Credit,
the aggregate principal amount of all

 

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outstanding Loans, together with the aggregate amount of all Letter of Credit
Liabilities, would exceed the lesser of (a) the amount of the Commitment at such
time and (b) the Borrowing Base.

 

Section 2.11. Extension of Termination Date.

The Borrower shall have the right, exercisable two times, to request the
extension of the Termination Date by twelve months. The Borrower may request
such an extension only by executing and delivering to the Lender at least 60
days but not more than 90 days prior to the date one year prior to the current
Termination Date, a written request for such extension (an “Extension Request”).
Subject to satisfaction of the following conditions, the Termination Date shall
be extended for twelve months: (a) immediately prior to such extension and
immediately after giving effect thereto, (i) no Default or Event of Default
shall exist and (ii) the representations and warranties made or deemed made by
the Borrower and each other Loan Party in the Loan Documents to which any of
them is a party, shall be true and correct in all material respects on and as of
the date of such extension with the same force and effect as if made on and as
of such date except to the extent that such representations and warranties
expressly relate solely to an earlier date (in which case such representations
and warranties shall have been true and correct on and as of such earlier date)
and except for changes in factual circumstances not prohibited under the Loan
Documents; (b) the Borrower shall have paid the Fees payable under the Fee
Letter payable with respect to such extension; (c) the Lender shall have
received such information as it may have requested from the Borrower in
connection with such Extension Request in form and substance satisfactory to the
Lender; and (d) the Lender, in its sole and absolute discretion, approves such
Extension Request. The Lender shall notify the Borrower of the approval or
denial of an Extension Request as soon as reasonably practical following receipt
by the Lender of all information requested under the immediately preceding
clause (c); provided, however, if by the date 180 days prior to the current
Termination Date, the Lender shall have not notified the Borrower of the
approval or denial of an Extension Request, then the Lender shall be deemed to
have denied such Extension Request.

 

Section 2.12. Determination of Borrowing Base.

Initially, the Borrowing Base shall be the amount set forth as such in the
Borrowing Base Certificate delivered under Section 6.1. Thereafter, the
Borrowing Base shall be the amount set forth as such in the Borrowing Base
Certificate most recently delivered under Article IX.

 

Section 2.13. Patriot Act.

The Lender hereby notifies the Borrower that pursuant to the requirements of the
USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)), it is required to obtain, verify and record information that identifies
the Borrower, which information includes the name and address of the Borrower
and other information that will allow the Lender to identify the Borrower in
accordance with such Act.

 

Section 2.14. Voluntary Termination of the Commitment.

The Borrower shall have the right to terminate the Commitment, in whole but not
in part, at any time without penalty or premium upon not less than 5 Business
Days prior written notice

 

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of such termination to the Lender. Such notice shall specify the effective date
of the termination and shall be irrevocable once given and effective only upon
receipt by the Lender. Once terminated, the Commitment may not be reinstated.

 

Section 2.15. Increase of Commitment.

The Borrower may request that the Lender increase the amount of the Commitment
to an amount not to exceed $50,000,000 by delivering a written request to the
Lender at least 60 days but not more than 30 days prior to the proposed
effective date of such increase. If the Lender has not notified the Borrower
regarding such requested increase by the date 15 days prior to the proposed
effective date of the increase, then the Lender shall be deemed to have denied
the requested increase. The Borrower understands that this Section has been
included in this Agreement for its convenience in requesting an increase of the
amount of the Commitment and the Borrower acknowledges that the Lender (a) has
not promised (either expressly or impliedly), and has no obligation or
commitment whatsoever, to agree to any such increase and (ii) may impose such
conditions to any such increase as the Lender deems appropriate in its sole and
absolute discretion.

 

ARTICLE III. PAYMENTS, FEES AND OTHER GENERAL PROVISIONS

Section 3.1. Payments.

Except to the extent otherwise provided herein, all payments of principal,
interest and other amounts to be made by the Borrower under this Agreement or
any other Loan Document shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at its
Principal Office, not later than 2:00 p.m. on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Subject to
Section 11.4., the Borrower may, at the time of making each payment under this
Agreement, specify to the Lender the amounts payable by the Borrower hereunder
to which such payment is to be applied. If the due date of any payment under
this Agreement or any other Loan Document would otherwise fall on a day which is
not a Business Day such date shall be extended to the next succeeding Business
Day and interest shall be payable for the period of such extension.

 

Section 3.2. Minimum Amounts.

Each Loan shall be a minimum amount of $1,000,000 and integral multiples of
$500,000 in excess thereof. Each borrowing and each Conversion of LIBOR Loans
shall be a minimum amount of $1,000,000 and integral multiples of $500,000 in
excess of that amount. Each voluntary prepayment of a Loan shall be in a minimum
amount of $1,000,000 and integral multiples of $500,000 in excess thereof (or,
if less, the aggregate principal amount of Loans then outstanding). The initial
Stated Amount of each Letter of Credit shall be at least $250,000.

 

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Section 3.3. Computations.

Unless otherwise expressly set forth herein, any accrued interest on any Loan,
any Fees or any other Obligations due hereunder shall be computed on the basis
of a year of 360 days and the actual number of days elapsed.

 

Section 3.4. Usury.

In no event shall the amount of interest due or payable on the Loans or other
Obligations exceed the maximum rate of interest allowed by Applicable Law and,
if any such payment is paid by the Borrower or any other Loan Party or received
by the Lender, then such excess sum shall be credited as a payment of principal,
unless the Borrower shall notify the Lender in writing that the Borrower elects
to have such excess sum returned to it forthwith. It is the express intent of
the parties hereto that the Borrower not pay and the Lender not receive,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Borrower under Applicable Law.

 

Section 3.5. Agreement Regarding Interest and Charges.

The parties hereto hereby agree and stipulate that the only charge imposed upon
the Borrower for the use of money in connection with this Agreement is and shall
be the interest specifically described in Section 2.3.(a)(i) and (ii).
Notwithstanding the foregoing, the parties hereto further agree and stipulate
that all facility fees, closing fees, underwriting fees, letter of credit fees,
default charges, late charges, funding or “breakage” charges, increased cost
charges, attorneys’ fees and reimbursement for costs and expenses paid by the
Lender to third parties or for damages incurred by the Lender, in each case in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, are charges made to compensate the Lender for underwriting or
administrative services and costs or losses performed or incurred, and to be
performed or incurred, by the Lender in connection with this Agreement and shall
under no circumstances be deemed to be charges for the use of money. All charges
other than charges for the use of money shall be fully earned and nonrefundable
when due.

 

Section 3.6. Statements of Account.

The Lender will account to the Borrower monthly with a statement of Loans,
Letters of Credit accrued interest and Fees, charges and payments made pursuant
to this Agreement and the other Loan Documents, and such account rendered by the
Lender shall be deemed conclusive upon Borrower absent manifest error. The
failure of the Lender to deliver such a statement of accounts shall not relieve
or discharge the Borrower from any of its obligations hereunder.

 

Section 3.7. Taxes.

(a)             Taxes Generally. All payments by the Borrower and each Guarantor
of principal of, and interest on, the Loans and all other Obligations shall be
made free and clear of and without deduction for any present or future excise,
stamp or other taxes, fees, duties, levies, imposts, charges, deductions,
withholdings or other charges of any nature whatsoever imposed by any taxing
authority, but excluding (i) franchise taxes, (ii) any taxes imposed on or
measured

 

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by the Lender’s assets, net income, receipts or branch profits, (iii) any taxes
(other than withholding taxes) with respect to the Lender that would not be
imposed but for a connection between the Lender and the jurisdiction imposing
such taxes (other than a connection arising solely by virtue of the activities
of the Lender pursuant to or in respect of this Agreement or any other Loan
Document), and (iv) any taxes, fees, duties, levies, imposts, charges,
deductions, withholdings or other charges to the extent imposed as a result of
the failure of the Lender to provide and keep current (to the extent legally
able) any certificates, documents or other evidence required to qualify for an
exemption from, or reduced rate of, any such taxes fees, duties, levies,
imposts, charges, deductions, withholdings or other charges or required by the
immediately following subsection (c) to be furnished by the Lender (such
non-excluded items being collectively called “Taxes”). If any withholding or
deduction from any payment to be made by the Borrower or a Guarantor hereunder
is required in respect of any Taxes pursuant to any Applicable Law, then the
Borrower or such Guarantor will:

 

(i)              pay directly to the relevant Governmental Authority the full
amount required to be so withheld or deducted;

 

(ii)             promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
Governmental Authority; and

 

(iii)            pay to the Lender for its account such additional amount or
amounts as is necessary to ensure that the net amount actually received by the
Lender will equal the full amount that the Lender would have received had no
such withholding or deduction been required.

 

(b)             Tax Indemnification. If the Borrower or any Guarantor fails to
pay any Taxes when due to the appropriate Governmental Authority or fails to
remit to the Lender the required receipts or other required documentary
evidence, such Loan Party shall indemnify the Lender for any incremental Taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure.

 

(c)             Tax Forms. Prior to the date that any Participant organized
under the laws of a jurisdiction outside the United States of America becomes a
party hereto, such Person shall deliver to the Borrower and the Lender such
certificates, documents or other evidence, as required by the Internal Revenue
Code or Treasury Regulations issued pursuant thereto (including Internal Revenue
Service Forms W-8ECI and W-8BEN, as applicable, or appropriate successor forms),
properly completed, currently effective and duly executed by such Participant
establishing that payments to it hereunder and under the Note are (i) not
subject to United States Federal backup withholding tax and (ii) not subject to
United States Federal withholding tax imposed under the Internal Revenue Code.
Each such Participant shall, to the extent it may lawfully do so, (x) deliver
further copies of such forms or other appropriate certifications on or before
the date that any such forms expire or become obsolete and after the occurrence
of any event requiring a change in the most recent form delivered to the
Borrower or the Lender and (y) obtain such extensions of the time for filing,
and renew such forms and certifications thereof, as may be reasonably requested
by the Borrower or the Lender. The Borrower shall not be required to pay any
amount pursuant to last sentence of subsection (a) above to any Participant that
is

 

 

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organized under the laws of a jurisdiction outside of the United States of
America, if such Participant fails to comply with the requirements of this
subsection.

 

ARTICLE IV. YIELD PROTECTION, ETC.

Section 4.1. Additional Costs; Capital Adequacy.

(a)             Additional Costs. The Borrower shall promptly pay to the Lender
from time to time such amounts as the Lender may reasonably determine to be
necessary to compensate it for any costs incurred by it Lender that it
determines are attributable to its making or maintaining of any LIBOR Loans or
its obligation to make any LIBOR Loans hereunder, any reduction in any amount
receivable by the Lender under this Agreement or any of the other Loan Documents
in respect of any of the Loans or such obligation or the maintenance by the
Lender of capital in respect of the Loans or the Commitment (such increases in
costs and reductions in amounts receivable being herein called “Additional
Costs”), to the extent resulting from any Regulatory Change that: (i) changes
the basis of taxation of any amounts payable to the Lender under this Agreement
or any of the other Loan Documents in respect of any of the Loans or the
Commitment (other than taxes, fees, duties, levies, imposts, charges,
deductions, withholdings or other charges which are excluded from the definition
of Taxes pursuant to the first sentence of Section 3.7.(a)); or (ii) imposes or
modifies any reserve, special deposit or similar requirements (other than
Regulation D of the Board of Governors of the Federal Reserve System or other
reserve requirement to the extent utilized in the determination of Adjusted
LIBOR for such Loan) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Lender, or any commitment of the
Lender (including, without limitation, the Commitment); or (iii) has or would
have the effect of reducing the rate of return on capital of the Lender to a
level below that which the Lender could have achieved but for such Regulatory
Change (taking into consideration the Lender’s policies with respect to capital
adequacy).

 

(b)             Lender’s Suspension of LIBOR Loans. Without limiting the effect
of the provisions of the immediately preceding subsection (a), if, by reason of
any Regulatory Change, the Lender either (i) incurs Additional Costs based on or
measured by the excess above a specified level of the amount of a category of
deposits or other liabilities of it that includes deposits by reference to which
the interest rate on LIBOR Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of the Lender that includes
LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if the Lender so
elects by notice to the Borrower, the obligation of the Lender to make or
Continue, or to Convert any other Type of Loans into, LIBOR Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 4.5. shall apply).

 

(c)             Additional Costs in Respect of Letters of Credit. Without
limiting the obligations of the Borrower under the preceding subsections of this
Section (but without duplication), if as a result of any Regulatory Change or
any risk-based capital guideline or other requirement hereafter issued by any
Governmental Authority there shall be imposed, modified or deemed applicable any
tax, reserve, special deposit, capital adequacy or similar requirement against
or with respect to or measured by reference to Letters of Credit and the result
shall be to increase the cost to the Lender of issuing or maintaining its
obligation hereunder to issue any Letter of

 

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Credit or reduce any amount receivable by the Lender hereunder in respect of any
Letter of Credit, then, upon demand by the Lender, the Borrower shall pay
promptly, and in any event within 3 Business Days of demand, to the Lender, from
time to time as specified by the Lender, such additional amounts as shall be
sufficient to compensate the Lender for such increased costs or reductions in
amount.

 

(d)             Notification and Determination of Additional Costs. The Lender
agrees to notify the Borrower of any event occurring after the Agreement Date
entitling the Lender to compensation under any of the preceding subsections of
this Section as promptly as practicable; provided, however, the failure of the
Lender to give such notice shall not release the Borrower from any of its
obligations hereunder; provided, however, that notwithstanding the foregoing
provisions of this Section, the Lender shall not be entitled to compensation for
any such amount relating to any period ending more than six months prior to the
date that the Lender first notifies the Borrower in writing thereof or for any
amounts resulting from a change by the Lender of its Lending Office (other than
changes required by Applicable Law). The Lender agrees to furnish to the
Borrower a certificate setting forth the basis and amount of each request by the
Lender for compensation under this Section. Absent manifest error,
determinations by the Lender of the effect of any Regulatory Change shall be
conclusive, provided that such determinations are made on a reasonable basis and
in good faith.

 

Section 4.2. Suspension of LIBOR Loans.

Anything herein to the contrary notwithstanding, if, on or prior to the
determination of Adjusted LIBOR for any Interest Period:

 

(a)             the Lender reasonably determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining Adjusted LIBOR for
such Interest Period, or

 

(b)             the Lender reasonably determines (which determination shall be
conclusive) that Adjusted LIBOR will not adequately and fairly reflect the cost
to the Lender of making or maintaining LIBOR Loans for such Interest Period;

 

then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to,
and shall not, make additional LIBOR Loans, Continue LIBOR Loans or Convert
Loans into LIBOR Loans and the Borrower shall, on the last day of each current
Interest Period for each outstanding LIBOR Loan, either repay such Loan or
Convert such Loan into a Base Rate Loan.

 

Section 4.3. Illegality.

Notwithstanding any other provision of this Agreement, if it has become unlawful
for the Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then the Lender shall promptly notify the Borrower thereof and the
Lender’s obligation to make or Continue, or to Convert Loans of any other Type
into, LIBOR Loans shall be suspended until such time as the Lender may again
make and maintain LIBOR Loans (in which case the provisions of Section 4.5.
shall be applicable).

 

 

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Section 4.4. Compensation.

The Borrower shall pay to the Lender, upon the request, such amount or amounts
as shall be sufficient (in the reasonable opinion of the Lender) to compensate
it for any loss, cost or expense that it reasonably determines is attributable
to:

 

(a)             any payment or prepayment (whether mandatory or optional) of a
LIBOR Loan, or Conversion of a LIBOR Loan, for any reason (including, without
limitation, acceleration) on a date other than the last day of the Interest
Period for such Loan; or

 

(b)             any failure by the Borrower for any reason (including, without
limitation, the failure of any of the applicable conditions precedent specified
in Article VI. to be satisfied) to borrow a LIBOR Loan on the requested date for
such borrowing, or to Convert a Base Rate Loan into a LIBOR Loan or Continue a
LIBOR Loan on the requested date of such Conversion or Continuation.

 

Upon the Borrower’s request, the Lender shall provide the Borrower with a
statement setting forth the basis for requesting such compensation and the
method for determining the amount thereof. Absent manifest error, determinations
by the Lender in any such statement shall be conclusive, provided that such
determinations are made on a reasonable basis and in good faith.

 

Section 4.5. Treatment of Affected Loans.

If the obligation of the Lender to make LIBOR Loans or to Continue, or to
Convert Base Rate Loans into, LIBOR Loans shall be suspended pursuant to
Section 4.1.(b), 4.2. or 4.3., then all LIBOR Loans shall be automatically
Converted into Base Rate Loans on the last day(s) of the then current Interest
Period(s) for LIBOR Loans (or, in the case of a Conversion required by
Section 4.1.(b) or 4.3., on such earlier date as the Lender may specify to the
Borrower) and, unless and until the Lender gives notice as provided below that
the circumstances specified in Section 4.1. or 4.3. that gave rise to such
Conversion no longer exist:

 

(a)             to the extent that LIBOR Loans have been so Converted, all
payments and prepayments of principal that would otherwise be applied to LIBOR
Loans shall be applied instead to Base Rate Loans; and

 

(b)             all Loans that would otherwise be made or Continued as LIBOR
Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate
Loans that would otherwise be Converted into LIBOR Loans shall remain as Base
Rate Loans.

 

Section 4.6. Change of Office.

The Lender agrees that it will use reasonable efforts to designate an alternate
office with respect to any of its Loans affected by the matters or circumstances
described in Sections 3.7., 4.1. or 4.3. to reduce the liability of the Borrower
or avoid the results provided thereunder, so long as such designation is not
disadvantageous to the Lender as determined by the Lender in its sole
discretion.

 

 

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Section 4.7. Assumptions Concerning Funding of LIBOR Loans.

Calculation of all amounts payable under this Article IV. shall be made as
though the Lender had actually funded LIBOR Loans through the purchase of
deposits in the relevant market bearing interest at the rate applicable to such
LIBOR Loans in an amount equal to the amount of the LIBOR Loans and having a
maturity comparable to the relevant Interest Period; provided, however, that the
Lender may fund LIBOR Loans in any manner it sees fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
Article IV.

 

ARTICLE V. SECURITY AND ACCOUNTS

Section 5.1. Grant of Security Interest.

To secure the prompt payment and performance of all of the Obligations, in the
case of the Borrower and all of the Guarantied Obligations, in the case of each
Guarantor, the Borrower and each Guarantor hereby collaterally assigns and
pledges to the Lender, and grants to the Lender a continuing security interest
in, all of such Loan Party’s right, title and interest in, to and under all of
the following property:

 

(a)             all Accounts of such Loan Party;

 

(b)             all Deposit Accounts and Securities Accounts of such Loan Party,
including without limitation each Borrower Account, the Provider Account and the
Governmental Lockboxes but excluding (i) FF&E Accounts and (ii) disbursement
accounts;

 

(c)             all Chattel Paper of such Loan Party;

 

(d)             all Supporting Obligations relating to any of the foregoing;

 

(e)             all books and records pertaining to any of the foregoing
(including without limitation, customer lists, credit files, computer programs,
printouts and other computer materials and records); and

 

(f)              all accessions to, substitutions for, and all replacements,
products and proceeds of the foregoing (including without limitation, proceeds
of insurance policies insuring any of the foregoing).

 

Notwithstanding the foregoing, (x) the collateral assignment and pledge to the
Lender of, and the grant to the Lender of a security interest in, the Primary
Provider Account, any Government Lockbox or any Government Lockbox Account shall
only be to the maximum extent permitted by Applicable Law, (y) no account,
instrument, chattel paper or other obligation or property of any kind due from,
owed by, or belonging to, a Sanctioned Person or Sanctioned Entity, and no lease
in which the lessee is a Sanctioned Person or Sanctioned Entity, shall be
Collateral under this Agreement or any other Loan Document and no security
interest or other Lien is granted to the Lender therein.

 

 

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Section 5.2. Endorsement; Notices.

Each of the Borrower and the Guarantors authorizes the Lender (to the maximum
extent permitted by Applicable Law with respect to any Government Receivable) to
endorse, in such Loan Party’s name, any item, however received by the Lender,
representing payment on or other proceeds of any of the Collateral of such Loan
Party and, while an Event of Default exists, to notify any Third Party Payor
(other than Governmental Authorities) to make payments on the Accounts of such
Loan Party directly to the Lender.

 

Section 5.3. Preservation of Collateral and Perfection of Security Interests.

Each of the Borrower and the Guarantors hereby authorizes, and shall, as
required, execute and deliver to the Lender, concurrently with the execution of
this Agreement and at any time hereafter, all financing statements or other
documents (and pay the cost of filing or recording the same in all public
offices deemed necessary by the Lender), as the Lender may request, in a form
satisfactory to the Lender (subject to any Applicable Laws with respect to
Government Receivables) to perfect and keep perfected the Lien in the Collateral
granted by such Loan Party to the Lender, and otherwise to protect and preserve
the Collateral of such Loan Party and the Lender’s Lien therein. The Lender is
hereby irrevocably authorized to file (and sign on behalf of such Loan Party, if
necessary) UCC or effective financing statements on the Collateral of such Loan
Party at the time of this Agreement or from time to time and any continuation
statement or amendment with respect thereto, in any appropriate filing office.

 

Section 5.4. Loss of Value of Collateral.

The Borrower shall immediately notify the Lender of any material loss or
material decrease in the value of the Collateral.

 

Section 5.5. Special Collateral.

Promptly upon receipt by the Borrower or any Guarantor thereof, such Loan Party
shall deliver or cause to be delivered to the Lender, with such endorsements and
assignments as are necessary to vest title and possession in the Lender, all
Chattel Paper, which such Loan Party now owns or which such Loan Party may at
any time acquire. The Borrower and each Guarantor shall promptly mark all copies
of such Chattel Paper to show that they are subject to the Lender’s Lien.

 

Section 5.6. Remittance of Proceeds to Lender.

In the event any Proceeds of any Collateral of the Borrower or a Guarantor shall
come into the possession of such Loan Party, such Loan Party shall receive, as
the sole and exclusive property of the Lender, and as trustee for the Lender,
all monies, checks, notes, drafts and all other payments for and/or other
Proceeds of such Collateral, and no later than the first Business Day following
receipt, such Loan Party shall remit the same (or cause the same to be
remitted), in kind, as provided in Section 5.13.(b) and otherwise in any Loan
Document, to the Primary Borrower Account.

 

 

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Section 5.7. Safekeeping of Collateral.

To the maximum extent permitted by Applicable Law, the Lender shall not be
responsible for: (a) the safekeeping of the Collateral of the Borrower or any
Guarantor (provided that the Lender deals with such Collateral in the same
manner as the Lender deals with similar property for its own account); (b) any
loss or damage to such Collateral; (c) any diminution in the value of such
Collateral; or (d) any act or default of any other Person relating to such
Collateral. All risk of loss, damage, destruction or diminution in value of such
Collateral shall be borne by the Borrower and the Guarantors.

 

Section 5.8. State of Incorporation; Name.

The exact legal names of the Borrower and the Guarantors as of the Effective
Date are set forth on the signature pages of this Agreement or in the case of a
Subsidiary that becomes a Guarantor after the Effective Date is set forth on the
signature page to the applicable Accession Agreement. The principal place of
business and chief executive office of the Borrower and each Guarantor and the
office where the Borrower and each Guarantor keeps its records concerning the
Collateral is, and has been since its respective date of formation, 400 Centre
Street, Newton, Massachusetts 02458. The Borrower or a Guarantor may change such
offices, its name or state of incorporation (if otherwise permitted hereunder),
only upon at least 30-days’ prior written notice to the Lender, and only after
all actions reasonably necessary to protect and perfect the Lender’s interest in
the Collateral of such Loan Party have been taken and completed. Except as set
forth in the Collateral Questionnaire, neither Borrower nor any Guarantor has
used any fictitious or trade name within the past five years.

 

Section 5.9. Continuing Lien.

It is the intent of the parties hereto that (a) this Agreement shall constitute
a continuing agreement as to any and all future, as well as existing
transactions, between or among the Borrower, the Guarantors and the Lender under
or in connection with the Loan Documents, and (b) the security interests
provided for herein shall attach to after-acquired as well as existing
Collateral of the Borrower or a Guarantor.

 

Section 5.10. Assignment of Security Interests.

The Lender may transfer to any other Person all or any part of the liens and
security interests granted hereby, and all, or any part of the Collateral of the
Borrower and the Guarantors which may be in the Lender’s possession while an
Event of Default exists or, if to a successor, at any time. Upon such transfer,
the transferee shall be vested with all the rights and powers of the Lender
hereunder with respect to such of the Collateral of the Borrower and the
Guarantors as is so transferred but, with respect to any of such Collateral not
so transferred, the Lender shall retain all of its rights and powers (whether
given to it in this Agreement, or otherwise).

 

 

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Section 5.11. Possession; Sale of Collateral.

(a)             In addition to the rights and remedies contained in this Section
and Section 11.2., while an Event of Default exists, the Lender may, upon
written notice to the Borrower, terminate performance by the Borrower or any of
the Borrower’s agents, as the case may be, of any or all of the Primary Servicer
Responsibilities.

 

(b)             In addition to the rights and remedies contained in this Section
and in Section 11.2., while an Event of Default exists, the Lender may (subject
to any Applicable Laws with respect to Government Receivables): (i) require the
Borrower or any Guarantor to assemble any tangible assets that comprise part of
the Collateral of such Loan Party and make them available to the Lender at any
place or places reasonably designated by the Lender; (ii) to the extent
permitted by Applicable Law, with or without notice or demand for performance
and without liability for trespass, subject to the rights of landlords, if any,
enter any premises where any of the Collateral of such Loan Party may be located
and peaceably take possession of the same, and may demand and receive such
possession from any Person who has possession thereof, and may take such
measures as the Lender may deem necessary or proper for the care or protection
thereof (including without limitation, the right to remove all or any portion of
the Collateral of such Loan Party); and (iii) with or without taking such
possession may sell or cause to be sold, in one or more sales or parcels, for
cash, on credit or for future delivery, without assumption of any credit risk,
all or any portion of such Collateral, at public or private sale or at any
broker’s board or any securities exchange, without demand of performance or
notice of intention to sell or of time or place of sale, except at least ten
(10) Business Days’ written notice to such Loan Party of the time and place of
such sale or sales (and such other notices as may be required by Applicable Law,
if any, and which cannot be waived), which such Loan Party hereby expressly
acknowledges is commercially reasonable. The Lender shall have no obligation to
clean-up or otherwise prepare any Collateral for such sale. Each purchaser at
any such sale shall hold the property sold absolutely, free from any claim or
right on the part of such Loan Party, and such Loan Party hereby waives (to the
fullest extent permitted by Applicable Law) all rights of redemption, stay and
appraisal that such Loan Party now have or may at any time in the future have
under any Applicable Law now existing or hereafter enacted. At any such sale,
the Collateral, or portion thereof, to be sold may be sold in one lot as an
entirety or in separate parcels, as the Lender may (in its sole and absolute
discretion) determine. The Lender shall not be obligated to make any sale of any
such Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Lender may, without
notice or publication, adjourn any such public or private sale or cause the same
to be adjourned from time to time by announcement at the time and place fixed
for sale, and such sale may, without further notice, be made at the time and
place to which the same was so adjourned. The Lender may comply with any
Applicable Law in connection with a disposition of the Collateral and compliance
will not be considered adversely to affect the commercial reasonableness of any
disposition of any such Collateral. In case any such sale of all or any part of
the Collateral of the Borrower or any Guarantor is made on credit or for future
delivery, the Collateral so sold may be retained by the Lender until the sale
price is paid by the purchaser or purchasers thereof. The Lender shall not incur
any liability for the failure to collect or realize upon any or all of the
Collateral of such Loan Party or for any delay in doing so and, in case of any
such failure, shall not be under any obligation to take any action with respect
thereto; provided, such Collateral

 

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may be sold again upon like notice. If any Collateral of such Loan Party is sold
upon credit, such Loan Party will be credited only with payments actually made
by the purchaser, received by the Lender and applied to the Obligations in
accordance with this Agreement. In the event the purchasers fail to pay for any
such Collateral, the Lender may resell such Collateral. At any public sale made
pursuant to this Agreement (or to the extent permitted by Applicable Law at any
private sale), the Lender may bid for or purchase, free from any right of
redemption, stay or appraisal and all rights of marshalling, the Collateral and
any other security for the Obligations or otherwise on the part of the Borrower
or any Guarantor (all said rights being also hereby waived and released by such
Loan Party to the fullest extent permitted by Applicable Law), and may make
payment on account thereof by using any claim then due and payable to the Lender
from the Borrower or any Guarantor as a credit against the purchase price, and
the Lender may, upon compliance with th e terms of sale, hold, retain and
dispose of such property without further accountability to the Borrower or any
Guarantor therefor. For purposes of this Agreement, in connection with the
exercise of any remedies, a written agreement to purchase the Collateral or any
portion thereof shall be treated as a sale thereof; the Lender shall be free to
carry out such sale pursuant to such agreement, and neither the Borrower nor any
Guarantor shall be entitled to the return of such Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Lender shall
have entered into such an agreement, all Defaults or Event of Defaults shall
have been remedied and all Obligations shall have been paid in full. As an
alternative to exercising the power of sale herein conferred upon it, in
connection with the exercise of any remedies, the Lender may proceed by a suit
or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver. In any action hereunder, the Lender shall be entitled
to the appointment of a receiver without notice, to peaceably take possession of
all or any portion of such Collateral and to exercise such powers as the court
shall confer upon the receiver. Notwithstanding the foregoing, if an Event of
Default shall exist, the Lender shall be entitled to apply, without notice to
the Borrower or any Guarantor, any cash or cash items constituting Collateral in
its possession to payment of the Obligations.

 

(c)             Each of the Borrower and the Guarantors agrees that
notwithstanding anything to the contrary contained in this Agreement, such Loan
Party shall remain liable under each contract or other agreement giving rise to
Accounts and all other contracts or agreements constituting part of the
Collateral of such Loan Party and the Lender shall have any obligation or
liability in respect thereof.

 

Section 5.12. Servicing.

(a)             Appointment. Each Guarantor hereby appoints the Borrower as its
agent for the administration and servicing obligations set forth in the
immediately following subsection (b) with respect to all of such Guarantor’s
Accounts (the “Primary Servicer Responsibilities”), and the Borrower hereby
accepts such appointment and agrees to perform the Primary Servicer
Responsibilities on behalf of such Guarantors; provided, however, that such
appointment shall not release any Guarantor from any of its duties,
responsibilities, liabilities and obligations resulting or arising under any of
the Loan Documents to which such Guarantor is a party. Each of the Borrower and
such Guarantors hereby acknowledges that the Borrower’s appointment

 

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pursuant to this Section is expressly limited by and subject to the Lender’s
rights under Section 5.11.(a).

 

(b)             Primary Servicer Responsibilities. Each Guarantor shall be
responsible for the following administration and servicing obligations which
shall be performed by the Borrower on behalf of the Guarantors until such time
as the Lender shall exercise its rights under Section 5.11.(a):

 

(i)              Servicing Standards and Activities. The Borrower agrees to
administer and service the Accounts of the Guarantors (w) to the extent
consistent with the standards set forth in the immediately following
clauses (ii), with the same care that it exercises in administering and
servicing similar receivables for its own account, (x) within the parameters of
services set forth in such clause, as such parameters may be modified by mutual
written agreement of the Guarantors and the Borrower, (y) in compliance at all
times with Applicable Law and with the agreements, covenants, objectives,
policies and procedures set forth in the Loan Documents, and (z) in accordance
with industry standards for servicing receivables of the type in question unless
such standards conflict with the procedures set forth in the immediately
following clauses (ii), in which case the provisions of such clause shall
control. The Borrower shall establish and maintain electronic data processing
services for monitoring, administering and collecting such Accounts in
accordance with the foregoing standards.

 

(ii)             Parameters of Primary Servicing. The Primary Servicer
Responsibilities shall be performed within the following parameters:

 

(w)            Except as otherwise provided in any Loan Document, the Borrower
shall have full power and authority to take all actions that it may deem
necessary or desirable, consistent in all material respects with its existing
policies and procedures with respect to the administration and servicing of
accounts receivable, in connection with the administration and servicing of the
Guarantors’ Accounts. Without limiting the generality of the foregoing, the
Borrower shall, in the performance of its servicing obligations hereunder, act
in accordance with all legal requirements and subject to the terms and
conditions of the Loan Documents.

 

(x)             The Borrower shall not change in any material respect its
existing policies and procedures with respect to the administration and
servicing of accounts receivable (including, without limitation, the amount and
timing of write-offs) without the prior written consent of the Lender.

 

(y)             The Borrower will be responsible for monitoring and collecting
the Guarantors’ Accounts, including, without limitation, contacting Account
Debtors that have not made payment on their respective Accounts within the
customary time period for such Account Debtor, and resubmitting any claim
rejected by an Account Debtor due to incomplete information.

 

 

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(z)             Notwithstanding anything to the contrary contained herein, the
Borrower may not amend, waive or otherwise permit or agree to any deviation from
the terms or conditions of any Account of a Material Provider in any material
respect (except in accordance with its Credit and Collection Policy) without the
prior consent of the Lender.

 

Section 5.13. Payment Mechanics, Etc.

(a)             Notices to Non-Governmental Authorities. Each Provider has
prepared, executed and delivered to each non-Governmental Authority who is
currently an Account Debtor, and each Provider shall prepare, execute and
deliver to each non-Governmental Authority who is or is expected to become an
Account Debtor, a Notice to non-Governmental Authorities addressed to each such
non-Governmental Authority, which Notice to non-Governmental Authorities did or
shall state that all checks and EOB’s from such non-Governmental Authority in
respect of Accounts shall be sent to the applicable Provider for immediate
deposit in the applicable Borrower Account and all wire transfers from such
non-Governmental Authority on account of Accounts shall be wired directly into
the applicable Borrower Account.

 

(b)             Invoices to Non-Governmental Authorities. Each Provider
covenants and agrees that, on and after the Effective Date, all invoices (and,
if provided by such Provider, return envelopes) to be sent to non-Governmental
Authorities shall set forth only the address of the applicable Provider as a
return address for payment of Accounts and delivery of EOB’s, and only the
applicable Borrower Account with respect to wire transfers for payment of
Accounts. Each Provider hereby further covenants and agrees to cause each check
received by such Provider to be deposited in the applicable Borrower Account no
later than one Business Day following receipt. Each Provider hereby further
covenants and agrees to instruct and notify each of the members of its
accounting and collections staff to provide identical information in
communications with non-Governmental Authorities with respect to payment of
Accounts, wire transfers and EOB’s.

 

(c)             Notices to Governmental Authorities. Each Provider has prepared,
executed and delivered to each Governmental Authority (or its fiscal
intermediary) who is currently an Account Debtor, and each Provider shall
prepare, execute and deliver to each Governmental Authority (or its fiscal
intermediary) who is or is expected to become an Account Debtor, Notices to
Governmental Authorities, which Notices to Governmental Authorities did or shall
provide that all checks and EOB’s from Governmental Authorities on account of
Accounts shall be sent to the applicable Government Lockbox and all wire
transfers on account of Accounts shall be wired directly into the applicable
Provider Account.

 

(d)             Invoices to Governmental Authorities. Each Provider covenants
and agrees that, on and after the Effective Date, all invoices to be sent to
Governmental Authorities (and, if provided by such Provider, return envelopes)
shall set forth only the address of the applicable Government Lockbox as a
return address for payment of Accounts and delivery of EOB’s, and only the
applicable Provider Account with respect to wire transfers for payment of
Accounts. Each Provider further covenants and agrees to instruct and notify each
of the members of its

 

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accounting and collections staff to provide identical information in
communications with Governmental Authorities with respect to payment of
Accounts, wire transfers and EOB’s.

 

(e)             Government Lockboxes, Etc. The Providers shall maintain the
Government Lockboxes, the Government Lockbox Accounts and the Provider Accounts
solely and exclusively for the receipt of payments on account of Accounts from
Governmental Authorities. The Providers and the Borrower shall take all actions
necessary to ensure that no payments from any Person other than a Governmental
Authority shall be deposited in any Government Lockbox or any Provider Account.

 

(f)              Misdirected Payments; EOB’s. If any Provider receives an EOB or
a Misdirected Payment in the form of a check, such Provider shall immediately
send or deposit such Misdirected Payment, in the form received by such Provider,
by hand or overnight delivery service to a Borrower Account or Government
Lockbox, as the case may be, together with the EOB and the envelope in which
such payment was received. In the event that any Provider receives a Misdirected
Payment in the form of cash or wire transfer, such Provider shall immediately
wire transfer the amount of such Misdirected Payment directly to the Primary
Borrower Account. All Misdirected Payments and EOB’s shall be sent promptly upon
receipt thereof, and in no event later than the close of business, on the first
Business Day after receipt thereof.

 

(g)             Notices regarding Misdirected Payments. Each Provider hereby
agrees and consents to the Borrower taking such actions as are reasonably
necessary to ensure that future payments from the Account Debtor of a
Misdirected Payment shall be made in accordance with the Notice previously
delivered to such Account Debtor, or, if no Notice was provided, in accordance
with the applicable provisions of this Section, including, without limitation,
to the maximum extent permitted by Applicable Law, (i) the Borrower, its assigns
or designees, or the Lender executing on such Provider’s behalf and delivering
to such Account Debtor a new Notice, and (ii) the Borrower, its assigns or
designees, or the Lender contacting such Account Debtor by telephone to confirm
the instructions previously set forth in the Notice to such Account Debtor. Upon
the Borrower’s request, such Provider shall promptly (and in any event, within
two Business Days from such request) take such similar actions as the Borrower
may request.

 

(h)             No Rights of Withdrawal. None of the Providers or the Borrower
shall have any rights of direction or withdrawal with respect to amounts held in
any Borrower Account, except that the Borrower and each Provider shall have the
right, and each hereby agrees, to cause each Local Bank to initiate a transfer
of the balance in each Local Borrower Account to the Primary Borrower Account on
any day that the balance in such Local Borrower Account exceeds $20,000, but no
less frequently than once each week.

 

 

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ARTICLE VI. CONDITIONS PRECEDENT

Section 6.1. Initial Conditions Precedent.

The obligation of the Lender to effect or permit the occurrence of the first
Credit Event hereunder, whether as the making of a Loan or the issuance of a
Letter of Credit, is subject to the following conditions precedent:

 

(a)             The Lender shall have received each of the following, in form
and substance satisfactory to the Lender:

 

(i)            Counterparts of this Agreement executed by each of the parties
hereto;

 

(ii)            The Fee Letter executed by the Borrower;

 

(iii)            The Note executed by the Borrower, and complying with the
provisions of Section 2.9.;

 

(iv)            The Depositary Agreement executed by the Borrower, the
Providers, the Lender and the Lockbox Bank;

 

(v)             Evidence that the Lockbox Bank has agreed to cease transferring
funds on deposit in the Primary Borrower Account to the Collection Account (as
defined in the Existing RPTA);

 

(vi)            [Intentionally omitted];

 

(vii)           An opinion (or opinions) of counsel to the Loan Parties,
addressed to the Lender, addressing the matters set forth in Exhibit E;

 

(viii)         The articles of incorporation, articles of organization,
certificate of limited partnership or other comparable organizational instrument
(if any) of each Loan Party certified as of a recent date (other than in the
case of a Provider that is not a Material Provider) by the Secretary of State of
the state of formation of such Loan Party;

 

(ix)            A certificate of good standing or certificate of similar meaning
with respect to each Loan Party issued as of a recent date (other than in the
case of a Provider that is not a Material Provider) by the Secretary of State of
the state of formation of each such Loan Party and certificates of qualification
to transact business or other comparable certificates issued by each Secretary
of State (and any state department of taxation, as applicable) of each state in
which such Loan Party (A) has a place of business or (B) is otherwise required
to be so qualified and in the case of this clause (B), where the failure to be
so qualified could reasonably be expected to have a Material Adverse Effect;

 

(x)             A certificate of incumbency signed by the Secretary or Assistant
Secretary (or other individual performing similar functions) of each Loan Party
with respect to each of the officers of such Loan Party authorized to execute
and deliver the Loan Documents

 

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to which such Loan Party is a party, and in the case of the Borrower, the
officers of the Borrower then authorized to deliver Notices of Borrowing,
Notices of Continuation and Notices of Conversion and to request the issuance of
Letters of Credit;

 

(xi)            Copies certified by the Secretary or Assistant Secretary of each
Loan Party (or other individual performing similar functions) of (i) the by-laws
of such Loan Party, if a corporation, the operating agreement, if a limited
liability company, the partnership agreement, if a limited or general
partnership, or other comparable document in the case of any other form of legal
entity and (ii) all corporate, partnership, member or other necessary action
taken by such Loan Party to authorize the execution, delivery and performance of
the Loan Documents to which it is a party;

 

(xii)           The Fees then due and payable under the Fee Letter and any other
Fees payable to the Lender on or prior to the Effective Date;

 

(xiii)          A Compliance Certificate calculated as of March 31, 2005;

 

(xiv)          A Monthly Report and Borrowing Base Certificate, each calculated
as of April 30, 2005;

 

(xv)           Current UCC searches with respect to the Borrower and each
Material Provider, in form and substance satisfactory to the Lender, conducted
in (A) the jurisdiction of formation of such Loan Party and (B) if such Loan
Party was formed before July 1, 2001 (or January 1, 2002 if the state of
formation is Alabama, Connecticut, Florida or Mississippi), the jurisdiction(s)
where such Loan Party’s chief executive office and/or principal place of
business is located, in each case indicating that there are no UCC financing
statements of record on any of the assets of the Borrower or any Material
Subsidiary other than Permitted Liens or Liens which were or are to be
terminated on or prior to the Effective Date;

 

(xvi)         To the extent available, UCC searches with respect to any other
Loan Party;

 

(xvii)        Evidence that each document (including, without limitation, any
UCC financing statement) required by the Security Documents or under Applicable
Law or reasonably deemed necessary or appropriate by the Lender to be filed,
registered or recorded in order to create in favor of the Lender a perfected
first-priority Lien on the Collateral described therein, shall have been filed,
registered or recorded or shall have been delivered to the Lender be in proper
form for filing, registration or recordation.

 

(xviii)       Certificates of insurance evidencing the existence of all
insurance required to be maintained by Loan Parties pursuant to the Agreement,
and the Lender shall be satisfied with the type and extent of such coverage;

 

(xix)          A payoff letter in form an substance reasonably satisfactory to
the Lender with respect to the Indebtedness owing under the Existing Loan
Agreement, together with

 

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such releases, authorizations or assignments as the Lender may reasonably
request to evidence the termination, release or assignment of any Liens granted
by any Loan Party pursuant thereto;

 

(xx)           A collateral assignment with respect to all Leases under which
SNH or one of its Subsidiaries is lessor, each in form and substance reasonably
satisfactory to the Lender;

 

(xxi)          Copies of each of the Sunrise Operating Agreements and the Leases
with SNH or any Subsidiary of SNH in effect as of the Agreement Date, certified
as correct and complete by a senior officer of the Borrower;

 

(xxii)         A Collateral Assignment of Payments executed by each Loan Party a
party to a Sunrise Operating Agreement;

 

(xxiii)       The Collateral Questionnaire duly executed by the Borrower;

 

(xxiv)       A letter agreement among the parties to the Existing RPTA
terminating such agreement; and

 

(xxv)        Such other documents, agreements and instruments as the Lender may
reasonably request; and

 

(b)             In the good faith judgment of the Lender:

 

(i)              There shall not have occurred or become known to the Lender any
event, condition, situation or status since the date of the information
contained in the financial and business projections, budgets, pro forma data and
forecasts concerning the Borrower and the Subsidiaries delivered to the Lender
prior to the Agreement Date that has had or could reasonably be expected to
result in a Material Adverse Effect;

 

(ii)             No litigation, action, suit, investigation or other arbitral,
administrative or judicial proceeding shall be pending or threatened which could
reasonably be expected to (1) result in a Material Adverse Effect or (2)
restrain or enjoin, impose materially burdensome conditions on, or otherwise
materially and adversely affect the ability of any Loan Party to fulfill its
obligations under the Loan Documents;

 

(iii)            The Borrower and each other Loan Party shall have received all
approvals, consents and waivers, and shall have made or given all necessary
filings and notices as shall be required to consummate the transactions
contemplated hereby without the occurrence of any default under, conflict with
or violation of (1) any Applicable Law, (2) any of the Leases with SNH or any of
its Subsidiaries or (3) any agreement, document or instrument to which any Loan
Party is a party or by which any of them or their respective properties is
bound, except for such approvals, consents, waivers, filings and notices the
receipt, making or giving of which would not reasonably be likely to (A) have a
Material Adverse Effect, or (B) restrain or enjoin, impose materially burdensome

 

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conditions on, or otherwise materially and adversely affect the ability of any
Loan Party to fulfill its obligations under the Loan Documents or Provider
Documents to which it is a party; and

 

(iv)            There shall not have occurred or exist any other material
disruption of financial or capital markets that could reasonably be expected to
materially and adversely affect the transactions contemplated by the Loan
Documents.

 

Section 6.2. Conditions Precedent to All Loans and Letters of Credit.

The obligation of the Lender to make any Loan or issue any Letter of Credit is
subject to the further condition precedent that: (a) no Default or Event of
Default shall exist as of the date of the making of such Loan or issuance of
such Letter of Credit or would exist immediately after giving effect thereto;
and (b) the representations and warranties made or deemed made by each Loan
Party in the Loan Documents to which any of them is a party, shall be true and
correct on and as of the date of the making of such Loan or issuance of such
Letter of Credit with the same force and effect as if made on and as of such
date except to the extent that such representations and warranties expressly
relate solely to an earlier date (in which case such representations and
warranties shall have been true and accurate on and as of such earlier date) and
except for changes in factual circumstances specifically and expressly permitted
hereunder. Each Credit Event shall constitute a certification by the Borrower to
the effect set forth in the preceding sentence (both as of the date of the
giving of notice relating to such Credit Event and, unless the Borrower
otherwise notifies the Lender prior to the date of such Credit Event, as of the
date of the occurrence of such Credit Event). In addition, if such Credit Event
is the making of a Loan or issuance of a Letter of Credit, the Borrower shall be
deemed to have represented to the Lender at the time such Loan is made that all
conditions to the occurrence of such Credit Event contained in Article VI. have
been satisfied.

 

Section 6.3. Post-Closing Deliveries.

The Borrower shall deliver to the Lender no later than May 13, 2005, letters, in
form and substance satisfactory to the Lender, from the Borrower and any other
appropriate parties addressed to each of the Local Banks advising them that the
Collateral Agent (as defined in the Existing Loan Agreement) no longer has
control over the Local Bank Accounts and containing such other matters as the
Lender may require with respect to the Local Bank Accounts, such letters to be
accompanied by evidence that the Borrower is authorized to send such letters to
the Local Banks.

 

ARTICLE VII. REPRESENTATIONS AND WARRANTIES

Section 7.1. Representations and Warranties.

In order to induce the Lender to enter into this Agreement and to make Loans and
issue Letters of Credit, the Borrower represents and warrants to the Lender as
follows:

 

(a)             Organization; Power; Qualification. Each of the Borrower and the
other Loan Parties is a corporation, partnership or other legal entity, duly
organized or formed, validly

 

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existing and in good standing under the jurisdiction of its incorporation or
formation, has the power and authority to own or lease its respective properties
and to carry on its respective business as now being and hereafter proposed to
be conducted and is duly qualified and is in good standing as a foreign
corporation, partnership or other legal entity, and authorized to do business,
in each jurisdiction in which the character of its properties or the nature of
its business requires such qualification or authorization and where the failure
to be so qualified or authorized could reasonably be expected to have, in each
instance, a Material Adverse Effect.

 

(b)             Ownership Structure. As of the Agreement Date, Schedule 7.1.(b)
is a complete and correct list of all Subsidiaries of the Borrower setting forth
for each such Subsidiary, (i) the jurisdiction of organization of such
Subsidiary, (ii) each Person holding any Equity Interests in such Subsidiary,
(iii) the nature of the Equity Interests held by each such Person, (iv) the
percentage of ownership of such Subsidiary represented by such Equity Interests
and (v) whether such Subsidiary is a Provider, a Material Subsidiary and/or an
Excluded Subsidiary. Except as disclosed in such Schedule, as of the Agreement
Date (x) each of the Borrower and its Subsidiaries owns, free and clear of all
Liens (other than Permitted Liens), and has the unencumbered right to vote, all
outstanding Equity Interests in each Person shown to be held by it on such
Schedule, (y) all of the issued and outstanding capital stock of each such
Person organized as a corporation is validly issued, fully paid and
nonassessable and (z) there are no outstanding subscriptions, options, warrants,
commitments, preemptive rights or agreements of any kind for the issuance, sale,
registration or voting of, or outstanding securities convertible into, any
additional shares of capital stock of any class, or partnership or other
ownership interests of any type in, any such Person.

 

(c)             Authorization of Agreement, Etc. The Borrower has the right and
power, and has taken all necessary action to authorize it, to borrow and obtain
other extensions of credit hereunder. Each of the Borrower and each other Loan
Party has the right and power, and has taken all necessary action to authorize
it, to execute, deliver and perform each of the Loan Documents to which it is a
party in accordance with their respective terms and to consummate the
transactions contemplated hereby and thereby. The Loan Documents to which the
Borrower or any other Loan Party is a party have been duly executed and
delivered by the duly authorized officers of such Person and each is a legal,
valid and binding obligation of such Person enforceable against such Person in
accordance with its respective terms except as the same may be limited by
bankruptcy, insolvency, and other similar laws affecting the rights of creditors
generally and the availability of equitable remedies for the enforcement of
certain obligations (other than the payment of principal) contained herein or
therein and as may be limited by equitable principles generally. The provisions
and the Security Documents create legal and valid Liens in all of the Collateral
in favor of the Lender and when all proper filings and other actions necessary
to perfect such Liens have been completed, will constitute a perfected and
continuing Lien on all of the Collateral, having priority over all other Liens
on such Collateral, enforceable against the Borrower, the other Loan Parties and
any other Person.

 

(d)             Compliance of Loan Documents with Laws, Etc. The execution,
delivery and performance of each Loan Document to which any Loan Party is a
party in accordance with its respective terms and the borrowings and other
extensions of credit hereunder do not and will not, by the passage of time, the
giving of notice, or both: (i) require any Governmental Approval or

 

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violate any Applicable Law relating to any Loan Party; (ii) conflict with,
result in a breach of or constitute a default under the organizational documents
of any Loan Party, or any indenture, agreement or other instrument to which any
Loan Party is a party or by which it or any of its respective properties may be
bound; or (iii) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by any Loan
Party.

 

(e)             Compliance with Law; Governmental Approvals. Each of the
Borrower, each Subsidiary, each other Loan Party and each Provider is in
compliance with all Applicable Laws except for noncompliances which could not,
individually or in the aggregate, reasonably be expected to cause a Default or
Event of Default or have a Material Adverse Effect. Neither the Borrower, any
Provider, any Subsidiary or any other Loan Party is in violation in any material
respect of any Applicable Laws relating to Medicare and Medicaid and those
relating to the quality and adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment,

personnel, operating policies, additions to facilities and services and fee
splitting and the Borrower, each Provider, each Subsidiary and each other Loan
Party and each of their respective Properties and, to each of such Person’s
knowledge, each of such Person’s licensed employees and contractors (other than
contracted agencies) in the exercise of their respective duties on behalf of
such Person or any such Properties, is in material compliance with all
Applicable Laws, including without limitation (i) Section 1128B(b) of the Social
Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties
Involving Medicare or State Health Care Programs), commonly referred to as the
“Federal Anti-Kickback Statute” (ii) the Social Security Act, as amended,
Section 1877, 42 U.S.C Section 1395nn (Prohibition Against Certain Referrals),
commonly referred to as the “Stark Statute” (iii) 31 U.S.C. §§ 3729-3733
(prohibitions against submission of false or fraudulent claims, including the
False Claims Act); (iv) 42 U.S.C. § 1320d-6 (prohibition against the wrongful
disclosure of individually identifiable health information under the Health
Insurance Portability and Accountability Act (as the same may be amended,
restated, replaced, supplemented or other modified, “HIPAA”)); and (v) 45
C.F.R., Parts 160, 162, and 164 (the HIPAA privacy regulations, transaction
standards regulations, and, as of the April 21, 2005 compliance date, the
security regulations) (collectively, “Healthcare Laws”). Each of the Borrower,
each Provider, each Subsidiary and each other Loan Party has received all
Governmental Approvals required under Applicable Laws and has all permits,
licenses, accreditations, certifications, authorizations, approvals, consents
and agreements of all Insurers, accreditation agencies and any other Person
(including without limitation, with respect to any Provider with Healthcare
Receivables, accreditation by the appropriate Governmental Entities and industry
accreditation agencies and accreditation and certifications as a provider of
healthcare services eligible to receive payment and compensation and to
participate under Medicare, Medicaid, CHAMPUS/Champva, Blue Cross/Blue Shield
and other equivalent programs), necessary or required for it (i) to own the
assets (including Accounts) that it now owns and to carry on its business as now
conducted, except, in each case, where the failure to do so could not reasonably
be expected to have a Material Adverse Effect and (ii) with respect to
Properties and businesses that participate in Medicare and/or Medicaid, to
receive reimbursement under Medicare and Medicaid. Each of the Borrower and each
other Loan Party has, or has the right to use, such provider identification
numbers and licenses, if any, necessary to generate the Accounts. There exist no
material restrictions, deficiencies, required plans of correction actions or
other such material remedial measures with respect to applicable federal and
state Medicare and Medicaid certifications or licensure surveys with respect to
the

 

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Borrower or any other Loan Party. Each Property of each Loan Party is in
compliance in all material respects with all requirements for participation in
Medicare and Medicaid, including, without limitation, the Medicare and Medicaid
Patient Protection Act of 1987 and each such Property is in conformance in all
material respects with all insurance, reimbursement and cost reporting
requirements under Medicare and Medicaid.

 

(f)              Title to Properties; Liens. Each of the Borrower, each other
Loan Party and each other Subsidiary has good, marketable and legal title to, or
a valid leasehold interest in, its respective assets. As of the Agreement Date,
there are no Liens against any assets of the Borrower, any Subsidiary or any
other Loan Party except for Liens permitted in Section 10.4. As of the Agreement
Date, Schedule 7.1.(f) sets forth all Leases.

 

(g)             Existing Indebtedness. Schedule 7.1.(g) is, as of the Agreement
Date, a complete and correct listing of all Indebtedness of the Borrower, each
other Loan Party and each Subsidiary other than (i) Indebtedness owed by a Loan
Party to another Loan Party and (ii) Indebtedness owed by or to a Loan Party to
or by a Subsidiary that is not a Loan Party having an outstanding principal
balance of less than $1,000,000. As of the Agreement Date, the Borrower, each
Subsidiary and each other Loan Party have performed and are in compliance with
all of the terms of such Indebtedness and all instruments and agreements
relating thereto, and no default or event of default, or event or condition
which with the giving of notice, the lapse of time, or both, would constitute
such a default or event of default, exists with respect to any such
Indebtedness. None of the Trusts is obligated in respect of any SPC Debt.

 

(h)             Litigation. Except as set forth on Schedule 7.1.(h), there are
no actions, suits, investigations or proceedings pending (nor, to the knowledge
of the Borrower, any Subsidiary or any other Loan Party, are there any actions,
suits or proceedings threatened, nor to the knowledge of the Borrower, any
Subsidiary or any other Loan Party is there any basis therefor) against or in
any other way relating adversely to or affecting the Borrower, any Subsidiary,
any other Loan Party or any Provider or any of its respective property in any
court or before any arbitrator of any kind or before or by any other
Governmental Authority which could reasonably be expected to have a Material
Adverse Effect or which purports to affect the legality, validity or
enforceability of this Agreement or any other Loan Document, and neither the
Borrower nor any Provider is currently the subject of, or has any present
intention of commencing, an insolvency proceeding or petition in bankruptcy.

 

(i)              Taxes. All federal, state and other material tax returns of the
Borrower, any Subsidiary or any other Loan Party required by Applicable Law to
be filed have been duly filed, and all federal, state and other taxes,
assessments and other governmental charges or levies upon the Borrower, any
Subsidiary and each other Loan Party and its respective properties, income,
profits and assets which are due and payable have been paid, except any such
nonpayment which is at the time permitted under Section 8.6.

 

(j)              Financial Statements. The Borrower has furnished to the Lender
copies of the audited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries for the fiscal year ending December 31, 2004, and the
related audited consolidated statements of operations, cash flows and
shareholders’ equity for the fiscal year ending on such dates, with the

 

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opinion thereon of Ernst & Young LLP. Such financial statements (including in
each case related schedules and notes) are complete and correct and present
fairly, in accordance with GAAP consistently applied throughout the periods
involved, the consolidated financial position of the Borrower and its
consolidated Subsidiaries, as applicable, as at their respective dates and the
results of operations and the cash flow for such periods.

 

(k)             No Material Adverse Change. Since December 31, 2004, there has
been no material adverse change in the business, assets, liabilities, financial
condition, results of operations, business or prospects of the Borrower and its
Subsidiaries taken as a whole. Each of the Borrower, the Subsidiaries and the
other Loan Parties is Solvent.

 

(l)              ERISA. Each member of the ERISA Group is in compliance with its
obligations under the minimum funding standards of ERISA and the Internal
Revenue Code with respect to each Plan and is in compliance with the presently
applicable provisions of ERISA and the Internal Revenue Code with respect to
each Plan, except in each case for noncompliances which could not reasonably be
expected to have a Material Adverse Effect. As of the Agreement Date, no member
of the ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Internal Revenue Code
or (iii) incurred any liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.

 

(m)           Not Plan Assets; No Prohibited Transaction. None of the assets of
the Borrower, any Subsidiary or any other Loan Party constitute “plan assets”
within the meaning of ERISA, the Internal Revenue Code and the respective
regulations promulgated thereunder. The execution, delivery and performance of
this Agreement and the other Loan Documents, and the borrowing and repayment of
amounts hereunder, do not and will not constitute “prohibited transactions”
under ERISA or the Internal Revenue Code.

 

(n)             Absence of Defaults. Neither the Borrower, any Subsidiary nor
any other Loan Party is in default under its organizational documents, and no
event has occurred, which has not been remedied, cured or waived, which, in any
such case: (i) constitutes a Default or an Event of Default; or
(ii) constitutes, or which with the passage of time, the giving of notice, a
determination of materiality, the satisfaction of any condition, or any
combination of the foregoing, would constitute, a default or event of default by
the Borrower, any Subsidiary or any other Loan Party under any agreement (other
than this Agreement) or judgment, decree or order to which the Borrower or any
Subsidiary or other Loan Party is a party or by which the Borrower or any
Subsidiary or other Loan Party or any of their respective properties may be
bound where such default or event of default could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

(o)             Environmental Laws. Each of the Borrower, the Subsidiaries and
the other Loan Parties has obtained all Governmental Approvals which are
required under Environmental Laws and is in compliance with all terms and
conditions of such Governmental Approvals which the

 

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failure to obtain or to comply with could reasonably be expected to have a
Material Adverse Effect.

 

(p)             Investment Company; Public Utility Holding Company. Neither the
Borrower, any Subsidiary nor any other Loan Party is (i) an “investment company”
or a company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940, as amended, (ii) a “holding company” or a
“subsidiary company” of a “holding company”, or an “affiliate” of a “holding
company” or of a “subsidiary company” of a “holding company”, within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject
to any other Applicable Law which purports to regulate or restrict its ability
to borrow money or to consummate the transactions contemplated by this Agreement
or to perform its obligations under any Loan Document to which it is a party.

 

(q)             Margin Stock. Neither the Borrower, any Subsidiary nor any other
Loan Party is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying “margin stock” within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System.

 

(r)              Affiliate Transactions. Except as permitted by Section 10.8.,
neither the Borrower, any Subsidiary nor any other Loan Party is a party to or
bound by any agreement or arrangement (whether oral or written) to which any
Affiliate of the Borrower, any Subsidiary or any other Loan Party is a party.

 

(s)             Intellectual Property. Each of the Borrower, each other Loan
Party and each other Subsidiary owns or has the right to use, under valid
license agreements or otherwise, all material patents, licenses, franchises,
trademarks, trademark rights, trade names, trade name rights, trade secrets and
copyrights (collectively, “Intellectual Property”) necessary to the conduct of
its businesses as now conducted and as contemplated by the Loan Documents,
without known conflict with any patent, license, franchise, trademark, trade
secret, trade name, copyright, or other proprietary right of any other Person.

 

(t)              Business. As of the Agreement Date, the Borrower and the
Subsidiaries and any other Loan Parties (other than the Borrower) are
substantially engaged in the business of operating (either directly or through
management contracts with third parties) Senior Housing Assets, together with
other business activities incidental thereto. The Insurance Subsidiaries are
engaged only in the business of providing insurance services to the Borrower and
its Subsidiaries.

 

(u)             Broker’s Fees. No broker’s or finder’s fee, commission or
similar compensation will be payable with respect to the transactions
contemplated hereby. No other similar fees or commissions will be payable by any
Loan Party for any other services rendered to the Borrower or any Subsidiary
ancillary to the transactions contemplated hereby.

 

(v)             Accuracy and Completeness of Information. No written
information, report or other papers or data (excluding financial projections and
other forward looking statements) furnished to the Lender by, on behalf of, or
at the direction of, the Borrower, any Subsidiary or

 

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any other Loan Party in connection with or relating in any way to this
Agreement, contained any untrue statement of a fact material to the
creditworthiness of the Borrower, any Subsidiary or any other Loan Party or
omitted to state a material fact necessary in order to make such statements
contained therein, in light of the circumstances under which they were made, not
misleading. All financial statements furnished to the Lender by, on behalf of,
or at the direction of, the Borrower, any Subsidiary or any other Loan Party in
connection with or relating in any way to this Agreement, present fairly, in
accordance with GAAP consistently applied throughout the periods involved, the
financial position of the Persons involved as at the date thereof and the
results of operations for such periods (subject to, as to unaudited statements,
the absence of footnotes). All financial projections and other forward looking
statements prepared by or on behalf of the Borrower, any Subsidiary or any other
Loan Party that have been or may hereafter be made available to the Lender were
or will be prepared based upon assumptions that such Loan Party in good faith
considered reasonable at such time. As of the Effective Date, no fact is known
to the Borrower which has had, or may in the future have (so far as the Borrower
can reasonably foresee), a Material Adverse Effect which has not been set forth
in the financial statements referred to in Section 7.1.(j) or in such
information, reports or other papers or data or otherwise disclosed in writing
to the Lender.

 

(w)            Participation in Programs. As of the Agreement Date, there is no
pending or threatened revocation, suspension, termination, probation,
restriction, limitation, or nonrenewal affecting any of the Borrower or any
other Loan Party or any Property of a Loan Party or any participation or
provider agreement with any Third Party Payor (such programs, the “Third Party
Payors’ Programs”) to which any Loan Party presently is subject. Each of the
Borrower and the other Loan Parties has timely filed or caused to be timely
filed, all cost reports and other reports of every kind whatsoever required by
any Applicable Law. To the extent applicable, all Medicaid, Medicare, and
private insurance costs reports and financial reports submitted by such Person
are and will be materially accurate and complete and have not been and will not
be misleading in any material respects, and except as otherwise disclosed, no
cost reports for any facility remain “open” or unsettled. None of the Borrower
or any other Loan Party is currently the subject of any proceeding by any
Governmental Authority, and no notice of any violation has been received from a
Governmental Authority that could, directly or indirectly, or with the passage
of time, reasonably be expected to: (i) have a material adverse impact on the
Borrower’s or any other Loan Party’s ability to accept and/or retain patients or
result in the imposition of a fine, a sanction, a lower rate certification or a
lower reimbursement rate for services rendered to eligible patients; (ii)
modify, limit or annul or result in the transfer, suspension, revocation or
imposition of probationary use of such Person’s licenses; or (iii) alter any of
such Person’s continued participation, to the extent applicable, in the Medicaid
or Medicare programs or any other of the Third Party Payors' Programs, or any
successor programs thereto, at current rate certifications.

 

(x)             Maintenance of Records. Each of the Borrower, the Subsidiaries,
the Providers and the other Loan Parties has maintained in all records as
required by the applicable Healthcare Laws and, to the knowledge of each Loan
Party, there are no presently existing circumstances which would result or
likely would result in material violations of the Healthcare Laws.

 

 

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(y)             Third Party Reimbursement. If the Borrower or any other Loan
Party is or has been audited by Medicare, Medicaid or similar governmental Third
Party Payors, to the knowledge of the Loan Parties, (a) none of such audits
provides for adjustments in reimbursable costs or asserts claims for
reimbursement or repayment by such Person of costs and/or payments theretofore
made by such governmental Third Party Payor that, if adversely determined,
individually or in the aggregate, could reasonably be expected to result in
material claims against such Person and (b) none of such Persons has had
requests or assertions of claims for reimbursement or repayment by it of costs
and/or payments heretofore made by any other Third Party Payor that, if
adversely determined, individually or in the aggregate, could reasonably be
expected to result in material claims against such Person.

 

(z)             Accounts.

 

(i)              All Accounts which are at any time included in the Borrowing
Base or which are reflected on the Borrower’s or any other Loan Party’s
financial statements delivered to the Lender are genuine, in all respects what
they purport to be, have not been reduced to any judgment, are evidenced by an
executed original agreement, contract or document, and represent bona fide
transactions completed in accordance with the terms and conditions of any
related document.

 

(ii)             The Accounts have not been sold or pledged to any Person other
than the Lender.

 

(iii)            Except as disclosed to the Lender from time to time in writing,
neither the Borrower, any Subsidiary or any other Loan Party has any knowledge
of any fact or circumstance which could reasonably be expected to impair the
validity or collectibility of any of the Accounts included in the Borrowing Base
that in the aggregate are material in amount.

 

(iv)            With respect to any Healthcare Receivable included in the
Borrowing Base, (1) the care or Goods described therein have been provided and
was or were necessary for the Patient, (2) to the extent applicable, all billing
complies with Applicable Laws, including without limitation, all Applicable Laws
of Medicare and Medicaid, and (3) there are no disputes, proceedings or audits
currently pending or, to the knowledge of the Loan Parties, threatened,
involving any Third Party Payors with respect to any Provider’s operations,
including specifically its billing practices, with an amount in controversy,
with respect to all such disputes, proceedings or audits, which could reasonably
be expected to have a Material Adverse Effect.

 

(v)             The Account Debtor primarily liable for the payment of each
Account is the Account Debtor for such Account as set forth on the Monthly
Report most recently delivered to the Lender.

 

(vi)            The fees charged for the Goods and services giving rise to each
Healthcare Receivable are consistent with the usual, customary and reasonable
fees charged by other

 

 

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medical providers for the same or similar goods and services in the related
Provider’s community and the community in which the Patient resides.

 

(vii)           The insurance policy underlying any Healthcare Receivable or in
respect to which such Account arose was in full force and effect and applicable
to the Patient at the time the Goods or services under which such Account arose
were provided to the Patient.

 

(viii)         As of the Agreement Date, at least 90% of all Eligible Accounts
(determined without regard to clause (u) of the definition of Eligible Accounts)
were originated by the Material Providers.

 

(aa)           HIPAA Privacy Issues. Any disclosures to the Lender of the
Borrower’s, any Subsidiary’s, any other Loan Party’s or any Provider’s
“Protected Health Information” under HIPAA for auditing and inspection
activities pursuant to this Agreement are allowed as “Health Care Operations”
under the HIPAA “Privacy Rule.”

 

(bb)          Foreign Assets Control. None of the Borrower, any Subsidiary or,
to the knowledge of the Borrower, any Affiliate of the Borrower: (i) is a
Sanctioned Person, (ii) has more than 10% of its assets in Sanctioned Entities,
or (iii) derives more than 10% of its operating income from investments in, or
transactions with, Sanctioned Persons or Sanctioned Entities.

 

(cc)           Deposit Accounts. As of the Agreement Date, Schedule 7.1.(cc) is
a complete list of all deposit accounts and lockboxes maintained by the Borrower
or any Provider, including without limitation, the Primary Borrower Account,
each Local Borrower Account, the Primary Provider Account, each Government
Lockbox, each associated Government Lockbox Account, each FF&E Account and each
disbursement account, setting forth for each such deposit account, the name of
the depositary bank, the Loan Party in who name such account is maintained and
the account number, and for each such lockbox the Loan Party for which such
lockbox is maintained, the address of such lockbox and the name of the bank that
maintains such lockbox. No direction is in effect directing an Account Debtor to
remit payments on Accounts other than to the applicable Borrower Account,
Government Lockbox or Provider Account.

 

(dd)          Notice of Revocation. Neither the Borrower nor any Provider has
been notified by any Insurer, Governmental Authority, accreditation agency or
any other Person, during the immediately preceding 2-year period, that such
party has rescinded or not renewed, or is reasonably likely to rescind or not
renew, any material permit, license, accreditation, certification,
authorization, approval, consent or agreement granted to it or to which it is a
party.

 

(ee)           Sunrise Operating Agreements. As of the Agreement Date,
Schedule 7.1.(ee) sets forth all Sunrise Operating Agreements.

 

Section 7.2. Survival of Representations and Warranties, Etc.

All statements contained in any certificate, financial statement, document,
instrument or agreement delivered by or on behalf of the Borrower, any
Subsidiary or any other Loan Party to

 

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the Lender pursuant to or in connection with this Agreement or any of the other
Loan Documents (including, but not limited to, any such statement made in or in
connection with any amendment thereto or any statement contained in any
certificate, financial statement or other instrument delivered by or on behalf
of the Borrower, any Subsidiary or any other Loan Party prior to the Agreement
Date and delivered to the Lender in connection with the underwriting or closing
of the transactions contemplated hereby) shall constitute representations and
warranties made by the Borrower to the Lender under this Agreement. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date, the
Effective Date, and the date of the occurrence of any Credit Event, except to
the extent that such representations and warranties expressly relate solely to
an earlier date (in which case such representations and warranties shall have
been true and accurate on and as of such earlier date) and except for changes in
factual circumstances not prohibited hereunder. All such representations and
warranties shall survive the effectiveness of this Agreement, the execution and
delivery of the Loan Documents and the making of the Loans and the issuance of
the Letters of Credit.

 

ARTICLE VIII. AFFIRMATIVE COVENANTS

For so long as this Agreement is in effect, the Borrower shall comply with the
following covenants:

 

Section 8.1. Preservation of Existence and Similar Matters.

Except as otherwise permitted under Section 10.5., the Borrower shall, and shall
cause each Subsidiary, each other Loan Party and each Provider to, preserve and
maintain its respective existence, rights, franchises, licenses and privileges
in the jurisdiction of its incorporation or formation and qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification and authorization and where the failure to be so authorized and
qualified could reasonably be expected to have a Material Adverse Effect.

 

Section 8.2. Compliance with Applicable Law.

The Borrower shall, and shall cause each Subsidiary, each other Loan Party and
each Provider to, comply with all Applicable Laws, including the obtaining of
all Governmental Approvals, the failure with which to comply could reasonably be
expected to have a Material Adverse Effect.

 

Section 8.3. Maintenance of Property.

In addition to the requirements of any of the other Loan Documents, the Borrower
shall, and shall cause each Provider, each Subsidiary and each other Loan Party
to, (a) protect and preserve all of its material properties and maintain in good
repair, working order and condition all tangible properties, ordinary wear and
tear excepted, and (b)  make or cause to be made all needed and appropriate
repairs, renewals, replacements and additions to such properties, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.

 

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Section 8.4. Conduct of Business.

The Borrower shall, and shall cause the Providers, the Subsidiaries and the
other Loan Parties to, carry on their respective businesses as described in
Section 7.1.(t).

 

Section 8.5. Insurance.

In addition to the requirements of any of the other Loan Documents, the Borrower
shall, and shall cause each Subsidiary, each other Loan Party and each Provider
to, maintain insurance as described in the Annual Report on Form 10-K of the
Borrower for the year ended December 31, 2004 and otherwise maintain insurance
with financially sound and reputable insurance companies against such risks and
in such amounts as is customarily maintained by Persons engaged in similar
businesses, as may be required by Applicable Law or as may be reasonably
requested by the Lender, and from time to time deliver to the Lender upon its
request a detailed list, together with copies of all policies of the insurance
then in effect, stating the names of the insurance companies, the amounts and
rates of the insurance, the dates of the expiration thereof and the properties
and risks covered thereby.

 

Section 8.6. Payment of Taxes and Claims.

The Borrower shall, and shall cause each Subsidiary, each other Loan Party and
each Provider to, pay and discharge when due (a) all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any properties belonging to it, and (b) all lawful claims of materialmen,
mechanics, carriers, warehousemen and landlords for labor, materials, supplies
and rentals which, if unpaid, might become a Lien on any properties of such
Person; provided, however, that this Section shall not require the payment or
discharge of any such tax, assessment, charge, levy or claim which is being
contested in good faith by appropriate proceedings which operate to suspend the
collection thereof and for which adequate reserves have been established on the
books of the Borrower, such Subsidiary, such other Loan Party or such Provider,
as applicable, in accordance with GAAP.

 

Section 8.7. Visits and Inspections.

The Borrower shall, and shall cause the each Subsidiary, each other Loan Party
and each Provider to, permit representatives or agents of the Lender, from time
to time after reasonable prior notice if no Event of Default shall be in
existence, as often as may be reasonably requested, but only during normal
business hours and at the expense of the Lender (unless a Default or Event of
Default shall exist, in which case the exercise by the Lender of its rights
under this Section shall be at the expense of the Borrower) to: (a) visit and
inspect all properties of the Borrower, such Provider or such Subsidiary to the
extent any such right to visit or inspect is within the control of such Person;
(b) inspect and make extracts from their respective books and records, including
but not limited to management letters prepared by independent accountants; and
(c) discuss with its officers and employees, and its independent accountants,
its business, properties, condition (financial or otherwise), results of
operations and performance (subject in the case of any of the foregoing to
compliance by the parties with rules applicable to “Protected Heath Information”
under HIPAA).

 

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Section 8.8. Use of Proceeds.

The Borrower shall use the proceeds of the Loans and the Letters of Credit to
finance the repayment of existing Indebtedness, acquisitions of properties and
working capital and general corporate purposes only. No part of the proceeds of
any Loan or Letter of Credit will be used (a) for the purpose of buying or
carrying “margin stock” within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or (b) to fund any
operations in, finance any investments or activities in, or make any payments
to, a Sanctioned Person or Sanctioned Entity.

 

 

Section 8.9. Environmental Matters.

The Borrower shall, and shall cause the Subsidiaries, the other Loan Parties and
the Providers to, comply with all Environmental Laws the failure with which to
comply could reasonably be expected to have a Material Adverse Effect. The
Borrower shall, and shall cause the Subsidiaries the other Loan Parties and the
Providers to, take promptly all actions necessary to prevent the imposition of
any Liens on any of their respective properties arising out of or related to any
Environmental Laws.

 

Section 8.10. Books and Records.

The Borrower shall, and shall cause each Subsidiary, each other Loan Party and
each Provider to, maintain books and records pertaining to its respective
business operations in such detail, form and scope as is consistent with good
business practice and in accordance with GAAP. The Borrower shall, and shall
cause each Provider to, maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Accounts and related contracts in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records and
other information reasonably necessary or advisable for collecting all Accounts
(including, without limitation, records adequate to permit the daily
identification of each Account and all Collections of and adjustments to each
existing Account).

 

Section 8.11. Further Assurances.

The Borrower shall, at the Borrower’s cost and expense and upon request of the
Lender, execute and deliver or cause to be executed and delivered, to the Lender
such further instruments, documents and certificates, and do and cause to be
done such further acts that may be reasonably necessary or advisable in the
reasonable opinion of the Lender to (a) carry out more effectively the purposes
of this Agreement and the other Loan Documents, (b) to subject to valid and
perfected Liens on any of the Collateral, (c) to establish and maintain the
validity and effectiveness of this Agreement and any other Loan Agreement and
the validity, perfection and priority of the Liens intended to be created
thereby and (d) to better assure, convey, grant, assign, transfer and confirm
unto Lender the rights now or hereafter intended to be granted to them under
this Agreement and any other Loan Agreement. In furtherance of the foregoing, to
the maximum extent permitted by applicable law, the Borrower (i) authorizes
Lender to execute any

 

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such agreements, instruments or other documents in the Borrower’s name and to
file such instruments, agreements or other documents in any appropriate filing
office and (ii) authorizes Lender to file any continuation statement or
amendment with respect thereto, in any appropriate filing office.

 

Section 8.12. New Subsidiaries/Guarantors; Release of Guarantors.

(a)             Requirement to Become Guarantor. Within 30 days of any Person
becoming a Material Subsidiary or a Provider (in each case, other than an
Excluded Subsidiary) after the Effective Date, or within 45 days of the end of
any fiscal quarter, if during such fiscal quarter more than 5% of EBITDA
(excluding EBITDA attributable to Excluded Subsidiaries) is attributable,
directly or indirectly, to Subsidiaries which are not Guarantors and which are
not Excluded Subsidiaries, the Borrower shall deliver, or cause to be delivered,
to the Lender each of the following items, each in form and substance
satisfactory to the Lender:

 

(i)              an Accession Agreement executed by such Material Subsidiary,
such Provider or such Subsidiaries as may be required so that at least 95% of
EBITDA (excluding EBITDA attributable to Excluded Subsidiaries) for the fiscal
quarter most recently ended is attributable, directly or indirectly, to
Guarantors;

 

(ii)             the items that would have been delivered under
Sections 6.1.(a)(vii) through (xi), (xvi), (xvii) and (xx) if such Person or
Persons had been a Guarantor on the Effective Date;

 

(iii)            Account Control Agreements to the extent required to be
delivered under Section 8.13. or to remain in compliance with Section 10.10.;
and

 

(iv)            Such other documents, agreements and instruments as the Lender
may reasonably request.

 

Promptly (and in any event within 30 days) upon any Excluded Subsidiary ceasing
to be subject to the restriction which prevented it from becoming a Guarantor on
the Effective Date or delivering an Accession Agreement pursuant to this
Section, as the case may be, the Borrower shall cause such Subsidiary to comply
with the provisions of this Section.

 

(b)             Other Guarantors. The Borrower may, at its option and upon at
least 10-days’ prior written notice to the Lender, cause any Subsidiary that is
not already a Guarantor to become a Guarantor by executing and delivering to the
Lender the items required to be delivered under the immediately preceding
subsection (a).

 

(c)             Release of a Guarantor. The Borrower may request in writing that
the Lender release, and upon receipt of such request the Lender shall release, a
Guarantor hereunder so long as: (i) such Guarantor is no longer, or
simultaneously with its release hereunder will no longer be, required to be a
“Guarantor” under the immediately preceding subsection (a); (ii) no Default or
Event of Default shall then be in existence or would occur as a result of such
release; and (iii) the Lender shall have received such written request at least
10 days prior to the requested date of release. Delivery by the Borrower to the
Lender of any such request shall constitute a

 

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representation by the Borrower that the matters set forth in the preceding
sentence (both as of the date of the giving of such request and as of the date
of the effectiveness of such release) are true and correct with respect to such
request. Upon the effectiveness of any such release, the Borrower and such
Guarantor are each authorized to file any termination statements on Form UCC-3
to terminate any financing statements filed by the Lender to perfect its Lien in
the Collateral of such Guarantor granted under any of the Security Documents.
The Lender agrees to execute and deliver to the Borrower or such Guarantor, at
the Borrower’s sole cost and expense, such documents or instruments of
termination or release as the Borrower or such Guarantor may reasonably request
to evidence such release, including without limitation, documents terminating
the application of any Account Control Agreement or other Loan Document to the
extent applicable to such Guarantor.

 

Section 8.13. Collection Accounts and Lockboxes.

(a)             Generally. The Borrower shall maintain, or cause to be
maintained, the Borrower Accounts, the Provider Accounts, the Government
Lockboxes and all other procedures for the sale, transfer, collection and
receipt of the Accounts or proceeds of the Accounts required or contemplated by
the Loan Documents.

 

(b)             Transition of Collection Accounts. The Borrower agrees to take
the following actions with respect to the Borrower Accounts, Provider Accounts
and Government Lockboxes:

 

(i)              Primary Borrower Account. Not later than 15 days following the
Agreement Date, the Borrower shall (x) establish a deposit account with the
Lender which shall serve as the Primary Borrower Account and (y) enter into a
replacement Depositary Agreement with the Lender. The Borrower shall take all
actions that may be necessary, or as the Lender may reasonably request, to
ensure that all amounts from time to time on deposit in the Local Borrower
Accounts and the Provider Accounts are deposited into the Primary Borrower
Account as required under the terms of this Agreement and the other Loan
Documents.

 

(ii)             Local Borrower Accounts. Not later than 90 days following the
Agreement Date, the Borrower shall (x) with respect to each location of the
Borrower and the Providers where a branch office of the Lender capable of
accepting deposits is conveniently located, establish a deposit account with the
Lender which shall serve as the Local Borrower Account with respect to such
location, (y) enter into (or cause the applicable Provider to enter into) a
Control Agreement with the Lender with respect to each such Local Borrower
Account and all other Local Borrower Accounts and (z) deliver all Notices
required by Section 5.13. (a), revise its invoices as required under
Section 5.13.(b) and take such other actions as may be necessary, so that all
Account Debtors that are not Governmental Authorities that make payment in
respect of Government Receivables by wire transfer or by check are making such
wire transfers, or sending such checks, to the applicable Borrower Account
established pursuant to this clause (ii). The Borrower shall, and shall cause
each applicable Provider to, take all actions that may be necessary, or as the
Lender may reasonably request, to ensure that all amounts from time to time on
deposit in such Local Borrower Account are deposited into

 

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the Primary Borrower Account as required under the terms of this Agreement and
the other Loan Documents.

 

(iii)            Primary Provider Account. Not later than 180 days following the
Agreement Date, the Borrower shall cause each relevant Provider to (x) establish
a deposit account with the Lender which shall serve as the Primary Provider
Account, (y) enter into a Government Depositary Agreement with the Lender with
respect to the Primary Provider Account and (z) deliver all Notices required by
Section 5.13. (c), revise its invoices as required under Section 5.13.(d) and
take such other actions as may be necessary, so that all Governmental
Authorities that are Account Debtors and that make payment in respect of
Government Receivables by wire transfer are making such wire transfers to the
Primary Provider Account established pursuant to this clause (iii). The Borrower
shall cause each relevant Provider to take all actions that may be necessary, or
as the Lender may reasonably request, to ensure that all amounts from time to
time on deposit in the Primary Provider Account are deposited into the Primary
Borrower Account as required under the terms of this Agreement and the other
Loan Documents.

 

(iv)            Government Lockbox Accounts. Not later than 180 days following
the Agreement Date, the Borrower shall cause each relevant Provider to
(x) establish one or more lockboxes and associated deposit accounts with the
Lender which shall serve as the Government Lockboxes and Government Lockbox
Accounts, (y) enter into Government Depositary Agreements with the Lender with
respect to such Government Lockbox Accounts and (z) deliver all Notices required
by Section 5.13. (c), revise its invoices as required under Section 5.13.(d) and
take such other actions as may be necessary, so that all Governmental
Authorities that are Account Debtors and that make payment in respect of
Government Receivables by check are sending such checks to the appropriate
Government Lockboxes and Government Lockbox Accounts established pursuant to
this clause (iv). The Borrower shall cause each relevant Provider to take all
actions that may be necessary, or as the Lender may reasonably request, to
ensure that all amounts from time to time on deposit in a Government Lockbox
Account are deposited into the Primary Borrower Account as required under the
terms of this Agreement and the other Loan Documents.

 

(v)             Other Accounts. Not later than 90 days following the Agreement
Date, the Borrower shall, and shall cause each other relevant Loan Party to,
deliver to the Lender an Account Control Agreement with respect to each other
deposit account (other than FF&E Accounts and disbursement accounts) of any Loan
Party not covered by the immediately preceding clauses (i) through (iv), such
Account Control Agreement to be executed by the relevant Loan Parties and the
financial institution with which such deposit account is maintained.

 

(c)             Bank Charges. The Borrower agrees that it shall remain liable
for any fees and charges in effect from time to time and charged by any bank
which maintains any Borrower Account, Provider Account or Government Lockbox
Account, and that the Lender shall not have any liability therefor.

 

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Section 8.14. Account Covenants.

The Borrower shall, as to any Account included in the Borrowing Base and
constituting more than one percent thereof: (a) promptly upon the Borrower’s
learning thereof, inform the Lender, in writing, of any material delay in the
Borrower’s performance of the Borrower’s obligations to any Account Debtor or of
any assertion of any claims, offsets or counterclaims by any Account Debtor with
respect to Accounts attributable to such Account Debtor; (b) promptly upon the
Borrower’s learning thereof, furnish to and inform the Lender of all material
adverse information known to the Borrower relating to the financial condition of
any Account Debtor if such information would render such Accounts no longer an
Eligible Accounts; and (c) notify Lender of any amounts that are in dispute for
any reason which are due and owing from Account Debtors.

 

Section 8.15. Exchange Listing.

The Borrower shall maintain at least one class of common shares of the Borrower
having trading privileges on the New York Stock Exchange or the American Stock
Exchange or which is the subject of price quotations in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System.

 

Section 8.16. New Leases.

Within 30 days of any Loan Party entering into any Lease with SNH or a
Subsidiary thereof, the Borrower shall, or shall cause such Loan Party to,
execute and deliver to the Lender a collateral assignment of such Lease, such
collateral assignment to be in form and substance reasonably satisfactory to the
Lender.

 

Section 8.17. Zero Balance.

The Borrower shall cause the outstanding principal balance of the Loans to be $0
for at least 15 consecutive days during each consecutive 12 month period
following the Agreement Date.

 

Section 8.18. Performance and Compliance With Contracts and Credit and
Collection Policy.

Each of the Borrower and each Provider will, at its expense, timely and fully
perform and comply with all material provisions, covenants and other promises
required to be observed by it under the contracts and other documents related to
the Accounts of such Loan Party, and timely and fully comply in all material
respects with the Credit and Collection Policy in regard to each Account of such
Loan Party and the related contract.

 

Section 8.19. Dissolution of FSQC Funding.

Not later than June 30, 2005 the Borrower shall cause FSQC Funding to be
dissolved.

 

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ARTICLE IX. INFORMATION

For so long as this Agreement is in effect, the Borrower shall furnish to the
Lender:

 

Section 9.1. Quarterly Financial Statements.

As soon as available and in any event within 45 days after the close of each of
the first, second and third fiscal quarters of the Borrower, the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such period and the related unaudited consolidated statements of income,
shareholders’ equity and cash flows of the Borrower and its Subsidiaries for
such period, setting forth in each case in comparative form the figures as of
the end of and for the corresponding periods of the previous fiscal year, all of
which shall be certified by the chief executive officer or chief financial
officer of the Borrower, in his or her opinion, to present fairly, in accordance
with GAAP and in all material respects, the consolidated financial position of
the Borrower and its Subsidiaries as at the date thereof and the results of
operations for such period (subject to normal year-end audit adjustments and
absence of footnotes).

 

Section 9.2. Year-End Statements.

As soon as available and in any event when the same is required to be filed with
the Securities and Exchange Commission (but in no event later than 90 days after
the end of each fiscal year of the Borrower) a copy of the annual report of the
Borrower (including without limitation, for the fiscal year ending December 31,
2004), which shall include, without limitation, the audited consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and
the related audited consolidated statements of income, shareholders’ equity and
cash flows of the Borrower and its Subsidiaries for such fiscal year, setting
forth in comparative form the figures as at the end of and for the previous
fiscal year, all of which shall be certified by Ernst & Young LLP or other
independent certified public accountants of recognized national standing
reasonably acceptable to the Lender, whose certificate shall be unqualified and
who shall have authorized the Borrower to deliver such financial statements and
certification thereof to the Lender pursuant to this Agreement.

 

Section 9.3. Compliance Certificate.

At the time financial statements are furnished pursuant to Sections 9.1. and
9.2., and within 5 Business Days of the Lender’s reasonable request with respect
to any other fiscal period, a certificate substantially in the form of Exhibit F
(a “Compliance Certificate”) executed by the chief financial officer of the
Borrower: (a) setting forth in reasonable detail as at the end of such quarterly
accounting period, fiscal year, or other fiscal period, as the case may be, the
calculations required to establish whether or not the Borrower was in compliance
with the covenants contained in Section 10.1. (including without limitation, for
the fiscal year ending December 31, 2004) and (b) stating that, to the best of
his or her knowledge, information and belief after due inquiry, no Default or
Event of Default exists, or, if such is not the case, specifying such Default or
Event of Default and its nature, when it occurred, whether it is continuing and
the steps being taken by the Borrower with respect to such event, condition or
failure. Together with each Compliance Certificate delivered with the financial
statements furnished pursuant to Section 9.2., the Borrower also shall provide a
certificate of independent

 

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certified public accounts stating that, to their knowledge, no Group-Wide Event
of Termination has occurred and exists as of the end of the fiscal year covered
by such financial statements, or, if in their opinion a Group-Wide Event of
Termination has occurred, a statement of the nature thereof.

 

Section 9.4. Other Information.

(a)             Management Reports. Promptly upon receipt thereof, copies of all
management reports, if any, submitted to the Borrower or its Board of Directors
by its independent public accountants;

 

(b)             Securities Filings. Within 5 Business Days of the filing
thereof, notice of the filing of all registration statements (excluding any
registration statements on Form S-8 or its equivalent), reports on Forms 10-K,
10-Q and 8-K (or their equivalents) and all other periodic reports which the
Borrower, any Subsidiary or any other Loan Party shall file with the Securities
and Exchange Commission (or any Governmental Authority substituted therefor) or
any national securities exchange (collectively, “Securities Filings”);

 

(c)             Shareholder Information. If not otherwise available in a
Securities Filing, promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statements so mailed and promptly upon the issuance thereof copies of all press
releases issued by the Borrower, any Subsidiary or any other Loan Party;

 

(d)             ERISA. If and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any “reportable event” (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer of the Borrower setting forth details
as to such occurrence and the action, if any, which the Borrower or applicable
member of the ERISA Group is required or proposes to take;

 

(e)             Litigation. To the extent the Borrower, any Subsidiary or any
other Loan Party is aware of the same, prompt notice of the commencement of any
proceeding or investigation by or

 

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before any Governmental Authority and any action or proceeding in any court or
other tribunal or before any arbitrator against or in any other way relating
adversely to, or adversely affecting, the Borrower or any Subsidiary or any of
their respective properties, assets or businesses which could reasonably be
expected to have a Material Adverse Effect, and prompt notice of the receipt of
notice that any United States income tax returns of the Borrower or any of its
Subsidiaries are being audited;

 

(f)              Modification of Organizational Documents. A copy of any
amendment to the organizational documents of the Borrower within 15 Business
Days after the effectiveness thereof;

 

(g)             Change of Management or Financial Condition. Prompt notice of
any change in the senior management of the Borrower and any event which has had
or could reasonably be expected to have a Material Adverse Effect;

 

(h)             Default. Notice of the occurrence of any Default or Event of
Default promptly upon a Responsible Officer of the Borrower obtaining knowledge
thereof;

 

(i)              Judgments. Prompt notice of any order, judgment or decree in
excess of $5,000,000 having been entered against the Borrower, any Subsidiary or
any other Loan Party or any of their respective properties or assets;

 

(j)              Notice of Violations of Law. Prompt notice if the Borrower, any
Subsidiary or any other Loan Party shall receive any notification from any
Governmental Authority alleging a violation of any Applicable Law or any inquiry
which, in either case, could reasonably be expected to have a Material Adverse
Effect;

 

(k)

New Subsidiaries. Prompt notice of any Person becoming a Material Subsidiary;

 

(l)              Material Asset Sales. Prompt notice of the sale, transfer or
other disposition of any material assets of the Borrower, any Subsidiary or any
other Loan Party to any Person other than the Borrower, any Subsidiary or any
other Loan Party;

 

(m)           Borrowing Base Certificate and Monthly Report. Within 15 days
after the end of each calendar month, or while a Default or Event of Default
exists, more frequently as the Lender may request, the Monthly Report together
with a Borrowing Base Certificate based upon reconciliations and adjustments
reflected in such Monthly Report all of which shall be certified by the chief
executive officer or chief financial officer of the Borrower; provided, however,
in the event that the Borrower shall, at any time, fail to comply with the
covenants contained in Sections 10.1.(a) or 10.1.(b), the Borrower shall deliver
the foregoing information and reports daily;

 

(n)             Operating Plan. Not later than 30 days after the commencement of
each fiscal year, a consolidated operating plan (together with a statement in
reasonable detail of the assumptions on which such plan is based) of the
Borrower and its Subsidiaries, and which shall, in each case, include budgets
for the prospective year in reasonable detail acceptable

 

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to the Lender and will integrate operating profit and cash flow projections,
capital expenditures, and facilities plans;

 

(o)             Governmental Offsets. Promptly, and in no event later than three
Business Days following the earlier of actual knowledge or receipt of
notification from a Governmental Authority, estimates of amounts of Accounts
generated which are subject to offset by Governmental Authorities in any
material amount;

 

(p)             Cost-Report Settlement Estimates. At the time of each Monthly
Report, internally prepared cost-report settlement estimates with respect to
Governmental Authorities; and

 

(q)             Other Information. From time to time and promptly upon each
request, such data, certificates, reports, statements, opinions of counsel,
documents or further information regarding the business, assets, liabilities,
financial condition, results of operations or business prospects of the Borrower
or any of its Subsidiaries as the Lender may reasonably request.

 

ARTICLE X. NEGATIVE COVENANTS

For so long as this Agreement is in effect, the Borrower shall comply with the
following covenants:

 

Section 10.1. Financial Covenants.

The Borrower shall not permit:

 

(a)             Maximum Leverage Ratio. The ratio of (i) Indebtedness (other
than Permitted LC Debt) of the Borrower and its Subsidiaries to (ii) EBITDA for
the four consecutive fiscal quarters most recently ended prior to the date of
determination, to exceed 6.0 to 1.0 at any time.

 

(b)             Fixed Charge Coverage. The Fixed Charge Coverage Ratio to be
less that 1.0 to 1.0 at any time.

 

(c)             Minimum Net Worth. Tangible Net Worth at any time to be less
than (i) $75,000,000 plus (ii) 75% of the Net Proceeds of all Equity Issuances
effected by the Borrower or any Subsidiary after the Effective Date (other than
Equity Issuances to the Borrower or any of its Subsidiaries).

 

Section 10.2. Restricted Payments.

If a Default or Event of Default shall exist, the Borrower shall not, and shall
not permit any Subsidiary or other Loan Party to, make any Restricted Payments
to any Person other than to the Borrower or any Loan Party.

 

Section 10.3. Indebtedness.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to, create, incur, assume or suffer to exist any Indebtedness, other than the
following:

 

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(a)             Indebtedness of any Loan Party under the Loan Documents;

 

(b)             Indebtedness existing on the Agreement Date and described on
Schedule 7.1.(g);

 

(c)             Indebtedness of the Borrower or any Subsidiary secured by Liens
permitted under clauses (iii), (iv) and (vi) of Section 10.4.(a) and Nonrecourse
Indebtedness of the Borrower or any Subsidiary secured by Liens permitted under
clause (v) of Section 10.4.(a);

 

(d)             Indebtedness of the Borrower or any Subsidiary the payment of
which, and Liens securing such Indebtedness, if any, (i) in the case of
subordinated notes issued in connection with (x) a registered public offering or
(y) a 144A offering, are subordinated to the Obligations upon terms customary at
such time in the public U.S. high-yield bond market; (ii) in the case of
subordinated convertible notes issued in connection with (x) a registered public
offering or (y) a 144A offering, are subordinated to the Obligations upon terms
customary at such time in the public U.S. convertible debt market, or (iii) in
any other case, are subordinated to the Obligations upon terms and conditions
reasonably satisfactory to the Lender;

 

(e)             Indebtedness owed by any Loan Party to any other Loan Party and
Indebtedness owing by a Subsidiary which is not a Loan Party to any Loan Party
or any Subsidiary that is not a Loan Party; and

 

(f)             Permitted LC Debt.

 

Notwithstanding the foregoing (i) none of the Trusts shall incur any SPC Debt
and (ii) the Borrower shall not, and shall not permit any Subsidiary or any
other Loan Party to, incur, assume, or otherwise become obligated in respect of
any Indebtedness after the Agreement Date if immediately prior to the
assumption, incurring or becoming obligated in respect thereof, or immediately
thereafter and after giving effect thereto, a Default or Event of Default is or
would be in existence, including without limitation, a Default or Event of
Default resulting from a violation of any of the covenants contained in
Section 10.1.

 

Section 10.4. Liens; Negative Pledges; Other Matters.

(a)             The Borrower shall not, and shall not permit any Subsidiary or
other Loan Party to, create, assume, incur or permit to exist any Lien upon any
of its properties, assets, income or profits of any character whether now owned
or hereafter acquired other than:

 

(i)             Permitted Liens;

 

(ii)             Liens in existence as of the Agreement Date and set forth on
Schedule 7.1.(f);

 

(iii)            any Lien (x) existing on any asset of any Person at the time
such Person becomes a Subsidiary, (y) existing on any asset of any Person at the
time such Person is merged with or into the Borrower, any other Loan Party or
any other Subsidiary of the

 

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Borrower or (z) existing on any asset prior to the acquisition thereof by the
Borrower, any other Loan Party or any other Subsidiary; provided that any such
Lien was not created in the contemplation of any of the foregoing and any such
Lien secures only those obligations which it secures on the date that such
Person becomes a Subsidiary or the date of such merger or the date of such
acquisition and any such Lien does not attach to any other assets of the
Borrower, any other Loan Party or any other Subsidiary;

 

(iv)            renewals or replacements of any Lien referred to in the
immediately preceding clauses (ii) and (iii); provided, that any such renewal or
replacement Lien attaches only to the assets originally encumbered the Lien
being replaced or renewed;

 

(v)             any Lien securing Nonrecourse Indebtedness incurred by the
Borrower, any other Loan Party or any other Subsidiary and attaching only to
assets (other than the Collateral) owned or leased by the Borrower, any other
Loan Party or any other Subsidiary;

 

(vi)            any Lien securing Indebtedness owing by the Borrower, any other
Loan Party or any other Subsidiary to SNH or any Subsidiary of SNH and which
Lien attaches only to assets (other than the Collateral) owned or leased by the
Borrower, any other Loan Party or any other Subsidiary; and

 

(vii)           any Lien securing the obligations of a Loan Party or other
Subsidiary under any Lease (including any sublease entered into among Loan
Parties in connection therewith) to pay rent and other amounts not constituting
Indebtedness under such Lease or sublease or any guaranty of such lease or
sublease which Lien attaches only to assets (other than the Collateral) owned or
leased by such Loan Party or such other Subsidiary.

 

Notwithstanding the foregoing, the Borrower shall not, and shall not permit any
Subsidiary or other Loan Party to, create, assume, incur or permit to exist any
Lien on any of its Collateral other than Permitted Liens.

 

(b)             The Borrower shall not, and shall not permit any Subsidiary or
other Loan Party to, enter into, assume or otherwise be bound by any Negative
Pledge except for a Negative Pledge contained in (x) any agreement
(i) evidencing Indebtedness which the Borrower, such Subsidiary or such other
Loan Party may create, incur, assume, or permit or suffer to exist under
Section 10.3.; and (ii) which Indebtedness is either (A) unsecured Indebtedness
permitted under Section 10.3.(d) and the terms of such Indebtedness contain
prohibitions on the creation of Liens customary in the public U.S. high-yield
bond market or public U.S. convertible debt market, as applicable, which
prohibitions, however, do not prohibit the Borrower, any Subsidiary or any other
Loan Party from granting Liens in any of its respective assets to secure the
Obligations or Guarantied Obligations, as applicable, or (B) Indebtedness
secured by a Lien permitted to exist hereunder and the terms of such
Indebtedness prohibit the creation of any other Lien on only the property
securing such Indebtedness as of the date such agreement was entered into,
(y) any Leases with (i) SNH or any of its Subsidiaries (including any sublease
entered into among

 

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Loan Parties in connection therewith), (ii) Health Care Property Investors or
any of its Subsidiaries in effect as of the Agreement Date or (z) any Lease
(including any sublease entered into among Loan Parties in connection therewith)
of a Property acquired after the Agreement Date which Lease existed at the time
of such acquisition and was not amended in anticipation of such acquisition.

 

(c)             The Borrower shall not, and shall not permit any Subsidiary or
other Loan Party to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind (excluding those
contained in any Lease with SNH or any of its Subsidiaries or in any sublease
entered into among Loan Parties in connection with any such Lease) on the
ability of any Subsidiary (other than an Excluded Subsidiary) to: (i) pay
dividends or make any other distribution on any of such Subsidiary’s capital
stock or other equity interests owned by the Borrower or any Subsidiary;
(ii) pay any Indebtedness owed to the Borrower or any Subsidiary; (iii) make
loans or advances to the Borrower or any Subsidiary; or (iv) transfer any of its
property or assets to the Borrower or any Subsidiary.

 

Section 10.5. Merger, Consolidation, Sales of Assets and Other Arrangements.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to: (i) enter into any transaction of merger or consolidation; (ii) liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution); or
(iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or substantially all of its assets,
whether now owned or hereafter acquired; provided, however, that:

 

(a)             The Borrower or any Subsidiary may sell, lease or sublease,
transfer or dispose of assets to, any other Loan Parties and any Subsidiary
which is not a Loan Party may sell, lease or sublease, transfer or dispose of
assets to, any Subsidiary;

 

(b)             The Borrower and any Subsidiary may enter into an arrangement
with any Person providing for the leasing by the Borrower or such Subsidiary of
any asset that has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person with the intention of taking back a lease of such
property, so long as any Indebtedness incurred and any Lien granted by the
Borrower or such Subsidiary are permitted to be incurred and granted under this
Agreement; and

 

(c)             Subject to compliance with Section 5.3., a Person may merge with
and into the Borrower or a Subsidiary so long as (i) if the Borrower or another
Loan Party is a party to such merger, the Borrower or such other Loan Party is
the survivor of such merger, (ii) if the survivor of such merger would not
otherwise be a Loan Party, such survivor shall become a Guarantor if required
under Section 8.12. at the time of the effectiveness of such merger,
(iii) immediately prior to such merger, and immediately thereafter and after
giving effect thereto, no Default or Event of Default is or would be in
existence, and (iv) the Borrower shall have given the Lender at least 30
Business Days’ prior written notice of such merger (except that such prior
notice shall not be required in the case of the merger of a Subsidiary with and
into a Loan Party but the Borrower shall give the Lender notice of any such
merger promptly following the effectiveness of such merger).

 

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Notwithstanding the foregoing, no Loan Party shall sell, transfer or otherwise
convey any of its right, title or interest in, to or under any of the Collateral
of such Loan Party.

 

Section 10.6. Fiscal Year.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to, change its fiscal year from that in effect as of the Agreement Date.

 

Section 10.7. Modifications of Organizational Documents and Shared Services
Agreement.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to, amend, supplement, restate or otherwise modify its articles or certificate
of incorporation, by-laws, operating agreement, declaration of trust,
partnership agreement or other applicable organizational document if such
amendment, supplement, restatement or other modification could reasonably be
expected to have a Material Adverse Effect. Notwithstanding the foregoing, no
Trust shall amend the provisions of its declaration of trust relating to SPC
Debt. The Borrower shall not amend, supplement, restate or otherwise modify the
Shared Services Agreement if such amendment, supplement, restatement or other
modification could reasonably be expected to have a Material Adverse Effect.

 

Section 10.8. Transactions with Affiliates.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to, permit to exist or enter into, any transaction (including the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate, except as explicitly permitted hereunder and except for
transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of the Borrower or any Subsidiary and upon fair and
reasonable terms which are no less favorable to the Borrower or such Subsidiary
than would be obtained in a comparable arm’s length transaction with a Person
that is not an Affiliate.

 

Section 10.9. ERISA Exemptions.

The Borrower shall not, and shall not permit any Subsidiary or other Loan Party
to, permit any of its respective assets to become or be deemed to be “plan
assets” within the meaning of ERISA, the Internal Revenue Code and the
respective regulations promulgated thereunder.

 

Section 10.10. Deposit Accounts.

(a)             Deposit Accounts and Lockboxes for Account Collections. The
Borrower shall not, and shall not permit any Provider to, establish any lockbox
or deposit account into which any Proceeds of Accounts will be deposited, or
cause or permit to be deposited, any cash, checks, drafts or similar items
representing Proceeds of Accounts in any deposit accounts, other than the
Government Lockboxes, the Provider Accounts and the Borrower Accounts or direct
or permit any Account Debtor to remit payments on the Accounts other than to the
applicable Provider Account, Government Lockbox or Borrower Account. Except as
otherwise expressly permitted

 

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under Section 8.13., the Borrower Accounts and Provider Accounts shall be
subject to an Account Control Agreement at all times.

 

(b)             Deposit Accounts and Lockboxes for Other Purposes. The Borrower
shall not, and shall not permit any Subsidiary or other Loan Party to, deposit,
or cause or permit to be deposited, any cash, checks, drafts or similar items in
any other deposit accounts not covered by the immediately preceding
subsection (a), other than (i) FF&E Accounts and disbursement accounts or
(ii) except as otherwise expressly permitted under Section 8.13., those with
respect to which the Borrower shall have delivered to Lender a fully executed
Account Control Agreement. Until so deposited all such payments shall be held in
trust by the Borrower for the Lender and shall not be commingled with any other
funds or property of any Person.

 

(j)              Change in Payment Instructions; Transfers to Primary Borrower
Account. The Borrower shall not, and shall not permit any Provider to, terminate
any Borrower Account, any Government Lockbox, or any Provider Account, or make
any change or replacement in the instructions contained in any invoice, Notice
or otherwise, or regarding payments with respect to Accounts to be made to any
Government Lockbox, any Provider Account or any Borrower Account, except with
prior express written consent of the Lender. In addition, the Borrower and each
Provider each hereby agrees that except as expressly provided otherwise in this
Agreement or any applicable Account Control Agreement, (a) amounts from time to
time credited to any deposit account (other than the Primary Borrower Account,
FF&E Accounts and disbursement accounts) of the Borrower or such Provider shall
not be withdrawn for any purpose other than to be transferred to the Primary
Borrower Account and (b) the Borrower and each Provider shall transfer the
balance in each such deposit account to the Primary Borrower Account no less
frequently than once each week.

 

Section 10.11. Collection of Accounts, Etc.

(a)             Waivers of Account Terms. The Borrower shall not, and shall not
permit any Material Provider to, amend, waive or otherwise permit or agree to
any deviation from the terms or conditions of any Account of such Loan Party
except in accordance with the Credit and Collection Policy.

 

(b)             Change in Credit and Collection Policy. The Borrower will not,
and will not permit any Provider to, make any material change in the Credit and
Collection Policy that would be adverse to the Lender without the prior written
consent of the Lender; provided, however, while a Default or Event of Default
exists, the Borrower will not, and will not Permit any Provider to, make any
change in the Credit and Collection Policy.

 

(c)             Impairment of Collection. The Borrower shall not, and shall not
permit any Provider or other Subsidiary to, do anything to impede or interfere,
or suffer or permit any other Person to impede or interfere in any material
respect, with the collection by the Borrower or any other Person designated by
the Borrower on its behalf, of the Accounts of the Loan Parties.

 

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Section 10.12. Prepayment of Indebtedness.

The Borrower shall not, and shall not permit any other Loan Party or other
Subsidiary to, directly or indirectly, at any time prepay, defease, purchase,
redeem any Indebtedness while an Event of Default exists; provided, however,
that nothing in this subsection shall prohibit payment of non-cash interest
“in-kind” thereunder.

 

ARTICLE XI. DEFAULT

Section 11.1. Events of Default.

Each of the following shall constitute an Event of Default, whatever the reason
for such event and whether it shall be voluntary or involuntary or be effected
by operation of Applicable Law or pursuant to any judgment or order of any
Governmental Authority:

 

(a)             Default in Payment of Principal. The Borrower shall fail to pay
when due (whether upon demand, at maturity, by reason of acceleration or
otherwise) the principal of any of the Loans or any Reimbursement Obligation.

 

(b)             Default in Payment of Interest and Other Obligations. The
Borrower shall fail to pay when due any interest on any of the Loans or any of
the other payment Obligations owing by the Borrower under this Agreement or any
other Loan Document, or any other Loan Party shall fail to pay when due any
payment Obligation owing by such other Loan Party under any Loan Document to
which it is a party, and such failure shall continue for a period of 5 Business
Days.

 

(c)             Default in Performance. (i) The Borrower shall fail to perform
or observe any term, covenant, condition or agreement contained in Article V.,
Sections 8.13., 8.14., 8.17., 9.4.(g), 9.4.(h), 9.4.(m) or in Article X.;
provided, however, if (x) the Borrower shall fail to perform or observe any
covenant contained in Section 10.1. and (y) no other failure to perform or
observe such covenant has occurred within the 12 months immediately preceding
such failure, then such failure shall only constitute an Event of Default if,
within 90 days of the such failure, the Borrower fail to deliver evidence to the
Lender, in form and substance reasonably satisfactory to the Lender, that the
Borrower, as of the date of such delivery, is and remains in compliance with
such covenant or (ii) the Borrower, any Subsidiary or any other Loan Party shall
fail to perform or observe any term, covenant, condition or agreement contained
in this Agreement or any other Loan Document to which it is a party and not
otherwise mentioned in this Section and in the case of this clause (ii) only
such failure shall continue for a period of 30 days after the earlier of (x) the
date upon which a Responsible Officer of the Borrower or such other Loan Party
obtains knowledge of such failure or (y) the date upon which the Borrower has
received written notice of such failure from the Lender.

 

(d)             Misrepresentations. Any written statement, representation or
warranty made or deemed made by or on behalf of the Borrower, any Subsidiary,
any other Loan Party or any Provider under this Agreement or under any other
Loan Document, or any amendment hereto or thereto, or in any other writing or
statement at any time furnished or made or deemed made by or on behalf of the
Borrower, any Subsidiary, any other Loan Party or any Provider to the Lender,

 

 

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shall at any time prove to have been incorrect or misleading, in light of the
circumstances in which made or deemed made, in any material respect when
furnished or made or deemed made.

 

(e)             Indebtedness Cross-Default; Derivatives Contracts.

 

(i)              The Borrower, any Subsidiary or any other Loan Party shall fail
to pay when due and payable the principal of, or interest on, any Indebtedness
(other than the Loans and Reimbursement Obligations) having an aggregate
outstanding principal amount greater than or equal to (A) $2,500,000 in the case
of Indebtedness that is not Nonrecourse Indebtedness or (B) $5,000,000 in the
case of Indebtedness that is Nonrecourse Indebtedness (any such Indebtedness
being “Material Indebtedness”); or

 

(ii)             (x) the maturity of any Material Indebtedness shall have been
accelerated in accordance with the provisions of any indenture, contract or
instrument evidencing, providing for the creation of or otherwise concerning
such Material Indebtedness or (y) any Material Indebtedness shall have been
required to be prepaid or repurchased prior to the stated maturity thereof; or

 

(iii)            any other event shall have occurred and be continuing which,
with or without the passage of time, the giving of notice, or both, would permit
any holder or holders of Material Indebtedness, any trustee or agent acting on
behalf of such holder or holders or any other Person, to accelerate the maturity
of any such Material Indebtedness or require any such Material Indebtedness to
be prepaid or repurchased prior to its stated maturity; or

 

(iv)            there occurs under any Derivatives Contract an Early Termination
Date (as defined in such Derivatives Contract) resulting from (A) any event of
default under such Derivatives Contract as to which any Loan Party is the
Defaulting Party (as defined in such Derivatives Contract) or (B) any
Termination Event (as so defined) under such Derivatives Contract as to which
any Loan Party is an Affected Party (as so defined) and, in either event, the
Derivatives Termination Value owed by any Loan Party as a result thereof is
$2,500,000 or more.

 

(f)              Voluntary Bankruptcy Proceeding. The Borrower, any Subsidiary
or any other Loan Party (other than a Subsidiary that, together with all other
Subsidiaries then subject to a bankruptcy proceeding or other proceeding or
condition described in this subsection or the immediately following subsection,
does not account for more than 5% of EBITDA for the then most recently ended
fiscal year) shall: (i) commence a voluntary case under the Bankruptcy Code of
1978, as amended, or other federal bankruptcy laws (as now or hereafter in
effect); (ii) file a petition seeking to take advantage of any other Applicable
Laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts; (iii) consent to, or fail to
contest in a timely and appropriate manner, any petition filed against it in an
involuntary case under such bankruptcy laws or other Applicable Laws or consent
to any proceeding or action described in the immediately following subsection;
(iv) apply for or consent to, or fail to contest in a timely and appropriate
manner, the appointment of, or the taking of possession by, a receiver,
custodian, trustee, or liquidator of itself or of a substantial part of its

 

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property, domestic or foreign; (v) admit in writing its inability to pay its
debts as they become due; (vi) make a general assignment for the benefit of
creditors; (vii) make a conveyance fraudulent as to creditors under any
Applicable Law; or (viii) take any corporate or partnership action for the
purpose of effecting any of the foregoing.

 

(g)             Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against the Borrower, any Subsidiary or any other Loan Party
(other than a Subsidiary that, together with all other Subsidiaries then subject
to a bankruptcy proceeding or other proceeding or condition described in this
subsection or the immediately following subsection, does not account for more
than 5% of EBITDA for the then most recently ended fiscal year) in any court of
competent jurisdiction seeking: (i) relief under the Bankruptcy Code of 1978, as
amended, or other federal bankruptcy laws (as now or hereafter in effect) or
under any other Applicable Laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts;
or (ii) the appointment of a trustee, receiver, custodian, liquidator or the
like of such Person, or of all or any substantial part of the assets, domestic
or foreign, of such Person, and such case or proceeding shall continue
undismissed or unstayed for a period of 60 consecutive calendar days, or an
order granting the remedy or other relief requested in such case or proceeding
against the Borrower or such other Loan Party (including, but not limited to, an
order for relief under such Bankruptcy Code or such other federal bankruptcy
laws) shall be entered.

 

(h)             Litigation; Enforceability. The Borrower, any Subsidiary or any
other Loan Party shall disavow, revoke or terminate (or attempt to terminate)
any Loan Document to which it is a party or shall otherwise challenge or contest
in any action, suit or proceeding in any court or before any Governmental
Authority the validity or enforceability of this Agreement, any Note or any
other Loan Document or this Agreement, any Note, the Guaranty or any other Loan
Document shall cease to be in full force and effect (except as a result of the
express terms thereof) or shall cease to create perfected security interests in
favor of the Lender in the Collateral subject or purported to be subject
thereto, subject to no other Liens other than Permitted Liens, or such
Collateral shall be transferred to any Person, except as expressly permitted
hereunder or under any Loan Documents, without the prior written consent of the
Lender.

 

(i)              Judgment. A judgment or order for the payment of money or for
an injunction shall be entered against the Borrower, any Subsidiary or any other
Loan Party, by any court or other tribunal and (i) such judgment or order shall
continue for a period of 30 days without being paid, stayed or dismissed through
appropriate appellate proceedings and (ii) either (A) the amount of such
judgment or order (x) for which insurance has not been acknowledged in writing
by the applicable insurance carrier (or the amount as to which the insurer has
denied liability) or (y) not otherwise subject to indemnification or
reimbursement on reasonable terms and conditions by Persons reasonably likely to
honor such indemnification or reimbursement obligations, exceeds, individually
or together with all other such outstanding judgments or orders entered against
the Borrower, such Subsidiaries and such other Loan Parties, $2,500,000 or
(B) in the case of an injunction or other non-monetary judgment, such judgment
could reasonably be expected to have a Material Adverse Effect.

 

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(j)              Attachment. A warrant, writ of attachment, execution or similar
process shall be issued against any property of the Borrower, any Subsidiary or
any other Loan Party which exceeds, individually or together with all other such
warrants, writs, executions and processes, $2,500,000 in amount and such
warrant, writ, execution or process shall not be discharged, vacated, stayed or
bonded for a period of 30 days; provided, however, that if a bond has been
issued in favor of the claimant or other Person obtaining such warrant, writ,
execution or process, the issuer of such bond shall execute a waiver or
subordination agreement in form and substance satisfactory to the Lender
pursuant to which the issuer of such bond subordinates its right of
reimbursement, contribution or subrogation to the Obligations and waives or
subordinates any Lien it may have on the assets of any Loan Party.

 

(k)             ERISA. Any member of the ERISA Group shall fail to pay when due
an amount or amounts aggregating in excess of $2,500,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to terminate a
Plan or Plans having aggregate Unfunded Liabilities in excess of $2,500,000
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer, any Plan or Plans having aggregate
Unfunded Liabilities in excess of $2,500,000; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating that
any such Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation in excess
of $2,500,000.

 

(l)              Loan Documents. An Event of Default (as defined therein) shall
occur under any of the other Loan Documents.

 

(m)             Change of Control/Change in Management.

 

(i)              Any “person” or “group” (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)), is or becomes the “beneficial owner” (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person will be deemed to
have “beneficial ownership” of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 9.8% of the total voting power of
the then outstanding voting stock of the Borrower; or

 

(ii)             During any period of 12 consecutive months ending after the
Agreement Date, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Borrower was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Borrower then in office; or

 

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(iii)           The Shared Services Agreement shall terminate or expire; or

 

(iv)            The Borrower shall cease to own or control, directly or
indirectly, 100% of the outstanding Equity Interests of each other Loan Party.

 

(n)             Termination of Licenses. The termination of the Borrower’s, any
Subsidiary’s, any Loan Party’s or any Provider’s, or the filing of any judicial
or administrative proceedings that could reasonably be expected to materially
and adversely affect any such Person’s, operating license granted by any
Governmental Authority or right to receive Medicaid or Medicare payments which,
in either case, could reasonably be expected to have a Material Adverse Effect.

 

(o)             Revocation Order. The Borrower, any Provider or any other Loan
Party attempts to revoke, terminate or otherwise alter any order (whether or not
revocable) established under the Depositary Agreement, any Government Depositary
Agreement, Control Agreement or other Account Control Agreement regarding the
transfer of funds on deposit in any Borrower Account, Provider Account or other
deposit account subject to an Account Control Agreement, without the prior
written consent of the Lender.

 

(p)             Overpayments. As of any date of determination, any Provider is
found to have been overpaid by any Governmental Authority by an amount equal to
10% or more of the Eligible Accounts as of such date during any period covered
by any audit conducted by the CMS or any state Governmental Authority and such
overpayment is not repaid, or reserved for in a manner reasonably acceptable to
the Lender, within 30 days of the earlier of receipt of notice or knowledge
thereof by such Provider or any Loan Party.

 

Section 11.2. Remedies Upon Event of Default.

Upon the occurrence of an Event of Default the following provisions shall apply:

 

(a)             Acceleration; Termination of Facilities.

 

(i)              Automatic. Upon the occurrence of an Event of Default specified
in Sections 11.1.(f) or 11.1.(g), the Commitment shall immediately and
automatically terminate and the principal of, and all accrued interest on, the
Loans, an amount equal to the Stated Amount of all Letters of Credit outstanding
as of the date of the occurrence of such Event of Default for deposit into the
Collateral Account pursuant to Section 11.5., and all of the other Obligations
shall become immediately and automatically due and payable without presentment,
demand, protest, or other notice of any kind, all of which are expressly waived
by the Borrower.

 

(ii)             Optional. If any other Event of Default shall exist, the Lender
may terminate the Commitment and/or declare the principal of, and accrued
interest on, the Loans, an amount equal to the Stated Amount of all Letters of
Credit outstanding as of the date of the occurrence of such Event of Default for
deposit into the Collateral Account pursuant to Section 11.5., and all of the
other Obligations to be immediately due

 

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and payable, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived by the Borrower.

 

(b)             Loan Documents. The Lender may exercise any and all of its
rights under any and all of the other Loan Documents.

 

(c)             Applicable Law. The Lender may exercise all other rights and
remedies it may have under any Applicable Law.

 

(d)             Appointment of Receiver. To the extent permitted by Applicable
Law, the Lender shall be entitled to the appointment of a receiver for the
assets and properties of the Borrower, the Subsidiaries and the other Loan
Parties, without notice of any kind whatsoever and without regard to the
adequacy of any security for the Obligations or the solvency of any party bound
for its payment, to take possession of all or any portion of the business
operations of the Borrower and its Subsidiaries and to exercise such power as
the court shall confer upon such receiver.

 

Section 11.3. Remedies Upon Default.

Upon the occurrence of a Default specified in Section 11.1.(g), the Commitment
shall immediately and automatically terminate.

 

Section 11.4. Allocation of Proceeds.

If an Event of Default shall exist and maturity of any of the Obligations has
been accelerated, all payments received by the Lender under any of the Loan
Documents, in respect of any principal of or interest on the Obligations or any
other amounts payable by the Borrower hereunder or thereunder, shall be applied
in the following order and priority:

 

(a)             amounts due to the Lender in respect of fees and expenses due
under the Fee Letter and 13.2.;

 

(b)             payments of interest on the Loans and Reimbursement Obligations;

 

(c)             payments of principal of the Loans, Reimbursement Obligations
and other Letter of Credit Liabilities; provided, however, to the extent that
any amounts available for distribution pursuant to this subsection are
attributable to the issued but undrawn amount of outstanding Letters of Credit,
such amounts shall be deposited into the Collateral Account;

 

(d)

payments of all other Obligations; and

 

(e)             any amount remaining after application as provided above, shall
be paid to the Borrower or whomever else may be legally entitled thereto.

 

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Section 11.5. Collateral Account.

As collateral security for the prompt payment in full when due of all Letter of
Credit Liabilities and the other Obligations, the Borrower hereby pledges and
grants to the Lender as provided herein, a security interest in all of its
right, title and interest in and to the Collateral Account and the balances from
time to time in the Collateral Account (including the investments and
reinvestments therein provided for below). The balances from time to time in the
Collateral Account shall not constitute payment of any Letter of Credit
Liabilities until applied by the Lender as provided herein. Anything in this
Agreement to the contrary notwithstanding, funds held in the Collateral Account
shall be subject to withdrawal only as provided in this Section. Amounts on
deposit in the Collateral Account shall be invested and reinvested by the Lender
in such Cash Equivalents as the Lender shall determine in its sole discretion.
All such investments and reinvestments shall be held in the name of and be under
the sole dominion and control of the Lender. The Lender shall exercise
reasonable care in the custody and preservation of any funds held in the
Collateral Account and shall be deemed to have exercised such care if such funds
are accorded treatment substantially equivalent to that which the Lender accords
other funds deposited with the Lender, it being understood that the Lender shall
not have any responsibility for taking any necessary steps to preserve rights
against any parties with respect to any funds held in the Collateral Account. If
a drawing pursuant to any Letter of Credit occurs on or prior to the expiration
date of such Letter of Credit, the Borrower authorizes the Lender to use the
monies deposited in the Collateral Account and proceeds thereof to make payment
to the beneficiary with respect to such drawing or the payee with respect to
such presentment. If an Event of Default exists, the Lender may, in its
discretion, liquidate any such investments and reinvestments and apply proceeds
thereof to the Obligations in accordance with Section 11.4. So long as no
Default or Event of Default exists, and to the extent amounts on deposit in or
credited to the Collateral Account exceed the aggregate amount of the Letter of
Credit Liabilities then due and owing, the Lender shall, from time to time, at
the request of the Borrower, deliver to the Borrower within 10 Business Days
after the Lender’s receipt of such request from the Borrower, against receipt
but without any recourse, warranty or representation whatsoever, such amount of
the credit balances in the Collateral Account as exceeds the aggregate amount of
the Letter of Credit Liabilities at such time. The Borrower shall pay to the
Lender from time to time such fees as the Lender normally charges for similar
services in connection with the Lender’s administration of the Collateral
Account and investments and reinvestments of funds therein.

 

Section 11.6. Performance by Lender.

If the Borrower or any Guarantor shall fail to perform any covenant, duty or
agreement contained in any of the Loan Documents, the Lender may, after notice
to such Loan Party, perform or attempt to perform such covenant, duty or
agreement on behalf of such Loan Party after the expiration of any cure or grace
periods set forth herein. In such event, such Loan Party shall, at the request
of the Lender, promptly pay any amount reasonably expended by the Lender in such
performance or attempted performance to the Lender, together with interest
thereon at the applicable Post-Default Rate from the date of such expenditure
until paid. Notwithstanding the foregoing, the Lender shall not have any
liability or responsibility whatsoever for the performance of any obligation of
the Borrower, any Guarantor or any other Loan Party under this Agreement or any
other Loan Document.

 

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Section 11.7. Rights Cumulative.

The rights and remedies of the Lender under this Agreement and each of the other
Loan Documents shall be cumulative and not exclusive of any rights or remedies
which it may otherwise have under Applicable Law. In exercising its rights and
remedies, the Lender may be selective and no failure or delay by the Lender in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.

 

ARTICLE XII. GUARANTY

Section 12.1. Guaranty.

Each of the Guarantors hereby absolutely, irrevocably and unconditionally
guaranties the due and punctual payment and performance when due, whether at
stated maturity, by acceleration or otherwise, of all of the following
(collectively referred to as the “Guarantied Obligations”): (a) all indebtedness
and obligations owing by the Borrower to the Lender under or in connection with
this Agreement and any other Loan Document, including without limitation, the
repayment of all principal of the Loans and all Reimbursement Obligations, and
the payment of all interest, Fees, charges, attorneys fees and other amounts
payable to the Lender hereunder or thereunder or in connection therewith;
(b) any and all extensions, renewals, modifications, amendments or substitutions
of the foregoing; (c) all expenses, including, without limitation, reasonable
attorneys’ fees and disbursements, that are incurred by the Lender in the
enforcement of any of the foregoing and (d) all other Obligations of the
Borrower.

 

Section 12.2. Guaranty of Payment and Not of Collection.

The guaranty by each Guarantor under this Article is a guaranty of payment, and
not of collection, and a debt of such Guarantor for its own account.
Accordingly, the Lender shall not be obligated or required before enforcing the
obligations of a Guarantor under this Article against such Guarantor: (a) to
pursue any right or remedy the Lender may have against the Borrower, any other
Loan Party or any other Person or commence any suit or other proceeding against
the Borrower, any other Loan Party or any other Person in any court or other
tribunal; (b) to make any claim in a liquidation or bankruptcy of the Borrower,
any other Loan Party or any other Person; or (c) to make demand of the Borrower,
any other Loan Party or any other Person or to enforce or seek to enforce or
realize upon any collateral security held by the Lender which may secure any of
the Guarantied Obligations.

 

Section 12.3. Guaranty Absolute.

Each Guarantor guarantees that the Guarantied Obligations will be paid strictly
in accordance with the terms of the documents evidencing the same, regardless of
any Applicable Law now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Lender with respect thereto. The obligations
of a Guarantor under this Article shall be absolute and unconditional in
accordance with their terms and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by,

 

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any circumstance or occurrence whatsoever, including without limitation, the
following (whether or not such Guarantor consents thereto or has notice
thereof):

 

(a)             (i) any change in the amount, interest rate or due date or other
term of any of the Guarantied Obligations, (ii) any change in the time, place or
manner of payment of all or any portion of the Guarantied Obligations, (iii) any
amendment or waiver of, or consent to the departure from or other indulgence
with respect to, any Loan Document, or any other document or instrument
evidencing or relating to any Guarantied Obligations, or (iv) any waiver,
renewal, extension, addition, or supplement to, or deletion from, or any other
action or inaction under or in respect of, any of the Loan Documents, or any
other documents, instruments or agreements relating to the Guarantied
Obligations or any other instrument or agreement referred to therein or
evidencing any Guarantied Obligations or any assignment or transfer of any of
the foregoing;

 

(b)             any lack of validity or enforceability of any of the Loan
Documents, or any other document, instrument or agreement referred to therein or
evidencing any Guarantied Obligations or any assignment or transfer of any of
the foregoing;

 

(c)             any furnishing to the Lender of any additional security for the
Guarantied Obligations, or any sale, exchange, release or surrender of, or
realization on, any Collateral;

 

(d)             any settlement or compromise of any of the Guarantied
Obligations, any security therefor, or any liability of any other party with
respect to the Guarantied Obligations, or any subordination of the payment of
the Guarantied Obligations to the payment of any other liability of the Borrower
or any other Loan Party;

 

(e)             any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to such
Guarantor, the Borrower, any other Loan Party or any other Person, or any action
taken with respect to any Guarantor’s obligations under this Article by any
trustee or receiver, or by any court, in any such proceeding;

 

(f)              any act or failure to act by the Borrower, any other Loan Party
or any other Person which may adversely affect such Guarantor’s subrogation
rights, if any, against the Borrower or any other Loan Party to recover payments
made in respect of a Guarantor’s obligations under this Article;

 

(g)             any nonperfection or impairment of any security interest or
other Lien on any Collateral securing in any way any of the Obligations;

 

(h)             any application of sums paid by the Borrower, any other Loan
Party or any other Person with respect to the liabilities of the Borrower to the
Lender, regardless of what liabilities of the Borrower remain unpaid;

 

(i)              any defect, limitation or insufficiency in the borrowing powers
of the Borrower or in the exercise thereof; or

 

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(j)              any other circumstance which might otherwise constitute a
defense available to, or a discharge of, a Loan Party hereunder.

 

Section 12.4. Action with Respect to Guarantied Obligations.

Except as otherwise expressly required under Section 13.6. or under any other
Loan Document, the Lender may, at any time and from time to time, without the
consent of, or notice to, any Guarantor and without discharging any Guarantor
from its obligations under this Article, take any and all actions described in
the immediately preceding Section and may otherwise: (a) amend, modify, alter or
supplement the terms of any of the Guarantied Obligations, including, but not
limited to, extending or shortening the time of payment of any of the Guarantied
Obligations or changing the interest rate that may accrue on any of the
Guarantied Obligations; (b) amend, modify, alter or supplement any Loan
Document; (c) sell, exchange, release or otherwise deal with all, or any part,
of any Collateral; (d) release any other Loan Party or other Person liable in
any manner for the payment or collection of any of the Guarantied Obligations;
(e) exercise, or refrain from exercising, any rights against the Borrower, any
other Loan Party or any other Person; and (f) apply any sum, by whomsoever paid
or however realized, to the Guarantied Obligations in such order as the Lender
shall elect.

 

Section 12.5. Waiver.

Each Guarantor, to the fullest extent permitted by Applicable Law, hereby waives
notice of any presentment, demand, protest or notice of any kind, and any other
act or thing, or omission or delay to do any other act or thing, which in any
manner or to any extent might vary the risk of such Guarantor or which otherwise
might operate to discharge such Guarantor from its obligations under this
Article.

 

Section 12.6. Inability to Accelerate.

If the Lender is prevented under Applicable Law or otherwise from demanding or
accelerating payment of any of the Guarantied Obligations by reason of any
automatic stay or otherwise, the Lender shall be entitled to receive from each
Guarantor, upon demand therefor, the sums which otherwise would have been due
had such demand or acceleration occurred.

 

Section 12.7. Reinstatement of Guarantied Obligations.

If claim is ever made on the Lender for repayment or recovery of any amount or
amounts received in payment or on account of any of the Guarantied Obligations,
and the Lender repays all or part of said amount by reason of (a) any judgment,
decree or order of any court or administrative body of competent jurisdiction,
or (b) any settlement or compromise of any such claim effected by the Lender
with any such claimant (including the Borrower or a trustee in bankruptcy for
the Borrower), then and in such event each Guarantor agrees that any such
judgment, decree, order, settlement or compromise shall be binding on it,
notwithstanding any revocation of any of such Guarantor’s obligations under this
Article or the cancellation of any of the Loan Documents, or any other
instrument evidencing any liability of the Borrower, and the Guarantors shall be
and remain liable to the Lender for the amounts so repaid or recovered to the
same extent as if such amount had never originally been paid to the Lender.

 

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Section 12.8. Subrogation.

Upon the making by any Guarantor of any payment under this Article for the
account of the Borrower, such Guarantor shall be subrogated to the rights of the
payee against the Borrower; provided, however, that such Guarantor shall not
enforce any right or receive any payment by way of subrogation or otherwise take
any action in respect of any other claim or cause of action such Guarantor may
have against the Borrower arising by reason of any payment or performance by
such Guarantor pursuant to this Article, unless and until all of the Guarantied
Obligations have been indefeasibly paid and performed in full. If any amount
shall be paid to such Guarantor on account of or in respect of such subrogation
rights or other claims or causes of action, such Guarantor shall hold such
amount in trust for the benefit of the Lender and shall forthwith pay such
amount to the Lender to be credited and applied against the Guarantied
Obligations, whether matured or unmatured, in accordance with the terms of this
Agreement or to be held by the Lender as collateral security for any Guarantied
Obligations existing.

 

Section 12.9. Subordination.

Each Guarantor hereby expressly covenants and agrees for the benefit of the
Lender that all obligations and liabilities of any other Loan Party to such
Guarantor of whatever description, including without limitation, all
intercompany receivables (collectively, the “Junior Claims”) shall be
subordinate and junior in right of payment to all Guarantied Obligations. If an
Event of Default shall exist, then no Guarantor shall accept any direct or
indirect payment (in cash, property, securities by setoff or otherwise) from any
other Loan Party on account of or in any manner in respect of any Junior Claim
until all of the Guarantied Obligations have been indefeasibly paid in full.

 

Section 12.10. Avoidance Provisions.

It is the intent of the Guarantors and the Lender that in any proceeding of the
types described in Section 11.1.(f) or (g), as applicable, a Guarantor’s maximum
obligation under this Article shall equal, but not exceed, the maximum amount
which would not otherwise cause the obligations of such Guarantor under this
Article (or any other obligations of such Guarantor to the Lender) to be
avoidable or unenforceable against such Guarantor in such proceeding as a result
of Applicable Law, including without limitation, (a) Section 548 of the
Bankruptcy Code of 1978, as amended (the “Bankruptcy Code”) and (b) any state
fraudulent transfer or fraudulent conveyance act or statute applied in such
Proceeding, whether by virtue of Section 544 of the Bankruptcy Code or
otherwise. The Applicable Laws under which the possible avoidance or
unenforceability of the obligations of such Guarantor hereunder (or any other
obligations of such Guarantor to the Lender) shall be determined in any such
Proceeding are referred to as the “Avoidance Provisions”. Accordingly, to the
extent that the obligations of a Guarantor under this Article would otherwise be
subject to avoidance under the Avoidance Provisions, the maximum Guarantied
Obligations for which such Guarantor shall be liable hereunder shall be reduced
to that amount which, as of the time any of the Guarantied Obligations are
deemed to have been incurred under the Avoidance Provisions, would not cause the
obligations of such Guarantor under this Article (or any other obligations of
such Guarantor to the Lender), to be subject to avoidance under the Avoidance
Provisions. This Section is intended solely to preserve

 

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the rights of the Lender under this Article to the maximum extent that would not
cause the obligations of a Guarantor under this Article to be subject to
avoidance under the Avoidance Provisions, and no Guarantor nor any other Person
shall have any right or claim under this Section as against the Lender that
would not otherwise be available to such Person under the Avoidance Provisions.

 

Section 12.11. Information.

Each Guarantor assumes all responsibility for being and keeping itself informed
of the financial condition of the Borrower and the other Guarantors, and of all
other circumstances bearing upon the risk of nonpayment of any of the Guarantied
Obligations and the nature, scope and extent of the risks that such Guarantor
assumes and incurs under this Article, and agrees that the Lender shall not have
any duty whatsoever to advise any Guarantor of information regarding such
circumstances or risks.

 

Section 12.12. Termination.

The obligations of a Guarantor under this Article shall remain in full force and
effect until indefeasible payment in full of the Guarantied Obligations and the
other Obligations and the termination or cancellation of this Agreement.

 

Section 12.13. Joint and Several Obligations.

THE OBLIGATIONS OF THE GUARANTORS UNDER THIS ARTICLE SHALL BE JOINT AND SEVERAL,
AND ACCORDINGLY, EACH GUARANTOR CONFIRMS THAT IT IS LIABLE FOR THE FULL AMOUNT
OF THE “GUARANTIED OBLIGATIONS” AND ALL OF THE OBLIGATIONS AND LIABILITIES OF
EACH OF THE OTHER GUARANTORS UNDER THIS ARTICLE.

 

ARTICLE XIII. MISCELLANEOUS

Section 13.1. Notices.

Unless otherwise provided herein, communications provided for hereunder shall be
in writing and shall be mailed, telecopied or delivered as follows:

 

If to the Borrower or a Guarantor:

 

Five Star Quality Care, Inc.

400 Centre Street

Newton, MA 02458

Attn: Bruce J. Mackey, Jr., Treasurer

Telephone:

(617) 796-8387

Telecopy:

(617) 969-5730

 

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If to the Lender:

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, NC 28288

Attn: David M. Blackman

Telephone:

(704) 374-6272

Telecopy:

(704) 383-6205

 

or, as to each party at such other address as shall be designated by such party
in a written notice to the other party delivered in compliance with this
Section. All such notices and other communications shall be effective (i) if
mailed, when received; (ii) if telecopied, when transmitted; or (iii) if hand
delivered or sent by overnight courier, when delivered. Notwithstanding the
immediately preceding sentence, all notices or communications to the Lender
under Article II. shall be effective only when actually received. The Lender
shall not shall incur any liability to the Borrower for acting upon any
telephonic notice referred to in this Agreement which the Lender believes in
good faith to have been given by a Person authorized to deliver such notice or
for otherwise acting in good faith hereunder. Failure of a Person designated to
get a copy of a notice to receive such copy shall not affect the validity of
notice properly given to any other Person.

 

Section 13.2. Expenses.

The Borrower agrees (a) subject to the terms of the Fee Letter, to pay or
reimburse the Lender for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of, and
any amendment, supplement or modification to, any of the Loan Documents
(including due diligence expenses and travel expenses relating to closing), and
the consummation of the transactions contemplated thereby, including the
reasonable fees and disbursements of counsel to the Lender, (b) to pay or
reimburse the Lender for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under the Loan Documents,
including the reasonable fees and disbursements of its counsel, (c) to pay, and
indemnify and hold harmless the Lender from any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any failure
to pay or delay in paying, documentary, stamp, excise and other similar taxes,
if any, which may be payable or determined to be payable in connection with the
execution and delivery of any of the Loan Documents, or consummation of any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, any Loan Document and (d) to the extent not already covered by any
of the preceding subsections, to pay or reimburse the Lender for all its costs
and expenses incurred in connection with any bankruptcy or other proceeding of
the type described in Sections 11.1.(f) or 11.1.(g), including the reasonable
fees and disbursements of the Lender’s counsel, whether such fees and expenses
are incurred prior to, during or after the commencement of such proceeding or
the confirmation or conclusion of any such proceeding. If the Borrower shall
fail to pay any amounts required to be paid by it pursuant to this Section, the
Lender may

 

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pay such amounts on behalf of the Borrower and either deem the same to be Loans
outstanding hereunder or otherwise Obligations owing hereunder.

 

Section 13.3. Setoff.

In addition to any rights now or hereafter granted under Applicable Law and not
by way of limitation of any such rights, the Lender and each Participant is
hereby authorized by the Borrower and each Guarantor, at any time or from time
to time during the continuance of an Event of Default, without prior notice to
the Borrower, to any Guarantor or to any other Person, any such notice being
hereby expressly waived to the extent permitted by Applicable Law, but in the
case of a Participant subject to receipt of the prior written consent of the
Lender exercised in its sole discretion, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or unmatured)
and any other indebtedness at any time held or owing by the Lender or any
affiliate of the Lender, to or for the credit or the account of such Loan Party
against and on account of any of the Obligations, irrespective of whether or not
any or all of the Loans and all other Obligations have been declared to be, or
have otherwise become, due and payable as permitted by Section 11.2., and
although such obligations shall be contingent or unmatured. Promptly following
any such set-off the Lender shall notify the Borrower thereof and of the
application of such set-off, provided that the failure to give such notice shall
not invalidate such set-off.

 

Section 13.4. Litigation; Jurisdiction; Other Matters; Waivers.

(a)             EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY
BETWEEN OR AMONG THE BORROWER, THE GUARANTORS AND THE LENDER WOULD BE BASED ON
DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND WOULD RESULT IN DELAY AND
EXPENSE TO THE PARTIES. ACCORDINGLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE LENDER, THE BORROWER AND THE GUARANTORS HEREBY WAIVES ITS RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR
TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR BY REASON OF ANY
OTHER SUIT, CAUSE OF ACTION OR DISPUTE WHATSOEVER BETWEEN OR AMONG THE BORROWER,
THE GUARANTORS AND THE LENDER OF ANY KIND OR NATURE RELATING TO ANY OF THE LOAN
DOCUMENTS.

 

(b)             EACH OF THE BORROWER, THE GUARANTORS AND THE LENDER HEREBY
AGREES THAT THE FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
ANY NEW YORK STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK, NEW YORK, SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN OR AMONG THE BORROWER, THE GUARANTORS AND LENDER PERTAINING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR TO ANY
MATTER ARISING HEREFROM OR THEREFROM. THE BORROWER, THE GUARANTORS AND THE
LENDER EXPRESSLY SUBMIT AND

 

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CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN
SUCH COURTS WITH RESPECT TO SUCH CLAIMS OR DISPUTES. EACH PARTY FURTHER WAIVES
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION
OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
AN INCONVENIENT FORUM, AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME. THE
CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
BRINGING OF ANY ACTION BY THE LENDER OR THE ENFORCEMENT BY THE LENDER OF ANY
JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.

 

(c)             THE PROVISIONS OF THIS SECTION HAVE BEEN CONSIDERED BY EACH
PARTY WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL
CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE LOANS AND ALL OTHER
AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS, THE TERMINATION OR
EXPIRATION OF ALL LETTERS OF CREDIT AND THE TERMINATION OF THIS AGREEMENT.

 

Section 13.5. Successors and Assigns.

(a)             The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, except that neither the Borrower nor any Guarantor may assign
or otherwise transfer any of its rights or obligations under this Agreement
without the prior written consent of the Lender and any such assignment or other
transfer to which the Lender has not so consented shall be null and void.

 

(b)             The Lender may make, carry or transfer Loans at, to or for the
account of any of its branch offices or the office of an affiliate of the Lender
except to the extent such transfer would result in increased costs to the
Borrower.

 

(c)             The Lender may at any time grant to one or more banks or other
financial institutions (each a “Participant”) participating interests in the
Commitment or the Obligations. Except as otherwise provided in Section 13.3., no
Participant shall have any rights or benefits under this Agreement or any other
Loan Document. In the event of any such grant by the Lender of a participating
interest to a Participant, the Lender shall remain responsible for the
performance of its obligations hereunder. Any agreement pursuant to which the
Lender may grant such a participating interest shall provide that the Lender
shall retain the sole right and responsibility to enforce the obligations of the
Borrower and the Guarantors hereunder including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement; provided, however, the Lender may agree with the Participant that it
will not, without the consent of the Participant, agree to (i) increase, or
extend the term or extend the time or waive any requirement for the reduction or
termination of, the Commitment, (ii) extend the date fixed for the payment of
principal of or interest on the Loans, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon
or (v) release any Guarantor (except as otherwise permitted under
Section 8.12.(c)).

 

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(d)             The Lender may with the prior consent of the Borrower (which
consent shall not be unreasonably withheld), assign to one or more banks or
other financial institutions (each an “Assignee”) all or a portion of the
Obligations and the Lender’s other rights or obligations under this Agreement
and the other Loan Documents; provided, however, no such consent by the Borrower
shall be required in the case of any assignment to an affiliate of the Lender or
if a Default or Event of Default shall exist.

 

(e)             In addition to the assignments and participations permitted
under the foregoing provisions of this Section, the Lender may assign and pledge
all or any portion of its Loans and the Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank, and such Loans and Note shall be fully
transferable as provided therein. No such assignment shall release the Lender
from its obligations hereunder.

 

(f)              The Lender may furnish any information concerning the Borrower,
any other Loan Party or any of their respective Subsidiaries in the possession
of the Lender from time to time to Assignees and Participants (including
prospective Assignees and Participants) subject to compliance with Section 13.8.

 

Section 13.6. Amendments; Waivers.

Except as otherwise expressly provided in this Agreement, any consent or
approval required or permitted by this Agreement or any other Loan Document to
be given by the Lender may be given, and any term of this Agreement or of any
other Loan Document may be amended, and the performance or observance by the
Borrower or any other Loan Party or any Subsidiary of any terms of this
Agreement or such other Loan Document or the continuance of any Default or Event
of Default may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of the Lender (and, in the case of an amendment to any Loan Document, the
written consent of each Loan Party a party thereto). No waiver shall extend to
or affect any obligation not expressly waived or impair any right consequent
thereon and any amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose set forth therein. No course of
dealing or delay or omission on the part of the Lender in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. Any Event
of Default occurring hereunder shall continue to exist until such time as such
Event of Default is waived in writing in accordance with the terms of this
Section, notwithstanding any attempted cure or other action by the Borrower, any
other Loan Party or any other Person subsequent to the occurrence of such Event
of Default. Except as otherwise explicitly provided for herein or in any other
Loan Document, no notice to or demand upon the Borrower shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.

 

Section 13.7. Nonliability of Lender.

The relationship between the Borrower and the Lender shall be solely that of
borrower and lender. The Lender shall not shall have any fiduciary
responsibilities to the Borrower or any other Loan Party and no provision in
this Agreement or in any of the other Loan Documents, and

 

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no course of dealing between the parties hereto, shall be deemed to create any
fiduciary duty owing by the Lender to the Borrower, any Subsidiary or any other
Loan Party. The Lender does not undertake any responsibility to the Borrower or
any other Loan Party to review or inform the Borrower or any other Loan Party of
any matter in connection with any phase of the business or operations of the
Borrower or any other Loan Party.

 

Section 13.8. Confidentiality.

The Lender shall use reasonable efforts to assure that information about the
Borrower, the other Loan Parties and other Subsidiaries, and their operations,
affairs and financial condition, not generally disclosed to the public, which is
furnished to the Lender pursuant to the provisions of this Agreement or any
other Loan Document, is used only for the purposes of this Agreement and the
other Loan Documents and shall not be divulged to any Person other than the
Lender and its agents and employees who are actively and directly participating
in the evaluation, administration or enforcement of the Loan Documents and other
transactions between the Lender and the Borrower, but in any event the Lender
may make disclosure: (a) to any of its affiliates (provided they shall be
notified of the confidential nature of the information); (b) as reasonably
requested by any bona fide Assignee, Participant or other transferee in
connection with the contemplated transfer of any portion of the Commitment or
participations therein as permitted hereunder (provided they shall agree to keep
such information confidential in accordance with the terms of this Section);
(c) as required or requested by any Governmental Authority or representative
thereof or pursuant to legal process or in connection with any legal
proceedings; (d) to the Lender’s independent auditors and other professional
advisors (provided they shall be notified of the confidential nature of the
information); (e) while an Event of Default exists, to any other Person, in
connection with the exercise by the Lender of its rights or remedies hereunder
or under any of the other Loan Documents; (f) upon the Borrower’s prior consent
(which consent shall not be unreasonably withheld), to any contractual
counter-parties to any swap or similar hedging agreement or to any rating
agency; and (g) to the extent such information (x) becomes publicly available
other than as a result of a breach of this Section or (y) becomes available to
the Lender on a nonconfidential basis from a source other than the Borrower or
any Affiliate. The parties hereto acknowledge that information provided to the
Lender in connection with the transactions described in this Agreement may
contain confidential patient information. The Borrower shall cause any such
information to be clearly and conspicuously marked with a legend to the effect
of “Contains Confidential Patient Information.” Without limiting the other
provisions of this Section, the Lender agrees to comply with all Applicable Laws
regarding confidential patient information, if any, it receives in connection
with the transactions described in this Agreement.

 

Section 13.9. Indemnification.

The Borrower shall and hereby agrees to indemnify, defend and hold harmless the
Lender, any affiliate of the Lender, and their respective directors, officers,
shareholders, agents, employees and counsel (each referred to herein as an
“Indemnified Party”) from and against any and all of the following
(collectively, the “Indemnified Costs”): losses, costs, claims, damages,
liabilities, deficiencies, judgments or expenses of every kind and nature
incurred by an Indemnified Party in connection with, arising out of, or by
reason of, any suit, cause of action, claim, arbitration, investigation or
settlement, consent decree or other proceeding (the foregoing

 

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referred to herein as an “Indemnity Proceeding”) which is in any way related
directly or indirectly to: (i) this Agreement or any other Loan Document or the
transactions contemplated thereby; (ii) the making of any Loans or issuance of
Letters of Credit hereunder; (iii) any actual or proposed use by the Borrower of
the proceeds of the Loans or Letters of Credit; (iv) the Lender’s entering into
this Agreement; (v) the fact that the Lender has established the credit facility
evidenced hereby in favor of the Borrower; (vi) the fact that the Lender is a
creditor of the Borrower and has or is alleged to have information regarding the
financial condition, strategic plans or business operations of the Borrower and
the Subsidiaries; (vii) the fact that the Lender is a material creditor of the
Borrower and is alleged to influence directly or indirectly the business
decisions or affairs of the Borrower and the Subsidiaries or their financial
condition; (viii) the exercise of any right or remedy the Lender may have under
this Agreement or the other Loan Documents; (ix) any violation or non-compliance
by the Borrower or any Subsidiary of any Applicable Law (including any
Environmental Law) including, but not limited to, any Indemnity Proceeding
commenced by (A) the Internal Revenue Service or state taxing authority or
(B) any Governmental Authority or other Person under any Environmental Law,
including any Indemnity Proceeding commenced by a Governmental Authority or
other Person seeking remedial or other action to cause the Borrower or its
Subsidiaries (or its respective properties) (or the Lender as successor to the
Borrower) to be in compliance with such Environmental Laws; (x) any civil
penalty or fine assessed by the OFAC against, and all reasonable costs and
expenses (including counsel fees and disbursements) incurred in connection with
defense thereof, by the Lender as a result conduct of the Borrower or any other
Loan Party that violates a sanction enforced by the OFAC; (xi) any dispute,
claim, set-off or defense to the payment, in whole or in part, of any Account of
a Loan Party (including, without limitation, a defense based on such Account not
being a legal, valid and binding obligation) or any other claim resulting from
the services or merchandise related to such Account or the furnishing or failure
to furnish such services or merchandise or relating to collection activities
with respect to such Account (if such collection activities were performed by a
Provider or any of its Affiliates); or (xii) the commingling by any Provider or
the Borrower of Collections at any time with other funds of such Provider or any
other Provider; provided, however, that the Borrower shall not be obligated to
indemnify any Indemnified Party for any acts or omissions of such Indemnified
Party in connection with matters described in this subsection to the extent
arising from the gross negligence or willful misconduct of such Indemnified
Party, as determined by a court of competent jurisdiction in a final,
non-appealable judgment. The Borrower’s indemnification obligations under this
Section 13.9. shall apply to all Indemnity Proceedings arising out of, or
related to, the foregoing whether or not an Indemnified Party is a named party
in such Indemnity Proceeding. This indemnification shall apply to any Indemnity
Proceeding arising during the pendency of any bankruptcy proceeding filed by or
against the Borrower and/or any Subsidiary. An Indemnified Party may conduct its
own investigation and defense of, and may formulate its own strategy with
respect to, any Indemnity Proceeding covered by this Section and, as provided
above, all Indemnified Costs incurred by such Indemnified Party shall be
reimbursed by the Borrower. No action taken by legal counsel chosen by an
Indemnified Party in investigating or defending against any such Indemnity
Proceeding shall vitiate or in any way impair the obligations and duties of the
Borrower hereunder to indemnify and hold harmless each such Indemnified Party;
provided, however, that (i) if the Borrower is required to indemnify an
Indemnified Party pursuant hereto and (ii) the Borrower has provided evidence
reasonably satisfactory to such Indemnified Party that the Borrower has the
financial wherewithal to reimburse such

 

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Indemnified Party for any amount paid by such Indemnified Party with respect to
such Indemnified Proceeding, such Indemnified Party shall not settle or
compromise any such Indemnified Proceeding without the prior written consent of
the Borrower (which consent shall not be unreasonably withheld or delayed). If
and to the extent that the obligations of the Borrower under this Section are
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under Applicable Law. The Borrower’s obligations under this Section
shall survive any termination of this Agreement and the other Loan Documents and
the payment in full in cash of the Obligations, and are in addition to, and not
in substitution of, any other of their obligations set forth in this Agreement
or any other Loan Document to which it is a party.

 

Section 13.10. Termination; Survival.

At such time as (a) the Commitment has been terminated, (b) all Letters of
Credit have terminated or expired, (c) the Lender is no longer obligated under
this Agreement to make any Loans or issue any Letter of Credit and (d) all
Obligations (other than obligations which survive as provided in the following
sentence) have been paid and satisfied in full, this Agreement shall terminate.
The indemnities to which the Lender is entitled under the provisions of
Sections 3.7., 4.1., 4.4., 13.2. and 13.9. and any other provision of this
Agreement and the other Loan Documents, and the provisions of Section 13.4.,
shall continue in full force and effect and shall protect the Lender
notwithstanding any termination of this Agreement, or of the other Loan
Documents, against events arising after such termination as well as before.

 

Section 13.11. Severability of Provisions.

Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

Section 13.12. GOVERNING LAW.

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE.

 

Section 13.13. Counterparts.

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

 

Section 13.14. Limitation of Liability.

The Lender shall not, nor shall any affiliate, officer, director, employee,
attorney, or agent of the Lender, have any liability with respect to, and each
of the Borrower and the

 

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Guarantors hereby waives, releases, and agrees not to sue any of them upon, any
claim for any special, indirect, incidental, or consequential damages suffered
or incurred by the Borrower or any Guarantor in connection with, arising out of,
or in any way related to, this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the other Loan
Documents. Each of the Borrower and the Guarantors hereby waives, releases, and
agrees not to sue the Lender or any of the Lender’s affiliates, officers,
directors, employees, attorneys, or agents for punitive damages in respect of
any claim in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or financed hereby.

 

Section 13.15. Entire Agreement.

This Agreement and the other Loan Documents referred to herein embody the final,
entire agreement among the parties hereto and supersede any and all prior
commitments, agreements, representations, and understandings, whether written or
oral, relating to the subject matter hereof and thereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto.

 

Section 13.16. Construction.

The Lender, the Borrower and the Guarantors acknowledge that each of them has
had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by the Lender, the Borrower and the Guarantors.

 

 

[Signatures on Following Pages]

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Credit and Security
Agreement to be executed by their authorized officers all as of the day and year
first above written.

 

THE BORROWER:

 

FIVE STAR QUALITY CARE, INC.

 

 

By: /s/ Bruce J. Mackey Jr.          

 

Name: 

Bruce J. Mackey Jr.

 

Title: 

Chief Financial Officer, Treasurer and Assistant Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

[Signatures Continued on Next Page]

 

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[Signature Page to Credit and Security Agreement dated as of

May 9, 2005 with Five Star Quality Care, Inc.]

 

THE PROVIDERS:

 

ALLIANCE PHARMACY SERVICES, LLC

FIVE STAR QUALITY CARE-CA, INC.

FIVE STAR QUALITY CARE-IA, INC.

FIVE STAR QUALITY CARE-NE, INC.

THE HEARTLANDS RETIREMENT COMMUNITY – ELLICOTT CITY I, INC.

FIVE STAR QUALITY CARE-AZ, LLC

FIVE STAR QUALITY CARE-CA, LLC

FIVE STAR QUALITY CARE-COLORADO, LLC

FIVE STAR QUALITY CARE-CT, LLC

FIVE STAR QUALITY CARE-GA, LLC

FIVE STAR QUALITY CARE-IA, LLC

FIVE STAR QUALITY CARE-MO, LLC

FIVE STAR QUALITY CARE-NE, LLC

FIVE STAR QUALITY CARE-WI, LLC

FIVE STAR QUALITY CARE-WY, LLC

FIVE STAR QUALITY CARE-FL, LLC

FIVE STAR QUALITY CARE-KS, LLC

FIVE STAR QUALITY CARE-MD, LLC

FIVE STAR QUALITY CARE-NC, LLC

FIVE STAR QUALITY CARE-VA, LLC

FS LAFAYETTE TENANT TRUST

FS LEISURE PARK TENANT TRUST

FS LEXINGTON TENANT TRUST

FS TENANT POOL I TRUST

FS TENANT POOL II TRUST

FS TENANT POOL III TRUST

FS TENANT POOL IV TRUST

MORNINGSIDE OF BELMONT, LLC

MORNINGSIDE OF GALLATIN, LLC

MORNINGSIDE OF SPRINGFIELD, LLC

FSQC FUNDING CO., LLC

FIVE STAR QUALITY CARE-CA II, LLC

FIVE STAR QUALITY CARE TRUST

FS TENANT HOLDING COMPANY TRUST

 

By: /s/ Bruce J. Mackey Jr.          

 

Name: 

Bruce J. Mackey Jr.

 

Title: 

Chief Financial Officer, Treasurer and Assistant Secretary

 

[Signatures Continued on Next Page]

 

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[Signature Page to Credit and Security Agreement dated as of

May 9, 2005 with Five Star Quality Care, Inc.]

 

THE PROVIDERS (cont.):

 

MORNINGSIDE OF BELLGRADE, RICHMOND, LLC

MORNINGSIDE OF CHARLOTTESVILLE, LLC

MORNINGSIDE OF NEWPORT NEWS, LLC

MORNINGSIDE OF SKIPWITH-RICHMOND, LLC

 

By:

LifeTrust America, Inc., its Member

 

 

By: /s/ Bruce J. Mackey Jr.          

 

Name: 

Bruce J. Mackey Jr.

 

Title: 

Chief Financial Officer, Treasurer and Assistant Secretary

 

MORNINGSIDE OF ALABAMA, L.P.

MORNINGSIDE OF ANDERSON, L.P.

MORNINGSIDE OF ATHENS, LIMITED PARTNERSHIP

MORNINGSIDE OF COLUMBUS, L.P.

MORNINGSIDE OF DALTON, LIMITED PARTNERSHIP

MORNINGSIDE OF DECATUR, L.P.

MORNINGSIDE OF EVANS, LIMITED PARTNERSHIP

MORNINGSIDE OF GREENWOOD, L.P.

MORNINGSIDE OF KENTUCKY, LIMITED PARTNERSHIP

 

By:

LifeTrust America, Inc., its General Partner

 

 

By: /s/ Bruce J. Mackey Jr.          

 

Name: 

Bruce J. Mackey Jr.

 

Title: 

Chief Financial Officer, Treasurer and Assistant Secretary

 

 

[Signatures Continued on Next Page]

 

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[Signature Page to Credit and Security Agreement dated as of

May 9, 2005 with Five Star Quality Care, Inc.]

 

THE LENDER:

 

WACHOVIA BANK, NATIONAL ASSOCIATION

 

 

By: /s/ David Blackman          

 

Name: 

David Blackman

 

Title: 

Managing Director

 

Commitment Amount:

 

$25,000,000

 

 

 

 

 

 

 

 

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[The following schedules and exhibits have been omitted and will be
supplementally furnished to the Securities and Exchange Commission upon
request:]

 

SCHEDULE 7.1.(b)

Ownership Structure

 

SCHEDULE 7.1.(f)

Leases

 

SCHEDULE 7.1.(g)

Existing Indebtedness

SCHEDULE 7.1.(h)

Litigation

 

SCHEDULE 7.1.(cc)

Deposit Accounts

 

 

EXHIBIT E

Form of Opinion of Counsel

 

EXHIBIT K

Form of Depositary Agreement

 

EXHIBIT L

Form of Government Depositary Agreement

EXHIBIT M

Form of Collateral Assignment of Payments

 

 

 

--------------------------------------------------------------------------------

 

 

SCHEDULE 1.1. (a)

 

Material Providers

 

Five Star Quality Care-AZ, LLC

Five Star Quality Care-CA, LLC

Five Star Quality Care-Colorado, LLC

Five Star Quality Care-CT, LLC

Five Star Quality Care-GA, LLC

Five Star Quality Care-IA, LLC

Five Star Quality Care-MO, LLC

Five Star Quality Care-NE, LLC

Five Star Quality Care-WI, LLC

Five Star Quality Care-WY, LLC

Five Star Quality Care-IA, Inc.

Five Star Quality Care-NE, Inc.

FS Tenant Pool I Trust

FS Tenant Pool II Trust

FS Tenant Pool III Trust

FS Tenant Pool IV Trust

FS Lafayette Tenant Trust

FS Lexington Tenant Trust

FS Leisure Park Tenant Trust

Alliance Pharmacy Services LLC

 

 

 

--------------------------------------------------------------------------------

 

 

EXHIBIT A

 

FORM OF NOTICE OF BORROWING

 

____________, 200_

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, North Carolina 28288-0172

Attention: David M. Blackman

 

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as “Guarantors”, and Wachovia Bank, National Association (the
“Lender”). Capitalized terms used herein, and not otherwise defined herein, have
their respective meanings given them in the Credit Agreement.

 

1.

Pursuant to Section 2.1.(b) of the Credit Agreement, the Borrower hereby
requests that the Lender make a Loan to the Borrower in a principal amount equal
to $___________________.

 

2.

The Borrower requests that such Loan be made available to the Borrower on
____________, 200_.

 

3.

The Borrower hereby requests that the such Loan be of the following Type:

 

[Check one box only]

 

[ballot.jpg]

Base Rate Loan

 

[ballot.jpg]

LIBOR Loan, with an initial Interest Period for a duration of:

 

[Check one box only]

[ballot.jpg]

1 week

 

[ballot.jpg]

1 month

 

[ballot.jpg]

3 months

 

[ballot.jpg]

6 months

 

[ballot.jpg]

12 months (if available)

 

 

4.

The proceeds of such Loan will be used for the following purpose:
_____________________________________________________
_____________________________________________________.

 

A-1

 

--------------------------------------------------------------------------------

 

 

5.

The Borrower requests that the proceeds of Loan be made available to the
Borrower by ____________________________.

 

The Borrower hereby certifies to the Lender that as of the date hereof and as of
the date of the making of the requested Loan and after giving effect thereto,
(a) no Default or Event of Default exists or shall exist, and (b) the
representations and warranties made or deemed made by each Loan Party in the
Loan Documents to which any of them is a party are and shall be true and correct
in all material respects, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such earlier
date). In addition, the Borrower certifies to the Lender that all conditions to
the making of the requested Loan contained in Article VI. of the Credit
Agreement will have been satisfied (or waived in accordance with the applicable
provisions of the Loan Documents) at the time such Loan is made.

 

If notice of the requested Loan was previously given by telephone, this notice
is to be considered the written confirmation of such telephone notice required
by Section 2.1.(b) of the Credit Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice
of Borrowing as of the date first written above.

 

FIVE STAR QUALITY CARE, INC.

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

 

A-2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT B

 

FORM OF NOTICE OF CONTINUATION

 

____________, 200_

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, North Carolina 28288-0172

Attention: David M. Blackman

 

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as “Guarantors”, and Wachovia Bank, National Association (the
“Lender”). Capitalized terms used herein, and not otherwise defined herein, have
their respective meanings given them in the Credit Agreement.

 

Pursuant to Section 2.7. of the Credit Agreement, the Borrower hereby requests a
Continuation of a Loan under the Credit Agreement, and in that connection sets
forth below the information relating to such Continuation as required by such
Section of the Credit Agreement:

 

1.

The proposed date of such Continuation is ____________, 200__.

 

2.

The principal amount of the Loan subject to the requested Continuation is
$________________________ and was originally borrowed by the Borrower on
____________, 200_.

 

3.

The portion of such principal amount subject to such Continuation is
$__________________________.

 

4.

The current Interest Period for the Loan subject to such Continuation ends on
________________, 200_.

 

5.

The duration of the new Interest Period for such Loan or portion thereof subject
to such Continuation is:

 

[Check one box only]

[ballot.jpg]

1 week

 

[ballot.jpg]

1 month

 

[ballot.jpg]

3 months

 

[ballot.jpg]

6 months

 

[ballot.jpg]

12 months (if available)

 

 

B-1

 

--------------------------------------------------------------------------------

 

 

The Borrower hereby certifies to the Lender that as of the date hereof, as of
the proposed date of the requested Continuation, and after giving effect to such
Continuation, no Default or Event of Default exists or will exist.

 

If notice of the requested Continuation was given previously by telephone, this
notice is to be considered the written confirmation of such telephone notice
required by Section 2.7. of the Credit Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice
of Continuation as of the date first written above.

 

FIVE STAR QUALITY CARE, INC.

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

B-2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT C

 

FORM OF NOTICE OF CONVERSION

 

____________, 200_

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, North Carolina 28288-0172

Attention: David M. Blackman

 

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as “Guarantors”, and Wachovia Bank, National Association (the
“Lender”). Capitalized terms used herein, and not otherwise defined herein, have
their respective meanings given them in the Credit Agreement.

 

Pursuant to Section 2.8. of the Credit Agreement, the Borrower hereby requests a
Conversion of a Loan of one Type into a Loan of another Type under the Credit
Agreement, and in that connection sets forth below the information relating to
such Conversion as required by such Section of the Credit Agreement:

 

1.

The proposed date of such Conversion is ______________, 200_.

 

2.

The Loan to be Converted pursuant hereto is currently:

 

[Check one box only]

[ballot.jpg]

Base Rate Loan

 

[ballot.jpg]

LIBOR Loan

 

 

3.

The principal amount of the Loan subject to the requested Conversion is
$_____________________ and was originally borrowed by the Borrower on
____________, 200_.

 

4.

The portion of such principal amount subject to such Conversion is
$___________________.

 

 

C-1

 

--------------------------------------------------------------------------------

 

 

5.

The amount of such Loan to be so Converted is to be converted into a Loan of the
following Type:

 

[Check one box only]

 

[ballot.jpg]

Base Rate Loan

 

[ballot.jpg]

LIBOR Loan, with an initial Interest Period for a duration of:

 

[Check one box only]

[ballot.jpg]

1 week

 

[ballot.jpg]

1 month

 

[ballot.jpg]

3 months

 

[ballot.jpg]

6 months

 

[ballot.jpg]

12 months (if available)

 

The Borrower hereby certifies to the Lender that as of the date hereof and as of
the date of the requested Conversion and after giving effect thereto, (a) no
Default or Event of Default exists or will exist (provided the certification
under this clause (a) shall not be made in connection with the Conversion of a
Loan into a LIBOR Loan), and (b) the representations and warranties made or
deemed made by each Loan Party in the Loan Documents to which any of them is a
party are and shall be true and correct in all material respects, except to the
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such representations and warranties were true and
accurate on and as of such earlier date).

 

If notice of the requested Conversion was given previously by telephone, this
notice is to be considered the written confirmation of such telephone notice
required by Section 2.8. of the Credit Agreement.

 

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Notice
of Conversion as of the date first written above.

 

FIVE STAR QUALITY CARE, INC.

 

 

By:

 

 

Name:

 

Title:

 

 

 

 

C-2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT D

 

FORM OF NOTE

 

$25,000,000

May 9, 2005

 

 

FOR VALUE RECEIVED, the undersigned, FIVE STAR QUALITY CARE, INC., a corporation
formed under the laws of the State of Maryland (the “Borrower”), hereby promises
to pay to the order of Wachovia Bank, National Association (the “Lender”), One
Wachovia Center, 301 South College Street, Charlotte, North Carolina 28288, or
at such other address as may be specified in writing by the Lender to the
Borrower, the principal sum of TWENTY FIVE MILLION AND NO/100 DOLLARS
($25,000,000) (or such lesser amount as shall equal the aggregate unpaid
principal amount of Loans under the Credit Agreement (as herein defined)), on
the dates and in the principal amounts provided in the Credit Agreement, and to
pay interest on the unpaid principal amount owing hereunder, at the rates and on
the dates provided in the Credit Agreement.

 

The date, amount of each Loan, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof, provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing under the Credit Agreement or
hereunder in respect of the Loans.

 

This Note is the Note referred to in the Credit and Security Agreement dated as
of May 9, 2005 (as amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”), by and among the Borrower, the
Subsidiaries of the Borrower from time to time party to the Credit Agreement as
Guarantors, and the Lender. Capitalized terms used herein, and not otherwise
defined herein, have their respective meanings given them in the Credit
Agreement.

 

The Credit Agreement provides for the acceleration of the maturity of this Note
upon the occurrence of certain events and for prepayments of Loans upon the
terms and conditions specified therein.

 

Except as permitted by Section 13.5.(d) of the Credit Agreement, this Note may
not be assigned by the Lender to any other Person.

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE.

 

The Borrower hereby waives presentment for payment, demand, notice of demand,
notice of non-payment, protest, notice of protest and all other similar notices.

 

 

D-1

 

--------------------------------------------------------------------------------

 

 

Time is of the essence for this Note.

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Note under
seal as of the date first written above.

 

FIVE STAR QUALITY CARE, INC.

 

 

By:

 

 

Name:

 

Title:

 

 

 

D-2

 

--------------------------------------------------------------------------------

 

 

SCHEDULE OF LOANS

 

This Note evidences Loans made under the within-described Credit Agreement to
the Borrower, on the dates, in the principal amounts, bearing interest at the
rates and maturing on the dates set forth below, subject to the payments and
prepayments of principal set forth below:

 

 

Date of

Loan

Principal Amount of

Loan

 

Interest

Rate

Amount

Paid or

Prepaid

Unpaid Principal Amount

 

Notation

Made By

 

 

 

 

D-3

 

--------------------------------------------------------------------------------

 

 

EXHIBIT F

 

FORM OF COMPLIANCE CERTIFICATE

 

_______________, 200_

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, North Carolina 28288-0172

Attention: David M. Blackman

 

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as Guarantors, and Wachovia Bank, National Association (the
“Lender”). Capitalized terms used herein, and not otherwise defined herein, have
their respective meanings given them in the Credit Agreement.

 

Pursuant to Section 9.3. of the Credit Agreement, the undersigned hereby
certifies to the Lender as follows:

 

(1)             The undersigned is the _____________________ of the Borrower.

 

(2)             The undersigned has examined the books and records of the
Borrower and has conducted such other examinations and investigations as are
reasonably necessary to provide this Compliance Certificate.

 

(3)             No Default or Event of Default exists [if such is not the case,
specify such Default or Event of Default and its nature, when it occurred and
whether it is continuing and the steps being taken by the Borrower with respect
to such event, condition or failure].

 

(4)             The representations and warranties made or deemed made by the
Borrower and the other Loan Parties in the Loan Documents to which any is a
party, are true and correct in all material respects on and as of the date
hereof except to the extent that such representations and warranties expressly
relate solely to an earlier date (in which case such representations and
warranties shall have been true and accurate on and as of such earlier date).

 

(5)             Attached hereto as Schedule 1A are reasonably detailed
calculations establishing whether or not the Borrower and its Subsidiaries were
in compliance with the covenants contained in Section 10.1. of the Credit
Agreement.

 

 

F-1

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date
first above written.

 

 

 

Name:

Title:

 

 

 

F-2

 

--------------------------------------------------------------------------------

 

 

Schedule 1A

 

[Calculations to be Attached]

 

 

F-3

 

--------------------------------------------------------------------------------

 

 

EXHIBIT G

 

FORM OF ACCESSION AGREEMENT

 

THIS ACCESSION AGREEMENT dated as of ____________, 200__, executed and delivered
by ______________________, a _____________ (the “New Guarantor”), in favor of
WACHOVIA BANK, NATIONAL ASSOCIATION (the “Lender”).

 

WHEREAS, pursuant to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as Guarantors , and the Lender, the Lender has agreed to make
available to the Borrower certain financial accommodations on the terms and
conditions set forth in the Credit Agreement;

 

WHEREAS, the Borrower, the New Guarantor, and the existing Guarantors, though
separate legal entities, are mutually dependent on each other in the conduct of
their respective businesses as an integrated operation and have determined it to
be in their mutual best interests to obtain financing from the Lender through
their collective efforts;

 

WHEREAS, the New Guarantor acknowledges that it will receive direct and indirect
benefits from the Lender making such financial accommodations available to the
Borrower under the Credit Agreement and, accordingly, the New Guarantor is
willing to guarantee the Borrower’s obligations to the Lender on the terms and
conditions contained in the Credit Agreement and to grant to the Lender a
security interest in certain of its assets as provided in the Credit Agreement;
and

 

WHEREAS, the New Guarantor’s execution and delivery of this Agreement is a
condition to the Lender continuing to make such financial accommodations to the
Borrower.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the New Guarantor, the New Guarantor agrees
as follows:

 

Section 1. Accession. The New Guarantor hereby agrees that it is a “Guarantor”
under the Credit Agreement and assumes all obligations of a “Guarantor”
thereunder, all as if the New Guarantor had been an original signatory to the
Credit Agreement. Without limiting the generality of the foregoing, the New
Guarantor hereby:

 

(a)             irrevocably and unconditionally guarantees the due and punctual
payment and performance when due, whether at stated maturity, by acceleration or
otherwise, of all Guarantied Obligations;

 

(b)             makes to the Lender as of the date hereof each of the
representations and warranties made by a Guarantor under the Loan Documents and
agrees to be bound by each of the covenants contained in the Loan Documents
applicable to a Guarantor;

 

 

G-1

 

--------------------------------------------------------------------------------

 

 

(c)             collaterally assigns and pledges to the Lender, and grants to
the Lender a security interest in, all of the New Guarantor’s right, title and
interest in, to and under the Collateral as security for the Guarantied
Obligations; and

 

(d)             consents and agrees to each other provision set forth in the
Articles V. and XII. of the Credit Agreement.

 

Section 2. Provider Status. The New Guarantor [_____ is] [_____is not] (check as
applicable) to be considered to be a “Provider” for purposes of the Loan
Documents.

 

SECTION 3. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

 

Section 4. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have their respective defined meanings given them in the Credit
Agreement.

 

[Signatures on Next Page]

 

 

G-2

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the New Guarantor has caused this Accession Agreement to be
duly executed and delivered under seal by its duly authorized officers as of the
date first written above.

 

[NEW GUARANTOR]

 

 

By:

 

 

Name:

 

Title:

 

 

Address for Notices:
 

c/o Five Star Quality Care, Inc.

400 Centre Street

Newton, MA 02458

Attention: Bruce J. Mackey, Jr., Treasurer

Telecopy Number:

(617) 969-5730

Telephone Number:

(617) 796-8387

 

Accepted:

 

WACHOVIA BANK, NATIONAL ASSOCIATION

 

 

By:

 

 

Name:

 

Title:

 

 

 

G-3

 

--------------------------------------------------------------------------------

 

 

EXHIBIT H

 

FORM OF BORROWING BASE CERTIFICATE

 

_______________, 200_

 

 

Wachovia Bank, National Association

One Wachovia Center

301 South College Street

Mail Code: NC0172

Charlotte, North Carolina 28288-0172

Attention: David M. Blackman

Ladies and Gentlemen:

 

Reference is made to that certain Credit and Security Agreement dated as of
May 9, 2005 (as amended, restated, supplemented or otherwise modified from time
to time, the “Credit Agreement”), by and among Five Star Quality Care, Inc. (the
“Borrower”), the Subsidiaries of the Borrower from time to time party to the
Credit Agreement as Guarantors, and Wachovia Bank, National Association (the
“Lender”). Capitalized terms used herein, and not otherwise defined herein, have
their respective meanings given them in the Credit Agreement.

 

Pursuant to Section 9.4.(m) of the Credit Agreement, the undersigned hereby
certifies to the Lender as follows:

 

(1)

The undersigned is the _____________________ of the Borrower.

 

 

(2)

As of ______________, 20__, the Borrowing Base is as follows:

 

Eligible Accounts

 

$_____________

 

Total Borrowing Base

 

X .75

$_____________

 

 

(3)

All adjustments and calculations related to the amounts set forth in 1 above are
attached as Schedule 1 hereto.

 

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date
first above written.

 

 

Name:

Title:

 

 

H-1

 

--------------------------------------------------------------------------------

 

 

Schedule 1

 

[Calculations to be Attached]

 

 

H-2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT I

 

FORM OF NOTICE TO GOVERNMENTAL AUTHORITY

 

[Letterhead of the Provider]

 

[Date]

 

[Name and Address of Governmental Authority]

 

Re: Change of Account and Address

 

To Whom it May Concern:

 

Please be advised that we have opened a new bank account at [Lockbox Bank] and a
post-office box with respect to such bank account. Accordingly, until further
notice, we hereby request that:

 

All wire transfers be made directly into our account at:

 

[Lockbox Bank]

__________________

Account #_______________

ABA#_______________

Confirm Phone Number: _______________

Attention: _______________

 

All Explanations of Benefits, remittance advices and other forms of payment,
including checks, be made to our post office box located at:

 

__________________

__________________

Reference: _________

 

Thank you for your cooperation in this matter.

 

[NAME OF PROVIDER]

 

 

By:

[Authorized Officer]

 

 

I-1

 

--------------------------------------------------------------------------------

 

 

EXHIBIT J

 

FORM OF NOTICE TO NON-GOVERNMENTAL AUTHORITY

 

[Letterhead of the Provider]

 

[Date]

 

[Name and Address of Obligor]

 

Re: Change of Account and Address

 

To Whom it May Concern:

 

Please be advised that we are assigning all of our existing and future
receivables payable by you to us as collateral to Wachovia Bank, National
Association (the “Lender”). Accordingly, you are hereby directed to make:

 

All wire transfers directly to the following account:

 

__________________

__________________

Account #_______________

ABA#_______________

Confirm Phone Number: _______________

Attention: _______________

 

All Explanations of Benefits, remittance advices and other forms of payment,
including checks, to the following address:

 

__________________

__________________

Reference: _________

 

The foregoing directions shall apply to all existing receivables payable to us
and (until further written notice) to all receivables arising in the future and
may not be revoked except by a writing executed by the Lender. Please
acknowledge your receipt of this notice by signing the enclosed copy of this
letter and returning it in the enclosed envelope.

 

Thank you for your cooperation in this matter.

 

[NAME OF PROVIDER]

 

 

By:

[Authorized Officer]

 

M-1