Document:

exv10w22

 

Exhibit 10.22

SPECTRUM USE AND BUILD OUT AGREEMENT

     This SPECTRUM USE AND BUILD OUT AGREEMENT (this “Agreement”) is
made and entered into as of this 12th day of November, 2002, by and
among Servicios de Radiocomunicación Móvil de México S.A. de C.V., a
corporation incorporated under the laws of the United Mexican States
(“SRM”), Sistemas de Comunicaciones Troncales S.A. de C.V., a
corporation incorporated under the laws of the United Mexican States
(“Siscot”) and NII Holdings, Inc., a Delaware corporation (“NII” and,
collectively with SRM and Siscot, the “NII Parties”) and Nextel of
California, Inc., a Delaware corporation (“Nextel Cal”) and Nextel
License Holdings 2, Inc., a Delaware corporation (“Nextel 2” and,
collectively with Nextel Cal, the “Nextel Parties”). The NII Parties
and the Nextel Parties each are sometimes referred to hereinafter as
a “Party” and are referred to herein collectively as the ‘Parties.”

RECITALS

	A.	 	Nextel Cal and Nextel 2 operate specialized mobile
radio systems through the utilization of the frequency bands of
806-821/851-866 MHz (the “800 MHz Band”) in and around the
cities of San Diego, California and Imperial Valley, California,
United States of America (the “NCI Network”), pursuant to due
authorization by the United States Federal Communications
Commission (the “FCC”).
	 
	B.	 	SRM and Siscot have obtained concessions from the
Secretariat of Communications and Transportation of the United
Mexican States (Secretaría de Comunicaciones y Transportes) (the
“SCT”) to install, maintain, operate and exploit a public
network of specialized mobile radio service through the
utilization of the 800 MHz Band in a coverage area that includes
the cities of Tijuana, Baja California and Mexicali, Baja
California in the United Mexican States.
	 
	C.	 	SRM and Siscot, on the one hand, and Nextel Cal and
Nextel 2, on the other hand, have granted to each other a mutual
right to use and operate the frequencies described above
pursuant to the terms and conditions set forth in the Spectrum
Sharing Agreement.
	 
	D.	 	SRM and Siscot are wholly-owned subsidiaries of NII.
	 
	E.	 	NII and NII Holdings (Delaware), Inc. (“NII
Delaware”) are each debtors in cases pending under chapter 11 of
Title 11 of the United States Code in the United States
Bankruptcy Court for the District of Delaware (the “Bankruptcy
Court”), which cases are being jointly administered and have
been assigned Case No. 02-11505 (MFW).
	 
	F.	 	In connection with the restructuring of NII and NII
Delaware and the preparation and filing with the Bankruptcy
Court of a joint plan of reorganization of NII and NII Delaware
(the “Plan”), the NII Parties and the Nextel Parties each desire
to grant certain rights to the other for the consideration set
forth herein.

 

 

AGREEMENT

The Parties agree as follows:

	1.	 	Defined Terms. As used in this Agreement, the
following words have the meanings indicated below.

	 	a.	 	“Build Out” means that NII shall:

	 	(i)	 	construct an ESMR Network, mobile
switching center and cell sites to allow NII to provide
coverage for the Territory, as more specifically set forth
on Exhibit A;
	 
	 	(ii)	 	meet the Launch Criteria set forth on
Exhibit A;
	 
	 	(iii)	 	commence commercial digital service in
the Territory and convert the remaining 10 unregistered
spectrum channels to digital service and register such
channels with
the applicable governmental and/or regulatory authorities;
	 
	 	(iv)	 	be capable of providing to customers of
NCI and its subsidiaries roaming into the
Territory all of the services those customers can obtain
using the NDS ESMR
Network;
	 
	 	(v)	 	meet the technical criteria set forth on
Exhibit A; and
	 
	 	(vi)	 	obtain all governmental approvals
required in connection with the foregoing.

	 	b.	 	“COFETEL” means the Mexican Federal
Telecommunications Commission (Comisión Federal de
Telecomunicaciones).
	 
	 	c.	 	“Completion Date” means the date eighteen (18)
months after the Effective Date, the date by which the Build
Out of the ESMR Network in the Territory must be completed.
	 
	 	d.	 	“Effective Date” has the meaning given to such
term in the Plan.
	 
	 	e.	 	“ESMR Network” means a digital wide-area
network of specialized mobile radio base stations utilizing
iDEN technology to provide wireless communication services,
including voice, dispatch, messaging, interconnected
telephone and data services, using 800 MHz specialized mobile
radio frequencies.
	 
	 	f.	 	“Launch Criteria” means the criteria to be
followed by NII for the launch of the ESMR Network in the
Territory, as specifically set forth on Exhibit A.
	 
	 	g.	 	“NCI” means Nextel Communications, Inc., a
Delaware corporation.
	 
	 	h.	 	“NDS” means, individually, an NCI subsidiary
operating all or any portion of an ESMR
Network in the United States of America and “the NDS” means,
collectively, all of
NCI’s subsidiaries operating all or any
portion of an ESMR Network in the United
States of America.

2

 

	 	i.	 	“Sharing Zone” has the meaning given to such
term in the Spectrum Sharing Agreement.
	 
	 	j.	 	“Spectrum Default” means:

	 	(i)	 	any breach by SRM or Siscot of
their obligations under the Spectrum Sharing Agreement
past any cure period provided in the Spectrum Sharing
Agreement that results in the inability of any of the
Nextel Parties to have 100% availability of all
channels subject to this Agreement for a substantial
part of any period of ten (10) consecutive days, other
than as a result of an act or omission beyond the
control of any of the NII Parties;
	 
	 	(ii)	 	any termination of the Spectrum
Sharing Agreement except when such termination is (A)
caused by an act of SCT, COFETEL, the FCC or any
successor agency and is beyond the control of the NII
Parties or (B) for causes attributable to any of the
Nextel Parties;
	 
	 	(iii)	 	any termination of any of the
concessions or other licenses or permits granted to SRM
and Siscot by governmental authorities that are
necessary for the fulfillment of their obligations
under this Agreement and the Spectrum Sharing
Agreement, but it is not a Spectrum Default if the
breach or termination is caused by an act of the SCT,
COFETEL, the FCC or any successor agency or is beyond
the control of any of the NII Parties;
	 
	 	(iv)	 	the failure of SRM or Siscot to
transition the remaining ten (10) channels authorized
under the Spectrum Sharing Agreement for digital use
such that the Nextel Parties have 100% availability
thereof within eighteen (18) months from the Effective
Date, other than as a result of an act or omission
beyond the control of any of the NII Parties;
	 
	 	(v)	 	any departure from the “Required
Sites” referred to on Exhibit A-1 without the consent
of each of the Nextel Parties or any material departure
from the specifications described on Exhibit A-2 that
results in the inability of any of the Nextel Parties
to have 100% availability of all channels subject to
this Agreement for a substantial part of any period
of ten (10) consecutive days; and
	 
	 	(vi)	 	any other willful, reckless or
grossly negligent action or inaction by any of the NII
Parties that results in the inability of any of the
Nextel Parties to have 100% availability of all
channels subject to this Agreement for a substantial
part of any period of ten (10) consecutive days.

	 	k.	 	“Spectrum Sharing Agreement” means the Spectrum
Sharing Agreement by and among SRM, Siscot, Nextel Cal and
Nextel 2, dated as of March 5, 1999.
	 
	 	l.	 	“Territory” means the coverage territory
applicable to the Build Out as described on Exhibit A.

3

 

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

	2.	 	Waiver of Termination Rights.

	 	a.	 	Subject to Section 6(c) below, each of SRM and
Siscot hereby (i) forever waives any right either of them now
has or may later acquire to terminate the Spectrum Sharing
Agreement, or otherwise to terminate or limit the right to
use or operate frequencies in the Sharing Zone granted by SRM
and Siscot to Nextel Cal and Nextel 2 under the Spectrum
Sharing Agreement, and (ii) agrees to continue the Spectrum
Sharing Agreement to the maximum duration permitted by the
SCT and the FCC. Each of SRM and Siscot hereby agrees to take
all necessary steps to obtain and maintain any and SCT
concessions and any other governmental authorizations
necessary for the fulfillment of its obligations under this
Agreement and the Spectrum Sharing Agreement.
	 
	 	b.	 	Subject to Section 2(c) below, each of Nextel
Cal and Nextel 2 hereby (i) forever waives any right either
of them now has or may later acquire to terminate the
Spectrum Sharing Agreement, or otherwise to terminate or
limit the right to use or operate frequencies in the Sharing
Zone granted by Nextel Cal and Nextel 2 to SRM and Siscot and
(ii) agrees to continue the Spectrum Sharing Agreement to the
maximum duration permitted by the FCC and the SCT. Each of
Nextel Cal and Nextel 2 hereby agrees to take all necessary
steps to obtain and maintain any FCC licenses and any other
governmental authorizations necessary for the fulfillment of
its obligations under this Agreement and the Spectrum Sharing
Agreement.
	 
	 	c.	 	Notwithstanding the foregoing, the Nextel
Parties each shall retain the right to terminate the Spectrum
Sharing Agreement if, as a result of new technology
implemented by the Nextel Parties or NCI, the Nextel Parties
can no longer coordinate interference with the NII Parties on
the 800 MHz Band frequencies in the Sharing Zone.
Notwithstanding the provisions of Article TENTH of the
Spectrum Sharing Agreement, the Nextel Parties shall provide
written notice of their intent to terminate the Spectrum
Sharing Agreement pursuant to this Section 2(c) at least
twenty-four (24) months before the effective date of such
termination. If either or both of the Nextel Parties
terminate the Spectrum Sharing Agreement pursuant to this
Section 2(c), then the rights and obligations of the Parties
under this Agreement will be extinguished and this Agreement
will terminate.

	3.	 	Build Out Requirements. NII shall complete the
Build Out of the Territory no later than the Completion Date
and shall provide the Nextel Parties with written monthly
updates on the progress of the Build Out. The Build Out shall
be completed in accordance with:

	 	a.	 	the standards set forth on Exhibit A;
	 
	 	b.	 	to the extent not expressly set forth on
Exhibit A, the standards in effect and generally applicable
for NDS ESMR Network operations; and
	 
	 	c.	 	notwithstanding the foregoing, to the extent
required by applicable law, the standards set forth by the
SCT, COFETEL or any other governing body of the United
Mexican

4

 

	 	 	 	States for the operation of a digital wide-area network of
specialized mobile radio base stations in the Territory.

	4.	 	Additional Spectrum Channels. In the event that NII
obtains, acquires, manages, is licensed to or is granted the
concessions to additional spectrum channels in the Sharing
Zone, in addition to the remaining ten (10) channels authorized
under the Spectrum Sharing Agreement, NII shall promptly,
subject to the respective approvals of the SCT, COFETEL, and
the FCC, as required, convert such channels to digital service
and shall seek approval and register such channels as part of
the Spectrum Sharing Agreement with the applicable governmental
and/or regulatory authorities. NII shall use reasonable best
efforts to take the necessary measures and make the requisite
regulatory applications to include the additional channels in
the Spectrum Sharing Agreement.
	 
	5.	 	Payment. As consideration for the obligations of
the NII Parties set forth above, the Nextel Parties shall pay to
NII a total of $50 million (the “Payment”). The Nextel Parties
shall make the Payment as follows:

	 	a.	 	the Nextel Parties shall pay $25 million in
cash directly to NII on the Effective Date; and
	 
	 	b.	 	the Nextel Parties shall pay $25 million into
an escrow account at a commercial bank chosen by the mutual
agreement of the Parties (the “Escrow Agent”), to be
disbursed as set forth in an Escrow Agreement among NII, the
Nextel Parties and the Escrow Agent in the form attached to
this Agreement as Exhibit B.

	6.	 	Remedies.

	 	a.	 	If a Spectrum Default occurs, the NII Parties
shall pay to the Nextel Parties in cash as liquidated damages
and not as a penalty, the following amount:

	 	(i)	 	$50 million, if the Spectrum Default
occurs within 24 months after the Effective Date;
	 
	 	(ii)	 	$25 million if the Spectrum Default
occurs within 36 months, but later than 24 months, after
the Effective Date;
	 
	 	(iii)	 	$10 million if the Spectrum Default occurs within 48
months, but later than 36
months, after the Effective Date; and
	 
	 	(iv)	 	$0 if the Spectrum Default occurs later than 48 months after the Effective
Date.

	 	b.	 	The payment obligations of the NII Parties
under Section 6(a) are joint and several. The Nextel Parties
may pursue collection of the entire amount of the liquidated
damages from any one or more of the NII Parties without
seeking payment from any other NII Party.
	 
	 	c.	 	In addition to the remedies provided above, if
there is a breach of this Agreement by either Party the other
Party shall be entitled to pursue any other remedy available
at law

5

 

	 	 	 	or in equity, except that if a Spectrum Default has occurred
and any Nextel Party has sought, has been awarded and has
collected in full the liquidated damages owed by the NII
Parties pursuant to Section 6(a), the NII Parties shall have
the right to terminate the Spectrum Sharing Agreement without
further responsibility or obligation.

	7.	 	Coordination by Parent Companies. NII shall cause
the other NII Parties to perform their obligations under this
Agreement. NCI shall cause the Nextel Parties to perform their
obligations under this Agreement.
	 
	8.	 	Governing Law, Arbitration.

	 	a.	 	This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of
Virginia, except to the extent the laws of the United Mexican
States or United States of America supersede those of the
State of Virginia, in which case the laws of the United
Mexican States or the United States of America, whichever is
applicable, will control.
	 
	 	b.	 	All disputes arising out of or in connection
with this Agreement shall be settled through arbitration
pursuant to the Rules of Arbitration of the International
Chamber of Commerce (the “ICC Rules”) by three arbitrators
appointed in accordance with the ICC Rules in effect at the
time application is made to the International Chamber of
Commerce to commence arbitration. The language of the
arbitral proceedings shall be English. The place of
arbitration shall be Mexico City, Mexico. The expenses of the
arbitration, including attorneys’ fees, shall be borne by the
unsuccessful Party unless the arbitrators, by their award,
shall otherwise provide.

	9.	 	Force Majeure. Neither the Nextel Parties nor the
NIT Parties shall be deemed to be in default of or to have
breached any provision of this Agreement as a result of any
delay or failure in performance, beyond the reasonable control
of the Parties, resulting directly or indirectly from acts of
God, the binding order of any governmental or regulatory
authority, civil disturbances, wars, strikes, fires,
transportation contingencies or other catastrophes; provided,
however, that the NII Parties shall be deemed to be in default
for any delay or failure in performance resulting from a force
majeure event if the NII Parties arc not in compliance with
Section 11 of this Agreement. The Party claiming an event of
force majeure shall promptly notify the other Parties in
writing and provide full particulars of the cause or event and
the date of first occurrence thereof as soon as possible after
the event and also keep the other Parties informed of any
further developments. The Party so affected shall use its
commercially reasonable efforts to remove the cause of
non-performance, and the Parties shall resume performance
hereunder as soon as reasonably practicable and pursuant a
schedule to be mutually agreed upon by the Parties, unless this
Agreement has previously been terminated.
	 
	10.	 	Limitation of Liability. In no event will either
the NII Parties or the Nextel Parties be liable to the other
for any special, indirect, incidental or consequential damages
in connection with or otherwise arising out of this Agreement.

6

 

	11.	 	Insurance. NII shall obtain and keep in force
during the term of this Agreement insurance polices from a
reputable insurance company providing the NII Parties with
insurance coverage for the ESMR Network in the Territory,
including all towers, mobile switching centers, cell sites and
other equipment necessary for the construction and operation of
the ESMR Network in the Territory (the “Covered Network
Assets”), that is reasonably consistent with the levels of
insurance coverage customarily maintained for the operation of
a digital wide-area telecommunications network in Mexico. Any
insurance proceeds received by the NII Parties pursuant to the
foregoing insurance policies shall be used to build, rebuild,
repair or replace the affected Covered Network Assets.
	 
	12.	 	Notices. All communications, notices and consents
provided for herein shall be in writing and be given in person
or by means of telex, facsimile or other means of wire
transmission (with request for assurance of receipt in a manner
typical with respect to communications of that type), by
overnight courier or by mail, and shall become effective: (a)
on delivery if given in person; (b) on the date of transmission
if sent by telex, facsimile or other means of wire
transmission; provided, however, that transmission by one of
the other methods listed in this paragraph must be initiated on
the same day that the telex, facsimile or wire transmission is
sent; or (c) one (1) business day after delivery to a reputable
international overnight delivery service such as Federal
Express or United Parcel Service.

	 	 	 
	Notices must be addressed as follows:
	 	 	 
	 	 	 
	If to the NII Parties, to:	 	
NII Holdings, Inc.
	 	 	
10700 Parkridge Boulevard
	 	 	
Suite 600
	 	 	
Reston, Virginia 20191
	 	 	
Attn: Vice President Engineering
	 	 	
Facsimile Number: (703) 390-5110
	 	 	 
	with a copy to:	 	
NII Holdings, Inc.
	 	 	
10700 Parkridge Boulevard
	 	 	
Suite 600
	 	 	
Reston, Virginia 20191
	 	 	
Attn: General Counsel’s Office
	 	 	
Facsimile Number: (703) 547-5289
	 	 	 
	If to the Nextel Parties,	 	
Nextel of California, Inc. and Nextel License Holdings 2, Inc.
	to:	 	
c/o Nextel Communications, Inc.
	 	 	
2001 Edmund Halley Drive
	 	 	
Reston, Virginia 20191
	 	 	
Attn: Doug Smith, Vice President
	 	 	
Facsimile Number: (703) 433-8482

7

 

	 	 	 
	with a copy to:	 	
Nextel Communications, Inc.
	 	 	
2001 Edmund Halley Drive
	 	 	
Reston, Virginia 20191
	 	 	
Attn: Leonard J. Kennedy, General Counsel
	 	 	
Facsimile Number: (703) 433-4846

If any person or entity listed above changes its notice address
by notifying the other persons listed above in the manner set forth
above, then all future notices sent to that person must be sent to
the last address so designated.

	13.	 	Waiver. The failure of any Party to enforce any
condition or part of this Agreement at any time shall not be
construed as a waiver of that condition or part, nor shall it
forfeit any rights to future enforcement thereof.
	 
	14.	 	Assignment. This Agreement will be binding upon and
inure to the benefit of the permitted successors, heirs,
representatives and assigns of each Party hereto, but no rights,
obligations or liabilities of the Parties may be assigned
without the prior written consent of NII and the Nextel Parties,
except that the Nextel Parties may, without the prior written
consent of NII, assign any of its rights, obligations or
liabilities to a wholly-owned, direct or indirect subsidiary of
NCI.
	 
	15.	 	Severability. If any term, provision, covenant or
restriction of this Agreement is determined by the SCT, COFETEL,
the FCC or any other governmental authority with jurisdiction
over any of the Parties to be invalid, void or unenforceable
with respect to any of the Parties, then (a) such term,
provision, covenant or restriction shall remain in full force
and effect with respect to each other Party and the rights and
obligations of each other Party with respect to such term,
provision, covenant or restriction shall in no way be affected,
impaired or invalidated and (b) the remainder of the terms,
provisions, covenants and restrictions of this Agreement will
remain in full force and effect with respect to all of the
Parties and will in no way be affected, impaired or invalidated.
	 
	16.	 	Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original,
with the same effect as if the signatures on each such
counterpart were upon the same instrument.

[Remainder of Page Blank—Signature Pages Follow]

8

 

     The Parties have caused this Agreement to be signed as of the date first
written above.

	 	 	 
	
NEXTEL OF CALIFORNIA, INC.
	 	 	 
	
By:		/s/ Leonard J. Kennedy
	 	 	

	
Name:	 	Leonard J. Kennedy
	 	 	

	
Title:	 	Vice President
	 	 	

 

 

	 	 	 
	
NEXTEL LICENSE HOLDINGS 2, INC.
	 	 	 
	
By:	 	/s/ Leonard J. Kennedy
	 	 	

	
Name:	 	Leonard J. Kennedy
	 	 	

	
Title:	 	Vice President
	 	 	

 

 

	 	 	 
	
NII HOLDINGS, INC.
	 	 	 
	
By:	 	/s/ Robert Gilker
	 	 	

	
Name:	 	Robert Gilker
	 	 	

	
Title:	 	Vice President and General Counsel
	 	 	

 

 

	 	 	 
	
SERVICIOS DE RADIOCOMUNICACIÓN
MÓVIL DE MÉXICO S.A. DE C.V.
	 	 	 
	
By:	 	/s/ Robert Gilker
	 	 	

	
Name:	 	Robert Gilker
	 	 	

	
Title:	 	Attorney in Fact
	 	 	

 

 

	 	 	 
	
SISTEMAS DE COMUNICACIONES
TRONCALES S.A. DE C.V.
	 	 	 
	
By:	 	/s/ Robert Gilker
	 	 	

	
Name:	 	Robert Gilker
	 	 	

	
Title:	 	Attorney in Fact<PAGE>
                                                                 EXHIBIT 10.98

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                        AL U.S. DEVELOPMENT VENTURE, LLC

                      a Delaware limited liability company

                                December 23, 2002

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                   <C>                                                                                     <C>
ARTICLE I -           GENERAL PROVISIONS..........................................................................1
     Section 1.1           Organization...........................................................................1
     Section 1.2           Business of the Company................................................................1
     Section 1.3           Principal Place of Business............................................................1
     Section 1.4           Qualification in Other Jurisdictions...................................................2
     Section 1.5           Term...................................................................................2

ARTICLE II -          DEFINITIONS.................................................................................2
     Section 2.1           Definitions............................................................................2

ARTICLE III -         CAPITAL CONTRIBUTIONS......................................................................18
     Section 3.1           Initial and Mandatory Contributions of Members........................................18
     Section 3.2           Contributions for Project Costs.......................................................20
     Section 3.3           Additional Contributions of Capital...................................................22
     Section 3.4           Form of Contributions.................................................................23
     Section 3.5           No Right to Interest or Return of Capital.............................................23
     Section 3.6           No Third Party Rights.................................................................23
     Section 3.7           Limitations...........................................................................23
     Section 3.8           Financing.............................................................................24
     Section 3.9           Failure to Contribute Capital.........................................................25
     Section 3.10          Loss of Voting Power and Control by Defaulting Member.................................28
     Section 3.11          Third Party Loans.....................................................................28
     Section 3.12          Voluntary Loans.......................................................................28
     Section 3.13          AEW Member's Right to Audit Development Costs.........................................29
     Section 3.14          Repayment of Subdebt..................................................................29
     Section 3.15          AEW Member Contribution Cap...........................................................29

ARTICLE IV -          CAPITAL ACCOUNTS, ALLOCATIONS  OF INCOME AND LOSS..........................................30
     Section 4.1           Capital Accounts......................................................................30
     Section 4.2           Allocation of Net Profits.............................................................30
     Section 4.3           Allocations of Net Losses.............................................................30
     Section 4.4           Allocations If Insufficient Net Profits or Net Losses.................................31
     Section 4.5           Loss Limitation.......................................................................31
     Section 4.6           Minimum Gain Chargebacks and Nonrecourse Deductions...................................31
     Section 4.7           Qualified Income Offset...............................................................32
     Section 4.8           Tax Allocation:  Code Section 704(c)..................................................32
     Section 4.9           Distributions of Nonrecourse Liability Proceeds.......................................32
     Section 4.10          Intentionally Omitted.................................................................32
     Section 4.11          Other Allocation Provisions...........................................................33
     Section 4.12          No Deficit Restoration to Members.....................................................33
     Section 4.13          Timing of Allocations.................................................................33
</TABLE>
                                        i
<PAGE>

<TABLE>
<S>                  <C>                                                                                       <C>
ARTICLE V -           DISTRIBUTIONS..............................................................................33
     Section 5.1           General Provisions....................................................................33
     Section 5.2           Distributions of Distributable Cash...................................................33
     Section 5.3           Distributions From Capital Transactions...............................................34
     Section 5.4           Distributions Upon Liquidations.......................................................36

ARTICLE VI -          POWERS AND DUTIES..........................................................................36
     Section 6.1           General Responsibilities of Manager...................................................36
     Section 6.2           Budgets and Business Plans............................................................36
     Section 6.3           Implementation of Annual Business Plan................................................38
     Section 6.4           Authority of Manager..................................................................39
     Section 6.5           Approval Rights of the AEW Member.....................................................40
     Section 6.6           Other Business Activities of the Members..............................................40
     Section 6.7           Limitation of Liability...............................................................42
     Section 6.8           Policy Compliance Administrator.......................................................42
     Section 6.9           Prime Contacts at Sunrise.............................................................43
     Section 6.10          Obligations with Respect to SALI, SDI and Operator....................................43

ARTICLE VII -         LIABILITIES OF MEMBERS.....................................................................45
     Section 7.1           General...............................................................................45

ARTICLE VIII -        TRANSFER OF COMPANY INTEREST...............................................................45
     Section 8.1           Transfer by the Members...............................................................45
     Section 8.2           Change in Control of the Sunrise Member...............................................47
     Section 8.3           Members...............................................................................50
     Section 8.4           Buy/Sell..............................................................................50
     Section 8.5           Effect Upon Transferees...............................................................53
     Section 8.6           Casualty and Condemnation.............................................................54
     Section 8.7           Third Party Sales.....................................................................55

ARTICLE IX -          MEMBER OBLIGATIONS FOR REPORTING, RECORDS AND ACCOUNTING MATTERS...........................58
     Section 9.1           Fiscal Year...........................................................................58
     Section 9.2           Bank Accounts.........................................................................58
     Section 9.3           Maintenance of Records................................................................58
     Section 9.4           Certain Records.......................................................................60
     Section 9.5           Required Reports......................................................................60
     Section 9.6           Other Disclosures.....................................................................62
     Section 9.7           Tax Matters Partner...................................................................62
     Section 9.8           Taxation as a Partnership.............................................................62
     Section 9.9           Costs Payable From the Cash Management System.........................................62
     Section 9.10          Meetings with Regional Directors......................................................62

ARTICLE X -           DISSOLUTION................................................................................63
     Section 10.1          Dissolution...........................................................................63

ARTICLE XI -          EVENTS OF DEFAULT..........................................................................63

</TABLE>

                                       ii
<PAGE>
<TABLE>
<CAPTION>
<S>                  <C>                                                                                       <C>
     Section 11.1          Events of Default.....................................................................63
     Section 11.2          Special Remedies on Default by the Sunrise Member.....................................64
     Section 11.3          Special Remedies on Default by the AEW Member.........................................65

ARTICLE XII -         MISCELLANEOUS..............................................................................65
     Section 12.1          Notices...............................................................................65
     Section 12.2          Amendments............................................................................67
     Section 12.3          Arbitration...........................................................................67
     Section 12.4          Interpretation........................................................................69
     Section 12.5          Counterparts..........................................................................69
     Section 12.6          No Partition..........................................................................69
     Section 12.7          Attorney's Fees.......................................................................69
     Section 12.8          Severability..........................................................................69
     Section 12.9          Binding on Successors.................................................................69
     Section 12.10         Confidentiality.......................................................................70
     Section 12.11         Additional Representation, Warranties, Covenants and Agreements of Each Member........70
     Section 12.12         Brokerage Commissions.................................................................70
     Section 12.13         Time is of the Essence................................................................70
     Section 12.14         Avoidance of Unrelated Business Income Tax............................................70
     Section 12.15         Required Exculpatory Provisions.......................................................71
     Section 12.16         Compliance with Applicable Policies...................................................71
     Section 12.17         Fair Political Practices Laws.........................................................71
     Section 12.18         Notice of Proceedings.................................................................72
     Section 12.19         Disabled Veterans Businesses Enterprises/Responsible Contracting Program..............72
     Section 12.20         No Affiliate Benefits.................................................................72
     Section 12.21         Required Disclosure of Gifts..........................................................72
     Section 12.22         Appraisal.............................................................................73
     Section 12.23         Extension of Investment Period........................................................73
</TABLE>

                                       iii

<PAGE>

                       LIMITED LIABILITY COMPANY AGREEMENT

                      OF AL U.S. DEVELOPMENT VENTURE, LLC,

                      A DELAWARE LIMITED LIABILITY COMPANY

     This Limited Liability Company Agreement (this "Agreement") is made as of
the 23rd day of December, 2002, by and between SUNRISE ASSISTED LIVING
INVESTMENTS, INC., a Virginia corporation with a principal place of business at
the address set forth in Exhibit A (the "Sunrise Member"), and AEW SENIOR
HOUSING COMPANY, LLC, a Delaware limited liability company, with a principal
place of business at the address set forth in Exhibit A (the "AEW Member"). The
Sunrise Member and the AEW Member, together with any such additional parties as
and when admitted to the Company (as defined below) as members shall be
individually a "Member" and collectively, the "Members."

                                    RECITALS

     A. AL U.S. DEVELOPMENT VENTURES,  LLC (the "Company" or the "LLC") has been
formed as a limited  liability  company  under the  Delaware  Limited  Liability
Company Act, 6 Del. c. Sec.  18-101,  ET SEQ. (as amended from time to time, the
"ACT").

     B. The Members wish to set out fully their respective rights, obligations
and duties regarding the Company and its assets and liabilities.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:

                         ARTICLE I - GENERAL PROVISIONS

     Section 1.1. Organization. The Company has been formed by the filing of its
Certificate of Formation with the Delaware Secretary of State pursuant to the
Act. The Certificate of Formation states that the registered agent and
registered office of the Company in Delaware are The Corporation Trust Company,
1209 Orange Street, Wilmington, Delaware 19801. The Certificate of Formation, as
amended by the Members from time to time, is referred to herein as the "LLC
certificate."

     Section 1.2. Business of the Company. The business of the Company shall be
to invest in, own, improve, develop, sell and otherwise deal with Senior Housing
Facilities (hereinafter defined), directly or through Subsidiaries (hereinafter
defined). In connection with the foregoing, it is contemplated that the assets
of the Company shall be primarily invested in the Properties and such other
Properties, as may be acquired by the Company, directly or through Subsidiaries.
The Company, directly or through Subsidiaries, shall, from time to time, acquire
personal property or interests therein, obtain licenses and certifications, and
improve, finance and refinance the Properties for the benefit of the Company and
engage in any and all activities necessary, appropriate or useful in furtherance
of any of the foregoing.

     Section 1.3. Principal Place of Business. The principal office and place of
business of the Company shall initially be c/o Sunrise Assisted Living, Inc.,
7902 Westpark Drive, McLean,

                                        1
<PAGE>

Virginia 22102. The Manager (hereinafter defined) may change the principal
office or place of business of the Company at any time and may cause the Company
to establish other offices or places of business in various jurisdictions and
appoint agents for service of process in such jurisdictions.

     Section 1.4. Qualification in Other Jurisdictions. The Manager shall cause
the Company to be qualified or registered under applicable laws of the State of
Delaware and every jurisdiction in which the Company transacts business, and the
Manager shall be authorized to execute, deliver and file any certificates and
documents necessary to effect such qualification or registration.

     Section 1.5. Term. The term of the Company commenced as of the date of the
filing of the Certificate of Formation in the office of the Delaware Secretary
of State and shall continue until December 31, 2037, unless earlier dissolved
pursuant to the provisions of this Agreement.

                            ARTICLE II - DEFINITIONS

     Section 2.1. Definitions. The following terms shall have the meanings
indicated or referred to below, inclusive of their singular and plural forms
except where the context requires otherwise.

     "Accountants" shall mean Ernst & Young LLP or such other firm of
independent certified public accountants approved by the Members and engaged
from time to time by the Company for purposes of reviewing or auditing the
Company's financial statements or other information with respect to each
Property and performing such other duties as are imposed on the accountants by
this Agreement.

     "Acquire" means to purchase any direct or indirect interest (whether in fee
simple title or by lease, license or other agreement) in any Senior Housing
Facility.

     "Act" shall have the meaning set forth in the introductory statement.

     "Additional Capital" shall have the meaning set forth in Section 3.3.

     "Additional Capital Requested Amount" shall have the meaning set forth in
Section 3.3.

     "Adjusted Capital Account" shall have the meaning set forth in Section 4.5
hereof.

     "AEW First Tier Distribution Percentage" shall mean, as of any applicable
date of determination, any time in question, one hundred percent (100%) minus
the then applicable Sunrise First Tier Distribution Percentage.

     "AEW Indemnitees" shall have the meaning set forth in Paragraph 3.2 of
SCHEDULE 12.11 hereof.

     "AEW Member" means AEW Senior Housing Company, LLC, a Delaware limited
liability company, or any permitted successor or assign.

                                       2
<PAGE>

     "AEW Member Capital Contribution Cap" shall mean the maximum amount of
Capital Required to be contributed by the AEW Member pursuant to Section 3.1 and
Section 3.2 hereof, which amount shall equal $40,738,500.

     "AEW Member's Basic Equity Contribution" shall have the meaning set forth
in Section 3.1.1(a).

     "AEW Member's Closing Cost Contribution" shall have the meaning set forth
in Section 3.1.2(a).

     "AEW Member's Initial Capital Contribution" shall mean the sum of the AEW
Member's Basic Equity Contribution and the AEW Member's Closing Cost
Contribution.

     "AEW Second Tier Distribution Percentage" shall mean one hundred percent
(100%) less the then applicable Sunrise Second Tier Distribution Percentage.

     "AEW Third Tier Distribution Percentage" shall mean one hundred percent
(100%) less the then applicable Sunrise Third Tier Distribution Percentage.

     "AL One" shall mean AL One Investments, LLC, a Delaware limited liability
company formed pursuant to the AL One Venture Agreement.

     "AL One Venture Agreement" shall mean that certain Limited Liability
Company Agreement of AL One Investments, LLC by and between the AEW Member and
the Sunrise Member dated as of June 29, 2001, as amended by First Amendment
dated June 26, 2002 and Second Amendment dated August 5, 2002.

     "Annual Business Plan" shall have the meaning set forth in Section 6.2.

     "Appraised Fair Market Value" shall have the meaning set forth in Section
8.2.

     "Approvals" shall mean governmental certificates, licenses, permits and
approvals issued with respect to the development, construction, ownership, use,
occupancy, operation and maintenance of the Properties as Senior Housing
Facilities. For purposes of this Agreement, an Approval shall be deemed to have
been "obtained" only if all applicable appeal periods with respect thereto have
lapsed without the filing of any appeal, or any appeals that have been filed
with respect thereto have been finally adjudicated in favor of the issuance of
the Approval.

     "Approved Budgets" shall mean, as the case may be, each or any of the
Annual Budget approved by the Members, including any Annual Business Plan so
approved, and including, without limitation, the Annual Business Plan for the
remainder of the calendar year in which this Agreement is executed.

     "Arbitration Proceeding" is defined in Section 12.3.

     "Authorized Financing" shall mean any financing by the Company, including,
without limitation, the GMACCM Loans, to the extent such financing has
specifically been approved as hereby required.

                                       3
<PAGE>

     "Bankruptcy" means, with reference to any Member:

          (a) the entry of an order to relief (or similar court order) against
such Member which authorizes a case brought under Chapter 7, 11 or 13 of Title
11 of the United States Code (or successors to such Chapters and Title) to
proceed;

          (b) the commencement of a federal state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding by such
Member;

          (c) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceedings against such
Member if such proceeding is not dismissed within 120 days after the
commencement thereof;

          (d) the entry of a court decree or court order which remains unstayed
and in effect for a period of 120 consecutive days:

               (i) adjudging such Member insolvent under any federal, state or
foreign law relating to bankruptcy, insolvency, reorganization, arrangement,
liquidation, receivership or the like;

               (ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of, or in respect of,
such Member or of all, or of a substantial part, of such Member's properties
under any federal, state or foreign law relating to insolvency, reorganization,
arrangement, liquidation, receivership or the like;

               (iii) appointing a receiver, liquidator, assignee, trustee,
conservator, or sequester (or other similar official) of such Member, or of all,
or of a substantial part, of such Member's properties; or

               (iv) ordering the winding up, dissolution or liquidation of the
affairs of such Member;

          (e) the Consent by such Member to the institution against it of any
proceeding of the type described in subsection (a), (b), (c) and (d);

          (f) the Consent by such Member to the appointment of a receiver,
liquidator, assignee, trustee, conservator or sequester (or other similar
official) of such Member, or of all, or of a substantial part, of its
properties;

          (g) the making by such Member of an assignment for the benefit of
creditors; or

          (h) the admission in writing by such Member of its inability to pay
its debts generally as they come due.

     "Business Day" means any day excluding a Saturday, Sunday, any other day
during which there is no scheduled trading on the New York Stock Exchange and
all other days on which the offices of the State of California, the Commonwealth
of Massachusetts or the Commonwealth of Virginia are not open for business.

                                       4
<PAGE>

     "Buy Price" shall have the meaning set forth in Section 8.4.2.

     "Buy/Sell Deposit" shall have the meaning set forth in Section 8.4.3.

     "Buy/Sell Election Date" shall have the meaning set forth in Section 8.4.2.

     "Buy/Sell Offering Notice" shall have the meaning set forth in Section
8.4.1.

     "Buy/Sell Pool" shall mean one or more Properties designated by the
Buy/Sell Initiating Member with respect to any Buy/Sell Offering Notice under
Section 8.4.1 hereof.

     "CalPERS" means the State of California Public Employees' Retirement
System, a unit of the State and Consumer Services Agency of the State of
California with offices at 400 P Street, Sacramento, California 95812, which is
a Member of the AEW Member.

     "CalPERS Master Insurance Program" shall mean an insurance program procured
through CalPERS meeting the requirements of Section B of EXHIBIT E attached
hereto.

     "CalPERS/Seaport Venture Agreement" shall mean that certain Operating
Agreement of AEW Senior Housing Company, LLC, by and between CalPERS and
Seaport, dated December 19, 2000, as same may be amended from time to time.

     "Capital Account" shall have the meaning set forth in Section 4.1.

     "Capital Expense" shall mean any cost or expense treated as a capital cost
or expense under GAAP.

     "Capital Proceeds" means, with respect to either the Company or any
Subsidiary, the Gross Receipts of such entity in connection with or resulting
from a Capital Transaction (and, if in connection with the liquidation of the
Company, any other property available for distribution) following deduction of
the following, to the extent paid out of such proceeds: (i) all expenses
incurred in connection with the transaction giving rise to such proceeds or paid
out of such proceeds, (ii) any amounts set aside for the establishment or
replenishment of Reserves and (iii) payment of any indebtedness with the
proceeds of such Capital Transaction. Any Reserves set aside pursuant to clause
(ii) above remaining after the payment of sums necessary to satisfy the purpose
for which such Reserves were created subsequently released from such Reserves
shall be deemed Capital Proceeds.

     "Capital Transaction" means the sale, financing, refinancing, total or
partial destruction, condemnation or other recapitalization or disposition of
any Property or any other substantial asset of the Company.

     "Cash Management System" shall have the meaning set forth in Section
9.2(a)(ii).

     "Casualty" is defined in Section 8.6(a).

     "Closing Date" shall have the meaning set forth in Section 8.4.4.

                                       5
<PAGE>

     "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

     "Company" see introductory statement.

     "Company Capital" means an amount equal to the sum of all of the Members'
Modified Capital Account balances determined immediately prior to the allocation
to the Members pursuant to Sections 4.2(b) or 4.3(a) of any Net Profits or Net
Losses, increased by the aggregate amount of Net Profits then to be allocated to
the Members pursuant to Section 4.2(b) or decreased by the aggregate amount of
Net Losses then to be allocated to the Members pursuant to Section 4.3(a).

     "Company Minimum Gain" has the meaning set forth in Section 4.6(a) hereof.

     "Construction Loan" shall mean a mortgage loan approved by the Members
obtained for purposes of financing construction and lease up expenses in
connection with a Property.

     "Contributions" means for each Member, at any point in time, the aggregate
amount of cash capital contributions made by the Member pursuant to Article III,
the aggregate net fair market value of any non-cash capital contributions made
by the Member to the Company pursuant to Article III, the amount of any
outstanding debt of the Company to the Member which is converted to equity in
the Company by the Member pursuant to Article III, and the revaluation of a
continuing Member's interest in the Company pursuant to Article III as of the
date hereof. Contributions shall not include any Default Loans made by a Member
under Section 3.9.

     "Current Cash Yield" shall have the meaning set forth in Section 3.1.4(a).

     "Damaged Property" is defined in Section 8.6(c).

     "Default Amount" shall have the meaning set forth in Section 3.9.

     "Default Loan" shall have the meaning set forth in Section 3.9.

     "Default Rate" shall mean a rate of interest equal to the greater of (i)
the Prime Rate plus four percent (4%) per annum or (ii) fourteen percent (14%)
per annum; provided, however, that the Default Rate shall not exceed the highest
rate of interest permitted by law.

     "Defaulting Member" shall have the meaning set forth in Section 3.9.

     "Defaulting Member's Discounted Membership Value" shall have the meaning
set forth in Section 3.9.

     "Defaulting Purchaser" shall have the meaning set forth in Section 8.4.5.

     "Development Budget" shall have the meaning given in Section 6.2(a) hereof.

     "Development Costs" shall mean all Direct Costs and Indirect Costs incurred
with respect to any Property.

                                       6
<PAGE>

     "Direct Costs" shall mean out of pocket costs incurred for the acquisition,
development and construction of any Property.

     "Distributable Cash" means, with respect to either the Company or any
Subsidiary, for any period:

     (a)  the sum of the Gross Receipts of such entity during such period of any
          kind and description but excluding (x) Gross Receipts of such entity
          received in connection with a Capital Transaction and (y)
          Contributions, less

     (b)  the sum of all cash expenditures of or Reserves made or established by
          or for the benefit of such entity during such period, but excluding
          (x) cash expenditures paid from Gross Receipts received in connection
          with a Capital Transaction or included in the calculation of Capital
          Proceeds, (y) cash expenditures paid from Contributions and (z) cash
          expenditures for Capital Expenses.

Distributable Cash shall be calculated to avoid double counting of payments to
and from Reserves. In no event shall any deduction be made for non-cash expenses
such as depreciation, amortization or the like.

     "Documents" shall mean this Agreement and all Exhibits hereto, and each
other agreement, certificate or instrument delivered pursuant to this Agreement.

     "Electing Member" is defined in Section 8.6(b).

     "Entity" means any general partnership, limited partnership, corporation,
limited liability company, limited liability partnership, joint venture, trust,
business trust, cooperative or association or other comparable business entity.

     "Existing Sunrise Non-Compete Area Projects" shall mean the Senior Housing
Facilities listed in K attached hereto and incorporated herein by this
reference.

     "Facilities" shall mean the Properties.

     "Facility Agreements" shall mean all contracts, leases, agreements,
commitments and other arrangements, and any amendments or modifications thereto,
used or useful in the operation of the Facilities in force and effect as of the
date hereof, including, but not limited to, architectural and engineering
agreements and construction contracts.

     "Facility Development Agreement" shall mean an agreement between SDI and a
Subsidiary for the provision of development services for a Property.

     "Facility Expense" shall have the meaning set forth in the Facility
Management Agreements.

                                       7
<PAGE>

     "Facility Management Agreement" shall mean an agreement between the
Operator and a Subsidiary for the provision of management services for a
Property.

     "Fair Market Value" means as to any Property, the value of such Property
determined pursuant to CalPERS's Statement of Equity Real Estate Appraisal and
Evaluation Policy, a copy of which is attached hereto as Exhibit Q and
incorporated herein by this reference.

     "FF&E": The furniture, fixtures and equipment owned by the Company or any
of its Subsidiaries and located at the Facilities, which are used or maintained
in connection with the operation of the Facilities.

     "First Tier Return" shall mean, for any Member, for any fiscal year (or
applicable portion thereof), a nominal annual return equal to thirteen percent
(13%), compounded monthly, on such Member's Unreturned Contributions outstanding
during such year (or applicable portion thereof). For purposes of computing the
First Tier Return, all Contributions shall be deemed to be made on the last day
of the month in which they were actually made, and all distributions shall be
deemed to have been received on the last day of the month in which they were
actually received.

     "Fiscal Year" means (i) the period commencing on the effective date of this
Agreement and ending on December 31, 2002, (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31 or (iii) any portion of
the period described in clause (ii) for which the Company is required to
allocate Net Profits, Net Losses, and other items of Company income, gain, loss
or deduction pursuant to Section 4 hereof.

     "Funding Notice" means a written notice from either Member to the other
Member, substantially in the form attached as Exhibit C, requesting each Member
to fund or make Contributions pursuant to Article III.

     "GMACCM Loans" shall mean the mortgage loans encumbering the Properties
more particularly described on Exhibit R attached hereto.

     "Government Requirements" shall have the meaning set forth in Section 10.1.

     "Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes; provided, however, that (i) the initial
Gross Asset Value of any asset contributed to the Company shall be adjusted to
equal its gross fair market value (determined by the Members) at the time of its
contribution and (ii) the Gross Asset Values of all assets held by the Company
shall be adjusted to equal their respective gross fair market values (taking
Code Section 7701(g) into account) upon an election by the Company to revalue
its property in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f)
in connection with the acquisition of an interest in the Company or the
redemption of an interest in the Company. The Gross Asset Value of any asset
whose Gross Asset Value was adjusted pursuant to the preceding sentence
thereafter shall be adjusted in accordance with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv)(g).

     "Gross Receipts" means, with respect to either the Company or any
Subsidiary, all cash receipts of such entity, including distributions received
by the Company from any Subsidiary

                                       8
<PAGE>

from any source whatsoever, but calculated to avoid any double-counting of
payments to or from the Company and any Subsidiary or payments to and from
Reserves.

     "Gross Revenues" shall have the meaning set forth in the Facility
Management Agreements.

     "Grosse Pointe Project" shall mean the Senior Housing Facility proposed to
be developed at 21210 Mack Avenue, Grosse Pointe, Michigan.

     "Indemnified Party" shall have the meaning given in Paragraph 3.3(a) of
Schedule 12.11 hereof.

     "Indemnifying Party" shall have the meaning given in Paragraph 3.3(a) of
Schedule 12.11 hereof.

     "Indirect Costs" shall mean such land pursuit costs incurred by the Sunrise
Member in connection with the acquisition of any Property, as may be reasonably
agreed upon by the AEW Member and the Sunrise Member, together with interest
actually paid by the Sunrise Member on Direct Costs relating to such Property or
the imputed carrying cost with respect to such Direct Costs based on the Sunrise
Member's weighted average cost of funds advanced to pay such costs, as may be
reasonably agreed upon by the AEW Member and the Sunrise Member.

     "Insurance Program" shall have the meaning given in Section 6.4(c).

     "Interest" means any interest in the Company representing some or all of
the Contributions made by the Member pursuant to Article III.

     "Internal Rate of Return" or "IRR" means for each Member the annual
discount rate, compounded monthly, that results in a net present value equal to
zero (0) when the discount rate is applied to all amounts contributed or deemed
contributed by each of the Members to the capital of the Company pursuant to
Article III hereof and all distributions made by the Company to such Member
pursuant to Article V hereof. "Internal Rate of Return" or "IRR" means with
respect to the Company's investment in the Portfolio the annual discount rate,
compounded monthly, that results in a net present value equal to zero (0) when
the discount rate is applied to all amounts invested by the Company in the
Portfolio and all cash receipts of the Company with respect to the Portfolio.
The Internal Rate of Return shall be calculated as shown on Exhibit M attached
hereof.

     "Investment Period" shall mean the period commencing on the date hereof and
expiring on the date which is five (5) years after the date hereof, subject to
extension as provided in Section 12.23 hereof.

     "Knowledge": As used in this Agreement, the term "knowledge" when used to
refer to the knowledge of the Sunrise Member or its Related Parties (a) shall
mean and apply to the actual knowledge of the Responsible Parties (as defined
below) and any other responsible officers of the Sunrise Member or its Related
Parties who are directly engaged in the management, construction or development,
as applicable, of the Facilities and not to any other persons or parties, and
(b) shall mean the actual knowledge of such responsible officers, it being

                                       9
<PAGE>

understood and acknowledged that such responsible officers are not charged with
knowledge of all the acts and/or omissions of their predecessors or with acts or
omissions of agents or employees of the Sunrise Member. Neither the Sunrise
Member nor the "Responsible Parties" as hereinafter defined, shall be obligated
to do or perform any independent investigation in connection with the making of
any representations or warranties as set forth in this Agreement; provided,
however, that the Responsible Parties shall make a good faith inquiry of the
development officers and the executive director of each of the Facilities in
connection with such representations and warranties. The responsible officers of
the Sunrise Member directly engaged in the construction, development,
management, financing and operation of the Facilities are: (i) Daniel B. Gorham;
(ii) Doug Bath; (iii) William D. Shields and Mark Owens (as to Properties
located east of the Mississippi River); (iv) Chris Tatum (as to Properties
located West of the Mississippi River); (v) Jay Pope (as to financing); and (vi)
Jay Beckhorn (as to financing) (whether one or more, the "Responsible Parties")

     "Legal Successor" shall mean the legal representative, heir, successor or
assign of any Person who is legally incompetent or has died.

     "Lien": Any mortgage, deed of trust, pledge, hypothecation, title defect,
right of first refusal, security or other adverse interest, encumbrance, claim,
option, lien, lease or charge of any kind, whether voluntarily incurred or
arising by operation of law or otherwise, affecting any assets or property,
including any agreement to give or grant any of the foregoing, any conditional
sale or other title retention agreement, and the filing of or agreement to give
any financing statement with respect to any assets or property under the Uniform
Commercial Code or comparable law of any jurisdiction.

     "Loans" shall mean any loans obtained by the Company from any Third Party
pursuant to any Authorized Financing, including, without limitation,
Construction Loans and Permanent Loans.

     "Loss": As used in Paragraph 3.1 and Paragraph 3.2 of SCHEDULE 12.11
hereof, shall mean, with respect to any person or entity, any and all costs,
obligations, liabilities, demands, claims, settlement payments, awards,
judgments, fines, penalties, damages and reasonable out-of-pocket expenses,
including court costs and reasonable attorneys' fees, whether or not arising out
of a third party claim.

     "Major Decision" shall have the meaning set forth in Section 6.5.

     "Manager" shall mean the Sunrise Member, subject to modification pursuant
to Section 11.2.

     "Marriott" shall mean Marriott Senior Living Services, Inc. or any of its
Related Parties.

     "Marriott Management Rights" shall mean the right, directly or indirectly,
to manage or operate (i) six (6) or more Marriott Facilities located in the
state of California, or (ii) forty (40) or more Marriott Facilities located
anywhere in the United States of America (inclusive of any Marriott Facilities
located in the state of California).

                                       10
<PAGE>

     "Marriott Facility" shall mean a Senior Housing Facility directly or
indirectly owned, controlled, managed or operated by Marriott as of the date
hereof or any date after the date hereof.

     "Marriott Termination Notice" shall mean a notice in the form attached
hereto as EXHIBIT D duly signed by the Sunrise Member.

     "Master Agreement": means the agreement among Sunrise Member, SALMI, SDI
and AEW Member dated on or about the date hereof.

     "Material Adverse Effect": A material adverse effect on the assets,
business, operations, construction, development, financial condition or results
of operations of the Facilities, or any one of them.

     "Member" or "Members" shall have the meaning set forth in the introductory
statement.

     "Modified Capital Account" means, for each Member, such Member's Capital
Account balance increased by such Member's share of Company Minimum Gain and of
"partner nonrecourse debt minimum gain" (as determined pursuant to Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5), respectively).

     "Negative Cash Flow" shall mean the resulting amount where the sum
described in clause (b) in the definition of Distributable Cash is greater than
the sum described in clause (a) thereof.

     "Net Profits" and "Net Losses" mean the taxable income or loss, as the case
may be, for a period as determined in accordance with Code Section 703(a)
computed with the following adjustments:

               (i) items of gain, loss, and deduction shall be computed based
upon the Gross Asset Values of the Company's assets (in accordance with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(g) and 1.704-3(d) rather than upon the
assets' adjusted bases for federal income tax purposes;

               (ii) any tax-exempt income received by the Company shall be
included as an item of gross income;

               (iii) the amount of any adjustments to the book values of any
assets of the Company pursuant to Code Section 743 shall not be taken into
account except to the extent required by Treasury Regulation Section
1.704-1(b)(2)(iv)(m);

               (iv) Any adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734 as a result of a distribution other than in
liquidation of a Member's interest in the Company or pursuant to Treasury
Regulation Section 1.734-2(b)(1) shall be treated as an item of gain or loss
from the disposition of the asset;

               (v) any expenditure of the Company described in Code Section
705(a)(2)(B) (including any expenditures treated as being described in Section
705(a)(2)(B)

                                       11
<PAGE>

pursuant to Treasury Regulations under Code Section 704(b) shall be treated as a
deductible expense;

               (vi) The amount of gross income and "non-recourse deductions" (as
defined in Section 4.6 hereof) specifically allocated to any Members pursuant to
Section 4.6 and Section 4.7 shall not be included in the computation;

               (vii) the amount of any increase (decrease) in the Gross Asset
Value of an asset pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f)
shall be treated as an item of revenue (expense); and

               (viii) the amount of any increase (decrease) in the capital
accounts of the Members pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(e) to reflect the unrealized gain (loss) attributable to an
asset distributed in kind to a Member shall be treated as an item of revenue
(expense).

     "Non-Compete Area" shall mean the applicable areas described as a
"Non-Compete Area" on Exhibit H attached hereto and incorporated herein. The
Non-Compete Area of any other Senior Housing Facility which may hereafter be
acquired, leased or developed by the LLC or any Subsidiary shall be reasonably
agreed upon by the Members at the time of such acquisition, leasing or
development, such agreement to be made by applying the same analysis applied in
determining the Non-Compete Areas for comparable Properties then owned, leased
or developed by the LLC or any Subsidiary.

     "Non-Controllable Expenses" shall mean expenses for insurance, real estate
taxes and utilities.

     "Non-Electing Member" is defined in section 8.6(b).

     "Occupancy Level" shall mean (i) the sum of: (a) a fraction (expressed as a
percentage) equal to the number of residents in occupancy divided by the number
of residents for which the Property is designed (and budgeted for the then
applicable period) to accommodate and (b) a fraction (expressed as a percentage)
equal to the number of units occupied by one or more residents divided by the
number of units for which the Property is designed ; (ii) divided by two (2).

     "Opening Date" shall mean, for each Property, the Commencement of
Management Services for such Property, as such term is defined in the Facility
Management Agreement for such Property.

     "Operating Deficit Guaranty" shall have the meaning given in Section 3.2(b)
hereof.

     "Operating Deficit Loan" shall mean a loan made to a Subsidiary by Operator
pursuant to an Operating Deficit Loan Agreement.

     "Operating Deficit Loan Agreement" shall mean, with respect to any
Subsidiary, that certain Operating Deficit Loan Agreement of even date herewith
by and between such Subsidiary and Operator in the form of Exhibit L attached
hereto.

                                       12
<PAGE>

     "Operator": SALMI, its successors or assigns, which shall be the operator
of the Facilities under the Facility Management Agreements.

     "Owned Assets" shall mean all tangible and intangible assets used or useful
in the construction or operation of the Facilities as they have been and are now
being constructed or operated by the Company and/or its Subsidiaries.

     "Owner Obligations" shall have the meaning given in Paragraph 3.1(b) of
Schedule 12.11 hereof.

     "Permanent Loan" shall have the meaning given in Section 3.8.2 hereof.

     "Permitted Change of Control" is defined in Section 8.2 hereof.

     "Permitted Exception" shall mean any exception to title to the Properties
that is (i) disclosed in the Title Policy, or (ii) identified on a Survey.

         "Permitted Lien": Any statutory lien which secures a payment not yet
due that arises, and is customarily discharged, in the ordinary course of the
Company's business or any other Lien set forth in those certain title insurance
policies of even date herewith issued by First American Title Insurance Company
with respect to the Facilities.

     "Permitted Transferee" means a Transferee of the interest of a Member of
the Company to whom the transfer is permitted pursuant to Article VIII of this
Agreement.

     "Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so permits.

     "Personal Property" shall mean any and all furniture, fixtures,
furnishings, machinery and equipment and other personal property used in
connection with the Facilities and located upon the Properties, if any,
including without limitation, (i) any tangible personal property, but excluding
any property owned by Operator notwithstanding Operator's use of such property
in connection with its management and administration of the Facilities; and (ii)
good will, going concern and all existing warranties and guaranties (express or
implied) issued to the Company and/or any of its Subsidiaries in connection with
any improvements located on the Properties or the Personal Property described in
the foregoing clause (i).

     "Policy Compliance Administrator" shall have the meaning set forth in
Section 6.8.

     "Policy Compliance Services" shall have the meaning set forth in Section
6.8.

     "Pool One LLC" shall mean AL U.S. Pool One, LLC, a Delaware limited
liability company, all of the membership interests in which are owned by the
Company.

     "Pool One Properties" shall mean the Properties owned by subsidiaries of
Pool One LLC.

     "Portfolio" shall mean all of the Properties owned by the Company or any of
its Subsidiaries.

                                       13
<PAGE>

     "Pre-Existing Facility" shall mean a Senior Housing Facility which is fully
constructed, open for business and occupied by residents as of the date hereof.

     "Preservation Costs" shall have the meaning set forth in Section 3.3.

     "Prime Rate" shall mean the prime rate of interest as published in The Wall
Street Journal from time to time.

     "Pro Forma Return" shall mean, with respect to any Property, the projected
pro forma Internal Rate of Return for such Property set forth in Exhibit DD
attached hereto.

     "Prohibited Change Of Control" is defined in Section 8.2 hereof.

     "Project Costs" shall have the meaning given in the Facility Development
Agreement.

     "Properties" shall mean the Senior Housing Facilities listed on Exhibit G
attached hereto and such other Senior Housing Facilities as may from time to
time be acquired, leased or developed by the LLC or any Subsidiary, each of
which, individually is referred to herein as a "Property."

     "Proportionate Share" shall mean, at any time, with respect to any Member,
a percentage equal to the product of (i) one hundred (100) times (ii) a
fraction, the numerator of which is the total of all Contributions made by such
Member without regard to the return of any Contributions and the denominator of
which is the total of all Contributions made by all Members of the Company
without regard to the return of any Contributions, subject at all times to
recalculation in accordance with the provisions of this Agreement, including
without limitation, the provisions of Section 3.9 of this Agreement. The initial
Proportionate Share of the AEW Member is eighty percent (80%) and the initial
Proportionate Share of the Sunrise Member is twenty percent (20%).

     "Proposed Value" shall have the meaning set forth in Section 8.4.1 hereof.

     "Purchase and Sale Agreement" shall have the meaning given in Section
8.7.2(b)(ii) hereof.

     "Purchaser" shall have the meaning set forth in Section 8.4.3.

     "Qualified Appraiser" shall have the meaning set forth in Section 8.2.

     "Qualified Organization" shall have the meaning set forth in Section
514(c)(9)(C) of the Code or in any successor provision of similar import.

     "Related Party" shall mean with respect to any Person, (i) any Person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person, or (ii) any Person
in which such Person has a twenty-five percent (25%) or more beneficial interest
or as to which such Person serves as a trustee or general partner or in a
similar fiduciary capacity. A Person shall be deemed to control a Person if it
owns, directly or indirectly, at least twenty-five percent (25%) of the
ownership interest in such

                                       14
<PAGE>

Person or otherwise has the power to direct the management, operations or
business of such Person. The term "Beneficial Owner" is to be determined in
accordance with Rule 13d- promulgated by the SEC under the Securities Exchange
Act of 1934. Notwithstanding the foregoing or any other provision hereof to the
contrary, the Sunrise Member, Operator, SDI and SALI shall be deemed to be
Related Parties.

     "Reserves" means cash set aside for capital improvements or replacements or
FF&E in amounts required by any lender holding a mortgage on any Facility or as
otherwise approved by the AEW Member.

     "Resident Agreements" shall mean all occupancy, residency, lease, tenancy
and similar written agreements entered into in the ordinary course of business
with residents of the Facilities, and all amendments, modifications,
supplements, removals, and extensions thereof.

     "Responsible Parties" shall have the meaning given in the definition of the
term "Knowledge" in this Section 2.1.

     "Revolving Credit Agreement" shall mean the Revolving Credit Agreement of
even date herewith by and between SALI and the Company in the form of Exhibit I
attached hereto.

     "Sale Price" shall have the meaning set forth in Section 8.4.2.

     "SALI" shall mean Sunrise Assisted Living, Inc., a Delaware corporation.

     "SALII" shall mean Sunrise Assisted Living Investments, Inc., a Virginia
corporation.

     "SALMI" shall mean Sunrise Assisted Living Management, Inc., a Virginia
corporation.

     "Second Tier Return" shall mean, for the AEW Member, for any fiscal year
(or applicable portion thereof), a nominal annual return equal to eighteen
percent (18%), compounded monthly, on the AEW Member's Unreturned Contributions
outstanding during such year (or applicable portion thereof). For purposes of
computing the Second Tier Return for the AEW Member, all Contributions shall be
deemed to be made on the last day of the month in which they were actually made,
and all distributions shall be deemed to have been received on the last day of
the month in which they were actually received.

     "SDI" shall mean Sunrise Development, Inc., a Virginia corporation.

     "Seaport" shall mean Seaport Senior Housing Management, LLC, a Delaware
limited liability company.

     "Section 8.2 Option" shall have the meaning set forth in Section 8.2.

     "Seller" shall have the meaning set forth in (i) Section 8.4.3.

     "Senior Housing Facilities" means assisted living facilities ("ALFs"),
independent living facilities ("ILFs"), dementia care facilities ("DCFs") and
other similar health care related

                                       15
<PAGE>

businesses principally providing residential facilities and related services
therein for elderly and disabled persons.

     "Stabilization" shall mean with respect to (i) any Property, that the
Property has achieved an average of at least a 90% Occupancy Level for the
Property for a three (3) month period and (ii) the Portfolio, that the Portfolio
has achieved an average of at least a 90% Occupancy Level on an aggregate basis
for a three (3) month period.

     "Subdebt" shall mean a loan made by SALI to any Subsidiary pursuant to a
Revolving Credit Agreement.

     "Subsidiary" means any Entity that is directly or indirectly majority or
wholly-owned and controlled by the Company.

     "Sunrise" shall mean, for purposes of Section 6.6 hereof, the Sunrise
Member or any Related Party thereof, which owns, leases, manages or develops any
applicable Senior Housing Facility.

     "Sunrise First Tier Distribution Percentage" shall mean, as of any
applicable date of determination, twenty-five percent (25%) of the Sunrise
Member's then applicable Proportionate Share.

     "Sunrise Indemnitees" shall have the meaning set forth in Paragraph 3.1 of
SCHEDULE 12.11 hereof.

     "Sunrise Interest" shall have the meaning set forth in Section 8.2.

     "Sunrise Member" means SALII or any permitted successor or assign.

     "Sunrise Member's Basic Equity Contribution" shall have the meaning set
forth in Section 3.1.1(a).

     "Sunrise Member's Closing Cost Contribution" shall have the meaning set
forth in Section 3.1.2.

     "Sunrise Member's Initial Contribution" shall mean the sum of the Sunrise
Member's Basic Equity Contribution and the Sunrise Member's Closing Cost
Contribution.

     "Sunrise Second Tier Distribution Percentage" shall mean, at any time, the
Proportionate Share of the Sunrise Member, plus ten (10) percentage points.

     "Sunrise Third Tier Distribution Percentage" shall mean, at any time, the
Proportionate Share of the Sunrise Member, plus fifteen (15) percentage points.

     "Surveys" shall mean the surveys described on EXHIBIT U attached hereto and
incorporated herein by this reference.

     "Taking" is defined in Section 8.6(a).

                                       16
<PAGE>

     "Target Area" shall mean the area located within a five (5) mile radius of
any Property.

     "Taxes": All federal, state, local and foreign taxes including, without
limitation, income, gains, transfer, unemployment, withholding, payroll, social
security, real property, personal property, excise, sales, use and franchise
taxes, levies, assessments, imposts, duties, licenses and registration fees and
charges of any nature whatsoever, including interest, penalties and additions
with respect thereto and any interest in respect of such additions or penalties.

     "Tax Return": Any return, filing, report, declaration, questionnaire or
other document required to be filed for any period with any taxing authority
(whether domestic or foreign) in connection with any Taxes (whether or not
payment is required to be made with respect to such document).

     "Terminating Event" means any of the following:

               (i) For a natural Person: death; any disabling mental or physical
condition which prevents such person from carrying on business activities and
which continues for uninterrupted period of more than six months; entry of an
order adjudicating such person incompetent by a court of competent jurisdiction;
appointment of a conservator; or execution of a certificate diagnosing such
person's incompetency by each of such person's physician and two additional
independent consulting physicians, each licensed to practice medicine in the
state of such person's residence.

               (ii) For an Entity other than a natural person: filing of a
certificate of dissolution or its equivalent for any corporation; dissolution of
a partnership; termination of a trust; distribution of a trust estate's entire
interest in the Company; or the dissolution, termination or Bankruptcy of any
other entity that is a Member, whether voluntary or involuntary; provided that a
tax termination of an Entity shall not alone be a Terminating Event.

               (iii) For any Member: withdrawal, resignation or Transfer in
contravention of this Agreement; the Bankruptcy of any Member.

         "Third Party" means any Person who is not a Member or a Related Party
to any Member.

         "Third Party Sale Pool" shall name the meaning given in Section 8.7.1
hereof.

          "Title Policies" shall mean the title policies described on Exhibit V
attached hereto and incorporated herein by this reference.

         "Transfer" shall have the meaning set forth in Section 8.1.1.

         "Treasury Regulations" means the Income Tax Regulations and Procedure
and Administration Regulations promulgated under the Code, as amended from time
to time.

         "UBTI" shall have the meaning set forth in Section 12.14.

         "Unpaid First Tier Return Amount" shall mean, at any point in time, for
any Member, that amount which, when considered together with all amounts
previously distributed to such

                                       17
<PAGE>

Member pursuant to (i) in the case of the AEW Member, Sections 5.2.1(a), 5.2.2,
5.3.1(a) and 5.3.2(a), and (ii) in the case of the Sunrise Member, Sections
5.2.1(a), 5.2.1(b), 5.2.2, 5.3.1(a), 5.3.1(b), 5.3.1(c) and 5.3.2(a), will
result in such Member's having received an amount equal to the First Tier
Return.

     "Unpaid Second Tier Return Amount" shall mean, at any point in time, for
the AEW Member, that amount which, when considered together with all amounts
previously distributed to the AEW Member pursuant to Sections 5.2.1(a),
5.2.1(c), 5.2.2, 5.3.1(a), 5.3.1(f), 5.3.2(a) and 5.3.2(d), will result in the
AEW Member's having received an amount equal to the Second Tier Return.

     "Unreturned Contributions" means, at any point in time, for any Member, the
excess of (i) the aggregate amount of Contributions by such Member over (ii) the
aggregate amount distributed to such Member pursuant to (i) in the case of the
AEW Member, Section 5.3.1(b) and 5.3.2(b), and (ii) in the case of the Sunrise
Member, Sections 5.3.1(b), 5.3.1(c) and 5.3.2(b).

     "Woodland Hills Project" shall mean the Senior Housing Facility proposed to
be located at 20461 Ventura Boulevard, Woodland Hills, California.

                      ARTICLE III - CAPITAL CONTRIBUTIONS

     Section 3.1. Initial and Mandatory Contributions of Members.

          3.1.1 Closing.

          (a) The initial Contributions of the AEW Member and the Sunrise Member
are as follows:

          AEW Member: [$_________ (the "AEW Member's Basic Equity
Contribution").]

          Sunrise Member: [$_______ ("Sunrise Member's Basic Equity
Contribution").]

          (b) On the date hereof, and simultaneously with its execution hereof,
the AEW Member has contributed the AEW Member's Basic Equity Contribution in
cash to the capital of the Company, such contribution to be made by wired funds.
The AEW Member's Basic Equity Contribution has been determined as follows:

               (i) For each Property listed on Exhibit G attached hereto which
is subject to a Construction Loan on the date hereof, the AEW Member has
contributed eighty percent (80%) of the lesser of (x) the equity that the
applicable construction lender required the applicable borrower to have
contributed at the time of the closing of the Construction Loan; or (y) the
Development Costs incurred by the Sunrise Member (or its affiliate owning title
to the Property) prior to closing of the applicable Construction Loan;

               (ii) For the Properties listed on Exhibit G attached hereto with
respect to which a commitment for a Construction Loan satisfactory to the AEW
Member has been obtained but not yet closed and with respect to which closing is
reasonably anticipated by the

                                       18
<PAGE>

Members to occur within forty-five (45) days after the date hereof, an amount
equal to eighty percent (80%) of the Development Costs incurred by the Sunrise
Member (or its affiliate owning title to the Property) prior to the date hereof;
and

               (iii) For the Properties listed on Exhibit G attached hereto with
respect to which a commitment for a Construction Loan satisfactory to the AEW
Member has not been issued, the AEW Member's Proportionate Share of an amount
equal to thirty percent (30%) of the Development Costs incurred by the Sunrise
Member (or its affiliate owning title to the Property) prior to the date hereof.

     The AEW Member's Initial Equity Contribution shall be distributed to the
Sunrise Member to reimburse the Sunrise Member for Project Costs previously
incurred by the Sunrise Member and its Related Parties.

          (c) Simultaneously with its execution hereof, the Sunrise Member has:

               (i) transferred 100% of the limited partnership interests in the
following limited partnerships to Pool One LLC: (A) AL U.S. Bonita Senior
Housing, L.P.; (B) AL U.S. Huntington Beach Senior Housing, L.P.; (C) AL U.S. La
Jolla Senior Housing, L.P.; (D) AL U.S. La Palma Senior Housing, L.P.; (E) AL
U.S. Sacramento Senior Housing, L.P.; (F) AL U.S. Seal Beach Senior Housing,
L.P. and (G) AL U.S. Studio City Senior Housing, L.P.;

               (ii) transferred 100% of the membership interests in the
following limited liability companies to Pool One LLC: (A) Boulder Assisted
Living, L.L.C.; (B) Newton Square Assisted Living, L.L.C.; and (C) Wilmington
Assisted Living, L.L.C.; and

               (iii) caused its wholly-owned subsidiary, SALII GP LLC, a
Delaware limited liability company, to transfer 100% of its interest as a
general partner in the limited partnerships described in clause (i) above to AL
California GP, LLC, a Delaware limited liability company which a is wholly-owned
subsidiary of Pool One LLC.

     The value of the interests transferred pursuant to the foregoing clauses
(i), (ii) and (iii), less the AEW Member's Basic Equity Contribution shall be
deemed to be equal the Sunrise Member's Basic Equity Contribution.

     3.1.2 Closing Costs. Simultaneously with the execution and delivery of this
Agreement by the Members, the Members have funded Contributions to the Company,
in accordance with their Proportionate Shares, in order to pay closing costs in
accordance with the schedule attached hereto as Exhibit AA. All closing costs
listed on said Exhibit will be treated as additional Capital Contributions and
will increase the Unreturned Contributions of each Member (each Member's
Contribution for such closing costs being referred to herein as the "AEW
Member's Closing Cost Contribution" or the "Sunrise Member's Closing Cost
Contribution," as applicable). Upon such time as the Loans Fees are refunded to
the Company, same shall be returned to the Members, pro rata, and will reduce
each Member's Unreturned Contributions accordingly.

                                       19
<PAGE>

     Section 3.2. Contributions for Project Costs.

          (a) The Members acknowledge that the Construction Loans will require
minimum equity contributions from the respective borrowers. The Members agree to
fund Project Costs in amounts necessary to satisfy such minimum equity
requirements by making Contributions to the Company, subject to and upon the
terms and conditions herein set forth. The Sunrise Member shall cause SDI to
prepare and process requisitions under the architectural and engineering
agreements and construction contracts for the respective Properties. Based upon
such requisitions, the Sunrise Member shall prepare and distribute to the
Members requests for Contributions as necessary to pay such Project Costs, up to
the amount of the minimum equity requirements under the respective Construction
Loans. Each such request shall (i) identify the Property for which the
Contributions are required and (ii) include a summary of any material variance
between the actual Project Costs for such Property and the amount of the
Approved Budget therefor as of the date of the requisition from SDI. Within ten
(10) business days after delivery of any such request for Contributions, each
Member shall contribute its Proportionate Share of the amount due.

          (b) From and after such time as the minimum equity requirement under
any Construction Loan has been satisfied, Project Costs shall be funded by draws
under such Construction Loan. The Sunrise Member shall cause SDI to prepare and
process draw requests under the respective Construction Loans as may be required
for the Company or its subsidiaries to satisfy any obligations to pay for
Project Costs. The Sunrise Member shall cause SDI to cause each draw request to
comply with the requirements of the respective construction lender. In the event
that the amount of any draw under any Construction Loan is not sufficient to pay
any Project Costs due in connection with any Property, the Sunrise Member shall
also prepare and distribute to the Members a request for Contributions in the
amount of the applicable shortfall. Each such request for capital shall satisfy
the requirements set forth in this Section 3.2(a). Within ten (10) business days
after delivery of any such request for Contributions, each Member shall
contribute its Proportionate Share of the amount due. Without limiting the
foregoing provisions of this Section 3.2(b), if the construction lender under
any Construction Loan has not funded a draw request as to which the AEW Member
has funded its Proportionate Share of the required equity, then the AEW Member
shall have no obligation to fund its share of the equity portion of any
subsequent draw request until such time as the construction lender funds the
prior unfunded draw request, and, at the AEW Member's election, which shall be
made pursuant to notice given to the Sunrise Member, the Company shall borrow
any unfunded debt or equity portion of any draw request from SALI as Subdebt;
and the amount of any such Subdebt will be repaid from the next available
construction or equity funding, to the extent of available proceeds thereof.

          (c) The Members hereby acknowledge that Operator may be required to
deliver operating deficit guarantees to GMACCM or other construction lenders
with respect to Construction Loans (each an "Operating Deficit Guaranty"). To
the extent that Operator makes any payment to GMACCM or any other construction
lender pursuant to any such Operating Deficit Guaranty as a result of any (i)
Noncontrollable Expenses in excess of 3% over the amount therefor set forth in
the Approved Budget for the applicable Property, or (ii) Debt Service (as such
term is defined in the Operating Deficit Loan Agreement) under the applicable
Construction Loan attributable to interest at a rate in excess of 7% per annum,
(except to the

                                       20
<PAGE>

extent that such excess is due to any default under the Construction Loan
Agreement arising from or relating to any default by the Sunrise Member or any
of its Related Parties under any Facility Development Agreement or Facility
Management Agreement), then the Members shall contribute the amount of such
payment to the Company in accordance with their Proportionate Shares and the
Company shall reimburse Operator for such payment.

          (d) Notwithstanding the foregoing or any other provision hereof to the
contrary, in no event shall the AEW Member be required to make any Contribution:

               (i) with respect to any Property in excess of the AEW Member's
Proportionate Share of an amount equal to 30% of the Development Costs actually
incurred for such Property, unless and until (A) a commitment for a Construction
Loan approved by the AEW Member has been obtained with respect to such Property;
and (B) the Members reasonably anticipate that a closing of the Construction
Loan under such commitment will occur within forty five (45) days after the date
thereof;

               (ii) to pay for Project Costs unless and until the applicable
Property has been acquired by the Company and such Project Costs are actually
incurred;

               (iii) with respect to any Property to the extent that the total
Project Costs incurred with respect to such Property exceed the amount of the
Approved Budget therefor (except to the extent Cost Savings may be applied
against Cost Overruns pursuant to Section 6 of the Master Agreement); and

               (iv) to the extent that such Contribution would cause the sum of
all Contributions made by the AEW Member in the aggregate to exceed the AEW
Member Contribution Cap.

Except as provided in Section 3.2(e) below, any amount required to pay any
Project Costs as a result of the application of the foregoing provisions of this
Section 3.2(d) shall be either (x) borrowed by the Company as Subdebt under the
Revolving Credit Agreement or (y) contributed by the Sunrise Member as a
Contribution, it being agreed that the Sunrise Member shall have the option to
choose whether to cause the Company to borrow such amount under the foregoing
clause (x) or to make a Contribution under the foregoing clause (y) by written
notice given to the AEW Member prior to payment of any applicable Project Costs.

          (e) Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, if the amount of any Construction Loan is less than
fifty-five percent (55%) of the total Project Costs for such Property, as set
forth in the Approved Budget, then the Company may proceed with such
Construction Loan provided that, prior to making any draw under the applicable
Construction Loan or requiring any Contribution to be made by the AEW Member for
Project Costs for the applicable Property, the Sunrise Member shall contribute
to the Company, as additional capital, the amount, if any, by which fifty-five
percent (55%) of the total Project Costs, as set forth in the Approved Budget,
exceeds the amount of the applicable Construction Loan unless the AEW Member
elects, at its sole option, to contribute its Proportionate Share of such
additional capital.

                                       21
<PAGE>

          (f) The Members hereby agree that nothing contained herein, including,
without limitation, the provisions of Section 3.2(c) above shall be deemed to
limit or impair any rights or remedies of the Company or any Subsidiary under
any Development Agreement or any Completion Guaranty in the event that actual
Project Costs exceed the amount of the Approved Budget for any Property.

          (g) Notwithstanding any provision hereof to the contrary, the AEW
Member shall not be required to fund Contributions for Project Costs more than
one time per month per Property.

          (h) Notwithstanding any provision hereof to the contrary, except for
payments on Subdebt made from advances on the Construction Loans (to the extent
permitted by the applicable construction lender), payments of interest on any
Subdebt shall be required to be made only if and to the extent that Gross
Revenues exceed Facility Expenses or if and to the extent that Borrower has
sufficient proceeds from Capital Transactions available to pay such interest in
accordance with the terms of Section 5.3.1 and 5.3.2 hereof; and payments of
principal shall be required to be made only if and to the extent that the
Company has sufficient proceeds from Capital Transactions available to pay such
principal in accordance with the provision of Section 5.3.1 and 5.3.2 hereof. To
the extent that Gross Revenues do not exceed Facility Expenses or Proceeds from
Capital Transactions are insufficient to pay interest on any Subdebt on a
current basis, as set forth in this paragraph, any such interest shall accrue.

     Section 3.3. Additional Contributions of Capital.

          (a) If either Member reasonably determines that funds are needed to
fund one or more expenditures that have been approved for payment in an Approved
Budget or otherwise and that such expenditures (i) cannot be paid from Gross
Receipts (including Reserves) from the operations of the Company or from Capital
Transactions, and (ii) are not covered by a Completion Guaranty or an Operating
Deficit Guaranty, then, either Member may issue a Funding Notice setting forth
the amount of funds being requested (the "Additional Capital Requested Amount").
Within twenty (20) Business Days following the date of receipt of the Funding
Notice, each Member shall advance to the Company as a Contribution such Member's
Proportionate Share of the Additional Capital Requested Amount. Any funds
advanced by the Members to the Company pursuant to this Section shall be
referred to as "Additional Capital" and shall constitute additional
Contributions to the Company.

          (b) If either Member reasonably determines that the Company requires
additional capital to fund the payment of debt service obligations, real estate
taxes, or other expenses reasonably necessary to protect and preserve the value
of the Property (all such costs, collectively "Preservation Costs") which have
not been approved for payment in an Approved Budget or otherwise, such Member
shall have the right to issue a Funding Notice setting forth the Additional
Capital Requested Amount. Within twenty (20) Business Days following the date of
the Funding Notice, each Member shall advance to the Company such Member's
Proportionate Share of the Additional Capital Requested Amount. Any funds
advanced by the Members to the Company pursuant to this Section shall be
referred to as "Additional Capital" and shall constitute additional
Contributions to the Company.

                                       22
<PAGE>

          (c) Objection to Funding Notice. If either Member presents an
objection to the amount of the Funding Notice, the Members shall endeavor to
come to a compromise regarding the amount of the Additional Capital Requested
Amount set forth in such Funding Notice. If, however, the Members cannot resolve
the dispute over the amount, or need for the Additional Capital Requested Amount
set forth in a Funding Notice, then the Members shall proceed with binding
arbitration as provided for under Section 12.3 herein.

          (d) Capital Expenses. The Members hereby agree that from and after
date of completion of construction any Property, Capital Expenses for such
Property approved in accordance with an Approved Budget or otherwise approved by
the terms of this Agreement or by written consent of the Members shall be paid
in accordance with the procedure set forth below in this Section 3.3(d) (it
being agreed that prior to such date, Capital Expenses for such Property shall
be paid as provided in Section 3.2 above) Without limiting any other reporting
requirements of Manager hereunder, within fifteen (15) days after the expiration
of each month, the Manager shall forward to the AEW Members a report identifying
all Capital Expenses for which payment is due as of the month just ended,
together with invoices evidencing the amounts due. Within ten (10) days after
receipt of such notice, each Member shall contribute its Proportionate Share of
the Capital Expenses identified on such report as Additional Capital, thereby
increasing the Unreturned Contributions of each Member accordingly; provided,
however, that if the aggregate amount of Capital Expenses actually due for any
month is less than $10,000, then, unless the Members otherwise agree, the
Members shall not contribute Additional Capital therefor until the next monthly
report identifying aggregate Capital Expenses (inclusive of unpaid Capital
Expenses from any prior month) equal to or greater than $10,000.

          (e) FF&E, Case Goods and Systems. Notwithstanding any provision hereof
to the contrary, the Sunrise Member hereby agrees to pay, at its sole cost and
expense (and not as Contribution or Subdebt or as a Facility Expense under any
Facility Management Agreement), the amount, if any, by which the actual costs to
purchase and install in any Property FF&E, case goods and systems consistent
with those utilized in state-of-the-art prototypical Sunrise Senior Housing
Facilities exceeds the amount therefor set forth in the respective Development
Budgets.

     Section 3.4. Form of Contributions. Except as otherwise set forth in
Section 3.1.1 with respect to initial Contributions by the Sunrise Member, all
Contributions shall be paid (or, in the case of Contributions under Section
3.3(d), shall be deemed to have been paid) in cash.

     Section 3.5. No Right to Interest or Return of Capital. Except as
specifically provided for herein, no Member shall be entitled to any return of
or interest on Contributions to the Company.

     Section 3.6. No Third Party Rights. Any obligations or rights of the
Company or the Members to make or require any Contribution under this Article
III shall not result in the grant of any rights or confer any benefits upon any
Person who is not a Member.

     Section 3.7. Limitations. Except as set forth in Sections 3.1, 3.2 and 3.3
hereof, no Member shall be entitled or required to make any Contribution to the
Company. No Member shall have any liability for the repayment of the
Contribution of any other Member, and each Member shall look only to the assets
of the Company for return of its Contributions.

                                       23
<PAGE>

     Section 3.8. Financing.

     3.8.1 Construction Financing.

          (a) The Members acknowledge that, as of the date hereof, certain
Properties (as identified on Exhibit G) are encumbered by the GMACCM Loans. The
Sunrise Member shall cause SDI to obtain Construction Loans for all other
Properties. Each Construction Loan shall satisfy the following criteria:

               (i) the amount of the Construction Loan shall cover at least
seventy percent (70%) of the lesser of (A) of the total Project Costs for the
Property (including, without limitation, development fees, financing fees and
preopening management fees payable to the Sunrise Member or affiliates thereof
pursuant to the applicable Development Agreement and Operating Agreement), and
interest reserves and operating deficit reserves), and (B) the Stabilized Value
of the Property; provided, however, that the AEW Member will consent to a
Construction Loan of less than seventy percent (70%) of the lesser of the
Project Costs or Stabilized Value of the applicable Property (subject, however,
to the provisions of Section 3.2(e) above if the amount of any Construction Loan
is less than fifty-five percent (55%) of the lesser of the Project Costs or
Stabilized Value for the applicable Property);

               (ii) the term of each Construction Loan should be at least three
(3) years with a one-year extension period;

               (iii) the interest rate on a Construction Loan shall be a
competitive market rate for comparable non-recourse construction financings;

               (iv) interest on the Construction Loans may be a LIBOR based
floating rate loan, provided, however, that at the request of the AEW Member,
any floating rate loan shall include a hedge mechanism such as an interest rate
swap or cap;

               (v) the AEW Member shall not be responsible for any recourse
obligations under any Construction Loan;

               (vi) The Construction Loans may be single asset mortgages or
cross-collateralized mortgages on a portfolio of properties; and

               (vii) the identity of each construction lender and the terms and
conditions of any Construction Loan (including, without limitation, the interest
rate) shall be satisfactory to the AEW Member in its reasonable discretion; and

          (b) If required by any Construction Lender, the Sunrise Member shall,
or shall cause Operator or another affiliate of the Sunrise Member satisfactory
to such lender, to deliver an Operating Deficit Guaranty; provided, however,
that the Company shall agree to reimburse the guarantor for the amount, if any,
actually paid by such guarantor to any construction lender as a result of (i)
Non-Controllable Expenses in excess of three percent (3%) over the amount
therefore set forth in the Approved Budget for the applicable Property, or (ii)
debt service attributable to interest at a rate in excess of seven percent (7%)
per annum (except to the extent that such excess is due to any default under the
Construction Loan arising from or relating to any

                                       24
<PAGE>

default by the Sunrise Member or any of its Related Parties under any Facility
Development Agreement or Facility Management Agreement).

3.8.2    Permanent Financing

          (a) Upon the maturity of any Construction Loan or, if agreed to by the
Members, upon the stabilization of any Property, the Sunrise Member will use its
best efforts to obtain long term, fixed rate loan for such Property (a
"PERMANENT Loan") satisfying the following criteria:

               (i) the loan-to-value ratio for such Permanent Loan shall be
sixty-five percent (65%) to seventy percent (70%);

               (ii) either (A) the Permanent Loan lender will agree to
assumption of the Permanent Loan on reasonable terms (as agreed to by the
Members) or (B) the Members shall agree in writing (prior to signing any
commitment for or closing the Permanent Loan) to extend the Investment Period
for an additional term mutually satisfactory to the Members;

               (iii) the Permanent Loan will be non-recourse for the Subsidiary
which owns the Property and as to the AEW Member (it being agreed, however, that
if required by any permanent lender, the Sunrise Member shall, or shall cause
one or more of its Related Parties to, deliver a guaranty of any nonrecourse
carve-outs under the Permanent Loan); and

               (iv) the AEW Member shall be satisfied in its reasonable
discretion that the interest rate on each such Permanent Loan is a competitive,
market rate and that the other terms of the Permanent Loan are commercially
reasonable.

          (b) The Members acknowledge that while the Sunrise Member will lead
the pursuit of Permanent Loans, it may be necessary to select an
advisor/underwriter (for example, a DUS) to arrange such Permanent Loans, if
such an advisor is required. Any such advisor and any fees payable thereto shall
be subject to approval by the AEW Member. The fees paid to any such advisor to
assist in arranging any permanent financing will be an expense of the Company.

     3.8.3 General. Subject to the foregoing, the Members shall cooperate on
behalf of the Company and use their best efforts, in good faith, to obtain the
Construction Loans and the Permanent Loans. Except with the consent of each
Member, no Loan shall be accepted that would prohibit or hinder the transfer of
interests by a Member in the manner and at the times contemplated by Section
8.2, Section 8.4 or Section 8.7, and any Loan procured by the Company shall be
freely assumable, without the payment of any fee or cost (other than customary
legal fees, out of pocket costs and the like) by either Member at any time, and
shall be non-recourse to the Members (except with respect to commercially
customary non-recourse carveouts).

     Section 3.9. Failure to Contribute Capital. If a Member fails to make a
Contribution required by Section 3.2(a) within the ten (10) business day period
set forth therein, then the other Member may immediately advance such amount as
a "Default Loan" (described below). The Member so advancing shall give written
notice to the failing Member simultaneously with the making of the Default Loan
advance. If such failed advance is not repaid in full (with interest) within
sixty (60) days, then the advancing Member may proceed under the remainder of
this Section. If any Member fails to make a Contribution required under this
Article III other than a

                                       25
<PAGE>

Contribution required by Section 3.2(a) by the date such Contribution is due and
such failure continues until the later of (i) thirty (30) days after written
notice from the Member which has not failed to make its Contribution or (ii)
thirty (30) days after a decision is rendered in the arbitration proceedings
under Section 12.3 (assuming that arbitration had been initiated as to such
Contribution) (any such failing Member shall be a "Defaulting Member" and the
amount of the failed contribution shall be the "Default Amount"), then the
non-defaulting Member shall have any one or more of the following remedies as
its sole and exclusive remedies at law or in equity in connection with the
applicable default; provided, however, that if the non-defaulting Member elects
the remedy set forth in Subsection (a), it shall not have the right to proceed
under Subsections (b) or (c) unless and until the Defaulting Member shall
default in the payment of any applicable Default Loan, and provided further that
if the non-Defaulting Member elects the remedy set forth in Subsection (e), it
may not elect the remedies set forth in Subsections (a), (b), (c) or (d) in
connection with the applicable default:

          (a) to advance to the Company on behalf of, and as a loan to the
Defaulting Member, an amount equal to the Default Amount to be evidenced by a
promissory note in substantially the form attached hereto as Exhibit B (each
such loan, a "Default Loan"). The Capital Account of the Defaulting Member shall
be credited with the amount of such Contribution and such amount shall
constitute a debt owed by the Defaulting Member to the non-defaulting Member.
Any Default Loan shall bear interest at the Default Rate and shall be payable
from any distributions due the Defaulting Member hereunder, but shall in all
events be payable in full by the last day of the twelfth (12th) full month after
the making of such promissory note. Interest on a Default Loan to the extent
unpaid shall accrue and compound monthly. A Default Loan shall be prepayable at
any time or from time to time without penalty. Such Default Loans shall be
secured solely by the Defaulting Member's interest in the Company, including,
without limitation, such Defaulting Member's rights to distributions under
Article V. Except as expressly provided herein, Default Loans (other than those
arising out of a failure to make a Contribution pursuant to Section 3.1 which
Default Loan shall be fully recourse), with interest as aforesaid, shall
otherwise be without recourse to any other assets of the Defaulting Member. The
Defaulting Member hereby grants a security interest in its interest in the
Company to the non-defaulting Member and the Defaulting Member hereby
irrevocably appoints the non-defaulting Member, and any of its respective
officers, as its attorney-in-fact coupled with an interest with full power to
prepare and execute any documents, instruments and agreements, including, but
not limited to, any note evidencing the Default Loan and such Uniform Commercial
Code Financing Statements, continuation statements, and other security
instruments as may be appropriate to perfect and continue its security interest
in favor of the non-defaulting Member. Any Contributions contributed by the
non-defaulting Member on behalf of a Defaulting Member shall be deemed to be
made by the Defaulting Member except as otherwise expressly provided herein. All
distributions to the Defaulting Member hereunder shall be applied first to
payment of any interest due under any Default Loan and then to principal until
all amounts due thereunder are paid in full;

          (b) The non-defaulting Member may elect by written notice, at least
sixty (60) days prior to the effective date of such election (within which
60-day period the Defaulting Member may cure its default), to the Defaulting
Member to acquire the Defaulting Member's entire interest in the Company for a
purchase price equal to the Defaulting Member's Discounted Membership Value. The
term "Defaulting Member's Discounted Membership Value" shall

                                       26
<PAGE>

mean ninety percent (90%) of the amount that would be distributed to the
Defaulting Member if all of the Properties were sold at their respective
Appraised Fair Market Value (determined pursuant to the procedures set forth in
Section 8.2.3) as of the date of exercise of this remedy and the proceeds of
such sale (after closing costs) were distributed to the Defaulting Member under
Section 5.3 hereof. Each Member acknowledges that in the circumstance of a
default by the Defaulting Member, the Defaulting Member's Discounted Membership
Value is not intended to be a penalty to the Defaulting Member, but rather a
recognition that the Defaulting Member holds an illiquid interest in the Company
which factors have been taken into account solely for purposes of valuing its
interest in the Company under the circumstances of this Section 3.9. The closing
of such acquisition shall be in accordance with the provisions of Section 8.4.4,
except that the closing shall be on a date designated by notice to the
Defaulting Member, which date shall be no later than sixty (60) days after the
date of the exercise of such option by the non-defaulting Member, unless on that
date the Discounted Membership Value has not been finally determined, in which
event such closing date shall not be later than ten (10) days after such amount
is determined. The non-defaulting Member shall have the right to offset against
the purchase price due the Defaulting Member any amount outstanding under any
Default Loan;

          (c) to advance to the Company as an additional Contribution the
Default Amount whereupon the Proportionate Shares of the Members shall be
recalculated as provided in this subparagraph (c). After the exercise of a
Member's rights under this subparagraph (c), (i) the Proportionate Share of the
non-Defaulting Member shall equal a fraction (expressed as a percentage, but not
to exceed 100%), the numerator of which shall equal the aggregate sum of (w) the
aggregate amount of all Capital Call Shortfalls contributed by the
non-Defaulting Member since the inception of the LLC times two (2) plus (x) the
amount of Capital Contributions made by such Member under this Agreement, and
the denominator of which shall equal the aggregate sum of (y) the Capital Call
Shortfalls plus (z) the amount of all other Capital Contributions made by the
Members under this Agreement, and (ii) the Proportionate Share of the Defaulting
Member shall be adjusted to equal one hundred percent (100%) minus the adjusted
Proportionate Share of the non-Defaulting Member;

          (d) if the Defaulting Member (i) fails to make a Contribution pursuant
to Section 3.1 or Section 3.2 by the date such Contribution is due and such
failure continues for ten (10) Business Days after written notice from the
Member which had not failed to make its Contribution or (ii) shall have
previously defaulted (after any applicable cure periods) on its obligation to
contribute Capital to the Company pursuant to Section 3.3 on one or more
occasions, notwithstanding any other provisions of this Agreement and without
waiving the right to invoke the provisions of this subparagraph (d) by failing
to exercise the remedy herein in any instance, to elect to treat such default as
an Event of Default under Article XI of this Agreement; or

          (e) to revoke the Funding Notice for both Members, whereupon any
Contributions paid by the non-defaulting Member pursuant to such Funding Notice
shall be returned, in which event the Sunrise Member or the AEW Member, as the
case may be, shall reconsider the needs of the Company for Additional Capital
and may issue any Funding Notice following such reconsideration.

                                       27
<PAGE>

     Section 3.10. Loss of Voting Power and Control by Defaulting Member. If a
Member becomes a Defaulting Member pursuant to Section 3.9 above, then that
Defaulting Member shall forfeit its right to actively participate in the
direction, vote, and control of the Company until such time that the Defaulting
Member cures such default, including, without limitation the repayment in full
of any Default Loan; the non-defaulting Member shall have the full right, power
and authority to make all decisions and take any and all actions on behalf of
the Company; and all actions of the non-defaulting Member taken on behalf of the
Company during the period of such default shall be binding upon the Company and
for all purposes be deemed to have been undertaken with the full consent and
approval of the Defaulting Member; provided, however, that (A) the right of the
Sunrise Member to actively participate as aforesaid, or (B) the necessity for
the consent of the AEW Member as to all Major Decisions shall continue, so long
as (i) either Member is contesting the alleged default pursuant to arbitration
proceeding under Section 12.3 hereof, and (ii) either the alleged Defaulting
Member prevails in such arbitration proceeding, or, if such Member does not
prevail in such arbitration proceeding, such Member cures the applicable default
in accordance with the decision of the arbitrator(s) under the arbitration
proceeding; and, provided, further however, that under no circumstance shall one
Member have any authority, without the written consent of the other Member, to
cause the Company to sell, transfer or convey all, or substantially all, of the
assets of the Company, acquire additional Properties, to engage in any material
improvements of any Property (other than pursuant to an Approved Budget which
has been approved by both Members or Preservation Costs), to incur on behalf of
the Company any financing which includes any recourse obligations of the other
Member, to engage in any transaction with any Related Party of the Member other
than on arm's-length terms and as required under Sections 6.6.5 and 6.6.6, to
obtain insurance other than on terms and with coverages as are approved by the
AEW Member, or to amend this Agreement, nor shall the AEW Member forfeit any of
its rights under Article IV, Article V (as to the right to receive
distributions) Article VIII, or its rights to receive reports and obtain
information pursuant to Article IX or any other provision of this agreement, or
its rights under Section 12.14.

     Section 3.11. Third Party Loans. In the event that the Company requires
additional funds to carry out its purposes, to conduct its business, or to meet
its obligations, or to make any expenditure authorized by this Agreement, the
Company may borrow funds from such third party lender(s), and on such terms and
conditions as may be acceptable to the AEW Member, subject to the prior written
consent of the Sunrise Member, not to be unreasonably withheld.

     Section 3.12. Voluntary Loans. If the Company requires additional funds to
carry out its purposes, to conduct its business, to meet its obligations, or to
make any expenditure authorized by this Agreement, and additional funds are not
required to be made available by SALI or SALMI pursuant to the Revolving Credit
Agreement or the Operating Deficit Loan Agreement and are not available from
third parties pursuant to Section 3.11 on terms more favorable to the Company
than those set forth in the following sentence, either Member may, but shall not
be obligated to, loan such funds to the Company. Any loan made pursuant to this
Section 3.12 (a "Voluntary Loan") shall be non-recourse to the Members, shall be
evidenced by a promissory note, shall be unsecured, shall not violate the
Company's other loan or contractual arrangements, shall bear interest,
compounded monthly, at a rate of interest equal to the lesser of (a) the greater
of (i) twelve percent (12%) per annum and (ii) the Prime Rate plus 3% per annum
or (b) the highest rate permitted by law, shall be repaid out of the first funds
available therefor

                                       28
<PAGE>

and in any event prior to any distribution to any Member of Distributable Cash
or Capital Proceeds, and shall become due and payable in full not more than five
years after the date such loan is made. If both Members desire to make Voluntary
Loans to satisfy any requirement of the Company for additional funds, the
Members shall make such Voluntary Loans in accordance with their respective
Proportionate Shares, unless otherwise agreed to by the Members.

     Section 3.13. AEW Member's Right to Audit Development Costs.
Notwithstanding any provision hereof to the contrary, the AEW Member shall have
the right to perform a third party audit of the Sunrise Member's Development
Costs with respect to each Property. The Sunrise Member will cooperate, and
cause its Related Parties to cooperate, with any such audit. The cost of any
such audit performed after the date hereof shall be an expense of the AEW Member
outside of the Company, and the cost of cooperation with any such audit by the
Sunrise Member shall be an expense of the Sunrise Member outside the Company;
provided, however, that if any such audit reveals that the Sunrise Member or any
Related Party overstated Development Costs to the AEW Member with respect to any
Property, then: (i) there shall be an appropriate adjustment between the AEW
Member and the Sunrise Member to reflect the Contributions that should have been
made by the AEW Member if the Development Costs had been correctly reported(if
an adjustment results from such discrepancy); and (ii) if such audit reveals
that the Sunrise Member or any Related Party overstated Development Costs to the
AEW Member by more than five (5%) percent with respect to any Property, and the
resulting adjustment under clause (i) above results in a reduction of the
contributions required to be made by the AEW Member, the Sunrise Member shall
reimburse the AEW Member (as an expense of the Sunrise Member outside the
Company) for the reasonable audit costs incurred by the AEW Member.

     Section 3.14. Repayment of Subdebt. Within ninety (90) days after final,
lien-free completion of construction of all Properties and disbursement of all
available funds from the Construction Loans, the Sunrise Member shall deliver to
the AEW Member a final accounting and reconciliation of all Project Costs and
the amounts disbursed under all Construction Loans and the Revolving Credit
Agreement. The Members shall make Contributions in accordance with their
respective Proportionate Shares of the balance of any Subdebt (including all
accrued interest); provided, however, that the AEW Member may elect not to
Contribute funds to pay all or any portion of its Proportionate Share of any
such Subdebt, in which case such Subdebt, and any accrued interest thereon,
shall be repaid as provided in Section 5.3 below. Notwithstanding the foregoing,
the Sunrise Member shall cause SDI to pay any portion of any Subdebt (and any
accrued interest thereon) which is a "Guaranteed Obligation" under Section 2.07
of the Development Agreement by virtue of Project Costs exceeding the
Development Budget, subject to the terms of Section 6 of the Master Agreement.
No such payment by SDI shall be deemed to be a Contribution by the Sunrise
Member, nor shall the Company nor any of its Members have any obligation to SDI
with respect thereto for reimbursement thereof or otherwise.

     Section 3.15. AEW Member Contribution Cap. Notwithstanding any provision
hereof to the contrary, in no event shall the AEW Member be required to make any
Contribution to the extent that such Contribution would cause the aggregate
amount of all Contributions made by the AEW Member to exceed the AEW Member
Contribution Cap (unless additional Properties become subject to this Agreement
pursuant to a written amendment to this Agreement executed by the Members, in
which case the AEW Member Contribution Cap shall be adjusted as provided in such
amendment).

                                       29
<PAGE>

                   ARTICLE IV - CAPITAL ACCOUNTS, ALLOCATIONS
                               OF INCOME AND LOSS

     Section 4.1. Capital Accounts. A separate capital account (each a "Capital
Account") shall be maintained for each Member in accordance with the rules of
Treasury Regulations Section 1.704-1(b)(2)(iv). To the extent consistent with
such Treasury Regulations, the adjustments to such accounts shall include the
following:

(a) There shall be credited to each Member's Capital Account the amount of any
cash actually contributed by such Member to the capital of the Company, the fair
market value of any property contributed by such Member to the capital of
Company, the amount of liabilities of the Company assumed by the Member or to
which property distributed to the Member was subject and such Member's share of
the Net Profits of the Company and of any items in the nature of income or gain
separately allocated to the Members; and there shall be charged against each
Member's Capital Account the amount of all cash distributions to such Member,
the fair market value of any property distributed to such Member by the Company,
the amount of liabilities of the Member assumed by the Company or to which
property contributed by the Member to the Company was subject and such Member's
share of the Net Losses of the Company and of any items in the nature of losses
or deductions separately allocated to the Members.

(b) In the event any interest in the Company is transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the transferred interest.

     Section 4.2. Allocation of Net Profits. Except as provided in Sections 4.6
and 4.7 below (which shall be applied first), Net Profits of the Company for any
relevant period shall be allocated as follows:

          (a) First, to any Members having negative Modified Capital Account
balances, in proportion to and to the extent of such negative balances; and

          (b) The balance, if any, to the Members in such proportions and in
such amounts as would result in the Modified Capital Account balance of each
Member equaling, as nearly as possible, such Member's share of the then Company
Capital determined by calculating the amount the Member would receive if an
amount equal to the Company Capital were distributed to the Members in
accordance with the provisions of Section 5.3 hereof (without regard to
subsection (e) thereof).

     Section 4.3. Allocations of Net Losses. Except as provided in Sections 4.5,
4.6 and 4.7 below (which shall be applied first), Net Losses of the Company for
any relevant period shall be allocated as follows:

          (a) First, to each Member with a positive Modified Capital Account
balance, in the amount of such positive balance; provided, however, that if the
amount of Net Losses to be allocated is less than the sum of the Modified
Capital Account balances of all Members having positive Modified Capital Account
balances, then the Net Losses shall be allocated to the Members in such
proportions and in such amounts as would result in the Modified Capital

                                       30
<PAGE>

Account balance of each Member equaling, as nearly as possible, such Member's
share of the then Company Capital determined as set forth in Section 4.2(b)
above; and

          (b) The balance, if any, to the Members in accordance with their
respective Proportionate Shares.

     Section 4.4. Allocations If Insufficient Net Profits or Net Losses. If the
amount of Net Profits allocable to the Members pursuant to Section 4.2 or the
amount of Net Losses allocable to them pursuant to Section 4.3 is insufficient
to allow the Modified Capital Account balance of each Member to equal such
Member's share of the Company Capital, such Net Profits or Net Losses shall be
allocated among the Members in such a manner as to decrease the differences
between the Members' respective Modified Capital Account balances and their
respective shares of the Company Capital in proportion to such differences.

     Section 4.5. Loss Limitation. Net Losses allocated pursuant to Section 4.3
shall not exceed the maximum amount of Net Losses that can be allocated without
causing or increasing a deficit balance in a Member's Adjusted Capital Account.
A Member's "Adjusted Capital Account" balance shall mean such Member's Capital
Account balance increased by such Member's obligation to restore a deficit
balance in its Capital Account, including any deemed obligation pursuant to the
penultimate sentences of Treasury Regulations Section 1.704-2(g)(1) and
1.704-2(i)(5), and decreased by the amounts described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6). In the event that one but not all
of the Members would have a deficit balance in its Adjusted Capital Account as a
consequence of an allocation of Net Losses pursuant to Section 4.3 in excess of
the amount, if any, permitted under the first sentence of this Section 4.5, the
limitation set forth in this Section 4.5 shall be applied by allocating 100% of
the remaining Net Losses to the other Members in accordance with Section 4.3
until the Adjusted Capital Account of such other Member is zero.

     Section 4.6. Minimum Gain Chargebacks and Nonrecourse Deductions.

          (a) Notwithstanding any other provisions of this Agreement, in the
event there is a net decrease in Company Minimum Gain during a fiscal year, the
Members shall be allocated items of income and gain (computed with the
adjustments set forth in clauses (i), (ii), (iii), (iv), (vii) and (viii) of the
definition of "Net Profits" and "Net Losses") in accordance with Treasury
Regulations Section 1.704-2(f). For purposes of this Agreement, the term
"Company Minimum Gain" shall mean "partnership minimum gain" as set forth in
Treasury Regulations Section 1.704-2(b)(2), and any Member's share of Company
Minimum Gain shall be determined in accordance with Treasury Regulations Section
1.704-2(g)(1). This Section 4.6(a) is intended to comply with the minimum gain
charge-back requirement of Treasury Regulations Section 1.704-2(f) and shall be
interpreted and applied in a manner consistent therewith.

          (b) Notwithstanding any other provision of this Agreement,
"nonrecourse deductions" (within the meaning of Treasury Regulations Section
1.704-2(b)(1) shall be allocated to the Members, pari passu, in proportion to
their Proportionate Shares.

          (c) Notwithstanding any other provisions of this Agreement, to the
extent required by Treasury Regulations Section 1.704-(i)), any items of income,
gain, loss or deduction

                                       31
<PAGE>

of the Company (computed with the adjustments as set forth in clauses (i), (ii),
(iii), (iv), (vii) and (viii) of the definitions of "Net Profits" and "Net
Losses") that are attributable to a nonrecourse debt of the Company that
constitutes "partner nonrecourse debt" as defined in Treasury Regulations
Section 1.704-2(b)(4) (including chargebacks of partner nonrecourse debt minimum
gain) shall be allocated in accordance with the provisions of Treasury
Regulations Section 1.704-2(i). This Section 4.6(c) is intended to satisfy the
requirements of Treasury Regulations Section 1.704-2(i) (including the partner
nonrecourse debt minimum gain chargeback requirements) and shall be interpreted
and applied in a manner consistent therewith.

     Section 4.7. Qualified Income Offset. Any Member who unexpectedly receives
an adjustment, allocation or distribution described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes a deficit balance in its
Capital Account (in excess of any deemed deficit restoration obligation pursuant
to Treasury Regulations Sections 1.704-2(g)(1) and (i)(5), and adjusted as
provided in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)) shall be
allocated items of income and gain (computed with the adjustments set forth in
clauses (i), (ii), (iii), (iv), (vii) and (viii) of the definition of "Net
Profits" and "Net Losses") in an amount and a manner sufficient to eliminate, to
the extent required by the Treasury Regulations, such deficit balance as quickly
as possible. This Section 4.7 is intended to comply with the alternate test for
economic effect set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted and applied in a manner consistent therewith.

     Section 4.8. Tax Allocation: Code Section 704(c). Except as otherwise
provided herein or as required by Code Section 704, for tax purposes, all items
of income, gain, loss, deduction or credit shall be allocated to the Members in
the same manner as are Net Profits and Net Losses; provided, however, that if
the Gross Asset Value of any property of the Company differs from its adjusted
basis for tax purposes, then items of income, gain, loss, deduction or credit
related to such property for tax purposes shall be allocated among the Members
so as to take account of the variation between the adjusted basis of the
property for tax purposes and its Gross Asset Value in the manner provided for
under Code Section 704(c). To the extent that regulations promulgated pursuant
to Code Section 704(c) permit a Partnership to utilize alternative methods to
eliminate the disparities between book value (within the meaning of Treasury
Regulation Section 1.704-1(b)(2)(iv)(g)) of the property and its adjusted tax
basis, the Sunrise Member shall, subject to the following, have the authority to
elect the method to be used by the Company and such election shall be binding on
all Members. With respect to the Properties, the Company shall elect to use the
"traditional method" set forth in Treasury Regulation Section 1.704-3(b).

     Section 4.9. Distributions of Nonrecourse Liability Proceeds. If, during a
fiscal year, the Company makes a distribution to any Member that is allocable to
the proceeds of any nonrecourse liability of the Company that is allocable to an
increase in Company Minimum Gain pursuant to Treasury Regulations Section
1.704-2(h), then the Company shall elect, to the extent permitted by Treasury
Regulations Section 1.704-2(h)(3), to treat such distribution as a distribution
that is not allocable to an increase in Company Minimum Gain.

     Section 4.10. Intentionally Omitted.

                                       32
<PAGE>

     Section 4.11. Other Allocation Provisions. Any elections or other decisions
relating to the allocations of Company items of income, gain, loss, deduction or
credit shall be made by the Sunrise Member in any manner that reasonably
reflects the purpose and intention of this Agreement.

     Section 4.12. No Deficit Restoration to Members. No Member shall be
required to contribute capital to the Company to restore a deficit balance in
its Capital Account upon liquidation or otherwise.

     Section 4.13. Timing of Allocations. Allocations of Net Profits, Net Losses
and similar items provided for in this Article IV shall generally be made as of
the end of the Fiscal Year of the Company; provided, however, that allocations
of items described in clause (vii) of the definition of "Net Profits" and "Net
Losses" shall be made at the time deemed realized.

                            ARTICLE V - DISTRIBUTIONS

     Section 5.1. General Provisions.

          5.1.1 General. The Manager shall cause all Distributable Cash held by
the Company to be distributed to the Members.

          5.1.2 Prohibited Distributions. Notwithstanding any provision of this
Agreement to the contrary, the Company shall not make any distributions
prohibited by the terms of the Act.

     Section 5.2. Distributions of Distributable Cash.

          5.2.1 General. Subject to the provisions of Sections 5.2.2, 5.2.3,
5.2.4, 5.3 and 5.4, within twenty-five (25) days after the end of each calendar
quarter, the Manager shall distribute Distributable Cash with respect to such
calendar quarter to the Members, subject to any adjustments made pursuant to
Section 3.9 or Section 3.12, as follows:

          (a) First, to the AEW Member and the Sunrise Member, in accordance
with the AEW First Tier Distribution Percentage and the Sunrise Member First
Tier Distribution Percentage, respectively, until the balance of the AEW
Member's Unpaid First Tier Return Amount has been reduced to zero (0);

          (b) Second, to the Sunrise Member until the balance of the Sunrise
Member's Unpaid First Tier Return Amount has been reduced to zero (0);

          (c) Third, the balance, if any, shall be distributed to the Members in
accordance with their respective Proportionate Shares.

          5.2.2 After Marriott Termination Notice. Notwithstanding the
provisions of Section 5.2.1, provided that and for so long as neither the
Sunrise Member, SALI, SALMI, SDI, nor any of its or their Related Parties has
obtained directly or indirectly any Marriott Management Rights or entered into
any agreement pursuant to which it may obtain Marriott Management Rights,
subject to the provisions of Sections 5.2.3, 5.2.4, 5.3 and 5.4, within

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<PAGE>

twenty-five (25) days after the end of each calendar quarter from and after the
date of delivery by the Sunrise Member to the AEW Member of a Marriott
Termination Notice, the Manager shall distribute Distributable Cash with respect
to such quarter to the Members in accordance with their respective Proportionate
Shares. Notwithstanding the foregoing provisions of this Section 5.2.2, upon
such time, if ever, that the Sunrise Member, SALI, SALMI, SDI or any of its or
their Related Parties shall obtain directly or indirectly, any Marriott
Management Rights, distributions of Distributable Cash shall again be made in
accordance with and pursuant to Section 5.2.1 hereof and not this Section 5.2.2,
effective as of the earlier of (i) date that the Sunrise Member, SALI, SALMI,
SDI or any of its or their Related Parties executes any document, instrument, or
agreement with respect to the exercise of Marriott Management Rights, or (ii)
commences the performance of any services with respect to any Senior Housing
Facilities which is subject to such Marriott Management Rights.

          5.2.3 Adjustments to Distributable Cash. Should any adjustments have
been made pursuant to Section 3.9 herein, Distributable Cash with respect to
such Calendar Year shall be divided by 365 to arrive at the "Average
Distributable Cash per Day." Said amount shall then be allocated between the
Members in proportion to their Proportionate Shares for each day of the Calendar
Year to arrive at, for each Member, the "Member's Share of Daily Distributable
Cash." Each Member's share of Distributable Cash for the Calendar Year shall
equal the sum of the Member's Shares of Daily Distributable Cash for all days
during the Calendar Year.

          5.2.4 Monthly Estimated Distributions. Without limiting the provisions
of Section 5.2.1 and 5.2.2, commencing after the first (1st) month for which
Distributable Cash is equal to or greater than $25,000, within twelve (12) days
after the end of each of the first two (2) calendar months in each calendar
quarter, the Manager shall distribute Distributable Cash with respect to such
calendar month to the Members based upon the Manager's good faith estimate of
the distributions and payments that would be made to each Member and Operator if
the distributions and payments under Section 5.2.1 or Section 5.2.2, as the case
may be, were required to be made monthly rather than quarterly (unless such 12th
day is not Business Day, in which case such distribution shall be made on the
next Business Day after said 12th day). Within twelve (12) days after the third
calendar month in each calendar quarter, the Manager shall reconcile the
estimated distributions and payments made for the preceding calendar months with
the actual distributions due to the Members and payments to the Operator for the
calendar quarter and shall adjust distributions due to the Members and payments
due to Operator as necessary to comply with the provisions of Section 5.2.1, or
Section 5.2.2, as the case may be, for such calendar quarter (unless such 12th
day is not Business Day, in which case such distribution shall be made on the
next Business Day after said 12th day). The Members hereby agree to return such
distributions, and the Sunrise Member hereby guarantees the obligation of the
Operator to return such payments made, as may be necessary to achieve such
reconciliation within ten (10) days after written demand by the Manager or the
AEW Member, provided that such demand is accompanied by reasonable supporting
documentation.

     Section 5.3. Distributions From Capital Transactions.

          5.3.1 General. Subject to the provisions of Section 5.2 above and
Section 5.3.2 below, as soon as reasonably practicable (but in any event within
thirty (30) days) after the closing of any Capital Transaction, the Manager
shall distribute any distributable proceeds of

                                       34
<PAGE>

such Capital Transaction to the Members as follows, after paying, satisfying or
funding the following (in the following order of priority): (1) paying all usual
and customary closing costs in connection with the applicable Capital
Transaction, (2) satisfying any outstanding Loans with respect to the Properties
to which the Capital Transaction applied, (3) funding all Reserves, and (4)
satisfying all outstanding Subdebt:

          (a) First, to the AEW Member and the Sunrise Member, in accordance
with the AEW First Tier Distribution Percentage and the Sunrise First Tier
Distribution Percentage, respectively, until the balance of the AEW Member's
Unpaid First Tier Return Amount has been reduced to zero (0);

          (b) Second, to the AEW Member and the Sunrise Member, in accordance
with the AEW First Tier Distribution Percentage and the Sunrise First Tier
Distribution Percentage, respectively, until the balance of the AEW Member's
Unreturned Contributions has been reduced to zero (0);

          (c) Third, to the Sunrise Member until the balance of the Sunrise
Member's Unpaid First Tier Return Amount has been reduced to zero (0);

          (d) Fourth, to the Sunrise Member until the balance of the Sunrise
Member's Unreturned Contributions has been reduced to zero (0);

          (e) Fifth, to the Sunrise Member until the balance of any Operating
Deficit Loans, together with a 10% per annum return thereon, has been reduced to
zero (0);

          (f) Sixth, to the AEW Member and the Sunrise Member, in accordance
with the AEW Second Tier Distribution Percentage and the Sunrise Second Tier
Distribution Percentage, respectively, until the balance of the AEW Member's
Unpaid Second Tier Return Amount has been reduced to zero (0); and

          (g) Seventh, the balance, if any, shall be distributed to the AEW
Member and the Sunrise Member, in accordance with the AEW Third Tier
Distribution Percentage and the Sunrise Third Tier Distribution Percentage,
respectively.

          5.3.2 After Marriott Termination Notice. Notwithstanding provisions of
Section 5.3.1, provided that and for so long as neither the Sunrise Member,
SALI, SALMI, SAI or any of its or their Related Parties has obtained, directly
or indirectly, any Marriott Management Rights, subject to the provisions of
Section 5.2, as soon as reasonably practicable (but in any event within thirty
(30) days) after the closing of any Capital Transaction which occurs after the
date that the Sunrise Member gives the AEW Member a Marriott Termination Notice,
the Manager shall distribute any distributable proceeds of such Capital
Transaction to the Members as follows, after paying, satisfying or funding the
following (in the following order of priority): (1) paying all usual and
customary closing costs in connection with the applicable Capital Transaction,
(2) satisfying any outstanding Loans with respect to the Properties to which the
Capital Transaction applied, (3) funding all Reserves, and (4) satisfying all
outstanding Subdebt:

          (a) First, to the AEW Member and the Sunrise Member in accordance with
their respective Proportionate Shares, until the balance of the AEW Member's
Unpaid First Tier

                                       35
<PAGE>

Return Amount has been reduced to zero (0) and the balance of the Sunrise
Member's Unpaid First Tier Return Amount has been reduced to zero(0);

          (b) Second, to the AEW Member and the Sunrise Member, in accordance
with their respective Proportionate Shares, until the balance of the AEW
Member's Unreturned Contributions has been reduced to zero (0) and the balance
of the Sunrise Member's Unreturned Contributions has been reduced to zero (0);

          (c) Third, to the Sunrise Member until the balance of any Operating
Deficit Loans, together with a 10% per annum return thereon, has been reduced to
zero (0);

          (d) Fourth, to the AEW Member and the Sunrise Member, in accordance
with the AEW Second Tier Distribution Percentage and the Sunrise Second Tier
Distribution Percentage, respectively, until the balance of the AEW Member's
Unpaid Second Tier Return Amount has been reduced to zero (0); and

          (e) Fifth, the balance, if any, shall be distributed to the AEW Member
and the Sunrise Member, in accordance with the AEW Third Tier Distribution
Percentage and the Sunrise Third Tier Distribution Percentage, respectively.

     Section 5.4. Distributions Upon Liquidations. In the event the Company (or
a Member's interest therein) is "liquidated" within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), then, all distributions shall be made
in accordance with Section 5.3 hereof.

                         ARTICLE VI - POWERS AND DUTIES

     Section 6.1. General Responsibilities of Manager. Subject to the AEW
Member's rights as set forth in this Article VI and elsewhere in this Agreement,
the Manager shall be the manager of the Company and in such capacity shall have
full responsibility and exclusive and complete discretion in the management and
control of the business and affairs of the Company for the purposes herein
stated, shall make all decisions affecting the Company's affairs and business,
and shall have full, complete and exclusive discretion to take any and all
action that the Company is authorized to take and to make all decisions with
respect thereto. The Manager shall discharge its duties in a fiduciary capacity
under applicable law and in good faith, in a manner it reasonably believes to be
in the best interest of the Company, and with the degree of care, skill,
prudence and diligence that is customarily exercised by Manager in the operation
of Senior Housing Facilities currently owned by Manager. The Manager shall not
knowingly or intentionally allow the Company or any of its Subsidiaries to
violate applicable state or federal laws. The Manager shall not be entitled to
any compensation in consideration of it acting as manager of the Company and
shall only be paid or reimbursed to the extent expressly set forth herein.

     Section 6.2. Budgets and Business Plans.

          (a) Within the time limits set forth on Exhibit J attached hereto, the
Manager shall prepare and submit to the AEW Member for (i) initial review a
draft of the annual business plan, and (ii) approval a proposed final annual
business plan for the next calendar year for the Company and each Subsidiary (it
being understood and agreed that the Manager shall submit

                                       36
<PAGE>

separate business plans for each Subsidiary and a consolidated business plan for
the Company), in such detail as the AEW Member may reasonably request, but in
any event, containing (i) budgets for the Company and each Subsidiary, (ii) a
market analysis, (iii) a general outlook for each investment, (iv) capital
expenditures, and (v) marketing expenses. Any business plan submitted to and
approved by the AEW Member shall be an "Annual Business Plan." The Annual
Business Plan for each Property shall also include a development budget
satisfactory to the Members setting forth the Project Costs for each Property (a
"Development Budget"). Each Development Budget shall also include the cost of
all FF&E, case goods and systems consistent with those utilized and installed in
a state of the art, prototypical Sunrise Senior Housing Facility. The Annual
Business Plan for each Property for the remainder of Fiscal Year 2002 and Fiscal
Year 2003 has been provided by Sunrise Member to AEW Member, receipt of which
are hereby acknowledged. Annual Business Plans for Fiscal Years after 2003 shall
comply with the requirements of this Section and any other applicable
requirements of this Agreement and shall generally be in the form previously
provided with respect to any Property then under development. The Annual
Business Plans for Fiscal Years after 2003 with respect to any Property with
respect to which construction is complete shall be generally in the form used by
the Members pursuant to the AL One Venture Agreement (it being understood that
the failure of the form of the Annual Business Plans for Fiscal Year 2002 and
Fiscal Year 2003 or the form used pursuant to the AL One Venture Agreement to
incorporate any requirement of this Agreement shall not relieve Manager of its
obligation to satisfy such requirement).

          (b) Until the business plan for any calendar year has been approved by
the AEW Member, the Annual Business Plan for the preceding calendar year shall
apply to such calendar year. To the extent that Project Costs are approved in an
Annual Business Plan for future periods beyond the current budget year, such
Project Costs shall be deemed incorporated into the Annual Business Plans for
such future periods, as applicable, unless and until modified by the Members
through their subsequent approval of an Annual Business Plan which provides for
different Project Costs for such future periods. The Manager shall use
commercially reasonable efforts to cause the Company and each Subsidiary to
comply with any Annual Business Plan. The Manager shall not take any voluntary
action to cause a substantial change in or a substantial deviation from any
Annual Business Plan without the approval of the AEW Member. Each Annual
Business Plan shall include, as appropriate, the following:

               (i) a brief narrative description of any material activity
planned to be undertaken;

               (ii) capital budgets for each Property;

               (iii) a projected annual income statement (accrual basis) on a
month-by-month basis;

               (iv) a projection as to the timing and amount of distributions of
Distributable Cash;

               (v) a schedule of total projected Distributable Cash (including
the categories of itemized revenues and expenses used for the Annual Business
Plan for year 2003 and such other categories as the AEW Member may reasonably
request) and projected uses of

                                       37
<PAGE>

monies in any reserves on a month-by-month basis, including a schedule of
projected Negative Cash Flow, if any;

               (vi) if the Members have elected to attempt to sell any assets of
the Company or any of its Subsidiaries during the applicable year, a marketing
plan indicating the assets of the Company and its Subsidiaries to be made
available for sale and a schedule of offering prices for such assets and
indicating the sales plans, if any, for Company and Subsidiary assets;

               (vii) a description of any planned Loans;

               (viii) a description of any planned construction, capital, FF&E
or other personal property expenditures, including projected dates for
commencement and completion of the foregoing;

               (ix) any changes in the investment plans for the Company's and
all Subsidiaries' cash assets;

               (x) a description, including the identity of the recipient (if
known) and the amount and purpose, of all fees and other payments proposed or
expected to be paid for professional services and, if a fee or payment exceeds
$25,000, for other services rendered to the Company by Third Parties;

               (xi) an annual strategic plan with a 3-year forecast of operating
performance, hold/sell analyses and competitive market updates for each Property
in a format approved by the AEW Member;

               (xii) a detailed description of such other information, plans,
maps, contracts, agreements or other matters necessary in order to inform the
AEW Member of all material matters relevant to the development, construction,
operation, management and, if the Members have elected to attempt to sell any
assets of the Company or any Subsidiary during the applicable year, sale of
Company and Subsidiary assets or any portion thereof; and

               (xiii) a brief report as to compliance by the Company, the
Subsidiaries, the Manager and the Operator (insofar as their activities relate
to the Facilities) with respect to the requirements of Sections 12.15 through
12.21, inclusive, hereof, and plan for compliance therewith during the upcoming
year; and

               (xiv) review of the position of the Policy Compliance
Administrator, as provided in Section 6.8 below.

     Section 6.3. Implementation of Annual Business Plan. The Manager
shall, subject to the availability of Company revenues and other cash flow and
the provisions of Section 6.5 below, implement the then applicable Annual
Business Plan and shall have the authority, together with the obligation and
responsibility, to manage the Company's business in accordance therewith. In
performing its duties under this Section 6.3, the Manager shall have the power
and authority to act alone, and in the name and on behalf of the Company,
including the power to execute for and on behalf of the Company any and all
documents and instruments which may be

                                       38
<PAGE>
necessary to carry on the business of the Company, in connection with the
affairs of the Company, subject to the provisions of Section 6.5 below.

     Section 6.4. Authority of Manager. Subject to Section 6.5, the powers
and duties of the Manager shall include, but are not limited to, the following:

          (a) To collect, on a diligent and timely basis, all rents, interest,
issues, dividends, income, profits and properties of every nature due to the
Company or any Subsidiary and to hold or make timely distributions thereof in
accordance with the terms of this Agreement.

          (b) Subject to the provisions of Section 9.2 hereof, to invest and
reinvest cash of the Company or any Subsidiary in one or more interest bearing
demand deposit accounts or other interest bearing accounts, which accounts are
solely the property of the Company or such Subsidiary, with any state or
national bank, provided that the deposits maintained in such accounts are fully
insured by the Federal Deposit Insurance Corporation, or invested in United
States government securities, repurchase agreements secured by obligations of
the United States or its agencies, or other investments and securities issued or
fully guaranteed by the United States or its agencies, with average maturities
of, or redeemable in, not greater than 180 days, provided, however, that Company
and Subsidiary funds shall not be deposited in commingled accounts;

          (c) Prior to completion of construction, the Sunrise Member shall
cause insurance with respect to each Property to be placed by SDI pursuant to
the Development Agreement. After the completion of construction, Manager shall
maintain a program of insurance coverage for the Company and its Subsidiaries,
which shall be with insurance companies and coverages and amounts and otherwise
in form and substance as agreed upon, in writing, by the Members (the "Insurance
Program"). The Members hereby agree that the Insurance Program shall include
property insurance coverage for the Properties through the CalPERS Master
Insurance Program until such time as the AEW Member shall elect in writing to
discontinue the coverage within said CalPERS Master Insurance Program. Further,
subject to the provisions set forth below in this Section 6.4(c), the coverages
required to be obtained and maintained under the Insurance Program shall include
the requirements set forth on Exhibit E attached hereto. Annually, on or before
the date which is sixty (60) days prior to each renewal date for the Insurance
Program during the term of this Agreement, the Insurance Program shall be
reviewed by the Members in consultation with each other. During the annual
insurance review process, the AEW Member may propose an alternative Insurance
Program for approval, and if adopting such proposed Insurance Program would
result in a five (5%) percent or more savings on the premiums that would be due
for the following year under the Insurance Program then in place or proposed by
Manager, then, assuming the AEW Member's Insurance Program is for the same
coverages in types, amounts and with companies of equal or better ratings, then
the AEW Member's Insurance Program shall be deemed approved by the Members and
constitute the Insurance Program; provided further, however, that the AEW Member
shall have the right to discontinue property insurance coverage through the
CalPERS Master Insurance Program at any time upon written notice to the Sunrise
Member notwithstanding whether a savings on premiums would be achieved as a
result of discontinuing such coverage and adopting alternative coverage. The AEW
Member and Manager shall each be provided with certificates of insurance prior
to each closing of an acquisition of a Property by the Company or a Subsidiary
and whenever the

                                       39
<PAGE>

insurance is renewed, modified or replaced. The AEW Member represents that
neither the AEW Member nor CalPERS is charging the Company or any Subsidiary any
mark-up for overhead or profit for insurance procured through the CalPERS Master
Insurance Program.

          (d) To pay out of the assets of the Company or the applicable
Subsidiary the taxes, premiums for liability insurance, casualty insurance (at
replacement cost) and other expenses generally associated with the ownership of
real estate assets, as approved in the Annual Business Plan or otherwise by the
AEW Member, and in accordance with the requirements of the Cash Management
System.

          (e) To establish one or more corporations, partnerships, trust or
limited liability companies wholly-owned by the Company which corporations,
partnerships, trusts or limited liability companies are either exempt from
taxation under Section 501(c)(2) or Section 501(c)(25) of the Code, treated for
federal income tax purposes as a so-called "pass through" entities or
disregarded for federal income tax purposes. Any such corporation, partnership,
trust or limited liability company shall be organized for the exclusive purpose
of facilitating transactions contemplated by this Agreement, such as holding
title to Property for the Company;

          (f) To make distributions, in accordance with Article V, of cash
assets and liquidation proceeds and proceeds from the sale, exchange or
disposition of any and all property acquired, all in accordance with the
requirements of the Cash Management System;

          (g) To make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted.

     Section 6.5. Approval Rights of the AEW Member. Notwithstanding any
provision of this Agreement to the contrary, the Manager shall not, in the
exercise of its general control and decision-making authority as more
particularly described in this Article VI, take or cause the Company or any
Subsidiary to take any of the actions described in Exhibit F (each, a "Major
Decision"), without in each instance first obtaining the prior written consent
of the AEW Member (which approval may be granted as to such specific instances
in approving an Annual Business Plan) or take any other action which contravenes
any consent or approval of a Major Decision granted by the AEW Member pursuant
to the terms of this Agreement.

     Section 6.6. Other Business Activities of the Members.

          6.6.1 General Provisions. Except as set forth herein, neither the
Members nor any Related Parties of the Members shall be obligated to present any
investment opportunity to the Company, even if the opportunity is of a character
consistent with the Company's other activities and interests. Except as set
forth herein, the Members and the Members' Related Parties may engage in or
possess any interest, directly or indirectly, in any other business venture of
any nature or description independently or with others, including but not
limited to, the ownership, financing, leasing, operation, management,
syndication, brokerage, or development of real property competitive with the
Properties. Except as set forth herein, membership in the Company and the
assumption by either Member of any duties hereunder shall be without prejudice
to such Member's rights (or the rights of its affiliates) to have such other
interests and

                                       40
<PAGE>

activities and to receive and enjoy profits or compensation therefrom, and
neither the Company nor the other Member(s) shall have any right by virtue of
this Agreement in and to such ventures or the income or profits derived
therefrom.

          6.6.2 Non-Compete. Notwithstanding any provision of this Agreement to
the contrary, Sunrise shall not engage in or possess, directly or indirectly,
any interest in any Senior Housing Facility or the acquisition, ownership,
development, redevelopment, leasing, operation or management thereof within any
Non-Compete Area; provided, however, that Sunrise shall have the right to:

               (i) own, operate and manage any Existing Sunrise Non-Compete Area
Project;

               (ii) manage any Pre-Existing Facility located within any
Non-Compete Area, provided that (A) the fees and other compensation paid to
Sunrise for its services in connection with the Pre-Existing Facility are not
based upon an incentive management structure or similar structure as a result of
which the direct or indirect economic interest of Sunrise with respect to the
Pre-Existing Facility is substantially equivalent to the economic interest that
would exist if Sunrise actually owned or controlled directly or indirectly more
than twenty percent (20%) of the beneficial ownership interests in the
Pre-Existing Facility or in the Entity which owns or leases the Pre-Existing
Facility; and (B) at no time during the Investment Period shall Sunrise own or
control directly or indirectly more than twenty percent (20%) of the beneficial
ownership interests in the Pre-Existing Facility or in the Entity which owns or
leases the Pre-Existing Facility; and

               (iii) acquire, own and operate any Pre-Existing Facility located
within any Non-Compete Area, provided that (A) the Pre-Existing Facility is
included within a portfolio of Senior Housing Facilities and is acquired by
Sunrise simultaneously with the acquisition by Sunrise of the remainder of such
portfolio from a single Seller in a single transaction, and (B) the sum of the
fair market value of the Pre-Existing Facility and the fair market value of all
other Pre-Existing Facilities acquired as part of such portfolio which are
located within any Non-Compete Area, including, without limitation, the
Non-Compete Area in which the subject Pre-Existing Senior Housing Facility is
located, is less than twenty-five percent (25%) of the fair market value, on an
aggregate basis, of the entire portfolio so acquired.

          6.6.3 Intentionally Omitted.

          6.6.4 Intentionally Omitted.

          6.6.5 Related Party Transactions Generally Prohibited. Except as
expressly approved in this Agreement, in an Approved Budget, in an Annual
Business Plan or otherwise, neither Member shall engage or pay (or cause the
Company to engage or pay) any compensation to any Related Party of such Member
for the provision of services to the Company unless (a) such party is fully
qualified and experienced to provide the required services, (b) both the scope
of services and the compensation payable to such Related Party for the services
are consistent with then current market standards for arms length transactions,
(c) the Member discloses such

                                       41
<PAGE>

engagement to the other Member as a transaction with a Related Party, and (d)
the Members approve such engagement or payment.

          6.6.6 Permitted Related Party Transactions. Any and all Related Party
transactions shall be on terms and shall contain conditions as would be
negotiated at "arms length" with a Third Party.

     Section 6.7. Limitation of Liability.

          6.7.1 Exculpatory Provisions. None of the Sunrise Member, the AEW
Member, any Related Party of any Member or any Member's agents, officers,
partners, members, employees, representatives, directors or shareholders shall
be liable, responsible or accountable in damages or otherwise to the Company or
any Member for (i) any act performed in good faith within the scope of the
authority conferred by this Agreement, (ii) any good faith failure or refusal to
perform any acts except those required by the terms of this Agreement, or (iii)
any performance or omission to perform any acts in reliance on the advice of
accountants or legal counsel for the Company; provided, however, that each
Member shall nevertheless be liable in all events for its own fraud, negligence
or willful misconduct.

          6.7.2 Indemnification. To the fullest extent permitted by law, the
Company shall indemnify and save harmless each Member, and each Member's Related
Parties, agents, officers, partners, members, employees, representatives,
directors and shareholders from any loss, cost, damage, fee (including without
limitation, legal fees and costs) or expense incurred by reason of (i) such
party's status as a Member or the Related Party of a Member or such party's
status as agent, officer, partner, member, employee, representative, director or
shareholder of such Member, (ii) any act performed in good faith within the
scope of the authority conferred by this Agreement, (iii) any failure or refusal
to perform any acts except those required by the terms of this Agreement or (iv)
any performance or omission to perform any acts based upon reasonable good faith
reliance on the advice of accountants or legal counsel for the Company, provided
that no indemnification shall be given with respect to acts or omissions which
constitute fraud, negligence or willful misconduct.

     Section 6.8. Policy Compliance Administrator.

          (a) The Sunrise Member shall have the right to hire, or authorize the
Operator to hire, an employee (a "Policy Compliance Administrator") whose sole
responsibilities and function (subject to the terms set forth in the proviso to
the third sentence of Section 6.8(b) below) shall be to (i) assist the Operator,
the Company, the Subsidiaries and the Sunrise Member to comply with the
requirements of Sections 12.15 through 12.22 hereof, inclusive (and the like
requirements of the Management Agreements), (ii) monitor and report to the
Company and its Members with respect to such compliance, (iii) assist in the
performance of accounting and reporting services required under Section 3.3(d)
hereof, and (iv) assist in the performance of the services required under
Section 6.2(xii) hereof (the services under the foregoing clauses (i), (ii),
(iii) and (iv) being referred to herein as "Policy Compliance Services").

          (b) Except as provided in the proviso to the third sentence of this
Section 6.8(b), the Policy Compliance Administrator shall not provide any
services to the Sunrise Member, the

                                       42
<PAGE>

Operator or any other person or entity except for Policy Compliance Services
with respect to the Facilities, as provided in Section 6.8(a) above. The salary
of the Policy Compliance Administrator (together with any taxes and fringe
benefits charged to the employer with respect thereto) shall be a Facility
Expense, to be allocated among the Facilities on the basis of number of
Facilities, not the number of beds or units. Without limiting the foregoing, the
Sunrise Member shall reimburse the Company on a proportionate basis for the
fully-loaded cost of any time spent by the Policy Compliance Administrator on
any matter other than Policy Compliance Services with respect to the Facilities;
provided, however, that, at the AEW Member's option, the Policy Compliance
Administrator may provide supplemental services with respect to the Facilities
(i.e. in addition to the basic services which the Sunrise Member and the
Operator are required to deliver under this Agreement and the Management
Agreements, respectively) in which event the Sunrise Member shall not be liable
for reimbursement to the Company for the portion of the Policy Compliance
Administrator's time allocable to such supplemental services, which shall
continue to be treated as a Facility Expense.

          (c) Notwithstanding any provision hereof or of any Management
Agreement to the contrary, as part of the Annual Business Plan each year, the
Members shall confer in good faith to evaluate the costs and benefits of the
position of Policy Compliance Administrator for the upcoming Fiscal Year. Based
upon such good faith review, the time (and expense) of the Policy Compliance
Administrator allocated to the Facilities shall be reduced or eliminated as
appropriate.

          (d) Notwithstanding any provision hereof or of any Management
Agreement to the contrary, all expenses of the Policy Compliance Administrator
allocable to Policy Compliance Services shall be allocated between the Company
and AL One based upon the number of Senior Housing Facilities owned by each
company, and not the number of beds or units.

     Section 6.9. Prime Contacts at Sunrise. Without limiting any other
obligation of Manager or any rights of the AEW Member hereunder, Manager hereby
agrees to (i) make its "Director of Third Party Reporting" (initially Linda
O'Brien), as well as SALMI's Chief Financial Officer, (initially Douglas
MacLatchey) available to confer with representatives of the AEW Member from time
to time as to the status of operations of the Properties and to respond to such
reasonable inquiries with respect thereto as such representatives may make, and
(ii) cause SDI to make William Shields and Mark Owens (as to Properties located
east of the Mississippi River) and Chris Tatum (as to Properties located west of
the Mississippi River) available to confer with representatives of the AEW
Member from time to time as to the status of development and construction of the
Properties and to respond to such reasonable inquiries with respect thereto as
such representatives may make. The AEW Member agrees not to contact
operations-level personnel at any Property (including, without limitation, any
Regional Director as described in Section 9.10 hereof) (except in the event of
emergency) unless such contract is made by or through one of the foregoing prime
contacts.

     Section 6.10. Obligations with Respect to SALI, SDI and Operator. The
Sunrise Member shall cause the Company to comply with the terms and conditions
of the Operating Deficit Loan Agreements, the Revolving Credit Agreements and
the Development Agreements. Within seven (7) days after written demand by the
AEW Member, the Sunrise Member further

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<PAGE>

agrees to advance or pay to the Company any amount required to be advanced or
paid by Operator, SALI or SDI under any Operating Deficit Loan Agreement, the
Revolving Credit Agreement or Section 2.07 of any Development Agreement,
respectively, which has not been paid or advanced on or before the date when
due. Any such advance or payment by the Sunrise Member shall deemed to have been
made upon the same terms and conditions as would have applied under the
Operating Deficit Loan Agreement, the Revolving Credit Agreement or Section 2.07
of the Development Agreement, as the case may be.

     Section 6.11. Options with Respect to Grosse Pointe Project and
Woodland Hills. The AEW Member shall have the option to cause the Sunrise Member
to contribute to the Company, and for the Company to develop, the Grosse Pointe
Project or the Woodland Hills Project, or both of them, upon the following terms
and conditions:

          (a) Within thirty (30) days after the date hereof, the Sunrise Member
shall provide a proposed development budget for the Grosse Pointe Project and
proposed development budget for the Woodland Hills Project. Each such budget
shall be consistent with the format and assumptions used in the Development
Budgets.

          (b) On or before the expiration of the period (the "Option Period")
commencing on the date hereof and expiring on the earlier of (i) the date which
is one year after the date hereof or (ii) the date which is forty-five (45) days
after the last to occur of the receipt by the AEW Member of: (A) current
environmental site assessment reports satisfactory to the AEW Member for the
Grosse Pointe Project and the Woodland Hills Project prepared by the AEW
Member's consultants; and (B) the proposed development budgets referenced in
clause (a) above, the AEW Member shall have the right, exercisable by notice
given to the Sunrise Member, to cause the Sunrise Member to contribute the
Grosse Pointe Project or the Woodland Hills Project or both of them to the
Company and for the Company to develop the same upon the terms and conditions of
this Agreement.

          (c) If the AEW Member fails to give notice of its election under the
foregoing clause (b) prior to the expiration of the Option Period with respect
to the Grosse Pointe Project or the Woodland Hills Project, then the AEW Member
shall be deemed to have waived the option herein granted with respect to such
project.

          (d) If the AEW Member shall give notice of its exercise of the option
with respect to the Grosse Pointe Project or the Woodland Hills Project, or both
of them, on or before the expiration of the Option Period, then, within
forty-five (45) days after the date of such exercise, the Members shall enter
into a written amendment to this Agreement pursuant to which the Grosse Pointe
Project or the Woodland Hills Project, or both of them, as the case may be,
shall be added as Properties upon the terms and conditions set forth herein,
which shall include, without limitation, the execution and delivery of Operating
Deficit Loan Agreements, Facility Development Agreements, Facility Management
Agreements, and such other Documents and amendments to the Master Agreement and
Revolving Credit Agreement and such other Documents. In the event of such
amendment, the AEW Member's Contribution Cap shall be adjusted proportionately
based upon the Development Budget for the Grosse Pointe Project or the Woodland
Hills Project, or both of them, as the case may be.

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<PAGE>
     Section 6.12 Contractor's Insurance. The Sunrise Member shall cause, or
shall cause SDI to cause, the general contractor under the general construction
contract for the Boulder property to increase its umbrella liability insurance
coverage from $20,000,000 to $25,000,000 per occurrence on or before January 31,
2003, or the Sunrise Member shall procure such additional coverage on behalf of
said general contractor on or before January 31, 2003; provided, further,
however, that Sunrise Member shall use best efforts to cause the general
contractor to so increase its coverage on or before January 15, 2003. The
parties acknowledge that the cost for such additional insurance shall be a
Project Cost and is included in the Development Budget for the Boulder Property.

                      ARTICLE VII - LIABILITIES OF MEMBERS

     Section 7.1 General. No Member shall be liable for any debts, liabilities,
contracts or other obligations of the Company nor shall any Member be required
to lend funds to the Company. Except as otherwise specifically required by
Article III or by applicable law, no Member shall be required to make any
Contributions to the Company.

                  ARTICLE VIII - TRANSFER OF COMPANY INTEREST

     Section 8.1 Transfer by the Members.

          8.1.1 General Restrictions. No Member shall sell, pledge, hypothecate,
assign, transfer, mortgage, charge or otherwise encumber, or suffer any Third
Party to sell, assign, transfer, mortgage, charge or otherwise encumber, or
contract to do or permit any of the foregoing, directly or indirectly and
whether voluntarily or by operation by law (collectively referred to as a
"Transfer") any part or all of its interest or membership in the Company except
as provided in this Article VIII. Any attempt to effect any of the foregoing
prohibited actions shall be void ab initio and, in addition to other rights and
remedies at law and in equity, the other Member or Members shall be entitled to
injunctive relief enjoining the prohibited action. The Members expressly
acknowledge that damages at law would be an inadequate remedy for a breach or
threatened breach of the provisions concerning transfer set forth in this
Agreement. The giving of consent or approval by the Member required under this
Article VIII in any one or more instances shall not limit or waive the need for
such consent or approval in any other or subsequent instances. Notwithstanding
anything in this Article VIII or this Agreement to the contrary, no Member shall
have the right to effect any Transfer of its interest in the Company if the
Transfer, in the opinion of counsel to the Company, may constitute a violation
of any state or federal securities laws or other applicable law. Except as
expressly permitted under Section 8.1.3, no Member shall have the right to
effect any transfer of its interest in the Company if such Transfer would cause
the Company to terminate under applicable law without the prior approval of the
other Members; provided, however, that nothing herein contained shall limit the
rights of the AEW Member to make a Transfer under Section 8.1.3 that results in
a tax termination of the Company so long as the AEW Member and the transferee
agree to cooperate with the Sunrise Member to take such action as may be
necessary to continue the Company for tax purposes (the Sunrise Member hereby
also agreeing to cooperate in taking such actions at the request of the AEW
Member or such assignee). No Transfer by any Member of an interest in the
Company may be made to any Person if: (i) such Transfer would cause any interest
in the Company or any portion of the assets of the Company to constitute assets
of any employee benefit plan pursuant

                                       45
<PAGE>

to Department of Labor Regulations Section 2510.3-101; (ii) such Transfer would
cause the Company to no longer be excluded from the definition of "Investment
Company" under the Investment Company Act of 1940; (iii) such Transfer would
cause the Company to be considered for purposes of Section 1.7704-1(h)(1)(ii) of
the Regulations to have more than 100 members at any time during any taxable
year; or (vi) such Transfer would result in a default under any Loan.

          8.1.2 Indirect Transfers. The restrictions set forth in this Article
VIII shall not be construed to limit or restrict in any way (i) indirect
transfers otherwise permitted under this Article VIII, or (ii) subject to
Section 8.2, indirect transfers of interests by or in the AEW Member or the
Sunrise Member, or the constituent partners or members of the AEW Member or the
Sunrise Member, as the case may be, except that no such Transfer shall be
permitted if it would result in a default under any Loan.

          8.1.3 Permitted Transfers. Without any requirement for obtaining
approval, but subject to the restrictions contained in this Section 8.1.3, the
final sentence of Section 8.1.1 and the provisions of Section 8.2, each Member
shall have the right to Transfer directly or indirectly all or a portion of its
interest in the Company solely if such Transfer is to an Entity which is owned
or controlled by, is under common ownership and control with or owns and
controls the original Member. Notwithstanding anything herein to the contrary,
in the case of any transfer by a Member, there shall at all times remain a
single entity which has the authority to act on behalf of the Sunrise Member or
the AEW Member, as the case may be. The Company and the other Member shall at
all times be entitled to rely fully on the consent, direction, authorization or
other binding action of the single designated entity authorized to act on behalf
of such Member. The designation of a new entity to act on behalf of the Sunrise
Member or the AEW Member, as the case may be, may only be made by the previous
authorized entity. The initial entity authorized to act on behalf of the Sunrise
Member is Sunrise Assisted Living Investments, Inc., through any duly authorized
officer thereof. The initial authorized entity to act on behalf of the AEW
Member shall be Seaport Senior Housing Management, LLC, acting through any duly
authorized member or manager thereof. Each Member shall from time to time
provide the other Member, upon request therefor, with a list of authorized
individuals whose signatures will bind the authorized entities.

          8.1.4 Conditions to Substitutions. An assignee or transferee of a
Member shall not have any other rights of a Member other than its right to
distributions, unless and until the assignee is admitted as a substituted
Member. Thereafter, subject to the last sentence of this Section, such assignee
shall have all rights of a Member hereunder, except the right to provide
consents and authorizations, which shall remain subject to Section 8.1.3. An
assignee or transferee shall become a substituted Member when and if the
assignee or transferee (a) pays all Company expenses incurred in connection with
its substitution; (b) submits a duly executed instrument of assignment, in a
form reasonably satisfactory to the non-assigning Member, specifying the
membership interest assigned to it and setting forth the assigning Member's
intention that the assignee succeed to such portion of the assigning Member's
membership interest; (c) executes a copy of this Agreement or an amendment to
this Agreement; and (d) is approved unanimously by the Members to be admitted as
a Substituted Member. The admission of a substituted Member shall be effective
as of the close of the day on which all of the conditions specified in this
Section 8.1.4 have been satisfied.

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<PAGE>

     Section 8.2 Change in Control of the Sunrise Member.

          8.2.1 Definition of Change in Control.

               8.2.1.1 A "Change in Control" of the Sunrise Member shall be
deemed to occur if, at any time after the date of the formation of the Company,
(i) any Person (or one or more Persons acting in concert as a group) acquires
(A) more than fifty percent (50%) of the outstanding capital stock of SALI,
SALII, SALMI or SDI, or (B) such percentage of the outstanding capital stock of
SALI, SALII, SALMI or SDI or such other rights as would entitle such Person (or
such group) to appoint a majority of the board of SALI, SALII, SALMI or SDI and
such Person or group actually exercises such right and elects a majority of the
board members who were not members prior to such time; (ii) a merger, exchange,
consolidation, recapitalization or other business combination (a "Business
Combination") occurs in which the holders of the outstanding capital stock of
SALI, SALII, SALMI or SDI immediately prior to such Business Combination,
disregarding for such purposes any holders who are affiliates of another party
to the Business Combination or acting in concert as a group with such other
party, own less than fifty-one percent (51%) of the aggregate equity interests
of the surviving entity or own less than fifty-one percent (51%) of the voting
securities (determined on the basis of number of votes per security) immediately
following such Business Combination; or (iii) all or substantially all of the
assets of SALI, SALII, SALMI or SDI are sold or otherwise disposed of, directly,
indirectly, voluntarily, involuntarily, by operation of law or otherwise;
provided, however, that a sale by SALI, SALII or SALMI of their real estate
assets shall not be considered a Change of Control if SALI, SALII, SALMI or an
entity of which SALI, SALII or SALMI owns not less than fifty-one percent (51%)
of the aggregate equity interests or not less than fifty-one percent (51%) of
the voting securities (determined on the basis of number of votes per security)
retains management of such real estate assets for a term not less than the term
of the Facility Management Agreements remaining at the time of such sale.

               8.2.1.2 A "Permitted Change of Control" is a Change of Control
(i) which occurs after the first anniversary of the date hereof, and (ii)
pursuant to which any applicable Person (or Persons) acquiring the stock of
SALI, SALII, SALMI or SDI under Section 8.2.1.1(i), the surviving entity of any
applicable Business Combination under Section 8.2.1.1(ii), or the Person which
purchases all or substantially all of the assets of SALI, SALII, SALMI or SDI
under Section 8.2.1.1(iii) (each such Person being referred to herein as the
"New Entity") satisfies all of the following requirements:

                    (a) The tangible net worth of the New Entity, computed in
accordance with GAAP, as of the date of the Change of Control is not less than
the greatest of (A) the tangible net worth of SALI, SALII, SALMI and/or SDI, as
the case may be, as of the date hereof, (B) the tangible net worth of SALI,
SALII, SALMI and/or SDI, as the case may be, on the day prior to the date of the
Change of Control, and (C) $250,000,000;

                    (b) Neither the New Entity nor any Person directly or
indirectly controlling the New Entity, or any of the New Entity's operational
subsidiaries shall, at any time (A) have filed a petition in bankruptcy or
sought the protection of any bankruptcy or similar insolvency laws, or had a
petition under any bankruptcy or creditors rights laws filed against it; (B) had
any license or certification to operate any assisted living/dementia care or

                                       47
<PAGE>

skilled nursing facility denied or revoked by any governmental authority due to
any actual or alleged fault or failure by, or the negative reputation of, the
New Entity or any of its Related Parties, (C) have paid on three (3) or more
occasions during any period of five (5) consecutive years prior to the
occurrence of the Change of Control any fine, penalty or sanction in excess of
$7,500 each to one or more governmental authorities having jurisdiction with
respect to licenses or certifications to operate assisted living/dementia care
or nursing home facilities or under any Medicare, Medicaid or third party payor
program (D) been found to have been grossly negligent to have committed willful
or intentional misconduct in any lawsuit alleging any wrongdoing by the New
Entity or any of its Related Parties or any of their respective employees
relating to assisted living/dementia care or skilled nursing care, or (E) been
found to have been liable in three (3) or more lawsuits alleging any wrongdoing
by the New Entity or any of its Related Parties or any of their respective
employees relating to assisted living/dementia care of skilled nursing
facilities for any reason other than gross negligence, willful misconduct or
recklessness;

                    (c) The New Entity, or its operational subsidiary or
subsidiaries, shall (A) be licensed or certified for the operation of assisted
living/dementia care facilities in each state in which the Properties are
located as of the date of the Change of Control, and (B) have at least five (5)
years experience in, the operation of a substantial number of assisted
living/dementia care facilities located in metropolitan markets substantially
similar to the Target Area; and

                    (d) The New Entity or its operational subsidiary or
subsidiaries must have in place or adopt as of the date of the Change of
Control, hiring, training and quality assurance programs and operating and
management standards that are equivalent to or higher in quality than the
Sunrise Standards in effect as of the date hereof.

               8.2.1.3 A "Prohibited Change Of Control" shall mean any Change of
Control other than a Permitted Change of Control including, without limitation,
any Change of Control which occurs on or before the first anniversary of the
date hereof.

               8.2.1.4 Other Provisions. If the executive members of management
of the Sunrise Member at any time desire to acquire an interest in SALI, SALII,
SALMI or SDI that could constitute a Change in Control, the AEW Member agrees to
discuss any such transaction with the Sunrise Member, provided that the AEW
Member shall have no obligation whatsoever to consent thereto. Without limiting
the generality of the foregoing, the acceptability of the executives in question
and of the structure of the proposed transaction shall be in the sole and
absolute discretion of the AEW Member.

          8.2.2 Rights of AEW Member. Upon the occurrence of ANY Prohibited
Change of Control, the AEW Member shall have the option, exercisable within one
hundred twenty (120) days of its obtaining knowledge of such Prohibited Change
of Control, to purchase the interest of the Sunrise Member in the Company (the
"Sunrise Interest") based upon the Appraised Fair Market Value (as hereinafter
defined) of such interest or to deliver a Buy/Sell Offering Notice under Section
8.4. If the AEW Member fails to exercise its option under this Section 8.2.2
within such one hundred twenty (120) day period, its rights under this Section
8.2.2 shall lapse with respect to such Prohibited Change of Control. The Sunrise
Member shall give notice as soon as reasonably practicable prior to the date
that it anticipates that a Change in Control may

                                       48
<PAGE>

occur. If the AEW Member elects to purchase the Sunrise Interest pursuant this
Section 8.2.2, then the Closing of such acquisition shall occur on a date
specified by the AEW Member together with such exercise, such date to be no
later than one hundred eighty (180) days after the date of such exercise. If
closing does not take place by such date due to a default of the AEW Member,
then the AEW Member's rights under this Section 8.2 shall lapse with respect to
such Prohibited Change in Control.

          8.2.3 Appraised Fair Market Value. For purposes of this Section 8.2,
"Appraised Fair Market Value" shall be determined as follows:

          (a) Within fifteen (15) days of exercise of the option set forth in
this Section 8.2 (the "Section 8.2 Option") by the AEW Member (or in the case of
any other requirement in this Agreement to determine the Appraised Fair Market
Value), the AEW Member and the Sunrise Member shall appoint an MAI appraiser
with at least ten (10) years experience appraising properties similar to the
Properties in the jurisdictions in which same are located (a "Qualified
Appraiser") whose determination of the Appraised Fair Market Value shall be the
final and binding determination. If the Sunrise Member and the AEW Member cannot
agree upon a Qualified Appraiser to make such appraisal within fifteen (15)
days, then each such Member shall, within thirty (30) days thereafter, serve
notice upon the other Member of a Qualified Appraiser selected by it. If either
Member fails to so appoint a Qualified Appraiser within said thirty (30) day
period, then the Qualified Appraiser so appointed by the other Member shall be
the sole Qualified Appraiser and his determination of the Appraised Fair Market
Value shall be final and binding. Within thirty (30) days of the appointment of
the Qualified Appraiser or Qualified Appraisers, as set forth above, each
Qualified Appraiser so appointed shall serve upon the other and upon each Member
his determination of the Appraised Fair Market Value. If one Qualified Appraiser
has been appointed pursuant to this paragraph, his determination of the
Appraised Fair Market Value shall be the final determination of the Appraised
Fair Market Value. If two Qualified Appraisers have been appointed pursuant to
this paragraph, then if the greater Appraised Fair Market Value is no greater
than seven percent (7%) more than the lesser Appraised Fair Market Value, then
the Appraised Fair Market Value shall be the average of such two appraisals. If
the foregoing is not the case, then such two Qualified Appraisers shall appoint
a third Qualified Appraiser (provided, however, that if such appointment has not
occurred, for any reason, within fifteen (15) days of the determination that the
Appraised Fair Market Value will not be determined by such average, then either
the Sunrise Member or the AEW Member may apply to any court of competent
jurisdiction to appoint such third Qualified Appraiser), and within thirty (30)
days of his appointment, such third Qualified Appraiser shall determine which of
the initial Appraised Fair Market Values is more accurate, and such value shall
be conclusively deemed the Appraised Fair Market Value. In determining Appraised
Fair Market Value, the Qualified Appraisers shall be directed to determine the
prices at which the Properties would be sold if sold in an organized manner for
all cash. The Qualified Appraisers shall take into account the need or
advisability of selling certain Properties in groups due to financing or similar
restrictions. Where it is possible that Properties could be sold subject to
existing financing, the appraisal shall take into account the projected cash
price in excess of such existing financing. After determining the proceeds of a
sale of all the Properties based upon the Appraised Fair Market Value, the
Members shall do an analysis in order to determine how the proceeds of such a
sale would be distributed pursuant to Section 5.3 of this Agreement, taking into
account all preferences, accrued priority returns and similar items and
reasonable liquidation

                                       49
<PAGE>

costs and reserves. The amount which would be distributed to the Sunrise Member
under such analysis shall be the purchase price to be paid by the AEW Member for
the Sunrise Interest. No prepayment premiums or transfer fees for existing
financing would be taken into account in determining the Appraised Fair Market
Value or the purchase price for the Sunrise Interest unless such transfer fees,
yield maintenance premiums and the like will be incurred as a result of the
consummation of the purchase of the Sunrise Interest under this Section 8.2.

          (b) Except as otherwise set forth in this Section 8.2, the Closing of
the sale of the Sunrise Interest pursuant to this Section 8.2 shall be
consummated in the manner set forth in Section 8.4.4.

          (c) Each party shall pay either: (i) if the Appraised Fair Market
Value is determined by a single Qualified Appraiser in accordance with the
foregoing provisions of Section 8.2.3(a), one-half of the fees of a jointly
appointed Qualified Appraiser, or (ii) if the Appraised Fair Market Value is
determined by two Qualified Appraisers in accordance with the foregoing
provisions of Section 8.2.3(a), the fees and expenses of the one of the two
Qualified Appraisers appointed by or for such party, or, (iii) if the Appraised
Market Value is determined by three Qualified Appraisers in accordance with the
foregoing provisions of Section 8.2.3(a), the fees and expenses of the one of
the two Qualified Appraisers appointed by or for such party and one-half of the
fees and expenses of the third Qualified Appraiser, whichever is applicable.

     Section 8.3 Members.

          8.3.1 Terminating Event. Upon the occurrence of a Terminating Event
with respect to a Member, the Legal Successor of the Member shall continue to
possess the Member's interest in Company distributions, but shall possess no
rights of approval or decision otherwise attendant to such interest.

          8.3.2 Withdrawal by Members. Notwithstanding any provision of the Act
to the contrary, no Member may resign, withdraw or withdraw capital from the
Company, except pursuant to a right expressly set forth herein.

     Section 8.4 Buy/Sell.

          8.4.1 Buy/Sell Offering Notice. Either Member may elect to proceed
under this Section 8.4 with respect to membership interests in the Company or
the Company's interest in any Buy/Sell Pool. The operation of this Section 8.4
may be triggered upon written notice (the "Buy/Sell Offering Notice"):

               (i) by either Member given at any time after the expiration of
the Investment Period;

               (ii) by either Member no more than one hundred twenty (120) days
after the occurrence of an Event of Default by the Buy/Sell Responding Member;
or

               (iii) by the AEW Member given at any time after the date which is
twelve (12) months after the date of any Permitted Change of Control;

                                       50
<PAGE>

provided, however, that (x) there is no Event of Default with respect to the
Member initiating such notice; and (y) the Sunrise Member shall not have the
right to initiate a Buy/Sell Offering Notice prior to the date of completion of
construction of all of the Properties and Stabilization of the Portfolio, except
in the case of a Buy/Sell Offering Notice given pursuant to Section 8.4(a)(ii)
following an Event of Default by the AEW Member; and (z) if the AEW Member
initiates a Buy/Sell Offering Notice prior to the completion of construction of
the Properties that are subject to such notice, then the Sunrise Member must be
released from all guarantees that it provided to the respective construction
lenders in connection with the Construction Loans encumbering such Properties as
a condition to the purchase of the Sunrise Member's interest in the Company or
the Company's interest in the Buy/Sell Pool, as the case may be. The Member duly
exercising such right and specifying the Properties which it desires to include
in the Buy/Sell Pool shall be the "Buy/Sell Initiating Member" and the other
Member shall be the "Buy/Sell Responding Member" for the purposes of this
Section 8.4. Each Buy/Sell Offering Notice shall set forth an amount determined
by the Buy/Sell Initiating Member as the basis for the calculations required
under Section 8.4.2 (the "Proposed Value"). No Buy/Sell Offering Notice or
Responsive Notice under Section 8.4.2 may be rescinded once given, without the
written consent of the other Member.

          8.4.2 Responsive Notice. Within thirty (30) days following the date of
the Buy/Sell Offering Notice, the Buy/Sell Responding Member shall deliver to
the Buy/Sell Initiating Member a responsive notice, without qualification or
condition, electing either:

          (a) To sell to the Buy/Sell Initiating Member the entirety of the
Buy/Sell Responding Member's interest in the Company or to cause the Company to
sell to the Buy/Sell Initiating Member (and the Buy/Sell Initiating Member to
purchase from the Company) the Company's interest in the Buy/Sell Pool at a
price (the "Sale Price") equal to the amount of cash that would be distributed
to the Buy/Sell Responding Member under Article V if all of the assets of the
Company or the Company's interest in the Buy/Sell Pool were sold for cash in the
amount of the Proposed Value taking into account the allocations set forth in
Article IV which would be required to be made as a result of such sale and usual
and customary closing costs; or

          (b) To purchase from the Buy/Sell Initiating Member the entirety of
the Buy/Sell Initiating Member's interest in the Company or to purchase from the
Company (and to cause the Company to sell to the Buy/Sell Responding Member) all
of the Company's interest in the Buy/Sell Pool at a price (the "Buy Price")
equal to the amount of cash that would be distributed to the Buy/Sell Initiating
Member under Article V if all of the assets of the Company or the Company's
interest in the Buy/Sell Pool were sold for cash in the amount of the Proposed
Value taking into account the allocations set forth in Article IV which would be
required to be made as a result of such sale and usual and customary closing
costs.

In calculating the amount which would be distributed to the applicable Member
under either (a) or (b) above, the Buy/Sell Initiating Member shall take into
account in determining the Proposed Value that a sum will be required to be set
aside for liquidation costs and reserves, and all indebtedness of the Company
(in the case of a purchase and sale of a Member's interest in the Company), or
all indebtedness of the Company with respect to the Properties in any Buy/Sell
Pool (in the case of a purchase and sale of the Company's interest in any
Buy/Sell Pool), as the case may be, shall be deemed to be retired as of the
Closing Date. The Sale Price or Buy Price

                                       51
<PAGE>

shall not take into account any loan assumption costs, prepayment premiums,
breakage costs or similar items unless the same will be incurred as a result of
the consummation of the purchase and sale of any interest of either Member in
the Company or the Company's interest in any Buy/Sell Pool, as the case may be,
pursuant to a Buy/Sell Offering Notice. The failure of the Buy/Sell Responding
Member to give such a responsive notice (without qualification or condition)
within the required time period shall be deemed notice of an election to sell
its entire interest in the Company or the Company's interest in any Buy/Sell
Pool, as the case may be, to the Buy/Sell Initiating Member under clause (a)
above. The date as of which the Buy/Sell Responding Member shall have given
notice of its election (or be deemed to have made an election) shall be the
"Buy/Sell Election Date."

In the event of the purchase and sale of any Buy/Sell Pool, an amount equal to
the payment that would have been made to the Members if the Company's interest
in the Buy/Sell Pool had been sold for cash to a Third Party in the amount of
the Proposed Value, taking into account the allocations set forth in Article IV
which would be required to be made as a result of such sale and usual and
customary closing costs, shall be taken into account for purposes of determining
amounts distributed under Section 5.3 hereof.

          8.4.3 Buy/Sell Deposit. The Member bound to purchase pursuant to the
election referenced in Section 8.4.2 (the "Purchaser," and the other Member
shall be the "Seller") shall be required to make an earnest money deposit within
ten (10) business days of the Buy/Sell Election Date in the amount of $3,000,000
or 3% of the Proposed Value, whichever is less, in immediately available funds
(the "Buy/Sell Deposit"). The Buy/Sell Deposit to serve as a good faith deposit
for the purposes of the closing of the purchase in accordance with Section 8.4.4
below shall be delivered to First American Title Insurance Company (or another
national title insurance company reasonably acceptable to the Members) as escrow
agent. The Buy/Sell Deposit shall be non-refundable to the Purchaser (except in
the event that the closing of the purchase shall fail to occur due to a default
of the Seller in performing its closing obligations pursuant to Section 8.4.4).

          8.4.4 Closing Process. Purchaser shall fix a closing date (the
"Closing Date") not later than one hundred twenty (120) days following the date
of receipt by the Buy/Sell Initiating Member of the responsive notice within the
period set forth in Section 8.4.2 or the deemed election by the Buy/Sell
Responding Member in accordance with Section 8.4.2, by notifying the Seller in
writing of the Closing Date not less than thirty (30) days prior thereto. The
closing shall take place on the Closing Date at the principal office of the
Purchaser. The purchase price for the Seller's interest in the Company or the
Company's interest in the Buy/Sell Pool shall be paid in immediately available
funds and the Seller shall convey good and marketable title to its membership
interest in the Company or cause the Company to deliver good and marketable
title to its interest in the Buy/Sell Pool, as the case may be, to Purchaser or
its designee free and clear of all liens and encumbrances. Each Member agrees to
cooperate and to take all actions and execute all documents reasonably necessary
or appropriate to reflect the purchase of the Seller's or the Company's interest
(as the case may be) by the Purchaser. The Manager shall prepare a balance sheet
for the Company and/or the Buy/Sell Pool as of the date of determination of the
Closing Date showing all items of income and expense of the Company or the
Buy/Sell Pool, as the case may be, earned or accrued, and such income and
expenses shall be prorated between the Purchaser and the Seller or the Company,
as the case may be, as of the

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Closing Date (based on the Seller's or the Company's interest therein prior to
the Closing Date). The cost of any title insurance policy endorsements desired
by the Purchaser shall be paid by the Purchaser. All other costs shall be borne
by the party who customarily bears such costs. Any risk of casualty or loss
prior to the Closing Date shall be borne by the Purchaser, who shall succeed to
all rights to insurance proceeds or condemnation awards. In no event shall the
Purchaser be required to repay or to cause the Company to repay any indebtedness
of the Company or of any Property in the Buy/Sell Pool at such closing.

          8.4.5 Failure to Close.

          (a) If the Purchaser fails to perform its obligations under this
Section 8.4 (following such failure, the "Defaulting Purchaser"), the Seller may
(i) retain the Deposit, and (ii) purchase the interest of the Defaulting
Purchaser in the Company or the interest of the Company in the Buy/Sell Pool, as
the case may be, for a price equal to ninety percent (90%) of the amount the
Defaulting Purchaser would have received pursuant to Section 8.4.4 had it been
the Seller rather than the Purchaser, upon written notice to the Purchaser given
within thirty (30) days after the originally scheduled Closing Date. If the
Seller elects to purchase the applicable interest of the Defaulting Purchaser or
the interest of the Company in the Buy/Sell Pool, the closing of such purchase
shall take place in accordance with the provisions hereof, except that the
Closing Date shall be not later than ninety (90) days following the date on
which the notice electing such purchase is given. If the Seller shall fail to
perform its obligations under this Section 8.4, the Purchaser shall have all
rights and remedies available to it at law or equity, including, without
limitation, the right to seek specific performance.

          (b) Without limiting the provisions of the foregoing Subsection (a), a
Defaulting Purchaser shall be deemed to have forfeited its right to deliver a
Buy/Sell Offering Notice pursuant to Section 8.4.1 with respect to the Company
or interest of the Company in the Buy/Sell Pool for any reason whatsoever (i)
for a period of three (3) years from the date of the first such default with
respect to the Company or any interest of the Company in the Buy/Sell Pool and
(ii) fully and finally from the date of any subsequent default with respect to
the Company or any interest of the Company in the Buy/Sell Pool. If such
Defaulting Purchaser shall have theretofore been a Defaulting Purchaser under
this Section 8.4 in connection with a previous exercise by a Member of its
rights under this Section 8.4, then such Defaulting Purchaser shall also
immediately cease to be the Manager of the Company (if applicable) and shall
completely forfeit its right to participate in any manner in the direction, vote
and control of the Company thereafter, except for consent and approval rights
with respect to those matters that are reserved to a Defaulting Member in the
last sentence of Section 3.10 above.

     Section 8.5 Effect Upon Transferees. Following any Transfer of the
interest or membership of any Member effective under this Agreement, the
provisions of this Article VIII shall be binding upon such transferee Member.
Any transferee of such interest who is admitted as a successor Member shall
enjoy fully the benefits and be subject to the burdens of such provisions.
Notwithstanding anything to the contrary herein, there shall at all times be and
remain only two groups of Members, the Sunrise Member Group and the AEW Member
Group. Any successor member shall be a part of the group from which it acquired
its Membership Interest. For purposes of this Section 8.5, one group shall be
required to buy all, and not less

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<PAGE>

than all, of the Membership Interests of the other group, and the other group
shall be obligated to sell all, and not less than all, of the Membership
Interests constituting that group.

     Section 8.6 Casualty and Condemnation.

          (a) Subject to the provisions of Section 8.6(b) below, if, during the
Investment Period, any Property is damaged or destroyed by fire, casualty or
other cause (each a "Casualty") or any portion of any Property (but not all or
substantially all of the Property) shall be taken in any eminent domain,
condemnation, compulsory acquisition or similar proceeding by any competent
authority for any public or quasi-public use or purpose (a "Taking"), the LLC
shall cause any such portion of the Property to be promptly repaired or
replaced.

          (b) Notwithstanding the provisions of the preceding Section 8.6(a), if
the proceeds of insurance with respect to any Casualty or the proceeds of any
award with respect to any Taking (to the extent the same are made available) are
not sufficient to repair or restore the damaged or destroyed portion of the
Property following any Casualty or Taking substantially to the same condition as
existed previously and to achieve Stabilization of the Property prior to the
expiration of the Investment Period, then the LLC shall not so repair or restore
the Property unless the Members agree to do so in writing. If there are not
sufficient proceeds from any insurance claim or Taking award to repair or
restore the Property to achieve Stabilization prior to the expiration of the
Investment Period, as aforesaid, and one Member (the "Electing Member") gives
notice to the other Member (the "Non-Electing Member") that it requests that the
LLC repair and restore the Property (a "Request To Restore") but the
Non-Electing Member fails to give notice to the Electing Member within fifteen
(15) days after such Request to Restore that it consents thereto, then the
Electing Member shall have the right to purchase the Property from the LLC for
its Appraised Fair Market Value in its then condition. Such right to purchase
shall be exercisable by notice given to the Non-Electing Member at any time
within forty-five (45) days after the expiration of said fifteen (15) day
period. Upon the exercise of such right to purchase by the Electing Member, the
Appraised Fair Market Value of the Property shall be determined in accordance
with the procedures set forth in Section 8.2.3. The closing of the acquisition
of the Property shall occur on a date specified by the Electing Member, such
date to be no later than one hundred eighty (180) days after the date of
exercise by the Electing Member of its right to purchase the Property. If the
Electing Member shall fail to give notice of its election to exercise its right
to purchase the Property within said forty-five (45) day period, or shall give
such notice but thereafter fail to Acquire the Property within said one hundred
eighty (180) day period for any reason other than a default of the LLC caused by
the Non-Electing Member, then either Member shall have the right to initiate the
process described above in this Section 8.6(b) at any time by delivering a
Request to Restore to the other Member.

          (c) If no election is made pursuant to Section 8.6(b) above to buy a
Property affected by a Casualty or Taking ( a "Damaged Property"), or if an
election is made but the Damaged Property is not Acquired by the Electing
Member, then the Damaged Property shall be sold in its then-current condition,
and the proceeds of insurance, condemnation and such sale shall be distributed
pursuant to Section 5.3. In no event shall a Casualty or a Taking, or the
failure of a Member to Acquire a Damaged Property, be a trigger for a Buy/Sell
Offering Notice. The Casualty, Taking or failure to Acquire shall affect the
Damaged Property only, without any effect on any other rights of the Members.

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<PAGE>

        Section 8.7 Third Party Sales.

          8.7.1 After Portfolio Stabilization.

          (a) At any time after the Portfolio has achieved Stabilization, either
Member may deliver a written notice (a "Third Party Sale Notice") to the other
Member stating that it desires that the Company sell one or more of the
Properties, as selected by the Sale Initiating Member (the "Third Party Sale
Pool"). The Member duly exercising such right shall be the "Sale Initiating
Member" and the other Member shall be the "Sale Responding Member" for purposes
of this Section 8.7. The Sale Notice shall set forth (i) the Properties to which
it applies, and (ii) an amount determined by the Sale Initiating Member as the
basis for the calculations as required under Section 8.7.1(b) (the "Proposed
Third Party Value"). No Sale Notice or responsive notice under Section 8.7.1 may
be rescinded once given, without the written consent of the other Member.

          (b) Within thirty (30) days following the date of any Third Party Sale
Notice under Section 8.7.1(a) above, the Sale Responding Member shall deliver to
the Sale Initiating Member a responsive notice, without qualification of
condition, electing either:

               (i) to cause the Company to sell to the Sale Initiating Member
(and the Sale Initiating Member to purchase) the Company's interest in the Third
Party Sale Pool at a price (the "Sale Price") equal to the amount of cash that
would be distributed to the Sale Responding Member under Article V if the
Properties were sold for cash in the amount of the Proposed Value taking into
account the allocations set forth in Article IV which would be required to be
made as a result of such sale and usual and customary closing costs, in which
case the Initiating Party shall elect to (y) purchase the Company's interest in
the Properties in the Third Party Sale Pool, as the case may be, as set forth
below in this Section 8.7.1(b) or (z) proceed under clause (iii) below;

               (ii) to purchase from the Company (and cause the Company to sell
to the Sale Responding Member) all of the Company's interest in the Third Party
Sale Pool at a price equal to the amount of cash that would be distributed to
the Sale Initiating Member under Article V if the applicable Properties were
sold for cash in the amount of the Proposed Value taking into account the
allocations set forth in Article IV which would be required to be made as a
result of such sale and usual and customary closing costs, in which case the
Sale Initiating Party shall cause the Company to sell its interest in the
applicable Properties to the Sale Responding Party as set forth below; or

               (iii) to require that the Company market the Properties in the
Third Party Sale Pool for sale to Third Parties.

In calculating the amount which would be distributed to the applicable Member
under either (i) or (ii) above, the Sale Initiating Member shall take into
account in determining the Proposed Value that a sum will be required to be set
aside for liquidation costs and reserves, and all indebtedness with respect to
the Third Party Sale Pool shall be deemed to be retired as of the Closing Date.
The Sale Price or Buy Price shall not take into account any loan assumption
costs, prepayment premiums, breakage costs or similar items unless the same will
be incurred as a

                                       55
<PAGE>

result of the consummation of the purchase and sale of any Properties. The
failure of the Sale Responding Member to give such a responsive notice (without
qualification or condition) within the time required above shall be deemed
notice of an election to sell the properties to a third party under clause (iii)
above. The date as of which the Sale Responding Member shall give notice of its
election (or be deemed to have made an election) shall be the "Sale Election
Date."

          (c) Within ten (10) business days after an election under Section
8.7.1(b)(i) (unless the Initiating Party elects to proceed under Section
8.7.1(b)(iii) above) or Section 8.7.1(b)(ii) above, the Members shall proceed as
set forth in Sections 8.4.3 and 8.4.4 above.

          (d) If an election is made (or is deemed to have been made) under
Section 8.7.1(b)(iii) to market the applicable Properties for sale to a third
party, then, within thirty (30) days after such election is made, the Sunrise
Member, as Manager of the Company shall market the Third Party Sale Pool for
sale to third parties at an asking price equal to the Proposed Value. The
Members hereby agree that an all cash offer, on commercially reasonable terms,
from a responsible buyer, for a purchase price of not less than ninety-five
percent (95%) of the Proposed Value shall be accepted by the Company. If the
Properties in the Third Party Sale Pool are not sold (or placed under binding
contract to sell, with a non-refundable deposit at least equal to five percent
(5%) of the Purchase Price) to a third party for a price equal to not less than
ninety-five percent (95%) of the Proposed Value within one hundred twenty (120)
days after the earlier of (i) the expiration of the thirty (30) day period after
the election under Section 8.7.1(b)(iii) is made (or is deemed to have been
made), or (ii) the actual date of commencement of the marketing process by the
Sunrise Member, then the Sunrise Member shall engage a broker, reasonably
satisfactory to the AEW Member, to market the Third Party Sale Pool as
aforesaid, and if an offer meeting the requirements described above in this
paragraph is not achieved within one hundred eighty (180) days after the earlier
of (x) the expiration of said one hundred twenty (120) day period or (y) the
actual date of engagement of the broker, then either Member may withdraw the
Third Party Sale Pool from the market, and the provisions set forth above in
this Section 8.7.1 shall be repeated if either Member thereafter desires to sell
the Properties, except as otherwise provided in Section 8.7.2 or Section 8.7.3
below.

          8.7.2 Prior to Stabilization

          (a) At any time prior to Stabilization of the Portfolio, the AEW
Member may cause the Company to market and sell one or more Properties to third
parties, subject to the prior written consent of the Sunrise Member, which shall
not be unreasonably withheld or delayed.

          (b) At any time prior to Stabilization of the Portfolio, the Sunrise
Member may cause the Company to market and sell one or more Properties to third
parties by notice given to the AEW Member, subject to the following terms and
conditions:

               (i) Any such notice from the Sunrise Member shall set forth (A)
the price at which the Sunrise Member recommends that the Company sell the
Property (the "Offer Price") and (B) a calculation of the Internal Rate of
Return for the Property which the Sunrise Member believes would result from such
a sale; and (C) the Pro Forma Return for such Property.

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<PAGE>

               (ii) The AEW Member shall have the right, but not the obligation,
exercisable by notice given to the Sunrise Member within twenty-one (21) days
after its receipt of such notice from the Sunrise Member, to elect to purchase
the Property from the Company for the Offer Price. If the AEW Member elects to
accept such Offer Price, then within fifteen (15) days after the date of such
acceptance, the Company and the AEW Member shall enter into a purchase and sale
agreement in the form reasonably satisfactory to the Members (a "Purchase and
Sale Agreement"), provided that (A) the closing date for the conveyance of the
Property shall be ninety (90) days after the date of such acceptance, and (B)
the earnest money deposit shall be three percent (3%) of the Offer Price (which
deposit shall be delivered by the AEW Member to the Company and shall not be
deemed to be a Capital Contribution). Without limiting the provisions of the
Purchase and Sale Agreement, if the closing under the Purchase and Sale
Agreement for any Property shall fail to occur due to a default by the AEW
Member, the rights of the AEW Member to purchase the applicable Property under
this Section 8.7.2 shall be deemed to be waived permanently (but such rights
shall continue to apply with respect to all other Properties.

               (iii) If the AEW Member fails to accept the Offer Price by notice
given to the Sunrise Member within said twenty-one (21) day period, then the
Sunrise Member shall have the right to cause the Company to market the
applicable Property for sale to third parties, subject to the consent of the AEW
Member, which shall not be unreasonably withheld or delayed provided that (A)
the sale would result (and actually does result) in an Internal Rate of Return
that equals or exceeds its Pro Forma Return for the Property; and (B) the sale
price is not less than ninety-five (95%) percent of the Offer Price and the sale
is on terms that are otherwise not materially more favorable to the applicable
purchaser than the terms set forth in the Purchase and Sale Agreement.

          8.7.3 Rights of AEW Member Upon an Event of Default. Upon the
occurrence of any Event of Default by the Sunrise Member, the AEW Member shall
have the right, in addition to any other rights or remedies hereunder, to
require a sale of one or more Properties, as designated by the AEW Member. If
the AEW Member makes such an election, then the AEW Member shall have the right
to market, or require the Sunrise Member to market, the applicable Property or
Properties for sale to a third party for a purchase price determined by the AEW
Member in its sole discretion. The Members hereby agree that the AEW Member
shall have the right to accept on behalf of the Company an all cash offer, on
commercially reasonable terms, from a responsible Third Party buyer, for a
purchase price satisfactory to the AEW Member in its sole discretion. The AEW
Member shall have the right to require that the Company engage the services of a
third party broker satisfactory to the AEW Member in its sole discretion to
assist in the marketing of the Properties. Such marketing efforts shall continue
until such time, if ever, as the AEW Member shall elect to withdraw the Property
or Properties from the market. Any Third Party which purchases any Property
marketed for sale under terms of Section 8.7.3 shall be entitled to rely on a
certificate by the AEW Member that it is proceeding in accordance with the
provisions of this Section 8.7.3 and that such sale, and the execution of all
documents, instruments or agreements in connection therewith by the AEW Member
on behalf of the Company, has been duly authorized pursuant to the provisions of
this Section 8.7.3.

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<PAGE>

                 ARTICLE IX - MEMBER OBLIGATIONS FOR REPORTING,
                         RECORDS AND ACCOUNTING MATTERS

     Section 9.1 Fiscal Year. Except as provided by the Code, the fiscal year
and the taxable year of the Company shall be the calendar year.

     Section 9.2  Bank Accounts.

          (a)

               (i) Prior to the Opening Date. Prior the Opening Date for any
Property, Manager shall cause SDI to deposit and disburse funds in accordance
with the requirements of the cash management system described in the Facility
Development Agreement for such Property.

               (ii) On and After the Opening Date. On and after the Opening Date
for any Property, the Manager shall deposit all cash balances derived from rents
or occupancy payments or otherwise arising from ownership of such Property in
accordance with the requirements of the cash management system described in
Exhibit N attached hereto (the "Cash Management System"). Except as provided in
Exhibit N, in no event shall any funds for any Property be commingled with any
accounts of any other party. Any investment of funds shall be made in the name
of the Company or the applicable Subsidiary and shall be consistent with
investment guidelines stated in an Annual Business Plan and the requirements of
the Cash Management System. The AEW Member shall have the right to require that
the AEW Member's signature shall be required on all checks/withdrawals after any
default by the Manager under this Agreement. Sunrise Member shall coordinate
with SDI, with the cooperation of AEW Member, in the transition from maintaining
accounts under the Development Agreement and under this Agreement.

          (b) The Manager shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Company and all Subsidiaries;
provided, however, that the fiduciary responsibility of the Manager with respect
to funds of the Company and all Subsidiaries shall only apply to the extent that
the Manager or the Operator shall have control of the funds of the Company or
any Subsidiary. The AEW Member shall have fiduciary responsibility for the
safekeeping and use of all funds of the Company and all Subsidiaries if and only
to the extent that the AEW Member or CalPERS shall have control of the funds of
the Company or its Subsidiaries. Except as provided in Exhibit N, the funds of
the Company and each Subsidiary shall not be commingled with the funds of any
other Person, and the Members shall not employ such funds in any manner except
for the benefit of the Company.

     Section 9.3  Maintenance of Records.

          (a) The Manager shall maintain and develop on a current basis a
uniform system of accounts and document filing system with respect to the
Company and each Subsidiary in accordance with instructions to be provided by
the AEW Member. All such records shall be maintained at the principal office of
the Company.

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<PAGE>

          (b) The Manager shall maintain files related to the Properties in a
good and orderly fashion, all such files being the sole property of the Company
(or the applicable Subsidiary), including, but not limited to, the following to
the extent same are delivered to or generated during the term of this Agreement,
to wit:

               (i) Occupancy files, including executed leases or residency
agreements and amendments thereto, correspondence, and current rent roll;

               (ii) Maintenance and repair files;

               (iii) Accounting books and records and supporting documentation;

               (iv) Construction files, competitive bid records, including site
plans, construction drawings, as-built drawings, plans, construction
specifications, capital improvements schedules and information, construction
contracts, architects agreements, engineering contracts and subcontracts, except
that no such plans, drawings or specifications shall be used for any purpose
other than the maintenance, repair and replacement of the applicable Property;

               (v) Operation files, including HVAC maintenance schedules,
warranties, and operation manuals;

               (vi) Service contracts, including, but not limited to cleaning,
maintenance, landscaping, snow removal, trash removal, etc.;

               (vii) Permits, licenses and certifications from any and all
governmental authorities;

               (viii) Copies of insurance policies or certificates; and

               (ix) Such other Property information as any Member reasonably
requests from time to time.

          (c) Without limiting the provisions of Section 9.5.2(a) or any other
provision hereof, the AEW Member shall have the absolute right to undertake a
periodic audit review of the Company, its Subsidiaries and Properties, the fees
payable hereunder to the Manager and the Manager's compliance with the
provisions of this Agreement. Such audit review may be undertaken directly by
the AEW Member or any member thereof, or by third parties engaged by the AEW
Member (or any member thereof), including accountants, consultants and
appraisers. The Manager shall cooperate fully with the AEW Member (or such
member thereof) or any such third party in connection with such audit review.
All adjustments, payments and reimbursements determined by the AEW Member (or
such member thereof) or its representatives to be necessary by such audit review
shall be effected promptly by the Manager; provided, however, that if the
Manager disputes any of such adjustments, payments or reimbursements, then the
matters in dispute shall be submitted to a mutually acceptable firm of
nationally recognized independent certified public accountants, who shall
determine which party's determination is correct and whose decision shall be
binding. If the audit for any given annual period discloses that aggregate
adjustments, payments and reimbursements in favor of the Manager exceed either a
percentage

                                       59
<PAGE>

in excess of 2% of the total distributions made to the Members in the year under
audit or an adjustment in excess of 2% of the fees payable to the Manager, the
cost of such audit shall be paid by the Manager out of its own funds but only if
and to the extent that CalPERS exercises its right under the CalPERS/Seaport
Venture Agreement to require that Seaport pay for the cost of such audit due to
such excess. Otherwise, the cost of the audit shall be paid by the AEW Member.
In addition, the Manager shall be subject to the examination and audit by the
Auditor General of the State of California for a period of three years after the
termination of the Company in accordance with California Government Code Section
10532. Such examination and audit shall be confined to those matters connected
with the performance of this Agreement and shall be performed at the expense of
the AEW Member.

     Section 9.4  Certain Records. The Manager shall keep at the principal
office of the Company a current list of the full name and last known business or
residence address of each Member, a copy of the LLC Certificate and all
certificates of amendment to any of them, together with executed copies of any
powers of attorney pursuant to which any of the certificates or any amendments
have been executed, copies of the Company's federal, state and local income tax
or information returns and reports, if any, for the six most recent taxable
years, copies of this Agreement and any amendments thereto, copies of any and
all financial statements of the Company for the six most recent fiscal years,
and the books and records of the Company as they relate to the internal affairs
of the Company for at least the current and past six fiscal years, if any,
including calculations of capital accounts and returns and, for purposes of
satisfying the request of an appraiser, a true copy of business records relevant
to the amount, cost and value of all property owned, claimed, possessed or
controlled by the Company or any Subsidiary. Each Member has the right, upon
reasonable request, to inspect and copy during normal business hours any of the
Company's books, records agreements and other documents.

     Section 9.5 Required Reports. The Manager shall promptly deliver to each
Member, at the Company's expense, a copy of this Agreement as in effect from
time to time, and any amendments thereto and, upon request, shall so deliver any
additional documents required by the Act. The Manager shall furnish or arrange
to be furnished to each Member the following reports prepared for the Company.

          9.5.1 Tax Returns. The Manager shall prepare or cause to be prepared
all tax returns required of the Company and each Subsidiary. The Manager shall
timely file or cause to be timely filed all such tax returns required by the
Company. The Manager, with the AEW Member's consent, shall make decisions
regarding or affecting the reporting or characterization for tax purposes of
items of Company income, gain, loss or deduction, including without limitation,
whether to make any available election pursuant to the Code and the regulations
which will materially affect the taxation of the AEW Member or its direct or
indirect owners.

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<PAGE>

          9.5.2 Other Reports and Notices.

          (a) (i) Prior to the Opening Date. Prior to the Opening Date for any
Property, Manager shall cause SDI to prepare and deliver to each Member the
budgets, reports, audits and other items required pursuant to the Facility
Development Agreement for such Property.

               (ii) On and After the Opening Date. On and after the Opening Date
for any Property, Manager shall prepare (or cause to be prepared) and deliver to
each Member the budgets, reports, audits and other items described in Exhibit J
attached thereto and incorporated herein by this reference with respect to such
Property (and any other Properties for which the Opening Date has occurred) on
or before the respective dates set forth therein. Manager shall prepare such
reports separately (or cause such reports to be prepared separately) for each
Subsidiary and on a consolidated basis for the Company. All such budgets,
reports, audits and items, and Annual Business Plans, shall be submitted by hard
copy and computer disk files utilizing software approved by the AEW Member. For
each business day that any report required to be delivered by Manager on a
quarterly or annual basis is late, the Manager shall pay to the AEW Member a
late fee of $100 per day, but only if and to the extent that CalPERS exercises
its right under the CalPERS/Seaport Venture Agreement to assess late fees
against Seaport for failure to deliver any such report on or before the date
when due under the CalPERS/Seaport Venture Agreement. Furthermore, the Manager
shall reimburse the AEW Member (outside of the Company) for the actual costs
incurred by the AEW Member (or any of its members) from its outside consultants
in correcting any error in the reports and financial information submitted to
the AEW Member under this Agreement.

          (b) Manager shall:

               (i) Promptly notify the AEW Member of any legal action made
against, or threatened to be made against, the Company where the amount in
controversy exceeds $50,000 (and in any event within five (5) business days
after obtaining knowledge thereof);

               (ii) Notify the AEW Member in writing at least twenty (20) days
prior to commencing any action against any other person or entity where the
amount in controversy exceeds $50,000;

               (iii) Promptly notify the AEW Member of all facts, information,
projections or other matters known to Manager which could be reasonably expected
to have a material adverse impact (such as a condemnation, casualty, emergency
repair, environmental, material deviations from an Annual Business Plan, etc.)
upon the operations or development of a Property, or on the economic interests
of the Company. For purposes of the preceding sentence (but without limiting any
other provision hereof, including, without limitation, Paragraph 20 of Exhibit F
attached hereto), the term "material" shall mean any matter which may result in
a cost or loss of more than $100,000, unless such matter has been approved in
writing by the AEW Member or is specifically contained in the then current
Annual Business Plan with respect to the operation of the applicable Property;

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<PAGE>

               (iv) Promptly provide to the Members all information relating to
the Company in the Manager's possession or within the Manager's reasonable
ability to obtain which any Member reasonably requests; and

               (v) Notify the Members within ten (10) business days after
receiving notice of (A) any default under any Loan or breach of or default under
any architectural or engineering agreement, construction contract or other
material agreement of which the Company or any Subsidiary is a party, (B)
nonpayment of property taxes with respect to any Property, or (C) any matter
which could result in a substantial and material loss (i.e., greater than
$100,000) to the Company.

     Section 9.6 Other Disclosures. The Manager shall provide any and all
material information relating to the Properties and other periodic reports as
the Members may reasonably request from time to time, including all material
that the Operator is required to furnish to the Company.

     Section 9.7 Tax Matters Partner. The Sunrise Member is designated the tax
matters partner of the Company as provided in Section 6231(a)(7) of the Code and
corresponding provisions of applicable state law. This designation is effective
only for the purpose of activities performed pursuant to the Code, corresponding
provisions of applicable state law and under this Agreement. The Sunrise Member
shall not make any material decisions or take any material actions as the tax
matters partner without the prior written consent of the AEW Member, which shall
not be unreasonably withheld or delayed. The Sunrise Member may not make any
election in contravention of the provisions of Section 9.8 below.

     Section 9.8 Taxation as a Partnership. It is the intent of the Company and
its Members that the Company be treated as a partnership for income tax
purposes, and the terms of this Agreement shall be construed so as to accomplish
that goal, and the Members will use best efforts to cause the Company to be so
treated.

     Section 9.9 Costs Payable From the Cash Management System.

          (a) Prior to the Opening Date. Prior to the Opening Date for any
Property, the Manager shall cause SDI, to the extent of available funds, to pay
from the cash management system described in the Facility Development Agreement
for such Property, all costs incurred by Third Parties or otherwise payable in
connection with the development of the Property pursuant to and consistent with
the then current Annual Business Plan for the Property, all in accordance with
the requirements of the Facility Development Agreement for such Property.

          (b) After the Opening Date for each Property, the Manager shall, to
the extent of available funds, pay from the Cash Management System all costs
incurred by Third Parties or otherwise payable hereunder in connection with the
redevelopment and disposition of the Property pursuant to and consistent with
the then current Annual Business Plan for the Property or otherwise within the
authority granted to the Manager herein, all in accordance with the requirements
of the Cash Management System.

     Section 9.10 Meetings with Regional Directors. Without limiting any other
obligation of Manager or rights of the AEW Member hereunder, Manager hereby
agrees to cause (i) during

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development and construction of any Property, its (or SDI's) Regional Directors
of Development to confer at least once per month (or more often as reasonably
requested by the AEW Member) with representatives from the AEW Member to discuss
the status of development and construction of the Properties, and (ii) after the
Opening Date for any Property, its Regional Directors of Operations to confer at
least once per calendar quarter with representatives from the AEW Member to
discuss the status of operations of the Properties for which the Opening Date
has occurred (or more often as reasonably requested by the AEW Member). Such
conferences shall occur on dates and times reasonably satisfactory to the AEW
Member and shall be conducted in person or by teleconference, as requested by
the AEW Member.

                            ARTICLE X - DISSOLUTION

     Section 10.1 Dissolution.

          (a) Events of Dissolution. The Company shall dissolve, and its affairs
shall be wound up, upon the first to occur of the following: (i) the election of
the Members, or (ii) the entry of a decree of judicial dissolution under Section
18-802 of the Act.

          (b) Bankruptcy of a Member. Subject to the provisions of Section
11.1.8 below, the Bankruptcy of a Member or other Terminating Event will not
cause the Member to cease to be a member of the Company and, upon the occurrence
of such an event, the business of the Company shall continue without
dissolution.

          (c) Liquidation and Winding Up. In the event of dissolution, the
Company shall be wound up and its assets liquidated. In connection with the
dissolution and winding up of the Company, the Manager or such other person
designated by the Members shall proceed with the sale, exchange or liquidation
of all of the assets of the Company, including, without limitation, the
Subsidiaries and the Properties and shall conduct only such other activities as
are necessary to wind up the Company's affairs, and the assets of the Company
shall be applied in the manner, and in the order of priority, set forth in
Section 18-804 of the Act.

                         ARTICLE XI - EVENTS OF DEFAULT

     Section 11.1 Events of Default. There will be an Event of Default under
this Agreement if any one or more of the following events or circumstances shall
transpire or exist and shall not be cured within any applicable period of notice
and grace specified below:

          11.1.1 Breach of Obligations. If either Member is in breach of any
material obligation under this Agreement and such breach is not corrected within
fifteen (15) business days after written notice thereof from the other Member;
unless such breach is of a nature that it is not capable of cure in such period,
in which event the breaching party shall promptly commence such cure within said
fifteen (15) business day period and thereafter diligently pursue such cure to
completion within such reasonable time, not to exceed an additional ninety (90)
days, as may be necessary to complete such cure.

          11.1.2 Fraud, Gross Negligence or Willful Misconduct. If either Member
shall commit an act involving fraud or willful misconduct in connection with any
of its obligations

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hereunder, or an act involving gross negligence which with respect to any act of
gross negligence is not corrected within fifteen (15) days after written notice
thereof from the other Member.

          11.1.3 Transfers. Any Transfer by either Member in violation of the
provisions of Article VIII.

          11.1.4 Prohibited Change of Control. If a Prohibited Change of Control
shall occur.

          11.1.5 Related Party Defaults. As to the Sunrise Member any default
which remains uncured after the expiration of any applicable notice and/or cure
period occurs (i) on the part of SALI under the Revolving Credit Agreement; (ii)
Operator under the Operating Deficit Loan Agreement; (iii) Operator under any
Facility Management Agreement; and (iv) SDI under any Facility Development
Agreement.

          11.1.6 Intentionally Omitted.

          11.1.7 Failure to Contribute. An election by the non-Defaulting Member
under Section 3.9(d).

          11.1.8 Bankruptcy of the Sunrise Member. The Bankruptcy of the Sunrise
Member.

          11.1.9 Misappropriation of Funds. The misappropriation of Company
funds by the Sunrise Member or one of its Related Parties or their respective
employees, or by the AEW Member or one of its Related Parties or their
respective employees, unless such funds are restored within five (5) days after
the discovery thereof.

          11.1.10 Intentionally Omitted.

     Section 11.2 Special Remedies on Default by the Sunrise Member. Within
sixty (60) days after an Event of Default by the Sunrise Member, the AEW Member
may, in its sole discretion, and without limiting any other right or remedy of
the AEW Member, remove the Sunrise Member as the Manager and designate itself or
its designee as the replacement Manager. If the AEW Member exercises such right,
the Sunrise Member shall automatically, without need for the execution and
delivery of any instrument other than notice by the AEW Member to the Sunrise
Member that it has exercised such right, cease to be the Manager and the AEW
Member or its designee shall become the sole Manager of the Company with all
rights and responsibilities of the Manager set forth in this Agreement. The
Sunrise Member shall execute such amendments to this Agreement and execute and
file such amendments to the Certificate of Organization of the Company as may be
required to affect such appointment of the AEW Member or its designee as the
Manager and the Sunrise Member hereby appoints the AEW Member its
attorney-in-fact with full power of substitution, to execute and deliver any
such amendments or other instruments. Notwithstanding the foregoing of any other
provision hereof to the contrary, under no circumstance shall the AEW Member
have any authority, without the written consent of the Sunrise Member, to cause
the Company to sell, transfer or convey all or substantially all of the assets
of the Company or its Subsidiaries, to acquire additional Property, to engage in
any material improvements of any Property (other than pursuant to an Approved

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Budget which has been approved by both Members or Preservation Costs), to incur
on behalf of the Company any financing which includes recourse obligations of
the Sunrise Member, to engage in any transaction with any Related Party of the
AEW Member other than on arm's-length terms and as required under Sections 6.6.5
and 6.6.6, to obtain insurance other than on the terms and with coverages as are
approved by the Sunrise Member, or to amend this Agreement, nor shall the
Sunrise Member forfeit any of its rights under Article IV, Article V (as to the
right to receive distributions), Article VIII, or its rights to receive reports
and obtain information pursuant to Article IX or any other provision of this
Agreement.

     Section 11.3 Special Remedies on Default by the AEW Member. Notwithstanding
any provision of this Agreement to the contrary, but subject to the provisions
of Section 3.10 hereof, following an Event of Default by the AEW Member, the AEW
Member's consent shall not be required with respect to any Major Decision,
provided, however, that the consent of the AEW Member shall continue to be
required for all Major Decisions so long as (i) the AEW Member is contesting the
existence or occurrence of the Event of Default pursuant to an arbitration
proceeding under Section 12.3 hereof, and (ii) either the AEW Member prevails in
such application proceeding, or, if the AEW Member does not prevail in such
arbitration proceeding, the AEW Member cures the applicable default in
accordance with the decision of the arbitrator(s) under the arbitration
proceeding, and, provided, further however, that under no circumstance shall the
Sunrise Member have any authority, without the written consent of the AEW
Member, to cause the Company to sell, transfer or convey all, or substantially
all of the assets of the Company or its Subsidiaries, to acquire additional
Properties, to engage in any material improvements of any Property (other than
pursuant to an Approved Budget which has been approved by both Members or
Preservation Costs), to incur on behalf of the Company any financing which
includes any recourse obligations of the AEW Member, to engage in any
transaction with any Related Party of the Sunrise Member other than on
arm's-length terms and as required under Sections 6.6.5 and 6.6.6, to obtain
insurance other than on terms and with coverages as are approved by the AEW
Member, or to amend this Agreement, nor shall the AEW Member forfeit any of its
rights under Article IV, Article V (as to the right to receive distributions),
Article VI, Article VIII, or its rights to receive reports and obtain
information pursuant to Article IX or any other provision of this Agreement, or
its rights under Section 12.14. The Sunrise Member's right and authorization to
proceed on Major Decisions without the consent of the AEW Member shall, subject
to foregoing the provisions of this Section 11.3, come into effect, without the
need for the execution and delivery of any instrument other than notice by the
Sunrise Member to the AEW Member that it has exercised such right to terminate
the AEW Member's right to consent on Major Decisions.

                          ARTICLE XII - MISCELLANEOUS

     Section 12.1 Notices.

          (a) Any and all notices, demands, consents, approvals, offers,
elections and other communications required or permitted under this Agreement
(collectively, "notices") shall be deemed adequately given if in writing and the
same shall be delivered either in hand or by mail or Federal Express or similar
expedited commercial carrier, addressed to the recipient of the notice, postpaid
and registered or certified with return receipt requested (if by mail), or with
all freight charges prepaid (if by Federal Express or similar carrier).

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<PAGE>

          (b) All notices required or permitted to be sent hereunder shall be
deemed to have been given for all purposes of this Agreement upon the date of
acknowledged receipt and in all other cases, upon the date of receipt or
refusal, except that whenever under this Agreement a notice is either received
on a day which is not a Business Day or is required to be delivered on or before
a specific day which is not a Business Day, the day of receipt or required
delivery shall automatically be extended to the next Business Day.

          (c) All such notices shall be addressed:

     If to the Sunrise Member, to:

                    Sunrise Assisted Living Investments, Inc.
                    7902 Westpark Drive
                    McLean, Virginia 22102
                    Attention: Legal Department
                    Telecopier:  703-744-1885

     with a copy to:

                    Watt, Tieder, Hoffar & Fitzgerald, L.L.P.
                    7929 Westpark Drive, Suite 400
                    McLean, Virginia 22102
                    Attention: Wayne G. Tatusko, Esq.
                    Telecopier:  703-356-5388

     If to the AEW Member, to:

                     c/o AEW Capital Management, L.P.
                     2 Seaport Lane
                     Boston, Massachusetts 02110-2021
                     Attention: General Counsel
                     Telecopier: 617-261-9555

     with a copy to:

                     AEW Capital Management, L.P.
                     2 Seaport Lane
                     Boston, Massachusetts 02110-2021
                     Attention:  Asset Manager - AEW Senior Housing Company, LLC
                     Telecopier:  617-261-9555

     with a copy to:

                     Hale and Dorr LLP
                     60 State Street
                     Boston, Massachusetts 02109
                     Attention: Joseph J. Christian, Esq.
                     Telecopier: 617-526-5000

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<PAGE>

          (d) By notice given as herein provided, the parties hereto and their
respective successors and assigns shall have the right from time to time and at
any time during the term of this Agreement to change their respective addresses
effective upon receipt by the other parties of such notice and each shall have
the right to specify as its address any other address within the United States
of America or to add one or two more parties to whom a copy of a notice must be
given.

     Section 12.2 Amendments. This Agreement may be amended only with the
written approval of all Members.

     Section 12.3 Arbitration.

          (a) Any dispute hereunder regarding a matter which is expressly made
subject to arbitration under this Agreement shall at the request of either
Member, be determined by an arbitration proceeding (an "Arbitration Proceeding")
conducted in the city and state determined by the arbitrator selected for the
Arbitration Proceeding or as otherwise mutually agreed by the parties to the
Arbitration Proceeding and in accordance with the commercial arbitration rules
of the AAA with expedited procedures in effect on the date thereof, as modified
by this Agreement. Unless expressly stated to the contrary in this Agreement,
the initiation of the Arbitration proceeding shall toll the running of any cure
periods provided for in this Agreement.

          (b) The Member desiring arbitration shall provide written notice to
the other Member (the "Arbitration Notice") indicating (i) the matter in
controversy and (ii) the name, contact information and professional resume of
the proposed arbitrator meeting the requirements for a qualified and independent
arbitrator set forth in Section 12.3(c) ("Initial Arbitrator") to arbitrate such
matter in controversy. If the Member receiving the Arbitration Notice rejects
the Initial Arbitrator set forth in the Arbitration Notice it shall object in
writing ("Objection Notice") delivered to the other Member within four (4)
Business Days of the receipt of the Arbitration Notice. The Objection Notice
shall contain the name, contact information and professional resume of a
different arbitrator meeting the requirements for a qualified and independent
arbitrator set forth in Section 12.3(c) ("Secondary Arbitrator") to arbitrate
the matter in controversy set forth in the Arbitration Notice. If the Member
receiving the Objection Notice rejects the Secondary Arbitrator, it shall object
in writing ("Secondary Objection Notice") to the other Member within four (4)
Business Days after the receipt of the Objection Notice. If neither the Initial
Arbitrator nor the Secondary Arbitrator is accepted by the Members, the Member
which delivered the Arbitration Notice shall instruct the Initial Arbitrator and
the Secondary Arbitrator to agree, within two (2) Business Days after receipt of
the Secondary Objection Notice, upon an arbitrator ("Appointed Arbitrator")
meeting the requirements for a qualified and independent arbitrator set forth in
Section 12.3(c). If they agree upon an Appointed Arbitrator who is prepared to
act as the Appointed Arbitrator, the Initial Arbitrator and Secondary Arbitrator
shall deliver written notice of the name, contact information and professional
resume of the Appointed Arbitrator to each Member simultaneously. The
appointment of the Appointed Arbitrator shall be a final decision, which shall
not be subject to objection by either Member, unless either member within two
(2) Business Days after such selection of an Appointed Arbitrator, notifies the
Other Member, in writing, that such Appointed Arbitrator fails to meet the
requirements for a qualified and independent arbitrator set forth in Section
12.3(c) and provides specific information in such written notice as to the
reasons why such failure exists.

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<PAGE>

          (c) In the event the Initial Arbitrator and the Secondary Arbitrator
cannot agree on an Appointed Arbitrator or if such appointed Arbitrator is
unwilling to act as the Appointed Arbitrator or if either member objects to the
Appointed Arbitrator within two (2) Business Days after the selection of such
Appointed Arbitrator, as permitted in this Section 12.3, then either Member may
petition the AAA (or any successor body of similar function) to appoint an
arbitrator within two (2) Business Days of such petition using the following
criteria: such arbitrator shall (i) with respect to physical property matters, a
licensed professional engineer or registered architect having at least ten (10)
years experience in the design or construction of Senior Housing Facilities,
(ii) with respect to financial matters be a partner in a "Big Five Accounting
Firm" with at least ten (10) years experience with the type of matter in
dispute, (iii) with respect to property management issues, a person who shall
have had at least ten (10) years experience managing Senior Housing Facilities
similar to the properties owned by the Company in the market place for the
matter in dispute and (iv) be neutral and shall have had no prior notice,
information or discussions concerning such controversy) and shall not be
employed by or associated with either Member or any Related Party of either of
them, or any of their respective agents or affiliates at such time or for the
previous ten (10) years.

          (d) The Arbitration Proceedings shall commence two (2) Business Days
after the engagement or appointment of the appropriate arbitrator pursuant to
this Section 12.3. Such Arbitration Proceedings shall be conducted in one (1)
day until completion, each party shall have no more than a total of four (4)
hours to present its case and to cross-examine or interrogate persons supplying
information or documentation on behalf of the other party and the arbitrator
shall make a determination within three (3) Business Days after conclusion of
the Arbitration Proceeding.

          (e) Each Member shall sign all documents and do all other things
necessary to submit any such matter to arbitration and agree to, and hereby do,
waive any and all rights they or either of them may at any time have to revoke
their agreement hereunder to submit to arbitration and to abide by the decision
rendered thereunder.

          (f) The costs and expenses of an Arbitration Proceeding and the
arbitrators shall be shared equally by the AEW Member and the Sunrise Member,
provided, however, each Member shall pay its own counsel and other professional
fees and expenses with respect to such Arbitration proceeding. Notwithstanding
any contrary provisions hereof, if any Member has initiated two (2) unsuccessful
consecutive Arbitration Proceedings, it shall indemnify and holder harmless the
other Member for all costs and expenses incurred by such other Member with
respect to such subsequent Arbitration Proceedings initiated by it, but not for
the result of such Arbitration Proceeding; provided, however, if at any time
subsequent to such two (2) unsuccessful consecutive Arbitration proceedings,
such Member has prevailed at two (2) consecutive Arbitration Proceedings, such
indemnification shall no longer be effective until after such Member has
initiated two (2) unsuccessful consecutive Arbitration Proceedings again.

          (g) Any arbitrator's final decision and award shall be in writing,
shall be binding on the members and shall be nonappealable, and counterpart
copies thereof shall be delivered to both Members. A Judgment or order based
upon such award may be entered in any court of competent jurisdiction. All
actions necessary to implement the decision of the arbitrator shall be

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undertaken as soon as possible, but in no event later than three (3) Business
Days after the rendering of such decision.

     Section 12.4 Interpretation. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law. The parties agree that except as set forth
in Section 8.2 and Section 12.3, any dispute arising in connection with this
Agreement shall be resolved in the Chancery Court in the State of Delaware, and
each party hereby submits to the jurisdiction of that court. EACH PARTY HEREBY
WAIVES ITS RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE BETWEEN ANY OF
THE PARTIES TO THIS AGREEMENT ARISING OUT OF THIS AGREEMENT OR THE RIGHTS OR
OBLIGATIONS OF THE PARTIES HEREUNDER. The table of contents and titles of the
Articles and Sections in this Agreement are for convenience only and shall not
be considered in construing this Agreement. Pronouns used herein shall be
construed to refer to the masculine, feminine, neuter, singular and plural as
the identity of the individual or entity referred to may require. This
Agreement, together with the documents and agreements being executed on the date
hereof, constitutes the entire agreement among the Members and supersedes any
prior written or oral agreements with respect to the subject matter of this
Agreement. No provision of this Agreement (including, without limitation, any
obligation of any Member to make Contributions) shall be interpreted as
bestowing any rights whatsoever upon any third party. A cross-reference to
another section shall be deemed to be to such section of this Agreement, unless
explicitly stated otherwise.

     Section 12.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.

     Section 12.6 No Partition. No Member nor any Legal Successor of a Member
shall have the right to partition the Company or the Properties or any part
thereof or interest therein, or to file a complaint or institute any proceeding
at law or in equity to partition the Company or the Properties or any part
thereof or interest therein. Each Member, for such Member and such Member's
Legal Successor, hereby waives any such rights. The Members intend that, during
the term of this Agreement, the rights of the Members and their successors in
interest, as among themselves, shall be governed solely by the terms of this
Agreement and by the Act.

     Section 12.7 Attorney's Fees. If any Member seeks to enforce such Member's
rights under this Agreement by legal proceedings or otherwise the non-prevailing
party shall be responsible for all costs and expenses in connection therewith,
including without limitation, reasonable attorneys' fees and witness fees. In
this Section 12.7, non-prevailing party shall not be meant to refer to a Member
who initiates or accepts a settlement offer with regards to such legal
proceeding.

     Section 12.8 Severability. If any provision of this Agreement is determined
to be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, to achieve the intent of the parties. In any event, all other
provisions shall be deemed valid and enforceable to the greatest possible
extent.

     Section 12.9 Binding on Successors. Subject to the provisions of Article
VIII, the rights and obligations of the Members under this Agreement shall inure
to the benefit of and bind their respective heirs, successors and assigns.

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<PAGE>

     Section 12.10 Confidentiality. Both parties hereto agree to maintain the
confidentiality of the financial terms and conditions of this Agreement and to
maintain the confidentiality of (a) any financial information provided by one
party to the other, and (b) all information contained in any plans,
specifications, manuals, forms, contracts, books, records, computer discs and
similar materials containing information, invoices and other documents received
or maintained by the Company pursuant to this Agreement, other than information
that is available from public sources. Either party may, however, disclose any
of such information to its agents, directors, officers, employees, advisors,
attorneys, affiliates or representatives who require such information for the
purpose of performing or assisting in the performance of its obligations or
services hereunder, and to investors or lenders or proposed investors or
lenders, provided that in all such cases such parties shall be informed of the
confidential nature of such information. Either party hereto may also disclose
any such information (x) to the extent required by law, regulation (including
SEC regulations) or court order provided that such party shall have first, to
the extent reasonably practicable, advised the other of the requirement to
disclose such information and shall have afforded the other an opportunity to
dispute such requirement and seek relief therefrom by legal process, (y) in
connection with any suit, action, arbitration or other proceedings between the
parties hereto or their respective Related Parties, or (z) to the extent
required in connection with the preparation or filing of any tax returns or
other filings required by any applicable law.

     Any press releases or other public announcements concerning the Company or
the arrangement between the Members shall be mutually approved by both AEW
Member and the Sunrise Member in their reasonable discretion.

     Section 12.11 Additional Representation, Warranties, Covenants and
Agreements of Each Member. As an inducement to each Member to enter into this
Agreement, in addition to the representations, warranties, covenants and
agreements contained in this Agreement, the parties make the additional
representations, warranties, covenants and agreements contained in SCHEDULE
12.11 attached hereto and made a part hereof.

     Section 12.12 Brokerage Commissions. The parties hereto represent and
warrant to each other that they have not dealt with any brokers, consultants or
other third parties in the negotiation of this Agreement and the transactions
contemplated herein. The parties further agree to indemnify, defend and hold
each other harmless from and against any liability, claim, damage, cost or
expense (including, without limitation, reasonable attorneys' fees) arising out
of or in connection with the claims for commissions or any other fees due in
connection with this Agreement and the transaction contemplated herein arising
from such Member's actions.

     Section 12.13 Time is of the Essence. Time is of the essence with respect
to all time or notice deadlines set forth herein; provided, however, that this
provision shall not affect the rights of any defaulting party hereunder to cure
such default within the time periods (if any) explicitly set forth herein, if
and as so permitted pursuant to the terms of this Agreement.

     Section 12.14 Avoidance of Unrelated Business Income Tax. CalPERS is a
governmental entity which is exempt from the tax on unrelated business taxable
income ("UBTI") under Section 511 of the Code pursuant to Section 115 of the
Code. Nevertheless, as a matter of policy, CalPERS generally attempts to
minimize income to it which could be

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<PAGE>

characterized as UBTI under Section 512 of the Code. Therefore, in negotiating
changes or modifications to the approved manner by which the Company may
structure an acquisition of an ownership interest in a Property, the Manager
shall use commercially reasonable efforts to avoid changes or modifications that
would significantly increase the possibility of income to CalPERS being
characterized as UBTI if CalPERS were a qualified nongovernmental pension plan.
The AEW Member will respond to reasonable requests by the Manager for guidance
on whether any proposed change or modification violates this standard, and
unless the AEW Member responds within 10 business days of such request, then the
Manager shall be deemed to have used commercially reasonable efforts as required
by this Section 12.14.

     Section 12.15 Required Exculpatory Provisions. All written contracts,
mortgages, partnership agreements and other instruments or agreements which may
impose an obligation on the Company or any Subsidiary in excess of $100,000, and
any renewals, extensions or amendments thereof, which are executed on or after
the date hereof shall contain a provision satisfactory to the AEW Member that
the obligee under such contract will not seek a personal judgment against the
AEW Member or any other Member for any default of the Company or any Subsidiary
in the performance or observance of any of the terms or conditions of such
contract, it being the intent of such a provision that no such obligee shall
have any right to seek any recourse against the Members except to the extent of
the interests of the Members in the assets of the Company or any Subsidiary.

     Section 12.16 Compliance with Applicable Policies.

          (a) During the term of this Agreement, neither the Manager nor any of
its subsidiaries, employees or agents shall unlawfully discriminate against any
employee or applicant for employment because of race, religion, color, national
origin, ancestry, physical handicap, medical condition, marital status, age
(over 40) or sex. The Manager and its subsidiaries, employees and agent shall
assure that the evaluation and treatment of their employees and applicants for
employment are free of such discrimination. In connection with Company
activities, the Manager and its subsidiaries, employees and agents shall give
written notice of their obligations under this clause to labor organizations
with which they have a collective bargaining or other agreement. The Manager
shall include the foregoing nondiscrimination compliance provisions in all
written contracts to perform work or provide services under or pursuant to this
Agreement. During the term of this Agreement, the Manager, its subsidiaries,
employees and agents shall conduct their respective activities in connection
with the Company activities in accordance with Title VI of the Civil Rights Act
of 1964 and the rules and regulations promulgated thereunder.

          (b) The Manager hereby certifies, and shall at the AEW Member's
request certify annually, that no more than one, final, unappealable finding of
contempt of court by a federal court has been issued against it within any
preceding two-year period because of the Manager's failure to comply with an
order of a federal court which order the Manager to comply with an order of the
National Labor Relations Board. Such certificate shall be given under penalty of
perjury.

     Section 12.17 Fair Political Practices Laws. The Manager shall not directly
or indirectly receive any benefit from Properties (other than the fees and
distributions contemplated by this

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Agreement) and shall disclose to the AEW Member any personal investment or
economic interest of the Manager which may be enhanced by the Company's
investment in a Property. The Manager acknowledges that CalPERS is subject to
the provisions of the Fair Political Practices laws of California (Government
Code Section 81000, et seq., and all regulations adopted thereunder, including
but not limited to California Code of Regulations Title 2, Division 6, Chapter
7, Article 1, Section 18700) and the Manager shall comply promptly with any
requirements thereunder.

     Section 12.18 Notice of Proceedings. The Manager shall promptly advise the
AEW Member in writing of any investigation, examination or other proceeding
involving the Manager commenced by any regulatory agency which is not conducted
in the ordinary course of the Manager's business.

     Section 12.19 Disabled Veterans Businesses Enterprises/Responsible
Contracting Program. The Manager, in contracting for goods and services on
behalf of the Company, shall make good faith efforts to comply with CalPERS'
objectives and then current policies regarding disabled veterans enterprises.
The Manager shall also use best efforts to comply, and to ensure that the
Operator complies, with CalPERS' objectives and then current policies regarding
the selection of responsible contractors. The Manager shall also use reasonable
efforts to ensure that any developer/contractor of any Property under
development or substantial rehabilitation complies with CalPERS' objectives and
then current policies regarding the selection of responsible contractors. A copy
of CalPERS' current objectives and policies regarding responsible contractors is
attached hereto as Exhibit O and incorporated herein by reference. In each
instance, such compliance shall include, but not be limited to, complying with
CalPERS' reporting requirements regarding such efforts.

     Section 12.20 No Affiliate Benefits. Without the prior Consent of the AEW
Member, neither the Manager, its Related Parties nor any of their respective
shareholders, partners, officers, agents or employees shall directly or
indirectly receive any benefit from any Property other than as contemplated by
this Agreement. A certification to this effect from the Manager shall be
required with respect to each Property on an annual basis, at the time of the
initial funding of a new Property, and as otherwise requested by the AEW Member.
Notwithstanding the foregoing, neither the Manager nor its Related Parties shall
be precluded from (i) receiving compensation, fees or reimbursements pursuant to
separate contracts for property management or other services expressly approved
by the AEW Member, (ii) receiving indirect benefits arising from association
with the "Sunrise" brand name as a result of being a Member of the Company or as
a result of the management of the Facilities by SALMI, or (iii) promotion of the
Sunrise-at-Home program or other future similar programs which use the
Facilities and/or the Sunrise brand name to extend senior care to a broader
base.

     Section 12.21 Required Disclosure of Gifts. The Manager and its Related
Parties will comply with Government Code Section 20152.5, as it exists and as it
may be amended by the legislature and implemented by the CalPERS Board of
Administration from time to time (after notice to AEW), concerning gift and
campaign disclosure policies. A copy of the existing Government Code Section
20152.5 is attached hereto as Exhibit P.

                                       72
<PAGE>

     Section 12.22 Appraisal. In the course of the administration of its assets,
and at its own expense, the AEW Member, acting on behalf of CalPERS, shall have
the right to have an independent appraiser selected by the AEW Member annually
appraise the Properties of the Company and its Subsidiaries to determine their
Fair Market Value. Any such appraisal shall be made subject to the procedures
described in the definition of Fair Market Value in Exhibit Q attached to this
Agreement. Valuation of all of the other assets of the Company and its
Subsidiaries may be performed when and as required under generally accepted
industry standards. No increase or decrease in the Fair Market Value of any
Property as determined by any appraisal conducted under this Section shall
create any rights or remedies in favor of any Member, nor shall any such
increase or decrease be deemed to limit or impair any rights or remedies of any
Member under any other provision of this Agreement.

     Section 12.23 Extension of Investment Period. Each Member shall have the
three (3) options to extend the Investment Period for successive periods of one
(1) year each by notice given to the other Member at least thirty (30) days
prior to the then applicable expiration date of the Investment Period; provided,
however, that in no event shall the Investment Period be extended as a result of
any election by either Member to a date later than the date which is eight (8)
years after the date hereof; and provided further, however, that the exercise of
any such option shall not be effective to extend the Investment Period unless
the other Member consents to such extension by notice given to the electing
Member within ten (10) business days after the date of such notice of extension.
If the non-electing Member shall fail to give notice of its consent within such
ten (10) business day period, then such Member shall be deemed to have withheld
its consent, in which case the Investment Period shall not be extended.
Notwithstanding the foregoing, the consent of the Sunrise Member shall not be
required with respect to any election made by the AEW Member to extend the
Investment Period if, as of the date of the AEW Member's notice of its election
to extend, there shall exist any "Net Cash Shortfall Event" or "Occupancy
Shortfall Event" under the terms of the Master Agreement, it being agreed that
in such event, the AEW Member shall have the right to extend the Investment
Period without the requirement for any consent of the Sunrise Member.

                      [This Space Intentionally Left Blank]

                                       73
<PAGE>

     IN WITNESS WHEREOF, each of the Members has executed this Agreement as of
the date first written above.

                                 SUNRISE MEMBER:

                                 SUNRISE ASSISTED LIVING INVESTMENTS,
                                 INC., a Virginia corporation

                                 By: /s/ Daniel B. Gorham
                                     --------------------
                                 Name: Daniel B. Gorham
                                       ----------------
                                 Title: Vice President
                                        --------------

                                 AEW MEMBER:

                                 AEW SENIOR HOUSING COMPANY, LLC,
                                 a Delaware limited liability company

                                 By: Seaport Senior Housing Management, LLC,
                                     its Managing Member

                                           By: /s/Christopher A. Kazantis
                                               --------------------------
                                           Name: Christopher A. Kazantis
                                                 -----------------------
                                           Title: Vice President
                                                  --------------

                                     JOINDER

     The undersigned Sunrise Assisted Living, Inc. hereby joins this Agreement
for the purpose of guaranteeing the payment and performance by the Sunrise
Member of its obligations and liabilities under Section 6.10, Section 6.11,
Section 8.2.2 and Schedule 12.11 hereof.

                                 SUNRISE ASSISTED LIVING, INC.,
                                 a Delaware corporation

                                       By: /s/Christian B. A. Slavin
                                           -------------------------
                                       Name: Christian B.A. Slavin
                                             ---------------------
                                       Title: Executive Vice President
                                              ------------------------

                                       74
<PAGE>

                             EXHIBITS AND SCHEDULES

          Exhibit       Description
          -------       -----------

             A          Name, Address and Proportionate Share of Members
             B          Form of Promissory Note
             C          Form of Funding Notice
             D          Form of Marriott Termination Notice
             E          Insurance Requirements After Opening
             F          Major Decisions
             G          Description of Certain Properties
             H          Non-Compete Areas
             I          Form of Revolving Credit Agreement
             J          Reports
             K          Existing Sunrise Non-Compete Area Projects
             L          Form of Operating Deficit Loan Agreement
             M          Calculation of IRR
             N          Cash Management System
             O          CalPERS Current Objectives and Policies
             P          Government Code Section 20152.5
             Q          CalPERS's Statement of Equity Real Estate Appraisal and
                        Valuation Policy
             R          GMACCM Loans
             S          Intentionally Omitted
             T          Intentionally Omitted
             U          List of Surveys
             V          List of Title Policies
             W          Litigation Matters
             X          Intentionally Omitted
             Y          Intentionally Omitted
             Z          Intentionally Omitted
            AA          Schedule of Closing Costs
            BB          List of Facility Agreements
            CC          List of Changes and Claims

                                       75
<PAGE>

          Exhibit       Description
          -------       -----------

            DD          Pro Forma Returns
            EE          Development Costs

         Schedule       Description
         --------       -----------

           12.11        Representations and Warranties of the Members

                                       76
<PAGE>
                                    EXHIBIT A

<TABLE>
<CAPTION>

 ------------------------------------------------------------------------------------------------------------------
                         MEMBERS                      ADDRESS                                  Proportionate Share
 ------------------------------------------------------------------------------------------------------------------
<S>                      <C>                          <C>                                      <C>
 AEW Member              AEW Senior Housing           c/o AEW Capital Management, L.P.         80%
                         Company, LLC
 ------------------------------------------------------------------------------------------------------------------
 Sunrise Member          Sunrise Assisted Living      7902 Westpark Drive                      20%
                         Investments, Inc.            McLean, Virginia 22102
 ------------------------------------------------------------------------------------------------------------------
</TABLE>

                               Exh. A - p. 1 of 1

<PAGE>

       This Exhibit B sets forth the form of Note to be used in the event
            that the AEW Member is the Defaulting Member pursuant to
         Article III. This form shall be revised as appropriate in the
            event that the Sunrise Member is the Defaulting Member.

                                    EXHIBIT B

                             Form of Promissory Note

$___________                                                ___________ __, ____

WHEREAS, AEW SENIOR HOUSING COMPANY, LLC ("AEW Member") and SUNRISE ASSISTED
LIVING INVESTMENTS, INC. ("Sunrise Member") entered into that certain Amended
and Restated Limited Liability Company Agreement (the "LLC Agreement"), dated as
of ___________, 2001, of AL U. S. DEVELOPMENT VENTURE, LLC (the "Company");

WHEREAS, the Sunrise Member and the AEW Member are required pursuant to the LLC
Agreement to make certain contributions of capital to the Company, as more
specifically set forth in the LLC Agreement;

WHEREAS, the AEW Member has failed to make a contribution required to be made
pursuant to Article Ill of the LLC Agreement;

WHEREAS, the Sunrise Member has agreed to lend to the AEW Member as Borrower
(defined below) a total of _____________________________ Dollars (__________),
to be contributed on behalf of the AEW Member to the Company;

NOW THEREFORE, FOR VALUE RECEIVED, _____________,with an address of
___________________________________________ (the "Borrower"), promise(s) to pay
to the order of Sunrise Member (together with any successor holder or holders of
this Note, the "Lender") at its office at ________________________________, or
such other place as Lender may designate, the principal sum of
__________________________ Dollars ($__________), or so much thereof as shall be
advanced hereunder, together with interest thereon, as hereinafter set forth.

Interest on the principal balance of this Note from time to time outstanding
shall accrue from the date hereof at an annual rate which shall equal the
"Interest Rate" (defined below). Subject to Borrower's right to defer payments
of interest as provided below, interest shall be payable on the unpaid principal
balance from time to time outstanding, on a monthly basis in arrears on the
first day of each month (the "Interest Payment Date") beginning with the first
day of _______________. Interest shall be computed on the basis of a three
hundred and sixty (360)-day year and shall be paid for the actual number of days
on which principal is outstanding.

"Interest Rate" means the lesser of (i) the greater of the prime rate of
interest published from time to time by THE WALL STREET JOURNAL plus five
percent (5%) per annum or fourteen percent (14%) per annum, compounded monthly,
or (ii) the highest lawful rate per annum, compounded monthly.

                               Exh. B - p. 1 of 1

<PAGE>

Borrower may defer payments of interest to the extent that a payment of interest
due on an Interest Payment Date exceeds the amount of distributions to Borrower
from the Company during the calendar month immediately preceding said Interest
Payment Date (such excess, known hereinafter as the "Deferred Interest").
Deferred Interest shall accrue interest at the Interest Rate, compounded monthly
(such Deferred Interest together with the interest thereon shall be referred to
as "Interest Accruals").

To the extent that distributions to Borrower from the Company, including any
return of capital to Borrower by the Company, for any month prior to an Interest
Payment Date exceed the amount due on said Interest Payment Date, then Borrower
shall pay such excess to Lender to the extent of and to reduce: first, any late
charges or other costs or expenses due hereunder, second, Interest Accruals then
outstanding, third, interest then due, and fourth, the outstanding principal
balance of this Note. Borrower hereby authorizes and directs the Company to make
any payments of such excess directly to Lender.

The entire outstanding principal balance of this Note, together with any
interest, Interest Accruals and other charges as may be due hereunder, shall be
paid on the earlier of: (i) the last day of the twelfth (12th) full month
following the date of this promissory note, (ii) the dissolution of the Company,
(iii) the sale of the Properties (as defined in the LLC Agreement), (iv) the
sale of all or substantially all of the Borrower's membership interest in the
Company, (v) the purchase by Borrower or its nominee of all or substantially all
of Lender's membership interest in the Company, or (vi) the occurrence of an
Event of Default (hereinafter defined) hereunder (the earlier of such dates, the
"Maturity Date").

In the event that any payment required hereunder is not paid within five (5)
days after the date it is due (such five day period, the "Grace Period;" which
failure to pay within the Grace Period shall constitute an "Event of Default"
hereunder), Lender shall have the right, in addition to any other rights
hereunder, upon written demand to Borrower, to collect a late charge as
compensation for increased costs of administering such late payment. Such late
charge shall be in an amount equal to four percent (4%) of the amount of any
payment amount remaining unpaid after the expiration of the Grace Period, which
sum Borrower agrees to pay upon demand; provided, however, that said late charge
shall not be Lender's sole remedy for Borrower's default hereunder.

In the event that any payment due hereunder is not paid prior to the expiration
of the Grace Period, Lender at its option may declare immediately due and
payable the entire outstanding balance of principal and interest, together with
all other charges to which Lender may be entitled.

The outstanding principal amount due hereunder may be prepaid in whole or in
part, together with any interest or Interest Accruals then outstanding, without
penalty or premium, upon five (5) days prior written notice to Lender

Any notice required or permitted to be delivered hereunder shall be in writing
and shall be deemed to be delivered on the earlier of (i) the date received, or
(ii) the date of delivery, refusal, or non-delivery indicated on the return
receipt, if deposited in a United States Postal Service depository, postage
prepaid, sent registered or certified mail, return receipt requested, addressed
to the party to receive the same at the address of such party set forth at the
beginning of this

                               Exh. B - p. 2 of 2
<PAGE>

Note, or at such other address as may be designated in a notice delivered or
mailed as herein provided.

Borrower agrees to pay all charges (including reasonable attorney's fees) of
Lender in connection with the collection and/or enforcement of this Note or in
protecting or preserving the security for this Note, whether or not suit is
brought against Borrower.

The failure of Lender at any time to exercise any option or right hereunder
shall not constitute a waiver of Lender's right to exercise such option or right
at any other time.

Borrower and all endorsers and guarantors of this Note hereby jointly and
severally waive presentment, demand, notice, protest and all other suretyship
defenses generally and agree that (i) any renewal, extension or postponement of
the time of payment or any other indulgence, or (ii) any substitution, exchange
or release of collateral or the addition or release of any person or entity
primarily or secondarily liable, may be effected without notice to Borrower or
any endorser or guarantor of Borrower's obligations, and without releasing
Borrower or such endorser or guarantor from any liability hereunder.

This Note shall be governed by, construed, and enforced in accordance with the
laws of The State of Delaware. If any provision of this Note is held to be
invalid or unenforceable by a court of competent jurisdiction, the other
provisions of this Note shall remain in full force and effect. If the payment of
any interest due hereunder would subject Lender to any penalty under applicable
law, then the payments due hereunder shall be automatically reduced to what they
would be at the highest rate authorized under applicable law.

This Note is secured only by Borrower's membership interests in the Company,
including any return of capital to Borrower upon liquidation of the Company and
is otherwise without recourse to Borrower or any member or partner therein.

This Note shall have the effect of an instrument under seal.

Witness:                                Borrower:

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

                               Exh. B - p. 3 of 3
<PAGE>

                                    EXHIBIT C

                             Form of Funding Notice

                                                               $________________

Re: Funding of Capital to AL U. S. Development Venture, LLC

Gentlemen:

Reference is hereby made to the Amended and Restated Limited Liability Company
Agreement of AL U. S. Development Venture, LLC, dated as of ____________, 2002,
(the "Operating Agreement"). Capitalized terms not otherwise defined shall have
the meaning ascribed to them in the Operating Agreement.

Pursuant to Section 3.3 of the Operating Agreement, you are advised, as the
______________ Member of the Company, that the ________ Member has determined
that Capital is required to fund [Negative Cash Flow/Preservation Capital] in
the aggregate amount of $_________.

Each Member is hereby requested to contribute, in the form of cash or cash
equivalents, fund in the amount of its Proportionate Share (as set forth below)
of such required Capital within [insert appropriate time period which shall not
be less than as set forth in Article III] of the date of this notice.

              [add description of reason for capital contribution]

                        Contributions                 Percentage Interest

AEW Member              $                                       80%
Sunrise Member          $                                       20%
                                                               ---
TOTAL                                                          100%

[MEMBER]

By:
   -----------------------------------
Name:
Title:

                               Exh. C - p. 1 of 1

<PAGE>

                                    EXHIBIT D

                       Form of Marriott Termination Notice

                   [SUNRISE ASSISTED LIVING INVESTMENTS, INC.]

                                     [Date]

     AEW Senior Housing Company, LLC
     Two Seaport Lane
     Boston, Massachusetts  02110-2021

         Re: AL US Development, LLC -
             Marriott Termination Notice

Ladies and Gentlemen:

         This letter will constitute a Marriott Termination Notice under that
certain Limited Liability Company Agreement dated December 23, 2002 (the
"Venture Agreement") by and between AEW Senior Housing Company, LLC (the "AEW
Member") and Sunrise Assisted Living Investments, Inc. (the "Sunrise Member").
Initially capitalized terms used and not otherwise defined herein shall have the
meanings given thereto in the Venture Agreement.

         The Sunrise Member hereby certifies to the AEW Member that:

         (i) neither the Sunrise Member nor any of its Related Parties has
obtained Marriott Management Rights;

         (ii) all negotiations between the Sunrise Member or any of its Related
Parties and Marriott with respect to Marriott Management Rights have been
terminated;

         (iii) neither the Sunrise Member nor any of its Related Parties has any
intention to recommence negotiations with Marriott with respect to Marriott
Management Rights; and

         (iv) without limiting the provisions of the foregoing clause (iii), the
Sunrise Member shall notify the AEW Member promptly upon such time, if ever, as
the Sunrise Member or any of its Related Parties recommences negotiations with
Marriott with respect to Marriott Management Rights.

                                   Sincerely,

                                   SUNRISE ASSISTED LIVING
                                   INVESTMENTS, INC.

                                   By:_____________________________________
                                   Name:___________________________________
                                   Title:__________________________________

                               Exh. D - p. 1 of 1

<PAGE>

cc: General Counsel - AEW Capital Management, L.P.,
    Asset Manager - AEW Senior Housing Company, LLC
    Joseph J. Christian, Esq.
    Wayne G. Tatusko, Esq.

                               Exh. D - p. 2 of 2

<PAGE>

                                    EXHIBIT E
                         MINIMUM INSURANCE REQUIREMENTS

A. Liability Insurance

1.  General Requirements: The Manager shall procure and maintain, or shall cause
    Operator to procure and maintain for the duration of the contract period,
    insurance against claims for injuries to persons or damages to property
    which may arise from or in connection with the performance of services
    provided by the Operator. The parties agree that the insurance coverages and
    deductibles maintained by the Manager or Operator may be adjusted throughout
    the term, which shall be consistent with industry standards for similar
    organizations/risks. Such adjustments only to be made with adequate, prior
    written notice to AEW member. Commercial General Liability Insurance
    Coverage should be as broad as Insurance Services offering Commercial
    Liability Coverage on a claims-made basis. Editions should be current with
    state regulation.

    -   $1,000,000 each claim limit and deductible or self-insured retention as
        commercially reasonable.

    -   $2,000,000 general aggregate.

    -   Members of the Company included as Additional Named Insured 2. Workers'
        Compensation (statutory limits) and Employers Liability
        ($1,000,000/$1,000,000/$1,000,000 insurance; Workers' Compensation
        Insurance will include, as needed, "other states" coverage;

3.  Auto Liability insurance - if operations do not include the transportation
    of residents, with minimum limits of $1,000,000 combined single limit each
    accident primary coverage and $5,000,000 excess coverage. Coverage should be
    as broad as Insurance Services offering Commercial Liability Coverage
    (occurrence form - CA001). Editions should be current with state
    regulations. Members of the Company included as Additional Named Insured. If
    operations include the transportation of residents, then the minimum limits
    carried shall be increased to a minimum of $50,000,000 total (primary and
    excess) combined single limit each accident.

4.  Umbrella Liability insurance with limits of $50,000,000 per occurrence or
    per claim and $50,000,000 in the aggregate. Umbrella/excess liability is
    excess of coverages 1,2 and 3 above;

5.  Professional Liability insurance, covering real estate professional
    liability and assisted living facility operations professional liability,
    within limits of $1,000,000 per claim and deductible or self insured
    retention as commercially reasonable.; Umbrella Liability Insurance with
    limits of $25,000,000 per claim and in the aggregate. Such coverage shall be
    placed with the same insurer writing the General Liability and Umbrella
    Liability coverages above.

6.  Crime insurance with a $500,000 Employee Dishonesty limit;

                               Exh. E - p. 1 of 1
<PAGE>

7.  If any liability insurance is on a claims-made basis, an r extended
    reporting period shall be purchased to the maximum extent commercially
    available if coverage is terminated;

8.  Each insurance policy required by this clause shall be endorsed to state
    that coverage shall not be canceled by either party, except after ninety
    (90) days prior written notice has been given to the AEW Member and the
    Sunrise Member except that ten (10) days notice is permitted if the policy
    is canceled for non-payment of premium;

9.  All insurers must have an A.M. Best rating of A/VII or better;

10. Any deductibles or self-insurance retentions must be declared to and
    approved by the Company. The Sunrise Member shall provide, or cause the
    Operator to provide, financial guarantees to the Company for any deductible
    or self-insurance amounts carried on the above policies.

11. The general liability/professional liability and automobile liability
    policies are to contain or be endorsed to contain the following (a) the
    Company, its officers, directors and employees are to be covered as insureds
    arising out of automobiles owned, leased, hired or borrowed by or on behalf
    of Operator and (b) for any claims related to work or services performed by
    the Operator, the Operator's insurance coverage shall be primary insurance
    as respects Owner, its officers, director and employees.

12. For any claims related to any work or services performed by the Operator,
    the Operator's insurance coverage shall be primary insurance as respects the
    Company, its officers, directors and employees. Any insurance maintained by
    the Company shall be excess of the Operator's insurance and shall not
    contribute with it.

13. Verification of Coverage: The Company will maintain certificates of
    insurance and amendatory endorsements including an annual review of
    Operator's insurance program. All certificates and endorsements are to be
    received and approved by the Company prior to acquisition of a facility or
    facilities.

14. Owner reserves the right to certified copies of all required insurance
    policies including all endorsements required by these specifications at any
    time.

B. Property Insurance.

General Requirements. Subject to Section 6.4(c) of the Venture Agreement, unless
otherwise agreed by the AEW Member and the Sunrise Member, the Facilities shall
be insured at all times throughout the term of this Agreement with policies of
insurance of the type set forth below:

1.  Property Insurance. Property insurance on an "All Risk" basis, including,
    without limitation, flood and earthquake insurance, with a full replacement
    cost endorsement and an agreed amount endorsement (including builder's risk
    during any period or periods of time that construction or remodeling is
    being performed on any Facilities), in an amount equal to 100% of the full
    replacement cost of all improvements (excluding only the reasonable value of
    footings and foundations) and the Company's contents therein, determined to
    the reasonable satisfaction of the Company.

                               Exh. E - p. 2 of 2
<PAGE>

2.  Energy Systems Insurance. Policies of insurance against loss or damage
    arising from incidents relating to the air conditioning and/or heating
    system, electrical systems, fly-wheels, steam pipes, steam turbines, steam
    engines, steam boilers, other pressure vessels, high pressure piping and
    machinery, if any, installed in the buildings and improvements, for an
    amount reasonably satisfactory to the Company.

3.  Business Interruption and/or Loss Of Rental Value Insurance. Business
    interruption and/or loss of rental insurance for a period of twelve months
    in the amount of total projected gross income.

4.  Flood Insurance. If any Property is located in an area designated by any
    governmental agency as an area of special flood hazard, federal flood
    insurance will be required.

5.  Pollution Legal Liability. Properties eligible for coverage according to the
    terms of the CalPERS environmental insurance program shall be insured under
    a Pollution Legal Liability or equivalent insurance policy with minimum
    limits of $10,000,000 each loss and $50,000,000 total all losses, and with a
    deductible or self-insured retention not to exceed $100,000 each loss.

6.  Additional Insurance. Insurance with respect to such other insurable risks
    relating to the Facilities or the Company in such amounts and containing
    such terms and conditions as the Company may reasonably require from time to
    time.

Such insurance may be issued as blanket insurance. The Company, the AEW Member
and the Sunrise Member shall be added as Additional Named Insureds on all
policies. All such insurance policies shall be written on such terms, in such
form and for such periods are amounts as the Company shall from time to time
reasonably designate or approve, shall be primary and without right of
contribution from other insurance which may be available, shall waive any right
of set off, counterclaim or subrogation, shall provide that with respect to the
Company, the insurance shall not be invalidated by any action or inaction by the
Operator, including, without limitation, any representations made by the
Operator in the procurement of such insurance, and shall provide that they shall
not be canceled or amended without at least thirty (30) days' prior written
notice to the AEW Member and the Sunrise Member. The minimum Standard & Poor's
rating of each insurer shall be A.

                               Exh. E - p. 3 of 3
<PAGE>

                                    EXHIBIT F
                                 MAJOR DECISIONS

     1. Invest in, purchase or otherwise acquire any real property or any direct
or indirect beneficial ownership interest therein.

     2. Cause any sale, transfer, assignment, conveyance, exchange or other
disposition of any Property or of all or any substantial part of any assets of
the Company or of any Subsidiary.

     3. Cause the Company or any Subsidiary to borrow money, refinance, recast,
extend, compromise or otherwise deal with any Loans (including securing such
Loans) of the Company or any Subsidiary.

     4. Approve the terms of any loan by a Member or the Manager to the Company.

     5. Admit or remove any party as a Member or Manager of the Company or any
Subsidiary.

     6. Appoint or remove any executive officer of any Subsidiary.

     7. Enter, renew, modify or terminate or cause the Company or any Subsidiary
to enter into, renew, modify or terminate any contract for which the annual
amount due from the LLC exceeds $50,000 for the provision of services for a term
of greater than one year or which is not terminable by the Company or Subsidiary
without cause or penalty on thirty (30) days' or less prior written notice.

     8. Issue a Funding Notice unless the funds requested in such Funding Notice
are for an expense which has been approved by the AEW Member in an Annual
Business Plan or otherwise.

     9. Confess a judgment against the Company or any Subsidiary or join in,
initiate or take any action for foreclosure, bankruptcy or any other insolvency
proceedings. For the purposes hereof, a plea of NOLO CONTENDERE by the Manager
shall be the equivalent of a guilty plea.

     10. Dissolve, liquidate or otherwise terminate the Company or any
Subsidiary.

     11. Amend this Agreement or knowingly take or permit any action to occur
which would adversely affect or otherwise alter the structure of the Company or
any Subsidiary.

     12. Take any action in contravention of this Agreement, an Approved Budget
or an Annual Business Plan.

     13. Establish any reserves without the consent of the AEW Member unless the
establishment or replenishing of such reserves shall have been included as part
of an Approved Budget or an Annual Business Plan.

                               Exh. F - p. 1 of 1

<PAGE>

     14. Terminate any contractual arrangement with or otherwise replace the
Company's primary independent certified public accountant or retain the services
of a new, primary independent certified pubic accountant.

     15. Institute any legal action involving a claim in excess of $250,000;
settle any legal action which involves an uninsured expense in excess of
$250,000 or confirm a judgment against the Company in excess of $250,000.

     16. Select counsel and direct the conduct of any litigation, arbitration or
other proceeding involving a claim in excess of $250,000.

     17. Incur any capital expenditure for any Property in excess of the lesser
of $1 million or 2.5% of the Fair Market Value of such Property unless such
expenditure has been included as part of an Approved Budget or an Annual
Business Plan.

     18. Enter into any Facility Development Agreement with respect to any
Property.

     19. Commence any new construction or capital improvement on any Property
with respect to an uninsured loss costing in excess of $250,000 not otherwise
approved in the Annual Business Plan.

     20. Select or change law firms or the Accountant.

     21. Expend the Company's funds in an amount more for any item than the
amount set forth therefor in any Development Budget for any Property, or
otherwise expend the greater of $10,000 or five percent (5%) or more in excess
of the amount budgeted for any capital expenditure for any Property in the
Annual Business Plan or any other written approval of the AEW Member.

                               Exh. F - p. 2 of 2

<PAGE>

                                    EXHIBIT G
                        DESCRIPTION OF CERTAIN PROPERTIES

<TABLE>
<CAPTION>
                                                                Proposed
Property                         Address                     Number of Units        Status of Construction Loan
--------                         -------                     ---------------        ---------------------------

<S>                              <C>                                    <C>         <C>
Bonita                           Chula Vista, CA                        60          Closed with GMACCM 12/23/02

Boulder                          Boulder, CO                            84          Closed with GMACCM 12/23/02

Huntington Beach                 Huntington Beach, CA                   95          Commitment Issued by GMACCM December 2,
                                                                                    2002 and accepted by GMACCM on December 19,
                                                                                    2002; Closing anticipated for January 2003

La Jolla                         Pacific Beach, CA                      50          Closed with GMACCM 12/23/02

La Palma                         La Palma, CA                           59          Closed with GMACCM 12/23/02

Newtown                          Newton Square, PA                      77          Commitment Issued by GMACCM December 2,
                                                                                    2002 and accepted by GMACCM on December 19,
                                                                                    2002; Closing anticipated for January 2003

Sacramento                       Sacramento, CA                         52          Commitment Issued by GMACCM December 2,
                                                                                    2002 and accepted by GMACCM on December 19,
                                                                                    2002; Closing anticipated for January 2003

Seal Beach                       Seal Beach, CA                        155          Commitment Issued by GMACCM December 2,
                                                                                    2002 and accepted by GMACCM on December 19,
                                                                                    2002; Closing anticipated for January 2003

Studio City                      Los Angeles, CA                        80          Closed with GMACCM 12/23/02

Wilmington                       Wilmington, DE                         68          Commitment Issued by GMACCM December 2,
                                                                                    2002 and accepted by GMACCM on December 19,
                                                                                    2002; Closing anticipated for January 2003

</TABLE>

                               Exh. G - p. 1 of 1

<PAGE>

                                    EXHIBIT H
                                NON-COMPETE AREAS

         For each Property, the "Non-Compete Area" shall be the area located
within the applicable radius from the applicable Property set forth in the table
below:

     Property                                 Radius of Non-Compete Area
     --------                                 (miles)
                                              -------

    Bonita                                   2.75
     Boulder                                  4.75
     Huntington Beach                         2.25
     La Jolla                                 2.75
     La Palma                                 2.0
     Newtown                                  4.0
     Sacramento                               2.5
     Seal Beach                               2.75
     Studio City                              2.0
     Wilmington                               3.0

                               Exh. H - p. 1 of 1

<PAGE>

                                    EXHIBIT I

                       FORM OF REVOLVING CREDIT AGREEMENT

                                 (See Attached)

                               Exh. I - p. 1 of 1
<PAGE>

                                    EXHIBIT J

                                     REPORTS

                                 (See attached)

                               Exh. J - p. 1 of 1
<PAGE>

                                    EXHIBIT K
                   EXISTING SUNRISE NON-COMPETE AREA PROJECTS

Property                                 Existing Non-Compete Area Projects
--------                                 ----------------------------------
Bonita                                                   None
Boulder                                                  None
Huntington Beach                                         None
La Jolla                                                 None
La Palma                                                 None
Newtown                                  Sunrise at Granite Run, Pennsylvania
Sacramento                                               None
Seal Beach                                               None
Studio City                                              None
Wilmington                                               None

                               Exh. K - p. 1 of 1
<PAGE>

                                    EXHIBIT L
                            FORM OF OPERATING DEFICIT
                                 LOAN AGREEMENT

                                 (See Attached)

                               Exh. L - p. 1 of 1
<PAGE>

                                    EXHIBIT M

                               Calculation of IRR

                                    EXHIBIT M

                       INTERNAL RATE OF RETURN CALCULATION

The internal rate of return is calculated by applying the following Excel
formula to the applicable cash flows defined under "Internal Rate of Return",
where contributions are a negative number and distributions are a positive
number, and the formula is adjusted for the number of months that the Company is
in existence, as follows:

                                          COMPANY OR
                TIME                        MEMBER
               PERIOD                      CASHFLOW
               ------                     ----------

               Month 1                        CF1
               Month 2                        CF2
               Month 3                        CF3
               Month 4                        CF4
               Month 5                        CF5
               Month 6                        CF6
                  .                            .
                  .                            .
                  .                            .
              Month 55                        CF55
              Month 56                        CF56
              Month 57                        CF57
              Month 58                        CF58
              Month 59                        CF59
              Month 60                        CF60

                               =(1+IRR(CF1:CF60))to the 12th power-1

                               Exh. M - p. 1 of 1
<PAGE>

                                    EXHIBIT N
                             CASH MANAGEMENT SYSTEM

                                 (See Attached)

                               Exh. N - p. 1 of 1
<PAGE>

Policy No. RE 22

                                    EXHIBIT O
                                      FINAL

                 California Public Employees' Retirement System

                      Responsible Contractor Program Policy

                                 August 12,1998

          This policy shall be effective immediately upon adoption, and
            supersedes all previous Responsible Contractor policies.

I. INTRODUCTION

The California Public Employees' Retirement System ("CalPERS" or "the System")
has a deep interest in the condition of workers employed by the system and its
advisors. The System, through the Responsible Contractor Program Policy
("Policy") described below, supports and encourages fair wages and fair benefits
for workers employed by its contractors and subcontractors, subject to fiduciary
principles concerning duties of loyalty and prudence, both of which further
require competitive returns on the System's real estate investments. The System
endorses small business development, market competition, and control of
operating costs. CalPERS supports many of the ideals espoused by labor unions
and encourages participation by labor unions and their signatory contractors in
the development and management of the System's real estate investments. The
System believes that an adequately compensated and trained worker delivers a
higher quality product and service. This Policy is intended to complement and in
no manner detract from existing CalPERS policy regarding service-disabled
California veteran owned business enterprises. The Policy is consistent with the
recommendations of fiduciary counsel in a letter to the System's General Counsel
dated December 7, 1992 and includes provisions for transition, monitoring, and
enforcement.

II. DEFINITION OF A RESPONSIBLE CONTRACTOR

A Responsible Contractor, as used in this Policy, is a contractor or
subcontractor who pays workers a fair wage and a fair benefit as evidenced by
payroll and employee records and who complies with service-disabled veteran
business (SDV/BE) policy. "Fair benefits" are defined as including, but are not
limited to, employer-paid family health care coverage, pension benefits, and
apprenticeship programs. What constitutes a "fair wage" and "fair benefit"
depends on the wages and benefits paid on comparable real estate projects, based
upon local market factors, that include the nature of the project (e.g.,
residential or commercial; public or private), comparable job or trade
classifications, and the scope and complexity of services provided.

III. INITIAL REQUIREMENTS OF THE RESPONSIBLE CONTRACTING POLICY

     A.   Duty of Loyalty: Notwithstanding any other considerations, assets
          shall be managed for the exclusive benefit of the participants and the
          beneficiaries of

                               Exh. O - p. 1 of 1
<PAGE>
          CalPERS. CalPERS' as well as its advisors', duty to the participants
          and their beneficiaries shall take precedence over any other duty.

     B.   Prudence: CalPERS' Board, staff and advisors are charged with the
          fiduciary duty to exercise the care, skill, prudence and diligence
          appropriate to the task.

     C.   Competitive Return: To comply with duties of loyalty and prudence, all
          investments and services must be made and managed in a manner that
          produces a competitive risk-adjusted return.

     D.   Competitive Bidding: Contractors and their subcontractors for
          construction, maintenance, and services shall be selected through a
          competitive bidding and selection process. The purpose of this
          provision is to encourage fair competition and to actively seek bids
          from all qualified sources within an area, particularly those
          identified as Responsible Contractors. Advisors and their
          subcontractors shall create a bidding process that includes
          notification and invitations to bid, distributed to a broad spectrum
          of potential bidders, particularly those identified as Responsible
          Contractors. The review of the bids shall include consideration of
          loyalty, prudence, and competitive risk-adjusted returns (factors to
          be considered include experience, reputation for honesty, integrity,
          timeliness, dependability, fees, SDV/BE policy, and the adherence to
          the Responsible Contracting Policy.)

     E.   Local, state and national laws. All advisors and their subcontractors
          shall observe all local, state, and national laws (including by way of
          illustration those pertaining to insurance, withholding taxes, minimum
          wage, health and occupational safety), and CalPERS' policy with regard
          to service disabled California veteran business enterprises.

IV. SELECTION PREFERENCE OF A RESPONSIBLE CONTRACTOR

If Initial Requirements A through D (see Section Ill. above) are satisfied,
CalPERS expresses a strong preference that Responsible Contractors be hired.

V. TRANSITION, ENFORCEMENT, MONITORING, AND ADMINISTRATION

     A.   Applicable Investments and Phasing: This Policy shall apply to all
          applicable real estate advisors and single family real estate
          investments (and associated advisor and subcontractor contracts and
          bids arising out of those investments.) This policy specifically
          excludes all indirect, specialty, and mortgage investments that lack
          equity features and their respective advisors. The Policy shall not
          initially apply to existing investments such as hybrid debt or joint
          ventures. As to this Policy's application to existing and future
          hybrid debt and joint ventures investments, an implementation study
          will be performed to review these investments.

          Housing Development Partnership existing on the effective date of this
          Policy will not be amended to incorporate this Policy, but voluntary
          compliance is strongly recommended. The practicality, schedule, and
          method of extending this

                               Exh. O - p. 2 of 2
<PAGE>

          Policy in the future, beyond those investments and contracts described
          herein shall depend on factors that include the structure of the
          investment and the degree of control which CalPERS can exercise.

     B.   Notification: CalPERS shall provide all applicable current and
          prospective real estate advisors with a copy of this Policy.

     C.   Solicitation Documents: All requests for proposal and invitations to
          bid covered by this Policy shall include the terms of this Policy.
          Responses by bidders shall include information to assist the staff in
          evaluating a bid.

     D.   Contracts and Renewals: All contracts entered into after the effective
          date of this Policy and pertaining to applicable real estate
          investments, including renewals of such contracts, shall include the
          terms of this Policy.

     E.   Responsibilities: The responsibilities of CalPERS' staff, advisors,
          property managers, contractors, and unions are defined as follows:

          1.   Staff: CalPERS staff shall have the following responsibilities:

               a.   Review the advisors' annual reports regarding compliance
                    with the Policy.

               b.   Develop and maintain contact lists for all CalPERS'
                    properties and provide a copy to inquiring parties.

               c.   Periodically report to the Investments Committee on these
                    findings and make recommendations for corrective action as
                    necessary. The first report will be six months after
                    adoption of the Policy.

          2.   Advisors: Advisors' responsibilities shall include:

               a.   Communicate the Policy to all property managers.

               b.   Review a contract listing for each property prepared by each
                    property manager.

               c.   Maintain a simplified bid summary for each applicable
                    contract. The summary should include identifying contract,
                    successful bidder, and bidder's status as Responsible
                    Contractor.

               d.   Provide annual report to CalPERS' staff, describing their
                    own efforts as well as those by property managers and their
                    subcontractors.

               e.   Monitor and enforce the Policy including investigation of
                    potential violations.

                               Exh. O - p. 3 of 3
<PAGE>

          3.   Property Managers: Property managers will have responsibility for
               the following:

               a.   Communicate in bid documents the Responsible Contractor
                    Program Policy to contractors seeking to secure construction
                    or building service contracts.

               b.   Communicated the Policy to any interested party.

               c.   Ensure there is a competitive bidding process which is
                    inclusive of potentially eligible Responsible Contractors.

               d.   Require bidders to provide to property manager a Responsible
                    Contractor self certification on a form approved by CalPERS.

               e.   Prepare and send to advisors a contract listing for
                    applicable service contracts for each property under
                    management. The building trades and service trades and other
                    potential bidders will have access to this list.

               f.   Provide advisors with a simplified bid summary for each
                    contract.

               g.   Provide property level annual report information to advisor.

               h.   Maintain documentation for successful bidders.

               i.   Seek from trade unions/service unions input in the
                    development of Responsible Contractor lists.

               j.   Maintain list of any interested Responsible Contractors.
                    (Names, addresses and telephone numbers).

          4.   Contractors: Contractors will have the responsibility for the
               following:

               a.   Submit to property manager a Responsible Contractor
                    self-certification on a form approved by CalPERS.

               b.   Communicate to subcontractors the Responsible Contractor
                    Program Policy.

               c.   Provide to property manager Responsible Contractor
                    documentation.

          5.   Unions: Trade unions/service unions shall be asked to perform the
               following tasks;

               a.   Deliver to the property manager or advisor lists of names
                    and phone numbers of Responsible Contractors.

                               Exh. O - p. 4 of 4
<PAGE>
               b.   Refer interested and qualified Responsible Contractors to
                    the property manager.

               c.   Continually monitor the local labor markets to update the
                    lists.

               d.   Provide technical input as appropriate.

     F.   Outreach: CalPERS' staff will develop and maintain a list of all
          CalPERS properties. The list will include the property name, address,
          advisor and property manager, and phone number of the property manager
          and real estate advisors. The CalPERS' staff will provide this list to
          anyone who requests a copy. Actual contract expiration inquiries will
          be referred to the property level. Property managers shall provide
          solicitation documents to any potential contractor who has, in
          writing, expressed an interest in bidding for the relevant contract.

     G.   Minimum Contract Size: The Policy shall absolutely apply to all
          contracts of a minimum size of $25,000. Minimum contract size refers
          to the total project value of the work being contracted for and not to
          any desegregation by trade or task. For example, a $25,000 contract to
          paint two buildings in a single office complex would not be treated as
          two $12,500 contracts, each less than the minimum contract size.
          Desegregation designed to evade the requirements of the Policy is not
          permitted.

     H.   Applicable Expenditures Categories: The Policy shall apply to tenant
          improvements, capital expenditures, and operational service contracts
          (such as cleaning).

     I.   SDV/BE Policy: Satisfaction of the CalPERS' SDV/BE Policy is a
          necessary condition before the System, acting through its contractors,
          hires a Responsible Contractor. Advisors and Contractors should
          provide a certification statement of SDV/BE compliance, or
          documentation of good faith efforts. Advisors shall collect and retain
          adequate data that document their compliance with this Policy and
          shall be prepared to produce this data for review by CalPERS' staff
          when requested.

     J.   Fair Wage, Fair Benefits, Training: The Policy avoids a narrow
          definition of "fair wage", fair benefits", and "training" that might
          not be practical in all markets. Furthermore, the Policy does not
          require a "prevailing wage", as defined by government surveys.
          Instead, the Policy looks to local practices with regard to type of
          trade and type of project. The Policy recognizes that practices and
          labor market conditions vary across the country and that flexibility
          in its implementation is very important.

          In determining "fair wages" and "fair benefits" with regard to a
          specific contract in a specific market, items that may be considered
          include local wage practices, state laws, prevailing wages, labor
          market conditions, and other items.

                               Exh. O - p. 5 of 5
<PAGE>
          In place of a prevailing wage standard, the Policy requires a broad
          outreach and competitive bidding program, as described in Section
          III.D, and V.F and L. This program is premised upon the availability
          of a list of Responsible Contractors in every market in which CalPERS
          directly owns a property. While advisors and their property managers
          and contractors are responsible for gathering and analyzing
          information relevant to identifying and hiring a Responsible
          Contractor, compilation of this list does not depend solely on the
          advisors, property managers, or contractor. This Policy instead
          invites the various local trades to suggest contractors which in their
          view qualify as Responsible Contractors. Sources of information
          include local building and service trade councils, builders
          association, and governments.

     K.   Annual Review and Data Forms: A proposed Responsible Contracting
          annual report is included with this Policy. The annual review of
          Advisors' compliance with the Policy will be coincident with the SDWBE
          review, and Advisors shall present summary data in a format described
          approved by the System. The annual review of advisor compliance shall
          provide CalPERS' staff with good faith evidence of monitoring and
          enforcement.

          The annual review will seek to determine whether each advisor,
          property manager, and contractor conducted a good faith outreach
          program and a competitive bidding process that includes Responsible
          Contractors. If a potential Responsible contractor does not respond to
          the invitation to bid, then the advisor, property manager or
          contractor has acted properly. For each bidder, the advisor, property
          manger or contractor is obliged to gather appropriate Responsible
          Contracting information and make a judgment with regard to the five
          Initial Requirements described in Section Ill. If there are instances
          in which an advisor, property manager, or contractor has failed to
          comply with this Policy, CalPERS' review of the advisors, property
          managers, or contractors will focus on the overall pattern of conduct
          and not any one specific incident.

     L.   Competitive Bidding: Property managers and contractors should give
          notice for applicable bids in local trade publications, bulletin
          boards and union building trades councils. Property managers should
          seek input from building trades councils to develop lists of
          Responsible Contractors for inclusion in the bidding process.

          Property managers may choose from the list of Responsible Contractors
          a reasonable number of contractors to be invited to bid. Given the
          time and expense required to solicit and evaluate bids, it is not
          essential that advisors, property managers, and contractors invite all
          potential bidders.

          The property manager must ensure that there is a competitive bidding
          process which is inclusive of potentially eligible Responsible
          Contractors. Inclusion is not necessarily assured by large numbers of
          bidders. Care must be taken that bidders include potentially eligible
          Responsible Contractors.

                               Exh. O - p. 6 of 6
<PAGE>

          Although the Policy does not require hiring union workers, the trade
          unions will be invited to (1) deliver to the property manager or
          advisor lists of names and phone numbers of Responsible Contractors
          including those Responsible Contractors who have expressed any
          interest in bidding, and (2) continually monitor the local markets to
          update the lists. Property managers shall maintain these lists
          supplied by the trade unions.

     M.   Neutrality: CalPERS supports a position of neutrality in the event
          there is a legitimate attempt by a labor organization to organize
          workers employed in the construction, maintenance, operation, and
          services at a CalPERS owned property.

          Resolution of any interjurisdictional trade disputes will be the
          responsibility of the trades and the various state and national
          building trades councils. This Policy does not call for any
          involvement by the advisors, property managers, or contractors in
          interjurisdictional trade disputes.

     N.   Enforcement: This System will place a non-complying advisor or
          property manager on a probation watch list. If the advisor or property
          manager does not modify this pattern of conduct even after discussions
          with CalPERS' staff, the System will consider this pattern of conduct
          along with other information when it reviews the advisor or property
          manager contract for possible renewal. The key indicator is a pattern
          of conduct which is inconsistent with the provisions of the Policy.

          Advisors, property managers, and contractors which have not hired
          Responsible Contractors in the past may still bid for contracts.
          However, after the award of such contracts the System will review
          compliance with the Policy.

          CalPERS does not require that advisors, property managers or
          contractors use any particular system for compliance. However, from
          time to time, CalPERS' staff may disseminate information and
          suggestions regarding efficient ways to comply with this Policy.

                               Exh. O - p. 7 of 7
<PAGE>
                                    EXHIBIT P

                   California Government Code section 20152.5.

California Government Code section 20152.5. Matter involving vendor or
contractor' closed session; disclosure of campaign contribution.

No matter involving any vendor or contractor in their individual or any other
capacity shall be considered during a closed session on any transaction
involving the System unless, prior to the closed session, a written disclosure
has been submitted by the vendor or contractor of any campaign contributions
aggregating two hundred fifty dollars ($250) or more and any gifts aggregating
fifty dollars ($50) or more in value that the vendor or contractor has made
during the preceding calendar year to any member of the board or any officer or
employee of the System. Failure to disclose the campaign contributions and gifts
shall provide the basis for disqualification of the contractor or the vendor.

                               Exh. P - p. 1 of 1
<PAGE>

                                    EXHIBIT Q

                                      FINAL

                 California Public Employees' Retirement System

         Statement of Equity Real Estate Appraisal and Valuation Policy

                                  June 12, 1998

This policy shall be effective upon adoption and supersedes all previous
appraisal policies.

I.       APPRAISAL AND VALUATION GOALS AND OBJECTIVES

The California Public Employees' Retirement System (the "System") shall
regularly monitor its individual asset and portfolio investment performance
against pro forma, industry benchmarks and adopted objectives and policies. An
annual independent appraisal of market value shall be obtained for each
investment in the core portfolio to assist Staff in measuring and verifying
asset performance. Scheduling of appraisals within a given year shall be at the
discretion of Staff and shall occur on a rolling four-quarter basis. Staff, in
conjunction with the Real Estate Pension Consultant, shall select appraisers
appropriate to perform valuations on the real estate investments.

II.      VALUATION AND APPRAISAL POLICY

a.       Appraisal Policy

The appraisals are to conform with the Uniform Standards of Professional
Appraisal Practice (USPAP) of the Appraisal Foundation. Accordingly, the
appraisals are to provide a market value estimate of the System's' specific
interest in real estate assets. The market value should be based on the USPAP
definition and, therefore should reflect the most probable price the System's
interest would sell for given a reasonable exposure period and assuming a
willing and knowledgeable buyer and seller.

The System's interests may be in the form of 100% owned, partial interests,
joint ventures, general or limited partner interests, mortgagor or mortgagee,
ground lessor or some form of participating debt.

The System's interest should be valued on an unleveraged basis unless such
leverage is considered favorable (below market) and would be assumable by the
purchaser.

The market value of the System's interest should consider the depth, or lack
thereof, of a market for that type of interest, the profile of the most likely
buyers, and an understanding of how these interests are priced in the relevant
market. If appropriate, premiums or discounts should be analyzed and supported
which address issues such as control, marketability, minority or majority
interests, right of first refusal, purchase options, preferred returns, etc.
Appropriate rates of return should be supported with market participant
interviews and published survey data, as applicable.

                               Exh. Q - p. 1 of 1

<PAGE>

Certain properties may be exempt from the process under the following conditions
and at the Staff's discretion:

1.       Property has a very low risk profile, i.e. single tenant supermarkets.

2.       Property is being marketed for sale or is under contract for sale.

3.       Property has been held for less than one year.

Reputable firms, utilizing staff who are Members of the Appraisal Institute (MAI
designation), shall be engaged to prepare the appraisals. Property assignments
shall be rotated every five years or earlier depending on the quality of service
and product, or other situations indicating a change to be prudent. Rotation
also provides the System new perspective in the market as well as preventing any
one appraisal firm from becoming too dependent on past market assumptions and
valuations. Criteria for selection of appraisers shall be maintained in the
System's Staff Procedures Manual.

B.       Valuation Policy

The System shall report the market value as indicated in the System's most
recent appraisal or as determined through the appraisal process outlined below.

The following process shall be used to settle valuation disputes at the end of a
contract period. This process is outlined in a flowchart provided in Exhibit A
attached.

The appraisal process will follow the following steps:

1. The System will engage an appraisal firm to complete an appraisal of the
property at the termination of the contract period.

2. Upon review of the appraisal, either the System or the Investment Manager may
initiate the following appraisal arbitration process:

APPRAISAL ARBITRATION PROCESS

     -            Either the System or the Investment Manager, at its own
                  expense, may obtain a second appraisal using an appraiser from
                  the System's approved list of appraisers. The election to
                  obtain another appraisal must be made within 15 days of the
                  event triggering the determination of the Project's fair
                  market value.

     -            If the second appraisal does not differ from the System's
                  initial appraisal by more than 5%, then the average of the two
                  appraisals shall be considered the market value of the
                  property.

     -            If the second appraisal differs by more than 5% from the
                  System's initial appraisal, the two appraisers who prepared
                  the appraisals shall meet and determine the market value of
                  the property. If the two appraisers cannot agree upon a value
                  within 30 days of the date of the last appraisal, they shall
                  select a third appraiser from the list of the System's
                  Approved appraisers within 30 days of the date of the last
                  appraisal.

                               Exh. Q - p. 2 of 2

<PAGE>

     -            If the appraisers cannot agree on the market value, they shall
                  select a third appraiser from the Approved List to perform a
                  third appraisal. An average of the three appraisals shall be
                  considered the market value of the property, provided however,
                  that if the lowest appraisal and/or the highest appraisal
                  differs by more than 5% from the middle appraisal, then such
                  low and/or high appraisal shall be disregarded and the average
                  of the remaining appraisals or the remaining appraisal, if
                  both are disregarded, shall be considered the market value of
                  the property. Both Investment Managers shall share equally the
                  expense of the third appraisal.

3. If upon termination of the initial contract period, the current contract will
not be renewed and therefore the property will be transferred to new management,
the following additional process will also be employed:

INITIAL VALUATION AT THE BEGINNING OF AN INVESTMENT MANAGEMENT RELATIONSHIP

The new manager shall review the appraised value of the property as determined
in step 2 above. If the new advisor agrees with this value, no further action is
necessary and this value becomes the beginning value for the purposes of the new
contract. However, if the new manager or the System disagrees with the new
value, the following process shall be followed:

     -            The System shall instruct the outgoing manager to market the
                  property for sale using a third party brokerage firm to
                  broadly solicit offers ("Market Offer") from the market.

     -            The new Investment Manager shall submit a value ("New Manager
                  Bid") for the property to the System. The System shall not
                  share the New Manager Bid with the outgoing manager.

     -            The System shall determine its own bid ("Hold Value") which is
                  the value that it would continue to hold the asset as an
                  investment (and not sell below).

     -            Upon completion of the marketing process, the System shall
                  compare the Market Offer, the New Manager Bid and its Hold
                  Value.

     -            If the highest value among these three values is the New
                  Manager Bid, the System shall retain its ownership of the
                  asset and the management of the asset shall be transferred to
                  the new Investment Manager. The value of the asset will be
                  equal to the New Manager Bid for the purposes of both the
                  final valuation of the outgoing manager and the initial
                  valuation for the new manager.

     -            If the estimated net sales proceeds based on the Market Offer
                  is the highest of these three values, the System shall
                  instruct the outgoing manager to complete the sale of the
                  asset and the final net proceeds of sale will determine the
                  final value in the outgoing manager contract.

     -            If the Systems Hold Value is the highest of these three
                  values, the System shall retain the asset and arrange for the
                  management of the asset at its own discretion. The value of
                  the asset in this instance shall be equal to the appraised
                  value of the asset.

                               Exh. Q - p. 3 of 3

<PAGE>

C.       Specialized Portfolio

This appraisal policy shall apply to the core real estate portfolio only, while
specialized properties may have different guidelines in timing or certification,
depending on the inherent qualities of the industry sector. The specifications
for any specialized properties shall be contained in the specific policy
statement for the specialized investment, including but not limited to, timber
and housing.

                               Exh. Q - p. 4 of 4

<PAGE>

                                    EXHIBIT R

                                  GMACCM LOANS

1.   Mortgage loan in the principal amount of $9,300,000 from GMAC Commercial
     Mortgage Corporation to AL U.S./Bonita Senior Housing, L.P.

     Closed on 12/23/02.

2.   Mortgage loan in the principal amount of $12,975,000 from GMAC Commercial
     Mortgage Corporation to Boulder Assisted Living, L.L.C.

     Closed on 12/23/02.

3.   Mortgage loan in the principal amount of $9,525,000 from GMAC Commercial
     Mortgage Corporation to AL U.S./La Jolla Senior Housing, L.P.

     Closed on 12/23/02.

4.   Mortgage loan in the principal amount of $9,375,000 from GMAC Commercial
     Mortgage Corporation to AL U.S./La Palma Senior Housing, L.P. Closed on
     12/23/02.

5.   Mortgage loan in the principal amount of $14,250,000 from GMAC Commercial
     Mortgage Corporation to AL U.S./Studio City Senior Housing, L.P. Closed on
     12/23/02.

                               Exh. R - p. 1 of 1

<PAGE>

                                    EXHIBIT S
                              INTENTIONALLY OMITTED

                               Exh. S - p. 1 of 1
<PAGE>

                                    EXHIBIT T
                              INTENTIONALLY OMITTED

                               Exh. T - p. 1 of 1

<PAGE>

                                    EXHIBIT U

                                 LIST OF SURVEYS

     PROPERTY                                  SURVEY

Bonita                     Survey by Hale Engineering dated 12/19/02

Boulder                    Survey by Martin/Martin Consulting dated 12/16/02

Huntington Beach           Survey by SB&O, Inc. dated 12/3/02

La Jolla (Pacific Beach)   Survey by Nolte Associates, Inc. dated 12/19/02

LaPalma                    Survey by Wagner Halladay, Inc. dated 12/19/02

Newtown Square             Survey by Chester Valley Engineers, Inc dated 9/3/02

Sacramento                 Survey by Sandis Humber Jones dated 12/2/02

Seal Beach                 Survey by SB&O, Inc. dated 12/3/02

Shipley Road               Survey by Landmark Engineering dated 12/11/02

Studio City                Survey by SB&O, Inc. dated 12/12/02

                               Exh. U - p. 1 of 1

<PAGE>

                                    EXHIBIT V

                             LIST OF TITLE POLICIES

      PROPERTY                            COMMITMENT

Bonita                      First American Title Co. Commitment #
                            NA23486 Dated 11/20/02

Boulder                     First American Title Co. Commitment #
                            NA23485 Dated 11/20/02

Huntington Beach            First American Title Co. Commitment #
                            NA23533 Dated  09/03/02

La Jolla (Pacific Beach)    First American Title Co. Commitment #
                            NA23487 Dated 08/22/02

LaPalma                     First American Title Co. Commitment #
                            OR-2116193 Dated 01/02/01

Newtown Square              First American Title Co. Commitment #
                            NA22550 Dated 08/28/01

Sacramento                  First American Title Co. Commitment #
                            NA23759 Dated 09/13/02

Seal Beach                  First American Title Co. Commitment #
                            NA22747 Dated 12/14/02

Shipley Road                First American Title Co. Commitment #
                            NA23318 Dated 06/11/02

Studio City                 First American Title Co. Commitment #
                            NA23490 Dated 09/04/02

                               Exh. V - p. 1 of 1

<PAGE>

                                    EXHIBIT W

                               LITIGATION MATTERS

                                 (See Attached)

                               Exh. W - p. 1 of 1

<PAGE>

                                    EXHIBIT X
                              INTENTIONALLY OMITTED

                               Exh. X - p. 1 of 1

<PAGE>

                                    EXHIBIT Y
                              INTENTIONALLY OMITTED

                               Exh. Y - p. 1 of 1

<PAGE>

                                    EXHIBIT Z
                              INTENTIONALLY OMITTED

                               Exh. Z - p. 1 of 1

<PAGE>

                                   EXHIBIT AA

                            SCHEDULE OF CLOSING COSTS

                                 (See Attached)

                               Exh. AA - p. 1 of 1

<PAGE>

                                   EXHIBIT BB

                           LIST OF FACILITY AGREEMENTS

                                 (See Attached)

<TABLE>
<S>                                          <C>
Bonita Property                               Architect Contract between Sunrise Development, Inc. and Hill
                                              Partnership, Inc. dated 11/9/01 and assigned to AL
                                              U.S./Bonita Senior Housing, L.P. 12/23/02.

                                              Construction Contract between Sunrise Development, Inc. and
                                              Suffolk Construction Company, Inc. dated 2/22/02 and assigned
                                              to AL U.S./Bonita Senior Housing, L.P. by assignment dated
                                              12/23/02.

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ Bonita Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ Bonita Senior
                                              Housing, L.P. dated 12/23/02

Boulder Property                              Architect Contract between Sunrise Development, Inc. and
                                              Beery, Rio & Associates, Inc. dated 3/1/02 and assigned to
                                              Boulder Assisted Living, L.L.C. by assignment dated 12/23/02

                                              Construction Contract between Boulder Assisted Living, L.L.C.
                                              and Pinkard Construction Company, Inc. dated 5/10/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              Boulder Assisted Living, L.L.C. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and Boulder Assisted Living,
                                              L.L.C. dated 12/23/02

Huntington Beach Property                     Architect Contract between Sunrise Development, Inc. and Hill
                                              Partnership, Inc. dated 10/29/01 and assigned to AL
                                              U.S./Huntington Beach Senior

</TABLE>

                               Exh. BB - p. 1 of 5
<PAGE>

<TABLE>
<S>                                          <C>

                                              Housing, L.P. by assignment dated 12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Suffolk Construction Company, Inc. dated 9/30/02 and assigned
                                              to AL U.S./Huntington Beach Senior Housing, L.P. by
                                              assignment dated 12/23/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ Huntington Beach Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc.. and AL U.S./ Huntington
                                              Beach Senior Housing, L.P. dated 12/23/02

La Jolla (Pacific Beach) Property             Architect Contract between Sunrise Development, Inc. and
                                              Mithun, Inc. dated 12/11/00 and assigned to AL U.S./La Jolla
                                              Senior Housing, L.P. by assignment dated 12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Suffolk Construction Company, Inc. dated 11/29/02 and
                                              assigned to AL U.S./La Jolla Senior Housing, L.P. by
                                              assignment dated 12/23/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ La Jolla Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ La Jolla Senior
                                              Housing, L.P. dated 12/23/02

La Palma Property                             Architect Contract between Sunrise Development, Inc. and Hill
                                              Partnership, Inc. dated 11/9/01 and assigned to AL U.S./La
                                              Palma Senior Housing, L.P. by assignment dated 12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Suffolk Construction Company, Inc. dated 7/19/02 and assigned
                                              to AL U.S./La Palma Senior Housing, L.P. by assignment
</TABLE>

                              Exh. BB - p. 2 of 5
<PAGE>

<TABLE>
<S>                                          <C>
                                              dated 12/23/02
                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ La Palma Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ La Palma Senior
                                              Housing, L.P. dated 12/23/02

Newtown Square Property                       Architect Contract between Sunrise Development, Inc. and
                                              Beery, Rio & Associates, Inc. dated 12/5/01 and assigned to
                                              Newtown Square Assisted Living, L.L.C. dated 12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Glen Construction Company, Inc. dated 7/29/02, and assigned
                                              to Newtown Square Assisted Living, L.L.C. by assignment dated
                                              12/23/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              Newtown Square Assisted Living, L.L.C. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and Newtown Square Assisted
                                              Living, L.L.C. dated 12/23/02

Sacramento Property                           Architect Contract between Sunrise Development, Inc. and Hill
                                              Partnership, Inc. dated 8/30/01 and assigned to AL
                                              U.S./Sacramento Senior Housing, L.P. by Assignment dated 12/23/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ Sacramento Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ Sacramento
                                              Senior Housing, L.P. dated 12/23/02

</TABLE>

                              Exh. BB - p. 3 of 5
<PAGE>

<TABLE>
<S>                                          <C>
Seal Beach Property                           Architect Contract between Sunrise Development, Inc. and
                                              Beery, Rio & Associates, Inc. dated 12/5/01 and assigned to
                                              AL U.S./Seal Beach Senior Housing, L.P. by Assignment dated
                                              12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Suffolk Construction Company, Inc. dated 8/15/02 and assigned
                                              to AL U.S./Seal Beach Senior Housing, L.P. by assignment
                                              dated 12/23/02

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ Seal Beach Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ Seal Beach
                                              Senior Housing, L.P. dated 12/23/02

Studio City Property                          Architect Contract between Sunrise Development, Inc. and
                                              Mithun, Inc. dated 1/16/02 and assigned to AL U.S./Studio
                                              City Senior Housing, L.P. by Assignment dated 12/23/02.

                                              Development Agreement between Sunrise Development, Inc. and
                                              AL U.S./ Studio City Senior Housing, L.P. dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and AL U.S./ Studio City
                                              Senior Housing, L.P. dated 12/23/02

Wilmington Property                           Architect Contract between Sunrise Development, Inc. and
                                              Beery, Rio & Associates, Inc. dated 12/5/01 and assigned to
                                              Wilmington Assisted Living, L.L.C. by assignment dated
                                              12/23/02

                                              Construction Contract between Sunrise Development, Inc. and
                                              Glen Construction Company, Inc. dated 7/29/02 and assigned to
                                              Wilmington Assisted Living, L.L.C. by assignment dated
                                              12/23/02

                                              Development Agreement between Sunrise

</TABLE>

                              Exh. BB - p. 4 of 5
<PAGE>

<TABLE>
<S>                                          <C>
                                              Development, Inc. and Wilmington Assisted Living, L.L.C.
                                              dated 12/23/02

                                              Pre-Opening Services and Management Agreement between Sunrise
                                              Assisted Living Management, Inc. and Wilmington Assisted
                                              Living, L.L.C. dated 12/23/02

</TABLE>

                               Exh. BB - p. 5 of 5

<PAGE>

                                   EXHIBIT CC

                           LIST OF CHANGES AND CLAIMS

<TABLE>
<CAPTION>
                PROPERTY                              CHANGE ORDERS                            AMOUNT

<S>                                                         <C>                              <C>
Bonita                                                      1                                $24,299.81

Boulder

                                                            1                                $36,278.00
                                                            2                                   $0.00
                                                            3                                 $8,224.63
                                                            4                                 $3,690.00
                                                            5                                 $1,849.00
                                                            6                                   $0.00
                                                            7                                 $3,213.00
                                                            8                                 $7,453.00
                                                            9                                 $3,249.00
                                                            10                               $42,684.00
                                                            11                               $18,939.00
                                                                                             ----------

                                                          Total                              $125,579.63
                                                                                             ===========

Huntington Beach                                           NONE                                 NONE

La Jolla                                                   NONE                                 NONE

La Palma                                                    1                                 16,904.00
                                                                                              =========

Newtown Square                                             NONE                                 NONE

Pacific Beach                                               1                                ($3,000.00)
                                                            2                        $15,750.00 (time extension)
                                                            3                               ($10,000.00)
                                                            4                                $20,187.00
                                                            5                                $39,003.00
                                                                                             ----------

                                                          Total                              $61,940.00
                                                                                             ==========

Sacramento                                                 NONE                                 NONE

Seal Beach                                                 NONE                                 NONE

Wilmington                                                 NONE                                 NONE

</TABLE>

                               Exh. CC - p. 1 of 1

<PAGE>

                                   EXHIBIT DD

                                PRO FORMA RETURNS

<TABLE>
<CAPTION>
    PROPERTY                                      PRO FORMA RETURN

<S>                                                     <C>
Bonita                                                  23.8%

Boulder                                                 23.36%

Huntington Beach                                        24.59%

La Jolla                                                22.50%

La Palma                                                17.68%

Newtown                                                 18.49%

Sacramento                                              13.31%

Seal Beach                                              18.86%

Studio City                                             13.46%

Wilmington                                              22.62%

</TABLE>

                               Exh. DD - p. 1 of 1
<PAGE>

                                   EXHIBIT EE

                                DEVELOPMENT COSTS

                                 (See Attached)

                               Exh. EE - p. 1 of 1

<PAGE>

                                 SCHEDULE 12.11

     1. REPRESENTATIONS AND WARRANTIES OF THE SUNRISE MEMBER.

          1.1 Organization; Good Standing. The Sunrise Member is a corporation,
duly organized and validly existing under the laws of the State of Virginia, and
to the extent necessary, duly qualified to do business in each of the states in
which a Property is located, with the full power and authority and legal right
to be a Member and the Manager of the Company and to carry on its business in
the manner and in the locations in which such business has been and is now being
conducted by it, to execute and deliver this Agreement and to perform its
obligations hereunder.

          1.2 Consent of Third Parties. No consent of any third party is
required as a condition to the entering into this Agreement by the Sunrise
Member other than such consent as has been previously obtained.

          1.3 Authority; Enforceability. The execution and delivery of this
Agreement has been duly authorized by the Sunrise Member and this Agreement
constitutes the valid and binding obligation and agreement of the Sunrise
Member, enforceable in accordance with its terms (subject to the effect of
bankruptcy, insolvency or creditor's rights generally, and to limitations
imposed by general principles of equity).

          1.4 Absence of Conflicts. Neither the execution and delivery of this
Agreement, nor compliance with the terms and provisions thereof, will result in
any breach of the terms, conditions or provisions of, or conflict with or
constitute a default under, or result in the creation of any lien, charge or
encumbrance upon any Property or the assets of the Sunrise Member pursuant to
the terms of, any indenture, mortgage, deed of trust, note, evidence of
indebtedness, agreement or other instrument to which the Sunrise Member or any
Related Party may be party or by which it or they or any of its or their
properties or assets may be bound, or violate any provision of law, or any
applicable order, writ, injunction, judgment or decree of any court, or any
order or other public regulation of any governmental commission, bureau or
administrative agency.

          1.5 No Judgments. Except as in each instance previously disclosed to
the AEW Member in writing, there are no judgments presently outstanding and
unsatisfied against the Sunrise Member or any of its assets and neither the
Sunrise Member nor any of its assets is involved in any litigation at law or in
equity, or in any proceeding before any court, or by or before any governmental
or administrative agency, which judgment, litigation or proceeding could
reasonably be anticipated to have a material adverse effect on the Sunrise
Member, the Company, any Subsidiary or any Property, and no such material
judgment, litigation or proceeding is, to the best of the Sunrise Member's
knowledge, threatened against the Sunrise Member or any of its assets, and to
the best of the Sunrise Member's knowledge, no investigation looking toward such
a proceeding has begun or is contemplated.

          1.6 No Governmental Approvals. No order, permission, consent,
approval, license, authorization, registration or validation of, or filing with,
or exemption by, any governmental agency, commission, board or public authority
is required to authorize, or is

                             Sch. 12.11 - p. 1 of 1
<PAGE>

required in connection with the execution, delivery and performance by the
Sunrise Member of this Agreement or the taking of any action thereby
contemplated, which has not been obtained, other than any such order,
permission, consent, approval, license, authorization, registration or
validation of, or filing with, or exemption by, any governmental agency,
commission, board or public authority required in connection with the ownership
or the development of the Properties or with the other operations of the
Company.

          1.7 Intentionally Omitted.

          1.8 Absence of Certain Changes or Events. Since the date of the
respective Interim Statements:

               (a) There has not been any damage, destruction or other casualty
loss with respect to the Owned Assets (whether or not covered by insurance)
which, individually or in the aggregate has, or could reasonably be expected to
have, a Material Adverse Effect.

               (b) None of the Subsidiaries, the Sunrise Member or any of their
respective Related Parties or the Facilities has suffered any adverse change or
development which, individually or in the aggregate, has had or could reasonably
be expected to have a Material Adverse Effect.

          (c) Neither the Subsidiaries, Sunrise Member nor any of their
respective Related Parties has:

          (i) amended or terminated any Facility Agreement except in the
     ordinary course of business;

          (ii) mortgaged, pledged, suffered or subjected to any Lien, the
     Sunrise Member's interests in the Subsidiaries or the their interests in
     any of the Owned Assets, except for Permitted Liens and any Lien which will
     be released at or prior to the date hereof;

          (iii) acquired or disposed of any assets or properties affecting the
     Facilities or entered into any agreement or other arrangement for such
     acquisition or disposition, except in the ordinary course of business;

          (iv) entered into any agreement, commitment or other transaction
     affecting the Facilities other than in the ordinary course of business;

          (v) operated the Facilities other than in the ordinary course of
     business.

          1.9 Insurance. There is now, and there will remain, in full force and
effect with reputable insurance companies fire and extended coverage insurance
with respect to all tangible Owned Assets and public liability insurance, all in
commercially reasonable amounts.

          1.10 Litigation. Except as set forth on Exhibit W, there is no
pending, or to the best of the Sunrise Member's knowledge, threatened
litigation, proceeding or investigation (by

                             Sch. 12.11 - p. 2 of 2
<PAGE>

any person, governmental or quasi-governmental agency or authority or otherwise)
to which the Company, any Subsidiary, the Sunrise Member or any of their
respective Related Parties is a party, including, without limitation, litigation
brought by the Company, any Subsidiary, the Sunrise Member or their respective
Related Parties against third parties. The litigation, proceedings and
investigations listed on EXHIBIT W will not, individually or in the aggregate,
materially adversely affect the ownership, use, occupancy, operation or title to
any of the Facilities.

          1.11 Compliance with Laws. To the best of Sunrise Member's knowledge,
the Facilities will be constructed in compliance in all material respects with,
and in no material way violate any applicable statute, law, regulation, rule,
ordinance, order or permit of any kind whatsoever affecting the Facilities or
any part thereof. None of the Company, any Subsidiary, the Sunrise Member nor
any of its Related Parties has received notice of any such material violation.

          1.12 Environmental Matters. To Sunrise Member's knowledge, except for
hazardous waste commonly used in Senior Housing Facilities (such as cleaning
solvents, petroleum products and medical waste), neither the Company, any
Subsidiary, the Sunrise Member nor any of its Related Parties has generated,
stored or disposed of any hazardous waste at any of the Facilities and Sunrise
Member has no knowledge of any previous or present generation, storage, disposal
or existence of any hazardous waste at any of the Facilities. The term
"hazardous waste" shall mean "hazardous waste," "toxic substances," or other
similar or related terms as defined or used from time to time in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. ss.ss. 1801, et seq.), the Resource Conservation and Recovery
Act, as amended (42 U.S.C. ss. 692 1, et seq.), similar state laws and
regulations adopted thereunder. The Sunrise Member hereby further represents and
warrants that all hazardous waste, including, without limitation, hazardous
waste commonly used in Senior Housing Facilities or the construction thereof
(such as cleaning solvents, petroleum products and medical waste) generated,
stored, used or disposed of on, at or about any Property has been so generated,
stored, used and disposed of in accordance will all applicable laws, codes,
rules and regulations.

          1.13 Assessments. There are no special or other assessments for public
improvements or otherwise now affecting any of the Facilities, nor does Sunrise
Member have knowledge of (i) any pending or threatened special assessments
affecting any of the Facilities or (ii) any contemplated improvements affecting
any of the Facilities that may result in special assessments affecting any of
the Facilities, except as set forth in the Development Budgets for each
Facility.

          1.14 Resident Agreements; Leases. No purchase and sale agreement,
option, Resident Agreement, lease, license or other document, instrument or
agreement granting or agreeing to grant any person or entity any right to
purchase, lease, use or occupy or purchase any Facility or any interest therein
is currently in effect with respect to any of the Facilities.

          1.15 Facility Agreements. To Sunrise Member's knowledge, the Facility
Agreements listed on Exhibit BB hereto are all the material Facility Agreements
relating to or affecting any of the Facilities, including, without limitation,
the design, development,

                             Sch. 12.11 - p. 3 of 3
<PAGE>
construction, operation and maintenance thereof entered into by the Subsidiary,
the Sunrise Member or any Related Party of the Sunrise Member, including,
without limitation, SDI (but not including subcontracts of any prime
contractor). To Sunrise Member's knowledge, the Facility Agreements are in full
force and effect. Sunrise Member has heretofore delivered to AEW Member or its
agents true and complete copies of all such Facility Agreements, including all
amendments and modifications thereto. To Sunrise Member's knowledge, neither the
Company, any Subsidiary, the Sunrise Member, nor any of its Related Party from
which the Facility Agreements may be assigned to the Company or any Subsidiary
is in default of any of its material obligations under any of such Facility
Agreements, and Sunrise Member has no knowledge of any material default on the
part of any other party thereto. All of the Facility Agreements listed on
Exhibit BB are currently in full force and effect.

          1.16 Approvals. All building permits and all material Approvals
required to own, develop, construct, use, occupy, operate or maintain any
Property as a Senior Housing Facility have been obtained, except for
non-discretionary Approvals obtainable in the ordinary course after the date
hereof. The Sunrise Member has no reason to believe that any Approvals that have
not yet been obtained will not hereafter be obtained in the ordinary course.

          1.17 Medicare; Medicaid. To Sunrise Member's knowledge, no action,
proceeding, or investigation in connection with Medicare, Medicaid or other
public or private third-party payor or other programs is pending or threatened
against the Company, any Subsidiary, the Sunrise Member or their respective
Related Parties in connection with the Facilities. Neither the Company, any
Subsidiary, the Sunrise Member or their respective Related Parties has received
notice of any threatened or pending investigation in connection with (i)
Medicare, Medicaid, or other public or private third-party payor programs or
(ii) any fraud, false statement or false claim applicable to its business or
(iii) any patient care, patient rights or other law applicable to its business.
The Company, the Subsidiaries, the Sunrise Member and their respective Related
Parties have prepared and filed all cost reports, if any, that were required to
be filed for Medicare and Medicaid purposes and for all other public or private
third-party reimbursement programs through the date of this Agreement. All such
cost reports, if any, are correct and accurate and have been prepared in
conformity with Sunrise Member's books and records. Neither the Company, any
Subsidiary, the Sunrise Member or any of their Related Parties has received
notice that Medicare, Medicaid or any other public or private third-party payor
has any claims for disallowance of costs against it. To Sunrise Member's
knowledge, neither the Company, any Subsidiary, the Sunrise Member nor their
respective Related Parties has committed any violation of the Medicare and
Medicaid fraud and abuse provisions of the Social Security Act, any similar
state law or Title VI of the Civil Rights Act.

          1.18 Condemnation. Neither the Company, any Subsidiary, the Sunrise
Member nor any of their respective Related Parties has received any written
notice of any pending or contemplated condemnation, eminent domain or similar
proceeding, with respect to all or any portion of the Facilities.

          1.19 Condition of Property. To Sunrise Member's knowledge, with regard
to the Properties, (i) there are no material structural defects or other
material defects in the construction work and (ii) such work is in compliance
with all applicable laws and codes. To

                             Sch. 12.11 - p. 4 of 4
<PAGE>

Sunrise Member's knowledge, any Personal Property delivered to the Properties is
in good condition.

          1.20 Independent Facilities. To Sunrise Member's knowledge, each
Facility will be an independent unit which after completion will not rely on any
facilities (other than the facilities of public utility, sewer and water
companies) located on any property not included in such Facility (i) to fulfill
any zoning, building code, or other municipal or governmental requirement, or
(ii) for structural support or the furnishing of any essential building systems
or utilities, including, but not limited to, electric, plumbing, mechanical,
heating, ventilating and air conditioning systems. To Sunrise Member's
knowledge, no building or other improvements not included in the Facilities will
rely on any part of the Facilities to fulfill any zoning, building, code or
other municipal or governmental requirement or for structural support or the
furnishing of any essential building systems or utilities.

          1.21 Full Disclosure. Sunrise Member's knowledge, none of the
representations or warranties in this Agreement by Sunrise Member, nor any
descriptive information concerning the Owned Assets set forth in this Agreement,
nor any document, statement, certificate, schedule or other information
furnished or to be furnished to AEW Member by Sunrise Member in connection with
this Agreement, contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements of fact contained therein not
misleading.

          1.22 Utilities Access. To Sunrise Member's knowledge, each Facility
will have adequate water supply, storm and sanitary sewer facilities, adequate
access to telephone, gas and electricity connections, adequate fire protection,
drainage, means of ingress and egress to and from public highways and, without
limitation, other public utilities for construction and operation as a Senior
Housing Facility. To Sunrise Member's knowledge, the parking facilities to be
located on each Facility (or to be located on each Facility in accordance with
the respective drawings and specifications set forth in the Facility Agreements)
meet all applicable requirements imposed by applicable law or requisite
exceptions or variances to such laws. All such public utilities will be
installed and all installation and connection charges will be paid in full. To
Sunrise Member's knowledge, all streets and roads necessary for access to and
full utilization of each of the Facilities, and every part thereof, will be
built, completed, dedicated and accepted for maintenance and public use by the
appropriate governmental authorities or are otherwise owned and maintained by
local governments for public use at the time the Facility opens for business.
Sunrise Member has no knowledge of any fact or condition existing that would
result or could result in the termination or reduction of the necessary access
from the Facilities to the existing roads and highways or to sewer or other
utility services proposed to serve the Facilities.

          1.23 Zoning. To Sunrise Member's knowledge, the use of each of the
Facilities as independent living/assisted living/dementia facilities, as
applicable, together with the ancillary uses thereto, is permitted under the
applicable municipal zoning ordinances, or Approvals (including, without
limitation, special exceptions, variances, or conditions thereto) which have
been obtained prior to the date hereof, and the Facilities if constructed in
accordance with the drawings and specifications set forth in construction
contracts for the respective Facilities listed in Exhibit BB (or the
architectural and engineering agreements listed in Exhibit BB if no such

                             Sch. 12.11 - p. 5 of 5
<PAGE>

construction contract has yet been executed) shall comply, to the extent
required (including any waiver or grandfathering), with all conditions,
restrictions and requirements of such zoning ordinances and all amendments
thereto and all Approvals.

          1.24 No Employees. None of the employees at the Facilities is employed
by the Company. All such employees are employees of Operator or SDI or their
respective Related Parties other than the Company. Neither the Company nor any
Subsidiary now has, and at no time ever had, any employees.

          1.25 FIRPTA. Neither the Company nor the Sunrise Member is a
"non-foreign person" within the meaning of Section 1445 of the Code and the
Regulations issued thereunder.

          1.26 Design and Construction Matters.

               (a) As of November 30, 2002 (i) the progress of the Work (as
defined in each respective construction contract listed on Exhibit BB is in
substantial conformity with the progress schedule for the applicable Property
set forth in each respective construction contract, and (ii) Development Costs
for the respective Properties are not anticipated to exceed the respective
Development Budgets.

               (b) To Sunrise Member's knowledge, Exhibit EE attached hereto
sets forth a true and correct accounting of all Development Costs incurred as of
December 17, 2002 by the Sunrise Member (or its Related Parties).

               (c) To Sunrise Member's knowledge, all Work has been performed in
a good and workmanlike manner in conformance with all material (i) applicable
laws, codes, rules and regulations, (ii) terms and conditions of all Approvals,
and (iii) requirements of the respective construction contracts, all as of
November 30, 2002.

               (d) To Sunrise Member's knowledge, the drawings and
specifications prepared for each Property comply with all material applicable
laws, codes, rules and regulations and the terms and conditions of the
Approvals.

               (e) To Sunrise Member's knowledge, attached hereto as Exhibit CC
is a complete list as of November 30, 2002 of all executed, pending and
requested (in writing) change orders, construction change directives and pending
or threatened written claims under any Facility Agreement, including, without
limitation, written claims for additional services under any architectural or
engineering agreement and written claims for adjustments of the contract sum or
contract time under any construction contract. Except as set forth on Exhibit
CC, the Sunrise Member does not have any knowledge of any written claim for
additional time or compensation or other damages in favor of any third party
under any architectural agreement, engineering agreement, construction contract
or other Facility Agreement.

          1.27 Taxes. The Company and each of the Subsidiaries have prepared and
duly and timely filed (or has filed as part of a consolidated tax filing) all
tax reports and returns required to be filed by it and all such returns are
accurate in all material respects. In addition, whether or not shown on such
returns or reports to be due, the Company and each of its Subsidiaries has duly
paid or provided for the payment of all taxes and other charges due or

                             Sch. 12.11 - p. 6 of 6
<PAGE>

claimed to be due from it by federal, state, local or foreign taxing authorities
(including, without limitation, those due in respect of the properties, income,
franchises, licenses, sales, usages or payrolls of the Company, the Subsidiaries
and the Facilities). There are no tax liens upon any property or assets of the
Company or any Subsidiary except liens for current taxes not yet due. The
federal income tax returns of the Company and each Subsidiary have not been
audited or otherwise examined by the Internal Revenue Service within the past
three years, and no state or local income, sales, use, or property tax returns
of the Company or any Subsidiary have been audited or otherwise examined within
the past three years. Sunrise Member has no notice of the pendency of any such
audit or examination. There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any federal or state income tax
return for any period and neither the Company nor any Subsidiary has filed any
consent under Section 341 (f) of the Code.

          1.28 Owned Assets. Neither the Company nor any Subsidiary owns or
holds an interest in any property, real or personal, tangible or intangible,
except for the Owned Assets.

          1.29 Interests; Title The Company owns 100% of the membership
interests in each Subsidiary, free and clear of all liens, options, claims,
encumbrances or charges of any kind, and there are no outstanding options or
other rights to purchase or otherwise acquire any membership interest in any of
the Subsidiaries. The Subsidiaries hold good and marketable title to the
respective Properties free and clear of any Liens except Permitted Exceptions.

          1.30 Responsible Parties. The Responsible Parties are the persons most
likely to have knowledge regarding the accuracy or inaccuracy of certain of the
representations of the Sunrise Member set forth herein which are qualified to
the Sunrise Member's knowledge.

          1.31 Title Encumbrances. Neither the Company, any Subsidiary, the
Sunrise Member nor any of its Related Parties is in default under any of their
respective material obligations under any recorded agreement, easement or
instrument encumbering title to any of the Facilities, and the Sunrise Member
has no knowledge of any material default on the part of any other party thereto.

          1.32 Affordable Housing Units. No Facility is required to lease or
reserve any unit or bedroom as an affordable housing unit or bedroom or for low
or moderate income residents pursuant to a presently existing agreement,
Approval or requirement of law.

          1.33 No New Survey Matters. To the Sunrise Members' knowledge, since
the dates of the Surveys, except for the construction work which is ongoing at
the Facilities, no new survey matters have arisen in connection with any of the
Properties which would otherwise be required under the applicable ALTA/ACSM
standards used in preparing the Surveys to be shown thereon.

          1.34 GMACCM Loans. The GMACCM Loans closed on or about the date hereof
are in full force and effect. There exists no "Event of Default" thereunder, and
there is no event or circumstance which, with the passing of time or giving of
notice, would constitute an "Event of Default" thereunder. All of the
representations and warranties of Borrower set forth in

                             Sch. 12.11 - p. 7 of 7
<PAGE>

the loan documents evidencing or securing the GMACCM Loans are true, correct and
complete, subject to any qualifications set forth therein.

     2. Representations and Warranties of the Aew Member.

          2.1 Authority; Good Standing. The AEW Member is a limited liability
company duly organized and validly existing under the laws of the State of
Delaware, with full power and authority and legal right to be a Member of the
Company and to carry on its business in the manner and in the locations in which
such business has been and is now being conducted by it, to execute and deliver
this Agreement and to perform its obligations hereunder.

          2.2 Consent of Third Parties. No consent of any third party is
required as a condition to the entering into of this Agreement by the AEW Member
other than such consent as has been previously obtained.

          2.3 Authority; Enforceability. The execution and delivery of this
Agreement has been duly authorized by the AEW Member and this Agreement
constitutes the valid and binding obligation and agreement of the AEW Member,
enforceable in accordance with its terms (subject to the effect of bankruptcy,
insolvency or creditor's rights generally, and to limitations imposed by general
principles of equity).

          2.4 Absence of Conflicts. Neither the execution and delivery of this
Agreement, nor compliance with the terms and provisions hereof, will result in
any breach of the terms, conditions or provisions of, or conflict with or
constitute a default under, or result in the creation of any lien, charge or
encumbrance upon the property or assets of the AEW Member pursuant to the terms
of any indenture, mortgage, deed of trust, note, evidence of indebtedness,
agreement or other instrument to which the AEW Member or any Related Party may
be party or by which it or they or any of its or their properties or assets may
be bound, or violate any provision of law, or any applicable order, writ,
injunction, judgment or decree of any court, or any order or other public
regulation of any governmental commission, bureau or administrative agency.

          2.5 No Judgments. There are no judgments presently outstanding and
unsatisfied against the AEW Member or any of its assets and neither the AEW
Member nor any of its assets is involved in any litigation at law or in equity,
or in any proceeding before any court, or by or before any governmental or
administrative agency, which judgment, litigation or proceeding could reasonably
be anticipated to have a material adverse effect on the AEW Member, the Company,
any Subsidiary or any Property and no such material judgment, litigation or
proceeding is, to the best of the AEW Member's knowledge, threatened against the
AEW Member or any of its assets, and to the best of the AEW Member's knowledge,
no investigation looking toward such a proceeding has begun or is contemplated.

          2.6 No Governmental Approvals. No order, permission, consent,
approval, license, authorization, registration or validation of, or filing with,
or exemption by, any governmental agency, commission, board or public authority
is required to authorize, or is required in connection with the execution,
delivery and performance by the AEW Member of this Agreement or the taking of
any action thereby contemplated, which has not been obtained,

                             Sch. 12.11 - p. 8 of 8
<PAGE>

other than any such order, permission, consent, approval, license,
authorization, registration or validation of, or filing with, or exemption by,
any governmental agency, commission, board or public authority required in
connection with the ownership or the development of the Properties or with the
other operations of the Company.

     3. Indemnification Obligations.

          3.1 Indemnification by Sunrise Member. Sunrise Member shall indemnify,
defend, and hold harmless AEW Member and its officers, directors, employees,
Related Parties, successors and assigns (the "AEW Indemnitees") from and
against, and pay or reimburse each of them for and with respect to, any Loss
relating to, arising out of or resulting from any of the following:

               (a) Any breach by Sunrise Member of any of its representations,
warranties in this Agreement or any other Document; provided, however, that in
the case of any claim, covenants or agreements for indemnification due to any
breach of any representation or warranty set forth in Paragraphs 1.7 through
1.34, inclusive, of Schedule 12.11, notice of the applicable breach of
representation or warranty is given to the Sunrise Member on or before the date
which is one (1) year from the date hereof;

               (b) Any obligation, indebtedness or liability of any Subsidiary
other than the obligations, indebtedness and liabilities under the Facility
Agreements (the "Owner Obligations") including, but not limited to, (i) claims
by state or federal governmental agencies for repayment of claims for
reimbursement of costs, regardless of whether disclosed to AEW Member and
regardless whether constituting a breach by Sunrise Member of any
representation, warranty, covenant or agreement hereunder or under any other
Document, (ii) all claims and causes of action held by any third party against
the Company or any Subsidiary, which claims or causes of action accrued prior to
the date hereof, regardless of whether constituting a breach by Sunrise Member
of any representation, warranty, covenant, or agreement hereunder;

               (c) Noncompliance by Sunrise Member with the provisions of the
Bulk Sales Act, if such act applies, in connection with the transactions
contemplated by this Agreement;

               (d) Any "Transfer" (as such term is defined in the mortgages
securing the GMACCM Loans) by the Sunrise Member or any of its Related Parties
which results in a default under any GMACCM Loan;

               (e) The execution of any guaranty by the Company, Pool One or the
AEW Member as a "Key Principal" with respect to any GMACCM Loan, where the Loss
results from the fault of the Sunrise Member, the Operator, SDI or any of their
respective Related Parties;

               (f) Subject to and without limiting the provisions of the
foregoing clause (e) or Paragraph 3.2(c) below, the execution of any guaranty by
the AEW Member as a "Key Principal" with respect to any GMACCM Loan, where the
Loss results from the presence on or about any Property of any hazardous waste
(as defined in Paragraph 1.12 of this Schedule 12.11) for any reason other than
the fault of the AEW Member or any of its Related Parties;

                             Sch. 12.11 - p. 9 of 9
<PAGE>

provided, however, that (A) the Company shall be primarily liable for such
indemnification obligation, and (B) the Sunrise Member's liability for such
indemnification obligation shall be limited to its Proportionate Share of the
applicable Loss;

               (g) Any default by SALI under any Payment and Performance
Guaranty Agreement executed by SALI in connection with the GMACCM Loans.

               (h) Without limiting the obligations of the Sunrise Member under
Section 6.10 hereof, any breach by (i) SALI of any of its obligations under the
Revolving Credit Agreement, (ii) Operator under any Operating Deficit Loan
Agreement, (iii) Operator under any Operating Deficit Guaranty, or (iv) SDI
under Section 2.07 of any Development Agreement.

                  The indemnification obligations of the Sunrise Member under
this Paragraph 3.1 shall be solely for the benefit of the AEW Indemnitees and
shall not benefit or be deemed to benefit any other person or entity.

          3.2 Indemnification by AEW Member. AEW Member shall indemnify and hold
harmless Sunrise Member and its officers, directors, employees, agents,
representatives, Related Parties, successors and assigns (the "Sunrise
Indemnitees") from and against, and pay or reimburse each of them for and with
respect to any Loss relating to, arising out of or resulting from:

               (a) Any breach by AEW Member of any of its representations,
warranties, covenants or agreements in this Agreement or any other Document;

               (b) Any "Transfer" (as such term is defined in the mortgages
securing the GMACCM Loans) by the AEW Member or any of its Related Parties which
results in a default under any GMACCM Loan;

               (c) The execution of any guaranty by the Company, Pool One or the
Sunrise Member as a "Key Principal" with respect to any GMACCM Loan, where the
Loss results from the fault of the AEW Member; or

               (d) Subject to and without limiting the provisions of the
foregoing clause (c) or Paragraph 3.1(f) above, the execution of any guaranty by
the Sunrise Member as a "Key Principal" with respect to any GMACCM Loan, where
the Loss results from the presence on or about any Property of any hazardous
waste (as defined in Paragraph 1.12 of this Schedule 12.11) for any reason other
than the fault of the Sunrise Member, the Operator or any of their respective
Related Parties; provided, however, that (A) the Company shall be primarily
liable for such indemnification obligation, and (B) the AEW Member's liability
for such indemnification obligation shall be limited to its Proportionate Share
of the applicable Loss.

     The indemnification obligations of the AEW Member under this Paragraph 3.2
shall be solely for the benefit of the Sunrise Indemnitees and shall not benefit
or be deemed to benefit any other person or entity.

          3.3 Administration of Indemnification. For purposes of administering
the indemnification provisions set forth in Sections 3.1 and 3.2. the following
procedure shall apply:

                            Sch. 12.11 - p. 10 of 10
<PAGE>

               (a) Whenever a claim shall arise for indemnification under this
Article, the party entitled to indemnification (the "Indemnified Party") shall
reasonably promptly give written notice to the party from whom indemnification
is sought (the "Indemnifying Party") setting forth in reasonable detail, to the
extent then available, the facts concerning, the nature of such claim and the
basis upon which the Indemnified Party believes that it is entitled to
indemnification hereunder.

               (b) In the event of any claim for indemnification resulting from
or in connection with any claim by a third party, the Indemnifying Party shall
be entitled, at its sole expense, either (i) to participate in defending against
such claim or (ii) to assume the entire defense with counsel which is selected
by it and which is reasonably satisfactory to the Indemnified Party provided
that (A) the Indemnifying Party agrees in writing that it does not and will not
contest its responsibility for indemnifying the Indemnified Party in respect of
such claim or proceeding and (B) no settlement shall be made and no judgment
consented to without the prior written consent of the Indemnified Party which
shall not be unreasonably withheld. If, however, (i) the claim, action, suit or
proceeding would, if successful, result in the imposition of damages for which
the Indemnifying Party would not be solely responsible, or (ii) representation
of both parties by the same counsel would otherwise be inappropriate due to
actual or potential differing interests between them, then the Indemnifying
Party shall not be entitled to assume the entire defense and each party shall be
entitled to retain counsel who shall cooperate with one another in defending
against such claim. In the case of Clause (i) of the preceding sentence, the
Indemnifying Party shall be obligated to bear only that portion of the expense
of the Indemnified Party's counsel that is in proportion to the damages
indemnifiable by the Indemnifying Party compared to the total amount of the
third-party claim against the Indemnified Party.

               (c) If the Indemnifying Party does not choose to defend against a
claim by a third party, the Indemnified Party may defend in such manner as it
deems appropriate or settle the claim (after giving notice thereof to the
Indemnifying Party) on such terms as the Indemnified Party may deem appropriate,
and the Indemnified Party shall be entitled to periodic reimbursement of defense
expenses incurred and prompt indemnification from the Indemnifying Party in
accordance with this Article.

               (d) Subject to the proviso in Paragraph 3.1(a) of this Schedule
12.11, failure or delay by an Indemnified Party to give a reasonably prompt
notice of any claim shall not release, waive or otherwise affect an Indemnifying
Party's obligations with respect to the claim, except to the extent that the
Indemnifying Party can demonstrate actual loss or prejudice as a result of such
failure or delay.

          3.4 Certain Limitations on Liability of Sunrise Members.
Notwithstanding any provision of Paragraph 1 or Paragraph 3 of this Schedule
12.11 to the contrary, the Sunrise Member shall have no liability to the AEW
Member for breach of any representation or warranty under Paragraph 1 of this
Schedule 12.11 which:

               (i) the AEW Member actually knew to be untrue prior to the date
hereof, or

                            Sch. 12.11 - p. 11 of 11
<PAGE>

               (ii) results in an increase in Project Costs; provided further,
however, that, with respect to this clause (ii), the Sunrise Member shall be
liable for any such breach to the extent that actual Project Costs (in the
aggregate for all Properties) exceeds budgeted Project Costs (in the aggregate
for all Properties) as set forth in the Development Budgets.

                            Sch. 12.12 - p. 1 of 12

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