-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kl1XGoGgaIMPgJdXOSWrFeX1+c96pkwvWZWVp7iM/uAsckinmfVqEYkXf2M0mhqU v/wxAnGYOTc1ynaPbimB2Q== 0000909518-01-000237.txt : 20010228 0000909518-01-000237.hdr.sgml : 20010228 ACCESSION NUMBER: 0000909518-01-000237 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010227 GROUP MEMBERS: LAZARD FRERES & CO. LLC GROUP MEMBERS: LAZARD FRERES REAL ESTATE INVESTORS LLC GROUP MEMBERS: LF STRATEGIC REALTY INVESTORS II LP GROUP MEMBERS: LFSR II - CADIM ALT. PARTNERSHIP LP GROUP MEMBERS: LFSR II ALTERNATIVE PARTNERSHIP LP GROUP MEMBERS: LFSR II ASSISTED LIVING LLC GROUP MEMBERS: PROMETHEUS ASSISTED LIVING LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ARV ASSISTED LIVING INC CENTRAL INDEX KEY: 0000949322 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 330160968 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-44631 FILM NUMBER: 1556065 BUSINESS ADDRESS: STREET 1: 245 FISCHER AVE STREET 2: SUITE D-1 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7147517400 MAIL ADDRESS: STREET 1: 245 FISCHER AVENUE STREET 2: SUITE D-1 CITY: COSTA MESA STATE: CA ZIP: 92626 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LAZARD FRERES REAL ESTATE INVESTORS LLC CENTRAL INDEX KEY: 0001042593 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 30 ROCKEFELLER PLAZA STREET 2: 63RD FL CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2126326000 MAIL ADDRESS: STREET 1: 30 ROCKEFELLER PLAZA STREET 2: 63RD FL CITY: NEW YORK STATE: NY ZIP: 10020 SC 13D/A 1 0001.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- SCHEDULE 13D INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (AMENDMENT NO. 12) ---------- ARV ASSISTED LIVING, INC. (Name of Issuer) COMMON STOCK, PAR VALUE $0.01 PER SHARE 00204C107 - -------------------------------------------------------------------------------- (Title of class of securities) (CUSIP number) MARJORIE L. REIFENBERG, ESQ. RAYMOND O. GIETZ, ESQ. LAZARD FRERES REAL ESTATE INVESTORS L.L.C. WEIL, GOTSHAL & MANGES LLP 30 ROCKEFELLER PLAZA 767 FIFTH AVENUE NEW YORK, NEW YORK 10020 NEW YORK, NEW YORK 10153 (212) 632-6000 (212) 310-8000 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) NOT APPLICABLE - -------------------------------------------------------------------------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [_]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Continued on following pages Page 1 of __ pages ================================================================================ NY2:\1016479\03\LSBJ03!.DOC\58120.0003
- ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 2 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Prometheus Assisted Living LLC I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - ----------------------- ----- ---------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ----- ---------------------------------------------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 7,595,069 shares of Common Stock OWNED BY ----- ---------------------------------------------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ----- ---------------------------------------------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 43.5% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: OO - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 2 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 3 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: LF Strategic Realty Investors II L.P. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO, BK - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - ---------------------- ------ ---------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ------ ---------------------------------------------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 8,345,069 shares of Common Stock OWNED BY ------ ---------------------------------------------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ------ ---------------------------------------------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 45.8% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: PN - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 3 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 4 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: LFSRI II Alternative Partnership L.P. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO, BK - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - ----------------------- ----- ---------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ----- ---------------------------------------------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 7,595,069 shares of Common Stock OWNED BY ----- ---------------------------------------------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ----- ---------------------------------------------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 43.5% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: PN - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 4 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 5 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: LFSRI II - CADIM Alternative Partnership L.P. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO, BK - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - -------------------------- ------- ----------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ------- ----------------------------------------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 7,595,069 shares of Common Stock OWNED BY ------- ----------------------------------------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ------- ----------------------------------------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 7,595,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 43.5% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: PN - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 5 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 6 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Lazard Freres Real Estate Investors L.L.C. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO, BK - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: New York - -------------------------- ------ ------------------------------------------------------------------------------------------------ NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ------ ------------------------------------------------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER: 8,345,069 shares of Common Stock OWNED BY ------ ------------------------------------------------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ------ ------------------------------------------------------------------------------------------------ PERSON WITH 10 SHARED DISPOSITIVE POWER: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 45.8% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: OO - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 6 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 7 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Lazard Freres & Co. LLC I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO, BK - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: New York - -------------------------- ------ ------------------------------------------------------------------------------------------------ NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ------ ------------------------------------------------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER: 8,345,069 shares of Common Stock OWNED BY ------ ------------------------------------------------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ------ ------------------------------------------------------------------------------------------------ PERSON WITH 10 SHARED DISPOSITIVE POWER: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 8,345,069 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 45.8% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: OO - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT! 7 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP No. 00204C107 13D Page 8 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ------------------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: LFSRI II Assisted Living LLC I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [_] (B) [X] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: OO - -------------- ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - -------------------------- ------ ------------------------------------------------------------------------------------------------ NUMBER OF 7 SOLE VOTING POWER: - 0 - SHARES ------ ------------------------------------------------------------------------------------------------ BENEFICIALLY 8 SHARED VOTING POWER: 750,000 shares of Common Stock OWNED BY ------ ------------------------------------------------------------------------------------------------ EACH 9 SOLE DISPOSITIVE POWER: - 0 - REPORTING ------ ------------------------------------------------------------------------------------------------ PERSON WITH 10 SHARED DISPOSITIVE POWER: 750,000 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 750,000 shares of Common Stock - -------------- ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 4.1% - -------------- ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: OO - -------------- ------------------------------------------------------------------------------------------------------------------- SEE INSTRUCTIONS BEFORE FILLING OUT!
8 This Amendment No. 12 to Schedule 13D (the "Amendment") is filed by Prometheus Assisted Living LLC, a Delaware limited liability company ("Prometheus"), LF Strategic Realty Investors II L.P., a Delaware limited partnership ("LFSRI"), LFSRI II Alternative Partnership L.P., a Delaware limited partnership ("LFSRI II AP"), LFSRI II-CADIM Alternative Partnership L.P., a Delaware limited partnersip ("LFSRI CADIM"), Lazard Freres Real Estate Investors L.L.C., a New York limited liability company ("LFREI"), Lazard Freres & Co. LLC, a New York limited liability company ("Lazard") and LFSRI II Assisted Living LLC, a Delaware limited liability company ("LFSRI II AL", and together with Prometheus, LFSRI, LFSRI II AP, LFSRI CADIM , LFREI and Lazard, the "Reporting Persons"). Capitalized terms used herein but not defined shall have the meanings ascribed thereto in the Schedule 13D, as amended, originally filed by Prometheus and LFREI on July 23, 1997 (as amended, the "Initial Schedule 13D"). The Initial Schedule 13D is hereby amended as follows: ITEM 2. IDENTITY AND BACKGROUND. (a), (b), (c) and (f). Schedule 1, setting forth the name, business address, principal occupation or employment, and citizenship of each of the members of the management committee of Lazard, is amended and restated in its entirety as Schedule 1 hereto and is incorporated by reference herein. Schedule 3, setting forth the name, business address, principal occupation or employment, and citizenship of each of the members of the Executive Committee of Lazard Strategic Coordination Company ("LSCC"), is amended and restated in its entirety as Schedule 3 hereto and is incorporated by reference herein. (d) and (e). During the last five years, to the best knowledge of the Reporting Persons, none of the individuals listed on Schedules 1 or 3 of this Amendment has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) nor has any such person been a party to any civil proceeding of a judicial or administrative body of competent jurisdiction, and is or was, as a result of such proceeding, subject to a judgment, decree or final order enjoining future violations, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. ITEM 6. COVENANTS, AMENDMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Pursuant to an Amended and Restated Loan Agreement, dated as of February 8, 2001, by and between Capital Trust, Inc. ("Capital Trust"), LFSRI II SPV REIT Corp. ("SPV"), and Senior Quarters Funding Corp. ("SQFC") (the "Amended Loan Agreement") and related documents, Capital Trust agreed to loan an aggregate of $110 million to SPV and SQFC (inclusive of amounts previously loaned by Capital Trust to SPV, which remained outstanding on February 8, 2001). Pursuant to a Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust and Prometheus (the "ARV Stock Pledge and Security Agreement"), Prometheus pledged all of its shares of Common Stock to Capital Trust as security for the repayment of the borrowings of SPV and SQFC under the Amended Loan Agreement (including amounts previously borrowed 9 by SPV from Capital Trust, which remained outstanding on February 8, 2001). Pursuant to a Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust and LFSRI II AL (the "ARV Warrant Pledge and Security Agreement"), LFSRI II AL pledged all of its warrant to purchase Common Stock to Capital Trust as security for the repayment of the borrowings of SPV and SQFC under the Amended Loan Agreement (including amounts previously borrowed by SPV from Capital Trust, which remained outstanding on February 8, 2001). Pursuant to a Pledge and Security Agreement dated as of February 8, 2001, by and between Capital Trust, LFSRI, LFSRI II AP, LFSRI CADIM, Prometheus, Prometheus Homebuilders LLC, LFSRI II AL, and Prometheus Senior Quarters LLC (the "Prometheus Pledge and Security Agreement"), LFSRI, LFSRI II AP and LFSRI CADIM pledged the entire equity interest in Prometheus and LFSRI II AL to Capital Trust as security for the repayment of the borrowings of SPV and SQFC under the Amended Loan Agreement (including amounts previously borrowed by SPV from Capital Trust, which remained outstanding on February 8, 2001). Additionally, pursuant to the Amended Loan Agreement and related documents, any distributions in respect of the pledged collateral are to be deposited into a deposit account with The Chase Manhattan Bank, N.A. for the benefit of Midland Loan Services, Inc. as agent for Capital Trust. The Amended Loan Agreement, the ARV Stock Pledge and Security Agreement, the ARV Warrant Pledge and Security Agreement, and the Prometheus Pledge and Security Agreement generally restrict Prometheus and LFSRI II AL from selling or otherwise transferring the Common Stock or the warrants to purchase Common Stock, without the approval of Capital Trust, unless the proceeds from such sale are used to prepay indebtedness under the Amended Loan Agreement. The foregoing descriptions of the Amended Loan Agreement, the ARV Stock Pledge and Security Agreement, the ARV Warrant Pledge and Security Agreement, and the Prometheus Pledge and Security Agreement are not intended to be complete and are therefore qualified in their entirety by the agreements themselves, which are attached hereto as exhibits and incorporated herein by reference. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Amended and Restated Loan Agreement, dated as of February 8, 2001, by and between Capital Trust, Inc., LFSRI II SPV REIT Corp., and Senior Quarters Funding Corp. Exhibit 2 Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust, Inc. and Prometheus Assisted Living LLC 10 Exhibit 3 Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust, Inc. and LFSRI II Assisted Living LLC Exhibit 4 Pledge and Security Agreement, dated as of February 8, 2001, by and between Capital Trust, Inc., LF Strategic Realty Investors II L.P., LFSRI II Alternative Partnership L.P., LFSRI II-CADIM Alternative Partnership L.P., Prometheus Assisted Living LLC, Prometheus Homebuilders LLC, LFSRI II Assisted Living LLC, and Prometheus Senior Quarters LLC 11 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 22, 2001 PROMETHEUS ASSISTED LIVING LLC By LF Strategic Realty Investors II L.P., its managing member, by Lazard Freres Real Estate Investors L.L.C., its general partner, by John A. Moore --------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer LF STRATEGIC REALTY INVESTORS II L.P. By Lazard Freres Real Estate Investors L.L.C., its general partner, by John A. Moore --------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer LFSRI II ALTERNATIVE PARTNERSHIP L.P. By Lazard Freres Real Estate Investors L.L.C., its general partner, by John A. Moore ---------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer 12 LFSRI II-CADIM ALTERNATIVE PARTNERSHIP L.P. By Lazard Freres Real Estate Investors L.L.C., its general partner, by John A. Moore -------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer LAZARD FRERES REAL ESTATE INVESTORS L.L.C. by John A. Moore -------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer LAZARD FRERES & CO. LLC by Scott D. Hoffman -------------------------- Name: Scott D. Hoffman Title: Managing Director LFSRI II ASSISTED LIVING LLC By LF Strategic Realty Investors II L.P., its managing member, by Lazard Freres Real Estate Investors L.L.C. its general partner, by John A. Moore ------------------------- Name: John A. Moore Title: Principal & Chief Financial Officer 13 SCHEDULE 1 Set forth below are the names of each of the members of the management committee of Lazard Freres & Co. LLC. Except as otherwise indicated, the principal occupation of each such person is managing director of Lazard Freres & Co. LLC, the business address of each such person is 30 Rockefeller Plaza, New York, New York 10020 and each person is a citizen of the United States. Business Address and Principal Occupation Name (if other than as indicated above) Citizenship - ---- ---------------------------------- ----------- Michel A. David-Weill Chairman of Lazard LLC and Lazard Freres & France Co. LLC Norman Eig Steven J. Golub Herbert W. Gullquist Kenneth M. Jacobs William R. Loomis, Jr. Chief Executive Officer of Lazard Freres & Co. LLC and Lazard LLC David L. Tashjian 14 SCHEDULE 3 Executive Committee of Lazard Strategic Coordination Company LLC Set forth below are the members of the Executive Committee of Lazard Strategic Coordination Company LLC, their business address, principal occupation and citizenship: Principal Occupation Name and Business Address Citizenship - ---- -------------------- ----------- Michel A. David-Weill Chairman of Lazard LLC and France Lazard Freres & Co. LLC Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10020, USA Gerardo Braggiotti Managing Director of Lazard Freres S.A.S. Italy and Lazard Freres & Co. LLC Lazard Freres S.A.S. 121 Boulevard Haussmann 75382 Paris Cedex 08 France Norman Eig Managing Director USA of Lazard Freres & Co. LLC Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10020 Kenneth M. Jacobs Managing Director USA of Lazard Freres & Co. LLC Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10020 William R. Loomis, Jr. Chief Executive Officer and USA Managing Director of Lazard Freres & Co. LLC and Chief Executive Officer of Lazard LLC Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, NY 10020 15 Principal Occupation Name and Business Address Citizenship - ---- -------------------- ----------- Georges Ralli Managing Director of Lazard Freres S.A.S. France Lazard Freres S.A.S. 121 Boulevard Haussmann 75382 Paris Cedex 08 France Bruno M. Roger Managing Director of Lazard Freres S.A.S. France Lazard Freres S.A.S. 121 Boulevard Haussmann 75382 Paris Cedex 08 France William J. Rucker Managing Director of Lazard Brothers United & Co., Limited Kingdom Lazard Brothers & Co., Limited 21 Moorfields London EC2P 2HT United Kingdom David L. Tashjian Managing Director of Lazard Freres USA & Co. LLC Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, New York 10020 David J. Verey Chairman, Chief Executive, Managing United Director and Executive Director of Kingdom Lazard Brothers & Co., Limited Lazard Brothers & Co., Limited 21 Moorfields London EC2P 2HT United Kingdom
16 EXHIBIT INDEX ------------- Exhibit No. - ----------- Exhibit 1 Amended and Restated Loan Agreement, dated as of February 8, 2001, by and between Capital Trust, Inc., LFSRI II SPV REIT Corp., and Senior Quarters Funding Corp. Exhibit 2 Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust, Inc. and Prometheus Assisted Living LLC Exhibit 3 Pledge and Security Agreement, dated as of February 8, 2001, by and among Capital Trust, Inc. and LFSRI II Assisted Living LLC Exhibit 4 Pledge and Security Agreement, dated as of February 8, 2001, by and between Capital Trust, Inc., LF Strategic Realty Investors II L.P., LFSRI II Alternative Partnership L.P., LFSRI II-CADIM Alternative Partnership L.P., Prometheus Assisted Living LLC, Prometheus Homebuilders LLC, LFSRI II Assisted Living LLC, and Prometheus Senior Quarters LLC 17 EX-99 2 0002.txt EXHIBIT 1 Exhibit 1 --------- AMENDED AND RESTATED LOAN AGREEMENT Dated as of February 8, 2001 by and between LFSRI II SPV REIT CORP. and SENIOR QUARTERS FUNDING CORP. collectively, (as Borrower) and CAPITAL TRUST, INC. (as Lender) 58120.0003 TABLE OF CONTENTS
PAGE Article I CERTAIN DEFINITIONS..................................................................................2 Section 1.1. Definitions.............................................................................2 Article II GENERAL TERMS.......................................................................................20 Section 2.1. Loan Advances..........................................................................20 Section 2.2. Use of Proceeds........................................................................23 Section 2.3. Security for the Loan..................................................................23 Section 2.4. Notes..................................................................................23 Section 2.5. Principal and Interest Payments........................................................23 Section 2.6. Prepayments............................................................................25 Section 2.7. Application of Payments................................................................26 Section 2.8. Payment of Debt Service, Method and Place of Payment...................................26 Section 2.9. Taxes..................................................................................27 Section 2.10. Exit Fee...............................................................................27 Section 2.11. Servicing Fee..........................................................................27 Article III CONDITIONS PRECEDENT AND THE ACCOUNTS...............................................................27 Section 3.1. Conditions Precedent to the Making of the Loan.........................................27 Section 3.2. Form of Loan Documents and Related Matters.............................................31 Section 3.3. The Accounts...........................................................................31 Section 3.4. Investment and Control of Accounts.....................................................31 Article IV REPRESENTATIONS AND WARRANTIES......................................................................32 Section 4.1. Representations and Warranties of Borrower.............................................32 Section 4.2. Survival of Representations and Warranties.............................................37 Article V AFFIRMATIVE COVENANTS...............................................................................37 Section 5.1. Borrower Covenants.....................................................................37 Article VI NEGATIVE COVENANTS..................................................................................46 Section 6.1. Borrower Negative Covenants............................................................46 Article VII DEFAULTS............................................................................................48 Section 7.1. Event of Default.......................................................................48 Section 7.2. Remedies...............................................................................51 Section 7.3. Remedies Cumulative....................................................................51 i Section 7.4. Lender's Right to Perform..............................................................52 Article VIII MISCELLANEOUS.......................................................................................52 Section 8.1. Survival...............................................................................52 Section 8.2. Lender's Discretion....................................................................52 Section 8.3. Governing Law..........................................................................53 Section 8.4. Modification, Waiver in Writing........................................................54 Section 8.5. Delay Not a Waiver.....................................................................54 Section 8.6. Notices................................................................................54 Section 8.7. TRIAL BY JURY..........................................................................55 Section 8.8. Headings...............................................................................55 Section 8.9. Assignment.............................................................................55 Section 8.10. Severability...........................................................................55 Section 8.11. Preferences............................................................................55 Section 8.12. Waiver of Notice.......................................................................56 Section 8.13. Remedies of Borrower...................................................................56 Section 8.14. Full Recourse..........................................................................56 Section 8.15. Fortress Pledge........................................................................56 Section 8.16. Exhibits Incorporated..................................................................56 Section 8.17. Offsets, Counterclaims and Defenses....................................................56 Section 8.18. No Joint Venture or Partnership........................................................57 Section 8.19. Waiver of Marshalling of Assets Defense................................................57 Section 8.20. Waiver of Counterclaim.................................................................57 Section 8.21. Conflict; Construction of Documents....................................................57 Section 8.22. Brokers and Financial Advisors.........................................................57 Section 8.23. Counterparts...........................................................................58 Section 8.24. Payment of Expenses....................................................................58 Section 8.25. Bankruptcy Waiver......................................................................58 Section 8.26. Entire Agreement.......................................................................59 Section 8.27. Dissemination of Information...........................................................59 Section 8.28. Limitation of Interest.................................................................59 Section 8.29. Indemnification........................................................................60 ii Section 8.30. Borrower Acknowledgments...............................................................62 Section 8.31. Publicity..............................................................................63 Section 8.32. Cross Collateralization................................................................63 Section 8.33. Release................................................................................63 Section 8.34. Assignment by Lender; Participations; Securitization...................................63 Section 8.35. Not a Novation.........................................................................66 Section 8.36. Joint and Several Liability of Borrower; Assumption by New Borrower....................66 Section 8.37. Interpretation of Documents............................................................67
EXHIBIT A - PERMITTED INDEBTEDNESS EXHIBIT B - SCHEDULE OF AMORTIZATION SCHEDULE I - Original Pledge Agreements SCHEDULE II - Original Collateral Assignment SCHEDULE III - Post-Closing Covenants SCHEDULE IV - New Pledge Agreements iii AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT, made as of February 8, 2001, is by and between CAPITAL TRUST, INC., a Maryland corporation, having an address at 410 Park Avenue, New York, New York 10022, Attention: Loan Administrator, Telefax Number (212) 655-0044 (together with its successors and assigns, "Lender"), LFSRI II SPV REIT CORP., a Delaware corporation with an address at c/o Lazard Freres Real Estate Investors L.L.C., 30 Rockefeller Plaza, 50th Floor, New York, NY 10020 Attention: General Counsel, Telefax Number: (212) 332-1793 ("Original Borrower"), and SENIOR QUARTERS FUNDING CORP., a Delaware corporation having the same address as the Original Borrower ("New Borrower"; New Borrower and Original Borrower are hereinafter individually and collectively referred to as "Borrower"). RECITALS A. Lender and Original Borrower entered into a Loan Agreement, dated as of June 30, 1999 (the "Original Loan Agreement") pursuant to which Lender made a loan (the "Original Loan") to the Original Borrower in the initial principal amount of $52,500,000. B. The Original Loan is evidenced by a Note in the original principal amount of $52,500,000 dated June 30, 1999 (the "Original Note") made by Original Borrower to Lender, which is guaranteed under certain circumstances by a Guaranty dated as of June 30, 1999 (the "Original Guaranty") made by LF Strategic Realty Investors II L.P., LFSRI II-CADIM Alternative Partnership L.P. and LFSRI II Alternative Partnership L.P. in favor of Lender, and secured by, among other things, a Deposit and Security Agreement dated as of June 30, 1999 (the "Original Deposit Agreement") by and among Lender, Original Borrower and the other parties signatory thereto, a Custodial Agreement dated as of June 30, 1999 (the "Original Custodial Agreement") by and among Lender, Original Borrower and the other parties signatory thereto, and the Pledge and Security Agreements listed on Schedule I attached hereto (the "Original Pledge Agreements"). C. Lender and Original Borrower entered into an Omnibus Amendment, dated as of April 24, 2000 (the "First Amendment"), whereby the Original Loan Agreement, the Original Note, the Original Guaranty, the Original Deposit Agreement, and the Original Pledge Agreements were amended to reflect, among other things, an increase in the principal amount of the Original Loan by an additional $10,000,000 (the "Increased Original Loan"), such that the entire outstanding principal balance of the Increased Original Loan was $58,500,000 on the date of the First Amendment. The First Amendment included the provision to Lender on behalf of the Original Borrower of certain additional collateral pursuant to the Collateral Assignment listed on Schedule II attached hereto (the "Original Collateral Assignment"). The Increased Original Loan was evidenced by the Original Note and a certain Note, dated April 24, 2000, from the Original Borrower to the Lender in the original principal amount of $10,000,000 (the "First Additional Note"). As of the date hereof, the outstanding principal balances of the Original Note and the First Additional Note are $36,250,000 and $10,000,000, respectively. D. At the request of the Borrower, the Lender has agreed to increase the Increased Original Loan by the additional principal amount of $63,750,000 (the "New Loan Amount") and to make certain other amendments to the Original Loan Agreement (as amended by the First Amendment) and the related loan documents, subject to the terms and conditions contained in this Amended and Restated Loan Agreement. It is the intention of the parties that this Agreement shall amend and restate the Original Loan Agreement (as amended by the First Amendment) in its entirety, effective as of the date hereof, but that such documents shall continue to be effective with respect to all time periods preceding the date hereof. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth in this Agreement, the parties hereby amend and restate the Original Loan Agreement (as amended by the First Amendment) and agree as follows: Article I CERTAIN DEFINITIONS Section 1.1. Definitions. For all purposes of this Agreement: (a) the terms defined in this Article I have the meanings assigned to them in this Article I, and include the plural as well as the singular; (b) all accounting terms have the meanings assigned to them in accordance with GAAP; (c) the words "herein", "hereof", and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, or other subdivision; and (d) the following terms have the following meanings: "AAC III" means American Apartment Communities III, L.P., a Delaware limited partnership. "AAC, Inc." means American Apartment Communities III, Inc., a Maryland corporation which is a REIT. 2 "AACDFK Entities" means any of ARV, Atria, Cliveden, the Destination Entities, Fortress and Kapson. "Accounts" has the meaning set forth in Section 3.4. "Acknowledgment" means the Acknowledgment, dated the date hereof, entered into by the Borrower and certain of the members of the Borrower Control Group, and delivered to Lender in connection with this Agreement. "Affiliate" of any specified Person means any Person controlling, controlled by or under common control with such specified Person. For the purposes of this Agreement, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or other beneficial interests, by contract or otherwise; and the terms "controls", "controlling" and "controlled" have the meanings correlative to the foregoing. "Agreement" means this Amended and Restated Loan Agreement, as the same may from time to time hereafter be modified, supplemented or amended. "Amended and Restated Deposit Account Agreement" means that certain Amended and Restated Deposit and Security Agreement entered into among Borrower and certain members of the Borrower Control Group, Lender, Chase and the Servicer, as the same may hereafter be modified, amended or supplemented from time to time. "ARV" means ARV Assisted Living, Inc., a Delaware corporation. "Assignee" has the meaning set forth in Section 8.34.2. "Atria" means Atria, Inc., a Delaware corporation. "Atria Holdings" means Atria Holdings LLC, a Delaware limited liability corporation. "Board Replacement Entities" means any of AAC III, AAC, Inc., the Destination Entities and Cliveden. "Boards" has the meaning set forth in Schedule III. "Borrower" has the meaning provided in the preamble to this Agreement. "Borrower's Certificate" means a certificate of the chief financial officer of the Borrower, in form and substance satisfactory to Lender in Lender's discretion, dated as of the Closing Date. 3 "Borrower Control Group" means each of LFSRI II, LFSRI II Alternative, LFSRI-CADIM, AAC, Inc., Prometheus SE LLC, Prometheus SERT, LSFRI II Assisted, Prometheus Assisted, Prometheus ES, Prometheus Homebuilders, Prometheus Interim, Prometheus UK, Prometheus Senior Quarters, Prometheus SQ Holdings, Atria Holdings, LFSRI SPV, LFSRI II ES. "BT Agreement" means that certain Amended and Restated Credit Agreement dated as of December 2, 1999, among Atria, LFSRI II, LFSRI Alternative, LSFRI-CADIM, Kapson, Hillhaven Properties, Ltd., Atria Stony Brook, LLC, Atrium at Weston Court, LLC, Atria Springdale, LLC, Kapson Tinton Falls Corp., and Bankers Trust Company. "BT Guaranty" means the guaranty made by LFSRI II, LSFRI Alternative and LSFRI-CADIM contained in Article XIII of the BT Agreement. "Business Day" means any day other than (i) a Saturday or a Sunday, and (ii) a day on which federally insured depository institutions in New York are authorized or obligated by law, regulation, governmental decree or executive order to be closed. "Calculation Date" means each date on which a determination of Debt Service Coverage Ratio is made by Lender. "Chase" means The Chase Manhattan Bank. "Chief Financial Officer" means the chief financial officer of a specified Entity. "Claim" has the meaning set forth in Section 8.29. "Cliveden" means Cliveden PLC, a private company organized under the laws of England and Wales. "Closing Date" means February 8, 2001. "Code" or "IRC" means the Internal Revenue Code of 1986, as amended, and as it may be further amended from time to time, any successor statutes thereto, together with applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form. "Collateral" means, collectively, all property of any kind whatsoever of Borrower, including the collateral granted to Lender pursuant to the Pledge Agreements and Collateral Assignment and any collateral described in any Loan Document, and all Proceeds and products of any of the foregoing, all whether now owned or hereafter acquired, and all other property in which Borrower may now or hereafter have an interest. In no event shall any Dividends and Distributions in excess of 50% thereof paid or payable from time to time by 4 PMAIT to Borrower constitute Collateral under this Agreement or any of the Loan Documents. "Collateral Assignment" means the Existing Collateral Assignment. "Contingent Obligation" means any obligation of a Person guaranteeing any indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of Borrower, whether or not contingent: (i) to purchase any such primary obligation, or any property constituting direct or indirect security therefor; (ii) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor; (iii) to purchase property, securities or services primarily for the purpose of assuring the owner or obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (iv) otherwise to assure or hold harmless the owner or obligee under such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum anticipated liability in respect thereof (assuming that the contingently obligated Person is required to perform thereunder) as determined by Lender in good faith. "Convertible Securities" means, with respect to any Entity, any security, right, subscription, warrant, option, "phantom" stock right or other any agreement, instrument, indenture, security agreement or other contract that gives the right to (i) purchase or otherwise receive or be issued any Equity Interests in such Entity or any security of any kind convertible into or exchangeable or exercisable for any Equity Interests in such Entity or (ii) receive or exercise any benefits or rights similar to any rights enjoyed by or accruing to the holder of Equity Interests of such Entity, including any rights to participate in the equity or income of such Entity or to participate in or direct the election of any directors or officers of such Entity or the manner in which any Equity Interests in such Entity are voted. "Cost Exclusions" means, (i) payments due to no more than 150 Persons on account of preferred stock held by such Persons in the applicable member of the Borrower Control Group necessary for REIT qualification, and (ii) income taxes due and payable by the applicable member of the Borrower Control Group or its respective members or partners therein on account of a specified transaction. "Debt Service" means, on any Calculation Date, the amount of interest, Default Rate interest, Late Charges, Exit Fees and the amount of all amortization payments that become due and payable in accordance with the Loan Documents during the Fiscal Quarter in which such Calculation Date occurs, all as determined with respect to the Principal Indebtedness outstanding on such Calculation Date plus, (a) if the determination of Debt Service is made under Section 2.1(b), the amount of any requested advance of the Unfunded Amount, and 5 (b) during any Fiscal Quarter in which no amortization payment is required by this Agreement, $4,500,000. The interest rate to be applied to any calculation of Debt Service shall be (i) the actual Interest Rate applicable to payments of Debt Service made or accrued during the applicable Fiscal Quarter, and (ii) the Interest Rate computed using the LIBOR in effect on the Calculation Date with respect to Debt Service not yet due and payable for the remainder of such Fiscal Quarter. If the calculation of Debt Service is made with respect to the Release Amount, the amount of the Principal Indebtedness used for the purpose of making such calculation shall be reduced by the amount of proceeds from the applicable Transfer to be applied to repay the Loan pursuant to Section 2.6(b). "Debt Service Achievement" means that, on any Calculation Date, the Debt Service Coverage Ratio shall be at least 1.3:1. "Debt Service Coverage Ratio" means, on any Calculation Date, the ratio of Net Cash Flow for the Fiscal Quarter immediately preceding the Fiscal Quarter in which the Calculation Date occurs, to Debt Service for the Fiscal Quarter in which the Calculation Date occurs. "Default" means the occurrence of any event which, but for the giving of notice or the passage of time, or both, would be an Event of Default. "Default Rate" means the per annum interest rate equal to the lesser of (i) the Maximum Amount or (ii) the Interest Rate plus five percent (5%). "Deposit Account" has the meaning set forth in Section 3.3. "Destination Entities" means Destination Europe Limited and Destination Europe USA. "Destination Europe Limited" means Destination Europe Limited, a private company organized under the laws of England and Wales. "Destination Europe USA" means Destination Europe USA, LLC, a Delaware limited liability company. "Determination Date" means with respect to any Interest Accrual Period, the date which is two (2) Eurodollar Business Days before the commencement of such Interest Accrual Period. "Direction Letters" means the direction letters pursuant to which each applicable Operating Company (excluding Cliveden) or member of the Borrower Control Group is directed by the Borrower or the applicable member of the Borrower Control Group to pay directly into the Deposit Account any and all 6 payments of Dividends and Distributions on account of such Borrower's or Borrower Control Group member's interest therein. "Dividends and Distributions" means all cash, securities, dividends, distributions, proceeds and other property at any time paid or payable to a Person on account of its Equity Interest in another Person. "Entity" means a corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association, or any other entity, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing. "Equity Interests" means, with respect to an Entity (i) if such Entity is a limited partnership, partnership interests, associated voting rights and Convertible Securities in such Entity, or (ii) if such Entity is a limited liability company, membership interests (or shares), associated voting rights and Convertible Securities in such Entity, or (iii) if such Entity is a corporation or a business trust, the share or stock interests, associated voting rights and Convertible Securities in such Entity, or (iv) with respect to any other Entity, the ownership interests therein. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and, as of the relevant date, any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" means any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code, of which Borrower is a member, and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code, of which Borrower is a member. "ERISA Investor" means an investor which is an employee benefit plan subject to Part 4 of Title I of ERISA. "Eurodollar Business Day" means a Business Day on which banks in the City of London, England are open for interbank or foreign exchange transactions. "Event of Default" has the meaning set forth in Section 7.1. "Existing Collateral Assignment" means the Original Collateral Assignment, as amended by the Acknowledgment. 7 "Existing Notes" means the Original Note, as amended by the First Amendment and the Acknowledgment, and the First Additional Note, as amended by the Acknowledgment. "Existing Pledge Agreements" means the Original Pledge Agreements, as amended by the First Amendment and by the Acknowledgment. "Exit Fee" means $1,650,000, being an amount equal to one and one-half percent (1.5%) of the Loan Amount. "Extended Maturity Date" has the meaning set forth in Section 2.5(h). "First Additional Note" has the meaning given to such term in the Recitals. "First Amendment" has the meaning given to such term in the Recitals. "Fiscal Quarter" means each 3-month period ending on January 31, April 30, July 31 and October 31 of each year; provided however that for the purposes of Section 5.1(i), the term "fiscal quarter" shall mean each calendar quarter. "Fiscal Year" means the 12-month period ending on January 31 of each year or such other fiscal year of Borrower as Borrower may select from time to time with the prior written consent of Lender, such consent not to be unreasonably withheld or delayed; provided however that for the purposes of Sections 5.1(i) and 5.1(q), the term "Fiscal Year" shall mean each calendar year. "Fortress" means The Fortress Group, Inc., a Delaware corporation. "Fortress Pledge Agreement" means the New Pledge Agreement under which Prometheus Homebuilders pledges to Lender its shares of capital stock in Fortress. "Fund" means the collective reference to LFSRI II, LFSRI II Alternative and LFSRI-CADIM. "GAAP" means generally accepted accounting principles consistently applied in the United States of America as of the applicable date. "Governmental Authority" means any national, federal, state, regional or local government, or any other political subdivision of any of the foregoing, in each case with jurisdiction over the relevant Entity, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty" means the Guaranty of even date herewith from LFSRI II, LFSRI Alternative and LFSRI-CADIM to Lender. 8 "Impositions" means all taxes (including all real estate, ad valorem, sales (including those imposed on lease rentals), use, single business, franchise, income, gross receipts, value added, intangible transaction privilege, privilege, license or similar taxes), assessments, ground rents, water, sewer or other rents and charges, excises, levies, fees (including license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character. "including" means including without limiting the generality of the foregoing. "Increased Original Loan" has the meaning given to such term in the Recitals. "Increased Original Loan Documents" means the Original Note, Original Loan Agreement, Original Pledge Agreements and all other agreements, documents, certificates and instruments evidencing or securing the Original Loan as the same were amended by the First Amendment, together with the First Additional Note, the First Amendment and all other agreements, documents, certificates and instruments evidencing or securing the Increased Original Loan. "Indebtedness" means, at any given time, the Principal Indebtedness, together with all accrued and unpaid interest, including Default Interest, Late Charges and Exit Fees thereon and all other monetary obligations due to Lender pursuant hereto, under the Notes or in accordance with any of the other Loan Documents, and all other amounts, sums and expenses paid by or payable to Lender which Borrower is obligated to pay hereunder or pursuant to the Notes or any of the other Loan Documents at such time. "Indemnified Party" shall have the meaning set forth in Section 8.29. "Independent Director" means, with respect to a corporation, a duly appointed member of the board of directors of such corporation, reasonably satisfactory to Lender, who shall not have been at the time of such individual's appointment, and may not have been at any time during the five years preceding such appointment, and shall not be at any time while serving as Independent Director: (i) a direct or indirect legal or beneficial owner of, or an officer, director, attorney, counsel, partner, member or employee of, such corporation or any Affiliate thereof, (ii) a customer or creditor of, or supplier or contractor to, or other Person who derives more than 10% of its purchases or revenues from its activities with such corporation or any Affiliate thereof, (iii) a Person controlling, controlled by or under common control with any such direct or indirect legal or beneficial owner, officer, director, attorney, counsel, partner, member, employee, customer, creditor, contractor supplier or other Person, or (iv) a member of the immediate family of any such direct or indirect legal or beneficial owner, officer, director, attorney, counsel, partner, member, employee, customer, creditor, contractor, supplier or other Person. As used in this definition, the term "control" means 9 the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or activities or a person or entity, whether through ownership of voting securities or other beneficial interest, by contract or otherwise and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, a director designated in the ordinary course of the provision of services by Corporation Trust Company, Inc. or a similar corporate service Entity shall be deemed an Independent Director. "Initial Advance" shall have the meaning set forth in Section 2.1. "Instruments" means all instruments, chattel paper, documents or other writings evidencing a right to payment, including all notes, drafts, acceptances, documents of title, guarantees and securities, now or hereafter received. "Instruments" shall include the meaning given to such term in the UCC. "Interest Accrual Period" means each period of time commencing with and including the first (1st) day of a calendar month to and including the last day of such calendar month during the term of the Loan. If the Closing Date shall occur on a date other than the first day of a calendar month, the first Interest Accrual Period shall commence on and include the Closing Date and end on and include the last day of the calendar month in which the Closing Date occurs. If the Closing Date shall occur on the last day of a calendar month, the first Interest Accrual Period shall consist of a one (1) day period consisting of the Closing Date. "Interest Rate" means, for any Interest Accrual Period, a per annum interest rate equal to LIBOR plus six and one-half percent (6-1/2%), adjusted on the first day of each Interest Accrual Period. "Intown" means Intown Holding Company, LLC, a Delaware limited liability company. "Intown Agreement" means the Amended and Restated Limited Liability Company Agreement, dated as of November 13, 1998, of Intown, as amended by the First Amendment, dated as of October 23, 2000, and by the Second Amendment, dated as of the date hereof. "Investor" has the meaning provided in Section 8.27. "Kapson" means Kapson Senior Quarters Corp., a Delaware corporation. "KPT" means Konover Property Trust, Inc., a Maryland corporation. "Late Charge" means the lesser of (i) five percent (5%) of any amount due but unpaid and (ii) the maximum late charge permitted to be charged under the laws of the State of New York. 10 "Lazard Freres REI" means Lazard Freres Real Estate Investors L.L.C., a New York limited liability company which is the general partner of each of LFSRI II, LFSRI II Alternative, and LFSRI-CADIM. "Legal Requirements" means all statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, the Loan Documents, the Collateral or any part thereof, enacted or entered and in force as of the relevant date, and all permits and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower at any time in force affecting the Collateral or any part thereof. "Lender" has the meaning provided in the preamble to this Agreement. "LFSRI-CADIM" means LFSRI II-CADIM Alternative Partnership L.P., a Delaware limited partnership. "LFSRI II" means LF Strategic Realty Investors II L.P., a Delaware limited partnership. "LFSRI II Alternative" means LFSRI II Alternative Partnership L.P., a Delaware limited partnership. "LFSRI II Assisted" means LSFRI II Assisted Living LLC, a Delaware limited liability company. "LFSRI II ES" means LFSRI II Extended Stay L.L.C., a Delaware limited liability company. "LFSRI SPV" means LFSRI II SPV E.S. Corp., a Delaware corporation. "Liabilities" has the meaning set forth in Section 8.34.3. "LIBOR" means with respect to each Interest Accrual Period, the rate (expressed as a percentage per annum, rounded to the nearest 100th) for deposits in U.S. dollars for a one-month period that appears on Telerate Page 3750 (or the successor thereto) as of approximately 11:00 a.m., London, England time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of approximately 11:00 a.m., London, England time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen LIBOR Page as of approximately 11:00 a.m., London, England time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen LIBOR Page as of approximately 11:00 a.m., London, England time, on such Determination Date, Lender shall request the principal London, England office of any four major reference banks in the London interbank market selected by Lender to provide such bank's offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U. S. Dollars for a one-month period as of approximately 11:00 a.m., London, England time, on such Determination Date for amounts of not less than 11 One Million U.S. Dollars (U.S. $1,000,000.00). If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender shall request any three major banks in New York City selected by Lender to provide such bank's rate (expressed as a percentage per annum) for loans in U.S. Dollars to leading European banks for a one month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than One Million U.S. Dollars (U.S. $1,000,000.00). If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. If fewer than two rates are so provided, then LIBOR for the applicable Interest Accrual Period shall be LIBOR that was in effect for the next preceding Interest Accrual Period. LIBOR shall be determined by Lender or its agent in accordance with this definition. "Lien" means any mortgage, deed of trust, deed to secure debt, lien (statutory or other), pledge, easement, restrictive covenant, hypothecation, assignment, preference, priority, security interest, or any other encumbrance or charge, or any interest in any of the foregoing, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement or similar instrument under the UCC or comparable law of any other jurisdiction, domestic or foreign, and mechanic's, materialmen's and other similar liens and encumbrances. "Loan" means the Increased Original Loan, as increased by the New Loan Amount. "Loan Amount" means $110,000,000. "Loan Documents" means, collectively, this Agreement, the Notes, the Pledge Agreements, the Collateral Assignment, the Amended and Restated Deposit Account Agreement, the Guaranty and all other agreements, instruments, certificates and documents executed and delivered by or on behalf of Borrower or any other Person to evidence or secure the Loan or otherwise in satisfaction of the requirements of this Agreement, or the other documents listed above, as each such agreement, instrument, certificate or document may be amended, supplemented or modified from time to time. "Material Adverse Condition" means the occurrence, after the date of this Agreement or, if earlier, the date of the financial statements most recently furnished to Lender (as the same may have been supplemented in writing) with respect to a specified Person, of (i) a material adverse change in the business or the financial condition or results of operations of a specified Person, (ii) a material adverse change in the ability of a specified Person to make any payment payable by such Person under or to perform any or all of such 12 Person's other material obligations under this Agreement or any of the other Loan Documents, (iii) a condition or circumstance resulting in or causing any material adverse effect on the legality, validity or enforceability of any of the Loan Documents or Lender's ability to enforce any of its rights under the Loan Documents, or (iv) a condition or circumstance resulting in or causing any material adverse effect on the Lien and security interest of Lender in, or the value of, the Collateral. "Maturity Date" means January 31, 2004, or such earlier date resulting from acceleration of the Indebtedness by Lender. "Maximum Amount" means the maximum rate of interest designated by applicable laws relating to payment of interest and usury. "Monthly Interest Payment Amount" means, with respect to any Payment Date, an amount equal to all accrued and unpaid interest on the Loan as of the end of the immediately preceding Interest Accrual Period. "Monthly Payment Amount" means, with respect to any Payment Date, an amount equal to all accrued and unpaid interest on the Loan as of the end of the immediately preceding Interest Accrual Period plus, the aggregate amortization payments due and payable under the Notes on such Payment Date in accordance with the amortization schedule attached hereto as Exhibit B. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a Multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Net Cash Flow" means the aggregate amount of ordinary dividends (but excluding dividends constituting extraordinary dividends, that is, dividends resulting from capital transactions and other non-recurring events) paid by AAC III to AAC Inc., by PMAIT to Original Borrower, by KPT to Prometheus SERT and by Intown to Prometheus ES during any Fiscal Quarter; provided, that, (i) with respect to dividends paid by Intown, ordinary dividends in the amounts of $3,442,951 and $3,529,025, respectively, shall be deemed to have been paid to Prometheus ES on March 31, 2001 and June 30, 2001, respectively, if such amounts were deemed to have been contributed to Intown on or before such dates pursuant to Sections 4.3(b)(ii)(A) and 5.1(a) of the Intown Agreement, and (ii) to the extent any of AAC III, Rubenstein, PMAIT, KPT or Intown declares a reduction in future dividends, the actual amount of dividends paid to the applicable member of the Borrower Control Group for the Fiscal Quarter preceding such declaration shall be deemed reduced by such member of the Borrower Control Group's proportionate share of the declared reduction in dividends. 13 "New Borrower" has the meaning provided in the preamble to this Agreement. "New Loan Amount" has the meaning given to such term in the Recitals. "New Pledge Agreements" means Pledge Agreements, dated as of the date hereof, delivered by Borrower and its Affiliates in favor of Lender, pursuant to Section 3.1 of this Agreement, and the additional pledge agreements to be delivered to Lender from time to time in accordance with Sections 2.1, 2.2, 5.1(o) and 6.1(i) of this Agreement, as the same may be hereafter modified, amended or supplemented from time to time. "Notes" means the Existing Notes, as amended by the Acknowledgment, and the Second Additional Note. "Officers' Certificate" means a certificate delivered to Lender by Borrower which is signed by a senior executive officer of Borrower. "Operating Company" means each of AAC III, KPT, Intown, PMAIT, Rubenstein, ARV, Fortress, Cliveden, Atria, Kapson, and the Destination Entities. "Original Borrower" has the meaning given to such term in the preamble to this Agreement. "Original Collateral Assignment" has the meaning given to such term in the Recitals. "Original Custodial Agreement" has the meaning given to such term in the Recitals. "Original Loan" has the meaning given to such term in the Recitals. "Original Loan Agreement" has the meaning given to such term in the Recitals. "Original Note" has the meaning given to such term in the Recitals. "Other Borrowings" means, as to a specified Person, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (iv) all indebtedness of such Person secured by a Lien on any property owned by such Person whether or not such indebtedness has been assumed, (v) all Contingent Obligations of such Person, and (vi) all payment obligations of such Person 14 under any interest rate protection agreement (including any interest rate swaps, caps, floors, collars or similar agreements) and similar agreements. "Payment Breach" means the failure of Borrower to pay to Lender on any Payment Date the amount due and owing on such Payment Date pursuant to this Agreement. "Payment Date" means the first (1st) day of each calendar month during the Term of the Loan, and the Maturity Date (or, if applicable, the Extended Maturity Date); provided, however, that for purposes of making payments hereunder and under the Notes, but not for purposes of calculating Interest Accrual Periods, if the first (1st) day of a given month shall not be a Business Day, then the Payment Date for such month shall be the next succeeding Business Day. "PBGC" means the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto. "Permitted Indebtedness" means the debt and other obligations described on Exhibit A hereto. "Permitted Investments" shall mean the following; provided, however, that any such investment shall mature not later than the Business Day preceding the next Payment Date following the date of acquisition thereof: (a) obligations of, or obligations guaranteed as to principal and interest by, the United States government or any agency or instrumentality thereof, provided such obligations are backed by the full faith and credit of the United States of America; (b) Federal Housing Administration debentures; (c) Federal Home Loan Mortgage Corp. Debt obligations, Farm Credit System Consolidated system-wide bonds and notes, Federal Home Loan Banks Consolidated Debt obligations, Federal National Mortgage Association Debt obligations, Student Loan Marketing Association Debt obligations, Finance Corp. debt obligations and Resolution Funding Corp. ("REFCORP") debt obligations; (d) federal funds, unsecured certificates of deposit, time or demand deposits, banker's acceptances and repurchase agreements having maturities of not more than three hundred sixty-five (365) days, of any bank, the short-term debt obligations of which are rated "A" or better by S&P and "A" or better by Moody's; (e) deposits that are fully insured by the Federal Deposit Insurance Corp. ("FDIC"); 15 (f) debt obligations maturing in three hundred sixty-five (365) days or less that are rated "A" or higher by S&P and "A" or higher by Moody's; (g) commercial paper rated "A-1" by S&P and "P-1" by Moody's and maturing in 365 days or less; (h) investment in money market funds having assets equal to at least $750,000,000 rated "Am" or "Am-G" by S&P and "A" by Moody's; or (i) principal-only strips and interest-only strips of noncallable obligations issued by the U.S. Treasury, and REFCORP securities stripped by Federal Reserve Bank of New York; provided, however, that all instruments described above in clauses (a), (c), (d), (e), (f) and (g) shall not have an "r" highlighter affixed to their rating and by its terms should have a predetermined fixed dollar amount or principal due at maturity that cannot vary or change. Interest may either be fixed or variable and should be tied to a single interest rate index plus a single fixed spread (if any), and move proportionally with that index. "Permitted Transfer" means any Transfer among the members of the Borrower Control Group whether by merger, operation of law or otherwise. "Person" means any individual or Entity. "Plan" means an employee benefit or other plan established or maintained by Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Plan Assets Regulation" means the plan assets regulation issued by the U.S. Department of Labor, 29 C.F.R. Section 2510.3-101, November 13, 1986. "Pledge Agreements" means the Existing Pledge Agreements and the New Pledge Agreements. "PMAIT" means Prometheus Mid-Atlantic Investment Trust, a Maryland real estate investment trust. "Principal Indebtedness" means the principal amount of the Loan outstanding from time to time. "Proceeds" means all "proceeds," as such term is defined in the UCC, and, to the extent not included in such definition, all proceeds whether cash or non-cash, movable or immovable, tangible or intangible (including Insurance proceeds, condemnation proceeds and proceeds of proceeds), from the Collateral, including, without limitation, those from the sale, refinancing, exchange, transfer, collection, loss, damage, disposition, 16 substitution or replacement of any of the Collateral and all income, gain, credit, distributions and similar items from or with respect to the Collateral. "Prometheus Assisted" means Prometheus Assisted Living LLC, a Delaware limited liability company. "Prometheus ES" means Prometheus Extended Stay LLC, a Delaware limited liability company. "Prometheus Homebuilders" means Prometheus Homebuilders LLC, a Delaware limited liability company. "Prometheus Interim" means Prometheus SQ Interim Corp., a Delaware corporation. "Prometheus SE LLC" means Prometheus Southeast Retail LLC, a Delaware limited liability company. "Prometheus Senior Quarters" means Prometheus Senior Quarters LLC, a Delaware limited liability company. "Prometheus SERT" means Prometheus Southeast Retail Trust, a Maryland real estate investment trust. "Prometheus SQ Holdings" means Prometheus SQ Holdings Corp., a Delaware corporation. "Prometheus UK" means Prometheus UK Hospitality LLC, a Delaware limited liability company. "Rating Agencies" means Fitch Investors Services, Inc., Moody's, Duff & Phelps Credit Rating Co. and S&P or any successor to any thereof, and any other nationally recognized statistical rating organization to the extent that any of the foregoing have been or will be engaged by Lender or its designees in connection with or in anticipation of a Securitization (each individually, a "Rating Agency"). "REIT" means an entity which qualifies as a real estate investment trust under the provisions of Sections 856 through 860 of the IRC or the corresponding provisions of any successor statute. "Release Amount" means all amounts paid or to be paid to Borrower or to any member of the Borrower Control Group in connection with a Transfer contemplated under Section 2.6(b), less (i) payments due to no more than 150 Persons on account of preferred stock held by such Persons in the applicable member of the Borrower Control Group necessary for REIT qualification, (ii) income taxes due and payable by such member of the Borrower 17 Control Group or its respective members or partners therein as a result of such Transfer, and (iii) the reasonable and customary costs and expenses of any such Transfer (including reasonable attorneys' fees and costs, commercially reasonable brokerage commissions and transfer taxes) as shall be reasonably approved by the Lender; provided, that, if the Transfer directly or indirectly involves any of AAC III, AAC Inc., PMAIT, Rubenstein, KPT or Intown, the Release Amount shall be increased to the extent necessary to maintain Debt Service Achievement based on the Net Cash Flow of the remaining Entities specified in the definition of "Net Cash Flow". "Retained Amount Reserve" shall have the meaning given to such term in the Amended and Restated Deposit Account Agreement. "Reuters Screen LIBOR Page" means the display designated as page "LIBOR" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBOR page on the service for the purpose of displaying interbank rates from London in U.S. Dollars). "Rubenstein" means The Rubenstein Company, L.P., a Delaware limited partnership. "Rubenstein Letter of Credit" means the collective reference to (a) the letter of credit required to be delivered to Goldman Sachs Mortgage Company ("GSMC") pursuant to Article IX of the Loan Agreement, dated March 16, 1998, between GSMC and Commerce Square Partners-Philadelphia Plaza, L.P. ("CSPPP"), and (b) the "Mezzanine LC," as such term is defined in the Agreement of Limited Partnership of CSPPP. "Rubenstein Letter of Credit Agreement" means (a) the Amended and Restated Reimbursement Agreement for Standby Letter(s) of Credit, dated as of June 22, 2000, between PMAIT and PNC Bank, National Association, and (b) the Amended and Restated Cash Collateral and Security Agreement, dated as of June 22, 2000, between PMAIT and PNC Bank, National Association. "Rubenstein LOC Reserve" shall have the meaning given to such term in the Amended and Restated Deposit Account Agreement. "Sale Entity" means each of AAC III, AAC Inc., the Destination Entities and Cliveden. "S&P" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. "Second Additional Note" means the promissory note, in form and substance satisfactory to Lender in Lender's discretion, dated the date hereof, made by Borrower to Lender pursuant to this Agreement, as such promissory note may be modified, amended, supplemented, extended or consolidated 18 in writing, and any note(s) issued in exchange therefor or in replacement thereof. "Securities" has the meaning set forth in Section 8.34.3. "Securitization" has the meaning set forth in Section 8.34.3. "Servicer" has the meaning given to such term in the Amended and Restated Deposit Account Agreement. "Servicing Fee" has the meaning set forth in Section 2.11. "Special Purpose Bankruptcy Remote Entity" has the meaning set forth in Section 5.1(n). "Subsidiary" of any Person means any corporation, partnership, limited liability company or other Entity in which such Person holds an Equity Interest constituting more than 50% of the equity classes issued by such Entity. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. Dollar deposits). "Term" means the period from and after June 30, 1999 to and including the first to occur of (x) the Maturity Date or, if applicable, the Extended Maturity Date, or (y) the date the Indebtedness is paid in full. "Transaction Costs" means all fees, costs, expenses and disbursements paid or payable by Borrower relating to the Transactions, including, without limitation, all fees, costs, expenses and disbursements described in Section 8.24. "Transactions" means the transactions contemplated by the Loan Documents. "Transfer" means any conveyance, transfer, pledge, assignment, hypothecation, refinancing, mortgage, encumbrance, gift, sale, lease (including any amendment, extension, modification, waiver or renewal thereof), Lien, or other disposition, whether direct or indirect, legal or beneficial, by law or otherwise. "UCC" means, with respect to any Collateral, the Uniform Commercial Code in effect in the jurisdiction in which the relevant Collateral is located. "Unfunded Loan Amount" has the meaning set forth in Section 2.1. 19 "U.S. Obligations" means obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States or any agency or instrumentality thereof provided such obligations are backed by the full faith and credit of the United States of America including, without limitation, obligations of the U.S. Treasury (all direct or fully guaranteed obligations), the Farmers Home Administration (certificates of beneficial ownership), the General Services Administration (participation certificates), the U.S. Maritime Administration (guaranteed Title XI financing), the Small Business Administration (guaranteed participation certificates and guaranteed pool certificates), the U.S. Department of Housing and Urban Development (local authority bonds) and the Washington Metropolitan Area Transit Authority (guaranteed transit bonds); in each case as selected by Borrower and approved by Lender which approval shall not be unreasonably withheld, provided, however, that the investments described in this definition must (A) have a predetermined fixed dollar of principal due at maturity that cannot vary or change, (B) if rated by S&P, must not have an "r" highlighter affixed to their rating, (C) if such investments have a variable rate of interest, such interest rate must be tied to a single interest rate index plus a fixed spread (if any) and must move proportionately with that index, and (D) such investments must not be subject to liquidation prior to their maturity. "VCOC" means a venture capital operating company as defined in the Plan Assets Regulation. Article II GENERAL TERMS Section 2.1. Loan Advances. (a) On the date hereof, the outstanding principal balance of the Original Note, as amended by the First Amendment, is $36,250,000, and the outstanding principal balance of the First Additional Note is $10,000,000. Lender shall lend to Borrower an additional amount equal to the New Loan Amount, which will be advanced as follows: on the Closing Date or, if later, the date on which Borrower fulfills all conditions precedent to funding, Lender will advance to Borrower $38,750,000 ("Initial Advance") and, at the request of the Borrower made in accordance with and subject to the conditions contained in Section 2.1(b), Lender will advance to Borrower on or before August 1, 2001 in one or more tranches the additional aggregate amount of not more than $25,000,000 ("Unfunded Loan Amount"). (b) Lender's obligation to make advances of all or any portion of the Unfunded Loan Amount following the Initial Advance shall be subject to the conditions that, with respect to each such advance requested: (i) no Default or Event of Default shall have occurred and be continuing; 20 (ii) no Material Adverse Condition shall exist with respect to Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company; provided, that, if a Material Adverse Condition exists solely with respect to one or more AACDFK Entities and one or more members of the Borrower Control Group (excluding the Borrower and the Fund), that own, directly or indirectly, an interest in such AACDFK Entities (as long as the Material Adverse Condition affecting the applicable members of the Borrower Control Group is solely caused by or results solely from the Material Adverse Condition of the subject AACDFK Entities), and all of the other conditions to Lender's obligation to make advances of all or any portion of the Unfunded Loan Amount are satisfied, Lender shall be obligated to fund such subsequent advance as long as none of the proceeds of such advance shall be advanced, contributed or otherwise invested, directly or indirectly, in any Entity as to which a Material Adverse Condition exists at the time of such advance; (iii) Lender shall have received Borrower's written request for each advance not less than 30 nor more than 60 days prior to the requested funding date for such advance, specifying the amount requested, the use of the proceeds attributable to such advance, the new Collateral to be furnished in connection therewith, the Borrower's calculation (with all necessary supporting information) demonstrating the Debt Service Coverage Ratio, and the proposed funding date, and certifying that no Default or Event of Default has occurred and is continuing; (iv) advances shall not be made more often than once in any rolling 30-day period; (v) no advance other than the last such advance shall be in an amount less than $5,000,000; (vi) Lender shall have received payment from Borrower of a fee equal to three quarters of one percent (0.75%) of the amount of such advance; (vii) in the event that subsequent to the Closing Date (x) any member of the Borrower Control Group shall have acquired any direct or indirect Equity Interest in any Entity, or (y) any member of the Borrower Control Group shall have made any loans to any Entity, or (z) any member of the Borrower Control Group shall have purchased or otherwise acquired any property of any Entity, Lender shall have received a perfected, first priority Lien in such interest, loan and property, as created and evidenced by such instruments (including new pledge agreements, Direction Letters, and amendments, if required by Lender, to the Amended and Restated Deposit Account Agreement) as Lender may request, all in form and substance reasonably satisfactory to Lender; provided, however, that the foregoing shall not be deemed to constitute a consent or waiver by Lender (to the extent that such consent is otherwise required by this Agreement or any Loan Document) with respect to any such purchase, acquisition or loan by Borrower or any member of the Borrower Control Group; 21 (viii) the conditions precedent to funding contained in Section 3.1(a)(3), (4), (5), (6), (7), (8), (9), (10) and (11) shall have been fulfilled insofar as Lender shall deem them applicable to any subsequent advance; provided, that, (x) the conditions precedent to funding contained in Section 3.1(a)(3), (4), (5), (6), and (7) shall only be applicable with respect to any new Collateral, and (y) the representations and warranties set forth in the last two sentences of Section 4.1(r) hereto shall not be remade with respect to any of the AACDFK Entities; and (ix) Debt Service Achievement shall be in effect. (c) Notwithstanding anything in this Section 2.1 to the contrary, until such time as (i) either the BT Guaranty is terminated or the loan made by Bankers Trust Company pursuant to the BT Agreement has been extended on terms satisfactory to Lender in Lender's sole and absolute discretion, and (ii) all obligations of Prometheus ES to make capital contributions to Intown have been satisfied, Lender shall have no obligation to advance any portion of the Unfunded Loan Amount except in accordance with the following: fundings of portions of the Unfunded Loan Amount shall be permitted only to the extent that, after giving effect to such advance and the application by Borrower of the proceeds thereof (as hereinafter required to be applied), the aggregate of the remaining Unfunded Loan Amount plus the balance in the Retained Amount Reserve shall be equal to or greater than the sum of (x) the lesser of $35,500,000 and the maximum principal amount guaranteed under the BT Guaranty, and (y) the amount which Prometheus ES is obligated to contribute to the capital of Intown. To the extent that proceeds of the Unfunded Loan Amount are disbursed for such purposes, Borrower and the applicable member(s) of the Borrower Control Group shall use, directly or indirectly, such proceeds to (A) repay a portion of the loan made by Bankers Trust Company under the BT Agreement in order to terminate or reduce the principal amount of the BT Guaranty or otherwise to induce Bankers Trust Company to extend such loan on terms satisfactory to Lender in Lender's sole and absolute discretion, and (B) subject to Section 2.1(e), fund all or a portion of the obligations of Prometheus ES to contribute capital to Intown. (d) Notwithstanding anything contained herein to the contrary, prior to disbursement of any other portion of the Unfunded Loan Amount to be advanced at any time, there shall be deposited into the Interest Reserve of the Deposit Account an amount which shall be sufficient to pay all interest, on the portion of the Unfunded Loan Amount as to which Borrower has requested a disbursement, which will become due and payable (i) on each Payment Date following the date of such disbursement and occurring during the Fiscal Quarter in which such disbursement is to occur, and (ii) at Lender's discretion, on each of the first and second Payment Dates occurring during the Fiscal Quarter next succeeding the Fiscal Quarter in which such disbursement is to occur, all as estimated in accordance with the provisions of the Amended and Restated Deposit Account Agreement. 22 (e) Notwithstanding anything to the contrary contained in this Section 2.1, Lender shall have no obligation to disburse the last $3,750,000 of the Unfunded Loan Amount unless Prometheus ES shall have actually received a distribution of cash (which shall not have been merely "deemed" to have been made pursuant to the Intown Agreement) constituting the "Class A Preferred Return" (as such term is defined in the Intown Agreement) for the second calendar quarter of 2001). Section 2.2. Use of Proceeds. Proceeds of the New Loan Amount may be used by Borrower to (a) pay interest, fees and closing costs in connection with the Transactions; (b) pay dividends to the Fund for the purpose of enabling the Fund to make capital contributions to the applicable members of the Borrower Control Group to fund capital contributions to Intown and payments to Bankers Trust Company in accordance with Section 2.1(c); (c) fund loans by the New Borrower to Atria and/or Kapson; (d) pay dividends to the Fund for the purpose of enabling the Fund (directly or indirectly) to make capital contributions to New Borrower; and (e) pay dividends to the Fund for the purpose of making debt or equity investments in or otherwise acquiring additional debt or equity issued by members of the Borrower Control Group or Operating Companies, provided however that Lender shall receive a first priority Lien against the loan or the debt or equity investment so made and the additional debt or equity otherwise so acquired pursuant to such instruments (including pledge agreements, new Direction Letters, and amendments, if required by Lender, to the Amended and Restated Deposit Account Agreement) as Lender may request, all in form and substance reasonably satisfactory to Lender. Section 2.3. Security for the Loan. The Notes and Borrower's obligations hereunder and under the other Loan Documents shall be secured by the Loan Documents. Section 2.4. Notes. Borrower's obligation to pay the principal of and interest on the Loan (including Late Charges, Default Rate interest and Exit Fees), shall be evidenced by this Agreement and by the Notes, duly executed and delivered by Borrower. The Notes shall be payable as to principal, interest, Late Charges, Default Rate interest and Exit Fees, as specified in this Agreement, with a final maturity on the Maturity Date or, if applicable, the Extended Maturity Date. Borrower shall pay all outstanding Indebtedness on the Maturity Date or, if applicable, the Extended Maturity Date. Section 2.5. Principal and Interest Payments. (a) Accrual of Interest. Interest shall accrue on the outstanding principal balance of the Notes and all other amounts due to Lender under the Loan Documents at the Interest Rate. 23 (b) Payment of Principal and Interest. On each Payment Date, Borrower shall pay to the Lender the Monthly Payment Amount, which shall be applied to the Notes pro rata in accordance with their respective principal balances. (c) Payment Dates. All payments required to be made pursuant to subsections (a) and (b) above shall be made beginning on the first Payment Date immediately after the end of the first Interest Accrual Period. (d) Calculation of Interest. Interest shall accrue on the Principal Indebtedness (from the date advanced) and all other amounts due to Lender under the Loan Documents. Interest shall be computed on the actual number of days elapsed in each Interest Accrual Period over a 360 day year. (e) Default Rate Interest. At any time that an Event of Default has occurred and is continuing, the entire unpaid amount outstanding hereunder and under the Notes will bear interest at the Default Rate. (f) Late Charge. If Borrower fails to make any payment of any sums due under the Loan Documents within three (3) Business Days after receipt of notice that the same is due, Borrower shall pay the Late Charge. (g) Maturity Date. On the Maturity Date or, if applicable, the Extended Maturity Date, Borrower shall pay to Lender all amounts owing under the Loan Documents, including interest, principal, Late Charges, Default Rate interest, and the Exit Fee. (h) Extension of Maturity. At Borrower's option, exercisable as set forth below, the Loan shall be extended for one year and shall mature on January 31, 2005 or such earlier date as may result from acceleration of the Indebtedness by Lender ("Extended Maturity Date"). The Borrower shall exercise such option by delivery to Lender of a written request for such extension not less than ninety (90) days before the Maturity Date. Such extension shall be subject to the conditions that: (i) on each of the date of Borrower's request and the Maturity Date, (A) no Default or Event of Default shall have occurred and be continuing, and (B) no Material Adverse Condition shall exist with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company, other than a Material Adverse Condition which exists solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities); 24 (ii) Borrower shall represent and warrant to Lender in such request that, as of the date thereof, no Default or Event of Default exists, and no Material Adverse Condition exists with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company other than a Material Adverse Condition which exists solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities); and (iii) Borrower's request for such extension shall be accompanied by an extension fee equal to one percent (1%) of the Principal Indebtedness outstanding on the Maturity Date. Section 2.6. Prepayments. (a) Voluntary Prepayment. Borrower shall have the right, on any Payment Date, to prepay the Loan in whole, but not in part, upon at least thirty (30) days' irrevocable prior written notice to Lender, specifying the amount and the date of prepayment, provided that on the date of such prepayment Borrower shall pay to Lender the Exit Fee. (b) Mandatory Prepayment. In the event of a Transfer of Equity Interests in or control of Lazard Freres REI, or change in the general partner of any of LFSRI II, LFSRI II Alternative and LFSRI-CADIM, the entire Indebtedness shall become immediately due and payable, together with the Exit Fee. Except with respect to a Permitted Transfer, in the event of a Transfer of the Equity Interests held directly or indirectly by the Fund in the Borrower, any member of the Borrower Control Group or any Operating Company (any such Transfers to be made only in an arm's-length transaction to a bona fide third party purchaser for fair market value), a portion of the Indebtedness shall become due and payable as hereinafter set forth. The amount of the Indebtedness required to be prepaid shall be equal to the lesser of (i) the Release Amount with respect to such Transfer, and (ii) the outstanding Indebtedness. In the event that any Transfer of assets of an Operating Company in the nature of a capital transaction, or any other non-recurring event (whether in one transaction or a series of transactions) yields to such Operating Company amounts used to pay Dividends and Distributions to the Borrower or any member of the Borrower Control Group, then a portion of the Indebtedness shall become immediately due and payable in an amount equal to the lesser of (x) the amount of such Dividends and Distributions, minus the amount of Cost Exclusions resulting from the Transfer giving rise to such Dividends and Distributions, and (y) the outstanding Indebtedness. Any pre-payment hereunder shall be made only with thirty (30) days' prior written notice (which notice may be revoked by Borrower as long as such notice specifies that it is revocable). Borrower shall 25 be required to make mandatory prepayments in accordance with Section 6(b) of the Amended and Restated Deposit Account Agreement. (c) Application of Prepayment. Upon the receipt of any prepayment, as long as no Event of Default exists, Lender shall be required, on the date of receipt thereof, to apply the amount of prepayment to the principal on the Notes in the inverse order of principal payments coming due, together with accrued interest for the entire Interest Accrual Period in which prepayment occurs, and all other amounts then due and payable on the Notes. Notwithstanding the provisions of this Section 2.6 to the contrary, if Borrower is otherwise permitted to make a prepayment hereunder, Borrower shall have the right to make such prepayment on a date other than a Payment Date, provided that, together with such prepayment and Exit Fee, if applicable, Borrower shall also pay an amount necessary to reimburse Lender for any costs, losses or expenses incurred in connection with breaking any LIBOR contracts. (d) Partial Release. In connection with any mandatory prepayment under Section 2.6(b) hereof, Lender shall release the Collateral, or portion thereof, which is the subject of the Transfer giving rise to such prepayment. The costs and expenses of any such release shall be paid by the Borrower. Lender shall grant such release promptly after Lender is satisfied with the evidence and information supporting Borrower's right to a release. Section 2.7. Application of Payments. Except while an Event of Default exists, all proceeds of any repayment, including prepayments, of the Loan shall be applied to pay: first, any costs and expenses of Lender required to be reimbursed under the terms of the Loan Documents, including the Lender's commercially reasonable attorneys' fees and costs (i) arising as a result of such repayment or (ii) expended by Lender to protect, preserve, foreclose, or realize upon, or take any other action with respect to the Collateral; second, accrued and unpaid interest on the Loan at the Interest Rate; third, to the Principal Indebtedness; and fourth, to any other amounts then due and owing under the Loan Documents. During the existence of an Event of Default, all proceeds of repayment, including any payment or recovery on the Collateral, shall be applied in such order and in such manner as Lender shall elect in Lender's discretion. Section 2.8. Payment of Debt Service, Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Notes shall be made to Lender not later than 11:00 A.M., New York time, on the date when due, and shall be made in lawful money of the United States of America in federal or other immediately available funds to an account specified to Borrower by Lender in writing, and any funds received by Lender after such time, for all purposes hereof, shall be deemed to have been paid on the next succeeding Business Day. 26 (b) All payments made by Borrower hereunder or by Borrower under the other Loan Documents, shall be made irrespective of, and without any deduction for, any set-offs or counterclaims. Section 2.9. Taxes. All payments made by Borrower under this Agreement and under the other Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority. Section 2.10. Exit Fee. On the date of payment in full of all of the Principal Indebtedness, whether upon a prepayment, acceleration or at maturity of the Loan, Borrower shall pay the Exit Fee. Section 2.11. Servicing Fee. On the date of the Initial Advance, Borrower shall pay to Lender an administration and servicing fee equal to $7,500. Throughout the Term, Borrower shall pay to Lender a fee (the "Servicing Fee") in the amount equal to 0.05% per annum on the weighted average Principal Indebtedness outstanding during the applicable period. The Servicing Fee shall be payable monthly in arrears. Article III CONDITIONS PRECEDENT AND THE ACCOUNTS Section 3.1. Conditions Precedent to the Making of the Loan. (a) As a condition precedent to the entry into this Agreement and the funding of the Initial Advance, Borrower shall have satisfied the following conditions (unless waived by Lender in accordance with Section 8.4) on or before the Closing Date: (1) Commitment Conditions. (A) Borrower shall have paid to Lender an origination fee equal to $1,462,500. Such fee shall be deemed to have been fully earned upon execution of this Agreement, regardless of whether all or part of the New Loan Amount is actually funded. (B) Lender shall have completed its "due-diligence" review of the Borrower, the members of the Borrower Control Group, the Operating Companies and their respective Affiliates, including the organizational and governing documents, major agreements binding or affecting, and financial condition of each of them, and such other documents and information as Lender may request, and the 27 results of such review shall be satisfactory to Lender in its sole discretion. (2) Loan Documents. (A) Loan Agreement. Borrower shall have executed and delivered this Agreement to Lender. (B) Note. Borrower shall have executed and delivered to Lender the Second Additional Note. (C) Pledge Agreements. Borrower shall have executed and delivered and shall have caused each applicable member of the Borrower Control Group to execute and deliver to Lender the New Pledge Agreements listed on Schedule IV, attached hereto and made a part hereof, in form and substance satisfactory to Lender. (D) Guaranty. LFSRI II, LFSRI II Alternative and LFSRI-CADIM shall have executed and delivered to Lender a guaranty of repayment of the Loan. (E) Financing Statements. Borrower shall have executed and delivered to Lender all financing statements required by Lender to be filed of record in the appropriate filing offices in each of the appropriate jurisdictions. (F) Stock, etc. Certificates. The Borrower and other grantors under the New Pledge Agreements shall have delivered the certificates and other instruments evidencing ownership of the Collateral to Lender, together with separate endorsements executed in blank with respect thereto and shall have taken all other action necessary to grant Lender a first priority perfected security in all "investment property" included in the Collateral (as such term is defined in Article 9 of the UCC). (G) Lockbox. Borrower shall have executed and delivered and caused the applicable members of the Borrower Control Group to execute and deliver to Lender the Amended and Restated Deposit Account Agreement and shall have delivered to Lender the Direction Letters countersigned and consented to by the Operating Companies (other than AAC III and the Destination Entities). (3) Opinions of Counsel. Lender shall have received from counsel satisfactory to Lender, legal opinions in form and substance satisfactory to Lender in Lender's discretion. All such legal opinions will be addressed to Lender, dated as of the funding date, and in form and substance 28 satisfactory to Lender and its counsel. Borrower hereby instructs counsel to deliver to Lender such opinions addressed to Lender. (4) Lien Search Reports. Lender shall have received satisfactory reports of UCC, federal tax lien, bankruptcy, state tax lien, judgment and pending litigation searches conducted by a search firm reasonably acceptable to Lender. Such searches shall have been received in relation to Borrower, and certain members of the Borrower Control Group. Such searches shall have been conducted in each of the locations designated by Lender in Lender's reasonable discretion. (5) Certificates. Lender shall have received Officer's Certificates, in each case in form and substance satisfactory to Lender. (6) Consents, Licenses, Approvals. Lender shall have received copies of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by Borrower and the members of the Borrower Control Group under, and the validity and enforceability of, the Loan Documents, and such consents, licenses and approvals shall be in full force and effect. (7) Additional Matters. Lender shall have received such other permits, certificates, opinions, documents and instruments relating to the Loan as may be reasonably required by Lender and all other documents and all legal matters in connection with the Loan shall be satisfactory in form and substance to Lender. (8) Representations and Warranties. The representations and warranties herein and in the other Loan Documents shall be true and correct as of the date of such funding. (9) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued or entered, and no litigation shall be pending or threatened, which in the reasonable judgment of Lender would enjoin, prohibit or restrain, or impose or result in an adverse effect upon the making or repayment of the Loan or the consummation of the Transactions. (10) Financial Information. Lender shall have received all financial information (which financial information shall be satisfactory to Lender in Lender's discretion) relating to the Borrower, the members of the Borrower Control Group and the Operating Companies, requested by Lender in Lender's discretion. Such financial information shall be (i) prepared by an accounting firm approved by Lender in Lender's discretion, (ii) prepared based on a scope of work determined by Lender in Lender's discretion and (iii) in form and content acceptable to Lender in Lender's discretion. 29 (11) Transaction Costs. Borrower shall have paid or caused to be paid all Transaction Costs. (b) Lender shall not be obligated to fund any portion of the New Loan Amount other than the Initial Advance unless and until each of the applicable conditions precedent set forth in this Article III is satisfied and until Borrower provides any other information reasonably required by Lender. In addition, Lender shall not be obligated to fund the New Loan Amount if a Material Adverse Condition shall exist with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company; provided, that (i) if a Material Adverse Condition exists solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, any interest in such AACDFK Entities (as long as the Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or results solely from the Material Adverse Condition of the subject AACDFK Entities), and (ii) all the other conditions to Lender's obligation to make advances of all or any portion of the Unfunded Loan Amount are satisfied, Lender shall be obligated to fund such subsequent advance as long as none of the proceeds of such advance shall be advanced, loaned, contributed or otherwise invested, directly or indirectly, in any Entity as to which a Material Adverse Condition exists at the time of such advance by Lender or the advance, loan, contribution or investment by Borrower or the applicable member of the Borrower Control Group. (c) In connection with the Loan, Borrower shall execute and deliver or cause to be executed and delivered to Lender all additions, amendments, modifications and supplements to the Notes, the Pledge Agreements and the other Loan Documents, if reasonably requested by Lender to effectuate the provisions hereof or thereof, and to provide Lender with the full benefit of the security intended to be provided under the Loan Documents. Without in any way limiting the foregoing, such additions, modifications and supplements shall include those deemed reasonably desirable by Lender's counsel in the jurisdiction in which the Collateral or any part thereof is located. (d) The funding of the Initial Advance and of each subsequent advance of a portion of the New Loan Amount shall constitute, without the necessity of specifically containing a written statement to such effect, a confirmation, representation and warranty by Borrower to Lender that, to the best of Borrower's knowledge, all of the applicable conditions to be satisfied in connection with the making of such advance have been satisfied (unless waived by Lender in accordance with Section 8.4), and that all of the representations and warranties of Borrower set forth in the Loan Documents are true and correct in all material respects as of the date of the funding of such advance; provided, that with respect to an advance of a portion of the New Loan Amount after the Initial Advance, the representations and warranties set forth in the last two sentences of Sections 4.1(r) hereto need not be true concerning an AACDFK Entity or any Collateral constituting Equity Interests in or Instruments issued by such AACDFK Entity, so long as none of the proceeds of such advance 30 shall be advanced, contributed or otherwise invested directly or indirectly in such AACDFK Entity. Section 3.2. Form of Loan Documents and Related Matters. The Loan Documents and all of the certificates, agreements, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to Lender, and shall be in form and substance satisfactory to Lender. Section 3.3. The Accounts. (a) On or before the Closing Date Borrower shall establish such reserve accounts and deposit such amounts into such accounts as required pursuant to the terms of the Loan Documents. (b) Prior to the Closing Date, Borrower has established and shall continue to maintain an account (the "Deposit Account") in Lender's name as secured party at a financial institution designated by Borrower and reasonably satisfactory to Lender. Commencing on the Closing Date, the Deposit Account shall be governed by the Amended and Restated Deposit Account Agreement. (c) Funds from the Deposit Account shall be disbursed from time to time in accordance with and in such order and priority as provided by the terms and provisions of the Amended and Restated Deposit Account Agreement and this Agreement. Until disbursed, Borrower shall have the right to direct the investment of funds in the Deposit Account in Permitted Investments, subject to Lender's reasonable approval. Section 3.4. Investment and Control of Accounts. (a) All interest earned on amounts deposited into the Accounts shall be held in the Accounts and shall be used or disbursed as provided herein and in the Amended and Restated Deposit Account Agreement for the benefit of Borrower. Neither Lender nor the Servicer shall have any liability for any loss of interest on funds in any Accounts and no such loss shall affect Borrower's obligation to fund any Account as required hereunder. Borrower hereby pledges, assigns and grants a lien and security interest to Lender, as security for payment of all sums due under the Loan and the performance of all other terms, conditions and provisions of the Loan Documents and this Agreement on Borrower's part to be paid and performed, of all Borrower's right, title and interest in and to the Deposit Account and all other accounts and subaccounts maintained from time to time under the Amended and Restated Deposit Account Agreement (collectively, the "Accounts"). Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any lien or security interest in any Account, or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, 31 to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the Uniform Commercial Code in effect in New York and each other jurisdiction in which Accounts may be located. (b) Notwithstanding the foregoing, at any time an Event of Default exists and remains uncured, the Servicer, at Lender's option and to the extent permitted under applicable law without adversely affecting the other rights and remedies provided to Lender under this Agreement or the other Loan Documents, shall distribute all funds then held in, and/or received subsequently in, the Accounts to Lender to be applied in such order as Lender in its sole discretion shall determine, (1) to the payment of (y) interest and Principal Indebtedness on the Notes and (z) the other Indebtedness, until all such amounts are paid in full and (2) to preserve the Collateral. (c) The Lender shall have exclusive control over and sole right of withdrawal from each of the Accounts, which shall be exercised solely in accordance with the provisions of this Agreement and the Amended and Restated Deposit Account Agreement. The Accounts shall be released to or at the direction of the Borrower upon payment in full of the Indebtedness. Article IV REPRESENTATIONS AND WARRANTIES Section 4.1. Representations and Warranties of Borrower. (a) Organization. Borrower (i) is a duly organized and validly existing Entity in good standing under the laws of the State of its formation, (ii) is duly qualified as a foreign Entity in each jurisdiction in which the nature or location of its business, its assets, or any of the Collateral makes such qualification necessary or desirable, (iii) has the requisite Entity power and authority to carry on its business as now being conducted, and (iv) has the requisite Entity power to execute and deliver, and perform its obligations under, the Loan Documents. (b) Authorization. The execution and delivery by Borrower of the Loan Documents, Borrower's performance of its obligations thereunder and the creation of the security interests and Liens provided for in the Loan Documents (i) have been duly authorized by all requisite Entity action on the part of Borrower, (ii) will not violate any provision of any applicable Legal Requirements, any order, writ, decree, injunction or demand of any court or other Governmental Authority, any organizational document of Borrower or any indenture or agreement or other instrument to which Borrower is a party or by which Borrower is bound, (iii) will not be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of Borrower pursuant to, any indenture or agreement or instrument, and (iv) have been duly executed and delivered by Borrower. Except for those obtained or filed on or prior to the Closing Date, Borrower is not required to obtain any consent, approval or authorization from, 32 or to file any declaration or statement with, any Governmental Authority or other agency in connection with or as a condition to the execution, delivery or performance of the Loan Documents. The Loan Documents to which Borrower is a party have been duly authorized, executed and delivered by Borrower. (c) Entity Status. Borrower has been, and will continue to be, a duly formed and existing Entity in good standing in all relevant jurisdictions. Borrower at all times since its formation has complied, and will continue to comply, with the provisions of all of its organizational documents, and the laws of the state in which Borrower was formed or is doing business relating to the Entity. (d) Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending and served or, to the knowledge of Borrower, threatened against Borrower or the Collateral. (e) Agreements. Borrower is not a party to any agreement or instrument or subject to any restriction which is reasonably likely to result in a Material Adverse Condition with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company, other than a Material Adverse Condition solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities). Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any indenture, agreement or instrument to which it is a party or by which Borrower or its property is bound or affected. (f) No Bankruptcy Filing. Borrower is not contemplating either the filing of a petition by Borrower under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of the assets or property of Borrower, any member of the Borrower Control Group nor any Operating Company, and other than with respect to Cliveden and/or Fortress, Borrower has no knowledge of any Person contemplating the filing of any such petition against any such Entity. (g) Full and Accurate Disclosure. No written statement of fact made by or on behalf of Borrower or any member of the Borrower Control Group, whether in the Loan Documents or in any other document or certificate delivered to Lender by or on behalf of Borrower or any member of the Borrower Control Group, contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed to Lender which materially adversely affects, nor as far as Borrower can reasonably foresee, would materially adversely affect the business, 33 operations or condition (financial or otherwise) of Borrower or any member of the Borrower Control Group or any Operating Company. (h) Location of Chief Executive Offices. The location of Borrower's principal place of business and the location of Borrower's chief executive office is the address listed in the first paragraph of this Agreement, and Borrower has no other places of business. (i) Compliance. Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which is reasonably likely to result in a Material Adverse Condition with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company, other than a Material Adverse Condition solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities). (j) Other Debt and Obligations. Borrower has no financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Borrower is a party, or by which Borrower is bound, other than obligations under the Loan Documents. Borrower has not borrowed or received other debt financing that has not been heretofore repaid in full and Borrower has no known material Contingent Obligations. (k) ERISA. (1) Each Plan and, to the knowledge of Borrower, each Multiemployer Plan, is in compliance with, and has been administered in compliance with, its terms and the applicable provisions of ERISA, the Code and any other federal or state law, except for such noncompliance as is not reasonably likely to result in a Material Adverse Condition with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company, other than a Material Adverse Condition solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities); and to the knowledge of Borrower no event or condition has occurred as to which Borrower or any ERISA Affiliate would be under an obligation to furnish a report to Lender under Section 5.1(j). (2) Borrower and each member of the Borrower Control Group that has as an investor an ERISA Investor qualifies as a VCOC or otherwise complies with an exception set forth in the Plan Assets Regulation, or is an entity with no investors subject to Title I of ERISA or Section 4975 of the 34 Code, such that the assets of such Entity would not be subject to Title I of ERISA and/or Section 4975 of the Code. (l) Solvency. Borrower (i) has not entered into this Loan Agreement or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and (ii) has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the transactions contemplated hereby, the fair saleable value of Borrower's assets exceeds and will, immediately following the execution and delivery of this Agreement, exceed Borrower's total liabilities, including subordinated, unliquidated, or disputed liabilities or Contingent Obligations. The fair saleable value of Borrower's assets is and will, immediately following the execution and delivery of this Agreement, be greater than Borrower's probable liabilities, including the maximum amount of its Contingent Obligations or its debts as such debts become absolute and matured. Borrower's assets do not and, immediately following the execution and delivery of this Agreement, will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including Contingent Obligations and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower). (m) Not Foreign Person. Borrower is not a "foreign person" within the meaning ofss. 1445(f)(3) of the Code. (n) Investment Company Act, Public Utility Holding Company Act. Borrower is not (i) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, (ii) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. (o) No Defaults. No Default or Event of Default exists under or with respect to any Increased Original Loan Document immediately prior to the execution and delivery of this Agreement and no Default or Event of Default exists under or with respect to any Loan Document. (p) Labor Matters. Borrower is not a party to any collective bargaining agreements. (q) Use of Proceeds; Margin Regulations. Borrower will use the proceeds of the Loan for the purposes described herein. No part of the proceeds of the Loan will be used, whether directly, indirectly, immediately, incidentally or ultimately, (i) to purchase or carry any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve 35 System ("Board") or to refund indebtedness originally incurred for such purpose, or (ii) for any purpose which entails a violation of, or is inconsistent with, such Regulation U or any other Regulations of the Board, or (iii) for any purposes prohibited by applicable Legal Requirements. If requested by Lender, the Borrower, any applicable member of the Borrower Control Group and the recipient of any portion of the proceeds of the New Loan Amount shall furnish to Lender a statement on Federal Reserve Form G-3 referred to in said Regulation U. (r) Financial Information. To the best knowledge of Borrower, all historical financial data concerning the members of the Borrower Control Group and the Operating Companies that has been delivered by or on behalf of Borrower or any member of the Borrower Control Group to Lender is true, complete and correct in all material respects. Since September 30, 2000, except as otherwise disclosed in writing to Lender, there has been no material adverse change in the financial position of Borrower or any member of the Borrower Control Group or any Operating Company or in the results of operations of Borrower or any member of the Borrower Control Group or any Operating Company. Except for the Permitted Indebtedness, neither Borrower, any member of the Borrower Control Group nor any Operating Company has incurred any obligation or liability, contingent or otherwise, not reflected in such financial data which might materially adversely affect its business operations or the Collateral. (s) Enforceability. The Loan Documents executed by Borrower or any of its Affiliates in connection with the Loan, including any Pledge Agreement and Collateral Assignment, are the legal, valid and binding obligations of Borrower or such Affiliate, enforceable against Borrower or such Affiliate in accordance with their terms, subject only to bankruptcy, insolvency and other limitations on creditors' rights generally and to equitable principles. The Increased Original Loan Documents, immediately prior to the execution and delivery of this Agreement, were not, and the Loan Documents, as of the Closing Date are not, subject to any right of rescission, set-off, counterclaim or defense by Borrower or such Affiliate, including the defense of usury, and the operation of any of the terms of the Notes, or any other Loan Documents, or the exercise of any right thereunder, will not render the Loan Documents unenforceable against Borrower or such Affiliate, in whole or in part, or subject to any right of rescission, set-off, counterclaim or defense by Borrower or such Affiliate, including the defense of usury, and neither Borrower nor any Affiliate has asserted any right of rescission, set-off, counterclaim or defense with respect thereto. (t) No Liabilities. Borrower has no liabilities or obligations including Contingent Obligations (and including liabilities or obligations in tort, in contract, at law, in equity, pursuant to a statute or regulation, or otherwise) other than those liabilities and obligations expressly permitted by this Agreement. 36 (u) Conduct of Business. Borrower does not conduct its business "also known as", "doing business as" or under any name other than the Borrower's name set forth in the preamble to this Agreement. (v) Pledge Agreements. The representations and warranties made by Borrower and the respective pledgors and assignors under the Pledge Agreements and Collateral Assignments are true and correct in all material respects. (w) REIT Status. Original Borrower has not and does not engage in activities which would in fact jeopardize its election to qualify and be taxed as a REIT. Section 4.2. Survival of Representations and Warranties. Borrower agrees that (i) all of the representations and warranties of Borrower and its Affiliates set forth in this Agreement and in the other Loan Documents delivered on the Closing Date are made as of the Closing Date (except as expressly otherwise provided) and (ii) all such representations and warranties made by Borrower and its Affiliates shall survive the delivery of the Notes and continue for so long as any amount remains owing to Lender under this Agreement, the Notes or any of the other Loan Documents. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf. Article V AFFIRMATIVE COVENANTS Section 5.1. Borrower Covenants. Borrower covenants and agrees that, from the date hereof and until payment in full of the Indebtedness: (a) Existence; Compliance with Legal Requirements, Insurance. Borrower shall do all things necessary to preserve, renew and keep in full force and effect the Entity existence, rights, licenses, permits and franchises necessary for the conduct of its business and comply in all respects with all applicable Legal Requirements. Borrower shall notify Lender promptly of any written notice or order that Borrower receives from any Governmental Authority relating to Borrower's or any of its Affiliates' failure to comply with applicable Legal Requirements. Borrower shall at all times maintain, preserve and protect all franchises and trade names and preserve all the remainder of its property necessary for the continued conduct of its business. (b) Litigation. Borrower shall give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened against Borrower. (c) Taxes and Other Charges. Borrower shall pay, or cause to be paid, all Impositions owed by Borrower as the same become due and payable, and deliver to Lender receipts for payment or other evidence satisfactory to 37 Lender that the Impositions have been so paid no later than 30 days before they would be delinquent if not paid. After prior notice to Lender, Borrower, at its own expense, may contest, by appropriate legal proceedings, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application of any Impositions, provided that (i) no Default or Event of Default has occurred and remains uncured, (ii) such proceeding shall suspend the collection of the Impositions, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (iv) no part of or interest in the Collateral will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Borrower shall have furnished such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Impositions, together with all interest and penalties thereon, and (vi) Borrower shall promptly upon final determination thereof pay the amount of such Impositions, together with all costs, interest and penalties. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established. (d) Performance of Other Agreements. Borrower shall observe and perform or cause to be observed and performed each and every term to be observed or performed by Borrower or any member of the Borrower Control Group pursuant to the terms of any Pledge Agreement, Collateral Assignment or other Loan Document. (e) Notice of Default. Borrower shall promptly advise Lender of any material adverse change in Borrower's or any member of the Borrower Control Group's or Operating Company's condition, financial or otherwise, or of the occurrence of any Default or Event of Default. (f) Cooperate in Legal Proceedings. Except with respect to any claim by Borrower against Lender, Borrower shall cooperate with Lender with respect to any proceedings before any Governmental Authority which may in any way affect the rights of Lender hereunder or any rights obtained by Lender under any of the Loan Documents and, in connection therewith, not prohibit or prevent Lender, at its election, from participating in any such proceedings. (g) Perform Loan Documents. Borrower shall, and shall cause the members of the Borrower Control Group to, observe, perform and satisfy all the terms, provisions, covenants and conditions required to be observed, performed or satisfied by any of them, and to pay when due all costs, fees and expenses required to be paid by any of them under the Loan Documents. (h) Further Assurances. Borrower shall, at Borrower's sole cost and expense: 38 (1) upon Lender's request therefor given from time to time after the occurrence of any Default or Event of Default, pay for reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches relating to Borrower and the members of the Borrower Control Group; (2) furnish to Lender all instruments, documents, certificates, and agreements, and each and every other document, certificate, agreement and instrument required to be furnished pursuant to the terms of the Loan Documents; (3) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the Collateral, as Lender may require in Lender's reasonable discretion, including the filing of any financing or continuation statements under the UCC with respect to the Collateral, transferring the Collateral to Lender's possession (if a security interest in such Collateral can be perfected by possession) and endorsing to Lender any Collateral which may be evidenced by an instrument; and (4) do and execute, and cause each member of the Borrower Control Group to do and execute, all such further lawful acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall require from time to time in its discretion. (i) Financial Statements, Reporting. Until payment in full of the Indebtedness, Borrower shall cause the following financial statements and information, in form satisfactory to Lender, to be delivered to Lender as and when hereinafter provided: (1) as soon as practicable and in any event within one hundred twenty (120) days after the end of each Fiscal Year of the applicable Entities, audited combined statements of financial position of LFSRI II, LFSRI II Alternative, LFSRI-CADIM (which shall be duly certified by the Chief Financial Officer of Lazard Freres REI) and audited statements of financial position of each Operating Company as of the end of each such Fiscal Year during the Term, including a balance sheet and statement of profits and losses, as of the date thereof, prepared in accordance with GAAP by a nationally recognized accounting firm and accompanied by a statement of the accountants that such financial statements present fairly, in all material respects, the financial condition of each such Entity as of the end of the Fiscal Year being reported on and that the 39 results of the operations and cash flows for such year were prepared and are being reported on in conformity with GAAP; (2) promptly and in any event within sixty (60) days after the end of each fiscal quarter of the applicable Entities, (i) quarterly combined statements of financial position of LFSRI II, LFSRI II Alternative and LFSRI-CADIM (which shall be duly certified by the Chief Financial Officer of Lazard Freres REI), (ii) statements of financial position of each Operating Company, including a balance sheet and statement of profits and losses, and comparisons of results to prior year results, and (iii) with respect to each of AAC III, Intown and Rubenstein, a detailed schedule of all indebtedness (including Contingent Obligations) of such Entity, specifying the lender, the outstanding principal balance of the loan, amortization requirements (if any), maturity date, extension options (if any), the rate at which interest is payable and, if different, the rate at which interest accrues, collateral (if any), and such other information as Lender may reasonably request; (3) within five (5) days after filing, the annual Federal income tax return of Borrower, with accompanying schedules prepared by Borrower; (4) within three (3) days following receipt by any member of the Borrower Control Group, a copy of any notice of default regarding outstanding financial indebtedness of any member of the Borrower Control Group or any Operating Company; (5) (A) annual budgets and revisions thereto for each Operating Company, approved by such Operating Company, and (B) from time to time, such other reports and information which Lender reasonably requires, subject to applicable restrictions on providing reports or information at law or in any applicable agreement; (6) within five (5) Business Days following receipt by Borrower of all monthly reports covering each Operating Company and the members of the Borrower Control Group but in no event later than forty-five (45) days after the close of the month being reported, copies of said reports; (7) together with each of the financial statements and information required pursuant to subdivisions (1) through (4) above, inclusive, a certificate of the Chief Financial Officer of Borrower that Borrower has observed and performed, in all material respects, all of its covenants and other agreements contained in this Agreement and the other Loan Documents, whether there exists any 40 material Default or Event of Default and, if there is, specifying the nature and period of existence thereof and the action taken or proposed to be taken with respect thereto; and (8) from time to time, within five (5) days following receipt thereof, such reports, financial statements and correspondence related to the Borrower Control Group or any Operating Company (subject to applicable restrictions on providing such items at law or in any applicable agreement) which, in Borrower's judgment, may have a material effect, either positive or negative, on the financial performance or valuation of the Borrower, any member of the Borrower Control Group or any Operating Company. For purposes of this subsection (i)(8), a "material effect" shall mean an effect in excess of $5 million outside the ordinary course of business. (j) ERISA. Borrower shall deliver to Lender as soon as possible, and in any event within ten (10) days, after Borrower knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of Borrower setting forth details respecting such event or condition and the action, if any, that Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by Borrower or an ERISA Affiliate with respect to such event or condition): (1) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event that could reasonably be expected to result in (a) the termination of such Plan (other than pursuant to a standard termination under ERISA Section 4041(b), (b) the imposition of a liability on the Borrower or its ERISA Affiliates or (c) the imposition of a Lien on the assets of the Borrower or its ERISA Affiliates (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (2) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by Borrower or an ERISA Affiliate to terminate any 41 Plan (other than in a standard termination pursuant to ERISA Section 4041(b)); (3) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan which could result in the imposition of liability on the Borrower or its ERISA Affiliates; (4) the complete or partial withdrawal from a Multiemployer Plan by Borrower or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA which could result in the imposition of liability on the Borrower or its ERISA Affiliates; (5) the institution of a proceeding by a fiduciary of any Multiemployer Plan against Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed or settled within thirty (30) days; (6) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; and (7) the imposition of a Lien or a security interest in connection with a Plan. (k) Entity Status. Borrower will and will cause each member of the Borrower Control Group to (i) continue to comply, and cause their respective Subsidiaries to comply, with the provisions of all of their respective organizational and governing documents, and the laws of the state in which each such Entity was formed relating to each such Entity, and (ii) enter into such amendments and modifications to such organizational documents as may reasonably be required by Lender or any Rating Agency to facilitate a Securitization or other transaction as described in Section 8.34 below. All 42 customary formalities regarding the Entity existence of Borrower and each member of the Borrower Control Group will continue to be observed. (l) Impositions and Other Claims. Borrower shall or shall cause each member of the Borrower Control Group to pay and discharge or cause to be paid and discharged all Impositions, as well as all lawful claims for labor, materials and supplies or otherwise, which could become a Lien on the Collateral. (m) Intentionally omitted. (n) Special Purpose Bankruptcy Remote Entity. Borrower shall continue to be a Special Purpose Bankruptcy Remote Entity. A "Special Purpose Bankruptcy Remote Entity" means a corporation, limited partnership or limited liability company which at all times since its formation and at all times thereafter (i) was and is organized solely for the purpose of (A) owning a portion of the Collateral or (B) acting as a member of a limited liability company that owns a portion of the Collateral, (ii) has not engaged and will not engage in any business unrelated to (A) the ownership of a portion of the Collateral, or (B) acting as a member of the limited liability company that owns a portion of the Collateral, (iii) has not had and will not have any assets other than those related to a portion of the Collateral or its member interest in the limited liability company that owns a portion of the Collateral, (iv) has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a member in a limited liability company), or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable), (v) if such entity is a limited partnership, has, as its only general partners, Special Purpose Bankruptcy Remote Entities that are corporations, (vi) if such entity is a corporation has at least one Independent Director, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action requiring the unanimous affirmative vote of 100% of the members of its board of directors unless an Independent Director shall have participated in such vote, (vii) if such entity is a limited liability company, has at least one member that is a Special Purpose Bankruptcy Remote Entity that is a corporation and such corporation is the managing member of such limited liability company, (viii) if such entity is a limited liability company, has articles of organization, a certificate of formation and/or an operating agreement, as applicable, providing that (A) such entity will dissolve only upon the bankruptcy of the managing member, (B) the vote of a majority-in-interest of the remaining members is sufficient to continue the life of the limited liability company in the event of such bankruptcy of the managing member and (C) if the vote of a majority-in-interest of the remaining members to continue the life of the limited liability company following the bankruptcy of the managing member is not obtained, the limited liability company may not liquidate its property without the consent of the applicable Rating Agencies for as long as the Loan is outstanding, (ix) without the unanimous consent of all of 43 its partners, directors or members, as applicable, shall not (A) file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest, (B) dissolve, liquidate, consolidate, merge, or sell all or substantially all of its assets or the assets of any other entity in which it has a direct or indirect legal or beneficial ownership interest, (C) engage in any other business activity, or amend its organizational documents, (x) is and will remain solvent and is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations, (xi) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity, (xii) has maintained and will maintain its accounts, books and records separate from any other Person and will file its own tax returns, (xiii) has maintained and will maintain its books, records, resolutions and agreements as official records, (xiv) except as required by the Amended and Restated Deposit Account Agreement, has not commingled and will not commingle its funds or assets with those of any other Person, (xv) has held and will hold its assets in its own name, (xvi) has conducted and will conduct its business in its name, (xvii) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person, (xviii) has paid and will pay its own liabilities, including the salaries of its own employees, only out of its own funds and assets, (xix) has observed and will observe all partnership, corporate or limited liability company formalities, as applicable, (xx) has maintained and will maintain an arm's-length relationship with its Affiliates, (xxi) has no indebtedness other than the Loan and liabilities in the ordinary course of business relating to the ownership of the Collateral, (xxii) has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except for the Loan and the liabilities permitted pursuant to this Agreement, (xxiii) has not and will not acquire obligations or securities of its partners, members or shareholders, (xxiv) has allocated and will allocate fairly and reasonably any overhead for shared office space and uses separate stationery, invoices and checks, (xxv) except in connection with the Loan has not pledged and will not pledge its assets for the benefit of any other Person, (xxvi) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other Person, (xxvii) has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person, (xxviii) except as permitted by Section 2.2 of the Original Loan Agreement, by the First Amendment and by Section 2.2 hereof, has not made and will not make loans to any Person, (xxix) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, (xxx) except as permitted by Section 2.2 of the Original Loan Agreement, by the First Amendment and by Section 2.2 hereof, has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arm's-length transaction with an unrelated third party, (xxxi) except to the 44 extent covered by insurance, has no obligation to indemnify its partners, officers, directors or members, as the case may be, or has such an obligation that is fully subordinated to the Indebtedness and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Indebtedness is insufficient to pay such obligation, and (xxxii) if such entity is a corporation, it is required to consider the interests of its creditors in connection with all corporate actions. (o) Borrower and the other specified members of the Borrower Control Group shall comply with all post-closing covenants set forth on Schedule III, attached hereto and made a part hereof. (p) Expenses. Borrower shall reimburse Lender upon receipt of notice for all reasonable costs and expenses (including reasonable attorneys' fees and costs) incurred by Lender in connection with (i) the preparation, negotiation, execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby and all the costs of furnishing all opinions by counsel for Borrower and its Affiliates; (ii) Borrower's and its Affiliates' ongoing performance under and compliance with the Loan Documents; (iii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Lender; (iv) filing and recording of any Loan Documents; (v) inspections and appraisals; (vi) enforcing or preserving any rights, in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, any member of the Borrower Control Group, the Loan Documents, the Collateral, or any other security given for the Loan; and (vii) enforcing any obligations of or collecting any payments due from Borrower or any member of the Borrower Control Group under any Loan Document or with respect to the Collateral or in connection with any refinancing or restructuring of the Loan in the nature of a "work-out", or any insolvency or bankruptcy proceedings; provided, however, that Borrower shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Any costs and expenses due and payable to Lender hereunder which are not paid by Borrower within ten days after demand may be paid from any amounts in the Deposit Account, with notice thereof to Borrower. The obligations and liabilities of Borrower under this Section shall survive the Maturity Date and, if applicable, the Extended Maturity Date, and the exercise by Lender of any of its rights or remedies under the Loan Documents. (q) REIT Status. For Fiscal Year 2001 and each subsequent year during the Term, the Borrower shall and shall cause each of AAC Inc., PMAIT and Prometheus SERT to, qualify and continue to be taxed as a REIT, and shall not engage in or cause or suffer any of its Subsidiaries under the direct or indirect control of the Borrower to engage in any activities which would in fact jeopardize such qualification and tax treatment. 45 Article VI NEGATIVE COVENANTS Section 6.1. Borrower Negative Covenants. Borrower covenants and agrees that, until payment in full of the Indebtedness, it will not do, directly or indirectly, any of the following unless Lender consents thereto in writing: (a) Special Purpose Existence and Separateness of Entities. (x) (i) take any actions in violation of the Borrower's organizational or governing documents or that would otherwise adversely affect the Borrower's existence as a Special Purpose Bankruptcy Remote Entity, or (ii) amend, modify, waive or terminate the Borrower's organizational or governing documents. (y) (i) dissolve or liquidate, in whole or in part, or take any action that could have the effect of causing a dissolution or liquidation of any of its Subsidiaries, (ii) consolidate or merge with or into any other entity, (iii) make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver, trustee or other similar official for it, or for a substantial part of its property, commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt or liquidation law, or admit its inability to pay its debts generally as they become due, (iv) cause or permit the Collateral or other assets or property of Borrower to be subject to any Lien other than as provided for in the Loan Documents, (v) Transfer, in one transaction or a series of transactions, all, or substantially all, of its assets, (vi) make any material changes in Borrower's present method of conducting business, or (vii) lend money to any Person (except as permitted by Section 2.2). (z) (i) undertake the incurrence or assumption on behalf of Borrower directly or indirectly, of any indebtedness other than the Loan, or (ii) grant a Lien in Borrower's assets other than as set forth in the Loan Documents. (b) Liens on the Collateral. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Lien with respect to any Collateral except Liens in favor of Lender. (c) Transfer. Except with respect to Permitted Transfers or as expressly provided to the contrary in this Agreement, or except as otherwise approved by Lender in writing in Lender's discretion, allow to occur any Transfer with respect to Equity Interests in Borrower, any member of the Borrower Control Group (other than LFSRI II, LFSRI II Alternative and LFSRI-CADIM) or any Operating Company, or of any Dividends and Distributions payable to or by Borrower, any member of the Borrower Control Group or any Operating Company, or any other Collateral, except (i) those Equity Interests which are not owned or controlled (directly or indirectly) by LFSRI II, LFSRI II 46 Alternative and LFSRI-CADIM, (ii) Dividends and Distributions payable by LFSRI II, LFSRI II Alternative or LFSRI-CADIM, or to any of them by any Entity other than the Borrower, any member of the Borrower Control Group or any Operating Company, (iii) Dividends and Distributions payable by Borrower, any member of the Borrower Control Group or Operating Company which is a REIT to holders of Equity Interests necessary to maintain qualification as a REIT, and (iv) Transfers with respect to which Borrower makes payments in accordance with the provisions of Section 2.6(b). (d) Other Borrowings. Incur, create, assume, become or be liable or allow any member of the Borrower Control Group to become or be liable in any manner with respect to Other Borrowings, except the Indebtedness, the Permitted Indebtedness and any Transaction Costs payable in connection with the Transactions. (e) Change In Business. Make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business or allow any member of the Borrower Control Group to do any of the foregoing. (f) Debt Cancellation. Cancel or otherwise forgive or release any material claim or debt owed to Borrower by any Person, except for adequate consideration or in the ordinary course of Borrower's business. (g) Affiliate Transactions. Except as permitted by Section 2.2 of the Original Loan Agreement or Section 2.2 hereof, enter into, or be a party to, any transaction with an Affiliate of Borrower, except in the ordinary course of business and on terms which are no less favorable to Borrower or such Affiliate than would be obtained in a comparable arm's-length transaction with an unrelated third party, and, if the amount to be paid to the Affiliate pursuant to the transaction or series of related transactions is greater than Fifty Thousand Dollars ($50,000.00) (determined annually on an aggregate basis) fully disclosed to Lender in advance. (h) Certain Restrictions. Enter into any agreement which expressly restricts the ability of Borrower or any member of the Borrower Control Group to enter into amendments, modifications or waivers of any of the Loan Documents. (i) Issuance of Equity Interests. Subject to the requirements of Section 5.1(o), issue or allow to be created any stock or shares or shareholder, partnership or membership interests, as applicable, including Convertible Securities or other ownership interests in Borrower or any member of the Borrower Control Group, except for (x) the issuance of preferred stock to no more than 150 Persons necessary for REIT qualification, and (y) the issuance of new Equity Interests that are immediately pledged to Lender pursuant to documents granting Lender a first priority security interest and which are otherwise reasonably acceptable in form and substance to Lender. 47 (j) Place of Business. Change its chief executive office or its principal place of business or place where its books and records are kept. (k) Identity. Change its name, identity or organizational structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of Section 9-402(7) of the UCC (or any other applicable provision of the UCC). (l) Subsidiaries. Create any Subsidiaries or otherwise acquire Equity Interests in any Entity without the prior written consent of Lender. (m) Contractual Obligations. Other than the Loan Documents, Borrower and its assets shall not be subject to any Other Borrowings, and Borrower shall not enter into any agreement, instrument or undertaking by which it or its assets are bound, except for incurring liabilities, not material in the aggregate, that are incidental to its activities as an owner of Collateral. (n) Borrower Control Group. Neither Borrower nor any member of the Borrower Control Group shall fail to perform its obligations under (i) the Loan Documents to which it is a party or by which it is bound, or (ii) under its organizational or governing documents or any other material agreement to which it is a party or by which it or its assets are bound or affected. (o) ERISA. Neither Borrower nor any member of the Borrower Control Group shall take any action, or omit to take any action, which would cause any of such Entity's assets to constitute "plan assets" for purposes of ERISA or the Code. (p) Direction Letters. Neither Borrower nor any member of the Borrower Control Group shall attempt to revoke, rescind or modify any of the Direction Letters. Article VII DEFAULTS Section 7.1. Event of Default. The occurrence of one or more of the following events shall be an "Event of Default" hereunder: (i) if Borrower fails to pay the outstanding Indebtedness on the Maturity Date or, if applicable, the Extended Maturity Date; or if Borrower fails to make any prepayment of all or any portion of the Indebtedness as and when required by Section 2.6; (ii) the occurrence of a Payment Breach; 48 (iii) the occurrence of the events identified elsewhere in the Loan Documents as constituting an "Event of Default" hereunder or thereunder; (iv) any Transfer in violation of Section 6.1(c) of this Agreement; (v) if Borrower or any of its Affiliates fails to pay any other amount payable by such Person pursuant to this Agreement or any other Loan Document when due and payable in accordance with the provisions hereof or thereof, as the case may be; (vi) if any representation or warranty made by Borrower or any member of the Borrower Control Group herein or in any other Loan Document, or in any report, certificate, financial statement or other Instrument, agreement or document furnished by or on behalf of Borrower in connection with this Agreement, the Notes or any other Loan Documents shall have been false or misleading in any material respect as of the date such representation or warranty was made or remade; (vii) any violation of the covenants set forth in Section 5.1(n), 5.1(o), 6.1(a), 6.1(b), 6.1(d), 6.1(i) or 6.1(l) of this Agreement; (viii) if Borrower or any member of the Borrower Control Group or any Operating Company (other than an AACDFK Entity) makes a general assignment for the benefit of creditors; (ix) if a receiver, liquidator or trustee shall be appointed for Borrower, any member of the Borrower Control Group or any Operating Company (other than an AACDFK Entity), or if Borrower or any member of the Borrower Control Group or any Operating Company (other than an AACDFK Entity), shall be adjudicated as bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by Borrower or any member of the Borrower Control Group or any Operating Company (other than an AACDFK Entity), or if any proceeding for the dissolution or liquidation of Borrower or any member of the Borrower Control Group or any Operating Company (other than an AACDFK Entity), shall be instituted or if Borrower or any member of the Borrower Control Group or Operating Company (other than an AACDFK Entity), shall generally not be paying their respective debts as they become due; (x) if Borrower attempts to delegate its obligations or assign its rights under this Agreement, any of the other Loan Documents or any interest herein or therein; (xi) if any provision of any organizational or governing document of Borrower or any member of the Borrower Control Group is amended or modified in any respect (except as required by Section 5.1(o) of this 49 Agreement), or if Borrower or any member of the Borrower Control Group fails to perform or enforce the provisions of its organizational or governing documents or attempts to dissolve; (xii) if (A) an event or condition specified in Section 5.1(j) shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, Borrower or any ERISA Affiliate shall incur or be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would result in or constitute a Material Adverse Condition with respect to the Borrower, the Fund taken as a whole, any other member of the Borrower Control Group or any Operating Company, other than a Material Adverse Condition solely with respect to one or more AACDFK Entities and the members of the Borrower Control Group (excluding the Borrower and the Fund) that own, directly or indirectly, an interest in such AACDFK Entities (as long as such Material Adverse Condition affecting the applicable members of the Borrower Control Group was solely caused by or resulted solely from the Material Adverse Condition of the subject AACDFK Entities); or (B) Borrower or any member of the Borrower Control Group that has as an investor any ERISA Investor shall fail or cease to qualify as a VCOC or otherwise meet an exception under the Plan Assets Regulation which would prevent the assets of such Borrower or member of the Borrower Control Group from being subject to Title I of ERISA and/or Section 4975 of the Code; (xiii) if any financial statement, report or information provided to Lender by or on behalf of Borrower concerning the Borrower, any member of the Borrower Control Group or any Operating Company proves to be inaccurate or misleading in any material respect; (xiv) if a judgment is entered against Borrower or any member of the Borrower Control Group or any Operating Company that adversely affects the ability of Borrower or any member of the Borrower Control Group to perform its obligations under the Loan Documents, unless such judgment is paid in full within thirty (30) days after the date of such judgment; (xv) if Debt Service Achievement is not maintained; (xvi) if Borrower or any member of the Borrower Control Group or any Operating Company which is a REIT ceases to be taxed as a REIT; (xvii) if Borrower or any member of the Borrower Control Group or any other Person shall fail to perform any of the other obligations, agreements, undertakings, terms, covenants, provisions or conditions of this Agreement, the Notes, or the other Loan Documents, not otherwise referred to in this Section 7.1, for twenty (20) Business Days after written notice to Borrower from Lender or its successors or assigns; provided that if such default cannot reasonably be cured within such twenty (20) Business Day period and Borrower shall have commenced to cure such default within such period and thereafter 50 diligently and expeditiously proceeds to cure the same, such twenty (20) Business Day period shall be extended for as long as it shall require Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of ninety (90) days; or (xviii) the failure to make any payment required to be made into the Deposit Account pursuant to any of the Amended and Restated Deposit Account Agreement, the Pledge Agreements and/or the Collateral Assignment. Section 7.2. Remedies. Upon the occurrence and during the continuation of an Event of Default, all or any one or more of the rights, powers and other remedies available to Lender against Borrower or its Affiliates under this Agreement, the Notes, or any of the other Loan Documents, or at law or in equity may be exercised by Lender at any time and from time to time (including the right to accelerate and declare the outstanding principal amount, unpaid interest, Default Rate interest, Late Charges, Exit Fee and any other amounts owing by Borrower to be immediately due and payable), without notice or demand, whether or not all or any portion of the Indebtedness shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents with respect to all or any portion of the Collateral. Any such rights of Lender shall be cumulative and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Notwithstanding anything contained to the contrary herein, the outstanding principal amount, unpaid interest, Default Rate interest, Late Charges, Exit Fee and any other amounts owing by Borrower shall be accelerated and immediately due and payable, without any election by Lender upon the occurrence of an Event of Default described in Section 7.1(viii) or Section 7.1(ix). Section 7.3. Remedies Cumulative. The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrower or any other Person pursuant to this Agreement or the other Loan Documents or existing at law or in equity or otherwise. Lender's rights, powers and remedies may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender's discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of any Default or Event of Default shall not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Any and all of Lender's rights with respect to the Collateral shall continue unimpaired, and Borrower 51 shall be and remain obligated in accordance with the terms hereof, notwithstanding (i) the release or substitution of Collateral at any time, or of any rights or interest therein or (ii) any delay, extension of time, renewal, compromise or other indulgence granted by Lender in the event of any Default or Event of Default with respect to the Collateral or otherwise hereunder. Borrower acknowledges that (x) the use in this Agreement or any Loan Documents of phrases like "if an Event of Default has occurred and is continuing," "if an Event of Default remains uncured," or other similar phrases, are not intended to grant to Borrower or any member of the Borrower Control Group any cure rights other than those expressly set forth in this Agreement or such Loan Documents, and (y) the tender of any cure after the occurrence of an Event of Default may be accepted or rejected in Lender's sole discretion. Section 7.4. Lender's Right to Perform. If Borrower fails to perform any covenant or obligation contained herein and such failure shall continue for a period of (5) five Business Days after Borrower's receipt of written notice thereof from Lender, without in any way limiting Section 7.1 hereof, Lender may, but shall have no obligation to, itself perform, or cause performance of, such covenant or obligation, and the expenses of Lender incurred in connection therewith shall be payable by Borrower to Lender upon demand. Notwithstanding the foregoing, Lender shall have no obligation to send notice to Borrower of any such failure. Article VIII MISCELLANEOUS Section 8.1. Survival. Subject to Section 4.2, this Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the execution and delivery of this Agreement and the execution and delivery by Borrower to Lender of the Notes, and shall continue in full force and effect so long as any portion of the Indebtedness is outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. All covenants, promises and agreements in this Agreement contained, by or on behalf of Borrower, shall inure to the benefit of the respective successors and assigns of Lender. Nothing in this Agreement or in any other Loan Document, express or implied, shall give to any Person other than the parties and the holder(s) of the Notes and the other Loan Documents, and their legal representatives, successors and assigns, any benefit or any legal or equitable right, remedy or claim hereunder. Section 8.2. Lender's Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right, option or election given to Lender to approve or disapprove, or consent or withhold consent, or any arrangement or term is to be satisfactory to Lender or is to be in Lender's discretion, the decision of Lender to approve or disapprove, consent or withhold consent, or to decide whether arrangements or terms are satisfactory 52 or not satisfactory or acceptable or not acceptable to Lender in Lender's discretion, shall (except as is otherwise specifically herein provided) be in the sole and absolute discretion of Lender. Section 8.3. Governing Law. (a) This Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and intended to be performed in such State, without giving effect to principles of conflicts of laws, and any applicable law of the United States of America. To the fullest extent permitted by law, Borrower hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Agreement and the Notes, and this Agreement and the Notes shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to principles of conflicts of laws. (b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK OR IN ANY FEDERAL OR STATE COURT IN ANY JURISDICTION IN WHICH ANY COLLATERAL IS LOCATED, AND BORROWER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT MARJORIE L. REIFENBERG, ESQ., WHOSE ADDRESS IS 30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020, AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS (OR AT SUCH OTHER OFFICE AS MAY BE DESIGNATED BY BORROWER FROM TIME TO TIME IN ACCORDANCE WITH THE TERMS HEREOF) WITH A COPY TO BORROWER AT C/O LAZARD FRERES REAL ESTATE INVESTORS L.L.C., 30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020, ATTENTION: JOHN A. MOORE AND WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR 53 SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. Section 8.4. Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, the Notes or any other Loan Document, or consent to any departure by Borrower or any of its Affiliates therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to or demand on Borrower shall entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Section 8.5. Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Notes, or of any other Loan Document, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Notes or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Notes or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount. Section 8.6. Notices. All notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of attempted delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) by telecopier (with answer back acknowledged) provided that such telecopied notice must also be delivered by one of the means set forth in (a), (b) or (c) above, addressed if to Lender at its address set forth on the first page hereof, and if to Borrower at its designated address set forth on the first page hereof, or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 8.6. A copy of all notices, consents, approvals and requests directed to Borrower shall be delivered concurrently to c/o Lazard Freres Real Estate Investors L.L.C., 30 Rockefeller Plaza, 50th Floor, New York, New York 10020, Attention: John A. Moore, Phone Number (212) 632-8258, Telefax Number (212) 332-5641. A copy of all notices, consents, approvals and requests directed to Lender shall be delivered concurrently to each of the following: Capital Trust, Inc., 410 Park Avenue, 14th Floor, New York, New York 10022, Attention: Stephen D. Plavin, Jeremy FitzGerald and Loan Administrator. A notice shall be deemed to have been given: (a) in the case of hand delivery, at the time of delivery; (b) 54 in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day; or (d) in the case of telecopier, upon receipt of answer back confirmation, provided that such telecopied notice was also delivered as required in this Section 8.6. A party receiving a notice which does not comply with the technical requirements for notice under this Section 8.6 may elect to waive any deficiencies and treat the notice as having been properly given. If a party refuses delivery, such party shall be deemed to have received notice on the date of attempted delivery, as evidenced by courier's or post office proof of attempted delivery. Section 8.7. TRIAL BY JURY. BORROWER AND LENDER, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS. Section 8.8. Headings. The Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 8.9. Assignment. Lender shall have the right to assign in whole or in part this Agreement and/or any of the other Loan Documents and the obligations hereunder or thereunder to any Person and to sell or otherwise transfer participation interests in all or any portion of the Loan evidenced hereby. Section 8.10. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 8.11. Preferences. Lender shall have no obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the obligations of Borrower pursuant to this Agreement, the Notes or any other Loan Document. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrower to any portion of the obligations of Borrower hereunder. To the extent Borrower makes a payment or payments to Lender for Borrower's benefit, which payment or receipt of proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the obligations hereunder or part thereof intended to be 55 satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. Section 8.12. Waiver of Notice. Neither Borrower nor any of its Affiliates shall be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower or an Affiliate thereof and except with respect to matters for which Borrower and any applicable Affiliate are not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Agreement or the other Loan Documents does not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 8.13. Remedies of Borrower. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement, the Notes, or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, then in such event Borrower shall not be entitled to bring an action for damages, but shall be limited to commencing an action seeking injunctive relief or declaratory judgment. Section 8.14. Full Recourse. The Loan and Borrower's obligations thereunder shall be fully recourse to Borrower. Section 8.15. Fortress Pledge. Notwithstanding the provisions of the Fortress Pledge or the other provisions of this Agreement to the contrary, so long as no Event of Default shall have occurred and be continuing, Prometheus Homebuilders shall have the right, from time to time, in good faith to enter into agreements, exchanges of interests or other restructuring arrangements, with Fortress and its other shareholders, in which event Lender shall release its collateral under the Fortress Pledge in exchange for a pledge of such Equity Interests in Fortress or such other rights as Prometheus Homebuilders or the Fund (directly or indirectly) obtains. Section 8.16. Exhibits Incorporated. The information set forth on the cover, heading and recitals hereof, and the Exhibits and Schedules attached hereto, are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof. Section 8.17. Offsets, Counterclaims and Defenses. Any assignee of Lender's interest in and to this Agreement, the Notes, and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Loan, this Agreement, the Notes, and the other Loan Documents which Borrower or any of its Affiliates may otherwise have against any assignor, and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower or any of its Affiliates in any action or 56 proceeding brought by any such assignee upon this Agreement, the Notes, and other Loan Documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower. Section 8.18. No Joint Venture or Partnership. Borrower and Lender intend that the relationship created hereunder be solely that of borrower and lender. Nothing herein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender. Section 8.19. Waiver of Marshalling of Assets Defense. To the fullest extent that Borrower may legally do so, Borrower waives all rights to a marshalling of the assets of Borrower, and others with interests in Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the interests hereby created, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Indebtedness without any prior or different resort for collection, or the right of Lender to the payment of the Indebtedness in preference to every other claimant whatsoever. Section 8.20. Waiver of Counterclaim. Borrower hereby waives the right to assert a counterclaim, other than compulsory counterclaim, in any action or proceeding brought against Borrower by Lender or Lender's agents. Section 8.21. Conflict; Construction of Documents. In the event of any conflict between the provisions of this Agreement and the provisions of the Notes, or any of the other Loan Documents, the provisions of this Agreement shall prevail. The parties hereto acknowledge that they were represented by counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Section 8.22. Brokers and Financial Advisors. Borrower and Lender hereby represent that they have dealt with no financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Borrower hereby agrees to indemnify and hold Lender harmless from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from a claim by any Person, that such Person acted on behalf of Borrower in connection with the transactions contemplated herein. The provisions of this Section shall survive the expiration and termination of this Agreement and the repayment of the Indebtedness. 57 Section 8.23. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 8.24. Payment of Expenses. Borrower shall, whether or not the Transactions are consummated, pay all Transaction Costs, which shall include all commitment fees due and payable at closing and all reasonable out-of-pocket fees, costs, expenses, and disbursements of Lender and its attorneys, local counsel, accountants and other contractors in connection with (i) the negotiation, preparation, execution and delivery of the Loan Documents and the documents and instruments referred to therein, (ii) the creation, perfection or protection of Lender's Liens in the Collateral (including fees and expenses for title and lien searches and filing and recording fees, intangibles taxes, personal property taxes, mortgage recording taxes, due diligence expenses, travel expenses, (iii) the negotiation, preparation, execution and delivery of any amendment, waiver or consent relating to any of the Loan Documents, and (iv) the preservation of rights under and enforcement of the Loan Documents and the documents and instruments referred to therein, including any restructuring or rescheduling of the Indebtedness. Section 8.25. Bankruptcy Waiver. Borrower hereby agrees that, in consideration of the recitals and mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, if Borrower (i) files with any bankruptcy court of competent jurisdiction or is the subject of any petition under Title 11 of the U.S. Code, as amended, (ii) is the subject of any order for relief issued under Title 11 of the U.S. Code, as amended, (iii) files or is the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future law relating to bankruptcy, insolvency or other relief of debtors, (iv) has sought or consents to or acquiesces in the appointment of any trustee, receiver, conservator or liquidator or (v) is the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to bankruptcy, insolvency or other relief for debtors, the automatic stay provided by the Federal Bankruptcy Code and any other such statute shall be modified and annulled as to Lender, so as to permit Lender to exercise any and all of its rights and remedies, upon request of Lender made on notice to Borrower and any other party in interest but without the need of further proof or hearing. Neither Borrower nor any Affiliate of Borrower shall contest the enforceability of this Section. 58 Section 8.26. Entire Agreement. This Agreement, together with the Exhibits and Schedules hereto and the other Loan Documents constitutes the entire agreement among the parties hereto with respect to the subject matter contained in this Agreement, the Exhibits and Schedules hereto and the other Loan Documents and supersedes all prior agreements, understandings and negotiations between the parties. Section 8.27. Dissemination of Information. If Lender determines at any time to sell, transfer or assign the Notes, this Loan Agreement and any other Loan Document and any or all servicing rights with respect thereto, or to grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement, subject to receipt by Borrower of a confidentiality agreement reasonably acceptable to it from any Investor (herein defined), Lender may forward to each purchaser, transferee, assignee, servicer, participant or investor in such securities (collectively, the "Investor") or any Rating Agency rating such securities and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Loan, Borrower, any member of the Borrower Control Group, any guarantor, any indemnitor and the Collateral, which shall have been furnished by or on behalf of Borrower, any member of the Borrower Control Group, any guarantor, any indemnitor, or any party to any Loan Document, or otherwise furnished in connection with the Loan, as Lender in its discretion determines necessary or desirable. Notwithstanding the provisions of this Section 8.27 or the provisions of Section 8.34, Lender shall not disclose the identity of the investors in LSFRI II, LSFRI II Alternative or LSFRI-CADIM or the members in Lazard Freres REI in documents intended to be released to the public. Neither Borrower nor any member of the Borrower Control Group shall have any obligation to any such third party to which Lender delivers such information unless such Entity so agrees in writing directly with such third party. Notwithstanding the provisions of this Section 8.27 to the contrary, neither Borrower nor any member of the Borrower Control Group shall be required to release or disclose any non-public information concerning any Entity, the securities of which are traded publicly, to any Person who has not furnished a confidentiality agreement. Section 8.28. Limitation of Interest. It is the intention of Borrower and Lender to conform strictly to applicable laws governing the maximum rate of interest and other charges payable, including usury laws. Accordingly, if the transactions contemplated hereby would violate any such applicable law, then, in that event, notwithstanding anything to the contrary in any Loan Document, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is taken, reserved, contracted for, charged or received under any Loan Document or otherwise in connection with the Loan shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited to principal by Lender (or if the Loan shall have been paid in full, refunded to Borrower); and (ii) in the event that the maturity of the Loan is accelerated by reason of an election by Lender resulting from any default hereunder or otherwise, or in the event of any required or permitted prepayment, 59 then such consideration that constitutes interest may never include more than the maximum amount of interest allowed by applicable law, and any interest in excess of the maximum amount of interest allowed by applicable law, if any, provided for in the Loan Documents or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore prepaid, shall be credited to principal (or if the principal portion of the Loan and any other amounts not constituting interest shall have been paid in full, refunded to Borrower). In determining whether or not the interest paid or payable under any specific contingency exceeds the maximum amount allowed by applicable law, Lender shall, to the maximum extent permitted under applicable law (a) exclude voluntary prepayments and the effects thereof, and (b) amortize, prorate, allocate and spread, in equal parts, the total amount of interest throughout the entire contemplated term of the Loan so that the interest rate is uniform throughout the entire term of the Loan; provided, that if the Loan is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the maximum amount allowed by applicable law, Lender shall refund to Borrower the amount of such excess, and in such event, Lender shall not be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the maximum amount allowed by applicable law. Section 8.29. Indemnification. (a) In addition to any other indemnifications provided for herein or in the other Loan Documents, Borrower shall protect, defend, indemnify and hold harmless Lender and each of its Affiliates and their respective successors and assigns (including their respective trustees, officers, directors, partners, employees, attorneys, accountants, professionals and agents and each other Person, if any, controlling Lender or any of its affiliates within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended) (each, including Lender, an "Indemnified Party") from and against all liabilities, obligations, claims, and, damages, penalties, causes of action, losses, fines, costs, expenses (including reasonable attorneys' fees and costs) imposed upon or incurred by or asserted against any Indemnified Party (other than by reason of such Indemnified Party's default under the Loan Documents or active gross negligence or willful misconduct, as determined to have occurred pursuant to the final nonappealable decision of a court of competent jurisdiction) by reason of (i) ownership or holding of this Agreement, the other Loan Documents, the Collateral or any of them or any interest therein, including any funds deposited with Lender, (ii) receipt and application of any balances in the Deposit Account, (iii) any failure on the part of Borrower or any of its Affiliates, including the members of the Borrower Control Group, to perform or comply with any of the terms of this Agreement or any other Loan Document, (iv) any representation or warranty made in the Notes, this Agreement or any of the other Loan Documents being false or misleading in any material respect as of the date such representation or warranty was made, (v) any claim by Borrower or any 60 Affiliate of Borrower that the relationship of Lender and Borrower is other than that of lender and borrower, or (vi) the execution and delivery of this Agreement and the other Loan Documents, the transactions contemplated hereby or thereby and the performance of the parties hereto of their respective obligations hereunder or thereunder. (b) In addition to any other indemnification provided for herein or in the other Loan Documents, LFSRI II, LFSRI II Alternative and LFSRI-CADIM, jointly and severally, shall protect, indemnify, defend and hold harmless the Indemnified Parties from and against all liabilities, obligations, claims, damages, penalties, causes of action, losses, fines, costs, expenses (including reasonable attorneys' fees and costs) imposed upon or incurred by or asserted against any Indemnified Party (other than by reason of such Indemnified Party's default under the Loan Documents or active gross negligence or willful misconduct, as determined to have occurred pursuant to the final, nonappealable decision of a court of competent jurisdiction) by reason of any failure on the part of Borrower or any of its Affiliates, including the members of the Borrower Control Group, to perform or comply with any of the terms of this Agreement or any other Loan Document. (c) Any amounts payable to any Indemnified Party by reason of the application of this Section 8.29 shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by any Indemnified Party until paid. The indemnifications set forth in this Section 8.29 shall not be applicable to the extent (1) occasioned, arising and caused solely as the result of the active gross negligence or willful misconduct of Lender, its nominee or wholly owned subsidiary or their respective employees or agents and irrespective of whether occurring prior to or subsequent to the date upon which Lender, its nominee or wholly owned subsidiary acquires possession of any interest in the Collateral by foreclosure, sale, acceptance of an assignment in lieu of foreclosure or sale or otherwise, as determined to have occurred pursuant to the final nonappealable decision of a court of competent jurisdiction, or (2) as to matters specific and relating solely to the Collateral, occasioned, arising and caused solely as the result of any act of any Person (other than an act of Borrower or any of its Affiliates, or an act of any Governmental Authority, including any change in any applicable law) and occurring subsequent to the earlier to occur of (A) the date of payment and performance in full of the Indebtedness and (B) the date upon which Lender, its nominee or wholly owned subsidiary acquires ownership of the Collateral by foreclosure, sale, acceptance of an assignment in lieu of foreclosure or sale or otherwise of the Collateral. The obligations and liabilities of Borrower, LFSRI II, LFSRI II Alternative and LFSRI-CADIM (each individually, an "Indemnitor", and collectively "Indemnitors") under this Section 8.29 shall survive any termination, satisfaction, or assignment of this Agreement and the exercise by Lender of any of its rights or remedies hereunder, including the acquisition of the Collateral by foreclosure or a conveyance in lieu of foreclosure, or otherwise. 61 (d) In case any claim, action or proceeding (a "Claim") is brought against any Indemnified Party in respect of which indemnification may be sought by such Indemnified party pursuant to this Section 8.29, such Indemnified Party shall give notice thereof to the applicable Indemnitor(s); provided, however, that the failure of such Indemnified Party to so notify the applicable Indemnitor(s) shall not limit or affect such Indemnified Party's rights to be indemnified pursuant to this Section 8.29 hereof, except to the extent such delay shall materially and adversely prejudice the applicable Indemnitor(s)'s defense of such Claim. Upon receipt of such notice of Claim, the applicable Indemnitor(s) shall, at its sole cost and expense, diligently defend any such Claim with counsel reasonably satisfactory to such Indemnified Party. In the alternative, the Indemnified Parties may elect to conduct their own defense through counsel of their own choosing, and at the expense of the applicable Indemnitor(s) , if (i) the Indemnified Parties reasonably determine that the conduct of its defense by an Indemnitor presents a conflict or potential conflict between such Indemnitor and an Indemnified Party that would make separate representation advisable or otherwise could be prejudicial to its interests, (ii) the Indemnitors refuse to defend or (iii) the Indemnitors shall have failed, in Lender's reasonable judgment, to diligently defend the Claim. The applicable Indemnitor(s)may settle any Claim against Indemnified Parties without such Indemnified Parties' consent, provided that (x) such settlement is without any liability, cost or expense whatsoever to such Indemnified Parties, (y) the settlement does not include or require any admission of liability or culpability by such Indemnified Parties under any Legal Requirement, whether criminal or civil in nature, and (z) the applicable Indemnitor(s) obtains an effective written release of liability for such Indemnified Parties from the party to the Claim with whom such settlement is being made, which release must be reasonably acceptable to such Indemnified Parties, and a dismissal with prejudice with respect to all Claims made by the party with whom such settlement is being made, with respect to any pending legal action against such Indemnified Parties in connection with such Claim. If the Indemnified Parties are conducting their own defense as provided above, the applicable Indemnitor(s)shall be responsible for any good faith settlement of such Claim entered into by such Indemnified Parties; provided that such Indemnified Parties have obtained the applicable Indemnitor(s)'s consent to any such settlement, such consent not to be unreasonably withheld or delayed. Nothing contained herein shall be construed as requiring any Indemnified Parties to expend funds or incur costs to defend any Claim in connection with the matters for which such Indemnified Parties are entitled to indemnification pursuant to this Section 8.29 hereof. Section 8.30. Borrower Acknowledgments. Borrower hereby acknowledges to and agrees with Lender that (i) the scope of Lender's business is wide and includes, but is not limited to, financing, investment in real estate and other transactions which may be viewed as adverse to or competitive with the business of Borrower or its Affiliates and (ii) Borrower and its Affiliates have been represented by competent legal counsel and have consulted with such counsel prior to executing this Loan Agreement and the other Loan Documents. 62 Section 8.31. Publicity. Lender shall have the right to issue press releases, advertisements and other promotional materials describing Lender's participation in the origination of the Loan, subject to Borrower's approval which shall not be unreasonably withheld, conditioned or delayed. Section 8.32. Cross Collateralization. Without limitation of any other right or remedy provided to Lender in this Agreement or any of the other Loan Documents, Borrower acknowledges and agrees that, to the full extent permitted under applicable law, upon the occurrence of an Event of Default (i) Lender shall have the right to pursue all of its rights and remedies in one proceeding, or separately and independently in separate proceedings which it, as Lender, in its sole and absolute discretion, shall determine from time to time, (ii) Lender is not required to either marshal assets, sell Collateral in any inverse order of alienation, or be subjected to any "one action" or "election of remedies" law or rule, (iii) the exercise by Lender of any remedies against any Collateral will not impede Lender from subsequently or simultaneously exercising remedies against any other Collateral, (iv) all Liens and other rights, remedies and privileges provided to Lender in this Agreement and in the other Loan Documents or otherwise shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and all Collateral has been foreclosed, sold and/or otherwise realized upon and (v) all Collateral shall be security for the performance of all of Borrower's obligations hereunder. Section 8.33. Release. Upon full payment of the Indebtedness, Lender shall execute such releases and reconveyances as are customary to release and reconvey the Collateral which secures the Loan and shall direct the custodial agent holding the certificates of shares in KPT to return such shares to their owner. Section 8.34. Assignment by Lender; Participations; Securitization 8.34.1 Assignments and Participations. Borrower acknowledges that Lender may on or after the Closing Date sell and assign participation interests in and to the Loan, or pledge, hypothecate or encumber, or sell and assign all or any portion of the Loan, to or with such domestic or foreign banks, insurance companies, pension funds, trusts or other institutional lenders or other Persons, parties or investors (including grantor trusts, owner trusts, special purpose corporations, REMICs, FASITs, real estate investment trusts or other similar or comparable investment vehicles) as may be selected by Lender in its sole and absolute discretion and on terms and conditions satisfactory to Lender in its sole and absolute discretion. Subject to the restrictions on disclosure of certain information contained in Section 8.27, Borrower and the members of the Borrower Control Group shall cooperate in all respects with Lender in connection with the sale of participation interests in, and the pledge, hypothecation or encumbrance or sale of all or any portion of, the Loan, and shall, in connection therewith, execute and deliver such estoppels, certificates, instruments and documents as may be reasonably requested by Lender, at no out-of-pocket cost to Borrower. Subject to entry into 63 a confidentiality agreement in customary form for such transactions, Borrower grants to Lender the right to distribute financial and other information concerning Borrower, the Collateral, and all other pertinent information with respect to the Loan to any Person who has purchased a participation interest in the Loan, or who has purchased the Loan, or who has made a loan to Lender secured by the Loan or who has expressed an interest in purchasing a participation interest in the Loan, or expressed an interest in purchasing the Loan or the making of a loan to Lender secured by the Loan. If requested by Lender, Borrower shall execute and deliver, and shall cause the members of the Borrower Control Group (other than the Destination Entities except to the extent same are directly or indirectly controlled by Borrower) to execute and deliver, at no cost or expense to Borrower, such documents and instruments as may be necessary to split the Loan into two or more loans evidenced by separate sets of notes and secured by separate sets of other related Loan Documents to the full extent required by Lender to facilitate the sale of participation interests in the Loan or the sale of the Loan or the making of a loan to Lender secured by the Loan, it being agreed that (a) any such splitting of the Loan will not adversely affect or diminish the rights of Borrower as presently set forth herein and in the other Loan Documents and will not increase the respective obligations and liabilities of Borrower or any other Person associated or connected with the Loan or the Collateral, (b) the Loan Documents securing the Loan as so split will have such priority of lien as may be specified by Lender, and (c) the retained interest of Lender in the Loan as so split shall be allocated to or among one or more of such separate loans in a manner specified by Lender in its sole and absolute discretion. Notwithstanding the provisions of this Section 8.34.1 to the contrary, neither Borrower nor any member of the Borrower Control Group shall be required to release or disclose any non-public information concerning any Entity, the securities of which are traded publicly, to any Person who has not furnished a confidentiality agreement. 8.34.2 Effect of Assignment. From and after the effective date of any assignment of all or any portion of the Loan to any Person (an "Assignee") (a) such Assignee shall be a party hereto and to each of the other Loan Documents to the extent of the applicable percentage or percentages assigned to such Assignee and, except as otherwise specified herein, shall succeed to the rights and obligations of Lender hereunder in respect of such applicable percentage or percentages, and (b) Lender shall relinquish its rights and be released from its obligations hereunder and under the Loan Documents to the extent of such applicable percentage or percentages. The liabilities of Lender and each of the other Assignees shall be separate and not joint and several. Neither Lender nor any Assignee shall be responsible for the obligations of any other Assignee. 8.34.3 Securitization. Lender, at its option, may elect to effect a securitization of the Loan by means of the issuance of certificates of interest therein or notes secured thereby (the "Securities") rated by one or more Rating Agencies (the "Securitization"). In such event and upon request by Lender to seek to effect such a Securitization, Borrower shall, subject to the restrictions on disclosure set forth in Section 8.27, promptly thereafter 64 cooperate (at no out-of-pocket cost to Borrower) in all reasonable respects with Lender in the Securitization including (a) amending this Agreement and the other Loan Documents, and executing such additional documents, in order to bifurcate the Loan into two or more constituent loans or to effect such other changes as may be reasonably necessary or desirable in connection with a Securitization or requested by a Rating Agency, (b) providing such information as may be requested in connection with the preparation of a private placement memorandum or registration statement required to privately place or publicly distribute the Securities in a manner which does not conflict with federal or state securities laws, (c) providing in connection with such information, an indemnification certificate (i) certifying that Borrower has carefully examined such private placement memorandum or registration statement, as applicable, including the sections entitled "Special Considerations", "Description of the Loan and the Underlying Properties", "Operator", "The Borrower" and "Certain Legal Aspects of the Loan" (or similarly titled sections), and that such Sections (and any other Sections reasonably requested), insofar as they relate solely to Borrower, its Affiliates, the Loan or (to Borrower's knowledge) the Collateral, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, (ii) indemnifying Lender, the underwriter or placement agent and any of their Affiliates for any losses, claims, damages or liabilities (the "Liabilities") to which such parties may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact relating to Borrower, its Affiliates, the Loan or the Collateral contained in such Sections or arise out of or are based upon the omission or alleged omission to state therein a material fact relating to Borrower, its Affiliates, the Loan or (to Borrower's knowledge) the Collateral required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (iii) agreeing to reimburse such parties for any legal or other expenses reasonably incurred by such parties in connection with investigating or defending the Liabilities, (d) causing to be rendered (at Lender's expense) such customary and reasonable opinion letters as may be requested by and satisfactory to any Rating Agency including substantive nonconsolidation opinion letters and an opinion letter from local counsel to the Borrower stating that the assignment of the Loan and the Loan Documents to a trustee in connection with the Securitization is enforceable, (e) making such customary and reasonable representations, warranties and covenants with respect to the Borrower, and the members of the Borrower Control Group, as may be requested by any Rating Agency, (f) providing such information regarding the Collateral and Borrower, members of the Borrower Control Group, and their respective Affiliates as may be reasonably requested by a Rating Agency or potential investors in Securities or otherwise reasonably required in connection with an election of REMIC or FASIT or other tax status and ongoing administration and reporting by any trust formed in connection with the Securitization, (g) amending Borrower's organizational documents or making such other reasonable changes to the structure of Borrower or such of its partners or members or shareholders as may be required by any Rating Agency to conform to 65 requirements customarily imposed in similar transactions, and (h) obtaining a comfort letter (in customary form and containing customary exceptions) from a nationally recognized accounting firm in connection with financial information relating to Borrower and the members of the Borrower Control Group and which is, in connection with the Securitization, presented in a private placement memorandum or prospectus. In no event shall Borrower be required to pay any Rating Agency or other fees or expenses or be required to pay any costs or expenses whatsoever in connection with any such Securitization other than the overhead and internal costs incurred by Borrower in cooperating in the manner described in clauses (a) through (h) above. Notwithstanding the provisions of this Section 8.34.3 to the contrary, neither Borrower nor any member of the Borrower Control Group shall be required to release or disclose any non-public information concerning any Entity, the securities of which are traded publicly, to any Person who has not furnished a confidentiality agreement. 8.34.4 Other Business. Lender, each Assignee and each participant and their respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Borrower, members of the Borrower Control Group or any of them, any Affiliate of Borrower, any of Borrower's subsidiaries and any Person who may do business with or own interests in or securities of Borrower or any such Affiliate or subsidiary, without any duty to account therefor. 8.34.5 Privity of Contract. This Agreement is being entered into by Lender individually and as agent for all present and future Assignees, and privity of contract is hereby created among Lender and all present and future Assignees, on the one hand, and Borrower, on the other hand. Section 8.35. Not a Novation. The Acknowledgment, the Amended and Restated Deposit Account Agreement and this Agreement constitute a modification of the Increased Original Loan Documents and are not intended to and shall not terminate or extinguish any of the indebtedness or obligations thereunder, nor shall this Agreement, the Acknowledgment or the Amended and Restated Deposit Account Agreement or any other Loan Document affect or impair the priority of any liens created thereby, it being the intention of the parties to carry forward all liens and security interests securing the payment of the Original Note as amended by the First Amendment, and of the First Additional Note, which liens and security interests are acknowledged by the parties to be valid and subsisting against the collateral delivered to Lender in connection therewith pursuant to the Original Loan Agreement and the First Amendment. Section 8.36. Joint and Several Liability of Borrower; Assumption by New Borrower. The obligations of the Original Borrower and New Borrower under this Agreement are joint and several. Furthermore, in consideration of the New Loan Amount and without releasing Original Borrower from any of its obligations under the Increased Original Loan Documents, New Borrower hereby assumes all obligations of the "borrower" under the Increased 66 Original Loan Documents, so that the obligations of Original Borrower and New Borrower thereunder shall be the joint and several obligations of each and both of them. Section 8.37. Interpretation of Documents. In case of any contradiction between the provisions of this Agreement and the provisions of the Increased Original Loan Documents, as amended by the Acknowledgment, the provisions of this Agreement shall prevail. - SIGNATURES BEGIN ON NEXT PAGE - 67 IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. LENDER: CAPITAL TRUST, INC., a Maryland corporation By: /s/ Jeremy Fitzgerald --------------------------------------------- Name: Jeremy Fitzgerald Title: Managing Director BORROWER: Original Borrower: LFSRI II SPV REIT Corp., a Delaware corporation By: /s/ John A. Moore --------------------------------------------- Name: John A. Moore Title: Vice President and Chief Financial Officer New Borrower: SENIOR QUARTERS FUNDING CORP., a Delaware corporation By: /s/ John A. Moore --------------------------------------------- Name: John A. Moore Title: Vice President and Chief Financial Officer The undersigned are executing this Agreement solely for the purpose of agreeing to be bound by the provisions of Section 5.1(o) and Section 8.29. LF STRATEGIC REALTY INVESTORS II L.P., LFSRI II ALTERNATIVE PARTNERSHIP L.P., and LFSRI II - CADIM ALTERNATIVE PARTNERSHIP L.P., all Delaware limited partnerships By: Lazard Freres Real Estate Investors L.L.C., a New York limited liability company, their general partner By: /s/ John A. Moore ----------------------------------------- Name: John A. Moore Title: Principal and Chief Financial Officer S-IV-1 EX-99 3 0003.txt EXHIBIT 2 Exhibit 2 --------- 4(b) (ARV stk.) PLEDGE AND SECURITY AGREEMENT (STOCK AND PROMISSORY NOTE) THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT") dated as of February 8, 2001 is by and among CAPITAL TRUST, INC., a Maryland corporation ("SECURED PARTY"), having an address at 410 Park Avenue, 14th floor, New York, N.Y. 10022, PROMETHEUS ASSISTED LIVING LLC, a Delaware limited liability company ("PLEDGOR"), having an address at 30 Rockefeller Plaza, New York, N.Y. 10020. PRELIMINARY STATEMENT A. Secured Party has agreed to make a loan to LFSRI II SPV REIT CORP., a Delaware corporation ("ORIGINAL BORROWER"), and SENIOR QUARTERS FUNDING CORP., a Delaware corporation ("NEW BORROWER"; New Borrower, collectively with Original Borrower, the "BORROWER"), in the aggregate principal sum of $110,000,000 (the "LOAN") a portion of which has been advanced prior to the date hereof, in accordance with the provisions of a certain Amended and Restated Loan Agreement (the "LOAN AGREEMENT") dated of even date herewith, which Loan shall be evidenced by, and payable, together with interest thereon, in accordance with the provisions of three promissory notes collectively referred to therein as the "NOTES". The Notes, the Loan Agreement, this Agreement and all other documents of any nature whatsoever evidencing, securing or guaranteeing the Loan in whole or in part, or otherwise executed and delivered in connection with the Loan or relating thereto, as the same may be modified or amended from time to time, are hereinafter referred to collectively as the "LOAN DOCUMENTS". B. Capitalized terms used and not otherwise defined herein shall have the respective meanings given to such terms in the Loan Agreement. C. As of the date hereof, Pledgor is the owner of 7,595,069 shares of the common stock of ARV ASSISTED LIVING, INC., a Delaware corporation ("COMPANY"), being approximately forty-three percent (43%) of the outstanding shares of the Company and is entitled to receive dividends and other distributions on account thereof from time to time declared and paid by the Company (the "STOCK INTEREST"), and Pledgor is the payee under a promissory note in the principal amount of $1,500,000 from Company (the "PROMISSORY NOTE;" the Promissory Note, the Stock Interest together with the right to receive dividends and distributions on account of the Stock Interest and payment under the Promissory Note from time to time, are hereafter collectively referred to as the "INTEREST"). D. Secured Party was willing to make the Loan only if Pledgor agreed to execute and deliver this Agreement as additional security for the payment of all principal, interest, additional interest and other sums of any nature whatsoever which may or shall become due under the Notes, the Loan Agreement and the other Loan Documents (collectively, the "DEBT") and the observance and performance by Borrower, Pledgor, and the other members of the Borrower Control Group of all the terms, covenants and provisions of the Loan Documents on the part of Pledgor to be observed and performed. E. Pledgor will derive substantial economic benefit from the Loan and, therefore, Pledgor desires to execute this Agreement in order to satisfy the condition described in the foregoing paragraph D. NOW, THEREFORE, in consideration of Secured Party's agreement to make the Loan and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby represents and warrants to and covenants and agrees with Secured Party as follows: SECTION 1. SECURITY INTEREST. As security for the due and punctual payment in full of the Debt and for the due and punctual performance by Borrower, Pledgor, and the other members of the Borrower Control Group of all of the terms, covenants and provisions of the Loan Documents (the Debt, the payment thereof and the performance of the terms, covenants and provisions of the Loan Documents being hereinafter collectively called the "OBLIGATIONS"), Pledgor hereby pledges, hypothecates, assigns, and delivers to Secured Party and grants to Secured Party a security interest in and lien on all of Pledgor's right, title and interest now owned or hereafter acquired in and to the following described property (the "COLLATERAL"): (a) the Interest and any certificates representing the Interest; (b) all cash, securities, dividends, distributions, Proceeds, and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Interest, and any fees, commissions or other compensation payable to Pledgor as a shareholder of Company and as payee under the Promissory Note (all of the foregoing, collectively, "DISTRIBUTIONS"); (c) all contract rights, general intangibles, rights, claims, powers, privileges, benefits and remedies arising from or in any way related to ownership of the Interest, any certificates and other instruments representing the Interest and the other Collateral described above in paragraphs 1(a) and (b), including, without limitation, all rights to vote or consent, or to receive any notice, or to inspect or review any books, records or other information; (d) all additions to the Collateral described in the foregoing clauses (a) through (c) including without limitation any tangible or intangible property in the Company obtained in the future by Pledgor, all substitutions therefor and all replacements thereof; (e) all Proceeds of any of the foregoing. Notwithstanding any contrary provision contained herein, as used in this Agreement, the terms "Collateral" and "Distributions" shall not include any Money properly released from the Deposit Account or other Collateral released by Secured Party pursuant to the terms of this Agreement or the Amended and Restated Deposit Account Agreement. -2- SECTION 2. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as of the date hereof as follows: (a) No consent of any other person or entity (including, without limitation, any owner or creditor of Pledgor) which has not been obtained is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. (b) Pledgor is duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority under the laws of such state and under its organizational and charter documents to enter into and perform its obligations under this Agreement. (c) Pledgor has taken all necessary legal and other action to authorize the execution, delivery and performance of this Agreement, and this Agreement constitutes the valid and binding obligation and agreement of Pledgor, enforceable in accordance with its terms, subject to limitations as to enforceability imposed by bankruptcy, reorganization, moratorium, insolvency and other laws of general application relating to or affecting the enforceability of creditors' rights and to equitable principles. (d) Pledgor has not received any notice of default under any agreement or instrument to which Pledgor is a party or by which Pledgor or Pledgor's assets may be bound which default would have a material adverse effect on Pledgor's business, assets, property or financial or other condition, and Pledgor is not in default under any order, judgment, award or decree of any court, arbitrator or other governmental authority binding upon or affecting Pledgor or by which any of Pledgor's assets may be bound or affected. (e) Neither the execution and delivery of this Agreement nor the compliance by Pledgor with the terms and provisions hereof are events which of themselves, or with the giving of notice or the passage of time, or both, would constitute, on the part of Pledgor, a violation of or conflict with, or result in any breach of, or default under, the terms, conditions or provisions of, or require any consent, permit, approval, authorization, declaration or filing (other than filings now or hereinafter made by Pledgor required under the Securities Exchange Act of 1934, as amended, as a result hereof) which has not been made or obtained under or pursuant to, any statute, law, judgment, decree, order, rule or regulation applicable to Pledgor, the organizational and charter documents of Pledgor, if any, or, any other agreement or instrument to which Pledgor is a party or by which Pledgor, or Pledgor's assets, are bound, or result in the creation or imposition of any Lien on any of the assets of Pledgor, no such condition or event of itself, or with the giving of notice or the passage of time, or both, will result in the acceleration of the due date of any obligation of Pledgor or by which any of Pledgor's assets are bound; provided, however, that the compliance by Pledgor with the terms and provisions hereof is subject to all applicable Federal and state securities laws. (f) There are no judgments presently outstanding and unsatisfied against Pledgor or any of Pledgor's assets, and neither Pledgor nor any of Pledgor's assets is a party to or the subject of any -3- actions or suits or proceedings in equity or by any governmental authorities, and no such litigation or proceeding has been threatened against Pledgor or against any of Pledgor's assets, and no investigation in contemplation of such litigation or proceeding has begun or is pending or has been threatened. (g) Pledgor's principal place of business and chief executive office is at the location identified in the first paragraph of this Agreement. (h) The financial statements of Pledgor and Company furnished to Secured Party are true, correct and complete in all material respects and fairly present the financial condition of Pledgor and Company as at the end of and for the reporting periods covered thereby. Except as shown on such financial statements, no borrowings have been made or indebtedness incurred by Pledgor or Company which is outstanding and which might give rise to a lien or claim against any assets of Pledgor or Company. Except for the Permitted Indebtedness of Pledgor, there are no liabilities, contingent or otherwise, or any unrealized or anticipated losses from unfavorable commitments, whether arising before or after the date of such financial statements, which are not disclosed in such financial statements. Notwithstanding any of the foregoing, the representations and warranties set forth in this Section 2(h) as they relate to the Company are made to Pledgor's actual knowledge. (i) As of the date hereof, Pledgor has filed or caused to be filed all United States, state, local and foreign income tax returns (if any) which are required to be filed and all United States, state, local and foreign tax returns other than income tax returns which are required to be filed and has paid or caused to be paid all taxes shown on such returns or on any assessment made against it and all other taxes, fees or other charges imposed on it by any governmental authority, agency or instrumentality which have become due and payable. No tax liens have been filed against Pledgor or against any of its assets, and no material claims are being asserted against Pledgor or any of its assets in respect of any taxes. (j) Pledgor is the sole record and beneficial owner of 7,595,069 shares of common stock of the Company except to the extent any direct or indirect equity owners of Pledgor is deemed to be a beneficial owner of said common stock. All of such common stock of the Company held by Pledgor is validly issued, fully paid and non-assessable. SECTION 3. Intentionally omitted. SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as follows with respect to the Interest as of the date hereof: (a) (i) Pledgor is the sole record and beneficial owner of the Interest (except to the extent any direct or indirect equity owners of Pledgor is deemed to be a beneficial owner of the Interest), free and clear of all Liens (other than as created hereunder); Pledgor has legal title to the Interest and good right and lawful authority to grant a -4- security interest and lien in the same in the manner hereby done or contemplated. (ii) The execution and delivery of this Agreement by Pledgor is not restricted in any way (x) by any agreement or instrument to which Pledgor is a party, except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions or (y) any applicable law governing Pledgor. (iii) The transferability of the Interest, with respect to either the grant of a security interest and lien in the Collateral to Secured Party or to any foreclosure sale of the Collateral by Secured Party is not restricted in any way by (x) any agreement or instrument to which Pledgor is a party, except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions, or (y) any law governing the Company (other than applicable Federal and state securities laws). (iv) The Interest is not subject to any option or similar arrangement; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is necessary to the validity of the rights created hereunder; and all action has been taken by Pledgor to create and perfect, in favor of Secured Party, a security interest and lien in the Interest, and Secured Party has acquired a first priority perfected security interest and lien therein. (b) Except as set forth in that certain Settlement Agreement dated September 29, 1999 between Pledgor, Company and Investor Affiliates (as such term is defined therein), there are no outstanding or authorized options, warrants, rights, contracts, rights to subscribe, conversion rights or other agreements or commitments (collectively, "ADVERSE RIGHTS") to which Pledgor is a party providing for the issuance or acquisition of any Equity Interests in Company. (c) As to all Collateral acquired by Pledgor on and after the date hereof, Pledgor shall be the legal and equitable owner of such Collateral free and clear of all Liens (other than those created hereunder); each ownership interest or other security comprising such Collateral will have been duly authorized, validly issued and be fully paid and non-assessable; Pledgor will have legal title to such Collateral and good and lawful authority to pledge, assign and deliver such Collateral in the manner hereby contemplated; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is or will be necessary to the validity of the rights created hereunder. (d) Pledgor shall not take any action, or fail to take any action, in contravention of the terms, conditions and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents. -5- SECTION 5. COVENANTS. (a) Entity Status. Pledgor will continue to comply with the provisions of all of its organizational and governing documents, and the laws of the state in which such Entity was formed relating to each such Entity. All customary formalities regarding the Entity existence of Pledgor will continue to be observed. (b) Existence. Pledgor shall not (i) take any actions in violation of its organizational or governing documents or (ii) amend, modify, waive or terminate its organizational or governing documents. (c) Other Actions. Pledgor shall not: (1) Liens on the Collateral. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Lien with respect to any Collateral except Liens in favor of Secured Party. (2) Certain Restrictions. Enter into any agreement which expressly restricts the ability of Pledgor to enter into amendments, modifications or waivers of any of the Loan Documents. (3) Issuance of Equity Interests. Issue or allow to be created any shareholder, partnership, trust or membership interests, as applicable, or other Equity Interests in Pledgor. (d) Reduction of Distributions. Subject to fiduciary obligations, Pledgor shall not, directly or indirectly, without prior written consent of the Secured Party, vote to reduce the annual dividend payable by the Company. (e) Transfer. Pledgor shall not Transfer the Interest other than in compliance with Section 2.6(b) of the Loan Agreement. SECTION 6. DELIVERY OF COLLATERAL; VOTING RIGHTS; DISTRIBUTIONS; SUBSTITUTION OF COLLATERAL. (a) Any and all certificates representing the Collateral (including without limitation additional or substitute certificates or instruments representing Distributions or other Collateral that hereafter may be issued) shall be delivered to the Secured Party in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form satisfactory to Secured Party. (b) So long as there shall not have occurred and be continuing an Event of Default (hereinafter defined), Pledgor shall be entitled to exercise any and all voting rights and powers relating or pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms and provisions of the Notes, the Loan Agreement, this Agreement and the other Loan Documents or otherwise in contravention of -6- any of the terms, covenants and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents. (c) Except as and to the extent provided herein and in the Loan Documents, until the Indebtedness is paid in full, Pledgor shall not receive or be entitled to retain Distributions, if any, paid on the Collateral. To the extent Pledgor receives any Distributions prohibited hereunder, Pledgor shall receive same in trust for the benefit of Secured Party and shall immediately deliver same to Secured Party or its designated agent (accompanied by proper instruments of assignment or stock powers executed by Pledgor in accordance with Secured Party's instructions) to be held subject to the terms, provisions and conditions of this Agreement, the Loan Agreement and the Amended and Restated Deposit Account Agreement. (d) Upon the occurrence of an Event of Default and so long as said Event of Default shall continue, at the option of Secured Party, (i) all rights of Pledgor to exercise the voting and consensual rights and powers which Pledgor is entitled to exercise pursuant to the foregoing subparagraph (b) shall cease, and all such rights shall thereupon and without any further action or notice become vested in Secured Party who shall have the sole and exclusive right and authority to exercise (or refrain from exercising) such voting and consensual rights and powers in its sole discretion, and (ii) Secured Party shall receive and be entitled to retain any and all Distributions until the Indebtedness is satisfied. THIS ASSIGNMENT OF VOTING RIGHTS IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE BY DISSOLUTION OR OTHERWISE. The exercise of any of the rights and remedies of Secured Party under this paragraph shall not be or be deemed to be a disposition of Collateral under Article 9 of the Uniform Commercial Code as in effect in any applicable jurisdiction (the "UCC") or an acceptance or a retention or a proposal to accept or retain all or any part of the Collateral in satisfaction of all or any of the Obligations. Any and all Distributions received by Secured Party pursuant to the provisions of this paragraph shall be retained by Secured Party as part of the Collateral and applied in accordance with the provisions of Section 11 of this Agreement. (e) No substitution of Collateral shall be permitted without the prior written consent of Secured Party. SECTION 7. COSTS AND EXPENSES. Pledgor shall pay all costs, fees, expenses and charges incurred by Secured Party in connection with the administration and enforcement of this Agreement and the security interest granted hereunder (including, without limitation, all attorneys' fees and costs). In addition, Pledgor agrees to pay, and to save Secured Party harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement or the transactions contemplated hereby. The obligations of Pledgor pursuant to this paragraph shall survive any termination of this Agreement. SECTION 8. EVENT OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "EVENT OF DEFAULT") hereunder: -7- (a) If any representation or warranty of Pledgor made in this Agreement, or in any certificate, report, financial statement or other instrument furnished in connection with this Agreement shall prove false or misleading in any material respect the effect of which shall cause or result in a Material Adverse Condition to the Pledgor or the Company; (b) If Pledgor shall make a general assignment for the benefit of creditors; (c) If a court of competent jurisdiction enters a decree or order for relief with respect to Pledgor under Title 11 of the United States Code as now constituted or hereafter amended or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if such court enters a decree or order appointing a receiver, liquidator, assignee, trustee, custodian, examiner, magistrate, arbitrator, sequestrator (or similar official) of Pledgor or of any substantial part of its properties, or if such court decrees or orders the winding up or liquidation of the affairs of Pledgor; (d) If Pledgor files a petition for relief or answer or consent seeking relief under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if Pledgor fails to vigorously and diligently oppose or otherwise consents to or acquiesces in the commencement or prosecution of an involuntary case under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or similar law, rule or regulation, or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, examiner magistrate, arbitrator, sequestrator (or other similar official) of Pledgor, or of any substantial part of its properties, or if Pledgor fails generally to pay its debts as such debts become due, or if Pledgor takes any action in furtherance of any action described in this subparagraph; (e) If any Affiliate of Pledgor shall commence any legal action seeking to cause Pledgor or any Affiliate of Pledgor to take any of the actions described in subparagraphs (b), (c) or (d) above with respect to Pledgor; (f) If Pledgor shall be in default of any other provision provided herein and such default shall continue for a period of thirty (30) days after notice from Secured Party; or (g) If an "Event of Default" (as such term is defined in the Loan Agreement) occurs. SECTION 9. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuation of an Event of Default, Secured Party may, in addition to any other rights or remedies which Secured Party may have, immediately and without demand exercise with respect to the Collateral any and all rights and remedies granted to a secured party under the UCC. -8- SECTION 10. SALE OF COLLATERAL. (a) Sale of the Collateral may be made at any public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, as Secured Party shall deem appropriate. Secured Party shall be authorized at any such sale, in its sole discretion, to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral then being sold for their own account for investment and not with a view to the distribution or resale thereof, and upon consummation of any such sale Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives, to the extent permitted by law, all right of redemption, stay or appraisal which Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. To the extent that notice of sale shall be required to be given by law, Secured Party shall give Pledgor ten (10) days' notice in the manner herein specified of Secured Party's intention to make any such public or private sale or sale at any broker's board or on any such securities exchange. Such notice, in case of public sale, shall state the time and place fixed for such sale, and, in the case of sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. In case of private sale, such notice shall state the time after which the Collateral will be sold. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. At any such sale, the Collateral, or any portion thereof, may be sold as Secured Party may in its sole discretion determine. To the extent permitted by law, Secured Party may bid, which bid may be in whole or in part, in the form of cancellation of indebtedness, for and purchase for the account of Secured Party or its nominee the whole or any part of the Collateral. Secured Party shall not be obligated to make any sale of the Collateral if Secured Party shall determine not to do so, regardless of the fact that notice of sale of the Collateral may have been given. Secured Party may, without notice of publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Secured Party until the sales price is paid by the purchaser or purchasers thereof, but Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may be sold again upon like notice. As an alternative to exercising the power of sale herein conferred upon it, Secured Party may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts of competent jurisdiction. Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in accordance with the foregoing procedures shall be deemed to be commercially reasonable under the UCC and otherwise proper. -9- (b) In connection with any disposition of the Collateral, if Secured Party elects to obtain the advice of any one or more independent nationally known investment banking firms which are member firms of the New York Stock Exchange (or other nationally recognized exchange), with respect to the method or manner of sale or disposition of any of the Collateral, the best price reasonably obtainable therefor and any other details concerning such sale or disposition, Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in reliance on such advice shall be deemed to be commercially reasonable under the UCC and otherwise proper. (c) Pledgor understands that compliance with federal or state securities laws may very strictly limit the course of conduct of Secured Party if Secured Party were to attempt to dispose of all or any part of the Collateral and may also limit the extent to which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Pledgor agrees that in any sale of any of the Collateral, Secured Party is hereby authorized to comply with any such limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall Secured Party be liable or accountable to Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 11. APPLICATION OF MONIES. All monies (including, without limitation, Distributions) received or collected by Secured Party pursuant to this Agreement shall be held as Collateral by Secured Party and after the occurrence of an Event of Default shall be applied by Secured Party first, to the payment of all costs incurred in the collection of such monies (including attorneys' fees and expenses) and second, to the payment of the Indebtedness in such order and priority as Secured Party may in its sole discretion determine. The balance, if any, of such monies remaining after payment in full of such costs and the Obligations shall be remitted to Pledgor or as otherwise directed by a court of competent jurisdiction. SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby appoints Secured Party, effective upon an Event of Default and during the continuation thereof, as the attorney-in-fact of Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which Secured Party may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, upon an Event of Default and during the continuation thereof, Secured Party shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor representing any Distribution or any part of any thereof and to give full discharge for the same. -10- SECTION 13. NO WAIVER. No failure or delay on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder nor shall Secured Party's waiver of any right or remedy against Pledgor release or relieve Pledgor from its obligations hereunder. No modification or waiver of any provision of this Agreement nor consent to any departure by Pledgor therefrom shall be effective unless the same shall be in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Pledgor in any case shall, of itself, entitle Pledgor to any other or further notice or demand in similar or other circumstances. If any notice is required by law to be given to Pledgor or the Company by Secured Party, five (5) days' notice given by registered mail, return receipt requested, and addressed to such party at the address set forth herein shall be deemed for all purposes to be reasonable notice. SECTION 14. DURATION OF SECURED PARTY'S RIGHTS AND TERMINATION. Until the Indebtedness shall have been paid in full, all rights, powers and remedies granted to Secured Party under this Agreement shall continue to exist and may be exercised by Secured Party at any time and from time to time. Upon payment in full of the Indebtedness, Secured Party shall reassign and redeliver, without recourse or warranty and at the expense of Pledgor, or cause to be so reassigned and redelivered, to Pledgor or to such person or persons as Pledgor shall designate, against receipt, such of the Collateral, if any, as shall not have been sold or otherwise applied by Secured Party pursuant to the terms hereof and still be held by Secured Party hereunder, together with appropriate instruments of reassignment and release. SECTION 15. AGREEMENTS OF PLEDGOR. Until the Indebtedness is paid and performed in full, Pledgor covenants and agrees with Secured Party as follows: (a) Pledgor shall furnish or cause to be furnished to Secured Party from time to time, at the request of Secured Party, such information concerning Pledgor or Company (to the extent available to Pledgor) as Secured Party may reasonably request; (b) Except for the Permitted Indebtedness, Pledgor shall not make any loans to shareholders of Pledgor or to set aside any funds for any such purpose; (c) Except as created hereby and the Permitted Indebtedness, Pledgor shall not create any mortgage, pledge, title retention lien, or other Lien, or incur any indebtedness (directly or as a guarantor) or any Lien with respect to any assets now owned or hereafter acquired by Pledgor, or to take or fail to take any other action whatsoever, in contravention of Section 5 of this Agreement or otherwise inconsistent with the terms and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents; (d) Pledgor shall not in any manner further encumber, sell, transfer or convey, or permit to be further encumbered, sold, transferred or conveyed in any manner, the Collateral other than in compliance with Section 2.6(b) of the Loan Agreement; -11- SECTION 16. LIMITATION ON DUTIES AND LIABILITIES OF SECURED PARTY; INDEMNIFICATION. (a) Beyond the exercise of reasonable care in the custody of any Collateral in its possession, Secured Party shall have no duty as to any Collateral or as to the preservation of rights against prior parties or any other rights pertaining thereto. Secured Party shall have no duty as to any Collateral, to ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords other collateral of the same type in its possession. Except for gross negligence and willful misconduct, Secured Party shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of Secured Party or any agent, bailee or custodian selected by Secured Party in good faith or for taking any necessary steps to preserve rights against any parties with respect to any Collateral or for the collection of any proceeds of any Collateral or for any invalidity, lack of value or uncollectability of any of the Collateral. (b) The pledge and assignment of the Collateral and grant of a security interest is for collateral purposes only, and, prior to its foreclosure thereon, Secured Party shall neither by virtue of this Security Agreement, by the receipt of Distributions, by exercise of voting rights or by the exercise of any of its rights or remedies hereunder be deemed to be a member, interest holder, partner or stockholder, as applicable, of Company or to have any liability for the debts, obligations or liabilities of Company, Pledgor, or any other member, interest holder, partner or stockholder, as applicable, of Company. Without limiting the generality of the foregoing, by accepting the pledge, assignment and security interests described herein, Secured Party does not thereby assume any debts, obligations, responsibilities, covenants, agreements or liabilities of Pledgor in connection with the Collateral or of Pledgor to Company or to any third parties dealing with Company. (c) Pledgor shall indemnify and hold harmless Secured Party from and against any and all liability, loss, or damage that Secured Party may suffer or incur and which arises out of or results from claims of third parties, including another stockholder, member, interest holder or partner, as applicable, based on the rights or obligations of Company or a stockholder, member, interest holder or partner, as applicable, of Company under the Company's organizational and charter documents, this Agreement, or acceptance of Distributions or the exercise of any of the rights or remedies of Secured Party hereunder; any claim of any alleged obligation, liability or duty on the part of Company to perform or discharge any of the terms, covenants, or provisions of the Company's organizational and charter documents or any liability or obligation of Company or Pledgor; together with all costs and expenses (including, without limitation, court costs and attorneys' fees and costs) paid or incurred in connection therewith; or any receipt of Distributions from Company or anyone else. Pledgor shall reimburse Secured Party upon demand for the -12- full amount of any indemnity to which Secured Party may be entitled hereunder and the full amount of the indemnity obligation shall be considered to be an Obligation and shall be secured hereby. (d) Pledgor upon demand shall pay to Secured Party the amount of any and all reasonable expense, including the reasonable fees and disbursements of counsel and of any experts and agents, which Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. (e) All costs and expenses, including reasonable attorneys' fees and costs, incurred or paid by Secured Party in exercising any right, power or remedy conferred in this Agreement, or in the enforcement thereof, shall become a part of the Debt and shall bear interest from the date incurred or paid by Secured Party at the Default Rate (as such term is defined in the Loan Agreement). SECTION 17. SECURITY INTEREST ABSOLUTE. All rights of Secured Party and the security interests hereunder, and all obligations secured hereby, shall be absolute and unconditional, irrespective of any lack of validity or enforceability of the other Loan Documents; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent to any departure from the Loan Documents; any exchange, release or non-perfection of any other collateral for the Indebtedness, or any release or amendment or waiver of or consent to departure from any of the Loan Documents; or any other circumstance (other than payment and performance of the Obligations in full) that might otherwise constitute a defense available to, or a discharge of Pledgor or any other obligor under any of the Loan Documents, or any third party grantor of collateral for the Obligations or any part thereof. SECTION 18. NOTICE. Any notice, request, demand, statement, authorization, approval or consent made hereunder shall be in writing and shall be hand delivered or sent by Federal Express, or other reputable national courier service, or by postage pre-paid registered or certified mail, return receipt requested, and shall be deemed given (i) when received at the following addresses if hand delivered or sent by Federal Express, or other reputable national courier service, and (ii) three (3) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested: If to Secured Party: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Jeremy FitzGerald -13- With copies to: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Stephen D. Plavin and Loan Administrator and Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, N.Y. 10022 Attention: Dean A. Stiffle, Esq. If to Pledgor: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: John A. Moore With copies to: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: Marjorie L. Reifenberg, Esq. and Simpson Thacher & Bartlett 425 Lexington Avenue New York, N.Y. 10017 Attention: John M. Forelle, Esq. Each party may designate a change of address by notice to the other parties, given at least fifteen (15) days before such change of address is to become effective. SECTION 19. FURTHER ASSURANCES. (a) Pledgor will, at Pledgor's expense and in such manner and form as Secured Party may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action necessary or desirable, or that Secured Party may request, in order to create, preserve, perfect or validate any security interest, or to enable Secured Party to exercise and enforce its rights hereunder with respect to any of the Collateral, or better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. To the extent permitted by applicable law, Pledgor hereby -14- authorizes Secured Party to execute and file, in the name of Pledgor or otherwise, UCC financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which Secured Party in its sole discretion may deem necessary or appropriate to further perfect its rights under this Agreement. Pledgor hereby consents and agrees that the issuer of the Collateral or any registrar or transfer agent for any of the Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the right of Secured Party to effect any transfer pursuant to the provisions hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor or any other party to such issuer, registrar or transfer agent. (b) Pledgor agrees that Pledgor will not change (i) Pledgor's name, identity or organizational structure in any manner, or (ii) the location of Pledgor's principal place of business or chief executive office unless Pledgor shall have given Secured Party not less than thirty (30) days' prior written notice thereof which notice must state in bold print that the notice is being sent for the purpose of allowing Secured Party to determine whether or not to amend the UCC Financing Statements filed in connection with this Agreement. (c) Pledgor agrees to do such further reasonable acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as Secured Party may at any time request in connection with the administration or enforcement of this Agreement (including, without limitation, to aid Secured Party in the sale of all or any part of the Collateral) or related to the Collateral or any part thereof or in order better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. SECTION 20. CUMULATIVE RIGHTS AND REMEDIES. All remedies afforded to Secured Party by reason of this Agreement are separate and cumulative remedies and it is agreed that no one of such remedies shall be deemed to be in exclusion of any other remedies available to Secured Party and shall not in any manner limit or prejudice any other legal or equitable remedies which Secured Party may have. The rights, powers and remedies given to Secured Party by this Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statue or rule of law and all such rights, powers and remedies are cumulative and not alternative, and may be exercised and enforced successively or concurrently. SECTION 21. PARTIES BOUND. This Agreement shall be binding upon and inure to the benefit of Pledgor and Secured Party and their respective successors and assigns. SECTION 22. SEVERABILITY. If any term, covenant or provision of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant or provision. SECTION 23. NO ORAL CHANGE. This Agreement may only be modified, amended, changed, discharged or terminated by an agreement in writing signed by the parties hereto against whom enforcement is sought. -15- SECTION 24. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. SECTION 25. HEADINGS. Section headings used herein are for convenience only and shall not affect the construction of this Agreement. SECTION 26. "PLEDGOR". The term "Pledgor" as used herein shall, if this Agreement is signed by more than one pledgor, mean "the pledgors and each of them" and each obligation of Pledgor herein contained shall be the joint and several undertaking of all such pledgors, except where expressly stated to the contrary in this Agreement. SECTION 27. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts together shall constitute but one and the same agreement. - SIGNATURES ON NEXT PAGE - -16- IN WITNESS WHEREOF, Secured Party, Pledgor and Company have duly executed this Agreement the date first above written. SECURED PARTY: CAPITAL TRUST, INC. By: /s/ Jeremy FitzGerald ------------------------- Name: Jeremy FitzGerald Title: Managing Director PLEDGOR: PROMETHEUS ASSISTED LIVING LLC By: LF Strategic Realty Investors II L.P., Its Managing Member By: Lazard Freres Real Estate Investors L.L.C., Its General Partner By: /s/ John A. Moore ------------------------------------------------ Name: John A. Moore Title: Principal and Chief Financial Officer EX-99 4 0004.txt EXHIBIT 3 Exhibit 3 --------- 4(c) (ARV warrants) PLEDGE AND SECURITY AGREEMENT (WARRANTS) THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT") dated as of February 8, 2001 is by and among CAPITAL TRUST, INC., a Maryland corporation ("SECURED PARTY"), having an address at 410 Park Avenue, 14th floor, New York, N.Y. 10022, LFSRI II ASSISTED LIVING LLC, a Delaware limited liability company ("PLEDGOR"), having an address at 30 Rockefeller Plaza, New York, N.Y. 10020. PRELIMINARY STATEMENT A. Secured Party has agreed to make a loan to LFSRI II SPV REIT CORP., a Delaware corporation ("ORIGINAL BORROWER"), and SENIOR QUARTERS FUNDING CORP., a Delaware corporation ("NEW BORROWER"; New Borrower, collectively with Original Borrower, the "BORROWER"), in the aggregate principal sum of $110,000,000 (the "LOAN") a portion of which has been advanced prior to the date hereof, in accordance with the provisions of a certain Amended and Restated Loan Agreement (the "LOAN AGREEMENT") dated of even date herewith, which Loan shall be evidenced by, and payable, together with interest thereon, in accordance with the provisions of three promissory notes collectively referred to therein as the "NOTES". The Notes, the Loan Agreement, this Agreement and all other documents of any nature whatsoever evidencing, securing or guaranteeing the Loan in whole or in part, or otherwise executed and delivered in connection with the Loan or relating thereto, as the same may be modified or amended from time to time, are hereinafter referred to collectively as the "LOAN DOCUMENTS". B. Capitalized terms used and not otherwise defined herein shall have the respective meanings given to such terms in the Loan Agreement. C. As of the date hereof, Pledgor owns warrants to purchase 750,000 shares of common stock of ARV ASSISTED LIVING, INC., a Delaware corporation ("COMPANY"), at $3.00 per share (the "INTEREST"). D. Secured Party was willing to make the Loan only if Pledgor agreed to execute and deliver this Agreement as additional security for the payment of all principal, interest, additional interest and other sums of any nature whatsoever which may or shall become due under the Notes, the Loan Agreement and the other Loan Documents (collectively, the "DEBT") and the observance and performance by Borrower, Pledgor and the other members of the Borrower Control Group of all the terms, covenants and provisions of the Loan Documents on the part of Pledgor to be observed and performed. E. Pledgor will derive substantial economic benefit from the Loan and, therefore, Pledgor desires to execute this Agreement in order to satisfy the condition described in the foregoing paragraph D. NOW, THEREFORE, in consideration of Secured Party's agreement to make the Loan and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby represents and warrants to and covenants and agrees with Secured Party as follows: SECTION 1. SECURITY INTEREST. As security for the due and punctual payment in full of the Debt and for the due and punctual performance by Borrower, Pledgor, and the other members of the Borrower Control Group of all of the terms, covenants and provisions of the Loan Documents (the Debt, the payment thereof and the performance of the terms, covenants and provisions of the Loan Documents being hereinafter collectively called the "OBLIGATIONS"), Pledgor hereby pledges, hypothecates, assigns, and delivers to Secured Party and grants to Secured Party a security interest in and lien on all of Pledgor's right, title and interest now owned or hereafter acquired in and to the following described property (the "COLLATERAL"): (a) the Interest and any certificates representing the Interest; (b) all cash, securities, dividends, distributions, Proceeds, and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Interest, and any fees, commissions or other compensation payable to Pledgor as a stockholder or warrant holder of Company (all of the foregoing, collectively, "DISTRIBUTIONS"); (c) all contract rights, general intangibles, rights, claims, powers, privileges, benefits and remedies arising from or in any way related to ownership of the Interest, any certificates and other instruments representing the Interest and the other Collateral described above in paragraphs 1(a) and (b), including, without limitation, all rights to vote or consent, or to receive any notice, or to inspect or review any books, records or other information; (d) all additions to the Collateral described in the foregoing clauses (a) through (c) including without limitation any tangible or intangible property in the Company obtained in the future by Pledgor, all substitutions therefor and all replacements thereof; (e) all Proceeds of any of the foregoing. Notwithstanding any contrary provision contained herein, as used in this Agreement, the terms "Collateral" and "Distributions" shall not include any Money properly released from the Deposit Account or other Collateral released by Secured Party pursuant to the terms of this Agreement or the Amended and Restated Deposit Account Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as of the date hereof as follows: (a) No consent of any other person or entity (including, without limitation, any owner or creditor of Pledgor) which has not been obtained, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. 2 (b) Pledgor is duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority under the laws of such state and under its organizational and charter documents to enter into and perform its obligations under this Agreement. (c) Pledgor has taken all necessary legal and other action to authorize the execution, delivery and performance of this Agreement, and this Agreement constitutes the valid and binding obligation and agreement of Pledgor, enforceable in accordance with its terms, subject to limitations as to enforceability imposed by bankruptcy, reorganization, moratorium, insolvency and other laws of general application relating to or affecting the enforceability of creditors' rights and to equitable principles. (d) Pledgor has not received any notice of default under any agreement or instrument to which Pledgor is a party or by which Pledgor or Pledgor's assets may be bound which default would have a material adverse effect on Pledgor's business, assets, property or financial or other condition, and Pledgor is not in default under any order, judgment, award or decree of any court, arbitrator or other governmental authority binding upon or affecting Pledgor or by which any of Pledgor's assets may be bound or affected. (e) Neither the execution and delivery of this Agreement nor the compliance by Pledgor with the terms and provisions hereof are events which of themselves, or with the giving of notice or the passage of time, or both, would constitute, on the part of Pledgor, a violation of or conflict with, or result in any breach of, or default under, the terms, conditions or provisions of, or require any consent, permit, approval, authorization, declaration or filing (other than filings now or hereinafter made by Pledgor required under the Securities Exchange Act of 1934, as amended, as a result hereof) which has not been made or obtained under or pursuant to, any statute, law, judgment, decree, order, rule or regulation applicable to Pledgor, the organizational and charter documents of Pledgor, if any, or, any other agreement or instrument to which Pledgor is a party or by which Pledgor, or Pledgor's assets, are bound, or result in the creation or imposition of any Lien, on any of the assets of Pledgor, no such condition or event of itself, or with the giving of notice or the passage of time, or both, will result in the acceleration of the due date of any obligation of Pledgor or by which any of Pledgor's assets are bound; provided, however, that the compliance by Pledgor with the terms and provisions hereof is subject to all applicable Federal and state securities laws. (f) There are no judgments presently outstanding and unsatisfied against Pledgor or any of Pledgor's assets, and neither Pledgor nor any of Pledgor's assets is a party to or the subject of any actions or suits or proceedings in equity or by any governmental authorities, and no such litigation or proceeding has been threatened against Pledgor or against any of Pledgor's assets, and no investigation in contemplation of such litigation or proceeding has begun or is pending or has been threatened. (g) Pledgor's principal place of business and chief executive office is at the location identified in the first paragraph of this Agreement. 3 (h) The financial statements of Pledgor and Company furnished to Secured Party are true, correct and complete in all material respects and fairly present the financial condition of Pledgor and Company as at the end of and for the reporting periods covered thereby. Except as shown on such financial statements, no borrowings have been made or indebtedness incurred by Pledgor or Company which is outstanding and which might give rise to a lien or claim against any assets of Pledgor or Company. Except for the Permitted Indebtedness of Pledgor, there are no liabilities, contingent or otherwise, or any unrealized or anticipated losses from unfavorable commitments, whether arising before or after the date of such financial statements, which are not disclosed in such financial statements. Notwithstanding the foregoing, the representations and warranties in this Section 2(h) as they relate to Company are made to Pledgor's actual knowledge. (i) As of the date hereof, Pledgor has filed or caused to be filed all United States, state, local and foreign income tax returns (if any) which are required to be filed and all United States, state, local and foreign tax returns other than income tax returns which are required to be filed and has paid or caused to be paid all taxes shown on such returns or on any assessment made against it and all other taxes, fees or other charges imposed on it by any governmental authority, agency or instrumentality which have become due and payable. No tax liens have been filed against Pledgor or against any of its assets, and no material claims are being asserted against Pledgor or any of its assets in respect of any taxes. SECTION 3. Intentionally omitted. SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as follows with respect to the Interest as of the date hereof: (a) (i) Pledgor is the sole record and beneficial owner of the Interest (except to the extent any direct or indirect equity owners of Pledgor is deemed to be a beneficial owner of the Interest), free and clear of all Liens (other than as created hereunder); Pledgor has legal title to the Interest and good right and lawful authority to grant a security interest and lien in the same in the manner hereby done or contemplated. (ii) The execution and delivery of this Agreement by Pledgor is not restricted in any way by (x) any agreement or instrument to which Pledgor is a party, except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions or (y) any applicable law governing Company. (iii) The transferability of the Interest, with respect to either the grant of a security interest and lien in the Collateral to Secured Party or to any foreclosure sale of the Collateral by Secured Party is not restricted in any way by (x) any agreement or instrument to which Pledgor is a party, except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions, or (y) any law governing the Company (other than applicable Federal and state securities laws). (iv) The Interest is not subject to any option or similar arrangement; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is necessary to the validity of the rights created hereunder; and all action has been taken by Pledgor to create and perfect, in favor of Secured Party, a security interest and lien in the Interest, and Secured Party has acquired a first priority perfected security interest and lien therein. 4 (b) Except for the Interest, there are no outstanding or authorized options, warrants, rights, contracts, rights to subscribe, conversion rights or other agreements or commitments (collectively, "ADVERSE RIGHTS") to which Pledgor is a party, providing for the issuance or acquisition of any Equity Interests in Company. (c) As to all Collateral acquired by Pledgor on and after the date hereof, Pledgor shall be the legal and equitable owner of such Collateral free and clear of all Liens (other than those created hereunder); each ownership interest or other security comprising such Collateral will have been duly authorized, validly issued and be fully paid and non-assessable; Pledgor will have legal title to such Collateral and good and lawful authority to pledge, assign and deliver such Collateral in the manner hereby contemplated; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is or will be necessary to the validity of the rights created hereunder. (d) Pledgor shall not take any action, or fail to take any action, in contravention of the terms, conditions and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents. SECTION 5. COVENANTS. (a) Entity Status. Pledgor will continue to comply with the provisions of all of its organizational and governing documents, and the laws of the state in which such Entity was formed relating to each such Entity. All customary formalities regarding the Entity existence of Pledgor will continue to be observed. (b) Existence. Pledgor shall not (i) take any actions in violation of its organizational or governing documents or (ii) amend, modify, waive or terminate its organizational or governing documents. (c) Other Actions. Pledgor shall not: (1) Liens on the Collateral. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Lien with respect to any Collateral except Liens in favor of Secured Party. (2) Certain Restrictions. Enter into any agreement which expressly restricts the ability of Pledgor to enter into amendments, modifications or waivers of any of the Loan Documents. (3) Issuance of Equity Interests. Issue or allow to be created any shareholder, partnership, trust or membership interests, as applicable, or other Equity Interests in Pledgor. (d) Reduction of Distributions. Subject to fiduciary obligations, Pledgor shall not, directly or indirectly, without prior written consent of the Secured Party, vote to reduce the annual dividend payable by the Company. 5 (e) Transfer. Pledgor shall not Transfer the Interest other than in compliance with Section 2.6(b) the Loan Agreement. SECTION 6. DELIVERY OF COLLATERAL; VOTING RIGHTS; DISTRIBUTIONS; SUBSTITUTION OF COLLATERAL. (a) Any and all certificates representing the Collateral (including without limitation additional or substitute certificates or instruments representing Distributions or other Collateral that hereafter may be issued) shall be delivered to the Secured Party in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form satisfactory to Secured Party. (b) So long as there shall not have occurred and be continuing an Event of Default (hereinafter defined), Pledgor shall be entitled to exercise any and all voting rights and powers relating or pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms and provisions of the Notes, the Loan Agreement, this Agreement and the other Loan Documents or otherwise in contravention of any of the terms, covenants and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents. (c) Except as and to the extent provided herein and in the Loan Documents until the Indebtedness is paid in full, Pledgor shall not receive or be entitled to retain Distributions, if any, paid on the Collateral. To the extent Pledgor receives any Distributions prohibited hereunder, Pledgor shall receive same in trust for the benefit of Secured Party and shall immediately deliver same to Secured Party or its designated agent (accompanied by proper instruments of assignment or stock powers executed by Pledgor in accordance with Secured Party's instructions) to be held subject to the terms, provisions and conditions of this Agreement, the Loan Agreement and the Amended and Restated Deposit Account Agreement. (d) Upon the occurrence of an Event of Default and so long as said Event of Default shall continue, at the option of Secured Party, (i) all rights of Pledgor to exercise the voting and consensual rights and powers which Pledgor is entitled to exercise pursuant to the foregoing subparagraph (b) shall cease, and all such rights shall thereupon and without any further action or notice become vested in Secured Party who shall have the sole and exclusive right and authority to exercise (or refrain from exercising) such voting and consensual rights and powers in its sole discretion, and (ii) Secured Party shall receive and be entitled to retain any and all Distributions until the Indebtedness is satisfied. THIS ASSIGNMENT OF VOTING RIGHTS IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE BY DISSOLUTION OR OTHERWISE. The exercise of any of the rights and remedies of Secured Party under this paragraph shall not be or be deemed to be a disposition of Collateral under Article 9 of the Uniform Commercial Code as in effect in any applicable jurisdiction (the "UCC") or an acceptance or a retention or a proposal to accept or retain all or any part of the Collateral in satisfaction of all or any of the Obligations. Any and all Distributions received by Secured Party pursuant to the provisions of 6 this paragraph shall be retained by Secured Party as part of the Collateral and applied in accordance with the provisions of Section 11 of this Agreement. (e) No substitution of Collateral shall be permitted without the prior written consent of Secured Party. SECTION 7. COSTS AND EXPENSES. Pledgor shall pay all costs, fees, expenses and charges incurred by Secured Party in connection with the administration and enforcement of this Agreement and the security interest granted hereunder (including, without limitation, all attorneys' fees and costs). In addition, Pledgor agrees to pay, and to save Secured Party harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement or the transactions contemplated hereby. The obligations of Pledgor pursuant to this paragraph shall survive any termination of this Agreement. SECTION 8. EVENT OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "EVENT OF DEFAULT") hereunder: (a) If any representation or warranty of Pledgor made in this Agreement, or in any certificate, report, financial statement or other instrument furnished in connection with this Agreement shall prove false or misleading in any material respect the effect of which shall cause or result in a Material Adverse Condition to the Pledgor or the Company; (b) If Pledgor shall make a general assignment for the benefit of creditors; (c) If a court of competent jurisdiction enters a decree or order for relief with respect to Pledgor under Title 11 of the United States Code as now constituted or hereafter amended or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if such court enters a decree or order appointing a receiver, liquidator, assignee, trustee, custodian, examiner, magistrate, arbitrator, sequestrator (or similar official) of Pledgor or of any substantial part of its properties, or if such court decrees or orders the winding up or liquidation of the affairs of Pledgor; (d) If Pledgor files a petition for relief or answer or consent seeking relief under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if Pledgor fails to vigorously and diligently oppose or otherwise consents to or acquiesces in the commencement or prosecution of an involuntary case under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or similar law, rule or regulation, or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, examiner magistrate, arbitrator, sequestrator (or other similar official) of Pledgor, or of any substantial part of its properties, or if Pledgor fails generally to 7 pay its debts as such debts become due, or if Pledgor takes any action in furtherance of any action described in this subparagraph; (e) If any Affiliate of Pledgor shall commence any legal action seeking to cause Pledgor or any Affiliate of Pledgor to take any of the actions described in subparagraphs (b), (c) or (d) above with respect to Pledgor; (f) If Pledgor shall be in default of any other provision provided herein and such default shall continue for a period of thirty (30) days after notice from Secured Party; or (g) If an "Event of Default" (as such term is defined in the Loan Agreement) occurs. SECTION 9. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuation of an Event of Default, Secured Party may, in addition to any other rights or remedies which Secured Party may have, immediately and without demand exercise with respect to the Collateral any and all rights and remedies granted to a secured party under the UCC. SECTION 10. SALE OF COLLATERAL. (a) Sale of the Collateral may be made at any public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, as Secured Party shall deem appropriate. Secured Party shall be authorized at any such sale, in its sole discretion, to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral then being sold for their own account for investment and not with a view to the distribution or resale thereof, and upon consummation of any such sale Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives, to the extent permitted by law, all right of redemption, stay or appraisal which Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. To the extent that notice of sale shall be required to be given by law, Secured Party shall give Pledgor ten (10) days' notice in the manner herein specified of Secured Party's intention to make any such public or private sale or sale at any broker's board or on any such securities exchange. Such notice, in case of public sale, shall state the time and place fixed for such sale, and, in the case of sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. In case of private sale, such notice shall state the time after which the Collateral will be sold. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. At any such sale, the Collateral, or any portion thereof, may be sold as Secured Party may in its sole discretion determine. To the extent permitted by law, Secured Party may bid, which bid may be in whole or in part, in the form of cancellation of indebtedness, for and purchase for the account of Secured Party or its nominee the whole or any part of the Collateral. 8 Secured Party shall not be obligated to make any sale of the Collateral if Secured Party shall determine not to do so, regardless of the fact that notice of sale of the Collateral may have been given. Secured Party may, without notice of publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Secured Party until the sales price is paid by the purchaser or purchasers thereof, but Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may be sold again upon like notice. As an alternative to exercising the power of sale herein conferred upon it, Secured Party may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts of competent jurisdiction. Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in accordance with the foregoing procedures shall be deemed to be commercially reasonable under the UCC and otherwise proper. (b) In connection with any disposition of the Collateral, if Secured Party elects to obtain the advice of any one or more independent nationally known investment banking firms which are member firms of the New York Stock Exchange (or other nationally recognized exchange), with respect to the method or manner of sale or disposition of any of the Collateral, the best price reasonably obtainable therefor and any other details concerning such sale or disposition, Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in reliance on such advice shall be deemed to be commercially reasonable under the UCC and otherwise proper. (c) Pledgor understands that compliance with federal or state securities laws may very strictly limit the course of conduct of Secured Party if Secured Party were to attempt to dispose of all or any part of the Collateral and may also limit the extent to which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Pledgor agrees that in any sale of any of the Collateral, Secured Party is hereby authorized to comply with any such limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall Secured Party be liable or accountable to Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. 9 SECTION 11. APPLICATION OF MONIES. All monies (including, without limitation, Distributions) received or collected by Secured Party pursuant to this Agreement shall be held as Collateral by Secured Party and after the occurrence of an Event of Default shall be applied by Secured Party first, to the payment of all costs incurred in the collection of such monies (including attorneys' fees and expenses) and second, to the payment of the Indebtedness in such order and priority as Secured Party may in its sole discretion determine. The balance, if any, of such monies remaining after payment in full of such costs and the Obligations shall be remitted to Pledgor or as otherwise directed by a court of competent jurisdiction. SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby appoints Secured Party, effective upon an Event of Default and during the continuation thereof, as the attorney-in-fact of Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which Secured Party may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, upon an Event of Default and during the continuation thereof, Secured Party shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor representing any Distribution or any part of any thereof and to give full discharge for the same. SECTION 13. NO WAIVER. No failure or delay on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder nor shall Secured Party's waiver of any right or remedy against Pledgor release or relieve Pledgor from its obligations hereunder. No modification or waiver of any provision of this Agreement nor consent to any departure by Pledgor therefrom shall be effective unless the same shall be in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Pledgor in any case shall, of itself, entitle Pledgor to any other or further notice or demand in similar or other circumstances. If any notice is required by law to be given to Pledgor or the Company by Secured Party, five (5) days' notice given by registered mail, return receipt requested, and addressed to such party at the address set forth herein shall be deemed for all purposes to be reasonable notice. SECTION 14. DURATION OF SECURED PARTY'S RIGHTS AND TERMINATION. Until the Indebtedness shall have been paid in full, all rights, powers and remedies granted to Secured Party under this Agreement shall continue to exist and may be exercised by Secured Party at any time and from time to time. Upon payment in full of the Indebtedness, Secured Party shall reassign and redeliver, without recourse or warranty and at the expense of Pledgor, or cause to be so reassigned and redelivered, to Pledgor or to such person or persons as Pledgor shall designate, against receipt, such of the Collateral, if any, as shall not have been sold or otherwise applied by Secured Party pursuant to the terms hereof and still be held by Secured Party hereunder, together with appropriate instruments of reassignment and release. SECTION 15. AGREEMENTS OF PLEDGOR. Until the Indebtedness is paid and performed in full, Pledgor covenants and agrees with Secured Party as follows: 10 (a) Pledgor shall furnish or cause to be furnished to Secured Party from time to time, at the request of Secured Party, such information concerning Pledgor or Company (to the extent available to Pledgor) as Secured Party may reasonably request; (b) Except for the Permitted Indebtedness, Pledgor shall not make any loans to shareholders of Pledgor or to set aside any funds for any such purpose; (c) Except as created hereby and the Permitted Indebtedness, Pledgor shall not create any mortgage, pledge, title retention lien, or other Lien, or incur any indebtedness (directly or as a guarantor) or any Lien, with respect to any assets now owned or hereafter acquired by Pledgor, or to take or fail to take any other action whatsoever, in contravention of Section 5 of this Agreement or otherwise inconsistent with the terms and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents; (d) Pledgor shall not in any manner further encumber, sell, transfer or convey, or permit to be further encumbered, sold, transferred or conveyed in any manner, the Collateral other than in compliance with Section 2.6(b) of the Loan Agreement; SECTION 16. LIMITATION ON DUTIES AND LIABILITIES OF SECURED PARTY; INDEMNIFICATION. (a) Beyond the exercise of reasonable care in the custody of any Collateral in its possession, Secured Party shall have no duty as to any Collateral or as to the preservation of rights against prior parties or any other rights pertaining thereto. Secured Party shall have no duty as to any Collateral, to ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords other collateral of the same type in its possession. Except for gross negligence and willful misconduct, Secured Party shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of Secured Party or any agent, bailee or custodian selected by Secured Party in good faith or for taking any necessary steps to preserve rights against any parties with respect to any Collateral or for the collection of any proceeds of any Collateral or for any invalidity, lack of value or uncollectability of any of the Collateral. (b) The pledge and assignment of the Collateral and grant of a security interest is for collateral purposes only, and, prior to its foreclosure thereon, Secured Party shall neither by virtue of this Security Agreement, by the receipt of Distributions, by exercise of voting rights or by the exercise of any of its rights or remedies hereunder be deemed to be a member, interest holder, partner or stockholder, as applicable, of Company or to have any liability for the debts, obligations or liabilities of Company, Pledgor, or any other 11 member, interest holder, partner or stockholder, as applicable, of Company. Without limiting the generality of the foregoing, by accepting the pledge, assignment and security interests described herein, Secured Party does not thereby assume any debts, obligations, responsibilities, covenants, agreements or liabilities of Pledgor in connection with the Collateral or of Pledgor to Company or to any third parties dealing with Company. (c) Pledgor shall indemnify and hold harmless Secured Party from and against any and all liability, loss, or damage that Secured Party may suffer or incur and which arises out of or results from claims of third parties, including another stockholder, member, interest holder or partner, as applicable, based on the rights or obligations of Company or a stockholder, member, interest holder or partner, as applicable, of Company under the Company's organizational and charter documents, this Agreement, or acceptance of Distributions or the exercise of any of the rights or remedies of Secured Party hereunder; any claim of any alleged obligation, liability or duty on the part of Company to perform or discharge any of the terms, covenants, or provisions of the Company's organizational and charter documents or any liability or obligation of Company or Pledgor; together with all costs and expenses (including, without limitation, court costs and attorneys' fees and costs) paid or incurred in connection therewith; or any receipt of Distributions from Company or anyone else. Pledgor shall reimburse Secured Party upon demand for the full amount of any indemnity to which Secured Party may be entitled hereunder and the full amount of the indemnity obligation shall be considered to be an Obligation and shall be secured hereby. (d) Pledgor upon demand shall pay to Secured Party the amount of any and all reasonable expense, including the reasonable fees and disbursements of counsel and of any experts and agents, which Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. (e) All costs and expenses, including reasonable attorneys' fees and costs, incurred or paid by Secured Party in exercising any right, power or remedy conferred in this Agreement, or in the enforcement thereof, shall become a part of the Debt and shall bear interest from the date incurred or paid by Secured Party at the Default Rate (as such term is defined in the Loan Agreement). SECTION 17. SECURITY INTEREST ABSOLUTE. All rights of Secured Party and the security interests hereunder, and all obligations secured hereby, shall be absolute and unconditional, irrespective of any lack of validity or enforceability of the other Loan Documents; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent to any departure from the Loan Documents; any exchange, release or non-perfection of any other collateral for the Indebtedness, or any release or amendment or waiver of or consent to departure from any of the Loan Documents; or any other circumstance (other than payment and performance of the Obligations in full) that might otherwise constitute a defense available to, or a discharge of Pledgor or any other 12 obligor under any of the Loan Documents, or any third party grantor of collateral for the Obligations or any part thereof. SECTION 18. NOTICE. Any notice, request, demand, statement, authorization, approval or consent made hereunder shall be in writing and shall be hand delivered or sent by Federal Express, or other reputable national courier service, or by postage pre-paid registered or certified mail, return receipt requested, and shall be deemed given (i) when received at the following addresses if hand delivered or sent by Federal Express, or other reputable national courier service, and (ii) three (3) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested: If to Secured Party: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Jeremy FitzGerald With copies to: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Stephen D. Plavin and Loan Administrator and Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, N.Y. 10022 Attention: Dean A. Stiffle, Esq. If to Pledgor: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: John A. Moore With copies to: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: Marjorie L. Reifenberg, Esq. 13 and Simpson Thacher & Bartlett 425 Lexington Avenue New York, N.Y. 10017 Attention: John M. Forelle, Esq. Each party may designate a change of address by notice to the other parties, given at least fifteen (15) days before such change of address is to become effective. SECTION 19. FURTHER ASSURANCES. (a) Pledgor will, at Pledgor's expense and in such manner and form as Secured Party may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action necessary or desirable, or that Secured Party may request, in order to create, preserve, perfect or validate any security interest, or to enable Secured Party to exercise and enforce its rights hereunder with respect to any of the Collateral, or better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. To the extent permitted by applicable law, Pledgor hereby authorizes Secured Party to execute and file, in the name of Pledgor or otherwise, UCC financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which Secured Party in its sole discretion may deem necessary or appropriate to further perfect its rights under this Agreement. Pledgor hereby consents and agrees that the issuer of the Collateral or any registrar or transfer agent for any of the Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the right of Secured Party to effect any transfer pursuant to the provisions hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor or any other party to such issuer, registrar or transfer agent. (b) Pledgor agrees that Pledgor will not change (i) Pledgor's name, identity or organizational structure in any manner, or (ii) the location of Pledgor's principal place of business or chief executive office unless Pledgor shall have given Secured Party not less than thirty (30) days' prior written notice thereof which notice must state in bold print that the notice is being sent for the purpose of allowing Secured Party to determine whether or not to amend the UCC Financing Statements filed in connection with this Agreement. (c) Pledgor agrees to do such further reasonable acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as Secured Party may at any time request in connection with the administration or enforcement of this Agreement (including, without limitation, to aid Secured Party in the sale of all or any part of the Collateral) or related to the Collateral or any part thereof or in order better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. 14 SECTION 20. CUMULATIVE RIGHTS AND REMEDIES. All remedies afforded to Secured Party by reason of this Agreement are separate and cumulative remedies and it is agreed that no one of such remedies shall be deemed to be in exclusion of any other remedies available to Secured Party and shall not in any manner limit or prejudice any other legal or equitable remedies which Secured Party may have. The rights, powers and remedies given to Secured Party by this Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statue or rule of law and all such rights, powers and remedies are cumulative and not alternative, and may be exercised and enforced successively or concurrently. SECTION 21. PARTIES BOUND. This Agreement shall be binding upon and inure to the benefit of Pledgor and Secured Party and their respective successors and assigns. SECTION 22. SEVERABILITY. If any term, covenant or provision of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant or provision. SECTION 23. NO ORAL CHANGE. This Agreement may only be modified, amended, changed, discharged or terminated by an agreement in writing signed by the parties hereto against whom enforcement is sought. SECTION 24. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. SECTION 25. HEADINGS. Section headings used herein are for convenience only and shall not affect the construction of this Agreement. SECTION 26. "PLEDGOR". The term "Pledgor" as used herein shall, if this Agreement is signed by more than one pledgor, mean "the pledgors and each of them" and each obligation of Pledgor herein contained shall be the joint and several undertaking of all such pledgors, except where expressly stated to the contrary in this Agreement. SECTION 27. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts together shall constitute but one and the same agreement. - SIGNATURES ON NEXT PAGE - 15 IN WITNESS WHEREOF, Secured Party, Pledgor and Company have duly executed this Agreement the date first above written. SECURED PARTY: CAPITAL TRUST, INC. By: /s/ Jeremy FitzGerald ------------------------------------------------------ Name: Jeremy FitzGerald Title: Managing Director PLEDGOR: LFSRI II ASSISTED LIVING LLC By: LF Strategic Realty Investors II L.P., its managing member By: Lazard Freres Real Estate Investors L.L.C. Its General Partner By: /s/ John A. Moore -------------------------------------- Name: John A. Moore Title: Principal and Chief Financial Officer EX-99 5 0005.txt EXHIBIT 4 Exhibit 4 --------- 4(e) (Atria, Kapson, ARV, Fortress Lines) PLEDGE AND SECURITY AGREEMENT (MEMBERSHIP INTERESTS AND STOCK) THIS PLEDGE AND SECURITY AGREEMENT (this "AGREEMENT") dated as of February 8, 2001 is by and between CAPITAL TRUST, INC., a Maryland corporation ("SECURED PARTY"), having an address at 410 Park Avenue, 14th Floor, New York, N.Y. 10022, and LF STRATEGIC REALTY INVESTORS II L.P., a Delaware limited partnership ("LFSRI"), having an address at 30 Rockefeller Plaza, New York, N.Y. 10020, LFSRI II ALTERNATIVE PARTNERSHIP L.P., a Delaware limited partnership ("LFAP"), having an address at 30 Rockefeller Plaza, New York, N.Y. 10020, LFSRI II-CADIM ALTERNATIVE PARTNERSHIP L.P., a Delaware limited partnership ("CADIM" and, together with LFSRI and LFAP, "PLEDGOR"), having an address at 30 Rockefeller Plaza, New York, N.Y. 10020, PROMETHEUS ASSISTED LIVING LLC, a Delaware limited liability company ("PROMETHEUS ASSISTED"), PROMETHEUS HOMEBUILDERS LLC, a Delaware limited liability company ("PROMETHEUS HOMEBUILDERS"), LFSRI II ASSISTED LIVING LLC, a Delaware limited liability company ("LFSRI ASSISTED") and PROMETHEUS SENIOR QUARTERS LLC, a Delaware limited liability company ("PROMETHEUS SQ," together with Prometheus Assisted, Prometheus Homebuilders and LFSRI Assisted, collectively, "COMPANY"), each having an address at 30 Rockefeller Plaza, New York, N.Y. 10020. PRELIMINARY STATEMENT A. Secured Party has agreed to make a loan to LFSRI II SPV REIT CORP., a Delaware corporation ("ORIGINAL BORROWER") and SENIOR QUARTERS FUNDING CORP., a Delaware corporation ("NEW BORROWER," and collectively with Original Borrower, the "BORROWER"), in the aggregate principal sum of $110,000,000 a portion of which has been advanced prior to the date hereof (the "LOAN") in accordance with the provisions of a certain Amended and Restated Loan Agreement (the "LOAN AGREEMENT") dated of even date herewith, which Loan shall be evidenced by, and payable, together with interest thereon, in accordance with the provisions of three promissory notes collectively referred to therein as the "NOTES." The Notes, the Loan Agreement, this Agreement and all other documents of any nature whatsoever evidencing, securing or guaranteeing the Loan in whole or in part, or otherwise executed and delivered in connection with the Loan or relating thereto, as the same may be modified or amended from time to time, are hereinafter referred to collectively as the "LOAN DOCUMENTS". B. Capitalized terms used and not otherwise defined herein shall have the respective meanings given to such terms in the Loan Agreement. C. As of the date hereof Pledgor is the owner of 100% of the Equity Interests in Company which together with the right to receive dividends and other distributions on account thereof from time to time is hereinafter collectively referred to as, the "INTERESTS". D. Secured Party was willing to make the Loan only if Pledgor and the Company agreed to execute and deliver this Agreement as additional security for the payment of all principal, interest, additional interest and other sums of any nature whatsoever which may or shall become due under the Notes, the Loan Agreement and the other Loan Documents (collectively, the "DEBT") and the observance and performance by Borrower, Pledgor, the Company and the other members of the Borrower Control Group of all the terms, covenants and provisions of the Loan Documents on the part of Pledgor and the Company to be observed and performed. E. Pledgor and the Company will derive substantial economic benefit from the Loan and, therefore, Pledgor and the Company desire to execute this Agreement in order to satisfy the condition described in the foregoing paragraph D. NOW, THEREFORE, in consideration of Secured Party's agreement to make the Loan and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor and the Company hereby represent and warrant to and covenant and agree with Secured Party as follows: SECTION 1. SECURITY INTEREST. As security for the due and punctual payment in full of the Debt and for the due and punctual performance by Borrower, Pledgor, the Company and the other members of the Borrower Control Group of all of the terms, covenants and provisions of the Loan Documents (the Debt, the payment thereof and the performance of the terms, covenants and provisions of the Loan Documents being hereinafter collectively called the "OBLIGATIONS"), Pledgor hereby pledges, hypothecates, assigns, and delivers to Secured Party and grants to Secured Party a security interest in and lien on all of Pledgor's right, title and interest now owned or hereafter acquired in and to the following described property (the "COLLATERAL"): (a) the Interests and any certificates representing the Interests; (b) all cash, securities, dividends, distributions, Proceeds, and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Interests and any fees, commissions or other compensation payable to Pledgor as a member of the Company (all of the foregoing, collectively, "DISTRIBUTIONS"); (c) all contract rights, general intangibles, rights, claims, powers, privileges, benefits and remedies arising from or in any way related to ownership of the Interests, any certificates and other instruments representing the Interests and the other Collateral described above in paragraphs 1(a) and (b), including, without limitation, all rights to vote or consent, or to receive any notice, or to inspect or review any books, records or other information; (d) all additions to the Collateral described in the foregoing clauses (a) through (c) including without limitation any tangible or intangible property in the Company obtained in the future by Pledgor, all substitutions therefor and all replacements thereof; and (e) all Proceeds of any of the foregoing. 2 Notwithstanding any contrary provision contained herein as used in this Agreement, the terms "Collateral" and "Distributions" shall not include any Money properly released from the Deposit Account or other Collateral released by Secured Party pursuant to the terms of this Agreement or the Amended and Restated Deposit Account Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as of the date hereof as follows: (a) No consent of any other person or entity (including, without limitation, any owner or creditor of Pledgor) which has not been obtained, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement. (b) Pledgor is duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority under the laws of such state and under its organizational and charter documents to enter into and perform its obligations under this Agreement. (c) Pledgor has taken all necessary legal and other action to authorize the execution, delivery and performance of this Agreement, and this Agreement constitutes the valid and binding obligation and agreement of Pledgor, enforceable in accordance with its terms, subject to limitations as to enforceability imposed by bankruptcy, reorganization, moratorium, insolvency and other laws of general application relating to or affecting the enforceability of creditors' rights and to equitable principles. (d) Pledgor has not received any notice of default under any agreement or instrument to which Pledgor is a party or by which Pledgor or Pledgor's assets may be bound which default would have a material adverse effect on Pledgor's business, assets, property or financial or other condition, and Pledgor is not in default under any order, judgment, award or decree of any court, arbitrator or other governmental authority binding upon or affecting Pledgor or by which any of Pledgor's assets may be bound or affected. (e) Neither the execution and delivery of this Agreement nor the compliance by Pledgor with the terms and provisions hereof are events which of themselves, or with the giving of notice or the passage of time, or both, would constitute, on the part of Pledgor, a violation of or conflict with, or result in any breach of, or default under, the terms, conditions or provisions of, or require any consent, permit, approval, authorization, declaration or filing (other than filings now or hereafter made by Pledgor as required under the Securities Exchange Act of 1934, as amended, as a result hereof) which has not been made or obtained under or pursuant to, any statute, law, judgment, decree, order, rule or regulation applicable to Pledgor, the organizational and charter documents of Pledgor, if any, or any other agreement or instrument to which Pledgor is a party or by which Pledgor, or Pledgor's assets, are bound, or result in the creation or imposition of any Lien on any of the assets of Pledgor, and no such condition or event of itself, or with the giving of notice or the passage of time, or both, will result in the acceleration of the due date of any obligation of Pledgor or by which any of Pledgor's assets are bound; 3 provided, however, that the compliance by Pledgor with the terms and provisions hereof is subject to all applicable Federal and state securities laws. (f) Except as have been disclosed in the September 30, 2000 financial statements of Pledgor provided to Secured Party, there are no judgments presently outstanding and unsatisfied against Pledgor or any of Pledgor's assets, and neither Pledgor nor any of Pledgor's assets is a party to or the subject of any actions or suits or proceedings in equity or by any governmental authorities, and no such litigation or proceeding has been threatened against Pledgor or against any of Pledgor's assets, and no investigation in contemplation of such litigation or proceeding has begun or is pending or has been threatened. (g) Pledgor's principal place of business and chief executive office is at the location identified in the first paragraph of this Agreement. (h) The financial statements of Pledgor and the Company furnished to Secured Party are true, correct and complete in all material respects and fairly present the financial condition of Pledgor and the Company as at the end of and for the reporting periods covered thereby. Except as shown on such financial statements, no borrowings have been made or indebtedness incurred by Pledgor or the Company which is outstanding and which might give rise to a lien or claim against any assets of Pledgor or Company. Except for the Permitted Indebtedness of Pledgor or Company, there are no liabilities, contingent or otherwise, or any unrealized or anticipated losses from unfavorable commitments, whether arising before or after the date of such financial statements, which are not disclosed in such financial statements. (i) As of the date hereof, each of Pledgor and Company, has filed or caused to be filed all United States, state, local and foreign income tax returns (if any) which are required to be filed and all United States, state, local and foreign tax returns other than income tax returns which are required to be filed and has paid or caused to be paid all taxes shown on such returns or on any assessment made against it and all other taxes, fees or other charges imposed on it by any governmental authority, agency or instrumentality which have become due and payable. No tax liens have been filed against Pledgor or Company or against any of their respective assets, and no material claims are being asserted against Pledgor or Company or any of their respective assets in respect of any taxes. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Each Company hereby represents and warrants to Secured Party, as to itself only, as of the date hereof as follows: (a) Company is duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite power and authority under the laws of such state and under its organizational and charter documents to enter into and perform its obligations under this Agreement. 4 (b) Company has taken all necessary legal and other action to authorize the execution, delivery and performance of this Agreement, and this Agreement constitutes the valid and binding obligation and agreement of Company, enforceable in accordance with its terms, subject to limitations as to enforceability imposed by bankruptcy, reorganization, moratorium, insolvency and other laws of general application relating to or affecting the enforceability of creditors' rights and to equitable principles. (c) Company has not received any notice of default under any agreement or instrument to which it is a party or by which it or its assets may be bound which default would have a material adverse effect on its business, assets, property or financial or other condition, and Company is not in default under any order, judgment, award or decree of any court, arbitrator or other governmental authority binding upon or affecting it or by which any of its assets may be bound or affected. (d) Neither the execution and delivery of this Agreement nor the compliance by Company with the terms and provisions hereof are events which of themselves, or with the giving of notice or the passage of time, or both, would constitute, on the part of Company, a violation of or conflict with, or result in any breach of, or default under, the terms, conditions or provisions of, or require any consent, permit, approval, authorization, declaration or filing (other than filings now or hereafter made by Pledgor as required under the Securities Exchange Act of 1934, as amended, as a result hereof) which has not been made or obtained under or pursuant to, any statute, law, judgment, decree, order, rule or regulation applicable to Company, or (i) the organizational and charter documents of Company or (ii) any other agreement or instrument to which Company is a party or by which Company, or its assets, are bound, or result in the creation or imposition of any Lien on any of the assets of Company, and no such condition or event of itself, or with the giving of notice or the passage of time, or both, will result in the acceleration of the due date of any obligation of Company or by which any of its assets are bound; provided, however, that the compliance by Company with the terms and provisions hereof is subject to all applicable Federal and state securities laws. (e) There are no judgments presently outstanding and unsatisfied against Company or any of its assets, and neither Company nor any of its assets is a party to or the subject of any actions or suits or proceedings in equity or by any governmental authorities, and no such litigation or proceeding has been threatened against Company or against any of its assets, and no investigation in contemplation of such litigation or proceeding has begun or is pending or has been threatened. (f) Company's chief executive office is at the location identified in the first paragraph of this Agreement. (g) The Interests constitute 100% of the Equity Interests in the Company. (h) Prometheus SQ is the sole record and beneficial owner of 100% of the Equity Interests in each of Prometheus SQ Holdings Corp. ("PROMETHEUS HOLDINGS"), a Delaware corporation and Atria Holdings LLC 5 ("ATRIA"), a Delaware limited liability company except to the extent any direct or indirect equity owners in Prometheus Holdings and Atria are deemed to be a beneficial owner of the aforementioned Equity Interests. SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor hereby represents and warrants to Secured Party as of the date hereof as follows with respect to the Interests: (a) (i) Pledgor is the sole record and beneficial owner of the Interests (except to the extent any direct or indirect equity owners in Pledgor is deemed to be a beneficial owner of the Interests), free and clear of all Liens (other than as created hereunder); Pledgor has legal title to the Interests and good right and lawful authority to grant a security interest and lien in the same in the manner hereby done or contemplated. (ii) The execution and delivery of this Agreement by Pledgor and Company is not restricted in any way by (x) any agreement or instrument to which Pledgor is a party relative to Pledgor's Equity Interests in Prometheus Homebuilders, Prometheus Assisted and LFSRI Assisted, except for such restrictions as have been waived by proper steps taken in compliance with such restrictions, (y) any agreement or instrument relative to Pledgor's Equity Interests in Prometheus SQ, except for the agreements and instruments set forth on Exhibit A hereto and such restrictions as have been waived, by proper steps taken in compliance with such restrictions or (z) any applicable law governing Company. (iii) The transferability of the Interests, with respect to either the grant of a security interest and lien in the Collateral to Secured Party, or any foreclosure sale of the Collateral by Secured Party is not restricted in any way by (x) any agreement or instrument to which Pledgor is a party relative to Pledgor's Equity Interests in Prometheus Homebuilders, Prometheus Assisted and LFSRI Assisted and, except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions, (y) any agreement or instrument relative to Pledgor's Equity Interest in Prometheus SQ, except for the agreements and instruments set forth on Exhibit A and except for such restrictions as have been waived, by proper steps taken in compliance with such restrictions, or (z) any law governing the Company (other than applicable Federal and state securities laws). (iv) The Interests are not subject to any option or similar arrangement; and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is necessary to the validity of the rights created hereunder; and all action has been taken by Pledgor to create and perfect, in favor of Secured Party, a security interest and lien in the Interests, and Secured Party has acquired a first priority perfected security interest and lien therein. (b) There are no outstanding or authorized options, warrants, rights, contracts, rights to subscribe, conversion rights or other agreements or commitments (collectively, "ADVERSE RIGHTS") to which Company or Pledgor is a party providing for the issuance or acquisition of any Equity Interests in Company. (c) As to all Collateral acquired by Pledgor on and after the date hereof, Pledgor shall be the legal and equitable owner of such Collateral free and clear of all Liens (other than those created hereunder); each membership interest or other security comprising such Collateral will have been duly authorized, validly issued and be fully paid and non-assessable; Pledgor will have legal title to such Collateral and good and lawful authority to pledge, assign and deliver such Collateral in the manner hereby contemplated; 6 and no consent or approval of any governmental body or regulatory authority, or of any securities exchange, is or will be necessary to the validity of the rights created hereunder. (d) Pledgor shall not, nor shall it cause, authorize or suffer Company to, take any action, or fail to take any action, in contravention of the terms, conditions and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents. (e) None of the ownership interests comprising the Collateral are dealt in or traded on securities exchanges or in securities markets, and none by its terms expressly provides that it is a security governed by Article 8 of the UCC or that it is an investment company security, and none is held in a securities account (as defined in Section 8-501 of the UCC.) SECTION 5. COVENANTS. (a) Entity Status. Pledgor will and will cause the Company to continue to comply with the provisions of all of their respective organizational and governing documents, and the laws of the state or other jurisdiction in which each such Entity was formed relating to each such Entity. All customary formalities regarding the Entity existence of Pledgor and the Company will continue to be observed. (b) Existence. Pledgor shall not and shall not suffer the Company to (i) take any actions in violation of its organizational or governing documents or (ii) amend, modify, waive or terminate its organizational or governing documents. (c) Other Actions. Pledgor shall not and shall not suffer Company to: (1) Liens on the Collateral. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Lien with respect to any Collateral except Liens in favor of Secured Party. (2) Certain Restrictions. Enter into any agreement which expressly restricts the ability of Pledgor or the Company to enter into amendments, modifications or waivers of any of the Loan Documents. (3) Issuance of Equity Interests. Issue or allow to be created any shareholder, partnership, trust or membership interests, as applicable, or other Equity Interests in the Company. (d) Additional Covenant. Pledgor shall not cause or suffer the Company to, and the Company shall not, issue any Equity Interests or debt instruments having rights which may be senior or prior to the rights of Pledgor to receive Distributions from Company or which could otherwise adversely affect the rights of the Interests. (e) Reduction of Distributions. Subject to fiduciary obligations, Pledgor shall not, directly or indirectly, without the prior written consent of Secured Party, vote to amend the 7 organizational documents of Company to reduce the stated return to Pledgor thereunder or change the formula for calculating cash from operations available therefor. (f) Payment of Distributions. Pledgor shall cause Company to, and Company shall, pay any and all of its available cash less Cost Exclusions as a distribution directly to Pledgor. SECTION 6. DELIVERY OF COLLATERAL; VOTING RIGHTS; DISTRIBUTIONS; SUBSTITUTION OF COLLATERAL. (a) Any and all certificates representing the Collateral (including without limitation additional or substitute certificates or instruments representing Distributions or other Collateral that hereafter may be issued) shall be delivered to the Secured Party in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied by any required transfer tax stamps, all in form satisfactory to Secured Party. (b) So long as there shall not have occurred and be continuing an Event of Default (hereinafter defined), Pledgor shall be entitled to exercise any and all voting rights and powers relating or pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms and provisions of the Notes the Loan Agreement, this Agreement and the other Loan Documents or otherwise in contravention of any of the terms, covenants and provisions of the Notes the Loan Agreement, this Agreement or any of the other Loan Documents. (c) Except as and to the extent provided herein and in the Loan Documents until the Indebtedness is paid in full, Pledgor shall not receive or be entitled to retain Distributions, if any, paid on the Collateral. To the extent Pledgor receives any Distributions prohibited hereunder, Pledgor shall receive same in trust for the benefit of Secured Party and shall immediately deliver same to Secured Party or its designated agent (accompanied by proper instruments of assignment or stock powers executed by Pledgor in accordance with Secured Party's instructions) to be held subject to the terms, provisions and conditions of this Agreement, the Loan Agreement and the Amended and Restated Deposit Account Agreement. (d) Upon the occurrence of an Event of Default and so long as said Event of Default shall continue, at the option of Secured Party, (i) all rights of Pledgor to exercise the voting and consensual rights and powers which Pledgor is entitled to exercise pursuant to the foregoing subparagraph (b) shall cease, and all such rights shall thereupon and without any further action or notice become vested in Secured Party who shall have the sole and exclusive right and authority to exercise (or refrain from exercising) such voting and consensual rights and powers in its sole discretion, and (ii) Secured Party shall receive and be entitled to retain any and all Distributions until the Indebtedness is satisfied. THIS ASSIGNMENT OF VOTING RIGHTS IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE BY DISSOLUTION OR OTHERWISE. The 8 exercise of any of the rights and remedies of Secured Party under this paragraph shall not be or be deemed to be a disposition of Collateral under Article 9 of the Uniform Commercial Code as in effect in any applicable jurisdiction (the "UCC") or an acceptance or a retention or a proposal to accept or retain --- all or any part of the Collateral in satisfaction of all or any of the Obligations. Any and all Distributions received by Secured Party pursuant to the provisions of this paragraph shall be retained by Secured Party as part of the Collateral and applied in accordance with the provisions of Section 11 of this Agreement. (e) No substitution of Collateral shall be permitted without the prior written consent of Secured Party. SECTION 7. COSTS AND EXPENSES. The Company and Pledgor shall pay all costs, fees, expenses and charges incurred by Secured Party in connection with the administration and enforcement of this Agreement and the security interest granted hereunder (including, without limitation, all attorneys' fees and costs). In addition, the Company and Pledgor agree to pay, and to save Secured Party harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement or the transactions contemplated hereby. The obligations of the Company and Pledgor pursuant to this paragraph shall survive any termination of this Agreement. SECTION 8. EVENT OF DEFAULT. The occurrence of any of the following events shall constitute an event of default (an "EVENT OF DEFAULT") hereunder: (a) If any representation or warranty of Pledgor or the Company made in this Agreement, or in any certificate, report, financial statement or other instrument furnished in connection with this Agreement shall prove false or misleading in any material respect the effect of which shall cause or result in a Material Adverse condition with respect to the Pledgor or the Company; (b) If Pledgor or Company shall make a general assignment for the benefit of creditors; (c) If a court of competent jurisdiction enters a decree or order for relief with respect to Pledgor or Company under Title 11 of the United States Code as now constituted or hereafter amended or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if such court enters a decree or order appointing a receiver, liquidator, assignee, trustee, custodian, examiner, magistrate, arbitrator, sequestrator (or similar official) of Pledgor or Company or of any substantial part of their respective properties, or if such court decrees or orders the winding up or liquidation of the affairs of Pledgor or Company; (d) If Pledgor or Company files a petition for relief or answer or consent seeking relief under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or other similar law, rule or regulation, or if Pledgor or Company fails to vigorously and diligently oppose or otherwise consents to or acquiesces in the commencement or prosecution of an involuntary case under Title 11 of 9 the United States Code as now constituted or hereafter amended, or under any other applicable Federal or state bankruptcy, insolvency or similar law, rule or regulation, or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, examiner magistrate, arbitrator, sequestrator (or other similar official) of Pledgor or Company or of any substantial part of their respective properties, or if Pledgor or Company fails generally to pay its debts as such debts become due, or if Pledgor or Company takes any action in furtherance of any action described in this subparagraph; (e) If any Affiliate of Pledgor or Company shall commence any legal action seeking to cause Pledgor or Company or any Affiliate of Pledgor or Company to take any of the actions described in subparagraphs (b), (c) or (d) above with respect to Pledgor or Company; (f) If Pledgor or Company shall be in default of any other provision provided herein and such default shall continue for a period of thirty (30) days after notice from Secured Party; or (g) If an "Event of Default" (as such term is defined in the Loan Agreement) occurs. SECTION 9. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuation of an Event of Default, Secured Party may, in addition to any other rights or remedies which Secured Party may have, immediately and without demand exercise with respect to the Collateral any and all rights and remedies granted to a secured party under the UCC. SECTION 10. SALE OF COLLATERAL. (a) Sale of the Collateral may be made at any public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery, as Secured Party shall deem appropriate. Secured Party shall be authorized at any such sale, in its sole discretion, to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral then being sold for their own account for investment and not with a view to the distribution or resale thereof, and upon consummation of any such sale Secured Party shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives, to the extent permitted by law, all right of redemption, stay or appraisal which Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. To the extent that notice of sale shall be required to be given by law, Secured Party shall give Pledgor ten (10) days' notice in the manner herein specified of Secured Party's intention to make any such public or private sale or sale at any broker's board or on any such securities exchange. Such notice, in case of public sale, shall state the time and place fixed for such sale, and, in the case of sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. In case of private 10 sale, such notice shall state the time after which the Collateral will be sold. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. At any such sale, the Collateral, or any portion thereof, may be sold as Secured Party may in its sole discretion determine. To the extent permitted by law, Secured Party may bid, which bid may be in whole or in part, in the form of cancellation of indebtedness, for and purchase for the account of Secured Party or its nominee the whole or any part of the Collateral. Secured Party shall not be obligated to make any sale of the Collateral if Secured Party shall determine not to do so, regardless of the fact that notice of sale of the Collateral may have been given. Secured Party may, without notice of publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by Secured Party until the sales price is paid by the purchaser or purchasers thereof, but Secured Party shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in the case of any such failure, such Collateral may be sold again upon like notice. As an alternative to exercising the power of sale herein conferred upon it, Secured Party may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts of competent jurisdiction. Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in accordance with the foregoing procedures shall be deemed to be commercially reasonable under the UCC and otherwise proper. (b) In connection with any disposition of the Collateral, if Secured Party elects to obtain the advice of any one or more independent nationally known investment banking firms which are member firms of the New York Stock Exchange (or other nationally recognized exchange), with respect to the method or manner of sale or disposition of any of the Collateral, the best price reasonably obtainable therefor and any other details concerning such sale or disposition, Pledgor agrees, to the extent permitted by law, that any sale or other disposition of any of the Collateral in reliance on such advice shall be deemed to be commercially reasonable under the UCC and otherwise proper. (c) Pledgor understands that compliance with federal or state securities laws may very strictly limit the course of conduct of Secured Party if Secured Party were to attempt to dispose of all or any part of the Collateral and may also limit the extent to which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Pledgor agrees that in any sale of any of the Collateral, Secured Party is hereby authorized to comply with any such limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers or further restrict such prospective bidders or purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such 11 Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall Secured Party be liable or accountable to Pledgor for any discount allowed by reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 11. APPLICATION OF MONIES. All monies (including, without limitation, Distributions) received or collected by Secured Party pursuant to this Agreement shall be held as Collateral by Secured Party and after the occurrence of an Event of Default shall be applied by Secured Party first, to the payment of all costs incurred in the collection of such monies (including attorneys' fees and expenses) and second, to the payment of the Indebtedness in such order and priority as Secured Party may in its sole discretion determine. The balance, if any, of such monies remaining after payment in full of such costs and the Obligations shall be remitted to Pledgor or as otherwise directed by a court of competent jurisdiction. SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby appoints Secured Party, effective upon an Event of Default and during the continuation thereof, as the attorney-in-fact of Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which Secured Party may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, upon an Event of Default and during the continuation thereof, Secured Party shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor or Company representing any Distribution or any part of any thereof and to give full discharge for the same. SECTION 13. NO WAIVER. No failure or delay on the part of Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder nor shall Secured Party's waiver of any right or remedy against Pledgor release or relieve Pledgor from its obligations hereunder. No modification or waiver of any provision of this Agreement nor consent to any departure by Pledgor therefrom shall be effective unless the same shall be in writing and signed by Secured Party, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Pledgor in any case shall, of itself, entitle Pledgor to any other or further notice or demand in similar or other circumstances. If any notice is required by law to be given to Pledgor or Company by Secured Party, five (5) days' notice given by registered mail, return receipt requested, and addressed to such party at the address set forth herein shall be deemed for all purposes to be reasonable notice. SECTION 14. DURATION OF SECURED PARTY'S RIGHTS AND TERMINATION. Until the Indebtedness shall have been paid in full, all rights, powers and remedies granted to Secured Party under this Agreement shall continue to exist and may be exercised by Secured Party at any time and from time to time. Upon payment in full of the Indebtedness, Secured Party shall reassign and redeliver, without recourse or warranty and at the expense of Pledgor, or cause to be so reassigned and redelivered, to Pledgor or to such person or persons as Pledgor shall designate, against receipt, such of the Collateral, if any, as 12 shall not have been sold or otherwise applied by Secured Party pursuant to the terms hereof and still be held by Secured Party hereunder, together with appropriate instruments of reassignment and release. SECTION 15. AGREEMENTS OF PLEDGOR. Until the Indebtedness is paid and performed in full, Pledgor covenants and agrees with Secured Party as follows: (a) Pledgor shall furnish or cause to be furnished to Secured Party from time to time, at the request of Secured Party, such information concerning Pledgor or the Company as Secured Party may reasonably request; (b) Except for the Permitted Indebtedness, Pledgor shall not, as to itself, and shall not authorize or permit the Company to, make any loans to members of Pledgor or to set aside any funds for any such purpose; (c) Except for the Permitted Indebtedness, Pledgor shall not authorize or permit the Company to create any mortgage, pledge, title retention lien, or other Lien or incur any indebtedness (directly or as a guarantor) or any Lien with respect to any assets now owned or hereafter acquired by Company, or to take or fail to take any other action whatsoever, in contravention of Section 5 of this Agreement or otherwise inconsistent with the terms and provisions of the Notes, the Loan Agreement, this Agreement or any of the other Loan Documents; (d) Pledgor shall not, and shall not authorize or permit the Company to, in any manner further encumber, sell, transfer or convey, or permit to be further encumbered, sold, transferred or conveyed in any manner, the Collateral other than in compliance with Section 2.6(b) of the Loan Agreement; (e) Pledgor shall not consent to or authorize any action by Company with respect to entering into any merger or consolidation with any corporation or other person or party, or changing the character of its business, or adding any additional members to Company; (f) Pledgor shall take any steps necessary to prevent Company from doing any act or thing prohibited pursuant to this Section or which would otherwise be in contravention of any representation, warranty, term, covenant or provision set forth in the Loan Agreement or any of the other Loan Documents. SECTION 16. LIMITATION ON DUTIES AND LIABILITIES OF SECURED PARTY; INDEMNIFICATION. (a) Beyond the exercise of reasonable care in the custody of any Collateral in its possession, Secured Party shall have no duty as to any Collateral or as to the preservation of rights against prior parties or any other rights pertaining thereto. Secured Party shall have no duty as to any Collateral, to ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other 13 rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which it accords other collateral of the same type in its possession. Except for gross negligence and willful misconduct, Secured Party shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of Secured Party or any agent, bailee or custodian selected by Secured Party in good faith or for taking any necessary steps to preserve rights against any parties with respect to any Collateral or for the collection of any proceeds of any Collateral or for any invalidity, lack of value or uncollectability of any of the Collateral. (b) The pledge and assignment of the Collateral and grant of a security interest is for collateral purposes only, and, prior to its foreclosure thereon, Secured Party shall neither by virtue of this Security Agreement, by the receipt of Distributions or Payor Proceeds, by exercise of voting rights or by the exercise of any of its rights or remedies hereunder be deemed to be a member, interest holder, partner or stockholder, as applicable, of Company or to have any liability for the debts, obligations or liabilities of Pledgor or Company or any other member, interest holder, partner or stockholder, as applicable, of Company. Without limiting the generality of the foregoing, by accepting the pledge, assignment and security interests described herein, Secured Party does not thereby assume any debts, obligations, responsibilities, covenants, agreements or liabilities of Pledgor in connection with the Collateral or of Pledgor to Company, or to any third parties dealing with Company. (c) Pledgor shall indemnify and hold harmless Secured Party from and against any and all liability, loss, or damage that Secured Party may suffer or incur and which arises out of or results from claims of third parties, including another stockholder, member, interest holder or partner, as applicable, based on the rights or obligations of Company or a stockholder, member, interest holder or partner, as applicable, of Company under the Company's organizational and charter documents, this Agreement, or acceptance of Distributions or the exercise of any of the rights or remedies of Secured Party hereunder; any claim of any alleged obligation, liability or duty on the part of Company to perform or discharge any of the terms, covenants, or provisions of the Company's organizational and charter documents or any liability or obligation of Company or Pledgor; together with all costs and expenses (including, without limitation, court costs and attorneys' fees and costs) paid or incurred in connection therewith; or any receipt of Distributions from Company or anyone else. Pledgor shall reimburse Secured Party upon demand for the full amount of any indemnity to which Secured Party may be entitled hereunder and the full amount of the indemnity obligation shall be considered to be an Obligation and shall be secured hereby. (d) Pledgor upon demand shall pay to Secured Party the amount of any and all reasonable expense, including the reasonable fees and disbursements of counsel and of any experts and agents, which Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of 14 Secured Party hereunder, or (iv) the failure by Pledgor or Company to perform or observe any of the provisions hereof. (e) All costs and expenses, including reasonable attorneys' fees and costs, incurred or paid by Secured Party in exercising any right, power or remedy conferred in this Agreement, or in the enforcement thereof, shall become a part of the Debt and shall bear interest from the date incurred or paid by Secured Party at the Default Rate (as such term is defined in the Loan Agreement). SECTION 17. SECURITY INTEREST ABSOLUTE. All rights of Secured Party and the security interests hereunder, and all obligations secured hereby, shall be absolute and unconditional, irrespective of any lack of validity or enforceability of the other Loan Documents; any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent to any departure from the Loan Documents; any exchange, release or non-perfection of any other collateral for the Indebtedness, or any release or amendment or waiver of or consent to departure from any of the Loan Documents; or any other circumstance (other than payment and performance of the Obligations in full) that might otherwise constitute a defense available to, or a discharge of Pledgor or any other obligor under any of the Loan Documents, or any third party grantor of collateral for the Obligations or any part thereof. SECTION 18. NOTICE. Any notice, request, demand, statement, authorization, approval or consent made hereunder shall be in writing and shall be hand delivered or sent by Federal Express, or other reputable national courier service, or by postage pre-paid registered or certified mail, return receipt requested, and shall be deemed given (i) when received at the following addresses if hand delivered or sent by Federal Express, or other reputable national courier service, and (ii) three (3) business days after being postmarked and addressed as follows if sent by registered or certified mail, return receipt requested: If to Secured Party: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Jeremy FitzGerald With copies to: Capital Trust, Inc. 410 Park Avenue 14th Floor New York, N.Y. 10022 Attention: Stephen D. Plavin and Loan Administrator and 15 Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, N.Y. 10022 Attention: Dean A. Stiffle If to Pledgor or Company: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: John A. Moore With a copy in the case of any notice to Pledgor or Company to: c/o Lazard Freres Real Estate Investors L.L.C. 30 Rockefeller Plaza New York, N.Y. 10020 Attention: Marjorie L. Reifenberg, Esq. and Simpson Thacher & Bartlett 425 Lexington Avenue New York, N.Y. 10017 Attention: John M. Forelle, Esq. Each party may designate a change of address by notice to the other parties, given at least fifteen (15) days before such change of address is to become effective. SECTION 19. FURTHER ASSURANCES. (a) Pledgor will, at Pledgor's expense and in such manner and form as Secured Party may require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action necessary or desirable, or that Secured Party may request, in order to create, preserve, perfect or validate any security interest, or to enable Secured Party to exercise and enforce its rights hereunder with respect to any of the Collateral, or better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. To the extent permitted by applicable law, Pledgor hereby authorizes Secured Party to execute and file, in the name of Pledgor or otherwise, UCC financing statements (which may be carbon, photographic, photostatic or other reproductions of this Agreement or of a financing statement relating to this Agreement) which Secured Party in its sole discretion may deem necessary or appropriate to further perfect its rights under this Agreement. Pledgor hereby consents and agrees that the issuer of the Collateral or any registrar or transfer agent for any of the Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the right of Secured Party to effect any transfer pursuant to the provisions hereof, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor or any other party to such issuer, registrar or transfer agent. 16 (b) Pledgor agrees that Pledgor will not change (i) Pledgor's name, identity or organizational structure in any manner, or (ii) the location of Pledgor's principal place of business or chief executive office unless Pledgor shall have given Secured Party not less than thirty (30) days' prior written notice thereof which notice must state in bold print that the notice is being sent for the purpose of allowing the Secured Party to determine whether, or not to amend any UCC Financing Statements filed in connection with this Agreement. (c) Pledgor agrees to do and to cause the Company to do such further reasonable acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as Secured Party may at any time request in connection with the administration or enforcement of this Agreement (including, without limitation, to aid Secured Party in the sale of all or any part of the Collateral) or related to the Collateral or any part thereof or in order better to assure and confirm unto Secured Party its rights, powers and remedies hereunder. SECTION 20. CUMULATIVE RIGHTS AND REMEDIES. All remedies afforded to Secured Party by reason of this Agreement are separate and cumulative remedies and it is agreed that no one of such remedies shall be deemed to be in exclusion of any other remedies available to Secured Party and shall not in any manner limit or prejudice any other legal or equitable remedies which Secured Party may have. The rights, powers and remedies given to Secured Party by this Agreement shall be in addition to all rights, powers and remedies given to Secured Party by virtue of any statue or rule of law and all such rights, powers and remedies are cumulative and not alternative, and may be exercised and enforced successively or concurrently. SECTION 21. PARTIES BOUND. This Agreement shall be binding upon and inure to the benefit of Pledgor, Company and Secured Party and their respective successors and assigns. SECTION 22. SEVERABILITY. If any term, covenant or provision of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant or provision. SECTION 23. NO ORAL CHANGE. This Agreement may only be modified, amended, changed, discharged or terminated by an agreement in writing signed by the parties hereto against whom enforcement is sought. SECTION 24. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws. SECTION 25. HEADINGS. Section headings used herein are for convenience only and shall not affect the construction of this Agreement. SECTION 26. "PLEDGOR". The term "Pledgor" as used herein shall, if this Agreement is signed by more than one pledgor, mean "the pledgors and each of them" and each obligation of Pledgor herein contained shall be the joint and several undertaking of all such pledgors, except where expressly stated to the contrary in this Agreement. 17 SECTION 27. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed to be an original, and all such counterparts together shall constitute but one and the same agreement. SECTION 28. CONSENT BY COMPANY. Company is executing this Agreement for the purposes of making the representations and warranties contained in Section 3, evidencing its agreement to the provisions of this Agreement applicable to it, and consenting to the other provisions hereof and to the exercise by Secured Party of its remedies provided herein. - SIGNATURES ON NEXT PAGE - 18 IN WITNESS WHEREOF, Secured Party, Pledgor and Company have duly executed this Agreement the date first above written. SECURED PARTY: CAPITAL TRUST, INC. By: /s/ Jeremy FitzGerald --------------------------------------------- Name: Jeremy FitzGerald Title: Managing Director PLEDGOR: LF STRATEGIC REALTY INVESTORS II L.P., LFSRI II ALTERNATIVE PARTNERSHIP L.P., and LFSRI II-CADIM ALTERNATIVE PARTNERSHIP L.P., all Delaware limited partnerships By: Lazard Freres Real Estate Investors L.L.C., a New York limited liability company, Their general partner By: /s/ John A. Moore --------------------------------------------- Name: John A. Moore Title: Principal and Chief Financial Officer PROMETHEUS ASSISTED: PROMETHEUS ASSISTED LIVING LLC By: LF Strategic Realty Investors II L.P., its managing member By: Lazard Freres Real Estate Investors L.L.C., their General Partner By: /s/ John A. Moore -------------------------------------------- Name: John A. Moore Title: Principal and Chief Financial Officer 19 LFSRI ASSISTED: LFSRI II ASSISTED LIVING LLC, By: LF Strategic Realty Investors II L.P., Its Managing Member By: Lazard Freres Real Estate Investors L.L.C., Its General Partner By: /s/ Henry C. Herms -------------------------------------------- Name: Henry C. Herms Title: Controller PROMETHEUS HOMEBUILDERS: PROMETHEUS HOMEBUILDERS LLC By: LF Strategic Realty Investors II L.P., Its Managing Member By: Lazard Freres Real Estate Investors L.L.C. Its General Partner By: /s/ Henry C. Herms -------------------------------------------- Name: Henry C. Herms Title: Controller PROMETHEUS SQ: PROMETHEUS SENIOR QUARTERS LLC By: LF Strategic Realty Investors II L.P., Its Managing Member By: Lazard Freres Real Estate Investors L.L.C., Its General Partner By: /s/ Henry C. Herms -------------------------------------------------- Name: Henry C. Herms Title: Controller 20 -----END PRIVACY-ENHANCED MESSAGE-----