LOAN AGREEMENT

 

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                                                                    EXHIBIT 10.6

 

                                 LOAN AGREEMENT

 

      THIS LOAN AGREEMENT (this "Agreement") is made as of April 28, 2005, by

and between DIVERSICARE HARTFORD, LLC, a Delaware limited liability company

(together with its successors and assigns, "Borrower"), and GMAC COMMERCIAL

MORTGAGE CORPORATION, a California corporation (together with its successors and

assigns, "Lender").

 

                                R E C I T A L S:

 

      A. Borrower has requested that Lender make a loan to Borrower in the

principal sum of $3,700,000.00.

 

      B. Lender has agreed to make such loan on the terms and conditions

hereinafter set forth.

 

                                    AGREEMENT

 

      NOW, THEREFORE, it is hereby agreed as follows:

 

                                    ARTICLE I

                 DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.

 

      1.1 As used in this Agreement, the following terms shall have the

following meanings unless the context hereof shall otherwise indicate:

 

            "ACCOUNTS" has the meaning given to that term in the Mortgage.

 

            "ACTUAL MANAGEMENT FEES" means actual management fees paid or

incurred in connection with operation of the Facility.

 

            "AFFILIATE" means, with respect to any Person, (a) each Person that

controls, is controlled by or is under common control with such Person, (b) each

Person that, directly or indirectly, owns or controls, whether beneficially or

as a trustee, guardian or other fiduciary, any of the Stock of such Person, and

(c) each of such Person's officers, directors, members, joint venturers and

partners.

 

            "A/R LENDER" means AmSouth Bank, an Alabama state banking

corporation, its successors and assigns.

 

            "A/R LOAN" means that certain indebtedness and obligations of

Guarantor, Borrower and their Affiliates, to the A/R Lender evidenced by and

described in that certain Master Amendment to Loan Documents and Agreement dated

as of November 8, 2000, effective as of October 1, 2000, and the documents and

instruments executed in connection therewith, together with any amendments

thereto, and any modifications, renewals and extensions thereof,

 

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which indebtedness and obligations are secured, in part, by a first priority

lien in the Accounts of the Facility.

 

            "ASSIGNMENT OF LEASES AND RENTS" means that certain Assignment of

Leases and Rents of even date herewith by and between Borrower and Lender.

 

            "ASSIGNMENT OF LICENSES" means that certain Assignment of Licenses,

Permits and Contracts of even date herewith by Borrower to and for the benefit

of Lender.

 

            "ASSUMED MANAGEMENT FEES" means assumed management fees of five

percent (5%) of net patient revenues of the Facility (after Medicaid and

Medicare contractual adjustments).

 

            "BUSINESS DAY" means a day, other than Saturday or Sunday and legal

holidays, when Lender is open for business.

 

            "CLOSING DATE" means the date on which all or any part of the Loan

is disbursed by Lender to or for the benefit of Borrower.

 

            "COMMITMENT LETTER" means the commitment letter issued by Lender to

Borrower dated April 22, 2005.

 

            "CROSS-COLLATERALIZATION AGREEMENT" means, the

Cross-Collateralization, Cross-Default and Mortgage Modification Agreement of

even date herewith by and between Borrower, Lender and the Related Borrowers.

 

            "DEBT SERVICE COVERAGE RATIO" means a ratio in which the first

number is the sum of "net pre-tax income" of Borrower from usual operations of

the Facility as set forth in the financial statements provided to Lender

(without deduction for Actual Management Fees or management expenses paid or

incurred in connection with the operation of the Facility), calculated based

upon the preceding twelve (12) months (or such lesser period of time as shall

have elapsed following the closing of the Loan), plus Loan interest expense or

Facility lease expense to the extent deducted in determining net income and

non-cash expenses or allowances for depreciation and amortization of the

Facility for such period, less either Assumed Management Fees or Actual

Management Fees (based upon the covenant to which such definition relates) for

such period and the second number is the sum of the principal amounts due (even

if not paid) on the Loan (but which shall not include that portion associated

with any balloon payment of the Loan) for the applicable period plus the

interest due on the Loan for the applicable period. In calculating "net pre-tax

income," Extraordinary Income and Extraordinary Expenses shall be excluded.

 

            "DEBT SERVICE RESERVE FUND AGREEMENT" means that certain Debt

Service Reserve Fund Escrow and Security Agreement of even date herewith between

Lender and Borrower.

 

            "DEFAULT" means the occurrence or existence of any event which, but

for the giving of notice or expiration of time or both, would constitute an

Event of Default.

 

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             "DEFAULT RATE" has the meaning given to that term in the Note.

 

            "ENVIRONMENTAL PERMIT" means any permit, license, or other

authorization issued under any Hazardous Materials Law with respect to any

activities or businesses conducted on or in relation to the Land and/or the

Improvements.

 

            "EQUIPMENT" has the meaning given to that term in the Mortgage.

 

            "EVENT OF DEFAULT" means any "Event of Default" as defined in

Article VII hereof.

 

            "EXTRAORDINARY INCOME AND EXTRAORDINARY EXPENSES" means material

items of a character significantly different from the typical or customary

business activities of Borrower which would not be expected to recur frequently

and which would not be considered as recurring factors in any evaluation of the

ordinary operating processes of Borrower's business, and which would be treated

as extraordinary income or extraordinary expenses under GAAP.

 

            "EXHIBIT" means an Exhibit to this Agreement, unless the context

refers to another document, and each such Exhibit shall be deemed a part of this

Agreement to the same extent as if it were set forth in its entirety wherever

reference is made thereto.

 

            "FACILITY" means the nursing home facility known as "Hartford Health

Care" presently an 86-bed licensed skilled nursing facility located on the Land,

as it may now or hereafter exist, together with any other general or specialized

care facilities, if any (including any Alzheimer's care unit, subacute nursing

and/or assisted living facility), now or hereafter operated on the Land.

 

            "GAAP" means, as in effect from time to time, generally accepted

accounting principles consistently applied as promulgated by the Financial

Accounting Standards Board.

 

            "GOVERNMENTAL AUTHORITY" means any nation or government, any state

or other political subdivision thereof, and any Person exercising executive,

legislative, judicial, regulatory or administrative functions of or pertaining

to such government.

 

            "GUARANTOR" means Advocat Inc., a Delaware corporation.

 

            "GUARANTY AGREEMENT" means that certain Guaranty of even date

herewith from Guarantor to and for the benefit of Lender.

 

            "HAZARDOUS MATERIALS" means petroleum and petroleum products and

compounds containing them, including gasoline, diesel fuel and oil; explosives;

flammable materials; radioactive materials; polychlorinated biphenyls ("PCBs")

and compounds containing them; lead and lead-based paint; asbestos or

asbestos-containing materials in any form that is or could become friable;

underground storage tanks, whether empty or containing any substance; any

substance the presence of which on the Land and/or the Improvements is

prohibited by any federal, state or local authority; any substance that requires

special handling; and any other material or substance now or in the future

defined as a "hazardous substance," "hazardous

 

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material," "hazardous waste," "toxic substance," "toxic pollutant,"

"contaminant," or "pollutant" within the meaning of any Hazardous Materials Law.

 

            "HAZARDOUS MATERIALS LAWS" means all federal, state, and local laws,

ordinances and regulations and standards, rules, policies and other governmental

requirements, administrative rulings and court judgments and decrees in effect

now or in the future and including all amendments, that relate to Hazardous

Materials and apply to Borrower or to the Land and/or the Improvements.

Hazardous Materials Laws include, but are not limited to, the Comprehensive

Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,

et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et

seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the

Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials

Transportation Act, 49 U.S.C. Section 1801, and their state analogs.

 

            "IMPROVEMENTS" means all buildings, structures and improvements of

every nature whatsoever now or hereafter situated on the Land, including but not

limited to, all gas and electric fixtures, radiators, heaters, engines and

machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures,

carpeting and other floor coverings, water heaters, awnings and storm sashes,

and cleaning apparatuses which are or shall be attached to the Land or said

buildings, structures or improvements.

 

            "INDEBTEDNESS" means any (a) obligations for borrowed money, (b)

obligations, payment for which is being deferred by more than ninety (90) days,

representing the deferred purchase price of property other than accounts payable

arising in connection with the purchase of inventory customary in the trade and

in the ordinary course of Borrower's business, (c) obligations, whether or not

assumed, secured by Liens or payable out of the proceeds or production from the

Accounts and/or property now or hereafter owned or acquired, and (d) the amount

of any other obligation (including obligations under financing leases) which

would be shown as a liability on a balance sheet prepared in accordance with

GAAP.

 

            "INTERCREDITOR AGREEMENT" means ___________________________.

 

            "INVENTORY" has the meaning given to that term in the Mortgage.

 

            "LAND" means the land described in Exhibit "A" attached hereto and

made a part hereof.

 

            "LEASES" has the meaning given to that term in the Mortgage.

 

            "LIEN" means any voluntary or involuntary mortgage, security deed,

deed of trust, lien, pledge, assignment, security interest, title retention

agreement, financing lease, levy, execution, seizure, judgment, attachment,

garnishment, charge, lien or other encumbrance of any kind, including those

contemplated by or permitted in this Agreement and the other Loan Documents.

 

            "LOAN" means the Loan in the principal sum of $3,700,000.00 made by

Lender to Borrower as of the date hereof.

 

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            "LOAN DOCUMENTS" means, collectively, the Commitment Letter, this

Agreement, the Note, the Mortgage, the Assignment of Leases and Rents, the

Assignment of Licenses, the Guaranty Agreement, the Debt Service Reserve Fund

Agreement, and the Subordination Agreement, the Cross-Collateralization

Agreement, together with any and all other documents executed by Borrower or

others, evidencing, securing or otherwise relating to the Loan.

 

            "LOAN OBLIGATIONS" means the aggregate of all principal and interest

owing from time to time under the Note and all expenses, charges and other

amounts from time to time owing under the Note, this Agreement or the other Loan

Documents and all covenants, agreements and other obligations from time to time

owing to, or for the benefit of, Lender pursuant to the Loan Documents.

 

            "MANAGED CARE PLANS" means any health maintenance organization,

preferred provider organization, individual practice association, competitive

medical plan, or similar arrangement, entity, organization, or Person.

 

            "MANAGEMENT AGREEMENT" means that certain Management Agreement dated

April 28, 2005 between Manager and Borrower, obligating Manager to operate and

manage the Facility.

 

            "MANAGER" means Diversicare Management Services, Co., a Tennessee

corporation, and any successor manager of the Facility approved by Lender in

writing.

 

            "MATURITY DATE" means April 28, 2008.

 

            "MEDICAID" means that certain program of medical assistance, funded

jointly by the federal government and the States, for impoverished individuals

who are aged, blind and/or disabled, and/or members of families with dependent

children, which program is more fully described in Title XIX of the Social

Security Act (42 U.S.C. Sections 1396 et seq.) and the regulations promulgated

thereunder.

 

            "MEDICARE" means that certain federal program providing health

insurance for eligible elderly and other individuals, under which physicians,

hospitals, skilled nursing homes, home health care and other providers are

reimbursed for certain covered services they provide to the beneficiaries of

such program, which program is more fully described in Title XVIII of the Social

Security Act (42 U.S.C. Sections 1395 et seq.) and the regulations promulgated

thereunder.

 

            "MORTGAGE" means that certain Mortgage and Security Agreement of

even date herewith from Borrower in favor of or for the benefit of Lender,

encumbering the real estate located in Geneva County, Alabama, which is more

particularly described in Exhibit "A" hereto, and upon which the Facility is

located.

 

            "MORTGAGED PROPERTY" has the meaning given to that term in the

Mortgage.

 

            "NOTE" means the Promissory Note of even date herewith in the

principal amount of the Loan payable by Borrower to the order of Lender.

 

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            "O&M PROGRAM" means a written program of operations and maintenance

established or approved in writing by Lender relating to any Hazardous Materials

in, on or under the Land and/or the Improvements.

 

            "OFAC LIST" means the list of specially designated nationals and

blocked Persons subject to financial sanctions that is maintained by the U.S.

Treasury Department, Office of Foreign Assets Control and any other similar list

maintained by the U.S. Treasury Department, Office of Foreign Assets Control

pursuant to any Requirements of Law, including, without limitation, trade

embargo, economic sanctions, or other prohibitions imposed by Executive Order of

the President of the United States. The OFAC List currently is accessible

through the internet website www.treas.gov/ofac/t11sdn.pdf.

 

            "PERMITS" means all licenses, permits and certificates used or

necessary in connection with the construction, ownership, operation, use or

occupancy of the Mortgaged Property and/or the Facility, including, without

limitation, business licenses, state health department licenses, food service

licenses, licenses to conduct business, certificates of need and all such other

permits, licenses and rights, obtained from any governmental, quasi-governmental

or private person or entity whatsoever concerning ownership, operation, use or

occupancy.

 

            "PERMITTED ENCUMBRANCES" has the meaning given to that term in

Section 5.2 hereof.

 

            "PERSON" means any individual, partnership, limited partnership,

corporation, limited liability company, business trust, joint stock company,

trust, unincorporated association, joint venture, governmental authority or

other form of legal entity of whatever nature.

 

            "PROCEEDS" has the meaning given to that term in the Mortgage.

 

            "REIMBURSEMENT CONTRACTS" means all third-party reimbursement

contracts relating to the Facility which are now or hereafter in effect with

respect to residents or patients qualifying for coverage under the same,

including Medicare and Medicaid, Managed Care Plans and private insurance

agreements, and any successor program or other similar reimbursement program

and/or private insurance agreements, now or hereafter existing.

 

            "RELATED BORROWERS" means those borrowers more particularly

described in Exhibit "G" attached hereto.

 

            "RELATED LOANS" means the loans more specifically described on

Exhibit "G" attached hereto made by Lender to the Related Borrowers.

 

            "RENTS" has the meaning given to that term in the Mortgage.

 

            "REQUIREMENTS OF LAW" means (a) the organizational documents of an

entity, and (b) any law, regulation, ordinance, code, decree, treaty, ruling or

determination of an arbitrator, court or other Governmental Authority, or any

Executive Order issued by the President of the United States, in each case

applicable to or binding upon such Person or to which such Person, any of its

property or the conduct of its business is subject including, without

 

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limitation, laws, ordinances and regulations pertaining to the zoning, occupancy

and subdivision of real property.

 

             "SINGLE PURPOSE ENTITY" means a Person which complies with the

requirements of Section 5.4.

 

            "STOCK" means all shares, options, warrants, general or limited

partnership interests, membership interests, participations or other equivalents

(regardless of how designated) in a corporation, limited liability company,

partnership or any equivalent entity, whether voting or nonvoting, including,

without limitation, common stock, preferred stock, or any other "equity

security" (as such term is defined in Rule 3a11-1 of the General Rules and

Regulations promulgated by the Securities and Exchange Commission under the

Securities Exchange Act of 1934, as amended).

 

            "SUBORDINATION AGREEMENT" means that certain Subordination of

Management Agreement of even date herewith by and among Borrower, Manager, and

Lender.

 

      1.2 Singular terms shall include the plural forms and vice versa, as

applicable, of the terms defined.

 

      1.3 Each term contained in this Agreement and defined in the Uniform

Commercial Code (the "UCC") in effect from time to time in the state in which

the Land is located shall have the meaning given to such term in the UCC, unless

the context otherwise indicates, and shall include, without limitation, the

meaning set forth in this Agreement.

 

      1.4 All accounting terms used in this Agreement shall be construed in

accordance with GAAP, except as otherwise specified.

 

      1.5 All references to other documents or instruments shall be deemed to

refer to such documents or instruments as they may hereafter be extended,

renewed, modified, or amended and all replacements and substitutions therefor.

 

      1.6 All references herein to "Medicaid" and "Medicare" shall be deemed to

include any successor program thereto.

 

                                    ARTICLE II

                                TERMS OF THE LOAN

 

      2.1 THE LOAN. Borrower has agreed to borrow the Loan from Lender, and

Lender has agreed to make the Loan to Borrower, subject to Borrower's compliance

with and observance of the terms, conditions, covenants, and provisions of this

Agreement and the other Loan Documents, and Borrower has made the covenants,

representations, and warranties herein and therein as a material inducement to

Lender to make the Loan.

 

      2.2 SECURITY FOR THE LOAN. The Loan will be evidenced, secured and

guaranteed by the Loan Documents.

 

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      2.3 LIMITATION ON INTEREST. All agreements between Borrower and Lender,

whether now existing or hereafter arising and whether written or oral, are

hereby limited so that in no contingency, whether by reason of acceleration of

the maturity of any indebtedness governed hereby or otherwise, shall the

interest contracted for, charged or received by Lender exceed the maximum amount

permissible under applicable law. If, from any circumstance whatsoever, interest

would otherwise be payable to Lender in excess of the maximum lawful amount, the

interest payable to Lender shall be reduced to the maximum amount permitted

under applicable law; and, if from any circumstance the Lender shall ever

receive anything of value deemed interest by applicable law in excess of the

maximum lawful amount, an amount equal to any excessive interest shall be

applied to the reduction of the principal of the Loan and not to the payment of

interest, or, if such excessive interest exceeds the unpaid balance of principal

of the Loan, such excess shall be refunded to Borrower. All interest paid or

agreed to be paid to Lender shall, to the extent permitted by applicable law, be

amortized, prorated, allocated, and spread throughout the full period until

payment in full of the principal of the Loan (including the period of any

renewal or extension thereof) so that interest thereon for such full period

shall not exceed the maximum amount permitted by applicable law. This paragraph

shall control all agreements between the Borrower and Lender.

 

                                   ARTICLE III

                    BORROWER'S REPRESENTATIONS AND WARRANTIES

 

      To induce Lender to enter into this Agreement, and to make the Loan to

Borrower, Borrower represents and warrants to Lender as follows:

 

      3.1 EXISTENCE, POWER AND QUALIFICATION. Borrower is a duly organized and

validly existing Delaware limited liability company, has the power to own its

properties and to carry on its business as is now being conducted, and is duly

qualified to do business and is in good standing in every jurisdiction in which

the character of the properties owned by it or in which the transaction of its

business makes its qualification necessary.

 

      3.2 POWER AND AUTHORITY. Borrower has full power and authority to borrow

the indebtedness evidenced by the Note and to incur the Loan Obligations

provided for herein, all of which have been authorized by all proper and

necessary limited liability company action on the part of Borrower. All

consents, approvals authorizations, orders or filings of or with any court or

governmental agency or body, if any, required for the execution, delivery and

performance of the Loan Documents by Borrower have been obtained or made.

 

      3.3 SINGLE PURPOSE ENTITY. Borrower is a Single Purpose Entity.

 

      3.4 PENDING MATTERS.

 

            (a) Operations; Financial Condition. No action or investigation is

pending or, to the best of Borrower's knowledge, threatened against Borrower

before or by any court or administrative agency which might result in any

material adverse change in the financial condition, operations or prospects of

Borrower or any lower reimbursement rate under the Reimbursement Contracts.

Borrower is not in violation of any agreement, the violation of which

 

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might reasonably be expected to have a material adverse effect on its business

or assets, and Borrower is not in violation of any order, judgment, or decree of

any court, or any statute or governmental regulation to which Borrower is

subject.

 

            (b) Land and Improvements. There are no proceedings pending, or, to

the best of Borrower's knowledge, threatened, to acquire through the exercise of

any power of condemnation, eminent domain or similar proceeding any part of the

Land, the Improvements or any interest therein, or to enjoin or similarly

prevent or restrict the use of the Land or the operation of the Facility in any

manner. None of the Improvements is subject to any unrepaired casualty or other

damage.

 

      3.5 FINANCIAL STATEMENTS ACCURATE. All financial statements heretofore or

hereafter provided by Borrower are and will be true and complete in all material

respects as of their respective dates and fairly present the financial condition

of Borrower, and there are no material liabilities, direct or indirect, fixed or

contingent, as of the respective dates of such statements which are not

reflected therein or in the notes thereto or in a written certificate delivered

with such statements. The financial statements of Borrower have been prepared in

accordance with GAAP. There has been no material adverse change in the financial

condition, operations, or prospects of Borrower since the dates of such

statements except as fully disclosed in writing with the delivery of such

statements. All financial statements of the operations of the Facility

heretofore or hereafter provided to Lender are and will be true and complete in

all material respects as of their respective dates.

 

      3.6 COMPLIANCE WITH FACILITY LAWS. The Facility is duly licensed as an

86-bed skilled nursing facility under the applicable laws of the state where the

Land is located and is currently operated as a skilled nursing facility.

Borrower is the lawful owner of all Permits for the Facility, including, without

limitation, the Certificate of Need, issued by the Alabama State Health Planning

and Development Agency and/or the Nursing Home License issued by the Alabama

State Board of Health, if applicable, which (a) are in full force and effect,

(b) constitute all of the permits, licenses and certificates required for the

use, operation and occupancy thereof, (c) have not been pledged as collateral

for any other loan or Indebtedness, (d) are held free from any restriction or

any encumbrance which would materially adversely affect the use or operation of

the Facility and (e) are not provisional, probationary or restricted in any way.

Borrower and Manager as well as the operation of the Facility are in compliance

in all material respects with the applicable provisions of all laws, rules,

regulations and published interpretations to which the Facility is subject. No

waivers of any laws, rules, regulations, or requirements (including, but not

limited to, minimum foot requirements per bed) are required for the Facility to

operate at the foregoing licensed bed capacity. All Reimbursement Contracts are

in full force and effect with respect to the Facility, and Borrower and Manager

are in good standing with all the respective agencies governing such applicable

Facility licenses, program certification and Reimbursement Contracts. Borrower

and Manager are current in the payment of all so-called provider specific taxes

or other assessments with respect to such Reimbursement Contracts. Borrower will

maintain the Certificate of Need, if applicable, and/or any required Permits in

full force and effect. In the event Lender acquires the Facility through

foreclosure or otherwise, neither Lender nor a subsequent manager, a subsequent

lessee or any subsequent purchaser (through foreclosure or otherwise) must

obtain a Certificate of Need prior to applying for and receiving a license to

 

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operate the Facility and certification to receive Medicare and Medicaid payments

(and its successor programs) for patients having coverage thereunder provided

that no service or bed complement is changed.

 

      3.7 MAINTAIN BED CAPACITY. Neither Borrower nor Manager has granted to any

third party the right to reduce the number of licensed beds in the Facility or

to apply for approval to transfer the right to any or all of the licensed

Facility beds to any other location.

 

      3.8 MEDICARE AND MEDICAID COMPLIANCE. The Facility is in compliance with

all requirements for participation in Medicare and Medicaid, including without

limitation, the Medicare and Medicaid Patient Protection Act of 1987. The

Facility is in conformance in all material respects with all insurance,

reimbursement and cost reporting requirements and has a current provider

agreement which is in full force and effect under Medicare and Medicaid.

 

      3.9 THIRD PARTY PAYORS. There is no threatened or pending revocation,

suspension, termination, probation, restriction, limitation, or nonrenewal

affecting Borrower, Manager or the Facility or any participation or provider

agreement with any third-party payor, including Medicare, Medicaid, Blue Cross

and/or Blue Shield, and any other private commercial insurance managed care and

employee assistance program (such programs, the "Third-Party Payors' Programs")

to which Borrower or Manager presently is subject. All Medicare (if any),

Medicaid (if any) and private insurance cost reports and financial reports

submitted by Borrower or Manager are and will be materially accurate and

complete and have not been and will not be misleading in any material respects.

No cost reports for the Facility remain "open" or unsettled except as otherwise

disclosed.

 

      3.10 GOVERNMENTAL PROCEEDINGS AND NOTICES. Neither Borrower nor Guarantor

nor Manager nor the Facility is currently the subject of any proceeding by any

governmental agency, and no notice of any violation has been received from any

federal, state or local government or quasi-governmental body or agency or any

administrative or investigative body that would, directly or indirectly, or with

the passage of time:

 

            (a) have a material adverse impact on Borrower's or Manager's

ability to accept and/or retain residents at the Facility or result in the

imposition of a fine, a sanction, a lower rate certification or a lower

reimbursement rate for services rendered to eligible residents against or in

respect of the Facility;

 

            (b) modify, limit or annul or result in the transfer, suspension,

revocation or imposition of probationary use of any of the Permits; or

 

            (c) affect Borrower's continued participation in the Medicare or

Medicaid programs or any other Third-Party Payors' Programs, or any successor

programs thereto, at current rate certifications.

 

      3.11 PHYSICAL PLANT STANDARDS. To the best of Borrower's knowledge, the

Facility and the use thereof comply in all material respects with all applicable

local, state and federal building codes, fire codes, health care,

nursing/assisted living/senior housing facility (as applicable) and other

similar regulatory requirements (the "Physical Plant Standards"), and

 

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except as set forth on Schedule 3.11 attached hereto, no waivers of Physical

Plant Standards exist at the Facility.

 

      3.12 PLEDGE OF RECEIVABLES. With the exception of the A/R Loan, Borrower

has not pledged its Accounts as collateral security for any loan or Indebtedness

other than, if applicable, the Loan.

 

      3.13 PAYMENT OF TAXES AND PROPERTY IMPOSITIONS. Borrower has filed all

federal, state, and local tax returns which it is required to file and has paid,

or made adequate provision for the payment of, all taxes and assessments which

are shown pursuant to such returns or are required to be shown thereon,

including, without limitation, provider taxes which are due and owing as of the

date hereof. All such returns are complete and accurate in all respects.

Borrower has paid or made adequate provision for the payment of all applicable

water and sewer charges, ground rents (if applicable) and Taxes (as defined in

the Mortgage) with respect to the Land and/or the Improvements which are due and

owing as of the date hereof.

 

      3.14 TITLE TO MORTGAGED PROPERTY. Borrower has good and marketable title

to all of the Mortgaged Property, subject to no lien, mortgage, pledge,

encroachment, zoning violation, or encumbrance, except Permitted Encumbrances

which do not materially interfere with the security intended to be provided by

the Mortgage or the current use or operation of the Land and the Improvements or

the current ability of the Facility to generate net operating income sufficient

to service the Loan. All Improvements situated on the Land are situated wholly

within the boundaries of the Land.

 

      3.15 PRIORITY OF MORTGAGE. The Mortgage constitutes a valid first lien

against the real and personal property described therein, prior to all other

liens or encumbrances, including those which may hereafter accrue, excepting

only Permitted Encumbrances which do not and will not materially and adversely

affect (a) the ability of Borrower to pay in full the principal of and interest

on the Note when due, (b) the security (and its value) intended to be provided

by the Mortgage or (c) the current use of the Land and the Improvements.

 

      3.16 LOCATION OF CHIEF EXECUTIVE OFFICES. The location of Borrower's chief

executive office(s) are set forth on Exhibit "E" hereto. Borrower has no

place(s) of business other than the locations of the Facility(ies) listed on

Exhibit "B".

 

      3.17 DISCLOSURE. All information furnished or to be furnished by Borrower

to Lender in connection with the Loan or any of the Loan Documents is, or will

be at the time the same is furnished, accurate and correct in all material

respects and complete insofar as completeness may be necessary to provide Lender

with true and accurate knowledge of the subject matter.

 

      3.18 TRADE NAMES. Neither Borrower nor the Facility, which operates under

the trade name "Hartford Health Care", has changed its name, been known by any

other name, or been a party to a merger, reorganization or similar transaction

within the last three (3) years.

 

      3.19 ERISA. As of the date hereof and throughout the term of this

Agreement,

 

                                       11

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            (a) Borrower is not an "employee benefit plan," as defined in

Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended

("ERISA"), subject to Title I of ERISA, and none of the assets of Borrower

constitute "plan assets" (within the meaning of Department of Labor Regulation

Section 2510.3-101) of one or more such plans, and

 

            (b) Borrower is not a "governmental plan" within the meaning of

Section 3(32) of ERISA, and transactions by or with Borrower are not be subject

to state statutes regulating investments of, and fiduciary obligations with

respect to, governmental plans.

 

            The execution and delivery of the Loan Documents and the borrowing

of indebtedness hereunder do not constitute a non-exempt prohibited transaction

under Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986,

as amended (the "Code").

 

      3.20 OWNERSHIP. The ownership interests of the Persons comprising Borrower

and each of the respective interests in Borrower are correctly and accurately

set forth on Exhibit "C" hereto.

 

      3.21 COMPLIANCE WITH APPLICABLE LAWS. The Facility and its operations and

the Land and Improvements comply in all material respects with all covenants and

restrictions of record and applicable laws, ordinances, rules and regulations,

including, without limitation, the Americans with Disabilities Act and the

regulations thereunder, and all laws, ordinances, rules and regulations relating

to zoning, setback requirements and building codes and there are no waivers of

any building codes currently in existence for the Facility.

 

      3.22 SOLVENCY. Borrower is solvent for purposes of 11 U.S.C. Section 548,

and the borrowing of the Loan will not render Borrower insolvent for purposes of

11 U.S.C. Section 548.

 

      3.23 MANAGEMENT AGREEMENT. The Management Agreement is in full force and

effect, and there are no defaults (either monetarily or non-monetarily) by

Manager or Borrower thereunder.

 

      3.24 OTHER INDEBTEDNESS. With the exception of the A/R Loan, Borrower has

no outstanding Indebtedness, secured or unsecured, direct or contingent

(including any guaranties), other than indebtedness which represents trade

payables or accrued expenses incurred in the ordinary course of business of

owning and operating the Mortgaged Property; no other debt incurred by Borrower

after the date hereof will be secured (senior, subordinate or pari passu) by the

Mortgaged Property.

 

      3.25 OTHER OBLIGATIONS. Borrower has no material 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 or the Mortgaged

Property is otherwise bound, other than obligations incurred in the ordinary

course of the operation of the Mortgaged Property and other than obligations

under the Mortgage, the other Loan Documents and the A/R Loan.

 

      3.26 FRAUDULENT CONVEYANCES. Borrower (a) has not entered into this

Agreement or any of the other Loan Documents with the actual intent to hinder,

delay, or defraud any creditor and (b) has received reasonably equivalent value

in exchange for its obligations under the Loan

 

                                       12

<PAGE>

 

Documents. Giving effect to the transactions contemplated by the Loan Documents

to the best of Borrower's knowledge, the fair saleable value of Borrower's

assets exceeds and will, immediately following the execution and delivery of the

Loan Documents, be greater than Borrower's probable liabilities, including the

maximum amount of its contingent liabilities or its debts as such debts become

absolute and mature. Borrower's assets do not and, immediately following the

execution and delivery of the Loan Documents 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, without limitation, contingent liabilities 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).

 

      3.27 NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in any

application for the Loan submitted to Lender (the "Loan Application") and in all

financial statements, rent rolls, reports, certificates and other documents

submitted in connection with the Loan Application are complete and accurate in

all material respects. There has been no material adverse change in any fact or

circumstance that would make any such information incomplete or inaccurate.

 

      3.28 NO ILLEGAL ACTIVITY AS SOURCE OF FUNDS. No portion of the Mortgaged

Property has been or will be purchased, improved, equipped or furnished with

proceeds of any illegal activity.

 

      3.29 COMPLIANCE WITH ANTI-TERRORISM, EMBARGO, SANCTIONS AND ANTI-MONEY

LAUNDERING LAWS. Borrower, and to the best of Borrower's knowledge, after having

made diligent inquiry, (a) each Person owning an interest in Borrower, (b) each

Guarantor, (c) Manager, and (d) each tenant at the Property: (i) is not

currently identified on OFAC List, and (ii) is not a Person with whom a citizen

of the United States is prohibited to engage in transactions by any trade

embargo, economic sanction, or other prohibition of United States law,

regulation, or Executive Order of the President of the United States. Borrower

has implemented procedures, and will consistently apply those procedures

throughout the term of the Loan, to ensure the foregoing representations and

warranties remain true and correct during the term of the Loan.

 

      3.30 FRAUD AND ABUSE.

 

            (a) ANTI-KICKBACK LAW. After consultation with counsel concerning

the federal anti-kickback law (42 U.S.C.A. SEC. 1320a-7b(b)), neither Borrower

nor its agent have offered or given any remuneration or thing of value to any

person to encourage referral to the facility nor has Borrower or its agent

solicited or received any remuneration or thing of value in exchange for

Borrower's agreement to make referrals or to purchase goods or services for the

Facility.

 

            (b) RELATIONSHIPS. No physician or other healthcare practitioner has

an ownership interest in, or financial relationship with (other than for

rendering services to patient residents), the Borrower, Manager or the Facility.

 

                                       13

<PAGE>

 

            (c) REQUIRED ADJUSTMENTS. With the exception of those cost reports

shown on Schedule 3.30, all cost report periods for all Facility payors have

been closed and settled, and all required adjustments have been fully paid

and/or implemented.

 

       3.31 COMPLIANCE PROGRAM. Borrower has adopted and is adhering to a

compliance program meeting the guidelines published by the Office of the

Inspector General on March 16, 2000, at 65 Fed. Reg. 14289. Borrower's

designated compliance officer is Bob Rice.

 

                                   ARTICLE IV

                        AFFIRMATIVE COVENANTS OF BORROWER

 

      Borrower agrees with and covenants unto Lender that until the Loan

Obligations have been paid in full, Borrower shall:

 

      4.1 PAYMENT OF LOAN/PERFORMANCE OF LOAN OBLIGATIONS. Duly and punctually

pay or cause to be paid the principal and interest of the Note in accordance

with its terms and duly and punctually pay and perform or cause to be paid or

performed all Loan Obligations hereunder and under the other Loan Documents.

 

      4.2 MAINTENANCE OF EXISTENCE. Maintain its existence as a Delaware limited

liability company in good standing under the laws of the jurisdiction of its

organization or formation, and, in each jurisdiction in which the character of

the property owned by it or in which the transaction of its business makes

qualification necessary, maintain good standing and qualification to do

business.

 

      4.3 MAINTENANCE OF SINGLE PURPOSE STATUS. Maintain its existence as a

Single Purpose Entity.

 

      4.4 ACCRUAL AND PAYMENT OF TAXES. During each fiscal year, make accurate

provision for the payment in full of all current tax liabilities of all kinds

including, without limitation, federal and state income taxes, franchise taxes,

payroll taxes, provider taxes (to the extent necessary to participate in and

receive maximum funding pursuant to Reimbursement Contracts), Taxes (as defined

in the Mortgage), all required withholding of income taxes of employees, all

required old age and unemployment contributions, and all required payments to

employee benefit plans, and pay the same when they become due.

 

      4.5 INSURANCE. Maintain, at its expense, the following insurance coverages

and policies with respect to the Mortgaged Property and the Facility, which

coverages and policies must be acceptable to Lender's insurance consultant in

its reasonable discretion:

 

            (a) Comprehensive "all risk" insurance, including coverage for

windstorms and hail, in an amount equal to 100% of the full replacement cost of

the Facility, which replacement cost shall be determined by the "Insurable

Value" or "Cost Approach to Value" reflected in the most recent Lender approved

appraisal for the Facility, without deduction for depreciation. Such insurance

shall also include (i) agreed insurance amount endorsement waiving all

co-insurance provisions, and (ii) an "Ordinance or Law Coverage" endorsement if

the Facility or the use thereof shall constitute a legal non-conforming

structure or use.

 

                                        14

<PAGE>

 

            (b) Commercial general liability insurance against claims for sexual

harassment abuse of residents and/or patients, personal injury, bodily injury,

death or property damage, in or about the Facility to be on a so-called

"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00

in the aggregate with a $5,000,000.00 umbrella coverage.

 

            (c) Professional liability insurance against claims for personal

injury, bodily injury or death, in or about the Facility to be on a so-called

"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00

in the aggregate.

 

            (d) Business interruption income insurance for the Facility in an

amount equal to 100% of the net income plus carrying costs and extraordinary

expenses of the Facility for a period of twelve (12) months as projected based

on Borrower's reasonable estimate thereof as approved by Lender, containing a

90-day extended period of indemnity endorsement, provided that any covered loss

thereunder shall be payable to Lender.

 

            (e) Flood Hazard insurance if any portion of the Improvements is

located in a "flood zone area," as identified in the Federal Register by the

Federal Emergency Management Agency as a 100-year flood zone or "special flood

hazard area" and in which flood insurance is available. In lieu thereof, Lender

will accept proof, satisfactory to it in its sole discretion, that the

Improvements are not within the boundaries of a designated area.

 

            (f) Workers' compensation insurance, if applicable and required by

state law, subject to applicable state statutory limits, and employer's

liability insurance with a limit of $1,000,000.00 per accident and per disease

per employee with respect to the Facility.

 

            (g) Comprehensive boiler and machinery insurance, including property

damage coverage and time element coverage in an amount equal to 100% of the full

replacement cost, without deduction for depreciation, of the Facility housing

the machinery, if steam boilers, pipes, turbines, engines or any other pressure

vessels are in operation with respect to the Facility. Such insurance coverage

shall include a "joint loss" clause if such coverage is provided by an insurance

carrier other than that which provides the comprehensive "all risk" insurance

described above.

 

            (h) During the period of any construction and/or renovation of

capital improvements with respect to the Facility or any new construction at the

Facility, builder's risk insurance for any improvements under construction

and/or renovation, including, without limitation, costs of demolition and

increased cost of construction or renovation, in an amount equal the amount of

the general contract plus the value of any existing purchase money financing for

improvements and materials stored on or off the Property, including "soft cost"

coverage.

 

            (i) If the Facility is located in a seismically active area or an

area prone to geologic instability and mine subsidence, Lender may require an

inspection by a qualified structural or geological engineer satisfactory to

Lender, and at Borrower's expense. The Facility must be structurally and

geologically sound and capable of withstanding normal seismic activity or

geological movement. Lender reserves the right to require earthquake insurance

or Maximum Probable Loss insurance on a case by case basis in amounts determined

by Lender.

 

                                       15

<PAGE>

 

            (j) Such other insurance coverages as may be deemed necessary at any

time during the term of the Loan and as shall be provided within such time

periods as Lender may determine, in each case, in its commercially reasonable

discretion.

 

      All insurance policies shall have a term of not less than one year and

shall be in the form and amount and with deductibles as, from time to time,

shall be acceptable to Lender in its reasonable discretion. All such policies

shall provide for loss payable solely to Lender and shall contain a standard

"non-contributory mortgagee" endorsement or its equivalent relating, among other

things, to recovery by Lender notwithstanding the negligent or willful acts or

omissions of Borrower and notwithstanding (i) occupancy or use of the Facility

for purposes more hazardous than those permitted by the terms of such policy,

(ii) any foreclosure or other action taken by Lender pursuant to the Mortgage

upon the occurrence of an Event of Default thereunder, or (iii) any change in

title or ownership of the Facility.

 

      All insurance policies must be written by a licensed insurance carrier in

the State in which the Facility is located and such insurance carrier must have

a long-term senior debt rating of at least "A" by Standard and Poor's Rating

Service; provided, that if the initial principal balance of the Loan is in

excess of $25,000,000.00, such insurance carrier must have a long-term senior

debt rating of at least "AA" by Standard & Poor's Rating Service.

 

      All liability insurance policies must name "GMAC Commercial Mortgage

Corporation and its successors and/or assigns as their interests may appear" as

additional insureds, and all property insurance policies must name "GMAC

Commercial Mortgage Corporation and its successors and/or assigns" as the named

mortgage holder entitled to all insurance proceeds. Lender shall have the right,

without Borrower's consent, by notice to the insurance company, to change the

additional insured and named mortgagee endorsements in connection with any sale

of the Loan. Notwithstanding anything contained herein, Borrower shall be

entitled to all insurance proceeds covered by and disbursed under the

above-referenced comprehensive all risk insurance policy provided such proceeds

do not exceed $25,000.00 per occurrence.

 

       All insurance policies for the above-required insurance must provide for

thirty (30) days prior written notice of cancellation to Lender.

 

      Policies or binders, together with evidence of the above required

insurance on ACORD Form 27 or its equivalent, must be submitted to Lender prior

to setting the interest rate on the Loan.

 

      With respect to insurance policies which require payment of premiums

annually, not less than thirty (30) days prior to the expiration dates of the

insurance policies obtained pursuant to this Agreement, Borrower shall pay such

amount, except to the extent Lender is escrowing sums therefor pursuant to the

Loan Documents. Not less than thirty (30) days prior to the expiration dates of

the insurance policies obtained pursuant to this Agreement, originals or

certified copies of renewals of such policies (or certificates evidencing such

renewals) bearing notations evidencing the payment of premiums or accompanied by

other evidence satisfactory to Lender of such payment, which premiums shall not

be paid by Borrower through or by any financing arrangement, shall be delivered

by Borrower to Lender at the address set forth in Section 8.7

 

                                       16

<PAGE>

 

hereof and in Exhibit "E" hereto. Borrower shall not carry separate insurance,

concurrent in kind or form or contributing in the event of loss, with any

insurance required under this Section 4.5. If the limits of any policy required

hereunder are reduced or eliminated due to a covered loss, Borrower shall pay

the additional premium, if any, in order to have the original limits of

insurance reinstated, or Borrower shall purchase new insurance in the same type

and amount that existed immediately prior to the loss.

 

      If Borrower fails to maintain and deliver to Lender the original policies

or certificates of insurance required by this Agreement, Lender may, at its

option, procure such insurance and Borrower shall pay or, as the case may be,

reimburse Lender for, all premiums thereon promptly, upon demand by Lender, with

interest thereon at the Default Rate from the date paid by Lender to the date of

repayment and such sum shall constitute a part of the Loan Obligations.

 

      The insurance required by this Agreement may, at the option of Borrower,

be effected by blanket and/or umbrella policies issued to Borrower or to an

Affiliate of Borrower covering the Facility and the properties of such

Affiliate; provided that, in each case, the policies otherwise comply with the

provisions of this Agreement and allocate to the Facility, from time to time,

the coverage specified by this Agreement, without possibility of reduction or

coinsurance by reason of, or damage to, any other property (real or personal)

named therein. If the insurance required by this Agreement shall be effected by

any such blanket or umbrella policies, Borrower shall furnish to Lender original

policies or certified copies thereof, with schedules attached thereto showing

the amount of the insurance provided under such policies which is applicable to

the Facility.

 

      Neither Lender nor its agents or employees shall be liable for any loss or

damage insured by the insurance policies required to be maintained under this

Agreement; it being understood that (a) Borrower shall look solely to its

insurance company for the recovery of such loss or damage, (b) such insurance

company shall have no rights of subrogation against Lender, its agents or

employees, and (c) Borrower shall use its best efforts to procure from such

insurance company a waiver of subrogation rights against Lender. If, however,

such insurance policies do not provide for a waiver of subrogation rights

against Lender (whether because such a waiver is unavailable or otherwise), then

Borrower hereby agrees, to the extent permitted by law and to the extent not

prohibited by such insurance policies, to waive its rights of recovery, if any,

against Lender, its agents and employees, whether resulting from any damage to

the Facility, any liability claim in connection with the Facility or otherwise.

If any such insurance policy shall prohibit Borrower from waiving such claims,

then Borrower must obtain from such insurance company a waiver of subrogation

rights against Lender.

 

      Borrower appoints Lender as Borrower's attorney-in-fact to cause the

issuance of an endorsement of any insurance policy to bring Borrower into

compliance herewith and, as limited above, at Lender's sole option, to make any

claim for, receive payment for, and execute and endorse any documents, checks or

other instruments in payment for loss, theft, or damage covered under any such

insurance policy; provided, however, that in no event will Lender be liable for

failure to collect any amounts payable under any insurance policy.

 

                                       17

<PAGE>

 

      4.6 PROCEEDS OF INSURANCE OR CONDEMNATION. If, after damage to or

destruction of or condemnation of the Mortgaged Property (or any part thereof),

the net Proceeds of insurance or condemnation (after payment of Lender's

reasonable costs and expenses in connection with the administration thereof)

are:

 

            (a) less than Seventy-Five Thousand Dollars ($75,000.00), Lender

shall deliver such proceeds to Borrower to be applied within thirty (30) days

thereafter to the repair, restoration and replacement by Borrower of the

Improvements, Equipment and Inventory damaged, destroyed or taken,

 

      or

 

            (b) Seventy-Five Thousand Dollars ($75,000.00) or more and Lender

agrees, at its option, to make such net Proceeds available to Borrower, Lender

shall make such net Proceeds available to Borrower on the following terms:

 

                  (i) The aggregate amount of all such Proceeds shall not exceed

the aggregate amount of all such Loan Obligations;

 

                  (ii) At the time of such loss or damage and at all times

thereafter while Lender is holding any portion of such Proceeds, there shall

exist no Default or Event of Default;

 

                  (iii) The Improvements, Equipment, and Inventory to which loss

or damage has resulted shall be capable of being restored to its preexisting

condition and utility in all material respects with a value equal to or greater

than that which existed prior to such loss or damage and such restoration shall

be capable of being completed prior to the earlier to occur of (i) the

expiration of business interruption insurance as determined by an independent

inspector or (ii) the Maturity Date;

 

                  (iv) Within thirty (30) days from the date of such loss or

damage Borrower shall have given Lender a written notice electing to have the

Proceeds applied for such purpose;

 

                  (v) Within sixty (60) days following the date of notice under

the preceding subparagraph (iv) and prior to any Proceeds being disbursed to

Borrower, Borrower shall have provided to Lender all of the following:

 

                        (A) complete plans and specifications for restoration,

repair and replacement of the Improvements, Equipment and Inventory damaged to

the condition, utility and value required by (iii) above,

 

                        (B) if loss or damage exceeds One Hundred Thousand

Dollars ($100,000), fixed-price or guaranteed maximum cost bonded construction

contracts for completion of the repair and restoration work in accordance with

such plans and specifications,

 

                        (C) builder's risk insurance for the full cost of

construction with Lender named under a standard mortgagee loss-payable clause

 

                                       18

<PAGE>

 

                        (D) such additional funds as in Lender's reasonable

opinion are necessary to complete such repair, restoration and replacement, and

 

                        (E) copies of all permits and licenses necessary to

complete the work in accordance with the plans and specifications;

 

                  (vi) Lender may, at Borrower's expense, retain an independent

inspector to review and approve plans and specifications and completed

construction and to approve all requests for disbursement, which approvals shall

be conditions precedent to release of Proceeds as work progresses;

 

                  (vii) No portion of such Proceeds shall be made available by

Lender for architectural reviews or for any other purposes which are not

directly attributable to the cost of repairing, restoring or replacing the

Improvements, Equipment and Inventory to which a loss or damage has occurred

unless the same are covered by such insurance;

 

                  (viii) Borrower shall diligently pursue such work and shall

complete such work prior to the earlier to occur of the expiration of business

interruption insurance or the Maturity Date;

 

                  (ix) Each disbursement by Lender of such Proceeds and deposits

shall be funded subject to conditions and in accordance with disbursement

procedures which a commercial construction lender would typically establish in

the exercise of sound banking practices and shall be made only upon receipt of

disbursement requests on an AIA G702/703 form (or similar form approved by

Lender) signed and certified by Borrower and, if required by Lender, its

architect and general contractor with appropriate invoices and lien waivers as

required by Lender; and

 

                  (x) Lender shall have a first lien on and security interest in

all building materials and completed repair and restoration work and in all

fixtures and equipment acquired with such Proceeds, and Borrower shall execute

and deliver such mortgages, deeds of trust, security agreements, financing

statements and other instruments as Lender shall request to create, evidence, or

perfect such lien and security interest.

 

      In the event and to the extent that such Proceeds are Seventy-Five

Thousand Dollars ($75,000.00) or more and are not required to be used for the

repair, restoration and replacement of the Improvements, Equipment and Inventory

to which a loss or damage has occurred, or, if the conditions set forth herein

for such application are otherwise not satisfied, then Lender shall be entitled

without notice to or consent from Borrower to apply such Proceeds, or the

balance thereof, at Lender's option either (a) to the full or partial payment or

prepayment of the Loan Obligations (without premium) in the manner aforesaid or

(b) to the repair, restoration and/or replacement of all or any part of such

Improvements, Equipment and Inventory to which a loss or damage has occurred.

Any excess Proceeds after such application by Lender shall be paid to Borrower.

 

      4.7 FINANCIAL AND OTHER INFORMATION. Provide Lender, and cause Guarantor

and Manager to provide to Lender, at its address set forth in Section 8.7 and at

GMAC Commercial

 

                                       19

<PAGE>

 

Mortgage Corporation, 2200 Woodcrest Place, Suite 305, Birmingham, Alabama

35209, the following financial statements and information on a continuing basis

during the term of the Loan:

 

            (a) Within one hundred twenty (120) days after the end of each

fiscal year of the Guarantor, audited financial statements prepared in

accordance with GAAP by a nationally recognized accounting firm or independent

certified public accounting firm acceptable to the Lender, which statements

shall include a balance sheet and a statement of income and expenses for the

year then ended. In lieu of its obligations hereunder, Guarantor may submit to

Lender, upon its filing thereof, a copy of its Form 10-K as filed with the

United States Securities and Exchange Commission.

 

            (b) Within one hundred twenty (120) days after the end of each

fiscal year of the Facility and Borrower (if different from the Facility)

unaudited financial statements of the operations of the Facility, internally

prepared in accordance with GAAP, and shall include a balance sheet and a

statement of income and expenses for the year th